NextEnergy Solar Regulatory News (NESF)

LEI: 213800ZPHCBDDSQH5447

19 November 2021

NextEnergy Solar Fund Limited

("NESF" or the "Company")

Interim Results for the period ended 30 September 2021

NextEnergy Solar Fund, the specialist solar power renewable energy investment company, is pleased to announce its interim results for the period ended 30 September 2021.

Key highlights

· +4.2p increase in Net Asset Value per ordinary share to 103.1p (31 March 2021: 98.9p), reflecting higher power curves and higher market views of inflation

· Diversification into the energy storage sector through a £100m joint venture partnership with Eelpower, a leading UK battery specialist, with first 50MW acquisition signed and being prepared for construction

· Commitment of $50m into NextPower III, a private international solar fund, providing an opportunity to efficiently access, inter alia, an established portfolio of operational and in-construction international assets

· Portfolio electricity generation +1.1% above budget for the period (2020: +11.1%)

· Total dividends of 3.58p per ordinary share declared in period (2020: 3.525p), the Company remains on track to deliver its target dividend of 7.16p in respect of the year ended 31 March 2022

Financial highlights

· Ordinary shareholders' NAV of £607m (2020: £584m)

· Ordinary shareholder cumulative total return since IPO of 46.4% (2020: 41.5%)

· Gearing (including preference shares) of 44% (2020: 41%)

· Cash income £28.7m (2020: £32.5m)

· Cash dividend cover before scrip 1.0x (2020: 1.2x)

Operational highlights

· Increased total installed capacity by 10% to 895MW (31 March 2021: 814MW)

· Added five solar assets increasing NESF operating solar assets to 99 (31 March 2021: 94)

· Successfully energised South Lowfield, a 50MW solar asset with a long-term 15-year PPA

· NEC's electricity sales desk continues to successfully manage risk and opportunistically lock in high power prices in line with NESF's electricity sales strategy; NESF's hedging positions (covering 716MW of the UK portfolio) as at 15 November 2021 were:

o 2021/22: 96% of budgeted generation hedged

o 2022/23: 75% of budgeted generation hedged

o 2023/24: 59% of budgeted generation hedged

o 2024/25: 18% of budgeted generation hedged

Strategy update

· Renewable infrastructure is a highly attractive asset class which we continue to see a strong pipeline of opportunities for growth. The current pipeline is in excess of £300m.

· NESF continues to unlock growth by pursuing opportunities within its investment policy limits:

o International solar assets (up to 30% GAV)

o Standalone energy storage (up to 10% GAV)

o Solar private investment structures (up to 15% GAV)

ESG highlights

· NESF's portfolio generated 539GWh of electricity during the period, which is the equivalent to:

o Powering 299,000 UK homes for a year

o Avoiding 229,000 tonnes of CO2e emissions

o Removing 151,260 petrol/diesel cars from the road

· 30 Universal Biodiversity Management Plans ("UBMP") implemented to improve local biodiversity on solar sites and increase engage with the local community, going above and beyond planning requirements

· Achieved compliance with the European Union Sustainable Finance Disclosure Regulation

· Committed to making disclosures in accordance with Regulation ("EU") 2019/2088 on sustainability-related disclosures in the financial services sector

Results presentation

There will be a webcast and conference call this morning at 9.00am hosted by:

· Michael Bonte-Friedheim (CEO - NextEnergy Capital, Investment Adviser)

· Ross Grier (Managing Director - NextEnergy Capital, Investment Adviser)

To register for the webcast please use this link: https://bit.ly/NESF_H1_webinar 

The presentation will be followed by a Q&A session for analysts. Questions may be submitted prior to the presentation via email to ir@nextenergysolarfund.com or live during the event using the webcast Q&A function. We will endeavour to answer submitted questions during the Q&A section, if this is not possible due to time constraints, we will follow up shortly after the presentation.

A recording of the presentation will also be made available on the NESF website after the event.

Kevin Lyon, Chairman of NextEnergy Solar Fund commented:

"The 2021 interim period has put UK energy at the forefront of minds and agendas driven by unprecedented high-power prices in the UK, global gas shortages, and the recent UN climate change conference, COP26, highlighting the immediate need to switch to renewable energy sources like solar.

I am pleased to report that the period has been successful for NESF both financially and operationally. NESF has achieved some important milestones in the period, taking its first significant strategic step into the UK energy storage market by signing its maiden 50MW standalone battery investment, signing a £100m joint venture partnership with battery specialist Eelpower, and committing US$50m to NextPower III, a specialist international solar fund managed by NextEnergy Capital.

I am confident in NESF's ability to continue its growth momentum and progressive dividend strategy, whilst maintaining operational excellence going forward."

Michael Bonte-Friedheim, Group CEO of NextEnergy Capital commented:

"NESF has navigated the interim period well and I am pleased to report milestones which have not only improved NESF's current portfolio but have also paved the way for more diversified growth in the future. Financially, NESF remains in a positive position with strong income as we remain on track to deliver our target dividend of 7.16p for the financial year.

Following shareholder approval to increase our GAV outside of the UK, we continue to develop a significant pipeline of international solar assets, across North America, Portugal, Spain and Italy, alongside UK energy storage assets.

I firmly believe the milestones hit during the period and our growth prospects make NESF a unique investment proposition, as well as one that is financially well-positioned to take advantage of the host of future opportunities we see."

For further information:

Notes to Editors1:

About NextEnergy Solar Fund

NESF is a specialist solar power renewable energy investment company listed on the premium segment of the London Stock Exchange that invests in operating utility-scale solar power plants. The Company may invest up to 30% of its gross asset value in non-UK OECD countries, 15% in solar-focused private equity structures, and 10% in energy storage.

NESF currently has a diversified portfolio comprising 99 operating solar assets (primarily on agricultural, industrial, and commercial sites), and a $50m commitment into NextPower III (a private ESG solar infrastructure fund providing exposure to operating and in-development international solar assets).

The NESF portfolio has a combined installed power capacity of 895MW (including NextPower III MW on an equivalent look-through basis).

As at 30 September 2021, the Company had a gross asset value of £1,087 million, being the aggregate of the net asset value of the ordinary shares, the fair value of the preference shares and the amount of NESF Group debt outstanding, and a net asset value of £607million.

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 primarily UK-based solar energy infrastructure assets. The majority of long-term cash flows from its investments are inflation-linked.

