NextEnergy Solar Regulatory News (NESF)

LEI: 213800ZPHCBDDSQH5447

23 November 2020

NextEnergy Solar Fund Limited

("NESF" or the "Company")

Interim Results for the period ended 30 September 2020

NextEnergy Solar Fund, the solar power renewable energy investment company, announces its interim results for the six-month period ended 30 September 2020.

Financial highlights

· Net Asset Value per ordinary share of 99.6p (31 March 2020: 99.0p)

· Ordinary shareholders' NAV of £583.5m (31 March 2020: £578.6m)

· Ordinary shareholder annualised total return since IPO of 6.4% (31 March 2020: 6.3%)

· Financial debt gearing (excluding preference shares) of 21% (31 March 2020: 22%)

· Total gearing of 41% (31 March 2020: 42%)

· Cash dividend cover before scrip of 1.2x (30 September 2019: 1.3x)

· Dividends declared per ordinary share of 3.53p (30 September 2019: 3.44p)

· NAV Total return per ordinary share of 4.1% (30 September 2019: 3.2%)

· Ordinary shareholder return of 3.9% (30 September 2019: 6.7%)

Operational highlights

· Electricity generation +11.1% above budget (30 September 2019: +5.0%)

· Total capacity installed of 755 MW (31 March 2020: 755 MW)

· Total electricity generation of 551 GWh (30 September 2019: 515 GWh)

· 90 operating solar assets (31 March 2020: 90)

ESG highlights 

· 142,600 UK homes powered for a year (30 September 2019: 134,000)

· 237,500 tonnes of CO2e emissions avoided (30 September 2019: 222,400)

Kevin Lyon, Chairman of NESF, commented:

"In what has been a very difficult period for people and businesses globally, I am pleased to report a strong set of results which show the robustness and defensiveness of our business model as we continue to exceed our operational expectations.

Due to our exceptional generation in the period and our electricity sales performance, we achieved earnings of 4.04p per ordinary share with our dividend target for the current financial year of 7.05p per ordinary share remaining unchanged.

We have continued to pursue a diversified investment strategy and at the AGM in September shareholders approved our proposed change in Investment Policy with the Company now able to invest up to 30% of GAV in solar assets outside the UK. In our subsidy-free portfolio, we continue to target c.150MW with High Garrett (8.5MW) energised in October 2020, post the period end."

Interim Report

This morning at 9:00am, NESF's Investment Adviser will host a webcast presentation for analysts. To register for the webcast, please contact Camarco on 020 3757 4980 or mia.carlin@camarco.co.uk on the day of the results.

For further information:

Notes to Editors[i]:

A constituent of the FTSE 250 Index, NextEnergy Solar Fund ("NESF") is a renewable energy infrastructure investment company that invests primarily in operating solar power plants in the UK (it may invest up to 30% of its gross assets in other OECD countries). The Company is committed to ESG principles and responsible investment and makes a meaningful contribution to reducing CO2 emissions through the generation of clean solar power. NESF has been designated a Guernsey Green Fund by the Guernsey Financial Services Commission and has been awarded the London Stock Exchange's Green Economy Mark.

As at 30 October 2020, NESF has a diversified portfolio comprising 91 operating solar assets, primarily on agricultural, industrial and commercial sites, with a combined installed power capacity of c.763MW.

As at 30 September 2020, the Company has gross assets of £994 million, of which 88% is invested in the UK, and net assets of £583.5 million. The majority of long-term cash flows from its investments are inflation-linked.

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 dividend is payable quarterly, and the Company has announced a dividend target for the year ending 31 March 2021 of 7.05p per ordinary share. 

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, which since its founding has provided operating asset management, monitoring, technical due diligence and other services to over 1,500 utility-scale solar power plants with an installed capacity in excess of 2.3GW.

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

[1] Note: All financial data is as at 30 September 2020, being the latest date in respect of which NESF has published financial information.

Generating a more sustainable future

Interim Report

for the six months ended 30 September 2020

Our Objectives

Investment Objective

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.

Strategic Objectives

Investment

· To maintain our pricing discipline in relation to acquisitions.

· To optimise the value of our investments through active asset management.

Operational

· To achieve consistently best in class Asset Management Alpha (operational outperformance of the portfolio attributable to active asset management).

Environmental

· To mitigate climate change, enhance biodiversity and contribute towards a zero-carbon future.

Society

· To positively impact the communities in which our solar assets are located.

Governance

· To act in a manner consistent with our values of integrity, fairness and transparency.

· To maintain strong and constructive relationships with our shareholders and other key stakeholders.

OVERVIEW

Performance Highlights

1 Financial debt gearing excludes the £200m preference shares

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

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

4 www.gov.uk/government/statistics/energy-consumption-in-the-uk

NextEnergy Solar Fund Overview

SOLAR INFRASTRUCTURE INVESTMENT COMPANY PRIMARILY FOCUSED ON THE UK

MANAGED BY THE NEXTENERGY CAPITAL GROUP, A LEADING SPECIALIST INVESTMENT AND ASSET MANAGER IN THE SOLAR ENERGY INFRASTRUCTURE SECTOR

DIVERSIFIED PORTFOLIO OF 90 INDIVIDUAL OPERATING SOLAR PLANTS

POWERING THE EQUIVALENT OF 142,600 UK HOMES (EQUIVALENT TO OXFORD AND YORK COMBINED) ANNUALLY WITH CLEAN RENEWABLE ENERGY

OPERATING AND ASSET MANAGEMENT OUTPERFORMANCE SINCE IPO

TARGETING A TOTAL DIVIDEND OF 7.05P PER ORDINARY SHARE IN RESPECT OF THE YEAR ENDING 31 MARCH 2021

Why Invest in Solar Assets?

Abundant 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 has achieved significant growth in markets not characterised by high levels of solar irradiation (e.g. United Kingdom)

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 potential to extend) with a high proportion of contracted cash flows from operating solar plants

Cost-Effective Electricity Generation

Low operating and maintenance costs and ongoing capital expenditures

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 renewable energy

Meaningful contribution to reducing CO2e emissions through the generation of clean solar power

Strategic Report

Chairman's Statement

In what has been a very difficult period for people and businesses globally, I am pleased to report a strong set of results which show the robustness and defensiveness of our business model as we continue to exceed our operational expectations.

