NextEnergy Solar Regulatory News (NESF)

LEI: 213800ZPHCBDDSQH5447

19 June 2023

NextEnergy Solar Fund Limited

("NESF" or the "Company")

Full Year Results for period ended 31 March 2023

Portfolio continues to outperform, 11% dividend target increase

well placed to deliver shareholders attractive, inflation-protected income

NextEnergy Solar Fund, the specialist solar+ fund, is pleased to announce it has today published its full year results as at 31 March 2023.

Financial Highlights:

Net Asset Value ("NAV") and Capital Position:

· NAV per ordinary share increased to 114.3p (31 March 2022, as reported: 113.5p).

· Ordinary shareholders' NAV increased to £674.4m (31 March 2022, as reported: £668.5m).

· Ordinary shareholder annualised total return for the year of 8.6% (31 March 2022: 11%).

· Earnings per ordinary share of 8.2p (31 March 2022: 21.7p).

· Total gearing (including preference shares) of 45% (31 March 2022: 42%).

· Weighted average cost of capital of 5.7% (31 March 2022: 5.3%).

· Weighted average discount rate of 7.3% (31 March 2022: 6.3%).

Dividend:

· Total dividend of 7.52p per ordinary share declared for the period (31 March 2022: 7.16p).

· Cash dividend cover for the period 1.4x (31 March 2023: 1.2x).

· 11% dividend target increase to 8.35p per ordinary share for the financial year ending 31 March 2024.

· Forecasted target cash dividend cover of 1.3x-1.5x, of which 1x-1.1x is from fixed revenues for the financial year ending 31 March 2024.

· Total dividends declared since IPO of £305.8m or 55.72p per share.

Strategic Highlights:

· Announced NESF's Capital Recycling Programme, to deliver long-term sustainable value to shareholders by committing to sell a 236MW subsidy-free portfolio, the proceeds of which will be used to reduce gearing, provide optionality on future higher yielding investment opportunities, and potentially to buy back shares.

· Launched NESF's Energy Storage Strategy, setting out the compelling rationale behind the Company's intention to raise its investment limit in energy storage from 10% to 25% of Gross Asset Value.

· Formed Two Joint Venture Partnerships with Eelpower Limited, a specialist in the battery sector, to advance the Company's position in the UK energy storage sector, targeting a £300m pipeline of UK energy storage opportunities.

· Announced a Retrofit Programme to add co-located battery storage assets to the Company's existing solar assets.

ESG Highlights:

· Classified as an Article 9 Fund under the EU Sustainable Finance Disclosure Regulation and EU Taxonomy Regulation.

· Powered an estimated 242,000 UK homes for the period (31 March 2022: 216,300). 

· Generated 870GWh of clean electricity during the period, contributing to the avoidance of 363,000 tonnes of CO2e emission (31 March 2022: 773GWh, 328,700 tonnes of CO2e)

· Released first standalone sustainability report, which highlights NESF's contribution to biodiversity, climate change and ethical supply chains through its operations.

· Released a biodiversity position statement that underpins the biodiversity approach for the fund.

· Became forum members of the Taskforce on Nature-related Financial Disclosures ("TNFD") to go above and beyond the Company's sustainability reporting requirements, alongside commitment to disclose under the new TNFD framework.

Portfolio Highlights:

· Total installed operating capacity of 889MW1 (31 March 2022: 884MW). 

· 99 operating solar assets (31 March 2022: 99).

· Portfolio generation outperformance of +3.8% (31 March 2022: 1.8%) against budget for twelve months ended 31 March 2023, translating into additional revenues of c.£4.8m (31 March 2022: c.£2.0m).

· A $50m investment into a private solar infrastructure fund, NextPower III ESG, targeting IRR's of between 13-15%.  To date, NextPower III ESG has acquired 1.8GW made up of 149 individual solar projects across the USA, Chile, Portugal, Spain, Greece, Poland, and India. This investment provided NESF with instant international solar exposure and unlocked unique solar co-investment opportunities alongside some of the largest institutional investors in the world.

· Two solar co-investments totalling 260MW alongside NextPower III ESG, (a 13% stake into a 210MW solar asset in Portugal and a 25% stake into a 50MW solar asset in Spain).

· Initiated construction of the Company's first standalone 50MW battery storage project, due to be energised this year.

· Acquired the development rights for a high-quality 250MW lithium-ion battery storage project in the East of England.

· Remaining weighted average useful life of 26.3 years (31 March 2022: 27.3 years).

Footnote:

(1) Includes 6.21% share in private equity vehicle (NextPower III ESG). As at 31 March 2023, share of NextPower III ESG increases total installed capacity by 24MW (2022: 19MW) to 889MW (2022: 884MW).

Kevin Lyon, Chairman of NextEnergy Solar Fund Limited, commented:

"The twelve months to 31 March 2023 were a productive period as the Company made strong

progress across various strategic initiatives announced during the year to generate value and

provide future growth for investors.

It is a real testament to the Company's performance during the period that we were able to announce an 11% dividend target increase to 8.35p per share, which remains well covered as one of the largest dividend increases in the peer group.

Looking forward, the Board and I were delighted to welcome Helen Mahy as a Non-Executive Director and NESF Chair-elect, a vital component of succession planning. As my last full year results for the Company before stepping down from the Board, I would like to give personal thanks for the support from colleagues and investors alike over the years, and I leave feeling extremely proud of what NESF has achieved since IPO and of the bright future it has in continuing to supply clean energy to the benefit of all our stakeholders."

Michael Bonte-Friedheim, CEO of NextEnergy Group said:

"The last twelve months has seen rising inflationary pressure, economic uncertainly, and increased interest rates, and NESF was well positioned to mitigate risks and capture elevated power prices during this period, whilst providing vital low-cost of production power generation to the UK.

The Company announced key strategic initiatives during the year, such as the capital recycling programme and the energy storage strategy, to capture value and reposition the portfolio for the next stage of its evolution. This is truly an exciting time for the Company as it prepares for its next wave of growth and expansion into energy storage, and NextEnergy Capital, as the Company's investment adviser and manager, has the right skillset and track record to deliver this whilst adding value for NextEnergy Solar Fund investors. NESF remains well placed to deliver shareholders an attractive, inflation-protected income, and currently offers an attractive share price entry point for investors."

Full Year Results Presentation

The Company will stream its full year results presentation this morning via the London Stock Exchange Spark Live platform, where it is accessible to all investors and analysts. The presentation will be followed by a Q&A session, questions can also be submitted prior to the presentation via email to ir@nextenergysolarfund.com. NextEnergy Capital will endeavour to answer submitted questions during the Q&A session. If this is not possible due to time constraints, the investment adviser will follow up separately after the presentation.

The presentation will be hosted by:

· Michael Bonte-Friedheim (CEO and Founder of NextEnergy Group, Investment Adviser)

· Ross Grier (COO and Head of UK Investments, Investment Adviser)

Presentation details and registration link:

· Time: 9:30am (BST)

· Date: Monday 19 June 2023

· Registration and Webcast link: NextEnergy Solar Fund Full Year Results Presentation

A recording of the presentation will also be made available on the Company's website shortly after the event.

Dividend Target

The Board of NESF has approved a dividend target of 8.35p per ordinary share for the financial year ending 31 March 2024, representing an 11% increase from the previous year's dividend of 7.52p per ordinary share. The dividend target is forecasted to be 1.3x-1.5x covered, of which 1x-1.1x is from fixed revenues, supported by the high degree of visibility of the Company's revenues. The dividend target increase is not dependent on completion of the Company's recently announced Capital Recycling Programme and dividend cover forecasts do not assume revenues from, or sale proceeds connected with, the Capital Recycling Programme.

Capital Recycling Strategy

The Company announced its Capital Recycling Programme (the "Programme") on 27 April 2023 to accelerate the next phase of the Company's growth. Through the Programme, the Company aims to capture value from the divestment of a 236MW portfolio of subsidy-free UK solar assets, the proceeds from which will be used to:

· Reduce gearing: reduce current drawings of the Company's revolving credit facilities ("RCF");

· Invest in future long-term growth opportunities: provide flexibility to capture higher returning investment opportunities in the future, such as energy storage; and

· Buyback shares: establish a share buyback programme in the future if the share price continues to trade at a material discount to the Company's net asset value per share.

To capture the significant value of these solar assets, NESF has initiated this Programme to divest a portfolio of five subsidy-free assets (Hatherden, Whitecross, Staughton, The Grange, and South Lowfield) and has launched a sales process to find buyers for these assets, over the coming months. The Programme is expected to deliver NAV accretive returns by realising the value generated through these investments.

Breakdown of 236MW subsidy-free portfolio:

The Company will retain two operational subsidy-free assets and remains committed to its remaining subsidy-free solar pipeline.

Energy Storage Strategy

On 22 February 2022, the Company announced its Energy Storage Strategy providing details on how it will take advantage of energy storage opportunities in the UK to complement and diversify the Company's existing large portfolio of 99 solar assets. Energy storage is a complementary technology to the existing large solar portfolio which provides access to additional and diversified opportunities to derive value delivering attractive returns. The market environment continues to be favourable for the Company to increase its allocation to energy storage within the portfolio. The Company is confident in its ability to successfully deliver energy storage and continues to benefit from its investment adviser's experience and track record in securing import capacity and in realising operational assets and unlocking optionality in existing solar assets.

The Company actively engaged with investors around its ambition to increase the Company's energy storage investment policy limit from 10% of Gross Asset Value to 25%, where conversations remain positive and supportive. A further update will be provided to the market over the coming months.

The Company continues to demonstrate its expansion into energy storage through its strong relationship with Eelpower Limited ("Eelpower"), which has provided the Company with access to leading expertise in the energy storage industry, targeting £300m of energy storage investments through the Joint Venture Partnerships.

Joint Venture Partnership breakdown:

Net Asset Value

Twelve-month Net Asset Value bridge:

Inflation Linkage and Updates

The Company continues to take a consistent approach to its inflation assumptions, using external third-party, independent inflation data from HM Treasury Forecasts and long-term implied rates from the Bank of England for its UK assets. For international assets, IMF forecasts are used.

Inflation Rate (UK RPI) Assumptions

Discount Rate Assumptions

Footnotes:

(1) Unlevered discount rate for Italian operating assets implying 1.50% country risk premium.

(2) Unlevered discount rate for subsidy-free uncontracted operating assets implying 1.0% risk premium.

(3) 1.0% risk premium for cash flows after 30 years where leases have been extended.

Power Sales Strategy

To manage the sale of power into the electricity market, the Company utilises its investment adviser's specialist power sales desk. This team actively manages the Company's power price contracting strategy and activities. In the current environment, the power sales desk has enabled the Company to mitigate market price volatility whilst incrementally growing weighted average prices through forward hedging above forecast prices. Aggregating the amount of revenue derived from subsidies and the power hedges, the Company has a high degree of comfort around forward revenue projections underpinning dividend cover for the current financial year. Given the high degree of contracted revenues in future years, the Company is confident in its ability to continue to provide investors with a well-covered dividend going forward.