For further information on NESF please visit nextenergysolarfund.com

Commitment to ESG

NESF is committed to ESG principles and responsible investment which make a meaningful contribution to reducing CO2 emissions through the generation of clean solar power. NESF will only select investments that meet the requirements of NEC Group's Sustainable Investment Policy. Based on this policy, NESF benefits from NEC's rigorous ESG due diligence on each investment. NESF is committed to reporting on its ESG performance in accordance with the UN Sustainable Development Goals framework and the EU Sustainable Finance Disclosure Regulation.

NESF has been awarded the London Stock Exchange's Green Economy Mark and has been designated a Guernsey Green Fund by the Guernsey Financial Services Commission.

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 website (nextenergysolarfund.com/esg/) & NEC Group website (nextenergycapital.com/sustainability/transparency-and-reporting/).

About NextEnergy Capital Group ("NEC Group")

NESF is managed by the NextEnergy Capital Group, a specialist solar investment manager, which has a strong track record in sourcing, acquiring, and managing operating solar assets. NEC Group is a leading player in the global solar investment sector and has over 200 team members with offices in UK, Italy, India, and the USA and assets under management of over $2.9bn across three institutional funds.

NextEnergy Capital Group donates at least 5% of its net annual profits to NextEnergy Foundation. NextEnergy Foundation is an international charity that was founded in 2016. Its mission is to participate proactively in the global effort to reduce carbon emissions, provide clean power sources in regions where they are not yet available, and contribute to poverty alleviation.

For further information on NEC Group please visit nextenergycapital.com  

For further information on NextEnergy Foundation visit nextenergyfoundation.org 

About WiseEnergy

WiseEnergy is NEC Group's specialist operating asset management division. NESF is differentiated by its access to WiseEnergy, which has provided 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 2.2GW.

For further information on Wise Energy please visit wise-energy.com  

[1] Note: All financial data is unaudited as at 30 September 2021, being the latest date in respect of which NESF has published financial information

Generating a more sustainable future

Annual Report for the six months ended 30 September 2021

Our Objectives

Investment Objectives

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

Optimise the value of our assets through effective active management.

Expand the portfolio in line with the Company's Investment Policy to provide growth.

Operational

Consistently achieve operational outperformance of the portfolio attributable to effective asset management.

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

Environmental

Enhance biodiversity where our assets are located.

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

Social

Positively impact the local communities in which our solar assets are located

Continue to engage with all stakeholders.

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.

Overview

Performance Highlights

Financial Highlights

NAV per ordinary share as at 30 September 2021 103.1p (31 March 2021: 98.9p)

Dividends per ordinary share for the period ended 30 September 2021 3.58p (30 September 2020: 3.53p)

NAV total return per ordinary share for the period ended 30 September 2021 7.9% (30 September 2020: 4.1%)

Ordinary shareholders' NAV as at 30 September 2021 £607m (31 March 2021: £581m)

Cash dividend cover (pre-scrip dividends) for the period ended 30 September 2021 1.0x (30 September 2020: 1.2x)

Ordinary shareholder total return for the period ended 30 September 2021 3.8% (30 September 2020: 3.9%)

Financial debt gearing as at 30 September 2021 26.0% (31 March 2021: 24.0%)

Total gearing as at 30 September 2021 44.2% (31 March 2021: 43.3%)

Ordinary shareholder annualised total return since IPO 6.2% (31 March 2021: 6.1%)

Operational Highlights

Total capacity installed as at 30 September 2021 895MW (31 March 2021: 814MW)

Operating solar assets as at 30 September 2021 99 (31 March 2021: 94)

Total electricity generation for the period ended 30 September 2021 539GWh (30 September 2020: 551GWh)

Generation above budget for the period ended 30 September 2021 1.1% (30 September 2020: 11.1%)

ESG Highlights

Tonnes of CO2e emissions avoided p.a. 229,000 (30 September 2020: 237,500)

Equivalent UK homes powered for one year 299,000 (30 September 2020: 306,8003)

NextEnergy Solar Fund Overview

A SOLAR POWER RENEWABLE ENERGY INVESTMENT COMPANY WITH A DIVERSIFIED HIGH QUALITY PORTFOLIO, MANDATE FOR GROWTH AND A DIVERSE PIPELINE OF NEW OPPORTUNITIES

MANAGED BY SOLAR SPECIALISTS:

NEXTENERGY CAPITAL, INVESTMENT MANAGER

WISEENERGY, OPERATING ASSET MANAGER

BOTH LEADING MANAGERS IN THE SOLAR ENERGY INFRASTRUCTURE SECTOR

DIVERSIFIED PORTFOLIO:

99 OPERATING SOLAR PLANTS

1 INTERNATIONAL PRIVATE EQUITY SOLAR FUND INVESTMENT

NEW 100MW JOINT VENTURE PARTNERSHIP INTO UK STANDALONE ENERGY STORAGE

IN THE INTERIM PERIOD WE GENERATED SUFFICIENT ENERGY TO POWER THE EQUIVALENT OF 299,000 UK HOMES (EQUIVALENT TO EDINBURGH AND BRIGHTON) ANNUALLY WITH CLEAN RENEWABLE ENERGY

CONTINUED ASSET OUTPERFORMANCE SINCE IPO

ATTRACTIVE INCOME, TARGETING A TOTAL DIVIDEND OF 7.16P PER ORDINARY SHARE IN RESPECT OF THE YEAR ENDING 31 MARCH 2022, PAYABLE QUARTERLY

Why Invest in NESF & Solar Assets?

ABUNDANT CLEAN ENERGY SOURCE

More solar energy hits the Earth in a single hour than the energy being used by the entire human population in a year.

Solar energy generation is now economically viable in markets not typically characterised by high levels of solar irradiation such as the UK.

RELIABLE INVESTMENT WITH ATTRACTIVE GROWTH PROSPECTS

Provides a regular attractive dividend for income seeking investors.

Offers a natural hedge against inflation, for example government subsidies are linked to RPI.

Large diversified operating asset portfolio and incremental growth prospects.

PROVEN AND STABLE TECHNOLOGY

Reliable and predictable source of electricity due to high consistency in yearly-solar irradiation.

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

COST-EFFECTIVE ELECTRICITY GENERATION

Low costs of operations, maintenance and replacement of assets.

Solar PV technology has benefited from a significant reduction in costs and non-subsidised solar assets are now economically competitive with fossil fuel sources and provide attractive financial returns.

