NextEnergy Solar Regulatory News (NESF)

17 November 2017

NextEnergy Solar Fund Limited

 ("NESF" or the "Company")

Interim results for the period ended 30 September 2017

Focused Growth with Value Adding Acquisitions

NextEnergy Solar Fund, a specialist investment company that invest in solar power plants, announces its interim results for the period ended 30 September 2017.

Summary

· Investment portfolio of 58 solar PV plants for a total of c.539MW installed capacity in operation. NESF is the largest listed solar energy fund on the London Stock Exchange in terms of both installed solar capacity and market capitalisation.

· Continuous operating asset outperformance - energy generated from the portfolio amounted to 307GWh, +2.0% above budget.

· Company issued 115m new shares further to the Company's 350m share issuance programme. The issue was significantly oversubscribed.

· NAV per share remained stable over the period (105.1p compared to 104.9p) mainly due to a decrease in power price forecasts being offset by a reduction in the discount rate, valuation increases of new assets and operating performance.

· Equity discount rate lowered by 0.25% to 7.0% for unlevered assets. Risk premium for levered assets remained unchanged at between 0.7% and 1.0%.

· Company drew down final tranche of the £150m long-term facility refinancing the Apollo portfolio.

· Total Shareholder Return and NAV Total Return during the six-month period were 4.7% and 3.2% respectively (annualised returns since IPO in April 2014 were 9.3% and 7.1% respectively).

· Cash dividend cover of 1.14x. Reported profit for the period was £14.0m and earnings per share was 2.69p.

· On track to pay target dividend of 6.42p for the year ending 31 March 2018. The first quarterly dividend of 1.605p was paid in September 2017; a second quarterly dividend of 1.605p to be paid in December 2017, as announced on 7 November 2017.

· Executing the pipeline of acquisition targets and further solar opportunities under consideration in the UK for another 193MW.

· Following the period end, first investment overseas with acquisition of a portfolio of eight operating solar plants with an installed capacity of 34.5MW located in Italy. The portfolio was acquired at attractive risk adjusted returns. The transaction included foreign exchange, financing and brown power risk mitigation features.

Financial highlights

As at 30 September 2017

NAV £602.5m

Number of shares 573.1m

NAV per share 105.1p

Share price 112.5p

Market capitalization £644.7m

Dividend yield 5.7%

Kevin Lyon, Chairman of NESF, commented:

"NESF has continued to make excellent financial and operational progress during the first half of the year, and consolidated its position as the largest listed renewable solar energy fund in the UK. 

We have now fully invested the equity raised in July and are on track to invest the remainder of the proceeds of the recent long-term refinancing in value-adding acquisitions. 

We were also very pleased to announce our first international investment, acquiring a high-quality portfolio of eight operating solar plants in Italy for an equity value of GBP 48.5M. This portfolio will generate immediate dividend cover-enhancing cash flows with low power market risk, while the euro-denominated long-term debt already in place and the intended currency hedge mitigate volatility from possible changes in the exchange rates.

Our asset portfolio performed very satisfactorily during the summer months with an overperformance of +2.0% versus budget, in spite of minor outages experienced on selected power plants. The outages were primarily caused by system maintenance unrelated to our plants. 

The solar PV market is in continuous evolution and our investment manager is actively assessing and pursuing multiple growth opportunities, mainly in the UK, ranging from previously constructed solar plants to subsidy free projects.

We remain confident of meeting our 6.42p total dividend distribution target for the full year."

Half-Year Report

A copy of the half-year report has been submitted to the National Storage Mechanism and will shortly be available at www.morningstar.co.uk/uk/NSM. The half-year report will also be available on the Company's website at www.nextenergysolarfund.com where further information on the Company can also be found.

There will be an analyst presentation and conference call at 10.00am this morning for analysts. To register for the call, please contact nextenergy@mhpc.com.

For further information:

Notes to Editors:

NESF is a specialist investment company that invests primarily in operating solar power plants in the UK. It is able to invest up to 15% of its Gross Asset Value in operating solar power plants in OECD countries outside the UK. The Company's objective is to secure attractive shareholder returns through RPI-linked dividends and long-term capital growth. The Company achieves this by acquiring solar power plants on agricultural, industrial and commercial sites.

NESF has raised equity proceeds of £591.9m since its initial public offering on the main market of the London Stock Exchange in April 2014. It also has credit facilities of £226m in place (£150m from a syndicate including MIDIS, NAB and CBA; MIDIS: £54.3m and NIBC: £21.7m).