Due to our exceptional generation in the period and our electricity sales performance, we achieved earnings of 4.04p per ordinary share with our dividend target for the current financial year of 7.05p per ordinary share remaining unchanged.

We have continued to pursue a diversified investment strategy and at the AGM in September shareholders approved our proposed change in Investment Policy with the Company now able to invest up to 30% of GAV in solar assets outside the UK. In our subsidy-free portfolio, we continue to target c.150MW with High Garrett (8.5MW) energised in October 2020, post the period end.

On behalf of the Board, I am pleased to present the Interim Report for the Company for the six month period ended 30 September 2020.

Results and Key Events

The six months under review have been an extraordinary period in the Company's history. The COVID-19 pandemic caused further turbulence to power prices and we continue to witness a sustained economic shock as a second wave hits. The electricity sector, along with most others, is still in recovery.

NextEnergy Solar Fund (the "Company" or "NESF") has performed well in this uncertain market environment, driven by our operating achievements and our electricity sales strategy. The Company's assets generated significantly more electricity than budgeted, largely due to solar irradiation being well above expectations, and prices on most of our generation having been locked in which enabled us to avoid the drop in power prices affecting our revenues. However, the change in demand for electricity has had an impact on the long-term forecast price of electricity, which affects the underlying valuation of our assets. This is explained in more detail below.

At the AGM in September, shareholders approved changes to the Company's Investment Policy. The Company can now invest up to 30% of GAV in solar plants outside the UK (previously 15%). Other changes included allowing up to 15% of GAV to be invested in private equity structures and 10% in standalone energy storage. These changes are also explained in more detail below.

The Company is moving ahead with its target c. 150MW of subsidy-free assets from its pipeline of development projects. During the period, the Company disposed of two development projects that no longer met our financial return targets. This resulted in NESF recovering all development costs incurred and producing a return on capital invested significantly in excess of NESF's annualised target return for our UK assets. The transaction constituted a smaller related party transaction as set out in the FCA's Listing Rules. As at 30 September 2020, the Company had 55MW of operating subsidy-free assets in the portfolio. High Garrett (8.5MW) was energised in October 2020, making a total of 64MW as at the date of this report.

The technical performance of our plants during the period has been exceptional. Generation was 11.1% above budget and Asset Management Alpha (operational outperformance of the portfolio attributable to active asset management) was 0.3%. With the majority of our electricity sold under fixed-price contracts entered into before the drop in power prices, we achieved earnings of 4.04p per ordinary share (30 September 2019: 3.62p).

The Board has concluded its review of the Company's ordinary share dividend policy. To the extent the Board considers it appropriate, we will each year target increasing the total annual dividend paid to ordinary 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. We will first apply this revised policy in respect of the financial year commencing 1 April 2021.

I am pleased to state that since the COVID-19 outbreak began the staff of our Investment Adviser and Asset Manager have all successfully transitioned to remote working.

NAV and Operating Results

At the period end, the ordinary shareholders' NAV was £584m, equivalent to 99.6p per ordinary share (31 March 2020: NAV was £579m, NAV per ordinary share was 99.0p).

The main detractor during the six month period was the downward revision of the short-term inflation forecast (‑0.5p per ordinary share) which moved from 2.2% for 2021 (as at 31 March 2020) to 1.1% for 2021 (as at 30 September 2020). The main contributors during the period were a minor increase in power price forecasts (+0.5p per ordinary share) and the lease extensions secured across four assets (+0.6p per ordinary share).

Profit before tax was £23.6m (30 September 2019: £21.1m) with earnings per ordinary share of 4.04p (30 September 2019: 3.62p). Cash dividend cover (pre-scrip dividends) was 1.2x (30 September 2019: 1.3x).

For the half year, the ordinary shareholder total return was 3.9% and the ordinary share NAV total return was 4.1%. As at 30 September 2020, NESF had achieved an annualised ordinary shareholder total return of 6.4% and an annualised ordinary share NAV total return of 6.1% since IPO. At the period end, the NESF share price was 102.0p, which was a 2.4% premium to the NAV per ordinary share of 99.6p (31 March 2020: share price was 101.5p, premium was 2.5%, NAV per ordinary share was 99.0p).

Power Prices

Before the impact of COVID-19, UK power prices were declining into March 2020 mainly as a result of lower gas prices and milder weather patterns. In March 2020, the "oil price war" between the USA, Saudi Arabia and Russia and the first effects of the COVID-19 pandemic led to further power price declines. In May 2020, the short-term demand-side effects stemming from the pandemic drove power prices down to an unprecedented level.

65% of the Company's revenues for the period were derived from government subsidies and, at the end of the period, the average remaining weighted life under the relevant subsidies was 14.5 years. These revenues are fixed for the long term in accordance with the terms of the relevant ROC, NIROC or FiT subsidies.

The balance of the Company's revenues are derived from selling the electricity generated in the market (representing non-subsidised revenues) and, therefore, are exposed to market power price movements. Our Asset Manager's electricity sales desk is focused on securing the best terms for our sales and minimising our exposure to short-term price fluctuations by securing fixed prices for specified periods. Fortunately, the Company's flexible power purchase agreement framework allowed us to lock in higher power prices before and during the period.

The post-lockdown economic recovery, and subsequent increased demand for electricity, has driven a recovery in short- and medium-term power prices; something that is currently reflected in day-ahead prices as well as summer and winter 2021 pricing. Our Asset Manager has been monitoring the market closely since March 2020, waiting for the optimum window to lock in forward power prices. However, with a second wave of coronavirus underway, the short-term horizon remains uncertain. In summary, the Company currently faces a challenging power price environment.