CLIMATE CHANGE SOLUTION

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

Meaningful contribution to reducing CO2e emissions through the generation of clean electricity.

Investment in solar provides significant biodiversity benefits to the local surrounding areas.

Strategic Report

Chairman's Statement

The 2021 interim period has been one that has truly put UK energy at the forefront of minds and agendas, and I am pleased to say that it has been a successful period for NESF both financially and operationally.

Earnings for the period were significantly above our previous period at 7.74p per ordinary share, with our dividend target for the current financial year at 7.16p per ordinary share remaining unchanged.

Operationally NESF has met some important milestones with the Group reaching its 150MW UK subsidy free development goal, as well as committing to a significant investment in a private sector fund which gives NESF diverse exposure to a large number of projects. In another important strategic step, NESF entered into a joint venture to establish its first standalone battery storage project in the UK, which as well as being complimentary to our PV business, also diversifies our income. With a significantly strengthened portfolio I am confident in our ability to continue our financial growth and operational excellence in the future.

I am pleased to present the NextEnergy Solar Fund (the "Company" or "NESF") Interim Report for the six months ended 30 September 2021.

The period under review has witnessed continued global economic challenges associated with the ongoing Covid-19 pandemic. In recent months, power prices have reached unprecedented high levels across both the UK and Europe, as countries recover from prolonged periods of economic shutdown alongside global gas shortages.

Following the lifting of national lockdowns, the Company, its Investment Manager, NextEnergy Capital, and its operating asset manager, WiseEnergy, have all successfully transitioned to a hybrid working model across its jurisdictions.

NESF's portfolio has demonstrated robust performance over the period. This portfolio consistently generates more output than budgeted, whilst we ensure the power price volatility is managed through NESF's electricity sales hedging strategy. This allows NESF to both reduce risk and take advantage of temporary higher forward power prices.

NESF has the highest dividend yield when compared to relevant peers. This presents investors, both current and new, with an attractive opportunity to invest, particularly as we strategically position NESF for its next stage of growth. NESF continues to play a key part in contributing to tackling global climate change and enhancing local biodiversity.

Results and Key Events

Operationally, the Company and its key providers have adjusted to the challenges of the Covid-19 pandemic. The Company continued to perform well, driven by the implementation of our portfolio and asset management strategy, our approach to continually improve operating efficiency and ability to manage our exposure to power price fluctuations effectively through our specialist electricity sales function. The Company's installed capacity has grown from 814MW as at 31 March 2021 to 895MW at the period-end.

The Company has now delivered on two of last year's Investment Policy changes and is on track to deliver the third change of achieving geographical diversity through investment into non-OECD countries.

In September 2021, NESF entered the standalone battery storage space by agreeing a £100m Joint Venture Partnership ("JVP") with Eelpower Limited a leading battery storage specialist in the UK. The JVP has already signed its first acquisition during the period for a 50MW storage facility that is expected to be energised in 2022. The project is a ready-to-build standalone battery storage, located in Scotland, which will provide additional stability and flexibility to the grid. This investment has multiple revenue opportunities such as arbitrage trading (battery dispatch and re-optimisation using asset backed financial trades) and capacity markets. The JVP includes a framework for future acquisition of up to 250MW, enabling us to invest in opportunities that offer complimentary revenue streams to our existing portfolio of solar assets.

In June 2021, NESF announced a commitment of US$50m to NextPower III LP ("NPIII""), a NextEnergy Capital managed private ESG solar infrastructure fund that invests in solar assets primarily in OECD countries. NPIII benefits from NextEnergy Capital's ability to source and secure solar assets that deliver attractive risk-adjusted target returns. This investment has enabled NESF to benefit from access to a geographically well diversified portfolio of operational, in construction and pre-construction solar assets spread across the United States, India, Poland, Chile, Spain and Portugal (on a look through equivalent basis, NESF owns 30MW of these operational assets as at 30 September 2021). The commitment also provides NESF with increased diversification across regulatory regimes, technology providers and offtake counterparties. NESF's investment manager, NextEnergy Capital, has agreed to rebate back to NESF its full investment management fee relating to NESF's commitment to NPIII, thereby providing a cost-effective investment from NESF's perspective, due to the absence of fees-on-fees because of the commonality of the investment manager.

Additionally, by investing in NPIII, NESF will benefit from co-investment opportunities allowing NESF to take direct stakes in solar PV assets alongside large international institutional investors. This is particularly attractive as it will provide NESF access to a diverse new pipeline of international assets in key solar markets, providing a potential return enhancing portfolio benefit (on a no-fee, no-carry basis).

In summer 2021, the Company energised South Lowfield (50MW), located in North Yorkshire. The energisation represents a significant milestone for NESF's strategy of establishing a foothold in the long-term, high-credit UK corporate power price agreements ("PPA") market. The Camden portfolio, comprising The Grange (50MW) and South Lowfield (50MW), has a 15-year PPA in place covering c.75% of the electricity to be generated over the next 15 years. The PPA counterparty is AB InBev, the world's largest brewer. The portfolio also demonstrates the Company's ability to establish itself as a leader in this subsidy-free space.

The remaining subsidy-free development assets, Hatherden (50MW) and Whitecross (36MW), have been prepared for construction during the period. Starting construction of Hatherden and Whitecross will depend on the supply-chain environment. Once energised in FY 2022/23, our 150MW subsidy-free portfolio target will be achieved (64MW has been energised at the date of this report). It is estimated that the full subsidy-free portfolio will amount to a total investment of c.£80m (7.4% of GAV as at 30 September 2021).

In addition to the Company's subsidy-free strategy, NESF has agreed to finance, design, build, operate and own a portfolio of solar assets on sites operated by the Anglian Water Group. The power generated from these assets will be sold directly to Anglian under a 25-year PPA. Two projects totalling 1.4MW are already operational and a further 4MW are expected to be energised during the current financial year.

The technical performance of our plants during the period has been robust. Generation was 1.1% above budget, and would have been 2.6% above budget, if the high number of Distribution Network Operator Outages ("DNOOs") (over which we have no control), were excluded. With the majority of our electricity sold under fixed-price contracts, we achieved earnings per ordinary share of 7.74p (30 September 2020: 4.04p).

For the financial year ending 31 March 2022, we are targeting a total dividend of 7.16p per ordinary share. To the extent the Board considers it appropriate, each year we will target increasing the total annual dividend paid to ordinary shareholders. Following the payment of the second approved interim dividend on 31 December 2021, the Company will have paid total dividends of 3.58p per ordinary share in respect of the six months ended 30 September 2021 (30 September 2020: 3.525p).