NESF is differentiated by its access to NextEnergy Capital Group (NEC Group), its Investment Manager, which has a strong track record in sourcing, acquiring and managing operating solar assets. WiseEnergy is NEC Group's specialist operating asset management division and over the course of its activities has been providing operating asset management, monitoring, technical due diligence and other services to over 1,300 utility-scale solar power plants with an installed capacity in excess of 1.9 GW.

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

Highlights

● Investment portfolio as at the date of distribution of this Interim Report of 58 solar PV plants for a total of c.539MW installed capacity in operation. NESF is the largest listed solar energy fund on the London Stock Exchange in terms of both installed solar capacity and market capitalisation.

● Continuous operating asset outperformance - energy generated from the portfolio amounted to 307GWh, +2.0% above budget.

● Company issued 115m new shares further to the Company's 350m share issuance programme. The issue was significantly oversubscribed.

● NAV per share remained stable over the period (105.1p compared to 104.9p) mainly due to a decrease in power price forecasts being offset by a reduction in the discount rate, valuation increases of new assets and operating performance.

● Equity discount rate lowered by 0.25% to 7.0% for unlevered assets. Risk premium for levered assets remained unchanged at between 0.7% and 1.0%.

● Company drew down final tranche of the £150m long-term facility refinancing the Apollo portfolio.

● Total Shareholder Return and NAV Total Return during the six-month period were 4.7% and 3.2% respectively (annualised returns since IPO in April 2014 were 9.3% and 7.1% respectively).

● Cash dividend cover of 1.14x. Reported profit for the period was £14.0m and earnings per share was 2.69p.

● On track to pay target dividend of 6.42p for the year ending 31 March 2018. The first quarterly dividend of 1.605p was paid in September 2017; a second quarterly dividend of 1.605p to be paid in December 2017, as announced on 7 November 2017.

● Executing the pipeline of acquisition targets and further solar opportunities under consideration in the UK for another 193MW.

● Following the period end, first investment overseas with acquisition of a portfolio of eight operating solar plants with an installed capacity of 34.5MW located in Italy. The portfolio was acquired at attractive risk adjusted returns. The transaction included foreign exchange, financing and brown power risk mitigation features.

Corporate Summary

The Company is a closed-ended investment company limited by shares, registered and incorporated in Guernsey under the Companies (Guernsey) Law, 2008, as amended, on 20 December 2013, with registered number 57739. The Company is a Registered Closed-ended Collective Investment Scheme regulated by the GFSC pursuant to the Protection of Investors (Bailiwick of Guernsey) Law 1987, as amended.

The Company has 573,059,889 shares in issue, with no shares held in treasury, all of which are admitted to the premium listing segment of the Official List of the UKLA and are traded on the London Stock Exchange's main market for listed securities under the ticker "NESF".

The Company makes its investments through UK HoldCos and underlying SPVs which are ultimately wholly-owned by the Company. References to the Company's activities (investment in solar PV plants) refer to activities through the UK HoldCos. The UK HoldCos are registered and incorporated in England and Wales under the Companies Act 2006, as amended:

● NextEnergy Solar Holdings Limited, incorporated on 24 March 2014, with registered number 08956168

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

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

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

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

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

Chairman's Statement

Introduction

I am pleased to present, on behalf of the Board, the Interim Report and Financial Statements for NextEnergy Solar Fund Limited for the six-month period ended 30 September 2017.

In June of this year, we completed a further successful capital raise issuing 115m new shares pursuant to the Company's 350m share issuance programme. The issue was significantly oversubscribed which demonstrates the strong backing of our investors who have been consistently supporting our growth since the IPO. Following this capital raise, we have a total of 573.1m shares in issue, including shares issued pursuant to the Company's scrip dividend offering.

The Company has also drawn down the last tranche of the long-term debt facility that it entered into in January 2017. Together with the capital raise, the Company now has sufficient cash to deploy into the significant pipeline that it is pursuing.

Since our IPO in April 2014, the Company has rapidly grown to establish itself as the largest solar energy focused investment company listed on the London Stock Exchange in terms of both installed capacity and market capitalisation.

At the date of distribution of this Interim Report, the Company's portfolio comprised 58 assets amounting to c.539MW installed solar capacity and an invested capital of £700m (date of distribution of 31 March 2017 Annual Report: 48 assets, c.483MW and c.£554m invested capital).