In addition to NESF's budgeted revenues from ROCs and FITs (c.50%), the Company's hedging positions (covering its 716MW UK portfolio) as at 1 June 2023 were:

Available Capital

Out of the total £205m immediate Revolving Credit Facilities available to the Company, c.£39m remains undrawn and available for deployment as at 31 March 2023. The Company also has c.£14m immediate cash balance available at Fund level (this is separate from the cash currently held at Holdco/SPV level). In addition, the Company actively assesses capital deployment options as part of ongoing optimisation of the composition of the portfolio.

Future Pipeline

The Company has exclusivity over, or owns the project rights for, the majority of its pipeline of c.£500m domestic and international solar and energy storage assets. This includes ownership of the development rights for a high-quality 250MW lithium-ion battery storage project in the East of England, which when approved and constructed will be one of the UK's largest operational standalone battery storage assets.

Annual Report

The 31 March 2023 annual report and quarterly factsheet are now available on the Company's website.

Notes to Editors1:

About NextEnergy Solar Fund

NESF is a specialist solar+ fund listed on the premium segment of the London Stock Exchange and is a constituent of the FTSE 250. NESF's investment objective is to provide ordinary shareholders with attractive risk-adjusted returns, principally in the form of regular dividends, by investing in a diversified portfolio of utility-scale solar energy and energy storage infrastructure assets. The majority of NESF's long-term cash flows are inflation-linked via UK government subsidies. 

The NESF portfolio has a combined installed power capacity of 865MW (excluding NextPower III MW on an equivalent look-through basis). NESF may invest up to 30% of its gross asset value in non-UK OECD countries, 15% in solar-focused private infrastructure funds, and 10% in energy storage assets. As at 31 March 2023, the Company had an audited gross asset value of £1,218m. For further information on NESF please visit www.nextenergysolarfund.com

Article 9 Fund

NESF is classified under Article 9 of the EU Sustainable Finance Disclosure Regulation and EU Taxonomy Regulation. NESF's sustainability-related disclosures in the financial services sector in accordance with Regulation (EU) 2019/2088 can be accessed on the ESG section of both the NESF & NEC website.

About NextEnergy Group

NESF is managed by NextEnergy Capital, part of the NextEnergy Group. NextEnergy Group was founded in 2007 to become a leading market participant in the international solar sector. Since its inception, it has been active in the development, construction, and ownership of solar assets across multiple jurisdictions. NextEnergy Group operates via its three business units: NextEnergy Capital (Investment Management), WiseEnergy (Operating Asset Management), and Starlight (Asset Development).

· NextEnergy Capital: Has over 16 years specialist solar expertise having invested in over 350 individual solar plants across the world. NextEnergy Capital currently manages four institutional funds with a total capacity in excess of 2.4GW+ and has asset under management of $3.3bn.  www.nextenergycapital.com

· WiseEnergy®:  Provides solar asset management, monitoring and technical due diligence services to over 1,350 utility-scale solar power plants with an installed capacity in excess of 1.8GW. WiseEnergy clients comprise leading banks and equity financiers in the energy and infrastructure sector.  www.wise-energy.com

· Starlight: Has developed over 100 utility-scale projects internationally and continues to progress a large pipeline of c.10GW of both green and brownfield project developments across global geographies.

Notes:

1: All financial data is audited at 31 March 2023, being the latest date in respect of which NESF has published financial information

Annual Report

for the year ended 31 March 2023

Our Objectives

Investment Objective

To provide ordinary shareholders with attractive risk-adjusted returns, principally in the form of regular dividends, through a diversified portfolio of solar energy infrastructure assets with the addition of complementary technologies, such as energy storage.

Strategic Objectives

Investment

Expand and strengthen the portfolio in line with the Company's Investment Policy.

Enhance growth and diversification through the introduction of solar+ technologies (such as energy storage) and international solar assets.

Operational

Consistently achieve operational outperformance of the portfolio through active asset management.

Pursue continuous improvement in the management of operating costs associated with the portfolio.

Environmental

Contribute towards a net zero sustainable future and help mitigate climate change.

Enhance local biodiversity in the areas where we operate.

Social

Provide a positive social impact.

Contribute to lowering power prices in the UK and other markets where we operate by increasing energy supplied to the energy market.

Continue to actively engage with and support the communities located close to our solar assets.

Governance

Act in a manner consistent with our values of integrity, fairness and transparency.

Maintain strong and constructive relationships with our shareholders and other key stakeholders.

NextEnergy

Solar Fund Overview

A specialist solar+ fund listed on the premium segment of the London Stock Exchange and a constituent of the FTSE 250

Provides shareholders with attractive risk-adjusted returns, principally in the form of regular dividends, by investing in a diversified portfolio of utility-scale solar energy and energy storage infrastructure assets

Managed by solar specialists:

• NextEnergy Capital, Investment Adviser

• WiseEnergy, Asset Manager

Both leading managers in the solar energy infrastructure sector

Diversified portfolio:

• 99 operating solar assets

• 1 International private equity solar fund investment

• 2 European solar co-investments

• 2 joint venture partnerships into UK standalone energy storage

Powering the equivalent of 242,000 homes (equivalent to Nottingham and Brighton combined) with renewable energy for the year

Continuous asset outperformance since IPO

Performance Highlights

Financial Highlights1

1 Refer to the Alternative Performance Measures for calculation basis

2 Financial debt gearing excludes the £200m preference shares on a look through basis

3 Total gearing is the aggregate of financial debt, look through debt and £200m of preference shares. The preference shares are equivalent to non-amortising debt with repayment in shares

4 www.greeninvestmentgroup.com/green-impact/green-investment-handbook

5 Excluding share in private equity vehicle (NPIII LP). Inclusion of NESF's 6.21% share of NPIII LP on a look through equivalent basis would increase total capacity by 24MW (2022: 19MW) to 889MW (2022: 884MW)

6 Excluding the $50m commitment into private equity vehicle (NPIII LP)

Why Invest in NextEnergy Solar Fund?

RELIABLE INVESTMENT WITH ATTRACTIVE GROWTH PROSPECTS

• Provides a regular attractive dividend for income-seeking investors.

• Offers a natural hedge against inflation with a high proportion of regulated revenues linked to RPI.

• Large diversified operating portfolio with incremental growth prospects through the introduction of complementary technologies, such as energy storage.

PROVEN AND STABLE TECHNOLOGY

• Reliable and predictable source of electricity due to high consistency in yearly irradiation and minimal moving parts.

• Long useful life (25-40 years) with high proportion of contracted cash flows from operating solar assets.

ABUNDANT CLEAN ENERGY SOURCE

• Enough solar energy hits the Earth in a single hour to power the energy needs of the entire human population for a year.

• Provides increased energy independence and security.

COST-EFFECTIVE ELECTRICITY GENERATION

• Active portfolio management provides prudent cost of operation, maintenance and replacement of assets.

• Solar is one of the cheapest forms of renewable energy generation and quickest to construct.

CLIMATE CHANGE SOLUTION

• Fundamental to achieving a more sustainable future by accelerating the transition to clean and sustainable energy.

• Meaningful contribution to reducing CO2 emissions through the generation and storage of clean electricity, reducing reliance on fossil fuels across the grid.

• Investment in solar provides significant biodiversity benefits to the communities that surround our assets.

Chairman's Statement

"The twelve months to 31 March 2023 were a productive period as the Company made significant progress across various strategic initiatives announced during the year to generate value and provide future growth for investors, whilst maintaining a well-covered and attractive dividend.

Elevated energy prices, inflation rates and NESF's portfolio outperformance contributed to generating additional revenue for the Company, with NAV growing to £674m, a successful result in the face of the UK Government's Electricity Generator Levy, high interest rates and an uncertain UK energy policy.

NESF's expansion into energy storage saw construction work started at the Company's first stand-alone 50MW battery storage project in Fife, Scotland, due to be energised in the summer of 2023. The Company also acquired the development rights for one of the UK's largest lithium-ion battery storage projects in the East of England at 250MW. The Company actively engaged with investors over the period regarding an increase in its energy storage investment policy limit from 10% of GAV, up to 25%, with the view to increasing this limit later in the year through a vote by shareholders.

Since year end, the Company was the first in the renewables sector to announce a capital recycling programme to accelerate the next phase of the Company's growth. The programme aims to capture significant value from the divestment of a 236MW portfolio of subsidy-free UK solar assets, the proceeds from which will be used to reduce gearing in the short-term, buyback shares to control the Company's current discount if appropriate and lock in optionality for long-term growth opportunities.

The Board and I were delighted to welcome Helen Mahy to the Board of NESF as Chair-elect, a vital component of the Boards succession planning. Helen brings extensive experience in the renewables space and from her role as Chair of The Renewables Infrastructure Group, and I have every confidence that Helen will continue to lead NESF to success in the future.

In a year where the importance of affordable energy was brought to the forefront of everyone's minds, NESF's purpose has never felt so relevant. In recognition of the immediate challenges faced by many across the UK, NESF is supporting those in fuel poverty via its donation to the NextEnergy Foundation ("NEF"). The Company's portfolio continues to contribute towards UK energy security and reduce the impacts of volatile global energy markets on domestic consumers.

As my last statement before stepping down from the Board, I would like to give personal thanks for the support from colleagues and investors alike over the years, and I leave feeling extremely proud of what NESF has achieved since IPO and of the bright future it has in continuing to supply clean energy to the benefit of all our stakeholders."

I am pleased to present the ninth Annual Report for NextEnergy Solar Fund Limited (the "Company", "Fund" or "NESF") for the year ended 31 March 2023.

The Company's performance has been strong throughout the year, despite significant volatility and economic uncertainty. The Company has benefited from elevated power prices and inflation rates that were higher than anticipated. This was combined with outperformance from its existing portfolio of operational assets and progression of a diverse pipeline of solar and battery storage projects currently under development or construction. Furthermore, the Board is delighted that NESF was promoted back to the FTSE 250 index on 16 September 2022, which reflects the resilience of the Company.

Despite many ongoing challenges, the current environment presents a very attractive backdrop for investment in clean energy infrastructure. Increased deployment of renewables is integral to energy independence and security in the UK and globally, the benefits of which are reduced reliance on volatile global power markets and, in turn, reduced costs for consumers. As renewable energy generation capacity increases on the grid there is need for battery storage to bring about stability and flexibility and the company has taken important steps in this space over the period.

Governments around the world continue to drive forward their net zero targets and the production of renewable energy is playing a key role in helping to achieve these ambitions. Indeed, strategies recently published by the UK Government, such as Powering Up Britain and the Green Finance Strategy, clearly outline its goals to support deployment of solar and energy storage capacity. Furthermore, in line with the Independent Review of Net Zero recommendations, the Government plans to develop and publish a solar roadmap to 2035 to support the significant increase in deployment needed to achieve its 70GW ambition. NESF is in a strong position to contribute to these strategies, providing an alternative to fossil fuels, and capitalise on the opportunities associated with the energy transition in the UK and across Europe.

