Us Solar Fund Regulatory News (USF)

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24 March 2022

US SOLAR FUND PLC (USF, the "Company")

Annual Results to 31 December 2021 and Dividend Announcement

US Solar Fund PLC (LSE: USF) is pleased to announce its annual results. This covers the period ended 31 December 2021.

Highlights during the year

• Over the course of the year, the Investment Manager has continued growing and enhancing USF by completing a capital raise, completing the acquisition of 25% of Mount Signal 2 (MS2), a 200MWDC project in California, optimising USF's financing structure, maximising operating efficiency across the portfolio, and meeting and cash-covering the dividend target.

• As at 31 December 2021, the Company had closed on six transactions since IPO with the portfolio consisting of 42 fully operational assets in four states with a total capacity of 493MWDC. All 42 assets have power purchase agreements (PPAs) for 100% of generation with investment-grade offtakers for a weighted average term remaining of 14.4 years.

• USF's audited NAV at 31 December 2021 was $324.0 million or $0.975 per Ordinary Share, a 3% increase from the 30 September 2021 NAV of $0.947 per Ordinary Share, and 1% increase from the 31 December 2020 NAV of $0.970 per Ordinary Share.

• The NAV reflects the impact of useful life extensions for selected assets in the portfolio and an uplift in the valuation of USF's interest in and option over MS2 which more than offset a softer average long-term electricity price outlook, tax and working capital adjustments, and model roll forward.

• The portfolio performed 3.9% below budget for the year (including reimbursed curtailment). 1.5% was due to lower-than-expected irradiance and 2.4% due predominantly to the H1 contractually allowable and expected curtailment at MS2 in California, isolated performance issues which have been largely resolved, unplanned outages and soiling.

• As at 31 December 2021, the Investment Manager's pipeline included 1.9GWDC of high-quality assets, with an aggregate value of approximately $2.2 billion in cash equity value and a weighted-average PPA term remaining of 17.7 years.

Dividends

• The Board is pleased to declare a dividend for the quarter ended 31 December 2021 of 1.50 cents per Ordinary Share. The dividend will be paid on 29 April 2022 to shareholders on the register as at the close of business on 8 April 2022. The ex-dividend date is 7 April 2022. This brings the total dividend for FY 2021 to 5.5 cents per Ordinary Share, in line with the full year dividend target.

• Dividend cash cover remained strong at 1.82x for the twelve months ended 31 December 2021.

• The Company expects to declare the dividend for the quarter ended 31 March 2022 in May 2022, for payment in early July 2022. The Company is targeting a cash-covered dividend of 5.58 cents per Ordinary Share for FY 2022, reflecting a 1.5% increase on the FY 2021 dividend.

Highlights after Period-End

• In February 2022, after the end of the period, USF exercised its option to acquire a further 25% (50MWDC) of MS2. Upon close, this will bring USF's total ownership of MS2 to 50% or 100MWDC and the total USF portfolio to 543MWDC.

• In February, USF released its inaugural Sustainability Report, available on the Company's website at: www.ussolarfund.co.uk/investor-centre/key-documents-and-disclosure. This report forms a core part of USF's commitment to support our investors with their own ESG-related obligations. While USF is not formally required to comply with the upcoming EU Sustainable Financial Disclosure Regulation, we intend to align reporting with a view to compliance with this regime.

Gill Nott, Chair of the Company said:

"2021 was an exciting year for the Company as it continued to deliver on its targets. The Company completed its first full year with the entire portfolio operating will pay the full target dividend totalling 5.5 cents.

The Board was delighted by the market response to the capital raising in May 2021 for $132 million with strong support from existing and new investors, increasing its market capitalisation by 66%. The Investment Manager deployed the majority of the net proceeds into the refinancing of 22 assets as well as the acquisition of Tranche 2 of MS2.