Thanks to the disciplined investment strategy of the Investment Manager, NESF has acquired its portfolio at attractive values compared to market average acquisition values, which will contribute to meeting NESF's targets.

Over the 3.5 years since the IPO, NESF has achieved an annualised Total Shareholder Return of 9.3% and an annualised NAV Total Return of 7.1%, in line with the target range of 7-9% shareholder equity return per annum for investors. This is a positive result considering the challenging market conditions faced by the UK solar sector during this time.

In addition, NESF's operating asset management strategy has been yielding consistent levels of over-performance in terms of electricity generation compared to the Company's acquisition budgets.

We continue to focus exclusively on solar power projects. Our investment strategy is driven by our belief that solar power projects have significantly lower risk in terms of revenue, operation and finance than other renewable energy technologies. We also believe that the solar expertise of the NextEnergy Capital Group can generate operating and financial outperformance on the UK assets acquired. We believe that this expertise can be readily transferred across geographies. Indeed, following the period end, we have announced our first investment overseas. The acquisition of a 34.5MW portfolio of operating solar assets in Italy adds value to the portfolio on a risk adjusted basis and diversifies our market risk, while reducing the overall exposure to brown power prices across our asset base. In addition, implementing the foreign exchange hedge limits the effect of any currency fluctuations on the returns this portfolio will generate for us.

As approved at the AGM in August 2017, the investment policy permits the Company to invest up to 15% of the Gross Asset Value in solar assets in OECD countries (other than the UK).

During the period, the Company has delivered a strong set of operating and financial results and we have significantly increased our asset base by the further debt and equity capital raising transactions.

Financial Results and Performance

Financial Results

Profit before tax for the six-month period was £14.0m (2016: £25.3m) with earnings per share of 2.69p (2016: 8.46p). Cash dividend cover was 1.14x (2016: 1.2x). Further details are provided on page 29 and 30 of the Investment Manager's Report.

The Company's annualised Ongoing Charges Ratio ("OCR") was 1.1% (2016: 1.2%) for the period, which is in line with our budget. The budgeted OCR for the full year ending 31 March 2018 is 1.1%, reflecting the advantage of a larger capital base for the whole of this period compared to the prior year.

Portfolio Performance

We are particularly pleased with the operational performance of the portfolio during the period. Overall, energy generated by NESF's plants during the period was 307GWh (2016: 284GWh), approximately +2.0% above budget. This continues the trend of energy generation outperformance relative to budget.

During the six-month period, solar irradiation across the portfolio was +0.5% above expectation (2016: +0.0% above expectation). NESF's Asset Management Alpha was +1.5%, which highlights how the principal driver for our consistent outperformance continues to rest with the structure and quality of NESF's asset management outsourcing strategy. This outperformance was achieved despite several plant outages resulting from grid operators' activities unrelated to our plants. Had the Distribution Network Operators ("DNO") outages been excluded, the Asset Management Alpha would have been +2.5%. Further details are provided in the Investment Manager's Report.

The electricity generated by our portfolio during the period is equivalent to a saving of 108,000 tonnes of carbon emissions and sufficient to power some 81,000 households during the same period.

Net Asset Value

At the period end, the Company's NAV was £602.5m, equivalent to 105.1p per share (31 March 2017: NAV of £478.6m, 104.9p per share). This stable NAV per share over the period is mainly due to a decrease in power price forecasts being offset by a reduction in the discount rate, valuation increases of new assets and operating performance.

We reduced the unlevered discount rate from 7.25% to 7.0% to reflect the increasing market value of UK operating solar assets, while we continue to value asset portfolios with leverage at higher discount rates of up to 8.0%. Overall, the weighted average discount rate decreased during the period from 7.9% to 7.5%.

Further details on the Company's NAV and discount rate are included in the Investment Manager's Report.

Portfolio Growth

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

During the period the Company focused on integrating the acquisition of the nine assets that had been acquired in the prior financial year as well as the ongoing operation of those acquired previously. The Investment Adviser also focused on developing a strong pipeline of new opportunities subsequent to the raising of additional capital and started executing new acquisitions. As a result, the portfolio grew from 41 to 58 assets at the date of distribution of this report.