On 12 May 2023, the Board disclosed to the market that the Company had identified an issue with automated reports, which had led to overstatements of the NAV by up to 2.7p. It is important to note that this was not an issue within the accounting system and it had no impact on the cash flow generated by the business or on its dividend cover. As part of the Board's review, the Audit Committee worked with the Investment Adviser to conduct a full investigation of this issue. The Board is satisfied that this was an isolated incident and has agreed a number of additional steps to further strengthen controls.

The Company's Net Asset Value ("NAV") has remained strong throughout the year, growing to £674.4m (31 March 2022: £668.5m) over the 12 months, even when accounting for the government's Electricity Generator Levy ("EGL"). The combined impact of interest rate increases and uncertainty surrounding UK energy policy amongst other macroeconomic factors has led to the share price trading at a discount to the NAV for a sustained period, offering an attractive entry point for potential investors.

During the year, the Company published its first standalone sustainability report. The report goes beyond the Company's immediate sustainability obligations by providing in-depth details on the Company's sustainability journey, its proprietary approach to biodiversity, and its industry leading ESG initiatives. These deliver a real environmental and social impact. Going forward, the Company intends to publish its sustainability report on an annual basis.

For the year ended 31 March 2023, the Ordinary Shareholder Total Return was 8.6% (31 March 2022: 11.0%) and the Ordinary Shareholder NAV total return was 7.3% (31 March 2022: 22%). The NESF portfolio has continued to outperform budgeted generation, whilst continuing to deliver on its electricity sales strategy to remove short term price volatility and strengthen the Company's dividend cover.

Since IPO, NESF has made a material difference to the UK energy landscape, growing a portfolio of renewable assets of 865MW capacity that has generated a total of 4.9 TWh of clean energy, supporting global net zero goals and generated value to our shareholders. As at 31 March 2023, the annualised Ordinary Shareholder Total Return since IPO was 7.0% (31 March 2022: 6.7%) and the annualised Ordinary Shareholder Net Asset Value ("NAV") total return since IPO was 8.0% (31 March 2022: 8.0%).

The Company has been a pioneer in UK Solar Infrastructure and will continue to define the future of renewable energy as it explores new geographies and technologies. The Company is in a strong position to continue to be a market leader in renewables whilst generating further positive environmental and social impact.

Board Succession Planning

Following the year end, NESF appointed Helen Mahy to the Board of Directors as a non-executive Director and Chair Designate. The board is delighted to welcome Helen to NESF and is looking forward to benefiting from her wealth of experience in the renewable energy and infrastructure sectors. Helen has previously served as Group General Counsel and more recently as Chair of The Renewables Infrastructure Group where she served her full nine-year tenure. Helen will stand for election as Chair of NESF from the next AGM in August 2023.

Results and Key Events

The Company has made progress towards its growth goals whilst continuing to offer financial stability during the year. NextEnergy Capital Limited (the "Investment Adviser"), continues to provide dedicated support to the Company. During the year ended 31 March 2023, the Company made significant progress across a range of areas.

To advance its position in battery energy storage, the Company:

• Started construction on the Company's first battery storage project (50MW) in Fife, Scotland through a Joint Venture Partnership ("JVP1") with energy storage specialist EelPower Limited ("EelPower"). The project subsequently achieved selection in the UK Government's latest Capacity Market Auction which secured a proportion of its revenues following energisation and grid-connection in the second half of 2023;

• Advanced its position in the energy storage sector through a 75% stake in the new £200m Joint Venture Partnership with EelPower ("JVP2");

• Acquired the development rights for a high-quality 250MW lithium-ion battery storage project in the East of England through JVP2 for £32.5m; and

• Commenced a co-located battery retrofit programme, identifying potential sites across NESF's current UK operating solar portfolio.

To progress its UK and international solar PV pipeline, the Company:

• Signed its second international co-investment with NPIII LP taking a 13.6% stake in a 210MW solar project currently under construction in Santarém, Portugal; and

• Commenced construction works for Whitecross (36MW) and grid connection preparation works for Hatherden (50MW) and secured Contracts for Difference ("CfD") for 100% of the generating capacity of both these new-build UK solar projects.

To deliver value for shareholders, the Company:

• Achieved a dividend cover of 1.4x for the year ended 31 March 2023;

• Continues to engage with investors positively to increase the Company's energy storage investment policy limit from 10% of Gross Asset Value up to 25%;

• Continued to implement its electricity sales strategy to increase the certainty of revenue streams by locking in strong pricing whilst reducing power price volatility; and

• Secured a £60m increase to its existing £75m Revolving Credit Facility ("RCF") with AIB Group (UK) p.l.c. ("AIB") & NatWest, in addition to signing a two-year extension to its £70m RCF with Santander UK to fund the investment pipeline.

To demonstrate its environmental and social impact, the Company:

• Gained classification under Article 9 of the EU Sustainable Finance Disclosure Regulation and EU Taxonomy Regulation; and

• Released its first standalone sustainability report, which highlights NESF's contribution to biodiversity, climate change and ethical supply chains through its operations.

Following the year ended 31 March 2023, the Company:

• Announced a capital recycling programme and initiated the process for the sale of five UK subsidy-free assets;

• Formally welcomed Helen Mahy CBE to the Board of Directors as a non-executive Director; and

• Announced a long-term Power Purchase Agreement ("PPA") was signed with Statkraft, a leading renewable producer in Europe's energy market, for its international solar co-investment named Santarém.

Increased Dividend Target

In May 2023, the Board of NESF approved a target dividend increase of 11% to 8.35 pence per ordinary share for the year ending 31 March 2024. NESF continues to maintain a progressive annual dividend policy, and when appropriate, the Board considers increasing the target dividend paid to shareholders. To date, the Board has increased the target dividend every year since the Company listed in 2014 with all annual dividend targets successfully being achieved whilst remaining well-covered.

Capital Recycling Programme

In April 2023, the Board announced a capital recycling programme to accelerate the next phase of the Company's growth. Through the programme, the Company aims to capture significant value from the divestment of a 236MW portfolio of subsidy-free UK solar assets, the proceeds from which will be used to:

• Reduce gearing in the short term to materially reduce current drawings of the Company's revolving credit facilities ("RCF"). Given the significant increase in interest rates in recent months, the Board anticipates using net proceeds from the programme to reduce the amount of drawn RCF where the Company has exposure to the high interest rate environment in the near term. The reduction in gearing will reduce debt service burden, strengthen free cash flows, and further increase dividend cover.

• Secure optionality for future long-term growth opportunities providing flexibility to capture higher returning investment opportunities in the future, such as energy storage. The net proceeds of the Programme will also create capacity for the Company to position itself for its next phase of growth, including into value-accretive energy storage. The Company has exclusivity over, or owns the project rights for, the majority of its pipeline of c.£500m UK and international assets across the solar and energy storage space. This includes ownership of the development rights for a high-quality 250MW lithium-ion battery storage project in the East of England, which when constructed will be one of the UK's largest operational standalone battery storage assets.

• Buyback shares to control the discount if the share price continues to trade at a material discount to the Company's NAV per share. The Board operates robust discount monitoring and management controls and has noted the prolonged period over which the Company's shares have been trading at a discount to its NAV. The Board continues closely to monitor the current discount and confirms its commitment to buy back shares if the share price continues to trade at a material discount to the Company's net asset value per share.

The Company continues to run a competitive sales process on the five subsidy-free assets that are being sold (breakdown below) and we look forward to updating the market on our progress shortly.

Table breakdown of 236MW subsidy-free portfolio:

Battery Storage Mandate Increase

NESF has been investing in energy storage projects since 2018 and has built up considerable expertise in managing energy storage assets and running them in conjunction with solar plants. NESF is also progressing projects to retrofit energy storage assets onto its existing assets where feasible.

NESF intends to expand its energy storage activities later in the year having consulted with investors over the period. The Company aims to increase its limit in standalone energy storage from 10% of the Gross Asset Value ("GAV"), up to 25%, with all other policy limits remaining the same.

This increase will enable NESF to take advantage of existing energy storage opportunities in the UK via its relationship with EelPower Ltd, which will complement and diversify NESF's existing large portfolio of solar assets.

Standalone Battery Storage Progress

The Company's first 50MW battery storage project, known as Camilla, is currently under construction in Fife, Scotland. The project will initially operate at one hour duration. The Company intends to increase the duration of the project to two hours and current construction works include the infrastructure necessary for that extension.

The project was sourced last year through a Joint Venture Partnership vehicle ("JVP1") with Eelpower Limited ("Eelpower") worth £100m. JVP1 was announced last year and is owned 70% by NESF and 30% by Eelpower. During the year, Camilla was selected to provide battery storage capacity in the UK Government's latest Capacity Market Auction.

In September 2022, the Company announced that it had advanced its position in the energy storage sector through a new £200m JVP2 with Eelpower. JVP2 reflects the successful relationship built with Eelpower, offering enhanced terms by increasing NESF ownership to 75%, with Eelpower holding the remaining 25%. The Company has since announced its first investment through JVP2, the development rights for a high-quality 250MW lithium-ion battery storage project in the East of England, one of the largest energy storage projects announced in the UK to date. The project will take the total current announced standalone battery storage projects in the portfolio to 300MW.

The recent developments in battery storage, including Camilla's success in the Capacity Market Auction, exemplifies the importance of deploying energy storage at scale in conjunction with solar and other grid-scale renewable technologies, strengthening the UK's energy security and supporting the transition to a net-zero carbon economy. The Company's growth strategy anticipated this evolution of the market and the Company has well-developed plans to introduce additional energy storage into its portfolio.

Co-Located Battery Storage Progress

In April 2022, NESF announced a new co-located battery storage retrofit programme across the Company's UK operating solar farms. As part of this programme the first site for a co-located battery project was identified, extending the existing 11MW North Norfolk solar farm to include a 6MW/12MWh battery system. Planning permission for the co-located battery system has been secured and the Company is in discussions with the local Distribution Network Operator ("DNO") to confirm an energisation date. An additional four potential locations for co-located battery storage systems have been identified to date and are being progressed into their development stage.

Generating Value from UK Solar

Since IPO, the Company has been a market leader in capturing value from UK solar. The market continues to evolve significantly over time and, since 2019, the Company has pursued a portfolio of subsidy-free projects, to which it has added significant value. The success of the Company's subsidy-free portfolio demonstrates its ability to respond efficiently and effectively to a changing UK solar market through its expertise in identifying opportunities and maximising risk-adjusted returns.

During the year ended 31 March 2023, the Company commenced grid connection works and construction mobilisation phase at Hatherden, a 50MW subsidy-free solar farm. The Company also commenced construction of Whitecross, a 36MW utility solar asset, located in Lincolnshire. The original construction date of the asset was deferred from H2 2021 due to supply chain risks post Covid-19 which have been sufficiently addressed.