NAV and Operating Results

At the year end, the ordinary shareholders' NAV was £607m, equivalent to 103.1p per ordinary share (year ended 31 March 2021: £581m, 98.9p per ordinary share).

The main contributors during the period were the increase in the short-term power price forecast (+2.5p per ordinary share) on the unhedged portion of our revenues and an increase in the short-term inflation forecast (+1.8p per ordinary share).

Profit before tax was £45.5m (30 September 2020: £23.6m) with earnings per ordinary share of 7.74p (30 September 2020: 4.04p). Cash dividend cover (pre-scrip dividends) was 1.0x (30 September 2020: 1.2x).

For the half year, the ordinary shareholder total return was 3.8% (30 September 2020: 3.9%) and the ordinary share NAV total return was 7.9% (30 September 2020: 4.1%). As at 30 September 2021, NESF had an annualised ordinary shareholder total return of 6.2% (31 March 2021: 6.1%) and an annual ordinary share NAV total return of 6.7% since IPO (31 March 2021: 6.0%). At the period end, the NESF share price was 99.8p, which was a 3.3% discount to the NAV per ordinary share of 103.1p.

Power Prices

During the period, extreme energy price volatility led to dramatic increases in UK and European wholesale power prices. The combined impact of low UK wind resource, reduced gas supply and storage levels and outages at UK nuclear and interconnector facilities resulted in the September 2021 UK day ahead auction price monthly average reaching a record of £189/MWh.

Of the Company's revenues during the period, 59% were derived from government subsidies and, at the end of the period, the average remaining weighted life of the subsidies was 13.5 years.

The remaining 41% of the Company's revenues were derived from selling the electricity generated to carefully selected counterparties in the open market and, therefore, are exposed to market power price movements until the price has been locked (hedged). Our Asset Manager's electricity sales desk is focused on securing the best terms for our electricity sales. This flexible approach is designed to protect against adverse short-term price movements whilst also enabling the Company to opportunistically capture favourable market conditions by securing high fixed prices for specified future time periods. Looking forward to the next three financial years, as at 15 November 2021, the Company has agreed pricing covering:

· 96% of UK budgeted generation for the 2021/22 financial year;

· 75% of UK budgeted generation for the 2022/23 financial year; and

· 59% of UK budgeted generation for the 2023/24 financial year.

Portfolio Performance

Energy generated during the period was 539GWh (30 September 2020: 551GWh) and the portfolio achieved a generation outperformance to budget of 1.1% (30 September 2020: 11.1%), increasing revenues by an estimated £0.9m. Portfolio generation was significantly impacted by DNOOs; without such DNOOs, portfolio generation would have been c.2.6% above budget.

Distribution Network Operators ("DNOs") are regionally based licensed companies (there are 6 across Great Britain) with each responsible for a specific region. They own and operate the power lines and infrastructure that connects consumers and embedded generators to the power system and the national grid.

DNOs complete rolling programs of preventative maintenance and upgrade works to ensure stability of the energy supplied to consumers. In order to keep their staff safe they often have to de-energise power lines to complete these works, as part of this they have the right to ask generators such as NESF to isolate certain assets for periods of time. The distributed nature of NESF's assets does well to mitigate the impact of this in normal years, however, during the coronavirus pandemic (2020) the DNOs were not able to complete their periodic maintenance works and therefore rolled these forward into 2021. This means that there has been a concentration of the number of DNOOs within this period and their impact on the portfolio, a trend which is not anticipated to continue.

Nevertheless, our UK portfolio performed above expectations with generation outperformance of 1.1% (30 September 2020: 11.5%) and solar irradiation of 2.3% (30 September 2020: 11.2%). Our Italian portfolio performed above expectations with generation outperformance of 0.7% (30 September 2020: 4.6%) and solar irradiation of 3.3% (30 September 2020: 4.2%).

Portfolio Update

During the period, our Investment Adviser and Asset Manager continued to optimise portfolio returns and increase portfolio diversification by:

· energising projects with attractive long-term PPAs;

· executing our electricity sales strategy to maximise revenue and reduce shorter-term power price risk;

· preparing the remaining subsidy-free portfolio (86MW) for construction;

· securing a low-cost £75m Revolving Credit Facility ("RCF") (plus accordion) to fund the investment pipeline (margin of 120bps over SONIA ("Sterling Overnight Index Average"));

· committing US$50m to an international solar private equity vehicle;

· entering a £100m Battery Storage Joint Venture Partnership and signing a first acquisition for a 50MW battery storage asset;

· implementing technical improvements across the portfolio; and

· reducing operating costs through re-negotiating contractual terms and entering into new agreements.

In line with its amended investment policy which was approved by shareholders in September 2020, the Company is advancing a significant pipeline of both domestic and international solar assets, including co-investments in private equity structures and domestic energy storage asset opportunities, which complement its existing portfolio, with a view to achieving higher financial returns, additional geographical, technology, and revenue diversification.

Debt Strategy

In June 2021, the company secured a RCF of £100m (£75m committed + £25m accordion option) with lenders NatWest and AIB. This is held at the HoldCo Level. The Company was able to agree attractive terms with a margin of 120bps over SONIA for the 3-year duration of the facility.

As at 30 September 2021, the Company had £200m of preference shares (31 March 2021: £200m). The Company's subsidiaries also had financial debt outstanding of £283m (31 March 2021: £246m). Of the financial debt, £190m represented two long-term fully amortising debt facilities, £79m was drawn under two RCFs and £14m was the look through debt in relation to the US$50m commitment into NextPower III LP.

At the period end, the Company's subsidiaries had £86m undrawn (excluding the accordion) from three RCFs and the Company had a cash balance of £4.3m.

The total financial debt represented 26% of GAV as at 30 September 2021 (31 March 2021: 24%). At the same reporting date, the total gearing comprising the total financial debt and the preference shares represented 44% of GAV (31 March 2021: 43%).

Dividends

For the financial year ending 31 March 2022, we are targeting a total dividend of 7.16p per ordinary share (2021: 7.05p).

The Directors have approved a second interim dividend of 1.79p per ordinary share, which will be payable on 31 December 2021 to ordinary shareholders on the register as at the close of business on 19 November 2021. Following the payment of the second interim dividend, the Company will have paid total dividends of 3.58p per ordinary share in respect of the six months ended 30 September 2021 (30 September 2020: 3.525p)

The Company continues to offer a scrip dividend alternative as approved by ordinary shareholders at the last AGM, details of which can be found on the Company's website.