As the UK solar market continued to mature and reached the end of its revenue-subsidised period, we have noticed greater competition for large portfolios of operating assets. This was particularly the case in auction-style sell-side processes in which a wide range of established investors and new entrants were involved. Our Investment Adviser upheld a very diligent approach and sought to maintain our track record of investing at prices below market average by focusing on smaller portfolios of several solar plants to be built for us. During the period, the Company added another 51MW of attractively priced assets and is in negotiation for another 193MW.

This strategy of focusing on smaller assets results both in an accretion in the value of the Company's portfolio as well as mitigating risk through diversification (both regional and by asset size), with an average size of our solar PV plants, excluding rooftop assets, of 10.1MW. Larger PV plants offered on the secondary market are purportedly associated with lower operating expenditure due to economies of scale, but this is not necessarily a benefit for investors. Based on the Investment Adviser's experience in bidding for these assets, every efficiency and/or scale benefit (even those still unproven) are already priced in by vendors so that there is limited scope for upside for acquirers. As a result, we have found that larger assets or portfolios do not present any particular economic advantage to the Company. The Company's position as the largest listed solar energy fund investor in the UK solar market allows our Operating Asset Manager to best negotiate any service on behalf of NESF, thus recreating the same economies of scale that would be available to the vendor of a larger single asset.

Overall, considering each site's irradiation and ROC banding, the group of assets added to the portfolio over the period was secured at attractive investment values compared to the average costs for solar plants observed in the market.

Capital Raising and Financing

The Company raised a further £126.5m in June 2017 from the issue of 115m new shares, taking the total shares in issue to 573.1m, including 44,646 shares and 1,627,044 shares issued in June 2017 and September 2017 respectively by way of scrip dividends. The strong demand from existing shareholders underlines the backing we enjoy among parties that have supported our growth since the IPO in April 2014. This new capital and additional debt drawdowns during the period is being deployed into the extensive pipeline of assets under negotiation to secure new portfolio assets for the Company.

During the period, the Company drew down the last two tranches of the Apollo debt facility (£99m remaining at 31 March 2017). At the period-end, the Company had total financial debt outstanding of £268.5m (31 March 2017: £269.8m) on a pro-forma look-through basis, including project level debt. Of the total financial debt, £246.8m was long-term fully amortising debt, while the remaining £21.7m was drawn under the Company's short-term credit facility. This represents a gearing level of 31%, which is comfortably beneath our stated maximum debt-to-GAV level of 50%.

Following period end, the Company also repaid the £43m debt facility associated with the Three Kings portfolio. This is a preparatory step ahead of the refinancing of the same portfolio together with the newly acquired assets planned for H1 2018.

Dividend and Dividend Growth

The Company continues to achieve all its dividend and dividend growth objectives. For the year 2017/18, the Company is targeting a total dividend of 6.42p per share (2016/17: 6.31p) in 4 quarterly distributions. The next dividends are due for payment on 29 December 2017, 29 March 2018 and 29 June 2018.

Market Developments and Outlook

With the end of the ROC regime on 1 April 2017, the UK solar sector has experienced a reduction in new solar plant constructions, with all the major operators focused on consolidating and onboarding the assets constructed before that deadline.

With a total of 12.8GW connected at the end of Q2 2017 there is a significant secondary market opportunity in the UK with many assets assumed to be held by short term investors that could be acquired in due course. The Investment Adviser has been observing growing appetite for these operating assets and as such the Company has reduced the discount rate to reflect the greater value of its portfolio. We expect to continue acquiring ROC based solar assets, although on a more opportunistic basis to maintain the price diligence which distinguishes the Company's investment strategy.

Nevertheless, the cost of new solar energy installations has been continuing on a downward trajectory and as a result there is less or no need for subsidies in many regions of the UK for solar to be cost competitive with other energy sources. In September, the UK had its first non-subsidy utility scale solar PV plant connected to the grid.

The Company has acquired the rights to four subsidy-free utility-scale projects and it is the intention to build them within the next 12 months.

We therefore expect the next stage of growth in UK solar energy to be driven by cheaper system costs and possibly integration with electricity storage technologies. The UK's recent Fifth Carbon Budget considers scenarios in which solar will reach between 20 and 40GW of installed capacity by 2030 compared to the current 12GW. Solar plants built during this next phase will not require Government incentives and will compete with other forms of electricity generation.