Whitecross and Hatherden have also been selected to be part of the fourth CfD Allocation Round (AR4). The CfDs last for 15-years, are index linked to inflation (CPI) annually, and are scheduled to commence from 31 March 2025 at the AR4 solar PV strike price of £45.99/MWh (set in 2012 equivalent prices). Through its capital recycling programme, NESF intends to cystalise the value it has created for shareholders through these assets.

During the year, NESF also added a 0.18MW commercial rooftop solar asset, Holiday Inn, to its portfolio. It is part of an agreement made with the renewable energy developer, Zestec. The asset is located on a Holiday Inn hotel in Nottinghamshire and benefits from an attractive 25-year PPA for 100% of its generated volume.

Capturing Co-Investments Opportunities

Through its investment in NextPower III ESG ("NPIII LP"), a NextEnergy Capital managed private equity solar infrastructure fund that invests in OECD markets globally, NESF benefits from international diversification in addition to unique co-investment opportunities. Co-investments allow NESF to take direct stakes in international solar assets alongside large international institutional investors on a no fee, no carry basis. This is particularly beneficial as it provides the Company with access to an attractive new pipeline of potential international assets not available to other market participants or investors. To date, co- investments with NPIII LP have amounted to a total of c.€33.5m alongside the Company's US$50m commitment to NPIII LP.

Energisation of the Company's first co-investment, a 24.5% stake in a Spanish 50MW solar project, Agenor Hive S.L. ("Agenor"), is expected to occur in Q3 2023 following its announcement in January 2022.

In May 2022, the Company announced a second co-investment in Portugal, Santarém. The Company acquired a 13.6% stake in the 210MW solar asset in Portugal for a consideration of €22.5m. Energisation of this project is expected to take place in 2023.

Following the year end, the Company announced that Santarém had secured a long-term Power Purchase Agreement ("PPA") with Statkraft, a leading renewable producer in Europe's energy market. Under this agreement, Statkraft will acquire the electricity production from Santarém for eight years. The PPA builds on the existing successful relationship between NextEnergy Capital and Statkraft, following an earlier signed PPA between the two covering Agenor.

NAV and Operating Results

At the year end, the ordinary shareholders' NAV was £674.4m equivalent to 114.3p per ordinary share (31 March 2022: £668.5m, 113.5p per ordinary share). The change in NAV over the year reflects a large increase in power price forecasts (+14.6p per ordinary share) and changes in inflation (+5.6p per ordinary share). The above NAV drivers were offset by an increase of 1.0% in the discount rate for unlevered operating UK solar assets. The decision was driven by the increasing UK long-term gilt yields, driven by the Bank of England ("BoE") base rate increases over the period. The resulting impact on the NAV was -7.0p per ordinary share. The NAV increase includes the impact of the EGL, announced by the UK government towards the end of 2022.

Profit and comprehensive income for the year was £48.3m (2022: £127.6m) with earnings per ordinary share of 8.2p (2022: 21.7p). Cash dividend cover (pre-scrip dividends) was 1.4x (2022: 1.2x).

Power Prices

The increases in UK and European wholesale power prices from the previous year has continued during the current year. The volatility is attributable to reduced gas supply due to the conflict in Ukraine, which led to widespread import sanctions on Russian oil, gas and related products. This was exacerbated by pre-existing low levels of gas storage across the EU. More recently, the Organisation of the Petroleum Exporting Countries ("OPEC") announced reductions in oil output. Mitigating risk and increasing visibility of future cash flows remains a priority for the Fund. The increase in power price volatility during the calendar year and also in forward pricing has underlined the benefit and value of the Company's power sales strategy through the Investment Adviser's active energy sales desk.

NESF's portfolio's robust performance is backed by inflation-linked subsidies as well as a proactive energy sales strategy, which includes long-term PPAs and rolling short-term hedges over a 36-month period. This strategy of proactive risk mitigation helps to underpin the Company's dividend cover, increase the certainty of revenue streams and mitigate the negative impact of short-term fluctuations in the power markets.

Of the Company's revenues during the year, 52% were derived from government subsidies and long-term PPAs and, at the end of the year, the average remaining weighted life of the subsidies was 12 years.

The remaining 48% of the Company's revenues were derived from selling the electricity generated in the open market and, therefore, are exposed to market power price movements until the price has been locked ('hedged'). The Asset Manager's energy sales desk is focused on securing the best terms for NESF's electricity sales to carefully selected counterparties. This flexible approach is designed to protect against adverse short-term price movements whilst also enabling the Company to secure attractive fixed prices for specified future time periods which provides increased certainty on dividend cover.

Looking towards the next three financial years, as at 1 June 2023, the Company has agreed pricing of:

1 Covers 83% of the total portfolio (716MW)

Portfolio Performance

Energy generated during the year was 870 GWh (2022: 773 GWh) and the portfolio achieved a generation outperformance vs budget of 3.8% (2022: 1.8%), increasing revenues by an estimated £4.8m against budget (2022: £2.0m). During the year, solar irradiation across the portfolio was 7.5% above budget (2022: 3.4%).

The Company's UK portfolio performed above expectations with generation outperformance of 3.8% (2022: 1.9%) and the Italian portfolio performed above expectations with generation outperformance of 3.3% (2022: 1.1%).

Capital Structure Strategy

During the year, the Company announced that it had increased the commitments available under its Revolving Credit Facility ("RCF") with AIB Group (UK) p.l.c. ("AIB") & NatWest from £75m to £135m. The additional commitments have been agreed on attractive terms with a margin of 120bps over SONIA ("Sterling Overnight Index Average"), available until June 2024. The Company also signed a two-year extension to its £70m RCF with Santander UK to fund the investment pipeline.

Given the high interest rate environment, the Company is pursuing a prudent capital allocation strategy. The fixed coupon rate for preference shares shelters the Company from continued interest rates volatility in the future. As such, the addition of preference shares has provided value through diversification of it capital stack since their inclusion in 2018. The careful use of RCFs is critical to limit exposure to unhedged interest rates and the Company continues to closely monitor the market to manage the risks effectively. One of the benefits of the capital recycling programme, announced following the year end will be a reduction in gearing and reduced exposure to high interest rates.

As at 31 March 2023, the Company had £200m of preference shares within its capital structure (2022: £200m). The preference shares, which are counted as financial debt, effectively shield the Company from increases in interest rates and contribute to the Company's strong financial performance for shareholders. The preference shares also reduce the exposure to secured debt financing and provide protection against diminishing power prices compared to traditional debt financing used by peers. The Company continues to benefit from the low cash cost of the preference shares that pay a fixed preferred dividend of 4.75% with no redemption requirements and the Company maintains attractive optionality to redeem at nominal value from 1 April 2030 for a six year period.

The total financial debt represented 28% of Gross Asset Value ("GAV"), on a look through basis,  as at 31 March 2023 (2022: 25%). At the same reporting date, the total gearing comprising the total financial debt and the preference shares represented 45% of GAV (2022: 42%) which is within the 50% limit per the investment policy.

Dividends Paid

The Directors have approved a fourth interim dividend of 1.88p per ordinary share, which will be paid on 30 June 2023 to ordinary shareholders on the register as at the close of business on 19 May 2023. Following the payment of the fourth interim dividend, the Company will have paid total dividends of 7.52p per ordinary share in respect of the year ended 31 March 2023 (2022: 7.16p). Since IPO the Company has declared total dividends of £305.8m.

The Company continues to offer a scrip dividend alternative as approved by ordinary shareholders at the 2022 Annual General Meeting ("AGM"), details of which can be found on the Company's website (nextenergysolarfund.com).

Environmental, Social and Governance (ESG)

NESF's commitment to ESG and sustainability remains at the forefront of its strategy and purpose. During the year, the board formed an ESG committee, chaired by Josephine Bush, to dedicate additional standalone discussions towards the progression of the Company's ESG strategy. The Investment Adviser is a signatory of the United Nations' Principles for Responsible Investments, and integrates ESG principles into all aspects of the NextEnergy Group's investment and asset management processes. NESF incorporates ESG factors into all investment decisions by implementing the Investment Adviser's Sustainable Investment Policy throughout the investment process, from preliminary screening through to risk management during the ownership phases.

Net Zero Alignment

Aligned with the Company's commitment to support the UK Government's net zero ambitions (introduced at COP26 and refreshed in the recent Independent Review of Net Zero), NESF's portfolio generated 870 GWh of clean electricity during the year ended 31 March 2023 (2022: 773 GWh), contributing to the avoidance of 363,000 tonnes of CO2e emissions (2022: 328,700 tonnes CO2e) and equivalent to powering 242,000 UK homes for an entire year (2022: 216,300). This is roughly equivalent to powering a city with 571,120 inhabitants (e.g. Nottingham and Brighton combined) or removing 120,000 cars off the road for an entire year (2022: 108,690 cars). The above data has been verified by the Green Analytics team of the Macquarie Green Investment Group, a third-party climate related data provider.

Biodiversity

NESF recognises the urgency for action to be taken to reduce the intensity and drivers of biodiversity loss. By valuing the biodiversity baseline condition and understanding nature-dependencies, it is possible to effectively manage nature impacts and ecological footprint to reduce habitat loss.

The Investment Adviser is actively engaged in developing a global biodiversity strategy that will outline the Fund's ambition for biodiversity and set out a framework, which will guide disclosures under the Taskforce for Nature- related Financial Disclosures (TNFD) with informed Science- Based Targets (SBT).

The Investment Adviser is engaged with applying environmental due diligence and governance across all aspects of NESF's investment lifecycle to ensure consistent management of biodiversity risk and opportunity.

This continues to provide auditability, compliance and alignment with international drivers such as the Global Biodiversity Framework, and national policy including the Environmental Improvement Plan 2023. Please refer to our Sustainability Report on the NESF website: nextenergysolarfund.com/esg/transparency-and- reporting/.

Supply Chain Management

Since inception, the ESG Team of the Investment Adviser has been involved as a sponsor and supporter of the Solar Stewardship Initiative (SSI), a multi-stakeholder forum created by Solar Power Europe and Solar Energy UK to promote responsible sourcing in the solar value chain.

The public launch of the SSI took place in October 2022, and the Investment Adviser continues to be involved in the development of the SSI. The initiative is anticipated to be operational by the end of 2023. The Investment Adviser also continues to strengthen its supply chain risk management, with its ESG, procurement, construction and investment teams working closely together to ensure that contractors and suppliers abide by the Adviser's code of conduct and ESG standards.

Positive Social Contribution

NESF contributes to domestic growth and development wherever its assets are located. The Company is dedicated to ensuring best-practice labour standards are applied by all its contractors. In addition to the ESG activities on behalf of NESF and other clients, the NextEnergy Group continues to donate at least 5% of its net profits to the NextEnergy Foundation ("NEF"), which was established in 2017. The Board and I are proud that NESF also supports the Foundation, which included donations totaling £400k for the year ended 31 March 2023. The Foundation participates proactively in the global effort to reduce carbon emissions, provide clean power sources in regions where they are not available, and contribute to alleviate poverty.