The Board and the Investment Manager are conscious of the need to grow the Company. Hence, as well as continuing to originate opportunities in mature US state solar markets, the Investment Manager is actively broadening its focus within the existing mandate to include emerging US state solar markets, multi-offtake arrangements, distributed generation, and suitable co-investment opportunities."

The Company's Annual Report and Financial Statements for the period ending 31 December 2021 are available on the Company's website at: www.ussolarfund.co.uk/investor-centre/key-documents-and-disclosure and can be found at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

For further information, please contact:

About US Solar Fund plc 

US Solar Fund plc, established in 2019, is listed on the premium segment of the London Stock Exchange in April 2019 with a market capitalisation of approximately $340m. The Company's investment objective is to provide investors with attractive and sustainable dividends with an element of capital growth by owning and operating solar power assets in North America and other OECD countries in the America.

The solar power assets that the Company acquires or constructs are expected to have an asset life of at least 30 years and generate stable and uncorrelated cashflows by selling electricity to creditworthy offtakers under long-term power purchase agreements (or PPAs). The Company's portfolio consists of 42 operational solar projects with a total capacity of 543MWDC, all located in the United States.

Further information on the Company can be found on its website at http://www.ussolarfund.co.uk.

About the Investment Manager 

USF is managed by New Energy Solar Manager (NESM). NESM also manages New Energy Solar, an Australian Securities Exchange (ASX)-listed fund. Combined, US Solar Fund and New Energy Solar have committed approximately US$1.3 billion to 57 projects totalling 1.2GWDC.

NESM is owned by E&P Funds, the funds management division of E&P Financial Group, an ASX listed company (ASX: EP1) with over A$20 billion of funds under advice.

US Solar Fund PLC

INVESTMENT POLICY

US Solar Fund plc (USF or the Company) is listed on the premium segment of the London Stock Exchange and aims to provide investors with attractive and sustainable dividends with an element of capital growth by investing in a diversified portfolio of solar power assets in North America and other OECD countries in the Americas.

OBJECTIVES The Company acquires or constructs, owns and operates solar power assets that are expected to have an asset life of at least 30 years and generate stable and uncorrelated cash flows by selling electricity to creditworthy offtakers under long-term power purchase agreements (or PPAs).

INVESTMENT MANAGER

USF is managed by New Energy Solar Manager, which was established in 2015 and has committed a total of more than US$1.3 billion to 57 utility-scale solar assets, 55 of which are in the US, totalling 1.2GWDC.

HISTORY OF THE COMPANY

The Company's initial public offering (IPO) in April 2019 raised $200 million; the funds were all committed or invested by December 2020 and the solar power assets were fully operational by that date. In May 2021 the Company raised an additional $132 million as part of a 12-month Placing Program. The majority of the proceeds have been used to refinance and reduce gearing on an existing portfolio. Subsequent to the period end, the Company exercised its option to acquire an additional 25% of Mount Signal 2, committing a further $21 million.

PORTFOLIO

USF's current portfolio consists of 42 projects across four US states with a combined capacity of 543[1] megawatts (MWDC). Its assets are fully operational, generating 851 gigawatt-hours (GWh) over the period[2]. Power offtake agreements are in place for 100% of generation with creditworthy counterparties with a weighted average remaining life of 14.4 years[3], providing a resilient and uncorrelated income stream.

TARGET RETURN

USF aims to deliver an annual cash-covered dividend of 5.5 cents per share, growing at 1.5 to 2% per annum, for each financial year from and including 2021.

1. Highlights

Table 1: Highlights for the period

* Marked metrics are Alternative Performance Measures (APM's) used by the Company to monitor performance against expectations. Calculations are defined in the notes below, in market announcements and throughout this Annual Report. USF's APM's may not be comparable across its listed peers.