During the six months ended 30 September 2021, the Company paid a total of £19.6m of cash dividends (30 September 2020: £18.7m) and, in addition, issued £1.3m of scrip shares to ordinary shareholders who elected for the scrip dividend alternative (30 September 2020: £1.6m), making a total of £20.9m of distributions (30 September 2020: £20.3m).

The Company has paid dividends since IPO that have increased annually in line with RPI, including the current financial year. To the extent the Board considers it appropriate, we will each year target increasing the total annual ordinary dividend paid to shareholders. In deciding the total annual dividend, the Board will take into account: projected future power prices and associated price hedges, inflation in our markets, historic and budgeted technical and operational performance of our portfolio; and the appropriate ratio of ordinary earnings and cash cover to proposed dividend payments.

Environmental, Social and Governance Matters

Our commitment to ESG is always at the forefront of our business strategy and purpose. Our Investment Adviser is a signatory of the United Nations' Principles for Responsible Investments and has integrated ESG principles into all aspects of the NEC Group's investment and asset management processes. NESF integrates ESG factors in investment decision by implementing the Investment adviser's Sustainable Investment Policy1 throughout the investment cycle, from preliminary screening and exclusion to risk management during pre-investment and ownership phase. We have strengthened our transparency and reporting in compliance with the EU Sustainable Finance Disclosure Regulation.

Aligned with our commitment to support the UK Government's net zero ambitions presented at COP26, our portfolio during the six months ended 30 September 2021 has generated 539 GWh of clean electricity, contributing to avoiding the emission of 229,000 tonnes of CO2e. (30 September 2020: 237,500 tonnes CO2e) and equivalent to power 299,000 UK homes for an entire year (30 September 2020: 306,800). This is roughly equivalent to powering a city with 750,000 inhabitants (e.g. Edinburgh and Brighton combined) or taking 151,260 cars off the road for an entire year (30 September 2020: 170,500 cars).

Our Asset Manager also actively engages in activities that enhance the environment and community surrounding our solar plants, including, where feasible, on-site biodiversity activities such as encouraging wildflower meadows, installing bug hotels, partnering with local beekeepers and other initiatives to improve the local biodiversity, as well as local community programmes.

The Company continues to hold the London Stock Exchange Green Economy Mark, which recognises funds which derive 50% or more of their revenues from environmental solutions, and the Guernsey Green Fund Mark, due to our meaningful contribution to reducing CO2e emissions through the generation of clean solar power.

NESF is currently compliant with the requirement of the EU Sustainable Finance Disclosure Regulation ("SFDR"). The investment adviser's ESG team have been working with an international law firm who has supported NESF with the relevant disclosure obligations, currently available on the Company website, in periodic reporting and in pre-contractual disclosure documents. The law firm has also confirmed that NESF classified under Art. 9 of the SFDR, because it is a financial product, that is (partly or fully) marketed in the EU and has sustainable investment as its objective. The funds' sustainable investment objectives arise from their focus on investments in solar PV and battery storage assets and their investment decision making processes. In light of this classification, in the future NEC will make the relevant disclosures according to Annex III and V of the SFDR.

In addition to the ESG activities on behalf of NESF and other clients, the NEC Group continues to donate at least 5% of its net profits to the NextEnergy Foundation, which was established in 2017. The Foundation participates proactively in the global effort to reduce carbon emissions, providing clean power sources in regions where they are not available and contributing to poverty alleviation.

Appreciation

On behalf of my fellow Directors, I would like to express my sincere thanks to the numerous people who have worked in the field and from home

We appreciate that conditions have been testing but the continued hard work has enabled our Company to continue to operate successfully during the Covid-19 pandemic.

Outlook

The Board, Investment Manager and Investment Adviser believe that the market environment continues to be favourable for the Company and its Investment Policy is appropriate for the market conditions.

Undoubtedly, the Covid-19 pandemic continues to have a profound impact on the sector in which the Company operates. The recent power price surge during the period and beyond has the importance of capturing the short-term higher power prices in the Company's hedging strategy. The price for electricity is driven by several factors that are inherently difficult to predict in the current dynamic environment but is ultimately dependent on supply and demand.

In the current economic climate, we are continuing to closely monitor both macro and micro economic indicators and governmental information to assess the potential future impact on the Company's activities. The Company will continue to focus on generating attractive financial returns for our shareholders, while having positive social and environmental impacts.

NESF continues to consolidate its leadership position in the growing UK long-term corporate PPA market, building upon the successes of the Anglian Water projects and the landmark 100MW Camden acquisition with PPA off taker ABInbev. This emerging PPA market can provide long-term, reliable cashflows for the Company, whilst supporting large corporates' energy needs through their desire to consume renewable green energy and to help tackle climate change.

NESF is progressing the Company's power price hedging strategies for the sale of electricity from subsidy-free plants to secure attractive risk-adjusted returns. The successful selection of our 150MW subsidy-free portfolio demonstrates our ability to respond efficiently and effectively to a changing UK solar market through our expertise in identifying opportunities and maximising risk-adjusted returns.

NESF is advancing a diverse pipeline of international solar investment opportunities, UK standalone battery storage assets, and co-investment opportunities via its holding in NPIII. The pipeline's goal is to complement the existing portfolio, diversify some of our asset-specific/ market risks and enhance shareholder returns.

NESF is aiming to extend the useful life of a further five assets during the current financial year, adding to the 35 UK assets (337MW) which have already secured extensions since IPO. These extensions will be value accretive by increasing long-term revenues.

ESG continues to be a core part of our purpose, as activities mitigating climate change accelerate globally. The execution of our ESG policy is not just integrated into NESF investment decisions, it ensures we continue to lead by example and our Company and stakeholders are fully aligned to create a better environment for both current and future generations.

The Company has demonstrated that it can be resilient to the volatility that the Covid-19 pandemic has posed, and we are well placed to meet the challenge of achieving our investment objectives and the opportunity to grow the business in the future in line with our strategic goals.

Lastly, as demonstrated by the recent COP26 conference, the UK is setting an example to the rest of the world on how economies can change their energy mix to tackle climate change. The next six months provide an exciting opportunity for NESF as it continues to invest in both solar and energy storage. The Board and I strongly believe that the fund is making a real difference to the UK energy landscape and look forward to helping deliver both global net zero goals and value to our shareholders.