EU Taxonomy and Sustainable Finance Disclosure Regulation

NESF complies with the requirements of the EU Taxonomy and Sustainable Finance Disclosure Regulation ("SFDR"). The Company's legal adviser has confirmed that NESF is classified under Article 9 of the SFDR, as the Company is marketed in the EU and has sustainable investment as its objective. The Company's sustainable investment objectives arise from its contribution to climate change mitigation, addressed through its focus on investments in solar assets and battery storage assets. In addition, the Company has a robust ESG integrated process which is aligned with the "Do No Significant Harm" (DNSH) criteria of the EU Taxonomy, and implements strong safeguard on social, community and human right impact across its value chain. In light of this classification, NextEnergy Group has made the relevant disclosures (SFDR Annex III and V) for NESF, available on the Company's website.

Task Force on Climate-Related Financial Disclosures

NESF recognises the importance of reporting on the impacts of climate change and has been an official supporter of the goals of the Task Force on Climate-related Financial Disclosures ("TCFD") since September 2019. The Company has included its full TCFD report in this annual report and has also disclosed the report as a stand-alone document on its website.

Appreciation

The Board would like to thank the Investment Manager and the Investment Adviser, and their employees for their continued hard work during the year; continuing to deliver substantial value to the Company's ambitions to deliver sustained high performance and significant positive impact.

Outlook

The Board, Investment Manager and Investment Adviser believe that the market environment continues to be favourable for the Company. Undoubtedly, macroeconomic and political events have impacted and will continue to impact the renewable energy sector in which the Company operates. The current economic climate provides further evidence for the benefits of solar energy, providing national energy security and independence, which in turn shelters consumers from the volatile global energy markets. As renewables are deployed, the business case for energy storage also strengthens. Battery storage is a highly complementary portfolio technology to Solar PV, and as the profiles are uncorrelated, this provides further diversification to the Company's portfolio from a technology, revenue and geographic perspective.

The Company has a strong pipeline of international growth opportunities on a direct and co-investment basis, as well as its pipeline of solar and energy storage assets in the UK. The pipeline has been composed to complement the existing portfolio, diversify the risk profile and enhance shareholder returns.

The Company has positioned itself well through its strategic initiatives and active management throughout the year, and I am excited to see NESF expand into its next stage of growth, going from strength to strength over the coming years.

Kevin LyonChairman16 June 2023

Our Business Model

Structure

The Company is regulated by the Guernsey Financial Services Commission as a registered closed-ended investment company. It has an indenite life.

The Company's capital structure comprises ordinary shares and preference shares. The ordinary shares are listed on the premium segment of the Ofcial List and traded on the London Stock Exchange's Main Market. The preference shares are not listed or traded on any public market. The rights attaching to each class of shares are summarised in note 13(b) to the Financial Statements.

The Company makes its investments through intermediate holding companies ("HoldCos"), underlying special purpose vehicles ("SPVs") and a singular direct investment that hold the solar assets. The NESF Group comprises the Company, the HoldCos, the SPVs and the direct investments.

As explained in note 2(d) to the Financial Statements, as the Company is an investment entity as described by International Financial Reporting Standards ("IFRS") 10, the Company does not prepare consolidated Financial Statements and, instead, holds its investments at fair value.

The Company has the ability to use short- and long-term debt at the Company, HoldCo and SPV levels. Debt at the HoldCo and SPV levels is non-recourse.

Operating Model

The Company's business model follows that of an externally managed investment company. Therefore, the Company does not have any employees and outsources its activities to third party service providers, including the Investment Manager, Asset Manager and Administrator who are the principal service providers. The Investment Manager outsources specic services to the Investment Adviser.

Management of the Company

The independent Board is responsible to shareholders for the overall management of the Company, including strategy and strategic aims, corporate governance, risk management and nancial reporting.

The Company has outsourced the management of its day-to-day activities to the Investment Manager and the Administrator, which operate within clearly dened terms of agreements that set out their roles, responsibilities and authorities. The Investment Manager, operating under guidelines determined by the Board, has direct responsibility for certain decisions relating to the day-to-day running of the Company and is accountable to the Board for the investment and operating performance of the Company. The Administrator provides the Company with company secretarial, fund accounting and administration services.

Further information on the division of responsibilities for the management of the Company can be found in the Corporate Governance Statement.

Management of the Company's Investment Activities and Assets

The Investment Manager, Investment Adviser and Asset Manager are shown in the diagram and their key roles are shown below. They are all members of the NextEnergy Group.

The NextEnergy Group, which is privately owned, was founded in 2007 and has evolved into a leading specialist investment and asset manager in the renewable energy infrastructure and battery storage sectors. Since its inception, it has been active in the development, construction and ownership of solar and battery storage assets.

As at 31 March 2023 the NextEnergy Group had assets under management of c.$3.4 billion with a cumulative operating generating capacity of more than 1.4GW. In addition to the Company, it manages the private equity fund, NPIII LP, which invests in solar assets globally. The fund achieved a total capital raise of $896m, which exceeded its target of $750m. NPIII LP currently has an operating capacity of c.390MW.

In January 2022, the Investment Manager divested the entire portfolio of operating solar projects owned by the private equity fund, NextPower II. At sale, NextPower II was among the ten largest portfolios of operating solar assets in Italy (c.149MW) and achieved an exceptional net Internal Rate of Return ("IRR") for investors.

The Investment Adviser has since secured the UK Infrastructure Bank as a cornerstone investor for a private 10-year solar infrastructure fund, NextPower UK ESG ("NP UK"). The fund, which focuses on subsidy-free UK solar, has currently secured £595m in committed capital, which exceeds its target of £500m, and will continue to fundraise up to the hard cap of £1bn.

The NextEnergy Group's team of over 270 individuals has signicant experience in energy and infrastructure transactions across international jurisdictions. The Investment Adviser's Investment Committee comprises Michael Bonte-Friedheim, Aldo Beolchini, Giulia Guidi and Ross Grier who have over 70 years' industry experience between them.

Since it was founded, the NextEnergy Group has provided asset management, technical due diligence and other services to over 2,855 solar power and energy storage assets, totalling an installed capacity in excess of 4.3GW. Its asset management clients include listed solar funds (in addition to the Company), banks, private equity funds and other specialist investors. The Asset Manager has created a proprietary asset management platform which integrates technical, financial and commercial data to analyse clients' data and generate insights, all of which help to protect and enhance the long-term quality and performance. This software, its systems and processes, together with specialist staff with extensive renewables experience, allows the Asset Manager to deliver market leading results.

The collective experience of the NextEnergy Group of investing and managing renewables assets enables NESF to implement efciencies at both the investment and operating asset levels. The technical and operating outperformance of the Company's portfolio to date underlines the benets of this comprehensive strategic relationship.

Administration of the Company

The Board has delegated administration, fund accounting and company secretarial services to the Administrator. Ocorian Administration (Guernsey) Limited, is part of the Ocorian Group which was established in Jersey in 1971 as Bedell Trust, and is a global nancial services provider. It operates in 20 key locations globally and has 4,000+ employees.

Further details on the Administrator's responsibilities can be found in the Corporate Governance Report.

Michael Bonte-Friedheim is Founding Partner and CEO of the NextEnergy Group.He has over 25 years' specialist experience in the power and energy sector.

Aldo Beolchini is Managing Partner and CIOof the NextEnergy Group.He has over 21 years' experience in investment banking and renewable energy. Prior to joining the NextEnergy Group in 2008, he was Vice President at Morgan Stanley Investment Banking.

Dividend Policy, Scrip Dividends and Dividend Target for Financial Year Ending 31 March 2024

The Company's principal purpose is to provide ordinary shareholders with attractive risk-adjusted returns, principally in the form of dividends with a progressive annual dividend policy in place. In respect of each nancial year, the Company pays quarterly interim dividends of equal amount, with dividends declared in August, November, February and May and paid in or around September, December, March and June respectively.

The Company offers a scrip dividend alternative to ordinary Scrip shareholders and currently anticipates that it will continue to do so. Scrip dividends provide ordinary shareholders with the exibility to receive their quarterly dividend in cash or newly issued ordinary shares. Details of the scrip dividend alternative for the year ending 31 March 2024 will be set out in a separate circular that is expected to be sent to ordinary shareholders in or around August 2023. Once published, a copy of the circular will also be available on the Company's website (nextenergysolarfund.com).

The target dividend for the nancial year ending 31 March 2024 is 8.35 pence per ordinary share, an increase of 11% compared to the nancial year ended 31 March 2023.

Five Year Record

1 Alternative performance measures

2 Excludes share in private equity vehicle (NPIII LP). Inclusion of NESF's share of NPIII LP would increase capacity  by 24MW (2022: 19MW) to 889MW (2022: 884MW)

3 Return figures since IPO calculated based on dividends paid

Our Investment Strategy and Track Record

Investment Strategy

Our strategy is straightforward:

• Investment: We seek to own a broad range of large scale solar energy infrastructure assets, but may invest up to 10% of GAV in standalone energy storage systems and are looking to increase this up to 25%.

• Location: Primarily located in the UK but with up to 30% of GAV in other OECD countries, that generate reliable cash ows over their useful lives (typically, at least 25-40 years from energisation).

• Asset management: We seek to enhance the returns from our assets through pro-active effective asset management, including rigorously controlling costs, delivering operational efciencies, extending their useful lives and executing short and medium-term electricity sales hedges to mitigate power price risk.

• Financing: We seek to optimise the risk-adjusted returns to our ordinary shareholders by funding our activities through an appropriate mix of shareholder equity and debt, subject to debt being capped at 50% of GAV.

• Risk management: We seek to actively manage potential risks, including maintaining a diversied exposure by location, third-party suppliers, service providers and other commercial counterparties to improve the resilience of the Company's portfolio and contributing to its long-term sustainable success.

Further details of our investment strategy are included in the Investment Adviser's Report.

Investment Policy

The Company seeks to achieve its investment objective by investing predominantly in solar PV assets.

The Company invests in solar PV assets primarily in the UK. Not more than 30% of the Company's GAV (calculated at the time of investment) may be invested in solar PV assets that are located outside the UK. Investments in solar PV assets outside the UK will be made in OECD countries that the Investment Manager and Investment Adviser believe have a stable solar energy regulatory environment and provide investment opportunities with similar, or better, investment characteristics and returns relative to investments in the UK, although the Company may acquire an interest in solar PV assets located in non-OECD countries where those assets form part of a portfolio of solar PV assets in which the Company acquires an interest and where the Company's aggregate investment in any such assets is, at the time any such investment is made, not greater than 3% of the GAV.

The Company intends to continue to acquire solar PV assets 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 Company targets solar PV assets that are anticipated to generate stable cash flows over their asset lifespan.

