NextEnergy Solar Regulatory News (NESF)

19 May 2014

NextEnergy Solar Fund ("NESF")

Response to DECC Solar PV Strategy Announcement

Further to the DECC consultation announcement last week in connection with the development of solar PV infrastructure in the UK, the Company and its Investment Adviser have given consideration to its content.

The proposed changes to the regulatory regime have been widely expected and NESF's Investment Adviser has been building up its capabilities to act under Contracts for Difference - Feed in Tariffs ("CfDFit").

In addition, NESF will be fully invested well before any changes take place and, in the medium term, the solar PV industry will benefit from the greater efficiency required by reducing costs associated with the ROC banding going forward.

Specifically, the scale of growth and the efficiencies that can be delivered through transparent and well devised regulatory change create an opportunity for greater consumer benefit and allow the government to maintain control over the deployment of renewable energy in the UK. The proposed changes announced by the government have been well publicised and commented on but essentially relate to the fact that:

- there has been a far greater investment in large scale solar photovoltaic than originally expected; and

- the UK government is seeking to take greater control of market demand by bringing forward the regulatory shift from the RO (Renewable Obligations) regime to CfDFit for larger projects and to reinforce their support for distributed roof top based systems that have lower local community and energy grid impact.

These potential changes do not, however, alter the UK government's target for installed solar capacity of in excess of 10GW by 2020, the market growth opportunity for UK solar and the requirement for significant further investment. Furthermore, the Company believes that its outlook, target returns and growth prospects remain unchanged by the proposals which may, indeed, present certain opportunities:

- the Company remains firmly on track to have fully invested the IPO proceeds within previously disclosed timescales, significantly ahead of the date planned for implementation of any changes in April 2015;

- the Company has access to a significant further pipeline of projects and, in addition, the effects of the consultation has the potential to accelerate the growth in the Company's asset base in the short term as projects are brought forward in order to secure commissioning under the current regulation; and

- the NEC Group has experience of operating in solar markets where there has been significant regulatory change, and is well placed to manage change in the UK to the Company's benefit, in particular as it:

o is experienced in reducing investment cost and delivering operational excellence (both on revenue maximisation and cost minimisation), something which will be a key driver of returns under the new regime;

o has significant experience at building, managing and operating roof top based systems; and

o is building significant partnerships and capabilities to manage the CfDFiT process.

The Company will keep investors updated on further developments as they arise.