2. Chair's Statement

I am pleased to present the Annual Report for US Solar Fund plc for the period ended 31 December 2021. This year was an exciting one for the Company as it continued to deliver on its targets. During the course of the year the Company increased its market capitalisation by 66% following a successful fund raising. In addition, it completed its first full year with the entire portfolio operating and paid the full target dividend totalling 5.5 cents, in line with the targets set out at and since IPO. This happened against the backdrop of increasing support for the solar industry in the United States at many levels, most markedly at the federal level, with the Biden Administration taking office. The Board remains confident that the US solar market is robust and that USF is well positioned to be a significant growth player as the US makes a push toward growing its reliance on renewable energy.

Recently, the urgency of the shift to renewable power has been reinforced by the energy crisis provoked by the tragic events in Ukraine and its knock-on effect on oil and gas prices. With oil prices increasing over 50% in the last three months, events such as this highlight one of the key advantages of solar and other renewable energy in that it is not directly exposed to fuel price fluctuations. With global electricity prices still largely driven by gas pricing, current high fuel prices are likely to feed through to higher short-term electricity prices, however it remains to be seen how significant the impact will be on long-term electricity prices.

Throughout the period, USF shares have traded between $0.96 and $1.09 on the London Stock Exchange. At 31 December 2021, the Company's shares were trading at $0.96 per Ordinary Share. This represents a 1.6% discount to the NAV of $324.0 million or $0.975 per Ordinary Share, but a 1.4% premium to the published 30 September NAV of $0.947 per Ordinary Share. Including dividends paid and reinvested during the period, shareholder total return from inception to 31 December is 3.13%.

PORTFOLIO DEVELOPMENTS

In March 2021 and February 2022, USF acquired a total of 100MWDC or 50% of a 200MWDC project in California called Mount Signal 2 (MS2) across two transactions each of 25%[9]. MS2 was built during 2018 and 2019 by Swinerton Renewable Energy, a leading US constructor, and has a 20-year PPA with Southern California Edison (SCE), that commenced in June 2020. Under the PPA, 100% of the electricity generated by MS2 is sold to SCE at an annually escalating price. SCE (S&P: BBB), a subsidiary of Edison International, serves a population of more than 15 million people and is the primary electricity provider for central, southern and coastal California.

As of 31 December, the portfolio comprised 493MWDC across 42 fully operating projects in four states. All projects have investment grade PPAs for 100% of electricity generated, and the weighted average remaining PPA of portfolio is 14.4 years. Including the purchase of 25% of MS2 after the period, the portfolio totals 543MWDC.

The full year's generation (including nine-months generation from the first 25% tranche of MS2) was 3.9% below budget. 1.5% of this was due to lower-than-expected irradiance and 2.4% from a combination of the contractually allowable and expected curtailment at MS2 in California during the first half of the year, isolated performance issues, unplanned outages, snowfalls, and other adverse weather impacts. Maintenance and repair of the issues impacting performance have been largely resolved with two smaller issues on track to be completed by spring 2022. The strong geographic diversification of the assets benefited the portfolio through the year.

Dividend cash cover remained strong at 1.82x for the twelve months ended 31 December 2021.

CAPITAL RAISING AND USE OF PROCEEDS

We were delighted by the market response to the capital raising in May 2021 for $132 million with strong support from existing and new investors.

Just after the capital raise, $92 million[10] was invested in the refinancing and de-gearing of the existing debt facilities associated with the 177MWDC portfolio of 22 projects acquired in 2020 (Heelstone Portfolio and Heelstone Refinancing). The Heelstone Refinancing reduces the effective interest rate for the Heelstone Portfolio from approximately 6.25% to less than 3% per annum with fund gearing approaching 40%, below the long-term target of 50%. A further $21 million was committed in February 2022 (after the period) to acquire an additional 25% (Tranche Two) of MS2.