The Company has secured fixed pricing for 87% of generation for the remainder of the current financial year ending 31 March 2021, at a generation weighted fixed price of £49.1/MWh. Furthermore, the Company has fixed 58% of generation for summer 2021 and 42% for winter 2021 with weighted average fixed prices of £44.5/MWh and £49.9/MWh respectively. Our Asset Manager has deliberately left a significant amount of its generative capacity unhedged beyond winter 2020/21, in anticipation of a power price recovery.

Portfolio Performance

Energy generated during the period was 551GWh (30 September 2019: 515GWh), 11.1% above budget (30 September 2019: 5%), resulting in another period of strong outperformance.

During the period, solar irradiation across the portfolio was 10.8% above expectation (30 September 2019: 4.8%). Asset Management Alpha for the period was 0.3% (30 September 2019: 0.2%), and would have been 0.8% (30 September 2019: 1.0%) if we excluded distributor network outages, over which we have no control.

Our UK portfolio performed above expectations with generation outperformance of 11.5% (30 September 2019: 5.1%) and an Asset Management Alpha of 0.2% (30 September 2019: 0.1%).

Our Italian portfolio also performed well during the year with 4.6% extra generation over budget (30 September 2019: 1.8%) and an Asset Management Alpha of 0.3% (30 September 2019: 1.4%).

Overall, we estimate the generation outperformance during the period to have delivered additional revenues of approximately £6.0m (30 September 2019: £2.7m) to the Company.

Portfolio Update

Over the past six months, our Investment Adviser and Asset Manager have continued to optimise the returns from the portfolio by:

· extending the useful life of four more of our assets;

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

· implementing technical improvements; and

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

Our subsidy-free strategy envisages constructing a total of approximately 150MW in capacity, of which 63MW has been energised at the date of this report. Constructing the full 150MW subsidy-free portfolio would amount to an estimated total investment of between £55m to £80m (6-8% of GAV as at 30 September 2020).

Our subsidy-free asset High Garrett (8.5MW) was energised in October 2020, post the period end. Other development assets are expected to enter the construction phase before the end of the calendar year. We are progressing strategies for the sale of electricity from these subsidy-free plants to secure attractive risk-adjusted returns using electricity sales agreements, corporate power purchase agreements or direct-wire agreements with off-takers.

Separately to the Company's subsidy-free strategy, the Company has agreed to finance, design, build, operate and own over 43MW of solar assets on Anglian Water sites. The power generated from these assets will be sold directly to Anglian Water under 25-year agreements at a fixed price. During the period, construction commenced on the first project (1MW), and energisation is expected to occur in early 2021.

On 14 May 2020, two subsidy-free pre-construction projects under development, Strensham and Llanwern, were disposed of for a combined consideration of £11.5m. This resulted in NESF recovering all development costs incurred and producing a return on capital invested significantly in excess of NESF's annualised target return for our UK assets. Construction had not started on either of these projects, and they were disposed of as it became apparent during the development process they would not meet NESF's financial target returns, mainly due to the decline in power price forecasts. The transaction constituted a smaller related party transaction as set out in the FCA's Listing Rules.

The Investment Adviser's Report contains more information on our subsidy-free asset strategy.

Changes to Investment Policy

In recent years, investor demand for UK solar assets has increased significantly, leading to lower asset-level returns. There continues to be more attractively priced assets in other OECD geographies with risk-adjusted returns that are compatible with the Company's objectives. Increasing the Company's exposure to non-UK assets will have the additional benefit of reducing our reliance on merchant power price developments in the UK and potentially increasing the share of revenues under long-term fixed price contracts.

Having considered the benefits to shareholders, sought advice from the Company's corporate brokers and consulted with a number of the Company's largest ordinary shareholders, we concluded that it would be in the best interests of shareholders as a whole to expand the Company's Investment Policy in a number of areas. At the Company's AGM on 11 September 2020, the following changes were approved by shareholders:

· up to 30% of GAV may be invested in solar assets that are located outside the UK (the limit was previously up to 15%);

· the Company may now acquire an interest in solar assets located in non-OECD countries where those assets form part of a portfolio of solar assets in which the Company acquires an interest and subject to the Company's aggregate investment in any such assets being not greater than 3% of GAV;

· up to 15% of GAV may now be invested in solar assets through private equity structures; and

· the Company may now also invest in standalone energy storage systems (not ancillary to or co-located with solar assets owned by the Company) up to an aggregate limit of 10% of GAV.

At the time of making an investment, the cost of the investment is calculated as a percentage of GAV to ensure it does not breach the relevant limit.

The Investment Adviser is seeking to find attractive investment opportunities in line with the expanded Investment Policy to enhance ordinary shareholder returns and diversify risk.

Debt Strategy

As at 30 September 2020, in addition to the Company's £200m of preference shares (31 March 2020: £200m), its subsidiaries had total financial debt outstanding of £212.6m (31 March 2020: £214m). Of the financial debt, £193.8m comprises two long-term fully amortising debt facilities and £18.9m was drawn under a short-term credit facility.

One short-term credit facility of £70m was extended from July 2020 to July 2022 during the period. At the period end, the Company's subsidiaries had £71.1m undrawn from two short-term credit facilities and NESF had cash of £11.5m.

The total financial debt represented 21% of GAV as at 30 September 2020 (31 March 2020: 22%). As at 30 September 2020, the total gearing comprising the total financial debt and the Company's preference shares represented 41% of GAV (31 March 2020: 42%).

Dividends

We are targeting a dividend of 7.05p per ordinary share in respect of the financial year ending 31 March 2021 (2020: 6.87p).

The Directors have approved a second interim dividend of 1.7625p per ordinary share, which will be payable on 31 December 2020 to ordinary shareholders on the register as at the close of business on 20 November 2020.

The Company continues to offer a scrip dividend alternative as approved by shareholders at this year's AGM, details of which can be found on the Company's website (www.nextenergysolar.com).

During the period, the Company paid a total of £18.7m of cash dividends (2019: £17.5m) and, in addition, issued £1.6m of scrip shares to ordinary shareholders who elected for the scrip dividend alternative (2019: £2.2m), making a total of £20.3m of distributions (2019: £19.7m).