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

Kevin Lyon

Chairman of the Board of Directors

16 November 2017

Investment Manager's Report

About NextEnergy Capital

The Investment Manager and Investment Adviser are both members of the NextEnergy Capital Group. The NextEnergy Capital Group is a specialist investment and operating asset manager focused on the solar energy sector, with a 95-strong team of which 48 are focused on the UK solar market. Through its operating asset management division, WiseEnergy, the NextEnergy Capital Group has been managing and monitoring over 1,300 utility-scale solar plants and approximately 3,000 solar rooftop installations over the course of its activity (comprising an installed capacity of approximately 1.9GW and an estimated £3.5bn asset value) for a client base which includes leading European banks and equity investors (including private equity funds, listed funds and institutional investors). The NextEnergy Capital Group also manages NextPower II LP, a €150m private equity fund dedicated to solar PV investments in Italy.

Investment Objective

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

Investment Policy

The Company seeks to achieve its investment objective by investing exclusively in solar PV plants.

The Company invests in solar PV assets primarily in the UK. Up to 15% 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 outside the UK will be made only 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.

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

The Company typically seeks to acquire sole ownership of individual solar PV plants through SPVs, but may enter into joint ventures or acquire majority interests, subject, in each case, to the Company maintaining a controlling interest. Where an interest of less than 100% in a particular solar PV plant is acquired, the Company intends to secure controlling shareholder rights through shareholders' agreements or other legal arrangements. Investments by the Company in solar PV plants 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 plants and its investment policy contains restrictions to ensure risk diversification. No single investment (or, if an additional stake in an existing investment is acquired, the combined value of both the existing and the additional stake) by the Company in any one solar PV plant will constitute (at the time of investment) more than 30% of the Company's GAV. In addition, the four largest solar PV plants will not constitute (at the time of investment) more than 75% of the Company's GAV.

The Company will continue, primarily, to acquire operating solar PV plants, but may also invest in solar PV plants 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 Company's GAV in aggregate.

The Company may also agree to forward-fund by way of secured loans the construction costs of solar PV plants where it retains the right (but not the obligation) to acquire the relevant plant 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 Company's 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 Group's income is expected to result from the sale of the entirety of the electricity generated by the solar PV plants within the terms of PPAs to be executed from time to time. These are expected to include the monetisation of ROCs and other regulated benefits and the sale of electricity generated by the plants to energy consumers and energy suppliers (Brown 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 will not exceed (at the time the relevant arrangement is entered into) 50% of the Company's GAV in aggregate. Such leverage will be deployed for the acquisition of further solar PV plants in accordance with the Company's investment policy. The Company may seek to raise leverage at any of the SPV, UK Holdco or Company level. The Company has a preference for medium- to long-term amortising debt financing.

The Company invests with a view to holding its solar PV plants until the end of their useful life. However, assets may be disposed of or otherwise realised where the Investment Manager determines, in its discretion, that such realisation is in the best 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 plants to fully utilise grid connections and balance the electricity grid with a view to generating greater revenues. The Company expects to re-invest any cash surplus (in excess of that required to meet the Company's dividend target and 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. At the date of distribution of this report, there are no hedging arrangements in place.

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 FCA and of its 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 the Regulatory Information Service or a notice sent to shareholders at their registered addresses in accordance with the Articles.

Portfolio Highlights and Performances

At period end the Company's portfolio comprised 50 separate solar PV assets for a total installed capacity of c.505MW in operation (31 March 2017: 41 PV assets for a total capacity of 454MW). All of the 50 solar plants in the portfolio were operational and connected to the grid at the period end and qualified for ROC or FiT subsidies. After 30 September 2017, the Investment Manager continued with the execution of the pipeline of secured opportunities. As a result, at the date of distribution of this Interim Report, the Company has announced the acquisition of a further eight separate solar PV plants increasing the total investment cost to c.£700m, representing a total installed capacity of c.539MW in operation.

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

The operational performance of the portfolio during the period was very positive. The Investment Manager has provided in this report details of the actual performance compared to expectation for 41 of the portfolio solar PV plants, specifically only those plants (excluding roof top assets) that, as at 30 September 2017, had been managed and monitored by the Investment Adviser for at least two months post completion. As a result of the Company's operating asset management strategy, this sub-portfolio of 41 solar PV plants generated an outperformance of +2.0% above the budgeted generation values, for a total generation of 307GWh.