Kevin Lyon,

Chairman

18 November 2021

NextEnergy Capital Group

NextEnergy Capital Group is a leading solar investment manager and asset manager focused on the solar sector. The 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.$2.9bn of assets under management and employs over 200 people worldwide.

About NextEnergy Capital Group

The Investment Manager, Investment Adviser and Asset Manager are all members of the NextEnergy Capital Group (the "NEC Group"). The NEC Group is privately owned and was founded in 2007. It has evolved into a leading specialist investment and asset manager in the solar energy infrastructure sector. Since it was founded, it has been active in the development, construction ownership and operating asset management of solar assets.

As at 30 September 2021, the NEC Group had assets under management of c.$2.9bn with a cumulative operating generating capacity of 1.4GW. In addition to NESF, it manages two private equity funds, NextPower II [P (solar assets in Italy) and NextPower III [P (solar assets globally). The NEC Group's team of over 200 individuals has significant experience in energy and infrastructure transactions across multiple international jurisdictions.

The Investment Adviser's Investment Committee comprises Michael Bonte-Friedheim, Aldo Beolchini, Giulia Guidi and Ross Grier, who combined have in excess of 65 years' industry experience.

As at 30 September 2021, the NEC Group provides 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 2.2GW. Its asset management clients include renewable funds, banks, private equity funds and other specialist investors. The Asset Manager has created a proprietary asset management platform which integrates all technical, financial and commercial data to analyse clients' data in real-time and generate insight, all of which help to protect and enhance the long-term quality and performance. The Asset Manager's software, systems and specialist staff enable it to be at the forefront of the "digitalisation of energy".

Aldo Beolchini is Managing Partner and Chief Investment Officer of NextEnergy Capital and a member of the Investment Committee of the Investment Adviser to NextEnergy Solar Fund.

Giulia Guidi is Head of ESG at NextEnergy Capital and a member of the Committee of the Investment Adviser to NextEnergy Solar Fund.

Ross Grier is UK Managing Director of NextEnergy Capital and a member of the Investment Committee of the Investment Adviser to NextEnergy Solar Fund.

Michael Bonte-Friedheim is Founding Partner and Group CEO of NextEnergy Capital and member of the Investment Committee of the Investment Adviser to NextEnergy Solar Fund.

Investment Adviser's Report

Introduction

As at 30 September 2021, the NAV per ordinary share was 103.1p (31 March 2021: 98.9p). The increase in NAV over the last 6 months reflects an increase in the short-term power price forecasts (+2.5p per ordinary share) and a revision in short-term inflation forecasts (+1.8p per ordinary share).

At the period end, the UK blended average power curve corresponded to an average solar capture price of approximately £71.1/MWh (31 March 2021: £45.6/MWh) for the period 2021-2025 and £44.1/MWh (31 March 2021: £46.5/MWh) for the period 2026-2040 (at 2021 prices).

As our employees return to the office, we continue to follow government guidelines and monitor the impact of Covid-19 on our global workforce, and the countries in which we operate and pursue investment opportunities.

Portfolio Highlights

During the period, we continued to explore new opportunities in different technologies, asset classes and geographies whilst actively managing NESF's existing portfolio of operating solar assets and development projects.

To progress its investment pipeline, the Company secured a new RCF of £100m (£75m committed + £25m accordion) with a 3-year duration in June 2021. The RCF was on attractive terms with lenders NatWest and AIB with agreed margin of 120bps over SONIA. The facility increased NESF's overall RCF capacity to £165m (not including the £25m accordion).

In June 2021, NESF announced a commitment of US$50m to NextPower III LP ("NPIII"), a private ESG solar infrastructure fund established to invest in solar assets primarily in OECD countries. The investment benefits from diversification across regulatory regime, technology provider, offtake counterparty and geographic location (with access to solar assets in the United States, India, Portugal, Spain, Poland and Chile). As at 30 September 2021, NESF had invested c.£20m into NPIII, adding 30MW to NESF's installed capacity on a look-through equivalent basis based on its ownership share of NPIII. NESF's investment in NPIII represents c.3.2% of NESF's GAV as at 30 September 2021.

In June 2021, NESF energised South Lowfield, a 50MW subsidy free asset in North Yorkshire. The asset is part of the Camden acquisition of two projects totalling 100MW that was made in March 2021. The projects will produce enough clean energy combined to power the equivalent of c.29,000 UK households per year. Both assets benefit from a long-term 15-year PPA with AB InBev for c.75% of the electricity generated.

In September 2021, NESF made its first strategic step into the energy storage sector through a £100m Joint Venture Partnership ("JVP"), with Eelpower Limited, a leading battery storage specialist in the UK. The JVP signed its first acquisition of a 50MW ready-to-build, standalone battery, located in Fife, Scotland, which will provide additional stability to the grid via its export capacity. It is expected to be energised and grid-connected in 2022. The JVP, owned 70% by NESF and 30% by Eelpower, also includes a framework for the acquisition of up to 250MW (including this initial 50MW project) of battery storage assets. The directors have concluded that the JVP meets the control requirements of the relative accounting standards and is therefore accounted for as a subsidiary (see note 18). The Company is permitted to invest 10% of its Gross Asset Value into standalone energy storage systems, an investment mandate approved by shareholders in September 2020.

During the period, NESF also added four rooftop assets, as part of an agreement made with the renewable energy developer, Zestec. The four assets have a combined capacity of 0.7MW and are located in Cheshire, Worcestershire, Oxfordshire and East Sussex. Two of the assets will benefit from FiTs, whilst the remaining assets will benefit from the Company's hedging strategy. This venture requires small individual investments (typically £0.2m-£0.3m per rooftop) but yields attractive risk-weighted financial returns. It is also a good avenue to deploy cash flows generated by the portfolio in excess of the dividend and operating cost base.

Portfolio Performance

During the period, the portfolio achieved a generation outperformance to budget of 1.1% (30 September 2020: 11.1%), increasing revenues by an estimated £0.9m. Portfolio generation was significantly impacted by DNOOs; without such DNOOs, portfolio generation would have been c.2.6% above budget.

DNOOs were driven by higher than normal grid maintenance undertaken by DNOs during the period, primarily reflecting backlog from the pandemic-impacted 2020/21 financial year and activities to reinforce grid reliability.