As mentioned earlier, the Board has concluded its review of the Company's ordinary share dividend policy. With effect from the financial year beginning 1 April 2021, the level of the annual ordinary share dividend will no longer be linked to the growth in RPI. Instead, to the extent the Board considers it appropriate we will each year target increasing the total annual dividend paid to ordinary 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 at the forefront of our 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.

The Company makes a meaningful contribution to reducing CO2e emissions through the generation of clean solar power. The electricity generated by our portfolio during the period ended 30 September 2020 is equivalent to a saving of 237,500 tonnes of CO2e emissions (2019: 222,400 tonnes) and sufficient to power some 142,600 UK homes for an entire year (2019: 134,000 homes). This is roughly equivalent to powering a city with 356,000 inhabitants (e.g. Oxford and York combined) for an entire year.

Our Asset Manager also actively engages in activities that enhance the environment and community surrounding our solar plants, including, where feasible, on-site 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

In addition to the ESG activities on behalf of NESF and other clients, the NEC Group continues to donate 5% of its net profits to the NextEnergy Foundation, which it established in 2017. The NextEnergy 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 and appreciation to the numerous people who have worked in the field and from home under difficult and testing conditions to enable our Company to continue to operate successfully in these challenging times.

Outlook

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

Undoubtedly, the economic shock of COVID-19 has had a profound impact on energy demand and commodity prices. However, the near-term power price recovery towards the end of the period and beyond has underlined the resilience of our sector in the current uncertain environment. The price for electricity is driven by several factors that are proving particularly difficult to predict in the current environment but is ultimately dependent on the supply and demand for electricity. A sustained upturn in demand for electricity will be driven by the pace of economic recovery once the effects of the pandemic subside.

We continue to monitor closely macro and micro economic indicators and governmental information to assess the potential future impact on the Company's activities. Nonetheless, the Company will continue to focus on generating attractive financial returns for our shareholders, while having positive social and environmental impacts.

The construction of two subsidy-free assets last year and grid-connecting High Garrett have demonstrated our ability to develop, construct and operate subsidy-free solar plants. Despite the volatile environment, we continue to pursue our c.150MW subsidy-free target.

Our specialist energy trading desk will seek to ensure that our electricity sales strategy, including for our subsidy-free assets, maximises revenues whilst mitigating risks of further falls in power prices during these volatile times.

We are aiming to extend the useful life of a further nine assets during the current financial year, adding to the 35 assets which have already secured extensions. These extensions will be value accretive and optimise our long-term revenues.

We are in the early stages of assessing a number of non-UK investment opportunities. Also, we will keep under review opportunities to invest in private equity funds, energy storage systems and ancillary solar technologies to diversify some of our asset-specific or market risks, whilst adapting our portfolio to the changing dynamics of the solar markets in which our assets are located.

ESG continues to be a core part of our purpose. As activities mitigating climate change accelerate globally, the execution of our ESG policy will ensure we continue to lead by example. Our Company and stakeholders are 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 COVID-19 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.

Kevin Lyon,Chairman20 November 2020

NextEnergy Capital Group

NextEnergy Capital Group is a leading solar investment manager and asset manager. 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. £2.3bn of assets under management and employs over 190 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 and ownership of solar assets.

As at 30 September 2020, the NEC Group had assets under management of £2.3bn with a cumulative generating capacity of more than 1.3GW. In addition to the Company, it manages three private equity funds, NextPower II LP (invests in solar assets in Italy), NextPower III LP (invests in solar assets globally) and NextPower UK LP (invests in UK subsidy-free solar assets). The NEC Group's team of some 190 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 and Abid Kazim (formerly CEO of WiseEnergy), who combined have in excess of 60 years' industry experience.

Since 2007, the NEC Group has provided operating asset management, monitoring, technical due diligence and other services to over 1,500 utility-scale solar power plants with an installed capacity in excess of 2.3GW. Its asset management clients include solar 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 and systems, which have been refined over the past 11 years, and specialist staff with extensive solar experience allows WiseEnergy to be at the forefront of the "digitalisation of energy".

The collective experience of the NEC Group of investing and managing solar assets best positions the Company to implement efficiencies at both the investment and operating asset levels. The technical and operating outperformance of the Company's portfolio to date underlines the benefits of this comprehensive strategic relationship.

Investment Adviser's Report

Introduction

As at 30 September 2020, the NAV per ordinary share was 99.6p (31 March 2019: 99.0p). The movements reflects a minor increase in power price forecasts (+0.5p per ordinary share), the uplift arising from lease extensions (+0.6p per ordinary share), partially offset by the downward revision in short-term inflation forecasts (-0.5p per ordinary share).

At the period end, the UK blended average power curve corresponded to an average solar capture price of approximately £43.5/MW (31 March 2020: £40.9/MWh) for the period 2020-2025 and £46.7/MWh (31 March 2020: £46.9/MWh) for the period 2026-2050 (in 2020 prices).

In March 2020, the NEC Group enabled its business continuity plans for its global staff to work from home with minimal disruption. We continue to monitor closely the impact of COVID-19 in the UK, Italy and other countries in which we are assessing new investment opportunities. We continue to work with the Board and the Company's other service providers and suppliers to anticipate and mitigate, where possible, arising risks.

Portfolio Highlights

Pre-construction works for our third subsidy-free asset, High Garrett, began in early 2020 and full construction commenced in summer 2020. High Garrett, a 8.5MW extension to the 5MW ROC asset known as Kentishes acquired in 2016, was energised post the period end on 22 October 2020.

The Company has agreed to finance, design, build, operate and own over 43MW of solar assets on Anglian Water sites. The power generated from these assets will be sold direct to Anglian Water at a fixed price for a 25-year period through private wire agreements. During the period, construction work progressed and the first project (1MW) is expected to be energised in early 2021.

On 14 May 2020, two subsidy-free projects under development, Strensham (40MW) and Llanwern (75MW), were disposed of for a combined consideration of £11.5m. This resulted in NESF recovering all development costs incurred and producing a return on capital invested significantly in excess of NESF's annualised target return for our UK assets. Construction had not started on either of these projects, and they were disposed of as it became apparent during the development process they would not meet NESF's annualised target return, partly due to the decline in power price forecasts. The transaction constituted a smaller related party transaction as set out in the FCA's Listing Rules.