The Investment Manager has remained focused on delivering on the Company's investment thesis and growing the portfolio in line with return targets. The strong pipeline of assets for suitable investments includes standalone solar projects, integrated solar and battery storage projects, and solar expansion and/or battery installation opportunities at existing sites. The Board and the Investment Manager are conscious of the need to grow the Company. Hence as well as continuing to originate opportunities in mature US state solar markets, the Investment Manager is actively broadening its focus within the existing mandate to include emerging US state solar markets, multi-offtake arrangements, distributed generation, and suitable co-investment opportunities.

PERFORMANCE

USF's audited NAV at 31 December 2021 was $324.0 million or $0.975 per Ordinary Share, a 1% increase of the 31 December 2020 NAV of $0.970 per Ordinary Share. The NAV reflects the impact of useful life extensions for selected assets in the portfolio, and an uplift in the valuation of USF's interest in and option over MS2. The work on the useful life extensions was undertaken by an independent engineering firm, who looked at each project in detail to assess the appropriateness of the extension. The asset life extensions and uplift in MS2's valuation more than offset a softer average long-term electricity price outlook, that pertained at the end of December 2021, as well as tax and working capital adjustments, and valuation roll forward.

The NAV also includes the positive impact of discount rate reductions reflecting current market rates, maturing operational track-records, and de-geared capital structures. This kind of NAV accretion is indicative of USF's strategy to de-risk the portfolio by identifying opportunities to improve capital structures and by purchasing assets at construction ready or in early operations and taking them into steady operations.

DIVIDEND

The Company declared a dividend of 1.5 cents per Ordinary Share in March 2022 for the quarter ending 31 December 2021, bringing the full year 2021 dividend to 5.5 cents per Ordinary Share, completing its first year of operations with the full target dividend.

It is worth noting that USF's highest power generation, and therefore operating cash flows, are produced in the summer months. Allowing for the time taken for electricity sales to be converted to distributable cash flow at the Company level. The profile of dividend payments throughout the year broadly reflects this seasonality of the Company's underlying cash flows.

OUTLOOK

The US Solar Market continued remarkable growth during 2021. In late January, Wood Mackenzie released data showing that approximately 7.5GWDC of utility-scale solar is expected to come online in Q4 2021, bringing the total 2021 forecast to be 20.2GWDC up 30% from 2020's 14.3GWDC of installations. Wood Mackenzie expects challenges around commodity prices and supply chain constraints until early 2023 and have reduced their 2022 forecast of utility scale solar installations by 7.5GWDC (33%). Despite these headwinds, Wood Mackenzie still expects approximately 122GWDC of solar to be installed between 2021 and 2026.

In early 2021, the Biden Administration took office in the US and is working hard to push for more renewable energy through legislation. Although the Build Back Better Act has not been able to get through the US Senate, there is an expectation that it will be reshaped and that some of the key clean energy and climate initiatives will pass in a modified form. Wood Mackenzie's forecasts expect the current ITC extension terms will boost Solar capacity by 31% in the next five years (43.5GWDC). The global supply chain constraints that are impacting all industries are also putting pressure on the pace of solar development and the ITC extension would be expected to partially offset these impacts.

As we look at the current administration's ambitious goal of shifting toward clean energy - 100% by 2035 - we believe that solar is set to play a critical part. The US Department of Energy has said that in order to support initiatives around clean energy, solar could become 40% of US electricity generation in the next 13 years. According to the EIA, the US generated roughly 3% of electricity from clean energy in 2020, requiring significant investment and development in the coming years if the Biden administration is to meet its goals.

Although USF as a producer of renewable energy is well aligned with Sustainability and Environmental, Social and Governance (ESG) goals and considerations, we also recognise the need to review and report on all aspects of the way we conduct business and to share our findings in a clear and transparent way. Since IPO, USF has reported on Sustainability and ESG through its annual and interim reporting. In April 2021, the parent of the Investment Manager became a signatory to the United Nations sponsored Principles for Responsible Investing (UN PRI); reporting will commence in 2023 based on recommendations from the UNPRI.