Throughout the pandemic, workers in the electricity sector have been considered "key workers" and this enabled the Asset Manager to ensure that the technical and operational integrity of NESF's solar assets was maintained and DNOOs impact was minimised as far as possible.

During the period, irradiation across the entire portfolio was 2.4% above expectation (30 September 2020: 10.8%). Asset Management Alpha for the period was -1.2% (30 September: 2020: 0.3%), and would have been 0.2% (30 September 2020: 0.8%) if DNOOs were excluded.

DNOOs significantly disrupted generation during the period, reducing Asset Management Alpha by 1.4%. For illustrative purposes, DNOOs reduced generation by 3.4% in September 2021, the largest monthly impact since IPO, with at least two 5MW plants completely taken off-line for the entire month.

* the values do not cast due to rounding differences.

*the values do not cast due to rounding differences.

1 For more information please see APMs.

Asset Management Alpha

The Asset Management Alpha is an important metric that allows the Company to identify the "real" outperformance of the portfolio due to effective asset management and excludes the effect of variation in irradiation. The "nominal" outperformance is calculated as the GWh generated by the portfolio versus the GWh expected in the assumptions used at the time of acquisition. This metric can be used for comparison with other peers in the solar industry.

The Asset Manager monitors actual performance versus expectations for assets operational for at least two months post completion. The seven rooftop assets have been excluded as irradiation is not monitored. Similarly, the generation performance of assets that are yet to pass Preliminary Acceptance Certificate ("PAC") in accordance with the EPC contract is not reported by the Asset Manager.

Current and Future Pipeline

The Company's current pipeline comprising a $50m commitment ($26.7m currently drawn) into NextPower III, a battery storage Joint Venture Partnership with Eelpower Limited (£100m) and UK solar investments provides strong momentum into the second half of the financial year, where significant progress is being made in executing additional dividend-enhancing acquisitions.

In line with the amended investment policy, the Company continues to advance a significant pipeline of UK solar assets, international solar assets, UK energy storage assets as well as international solar co-investment opportunities through NESF's commitment to NPIII.

These investment opportunities aim to achieve robust financial returns, increase dividend cover, and add geographical, technological, and revenue diversification to the NESF portfolio. The Company envisage the future pipeline will be funded through a mixture of drawdowns on existing RCF facilities and future equity issuances.

Portfolio Optimisation

Asset life extensions

As at 30 September 2021, 35 UK assets (337MW), comprising c.37% of the Company's portfolio, had secured 5, 10 or 15 year lease extensions. We continue to work on extending the life of the remaining assets and are targeting a further 5 assets for the remainder of the current financial year to 31 March 2022.

For illustrative purposes, should the five targeted assets be valued on a 40-year lease (assuming current lease terms), the Company's NAV per ordinary share at 30 September 2021 would increase by approximately 0.7p.

Asset optimisation

During the period, nine sites entered into new Operating and Maintenance 'O&M' contracts. Eight of these contracts were O&M replacements of which the Investment Adviser actively negotiated a reduction in price achieving an average of £5,300/MW. This resulted in an aggregate annualised cost savings of c.£92,000 equivalent to a 27% reduction in contract price.

During the period, two insurance claims were closed by the Asset Manager in relation to solar assets Saundercroft and Higher Hatherleigh for a combined total settlement of c.£26,000.

Short/medium-term power purchase agreements

NESF continues to lock in tapered power price hedges over a 36-month period at levels above the independent market consultant's predicted levels. This proactive risk mitigation helps secure and underpin both dividend commitments and dividend cover, whilst reducing volatility and increasing visibility of cash flows.

NEC's specialist energy trading desk, along with external energy brokers, ensures that the Company's electricity sales strategy maximises revenues whilst mitigating the negative impact of short-term fluctuations in the power markets. Secured pricing comprises of fixed price contracts, hedging under the trading contracts and nine FiT sites opted into the export tariff.

1 Covers 716 MW as at 15 November 2021

OFGEM audits

Since IPO, the majority of OFGEM audits have been successfully signed-off without impacting ROC accreditations. NESF continues to have regular audits and the NEC Group has experienced personnel who deal with the ongoing audit. Professional advisers are engaged as and when appropriate. During the period, no adjustments to the NAV were made as a result of any completed or ongoing OFGEM audits.

Subsidy-free Portfolio

Starting in 2018, the Company sourced a pipeline of projects to be developed into operating subsidy-free assets and set a target of c. 150MW to add into its portfolio. As at 30 September 2021, the Company had 64MW of operating subsidy-free assets. Following the recent investment approval of Hatherden (50MW) and Whitecross (36MW), the Company will have reached its 150MW target when the assets are energised in the financial year 2022/23.

The Anglian Water projects (Sutterton and Marham) and the Camden projects (The Grange and South Lowfield) are subsidy-free. However, the energy generated will be sold directly to offtakers at a fixed price for 25 and 15 years respectively. These assets therefore have similar characteristics to subsidised assets and for that reason are not included in the 150MW subsidy-free target.

The NEC Group's Head of Energy Sales is responsible for managing the strategy for the sale of electricity from the subsidy-free operating assets. Details on the power price risk management strategy can be found below) to the Financial Statements.

The Italian Solis Portfolio

In December 2017 the Company acquired the portfolio of eight operating solar plants with an installed capacity of 34.5MW located in Italy for a total value of €131.9m (equivalent to £116.2m). The portfolio represented c.11% of the Company's GAV as at 30 September 2021.

The key benefits of the Solis portfolio continue to be:

· High risk-adjusted return: As at the 30 September 2021 valuation, the net IRR of the Solis portfolio was 8.2%.

· Low risk-profile: The Company benefits from the portfolio's operating history and the high quality of its components. In addition, it reduces NESF's exposure to merchant energy markets, as c. 85% of its revenues are fixed for 15 years following the acquisition.

· Positive contribution to dividend cover: The higher return on investment is coupled with an attractive cashflow generation profile, which is higher than ROC assets, and evenly spread over the life of the investment, as the Italian FiT is fully fixed. For the purposes of comparison, the Solis portfolio has a cash dividend cover equivalent metric of 1.4x.

· NAV accretion: As at 30 September 2021, the Solis portfolio was valued on a DCF basis with a discount rate of 7.25% (31 March 2021: 7.25%) as a result of the increasing competition to acquire solar PV assets in Italy.