On 29 June 2020, a short-term revolving credit facility of £70m was extended from July 2020 to July 2022. This extension provides the Company with a short-term source of capital, at an attractive cost. NESF expects to use the revolving credit facility to finance its subsidy-free pipeline, and other investment opportunities that may arise falling within the Company's Investment Policy.

Portfolio Performance

Workers in the electricity sector are considered "key workers" and this has enabled the Asset Manager to ensure that the technical and operational integrity of NESF's solar assets has been maintained and, to date, NESF has not experienced any significant technical or operational impacts on its portfolio resulting from the effects of COVID-19.

During the period, solar irradiation across the entire portfolio was 10.8% above expectation (2019: 4.8%), and generation was 11.1% above budget (2019: 5.0%). Asset Management Alpha for the period was 0.3% (2019: 0.2%), which would have been 0.8% (2019: 1.0%) if distributor network outages, over which we have no control, were excluded.

The Asset Management Alpha is an important metric that allows the Company to identify the "real" outperformance of the portfolio due to active management and excludes the effect of variation in solar 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 three rooftop portfolios have been excluded as irradiation is not monitored. Staughton is also not monitored by the Asset Manager as the asset is yet to pass Preliminary Acceptance Certificate (PAC) in accordance with the EPC contract.

Portfolio Optimisation

Asset life extensions programme

During the period, we secured options or rights to extend the leases and/or planning on four UK plants. The positive impact on NAV of these lease extensions amounted to 0.6p per ordinary share at the period end.

As at 30 September 2020, 35 UK assets (337MW), comprising c.45% 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 portfolio and are targeting a further nine assets for the remainder of the current financial year.

For illustrative purposes, should the nine targeted assets be valued on a 40-year lease basis from the date of connection to the grid (assuming current lease terms), the Company's NAV per ordinary share at 30 September 2020 would increase by approximately 1.0p.

Asset optimisation

In both the UK and Italy, the Company had built up a stock of spare parts during H2 2019 and we are not currently expecting any significant complications along its spare parts supply chain. Consequently, the Asset Manager is not anticipating any material delays in its asset remediation and optimisation plans.

During the period, three sites entered into a new O&M contract under NEC's negotiated reduced price of £5.5k/MW with various counterparties and one is currently in negotiation with one of NEC's selected O&M contractors with completion expected in Q4 2020. These reduced-price contracts will result in aggregate annualised cost savings of c.£ 20k, equivalent to a 20% reduction in contract price.

During the period, three insurance claims were closed in relation to Thornborough for theft of DC cables (a final settlement of £60,568, bringing the total settlement to £110,568), Wellingborough for a grid imbalance (a settlement of £67,883) and Pierces Farm for a voltage surge (a settlement of £11,160).

Power purchase agreements

The NEC Group's specialist energy trading desk, along with external brokers, ensures that the Company's electricity sales strategy maximises revenues whilst mitigating the negative impact of short-term fluctuations in the power markets. The trading desk's approach to managing NESF's merchant market exposure is described below.

Secured pricing comprises of fixed price contracts, hedging under the trading contracts and nine FiT sites opted into the export tariff. During the period, power price contract fixes versus baseload prices provided £5.3m in revenue uplift. A significant amount of generative capacity was left unhedged beyond winter 2020/21 in anticipation of power price recovery.

For the financial year ending 31 March 2021, the Italian portfolio will derive approximately 83% of revenues from regulated revenues (principally FiTs) and approximately 17% of revenues will result from the sale of electricity generated under short-term contracts. The Company has secured fixed price agreements covering 100% of its Italian electricity generation for calendar year 2021.

OFGEM Review

In December 2019, OFGEM issued the Company with a decision to downgrade the ROC banding of Wellingborough from 1.6 to 1.4 and to revoke all ROCs from 31 March 2014 to 8 February 2015 as OFGEM did not agree with the original commissioning date. OFGEM has revoked ROCs which have been over-issued since 8 February 2015. As at the date of this report, we are exploring mitigants that remain open to NESF. The potential impact of the ROC downgrade is -£0.6m and, to be prudent, this has been included within the NAV (at the 31 March 2020 valuation).

In January 2020, subsequent to an OFGEM audit of Fiskerton, OFGEM stated that it would either be revoking the accreditation or downgrading the ROC banding from 1.4 to 1.3. As at the date of this report, we have had no further update from OFGEM. The potential impact of the downgrade is -£0.6m and, to be prudent, this has been included within the NAV (at the 31 March 2020 valuation).

In July 2020, OFGEM issued the Company with a minded-to notice following the Higher Hatherleigh audit, proposing to amend the accreditation date from 15 April 2013 to 27 April 2013 and to revoke all ROCs issued during this 13 day period, with no effect on the ROC banding.

Over the years multiple OFGEM audits have been successfully signed-off without impacting ROC accreditations. There are 14 OFGEM audits currently ongoing. The NEC Group has resources trained, briefed and experienced to deal with ongoing audits. Engagement is in progress with OFGEM through professional advisers and senior NEC staff. The team has identified and mapped contractual recourse associated with identified risk of loss for completed, ongoing and potential future audits.

Subsidy-free Asset Strategy

The Company has sourced a pipeline of projects which can be developed into operating subsidy-free assets and is targeting approximately 150MW of operating subsidy-free assets in its portfolio. As at 30 September 2020, the Company had 55MW of operating subsidy-free assets. High Garrett (8.5MW) was energised in October 2020, making a total of 64MW as at the date of this report. The balance of c.86MW will be selected from the pipeline.

The Company's subsidy-free pipeline is greater than its target allocation to operating subsidy-free assets of 150MW. This is to ensure a broad set of investment opportunities for NESF from which it can select the most attractive projects for inclusion in its portfolio. All the pipeline projects were expected, when secured, to generate a rate of return in line with or in excess of NESF's annualised target return for our UK assets. However, a development project can fall below the target range due to a change in the forecast capital expenditure, operating expenditure or revenues, particularly in the COVID-19 environment. The Company will consider divesting those subsidy-free development projects that are surplus to its requirements or that are no longer likely to generate financial returns that are in line with its target range.