The Company typically seeks to acquire sole ownership of individual solar PV assets through SPVs, but may invest in solar PV assets through entering into joint ventures, acquiring minority interests or via private equity structures, provided that not more than 15% of the GAV may be invested in private equity structures (calculated at the time of investment). Where a controlling interest of less than 100% in a particular solar PV asset is acquired, the Company intends to secure controlling shareholder rights through shareholders' agreements or other legal arrangements. Where a non-controlling interest is being acquired (either directly in a solar PV asset or through a private equity structure) the Company intends to secure minority protection rights or protections through limited partnership agreements in line with typical private equity structures. Investments by the Company in solar PV assets may be either by way of equity or a mix of equity and shareholder loans.

The Company has built up a diversified portfolio of solar PV assets 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 asset will constitute (at the time of investment) more than 30% of the GAV. In addition, the four largest solar PV assets will not constitute (at the time of investment) more than 75% of the GAV.

The Company will continue, primarily, to acquire assets, but may also invest in solar PV assets that are 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 GAV in aggregate.

The Company may also agree to forward-fund by way of secured loans the construction costs of solar PV assets where it retains the right (but not the obligation) to acquire the relevant asset once operational. Such forward-funding will not fall within the 10% development restriction above but will be restricted to no more than 25% of the GAV (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).

The right to forward-fund, subject to the above limitations, enables the Company to retain flexibility in the event of changes in the development pipeline over time. In addition, the Company will not employ forward funding and engage in development activity in relation to the same project or asset.

A significant proportion of the NESF Group's income is expected to result from the sale of the entirety of the electricity generated by the solar PV assets within the terms of PPAs to be executed from time to time. These are expected to include the monetisation of Renewable Obligation Certificates ("ROC") and other regulated benefits and the sale of electricity generated by the assets to energy consumers and energy suppliers (Merchant Power). Within this context, the Company expects to execute 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 together with the aggregate subscription monies paid in respect of all Preference Shares in issue and including any unpaid or undeclared dividends thereon will not exceed (at the time the relevant arrangement is entered into) 50% of the GAV in aggregate. Such leverage will be deployed for the acquisition of further solar PV assets 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 invests with a view to holding its solar PV assets 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 interests 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 assets to fully utilise grid connections and balance the electricity grid with a view to generating greater revenues. The Company may also invest in standalone energy storage systems (not ancillary to or co-located with solar PV assets owned by the Company) up to an aggregate limit of 10% of the GAV (calculated at the time of investment). The Company expects to re-invest any cash surplus (in excess of that required to meet the Company's dividend target and ongoing operating expenses) in further investments, thereby supporting its long-term net asset value.

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.

Where investments are made in currencies other than sterling, currency hedging may be carried out to seek to provide protection to the level of sterling dividends and other distributions that the Company aims to pay on its shares and in order to reduce the risk of currency fluctuations and the volatility of returns that may result from such currency exposure. This may involve the use of forward foreign exchange contracts to hedge the income from assets that are exposed to exchange rate risk against sterling and foreign currency borrowings to finance foreign currency assets.

Hedging transactions (if carried out) will only be undertaken for the purpose of efficient portfolio management to protect or enhance returns from the Company's portfolio and will not be carried out for speculative purposes.

As required by the Listing Rules, any material change to the Investment Policy of the Company will be made only with the approval of the Financial Conduct Authority ("FCA") and of the Company's Ordinary Shareholders by ordinary resolution.

In the event of any breach of the Company's Investment Policy, shareholders will be informed of the actions to be taken by the Investment Manager by an announcement issued through a Regulatory Information Service or a notice sent to Shareholders at their registered addresses in accordance with the Articles.

Installed Capacity since IPO1

1 Includes 6.21% share in private equity vehicle (NPIII LP). As at 31 March 2023, NESF's share of NPIII LP increases total installed capacity by 24MW (2022: 19MW) to 889MW (2022: 884MW)

Investment Adviser's Report

NextEnergy Group is a leading specialist solar and energy storage investment manager and asset manager. The NextEnergy Group is responsible for the acquisition and management of the Company's portfolio, including the sourcing and structuring of new investments and advising on the Company's financing strategy. It has c. $3.4 bn of assets under management and employs over 270 people worldwide.

Investment Adviser's Investment Committee

The Investment Adviser's Investment Committee comprises Michael Bonte-Friedheim, Aldo Beolchini, Giulia Guidi and Ross Grier, who have in excess of 70 years' combined industry experience.

Michael Bonte-Friedheim is Founding Partner and CEO of NextEnergy GroupAldo Beolchini is Managing Partner and Chief Investment Officer of NextEnergy CapitalGiulia Guidi is Head of ESG at NextEnergy CapitalRoss Grier is Chief Operating Officer of NextEnergy Capital

Introduction

NextEnergy Capital Limited, the Investment Adviser, continues to provide dedicated support to the Company. This has enabled NESF to deliver a strong performance, capitalise on value-accretive opportunities and successfully navigate the complex challenges faced during a year characterised by significant market volatility and political instability. The Investment Adviser closely monitors political and economic developments and continues to dynamically assess potential future opportunities and risks forthe Company.

As at 31 March 2023, the NAV per ordinary share was 114.3p (2022: 113.5p). The change in NAV over the annual period includes increases in both power price forecasts (+14.6p per ordinary share) and short-term inflation forecasts (+5.6p per ordinary share). A rising interest rate environment and increases in UK long-term gilt yields led to a 1.0% increase to the discount rate applied to unlevered operating UK solar assets, offsetting some of the positive movement from power prices and inflation (-7.0p per ordinary share).

As disclosed in the RNS dated 12 May 2023, the Board and the Investment Adviser identified a historic overstatement in the NAV. This issue has been fully addressed and the current and historic NAV has been adjusted accordingly. As a result the Investment Adviser has completed a full investigation of this issue and of the Company's controls and processes, working in conjunction with the Audit Committee. Based on the detailed and thorough work undertaken by the Investment Adviser and the Audit Committee, the Board is satisfied that this was an isolated incident and that the controls and valuation tools remain robust. The Investment Adviser has also incorporated additional controls to provide the Board with further reassurance. In addition, the Investment Manager has repaid the management fee that had been based on the higher NAV figure, which amounted to a total of £133,000. Further details can be found below.

Investment Highlights

During the year, the Company has continued to advance a significant pipeline of UK solar assets, international solar assets, UK battery storage assets as well as international solar co-investment opportunities through NESF's commitment to NPIII LP.

UK Solar Investments

NESF has pioneered investment into UK subsidy-free solar since 2017, paving the way for continued renewable investment in the UK following the withdrawal of subsidy regimes. This effort has been crucial in attracting new investment into the sector, advancing the UK's net zero ambitions and energy security. NESF has made substantial progress across its pipeline of post-subsidy solar assets and accrued significant value. Following a successful year of progressing the portfolio, the Company plans to crystallise the returns by divesting five subsidy free assets and recycling the capital into further value-accretive opportunities.

During the year, the Company commenced construction of Whitecross, a 36MW utility solar asset, located in Lincolnshire. The Company also commenced grid connection works and the construction mobilisation phase of Hatherden, a 50MW subsidy-free solar farm in Hampshire. Alongside three other assets in the NESF portfolio, Whitecross and Hatherden contribute towards a selection of subsidy-free projects totaling 150MW. The other three assets being High Garrett (8.4MW), Hall Farm 2 (5.4MW) and Staughton (50MW). The successful selection of the 150MW subsidy-free portfolio demonstrates the Company's ability to respond efficiently and effectively to a changing UK solar market.

Whitecross and Hatherden have been selected to be part of the fourth CfD Allocation Round (AR4). The CfD programme lasts for 15-years and is annually index linked to inflation (CPI). It is scheduled to commence from 31 March 2025 at the AR4 solar PV strike price of £45.99/MWh (set in 2012 equivalent prices).

During the year, NESF added a commercial rooftop solar asset to its portfolio, secured through an existing agreement made with the renewable energy developer, Zestec. Holiday Inn is a 0.18MW asset located on a Holiday Inn in Nottinghamshire and benefits from an attractive 25-year power purchase agreement ("PPA") for 100% of its generated volume.

Newfield, a 0.18MW commercial rooftop solar asset, was removed from the portfolio following termination of the lease by the landlord. The Company has received appropriate compensation in line with the termination clause in the lease agreement.

The NextEnergy Group's Energy Sales desk is responsible for managing the strategy for the sale of electricity from the subsidy-free operating assets without long-term contracts. Details on the power price risk management strategy can be found in note 22b of the Financial Statements.

International Solar Co-investments

The Company has continued to pursue geographical diversification through its existing $50m commitment ($38.1m drawn as at 31 March 2023) into NPIII LP. NPIII LP is a US$806m private equity solar fund focused on utility scale solar assets in OECD markets with a portfolio of operational and in-construction solar assets. Its US$50m commitment provides the Company with access to attractive co-investment opportunities on a direct investment basis alongside NPIII LP and other limited partners in the NPIII LP fund, on a no-fee, no carry basis.

In May 2022, the Company announced its second co‑investment alongside NPIII LP, taking a 13.6% stake in a 210MW solar asset known as Santarém in Portugal. Energisation of the project is expected to take place in 2023. Once energised, Santarém will benefit from a long-term PPA for the sale of electricity which has been signed with Statkraft, a leading renewable producer in Europe's energy market.

Energisation of the Company's first co-investment, a 25% stake in a Spanish 50MW solar project, Agenor Hive S.L. ("Agenor"), is expected to occur in Q3 2023 following its announcement in January 2022. These co-investments will enable the fund to benefit from:

• Low revenue risk through entering PPAs with high-credit counterparties; and

• Additional geographical diversification.

Standalone UK Battery Storage Investments

NESF has continued its strategic expansion into energy storage through its strong relationship with Eelpower Limited ("Eelpower"), which has provided the Company with access to leading expertise in the industry.

The Company's first £100m Joint Venture Partnership ("JVP1") was announced on 26 April 2022 and is owned 70% by NESF and 30% by Eelpower. Its first 50MW battery storage project through JVP1, called Camilla, is currently under construction in Fife, Scotland. Camilla has been selected to provide battery storage capacity in the UK Government's latest Capacity Market Auction. The contracts are expected to deliver revenues of £557k over winter 2023 and £576k per annum over 2026 to 2032, adding to Camilla's existing Capacity Market contract for delivery in winter 2025-26 worth £305k. As a result, Camilla will support the grid with critical flexibility during stress events in winter 2023 and for six winters from October 2026. These contracts will provide a stable foundation for the operation of the asset.

In September 2022, NESF entered its second £200m Joint Venture Partnership ("JVP2") with Eelpower. NESF owns 75% of JVP2, with Eelpower holding the remaining 25%. The Company subsequently announced its first successful acquisition through JVP2 of the development rights, permits, and initial grid milestones for a 250MW portfolio of high-quality battery storage projects and grid connections in the East of England for £32.5m.