In February 2022, after the end of the period, USF published its first annual Sustainability Report covering 2021 and included initiation of USF's reporting through the Sustainable Financial Disclosure Regulation (SFDR) Annexe One. In the ESG section of this Annual Report, we also now begin to include reporting with guidance from the Task Force on Climate-related Financial Disclosures (TCFD). We recognize that ESG and Sustainability reporting is an evolving, dynamic space and our reporting will continue to adapt to incorporate new best practices in the coming years. Though we will continue to include updates and disclosures as appropriate in the annual and interim reports, the majority of reporting will be housed in the Sustainability Report, allowing us to meet the growing needs for greater transparency and depth in the reporting on these topics.

2022 has had a volatile start; with the abhorrent war in Ukraine, destabilising energy supply and the world in general. Of course, we are yet to see the full repercussions of the conflict across the globe and across industries but the trajectory seems set for higher energy prices and stronger demand for renewables. We do not yet know how these will affect longer term power prices but it would seem unlikely that the recent trend of softening power prices will be maintained.

Despite the volatility and inflationary pressures in the broader markets, USF continues to deliver steady cash flows given its long-term PPAs held by the portfolio of high-quality US solar projects. We are also pleased to have continued growing the portfolio, increasing capacity by 100MWDC over the last year. The assets we currently own are fully operating with strong diversification across geographies and investment-grade offtakers and a weighted average PPA term remaining of 14.4 years. Our debt facilities are protected against interest rate volatility through our strategy of hedging all base interest rate risk on amortising debt for the full amortisation period. As an established investor, owner and operator in the US solar market, we are well positioned to support the growth of the solar industry in the years to come. The Board and the Investment Manager remain focused on delivering steady cash flows from the existing portfolio of assets, whilst looking for suitable opportunities in solar and storage to grow the Company.

GILL NOTTCHAIR24 March 2022

3. Investment Manager's Report

SUMMARY OF THE PERIOD

During the year the Investment Manager has continued growing USF by completing the capital raise and the acquisition of 25% of MS2, optimising USF's financing structure, maximising operating efficiency across the portfolio and meeting and cash-covering the dividend target. All cash flows from USF's assets are contracted in the US with investment-grade offtakers for a weighted average remaining term of 14.4 years[11]. 2021 was the first 12-month period when all assets were fully operating, and USF commenced paying the full target dividend. USF's Q1 and Q2 2021 dividends were 1.25 cents per share and Q3 and Q4 2021, which is announced with this report, were 1.5 cents per share, totalling 5.5 cents per share for the period and meeting the Company's target full year dividend. Coverage of dividends paid during the year by free cash flow and any cash flows carried forward was 1.82x, and the Investment Manager expects to continue to fully cash cover dividends paid in 2022.

In May, USF successfully closed an Initial Issue which was significantly oversubscribed, raising gross proceeds of $132 million from existing and new investors. Shortly after the completion of the capital raise, USF used $92 million[12] of equity to successfully refinance the existing debt facilities associated with a 177MWDC portfolio of 22 projects acquired in 2020 (the Heelstone Portfolio). This refinancing benefits USF by lowering overall gearing towards 40% (below the long-term target of 50%), and reducing sensitivity to changes in key assumptions including long-term power prices, and enhancing dividend coverage.

In March 2021 and February 2022, USF closed two transactions, each a 25% stake in the 200MWDC MS2 project in California adding 100MWDC to the portfolio and bringing the portfolio to 42 assets across four US states totalling 543MWDC.

The various strains of COVID-19 which evolved during the year had no material impact on USF's operations or portfolio during the reporting period.

NAV

The Company's NAV per share increased from $0.97 per share on 31 December 2020 to $0.975 per share on 31 December 2021, reflecting the combined impacts from asset life extensions and an uplift in the valuation of USF's initial investment in, and option over, MS2 less dividends paid and operating costs. The Investment Manager engaged independent engineers and independent valuers who supported the Manager's proposed asset life extensions for 30 of 42 assets in the portfolio. The asset life extension process is further described in the Investment Performance section of this report.