During the period, the Company disposed of Strensham and Llanwern development projects (40MW and 75MW respectively) as they had ceased to meet the Company's annualised target returns for UK assets, achieving an IRR on the disposal significantly in excess of its target returns.

Although the Anglian Water projects will be subsidy-free, the energy generated will be sold directly to Anglian Water at a fixed price for a 25-year period through private wire agreements and, therefore, these assets have similar characteristics to subsidised assets and are not included in the 150MW subsidy-free strategy.

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.

The Italian Solis Portfolio

In December 2017 the Company acquired the portfolio of eight operating solar plants with an installed capacity of 34.5MWp located in Italy for a total value of €131.9m (equivalent to £116.2m). The portfolio represented 12% of the Company's GAV as at 30 September 2020.

The key benefits of the Solis portfolio continue to be:

· High risk-adjusted return: As at the 30 September 2020 valuation, the net IRR of the Solis portfolio was 8.3%.

· 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 around 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, which supports the Company's overall dividend target.

· NAV accretion: As at 30 September 2020, the Solis portfolio was valued on a DCF basis with an overall discount rate of 7.75% (31 March 2020: 7.75%) 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%.

Changes to Investment Policy

As explained in the Chairman's Statement, the following changes to the Company's Investment Policy were approved by shareholders at the Company's AGM on 11 September 2020:

· up to 30% of GAV may be invested in solar assets that are located outside the UK (the limit was previously 15%);

· the Company may now acquire an interest in solar assets located in non-OECD countries where those assets form part of a portfolio of solar assets in which the Company acquires an interest and subject to the Company's aggregate investment in any such assets being not greater than 3% of GAV;

· up to 15% of GAV may now be invested in solar assets through private equity structures; and

· the Company may now also invest in standalone energy storage systems (not ancillary to or co-located with solar assets owned by the Company) up to an aggregate limit of 10% of GAV.

We are currently seeking to identify value creating opportunities in line with the amended Investment Policy to maximise shareholder returns and increase geographical diversification.

Portfolio Valuation

Introduction

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

The valuation principles used are based on a discounted cash flow methodology and take into account International Private Equity and Venture Capital ("IPEV") valuation guidelines. 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, which take into account IPEV valuation guidelines.

The Board reviews the operating and financial assumptions used in the valuation of the Company's underlying portfolio and approves them based on the recommendation of the Investment Adviser.

Forecast power prices methodology

At the 31 March 2020 valuation, we took a blended average of two of the leading independent energy market consultants' long-term projections to derive the power curve adopted in the valuation of the Company's portfolio.

Subsequent to the year end, for the UK portfolio, we now use multiple sources for UK power price forecasts. At the short end (the next two years), where PPAs exist we use the PPA prices and, for periods where there are no PPAs in place, we use the short-term market forward prices. After year two we use a simple average of three leading independent energy market consultants' long-term 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 by the Company also reflect an assumed "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 estimated 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 assets compared to the low-cost renewable capacity.

Historic - UK power prices

UK electricity day ahead prices increased from approximately £31.7/MWh in March 2020 to approximately £43.8/MWh in September 2020.

Forecast UK power prices (real 2020)

The Company's current UK long-term power price forecast implies an average price of approximately £46.7/MWh in today's terms. This represents an increase of 3.3% compared to those used at the end of the previous financial year (and 47.3% below the assumptions employed at IPO).

Historic - Italian power prices

The Italian price of electricity increased from approximately €32.0/ MWh in March 2020 to approximately €48.8/MWh in September 2020.

Forecast Italian power price (real 2020)

The Company's current Italian long-term power price forecast implies an average price of approximately €46.5/MWh in today's terms. This represents a decrease of 1.1% compared to those used at the end of the previous financial year.

Discount rate

The Company has maintained the discount rate for unlevered operating solar assets in the UK at 6.25% (31 March 2020: 6.25%).

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, demand for operating solar assets remained strong resulting in sustained 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 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 6.8% (31 March 2020: 6.8%). The Company does not adopt weighted average cost of capital ("WACC") as a discount rate for its investments as it believes that the reduction in WACC deriving from the introduction of long-term debt financing does not reflect the greater level of risk to equity investors associated with levered assets or levered portfolios. However, for the purposes of transparency, the Company's pre-tax WACC as at 30 September 2020 was 5.4% (31 March 2020: 5.5%).

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 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; and

· the Company owns rights to supply electricity into the grid through connection agreements that do not expire.

The 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 the PR estimated by the appointed technical adviser during the acquisition due diligence. These estimates are generally lower than the actual PR that the Company has been experiencing during subsequent operations. We 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 35MW, with £877k retentions secured. These funds have been held back within the SPV to remedy any issues which remain outstanding.

As at 30 September 2020, 68 UK solar assets and all Italian solar assets (550MW) in the portfolio had achieved FAC and their actual PR was used in the discounted cash flow valuation.

NAV

The Company's NAV is calculated on a quarterly basis based on the valuation of the investment portfolio provided by the Investment Adviser and the other assets and liabilities of the Company provided 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. The Company reports its financial results as an Investment entity and on a non-consolidated basis under IFRS 10 (see note 2b to the Financial Statements) and thus the change in fair value of its assets during the year is taken through the Statement of Comprehensive Income.

The movements were driven by the following factors:

· the upward revisions in the UK forecasts for power prices provided by the three Consultants (31 March 2020: two Consultants), being 3.3% higher compared to the assumptions at 31 March 2020 (the Company uses the forecasts released by the Consultants up to the date of preparation of this Interim Report);

· the uplift arising from lease extensions;

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

· the downward revision of short-term inflation forecasts; and

· the cash dividends paid by the Company during the period and the Company's operating costs.

NAV sensitivity analysis as at 30 September 2020

Additional sensitivity analyses can be found in note 20b to the Financial Statements.