Once constructed, the project will provide vital grid balancing services. Furthermore, the project will harness electricity at low import prices and export electricity at times of low generation and high prices, benefiting from excess generation from neighbouring offshore wind. The project provides a very attractive return profile for the Company's portfolio.

The Directors have concluded that both Joint Venture Partnerships meet the control requirements of the relative accounting standards and are therefore accounted for as subsidiaries (see note 4 of the Financial Statements).

Co-located UK Battery Storage Investments

Due to the high complementarity between solar generation and battery storage, the Company is also pursuing a co-located battery storage retrofit programme for its existing portfolio of 99 UK operational assets. Solar assets exhibit a very predictable generation profile throughout the day; therefore, batteries can better optimise when it charges and subsequently dispatches power throughout the day, allowing the battery to capture arbitrage opportunities.

In April 2022, the Company selected the first site for a co-located battery storage project and has plans to extend the existing 11MW North Norfolk solar farm within the NESF portfolio to include a 6MW/12MWh battery system. Planning permission for the co-located battery system has been secured and discussions are ongoing with the local distribution network operator to confirm an energisation date. Implementing co-located batteries across the portfolio presents an attractive growth opportunity as these assets offer both synergies with PV assets, as well as offering diversification to portfolio income.

Outlook and Capital Recycling Programme

Market research published during the reporting period, such as the IEA World Energy Outlook 2022, supports the Company's goals for deployment of new clean energy projects and forecasts substantial increases in capacity of renewables out to 2030. Furthermore, the UK national grid's future energy scenarios forecasts growth in capacity to continue, with energy storage increasing the most from 1.6 GW in 2021 to as much as 20 GW by 2030 and 35 GW by 2050. This economic and political landscape strengthen the case for investment in renewables for the foreseeable future. It is in this context that the Company is seeking to maximise the value of its existing portfolio and capture higher returning investment opportunities through a capital recycling programme (the "Programme") that was launched in April 2023.

The Company has been a market leader in subsidy-free UK solar and has created value through the construction and energisation of its pipeline. The Board and Investment Adviser do not consider this value to be truly reflected in the Company's recent share price. Therefore, NESF is aiming to divest a portfolio of five subsidy-free assets (Hatherden, Whitecross, Staughton, The Grange, and South Lowfield). The Programme is expected to deliver NAV accretive returns by realising the value generated through these investments. The Company will retain two operational subsidy-free assets and remains committed to its remaining subsidy-free solar pipeline.

The proceeds from this transaction will be utilised in the following ways:

• Reduce Gearing: In light of significant increases in interest rates over the year, the Board anticipates using net proceeds from the Programme to reduce the amount of drawn RCF where the Company has exposure to the high interest rate environment in the near term. The reduction in gearing will reduce debt service burden, strengthen free cash flows, and further increase dividend cover.

• Growth Opportunities: Some of the proceeds from the Programme will allow the Company to position itself ready for its next phase of growth, including value-accretive energy storage. Battery storage is a highly complementary technology to Solar PV, and the profiles of both are uncorrelated, providing further diversification to the Company's portfolio from a technology, revenue and geographic perspective. The Company has exclusivity over, or owns the project rights for, the majority of its pipeline of c.£500m UK and international assets across the solar and energy storage space. This includes ownership of the development rights for a high-quality 250MW battery storage project in the East of England, which when constructed will be one of the UK's largest operational standalone battery storage assets.

• The investment opportunities aim to achieve robust financial returns, increase dividend cover and add geographical, technological, and revenue diversification to the NESF portfolio.

• Commitment to buyback shares: The Board and the Investment Adviser continue to closely monitor the current discount and confirms its commitment to buy back shares if the share price continues to trade at a material discount to the Company's NAV per share.

Portfolio Performance

During the year, solar irradiation across the entire portfolio was 7.5% above expectation (2022: 3.4%), and generation was 3.8% above budget (2022: 1.8%). The additional generation increased revenues by an estimated £4.8m (2022: £2.0m) and provided an additional +31.6GWh of clean electricity across the portfolio (providing enough energy to power 8,500 homes for the year). Generation Alpha during the year has been impacted by supply chain constraints, particularly due to continuing delays and long lead times as a result of the Covid-19 pandemic.

The outperformance of the portfolio during the year was strong and involved navigation of significant challenges. Without Distribution Network Operator Outages ("DNOOs"), portfolio generation would have been c.4.8% above budget. Distribution Network Operators ("DNOs") are regionally based licensed companies (there are six across Great Britain) with each responsible for a specific region. DNOs complete rolling programmes of preventative maintenance and upgrade works to ensure stability of the energy supplied to consumers. In order to keep their staff safe, they often need to de-energise power lines to complete these works.

The Asset Manager delivers dynamic monitoring and active performance management for assets that have successfully passed Preliminary Acceptance Certificate ("PAC") in accordance with the Engineering, Procurement and Construction ("EPC") contract. The three rooftop portfolios have been excluded as the monitoring of small assets is not economically viable. Similarly, the generation performance of assets that are yet to pass PAC are not reported by the Asset Manager.

Portfolio Optimisation

The Asset Manager focusses on implementing technical improvements across the portfolio, reducing operating costs through utilising existing insurance contracts and re-negotiating contractual terms by entering into new agreements with suppliers. Throughout the year, the Asset Manager has leveraged on its experience and understanding of renewables to deliver high levels of performance across NESF's operating portfolio.

Asset Optimisation

During 2022, NESF conducted a market leading tender aiming to drive down the cost of O&M. 18 assets totalling c.165 MWp have been rolled into the new framework, driving down costs from £6.7/MWp to £5.8/MWp, a saving of 14%, despite the high levels of inflation during the year.

The Company's Asset Manager utilised its understanding of the challenges faced by the O&M industry and the subsequent impacts to costs. The approach facilitates cost reductions whilst helping to further drive the leading performance of the assets. Overall, through the O&M tender process, six leading O&M contractors were selected to deliver in the short to medium term for NESF. These O&Ms have been strategically selected to offer:

• Economies of scale whilst simultaneously not exposing the fund to over-consolidation risk;

• Coverage of all technologies across the NESF portfolio in order to drive performance; and

• Appropriate geographical coverage for the fund.

During the year, six insurance claims were successfully settled and closed out for storm damages. The Company received a total settlement of £537k.

The Company has initiated a programme to replace aging inverters across its portfolio, prioritising those which have experienced increased failure rates, such as Emerson inverters. In total the Company currently anticipates replacing inverters for up to 13 assets (with a combined capacity of up to 135MW) over the next three years. The Investment Adviser and Asset Manager regularly review performance across the portfolio to identify opportunities to support and enhance long-term asset health as part of a rolling programme of strategic re-investment.

OFGEM Audits

During the year, no material adjustments to the NAV were made as a result of Office of Gas and Electricity Markets ("OFGEM") audits. Since IPO, 25 OFGEM audits have been successfully concluded without adverse impact to ROC or FiT accreditations. The NextEnergy Group has staff who are experienced in dealing with the ongoing audits. Engagement with OFGEM is through professional advisers and senior NextEnergy Group staff. The Asset Manager has identified and mapped contractual recourse associated with identified risk of loss for completed and ongoing audits.

Short/Medium-term Power Purchase Agreements

NESF continues to lock in power price hedges over a 36-month period. This risk mitigation helps secure and underpin both dividend commitments and dividend cover, whilst reducing volatility and increasing visibility of cash flows.

NextEnergy Group's energy sales desk ensures that the Company's electricity sales strategy increases the certainty of revenue streams whilst mitigating the negative impact of short-term fluctuations in the power markets. Secured pricing comprises fixed price contracts and hedging under trading frameworks.

1 covers 83% of the total portfolio (716MW) as at 1 June 2023

For the year ended 31 March 2023, the Italian portfolio derived c. 81% of revenues from subsidies (principally FiTs) and c.19% of revenues resulted from the sale of electricity under fixed price agreements. For calendar year 2023, c.62% of the Italian portfolio has fixed price agreements in place for H1 2023 at a weighted average fixed price of €84.0/MWh. For H2 2023, 100% of the Italian portfolio has fixed price agreements in place at a weighted average fixed price of €135.2/MWh.

Portfolio Valuation

Introduction

The Investment Adviser carries out the fair market valuation of the Company's underlying investment portfolio in line with its accounting policies. This valuation is then presented to the Company's Board for review and approval. The valuation is carried out quarterly (ad hoc valuations may also be undertaken from time to time, for example in conjunction with an equity fund raising).

The valuation principles used are based on a discounted cash flow methodology except for NPIII LP which is valued using the estimated attributable NAV. Assets which are not yet operational, or where the completion of the acquisition is not imminent at the time of valuation, use the acquisition cost as a proxy for fair value.

The Company incorporates third parties in the process. A review is arranged with the auditors on a semi-annual basis. The auditors conduct an independent review of the interim financial statements and an audit of the annual report and financial statements. On a periodic basis, a specialist third-party modelling company conducts a detailed review and validates the Fund's model, to provide assurance of its structural integrity and confirms it is correctly updated and maintained.

The Board reviews the operating and financial assumptions used in the valuation of the Company's underlying portfolio.

Processes and Controls

Corporate governance of the Fund is critical to the process surrounding the valuation and involves many stakeholders. On a quarterly basis, the fund model is used to produce a valuation of the Investments, which involves an extensive internal review performed by the Investment Adviser. Following production of the NAV, multiple reviewers are responsible for ensuring that all changes to the Company's portfolio are reflected and explained appropriately. These changes include:

• Inputs and assumptions, which are updated to correctly reflect the project documents and the acquisition case. For new assets acquired since the previous valuation, the main input source is the acquisition documents used to build the acquisition model created by the Investment Analyst. The Investment Adviser will therefore be responsible for ensuring that the inputs of their acquisition model have been correctly transferred to the Fund model and the acquisition contracts are cross-checked against one another;

• Changes to inputs for existing assets, which must be explained by project documents. These changes might include:

• Project Life: Planning and lease extensions secured since the acquisition of the asset;

• Project Yield: Remediation performed after acquisition;

• Project Operating Expenses: New or amended contracts for O&M, Asset Management, Insurance and G&A secured during the period; and

• Project Capital expenditures (actual costs incurred and changes to expected milestone dates); and

• Updates to data provided by third party advisers and sources. The Company continues to capitalise on the expertise of third-parties and ensure fairness in the process through the independence of assumptions.

Following internal review, the Investment Adviser arranges a committee meeting to scrutinise movements in the valuation during the period and consider long-term assumptions, such as the discount rate. The Investment Adviser subsequently presents the valuation to the Board of Directors of the Investment Manager, explaining the movements in the portfolio valuation and the NAV during the period. Following approval, the Investment Adviser presents to the NESF Board of Directors. Both presentations show the valuation of the portfolio, split by asset and include the NAV bridges. If satisfied with the responses to queries, the NAV is approved for public dissemination. All board and committee meetings are minuted and documented.