Even though we experienced some significant DNO outages at some of our plants during the period, we managed to generate +2.0% above budget. Otherwise, there were no other significant operational issues or technical underperformance across the portfolio during the six-month period. NESF's asset manager actively sought to postpone or mitigate unexpected or planned outages due to works conducted on the transmission grid by the various DNOs. To provide investors full transparency on our performance all issues affecting the availability and performance of the plants in the portfolio, whether beyond or within our control, are taken into account when calculating our Asset Management Alpha. Had the DNO outages been excluded, the solar irradiation delta would have been +0.6%, the power generation delta would have been +3.1% and the Asset Management Alpha would have been +2.5%.

In particular, Hall Farm's energy generation was -22.1% compared to budget. This was due to 43 days of DNO outage required for extraordinary maintenance activity on the grid. Had this been excluded, generation delta would have been +6.2% (year to date) and +5.6% (since acquisition). We believe that the generation lost during the outage will be recovered over the life of the asset, and do not expect other major outages on this plant.

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

The Asset Management Alpha allows the Company to identify a "real" outperformance of the solar portfolio due to active management having neutralised the effects of variation in solar irradiation. The nominal outperformance is calculated as GWh generated by the portfolio vs. the GWh expected in the assumptions used at the time of acquisition. In this light, the "nominal" outperformance of the Company's portfolio during the period ended 30 September 2017 was +2.0% whereas the Asset Management Alpha of +1.5% during the period represents the "real" outperformance due to active asset management. The Asset Management Alpha value for the comparable period of 2016/17 was +3.2% on a sub-portfolio of 31 plants. As a like-for-like comparison, during the period the same sub-portfolio of 31 assets registered an Asset Management Alpha of +1.7%.

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

NESF was the first of the six investment companies listed on LSE focused on renewable energy to disclose the actual generating performance of each asset compared to budget as well as the information as to what extent the delta in energy generation was due to exogenous weather conditions (i.e. delta in solar irradiation vs. budget). Since then, all other renewable investment companies have started to disclose this information to the benefit of the listed sector transparency. Based on the information publicly disclosed by each market participant, the Company's portfolio has not only performed better than budget but according to our analysis, it also outperformed each of the listed peers in every reporting period since its IPO in terms of Asset Management Alpha.

Investment Portfolio

The Investment Manager has achieved a high level of diversification in the Company's portfolio. At the period end the 50 solar PV plants are located across 23 different counties of England and Wales. The largest one representing 7.5% of the total installed capacity and the four largest solar PV plants representing together 23% of the total installed capacity. Leaving aside rooftop assets, the average size of the Company's solar PV plants is 10.1MW and the Investment Manager will seek to maintain this level of fragmentation which is considered beneficial to shareholders as it mitigates concentration risks. In addition, the portfolio is diversified across 14 non-connected contractors, 13 different Tier 1 solar panel manufacturers and eight Tier 1 inverter manufacturers. This spread of counterparties effectively diversifies the Company's key counterparty risks.

On the next pages is a summary of the overall investment portfolio at the period end with various relevant breakdown analysis:

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

(2) As at the distribution of this Interim Report.

(3) Acquired with previous debt finance attached.

(4) Part of the Three Kings portfolio.

(5) Part of the Radius portfolio.

(6) Part of the Apollo portfolio.

(7) Completed - the asset is operational and the acquisition was completed.Operational - the asset is operational but the acquisition has not yet been completed.

1. Higher Hatherleigh

2. Shacks Barn

3. Gover Farm

4. Bilsham

5. Brickyard

6. Ellough

7. Poulshot

8. Condover

9. Llwyndu

10. Cock Hill Farm

11. Boxted Airfield

12. Langenhoe

13. Park View

14. Croydon

15. Hawkers Farm

16. Glebe Farm

17. Bowerhouse

18. Wellingborough

19. Birch Farm

20. Thurlestone Leicester

21. North Farm

22. Ellough Phase 2

23. Hall Farm

24. Decoy Farm

* Underperformance is due to DNO outages. Had this been excluded, delta would have been +6.2% (YTD) and +5.6% (since acquisition). We belive that the generation lost during the outage will be recovered over the life of the asset.

25. Green Farm

26. Fenland

27. Green End

28. Tower Hill

29. Branston

30. Great Wilbraham

31. Berwick

32. Bottom Plain

33. Emberton

34. Kentishes

35. Mill Farm

36. Long Ash Lane

37. Bowden

38. Stalbridge

39. Aller Court

40. Rampisham

41. Wasing

42. Flixborough

43. Hill Farm

44. Forest Farm