Operating Results

Profit before tax was £23.6m (30 September 2019: £21.1m) with earnings per ordinary share of 4.04p (30 September 2019: 3.62p).

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 2019: £3.6m). The Company's ongoing charges ratio ("OCR") was 1.1% (2019: 1.1%). The budgeted OCR for the financial year ending 31 March 2021 is 1.1%. The OCR, which has been calculated in accordance with the AIC's recommended methodology, is an Alternative Performance Measure.

Dividends

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 Measure.

For the year ended 31 March 2021, the second quarterly dividend of 1.7625p per ordinary share is expected to be paid on 31 December 2020 to ordinary shareholders on the register at the close of business on 20 November 2020. The Company offers scrip dividends, details of which can be found on the Company's website (www.nextenergysolarfund.com).

Cash Flow Analysis

As at 30 September 2020, the Company held cash of £11.5m at a high credit rated financial institution.

Cash received from assets in the period covers the operating and administrative expenses of the Group and preference share dividend costs, as well as the dividends declared to ordinary shareholders in respect of the period ended 30 September 2020.

Financing

Financial debt

At 30 September 2020, the Company's subsidiaries had financial debt outstanding of £213m (31 March 2020: £214m), on a look-through basis, including project level debt, as shown in the table below.

As a result of relatively low HoldCo debt levels, and support of RPI linked subsidies, debt covenants at the HoldCos level would only be breached at extraordinarily low power prices (c.£20/MWh).

Preference shares

At 30 September 2020, the Company had £200m of preference shares outstanding (31 March 2020: £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 relative to the ordinary share NAV at the date of conversion. For financial accounting purposes, the preference shares are classified as long-term liabilities. The preference shares are, therefore, equivalent to non-amortising debt with repayment in shares and the Company is not required to use cashflow, or raise funds, to repay them over or at the end of their life. The absence of amortisation enhances the ordinary share dividend payability and repayment in shares removes refinancing risk.

The investment management fee is calculated based on 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 24 to the Financial Statements.

Total gearing

The financial debt, together with the preference shares, represented a total gearing level of 41% (31 March 2019: 42%), which is below the maximum debt-to-GAV level of 50% in the Company's Investment Policy.

1 NESF has 325MW under long-term debt financing, 128MW under short-term debt financing and 302MW without debt financing.

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.

Events After the Reporting Period

On 22 October 2020, subsidy-free asset High Garrett (8.5MW) was energised.

On 11 November 2020, the Directors approved a dividend of 1.7175 pence per ordinary share for the period ended 30 September 2020 to be paid on 31 December 2020 to ordinary shareholders on the register as at the close of business on 20 November 2020.

NextEnergy Capital Limited20 November 2020

Operating Portfolio - Overview

1 ROCs, unless otherwise stated. An explanation of the ROC subsidy is available at www.ofgem.gov.uk/environmental-programmes/renewables-obligation-ro.

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 Average remaining life of the portfolio.

Operating Portfolio - Performance

1 Rooftop assets are not monitored for irradiation.

2 The Asset Manager has not monitored the generation from subsidy-free asset Staughton as the asset has yet to pass PAC.

Sustainability and ESG

Introduction from the CEO of NextEnergy Capital Group

Since our founding in 2007, the NEC Group's mission has been to generate a more sustainable future by leading the transition to clean energy. We place this mission at the heart of everything we stand for and do, recognising the privilege we have to generate clean energy for the planet.

Businesses need a healthy environment and society to survive, and communities need successful businesses in order to progress. We believe that identifying and accounting for Environmental, Social and Governance ("ESG") performance makes our clients' investments risk-sound and improves longer-term returns, making ESG integration a source of innovation and competitive advantage for our core business.

NEC's sustainability strategy refers to the United Nations Sustainable Development Goals ("SDGs") as the underlying framework to identify, manage and measure our impacts on the environment and society, and to align our and our clients' business objectives with those of the countries and societies in which we operate. Our strategy is built on three pillars, Climate Change, Biodiversity and Human Rights, and applies to the whole value chain of our business, from our clients' investments and our employees, to our suppliers and services providers, our business partners and the broader communities we operate in. The core of NEC's sustainability strategy is our Sustainable Investment Policy1, which was revised in September 2019 to better reflect our understanding of the value-creating ability of ESG considerations in our business and operations, and the solar sector more broadly, as well as our commitment to the United Nations Principles for Responsible Investment.

Our Sustainable Investment Policy applies to both NESF and our private equity funds and defines the NEC Group's principles and commitments, excluded activities, screening and due diligence process, reference standards, monitoring and reporting and engagement approach.

NextEnergy Capital Group is preparing to align with the EU Disclosure and Framework Regulations. The EU Disclosure Regulation is part of a package of measures announced by the European Commission in 2019 to improve firms' consideration of ESG issues as part of their decision-making processes, whilst the Framework Regulation establishes a taxonomy for determining whether an economic activity is environmentally sustainable or not. The reporting requirements come into force in March 2021.

1 www.nextenergycapital.com/wp-content/uploads/2019/10/Sustainable_Investment_Policy.pdf

NESF's Sustainability Commitments

We believe that solar energy can change the world, transform our economies and sustain our future. NEC's Sustainable Investment Policy enhances NEC's mission and commitment to tackling climate change which is, without doubt, the biggest challenge and threat in the 21st century. NESF is committed to supporting the UK Government in its ambitious objective of bringing all greenhouse gas emissions to net zero by 2050 and limiting global average temperature rise to 2°C from pre-industrial era levels. In line with the sustainability strategy. NESF considers the three pillars of Climate Change, Biodiversity and Human Rights as an integral part of the investment process:

· Climate change: NESF is committed to report its positive contribution to mitigate climate change through clean energy generation. NESF reports annually on CO2e emissions avoided for the portfolio. In line with NEC's broader climate commitment and as NEC is an official supporter of the Task Force on Climate-Related Non-Financial Disclosure ("TCFD"), NESF also aims to improve its assessment of climate-related physical risks throughout the investment process.

· Biodiversity: A key focus for NESF has been the opportunity to enhance biodiversity across the portfolio's sites. The Company's commitment to leading best practices in biodiversity in the solar industry begins during the site selection phase.