Forecast power price methodology

For the UK portfolio, the Company uses multiple sources for UK power price forecasts. Where PPAs exist, PPA prices are used where they have been secured. For periods where there are no PPAs in place, short-term market forward prices are used. After two years, the Company integrates a rolling blended average of three leading independent energy market consultants' long-term central case projections. This approach allows mitigation of any delay in response from the three independent market forecasters ("Consultants") used by the Company in publishing quarterly or ad hoc updates following any significant market development.

For the Italian portfolio, a leading independent energy market consultant's long-term projections are used to derive the power curve adopted in the valuation.

The power price forecasts used also include a 'solar capture' discount which reflects the difference between the prices available in the market in the daylight hours of operation of a solar asset versus the baseload prices included in the power price estimates. This solar capture discount is provided by the Consultants on the basis of a typical load profile of a solar asset and is reviewed as frequently as the baseload power price forecasts. The application of such a discount results in a lower long-term price being assumed for the energy generated by NESF's portfolio.

Valuation Correction

As part of the Company's continual improvement of internal systems, an internal review identified that a report generated by a new reporting module had overstated historic NAV calculations, leading to an excess of working capital being reported. This was not an issue with the accounting system; the Board and the Investment Adviser have investigated it fully and are confident that the accounting across the Company and its SPVs remains robust.

Discount rate

During the year, the UK rate of inflation increased significantly. In the context of higher interest rates in response to changes to the Bank of England ("BoE") base rate, the yield on UK long-term gilts has also increased, putting upward pressure on discount rates. The BoE Monetary Policy Committee announced on 23 March 2023 an increase to the BOE base rate to 4.25%. Therefore, during the year, the Company increased the discount rate for unlevered operating UK solar assets by 1.0% to 6.75% (31 March 2022: 5.75%). This change is in line with the increases in discount rates observed by the Investment Adviser in the sector in which the Company operates, and continues its robust approach to valuing the portfolio.

1 Unlevered discount rate for Italian operating assets implying 1.5% country risk premium2 Unlevered discount rate for subsidy-free uncontracted operating assets implying 1.0% risk premium3 1.0% risk premium for cash flows after 30 years where leases have been extended

The resulting weighted average discount rate for the Company's portfolio was 7.3% (31 March 2022: 6.3%). The Company does not use the weighted average cost of capital ("WACC") as the discount rate for its investments as it believes that the reduction in WACC deriving from the introduction of long-term debt financing does not reflect the greater level of risk to equity investors associated with leveraged assets or levered portfolios. However, for the purposes of transparency, the Company's pre-tax WACC as at 31 March 2023 was 5.7% (31 March 2022: 5.3%).

The Company has not included the impact of the discount rates used in the NPIII LP investment, as the Company has no control or influence over these rates and a weighted average discount rate is not produced by NPIII LP, as its underlying investments are in multiple geographies.

Asset life

The discounted cash flow methodology implemented in the portfolio valuation assumes a valuation time horizon capped to the current terms of the lease and planning permission on the properties where each individual solar asset is located. These leases have been typically entered into for a 25-year period from commissioning of the relevant solar asset (specific terms may vary). However, the useful operating life of the Company's portfolio of solar assets is expected to be longer than 25 years. This is due to many factors, including:

• Solar assets with technology components similar to the ones deployed in the Company's portfolio have been demonstrated to be capable of operating for over 45 years, with levels of the technical degradation lower than those assumed or guaranteed by the manufacturers. Local planning authorities have already granted initial planning consents that do not expire and/or have granted permissions to extend initial consented periods;

• The Company owns rights to supply electricity into the grid through connection agreements that do not expire; and

• Discounted cash flow valuation assumes a zero-terminal value at the end of the lease term for each asset or the end of the planning permission, whichever is the earlier.

Operating performance

The Company initially values each solar asset on the basis of the minimum performance ratio ("PR") guaranteed by the vendor, or that estimated by the appointed technical adviser during the acquisition due diligence. These estimates have been generally lower than the actual PR that the Company has been experiencing during subsequent operations. We therefore deem it appropriate to adopt the actual PR after two years of operating history when, typically, the plants have satisfied tests and received Final Acceptance Certification ("FAC").

As at 31 March 2023, 71 solar assets (totalling 630MW) have achieved FAC and their actual PR was used in the discounted cash flow valuation.

Net Asset Value

The Company's NAV is calculated quarterly and based on the valuation of the investment portfolio provided by the Investment Adviser and the other assets and liabilities of the Company calculated by the Administrator. The NAV is reviewed and approved by the Investment Manager and the Board. All variables relating to the performance of the underlying assets are reviewed and incorporated in the process of identifying relevant drivers of the discounted cash flow valuation.

In accordance with IFRS 10, the Company reports its financial results as an Investment entity and on a non-consolidated basis (see note 2d to the Financial Statements). The change in fair value of its assets during the period is taken through the Statement of Comprehensive Income.

The movement in the NAV was driven primarily by the following factors:

• An increase in short-term (2023-2027) UK power price forecasts provided by Consultants, being 22.2% higher than assumptions at 31 March 2022;

• The increase in discount rate for unlevered operating UK solar assets;

• The upward revision in short-term inflation forecasts;

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

• The dividends declared and operating costs incurred during the year.

NAV bridge for the year ended 31 March 2023

NAV sensitivity analysis as at 31 March 2023

The chart below shows the impact of the key sensitivities on the NAV per ordinary share. Additional sensitivity analyses can be found in note 19b to the Financial Statements.

Cash Flow generation

The Company generates revenues through the sale of electricity to the markets and the subsidies provided under various subsidy regimes (ROC, NIROC and FiT). Both revenue streams are underpinned by two main factors:

• The actual energy generated (measured as amount of KWh of energy generated), which is mainly driven by the solar irradiation, technical performance and availability of the plant; and

• The actual price at which the energy generated is sold to the markets, as well as the subsidies received for the same generation.

The performance of a plant in terms of revenues is therefore a product of both the operational performance and the commercial terms of the PPAs in place. Before taking into account tax payments and financing considerations, the cash flow generation of solar assets is also influenced by operating expenses, which are usually governed by long-term contracts and characterised by low volatility over the long-term.

1 Based on the average installed capacity 865 MW over the financial year. Given the different composition of the growing portfolio, this information is not directly comparable with what was provided in the previous Annual Report2 Ratio captures the solar plant performance ratio with availability issues incorporated, which reflects all system shut-downs for maintenance, failures or grid outages3 EBITDA is a reference to EBITDA at the SPV levels4 Budgeted operating expenses are based on the acquisition case of the assets

Operating results

Profit before tax was £48.3m (2022: £127.6m) with earnings per ordinary share of 8.20p (2022: 21.69p).

Operating expenses and ongoing charges

The operating expenses, excluding preference share dividends paid by the Company, for the year amounted to £8.2m (2022: £6.7m). The Company's ongoing charges was 1.1% (2022: 1.1%). The budgeted ongoing charges for the financial year ending 31 March 2024 is 1.1%. The ongoing charges has been calculated in accordance with the Association of Investment Companies recommended methodology and is an Alternative Performance Measure.

Cash flow analysis

As at 31 March 2023, the Company held cash of £14.4m at an A+ credit rated financial institution (2022: £19.6m).

Cash received from assets in the period covered the operating expenses, the preference share dividends, dividends declared to ordinary shareholders in respect of the year ended 31 March 2023 and part of the investment into HoldCos.

Group Operating SPV's

The below table represents the unaudited consolidated financial results of the Company's SPVs.

Cash Dividend Cover

1 Cash income differs from the Income in the Statement of Comprehensive Income as the latter is prepared on an accruals basis. See below for further information.

2 Alternative Performance Measures

Financing

Financial debt

In June 2022, the NESF Group signed a two-year extension to its £70m RCF with Santander UK, now available until July 2024. In September 2022, the NESF Group secured £60m additional commitments under an existing RCF from £75m to £135m, available until June 2024.

At 31 March 2023, the Company's subsidiaries (including NPIII LP) had financial debt outstanding of £345m (2022: £283m), on a look-through basis, as shown in the table overleaf. Due to a combination of low debt levels and RPI linked subsidies, debt covenants at the HoldCos level would only be breached at very low power prices (less than c.£20/MWh). No covenant breaches have occurred during the period.

Preference shares

At 31 March 2023, the Company had £200m of preference shares outstanding (2022: £200m). The preference shares are non-redeemable (except in limited exceptional circumstances), non-voting and convertible into ordinary shares from 1 April 2036 at their issue price (£200m in aggregate) plus any unpaid preference share dividends at the date of conversion. For financial accounting purposes, and in line with IFRS the preference shares are classified as long-term liabilities.

The preference shares are equivalent to non-amortising debt with repayment in shares, and the Company is not required to use cash flow, or raise funds, to repay them at the end of their life. The absence of amortisation enhances the ability to pay the ordinary share dividend, and repayment in shares removes refinancing risk.

From 1 April 2030, the Company may elect to redeem all or some of the preference shares. Redemption of the preference shares by the Company would provide an attractive uplift if the share price is trading at a healthy premium. Benefits of the preference shares for NESF include:

• A reduction in the exposure to secured debt financing;

• The fixed preferred dividend of 4.75p per preference share being a significantly lower all-in annual cash cost to the Company compared to issuing ordinary shares; and

• The further optimisation of the Company's capital structure and, over the long term, increase in cash flows available to fund ordinary share dividends or for reinvestment compared to refinancing with conventional long-term amortising financial debt, thereby increasing the cash dividend cover.

• The Investment management fee is calculated based on the ordinary share NAV and, accordingly, no fee is payable in respect of the preference shares. The terms of the preference shares can be found in note 23 to the Financial Statements.

Total gearing

The financial debt, together with the preference shares, represented a total gearing level of 45% (2022: 42%), which is below the maximum limit of 50% in the Company's Investment Policy.

1NESF has 326MW under long-term debt financing, 326MW under short-term debt financing and 214MW without debt financing (excludes NPIII LP look through debt)2 Loan to Value defined as 'Debt outstanding / GAV'3 Long-term debt is fully amortised over the period secured assets receive subsidies (ROCs and others)4 Applicable rate represents the swap rate5 Represents the "real" outstanding debt balance. The "nominal" outstanding debt balances are included in the debt balances provided in Note 22b to the financial statements

6 The total combined short and long-term debt in relation to NESF's commitment into NPIII (on a look through equivalent basis)

Alignment of interest

As at 1 June 2023, NextEnergy Group employees held 1,532,060 shares in NESF.

Events After the Balance Sheet Date

On 11 May 2023, the NESF Board approved a dividend of 1.88 pence per ordinary share for the quarter ended 31 March 2023 to be paid on 30 June 2023 to ordinary shareholders on the register as at the close of business on 19 May 2023.

NextEnergy Capital Limited

16 June 2023

Operating Portfolio