NAV was also positively impacted by discount rates which were generally revised downwards to reflect current market rates, maturing operational track-records, and de-geared capital structures, resulting in an uplift in valuations. MS2's equity valuation increased from its acquisition valuation reflecting performance more aligned with run-rate expectations, longer operating history, and general market conditions. This is consistent with USF's strategy of acquiring construction ready or early stage operating assets and achieving valuation uplifts through de-risking the portfolio.

PORTFOLIO UPDATE

After the close of the period, USF exercised its option over Tranche Two of MS2 for $21 million. The Tranche Two purchase was subject to an operational performance-based adjustment mechanism.

As noted above, the MS2 acquisitions increase USF's total portfolio to 543MWDC of fully operational assets diversified across four states. USF's portfolio is fully operational with all production sold to a variety of investment-grade offtakers (S&P rated: BBB to A). The Investment Manager continues to work diligently to assess prospective investment opportunities in its robust pipeline to add to the portfolio, including consideration of storage and solar expansion opportunities at existing sites.

US SOLAR FUND STRUCTURE

The following diagram is provided to assist with understanding the financial statements set out in this report.

USF invests in its US-based subsidiary, USF Holding Corp., via a combination of debt and equity. USF is entitled to a Management Services Agreement (MSA) fee for the provision of management services to USF Holding Corp. USF Holding Corp. reimburses USF for investment costs, and costs associated with providing capital and advice to acquire underlying US Solar Assets. In addition, the Company earns interest on an intercompany loan to USF Holding Corp. Cash may also flow from USF Holding Corp. to USF as a dividend or return of capital, which is distributed to USF Holding Corp. on a periodic basis from the Company's underlying Solar Assets.

There are no restrictions on the movement of cash between USF and its subsidiary. As of 31 December 2021, the Company and USF Holding Corp. have available cash of $16.2 million and $21.0 million respectively, for a total balance of $37.2 million which may be used to meet the obligations of USF. After the period, it was announced that $21 million would be invested in 50MWDC of MS2 in California. At 31 December 2021 an undrawn $40.0 million revolving credit facility (RCF) was in place at USF Avon LLC (a wholly owned subsidiary of USF Holding Corp.), providing further liquidity support.

PORTFOLIO GENERATION UPDATE

Figure 2 above shows actual and budgeted generation from the assets in the portfolio for the four quarters in the period. The increase in production from Q1 to Q2 and decrease from Q3 to Q4 is largely attributable to the seasonality of production as we moved into and then out of the summer months.

The portfolio performed 3.9% below budget for the year, with actual production of 851GWh (including reimbursed curtailment) versus the budgeted or forecast production of 885GWh; as shown in Figure 3 below, 1.5% of this was due to lower-than-expected irraiance and 2.4% due to a combination of H1 curtailment at MS2 in California (0.5%), isolated performance issues (0.7%), unplanned outages (1.2%), and soiling (0.2%), being partially offset by other net impacts of 0.1%.

USF measures "Actual" performance against "Budgeted" performance. "Actual" production is the number of GWh generated and sold to the offtaker. "Budget" (also called "Forecasted") is the P50 production forecast for the plant before any adjustment for experienced weather conditions. Budgeted production is based on a production model and assumptions verified by an independent engineer at the time of acquisition, considering the location of the site, design of the plant and equipment used, degradation of equipment over time, planned maintenance outages, and unplanned maintenance and grid outages.

Table 2: 2021 Operating Portfolio Performance by State (excluding Tranche Two of MS2)[13]

Construction for all USF projects was completed by the end of 2020, and the period ending 31 December 2021 was the first year the entire portfolio was fully operational. During the period, USF completed the acquisition of 25% of MS2, adding 50MWDC of capacity to the portfolio from the start of the second quarter.