· Diversifying market risk: Italy is supported by a FiT incentive mechanism. The FiT is granted by a state-owned company which promotes and supports renewable energy in Italy, where the sole shareholder is the Ministry of Economy and Finance. Tariffs differ depending on the capacity, type of plant and the time of commissioning which range between €195/ MWh to €318/MWh. Once a PV plant is accredited, the FiT is granted over a period of 20 years and is not inflated.

· Low revenue risk: Of the Solis portfolio revenues, c.85% result from FiTs. The FiTs specific to this portfolio expire in 2031. The remaining 15% is from the sale of the brown electricity fed into the grid at market price or via PPAs to other market participants. With this revenue mix there is low revenue risk. In addition, low operating costs result in stable EBITDA margins in excess of 80%.

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. The NAV is reviewed and approved by the Investment Manager and the Board. 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. Assets 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. Additionally, the valuation includes the Company's investment into NPIII on a look-through basis. The valuation of NPIII is based on an estimated NAV at the respective quarter-end available at time of preparing NESF's valuation.

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

Forecasted power price methodology

For the UK portfolio, we use multiple sources for UK power price forecasts. At the short end (the next two years), where PPAs exist we use the PPA prices that have been achieved, for periods where there are no PPAs in place, we use the short-term market forward prices. After year two we use 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 Consultants in publishing periodic (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 plant 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 plant 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.

Historic - UK power prices

UK electricity day ahead prices increased from £57.0/MWh in March 2021 to £189.1/MWh in September 2021.

Forecast UK power prices (real 2021)

The Company's current UK 20 year average power price forecast represents an increase of 9.2% compared to that used at the end of the previous financial period (and 44.3% below the average price used at IPO).

Historic - Italian power prices

Italian electricity day ahead prices increased from €60.4/MWh in March 2021 to €158.6/MWh in September 2021.

Forecast Italian power price (real 2021)

The Company's current Italian 20 year average power price forecast represents an increase of 6.3% compared to that used at the end of the previous financial period.

Discount rate

During the period, the Company has maintained the discount rate for unlevered operating UK solar assets at 5.75% (31 March 2021: 5.75%).

In the context of high liquidity provided by international investors, a maturing renewable energy market, a scarcity of subsidised assets and the lack of any incentive framework for new installations, the demand for operating solar assets remained strong resulting in sustained upward pressure on prices in the last six months. These changing dynamics were evidenced by the experience of the Investment Adviser when bidding for solar assets in the UK.

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.

The resulting weighted average discount rate for the Company's portfolio was 6.3% (31 March 2021: 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 leverage assets or levered portfolios. However, for the purposes of transparency, the Company's pre-tax WACC as at 30 September 2021 was 5.3% (31 March 2021: 5.4%).

The Company has not included the impact of the discount rates used in the NPIII investment, as the Company has no control or influence over these rates and a weighted average discount rate is not produced by NPIII, as their 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 plants (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 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").

During the period, FACs were closed across 85MW. As at 30 September 2021, 77 UK solar assets and all 8 Italian solar assets (totalling 642MW) achieved FAC and their actual PR was used in the discounted cash flow valuation.

NAV

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 2b 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 by the following factors:

· An increase in short-term (2021-2025) UK power prices forecasts provided by Consultants, being 56% higher than assumptions at 31 March 2021. The Company used the forecasts released by the Consultants up to the date of preparation of this Interim Report;

· the upward revision in short-term inflation forecasts;

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

· the dividends and operating costs paid during the period.

Operating Results

Profit before tax was £45.5m (30 September 2020: £23.6m) with earnings per ordinary share of 7.74p (30 September 2020: 4.04p).

Operating Expenses and Ongoing Charges

The operating expenses, excluding preference share dividends paid by the Company, for the period amounted to £3.3m (30 September 2020: £3.3m). The Company's ongoing charges ratio ("OCR") was 1.1% (2020: 1.1%). The budgeted OCR for the financial year ending 31 March 2022 is 1.1%. The OCR, which has been calculated in accordance with the Association of Investment Companies recommended methodology, is an Alternative Performance Measure .

Cash Flow Analysis

As at 30 September 2021, the Company held cash of £4.3m at high credit rated financial institutions.

Cash received from assets in the period covered the operating expenses, the preference shares dividend, the dividends paid in cash to ordinary shareholders and part of the Investment into HoldCos.

NESF Group operating SPV's

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

1 Cash distributed to the fund during the year.

Cash Dividend Cover

The decrease in the dividend cover from 1.1x (31 March 2021) to 1.0x (30 September 2021) was the result of paying a dividend in line with our progressive dividend policy, lower power prices realised towards the beginning of the period, higher than normal DNOOs impacting generation during the period and the temporary impact of investing in assets which do not immediately yield cash.

Once revenue is generated from these assets, recent power price increases are captured through hedges already in place and DNOs resume normal levels of activity, we expect to see an increase in the dividend cover in future periods, all other factors remaining the same.

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

2 Alternative Performance Measures.

Financing

Financial debt

At 30 September 2021, the Company's subsidiaries (including NPIII) had financial debt outstanding of £283m (31 March 2021: £246m), on a look-through basis, as shown in the table below. 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 covenants breaches have occurred during the period.

Preference shares

At 30 September 2021, the Company had £200m of preference shares outstanding (31 March 2021: £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 cashflow, 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 included;

· 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 management 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 44% (31 March 2021: 43%), which is below the maximum limit of 50% in the Company's Investment Policy.

1 NESF has 325MW under long-term debt financing, 197MW under short-term debt financing and 343MW without debt financing (excludes NPIII 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 rate.

5 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).

7 Plus £25m accordion options.

Alignment of interest

As at 18 November 2021, NextEnergy Capital Group employees held 337,961 shares in NESF.

Events After the Balance Sheet Date

On 11 November 2021, the Directors approved an interim dividend of 1.79p per ordinary share for the quarter ended 30 September 2021 to be paid on 31 December 2021 to ordinary shareholders on the register as at the close of business on 19 November 2021.

NextEnergy Capital Limited

18 November 2021

Operating Portfolio

1 ROCs, unless otherwise stated.

2 With project level debt.

3 Part of the Apollo portfolio.

4 Part of the Thirteen Kings portfolio.

5 Part of the Radius portfolio.

6 Part of the Solis portfolio.

7 Remaining weighted average life of the portfolio.

8 29.9MW represents the proportion of NPIII operational assets owned by NESF on a look through equivalent basis as at 30 September 2021. NPIII is a portfolio of assets at different stages of their project life cycle.

Portfolio Generation Performance