· Human rights: NESF promotes the respect of fundamental human rights principles. The commitment to respect human rights is guided by the United Nations Universal Declaration of Human Rights.

ESG Performance Measurements

NESF has contracted the Green Investment Group ("GIG") to independently verify our positive impact on mitigating climate change. GIG developed a proprietary methodology to measure green impact, with strong academic and scientific rigour that can be applied pragmatically, day-in and day-out, through a commercial investment process. GIG is working with us on our SDGs performance reporting and will assist us with the evaluation and verification of NESF's climate-related positive impacts.

Biodiversity Overview

NESF aims to lead the way in biodiversity. We have a unique opportunity to make a difference and we have taken it. We currently have five exemplar sites (Berwick, Boxted, Emberton, Langenhoe and Burrowton), all of which are continuously monitored to gauge the ecological improvements.

Our 15 current Universal Biodiversity Management Plan ("UBMP") sites transitioned into the implementation phase during the period, with eight sites completed to full UBMP level as per the Wychwood guidance maps. The remaining seven sites are expected to reach full UBMP level by Spring 2021. As at 30 September 2020, we had across the portfolio:

· 16 hibernaculum;

· 95 bat/bird/owl boxes;

· 15 bug hotels; and

· commenced wildflower seeding which has been delayed due to COVID-19.

The support given by our landowners to our initiatives continues to be extremely positive and it can be demonstrated to the local community that we are good stewards of our land. We are scoping a further 15 UBMP sites to increase the total number to 30 during 2021.

NESF Exemplar Sites

· A nightingale habitat has been introduced to Langenhoe by planting 625 saplings.

· All exemplar sites have conservation sheep grazing to limit mechanical cuttings.

· Bird and bat boxes can be found on all exemplar sites to provide a habitat for the native wildlife on site.

Principal Risks and Uncertainties

for the remaining six months of the year ending 31 March 2021

The Company's approach to risk governance, the risk review process and risk appetite are set out in the Risk and Risk Management section in the Strategic Report and the Risk, Internal Controls and Internal Audit section in the Corporate Governance Statement in the 2020 Annual Report, which can be found on our website (www. nextenergysolarfund.com).

The principal risks and uncertainties to the achievement of the Company's objectives are described in the 2020 Annual Report and are categorised as follows:

· portfolio management and performance risks:

- electricity generation falling below expectations; and

- portfolio valuation;

· external and market risks:

- adverse changes in government policy and political uncertainty;

- adverse changes to the regulatory framework for solar plants; and

- changes to tax legislation and rates; and

· operational and strategic risks:

- a decline in the price of electricity and revenues;

- counterparty risk; and

- plant operational risk.

The Board believes that the aforementioned risks are unchanged in respect of the remaining six months of the year to 31 March 2021. The Board has identified the following emerging risks which are being monitored on an ongoing basis:

· the risk to the Company arising from the COVID-19 pandemic given the onset of a second wave in Europe and a return to lockdown in England.

· the recent changes to the Investment Policy having the potential to change the portfolio's risk profile in terms of geography and economic risk drivers.

· the risk associated with the OFGEM reviews of subsidy accreditations from the increased number of ongoing OFGEM audits; and

· the uncertainty surrounding the UK's future relationship with the EU following the end of the Brexit transitional period on 31 December 2020.

The inherent risks associated with investment in the solar energy sector could result in a material adverse effect on the Company's performance and the value of the ordinary shares.

Risks, including emerging risks, are mitigated and managed by the Board through continual review, policy setting and regular reviews of the Company's risk matrix by the Audit Committee to ensure that procedures are in place with the intention of minimising the impact of the principal risks to the achievement of the Company's objectives. The Audit Committee undertook a formal review of the Company's risk matrix at its meeting held on 19 November 2020. The Board and the Audit Committee rely on periodic reports provided by the Investment Manager and the Administrator regarding risks that the Company faces. When required, experts, including tax advisers, legal advisers and environmental advisers, are employed to gather information.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Interim Report in accordance with applicable law and regulations.

In accordance with the FCA's Disclosure Guidance and Transparency Rule 4.2.10R, the Directors confirm that, to the best of their knowledge:

· the unaudited condensed interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting

· the Interim Report, comprising the Chairman's Statement and the Investment Adviser's Report, meet the requirements of an interim management report and include a fair review of the information required by:

- DTR4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the unaudited condensed interim financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

- DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place during the first six months of the current financial year and that have materially affected the financial position or performance of the Company during that period and any changes in the related party transactions described in the last Annual Report that could do so.

The Board is responsible for the maintenance and integrity of the corporate and financial information included on the Company's website (www.nextenergysolarfund.com), and for the preparation and dissemination of financial statements. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

On behalf of the Board of Directors of NextEnergy Solar Fund Limited

Kevin Lyon,Chairman20 November 2020

INTERIM FINANCIAL STATEMENTS

Independent Review Report to NextEnergy Solar Fund Limited

Conclusion

We have been engaged by NextEnergy Solar Fund Limited (the "Company") to review the unaudited condensed interim financial statements in the half-yearly financial report for the six months ended 30 September 2020 of the Company which comprises the unaudited condensed Statements of Comprehensive Income, Financial Position, Changes in Equity, Cash Flows and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the unaudited condensed interim financial statements in the half-yearly financial report for the six months ended 30 September 2020 are not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting ("IAS 34") and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the unaudited condensed interim financial statements.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 2, the annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards. The directors are responsible for preparing the unaudited condensed interim financial statements included in the half-yearly financial report in accordance with IAS 34.

Our responsibility

Our responsibility is to express to the Company a conclusion on the unaudited condensed interim financial statements in the half-yearly financial report based on our review.

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the Company in accordance with the terms of our engagement letter to assist the Company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Dermot Dempsey

For and on behalf of KPMG Channel Islands LimitedChartered Accountants, Guernsey20 November 2020

Statement of Comprehensive Income (Unaudited Condensed)

For the six months ended 30 September 2020