NORTH CAROLINA

The North Carolina portfolio (34% of total MW and 28% of budget MWh) performance was 5.5% below budget. Performance was impacted by a number of small site-specific issues including grid outages and unscheduled maintenance. All identified issues have been resolved.

OREGON

The Oregon portfolio (28% of total MW and 27% of budget MWh) performed 3.7% below budget primarily due to poor weather (including snow), grid outages (partially driven by the Oregon wildfires, although no sites were damaged by fires), soiling and unscheduled maintenance. All identified issues have been resolved except damaged feeder cables (rodent damage at Chiloquin, 14.0MWDC), which are expected to be repaired this spring; the Investment Manager has filed an insurance claim for repair costs and business interruption.

UTAH

In Utah, Milford (26% of total MW and 31% of budget MWh) performed 1.1% below budget for the year. Although the project performed strongly above budget for the first half of the year, inverter and medium voltage transformer issues drove underperformance in August and September. All identified issues have now been repaired under warranty and the project is performing well.

CALIFORNIA

Performance in California (12% of total MW and 14% of budget MWh) for the year was 6.9% below budget largely due to soiling, curtailment, grid outages and unscheduled maintenance at MS2 (50MWDC). MS2 experienced roughly two full years of expected curtailment within the 2021 calendar year (the curtailment calendar is June to May). While the curtailment was budgeted for by the Investment Manager, it was expected to be spread evenly across twelve months for each year. MS2's soiling and sensor issues are expected to be resolved by the end of March 2022.

CAPITAL RAISE AND USE OF PROCEEDS

In May 2021, USF announced it had raised gross proceeds of $132 million in the Initial Issue of its 12-month Placing Program announced in April 2021. The raising was oversubscribed and received strong support from existing and new investors.

Shortly after the completion of the capital raise and consistent with the use of proceeds contemplated in the Company's Prospectus dated 13 April 2021, USF completed the refinancing of the existing debt facilities associated with the Heelstone Portfolio. The refinancing transaction used approximately $92 million[14] of the $132 million gross proceeds of the Initial Issue along with the proceeds of a new debt facility provided by Fifth Third Bank National Association to repay all of the existing project level debt. The new debt facility has a tenor of seven years and is partially amortised over this period. These amortisation payments are consistent with an anticipated full amortisation schedule out to 2037, which is slightly shorter than the tenor of the project's underlying aggregated PPAs. This full amortisation profile is reflected in the fixed-for-floating interest rate swap which is in place to hedge the floating rate risk on the anticipated debt profile.

The refinancing reduced the effective interest rate for the Heelstone Portfolio from approximately 6.25% to less than 3% per annum. The base interest rate is fully hedged with fixed interest rate swaps for the full duration of the loan. It also lowered overall gearing for USF to 38.4% (below the long-term target of 50%), reducing sensitivity to changes in key assumptions including long-term power prices, and enhancing dividend coverage.

An additional $7 million was used to pay down debt on the Euryalus portfolio. The impact of these transactions is recognised in the movement in fair value of the Company's investment in its US subsidiaries and underlying Solar Assets. Note 17 to the Financial Statements shows the underlying movements on a look through basis for each of USF's Solar Assets.

In February 2022, USF exercised its option over Tranche Two, committing an additional $21 million of the capital raise proceeds.

PIPELINE UPDATE

At 31 December 2021, the Investment Manager's pipeline included 1.9GWDC of high-quality assets (including Tranche Two of MS2), with an aggregate value of approximately $2.2 billion in cash equity value and a weighted-average PPA term of 17.7 years.

During 2021, the Investment Manager screened over 13.4GWDC of solar projects, with a total cash equity value of over $12.8 billion. Among these projects, the Investment Manager has screened an increasing number of opportunities that include an energy storage component. The Investment Manager has commenced assessing projects in the portfolio for suitability of retrofit battery storage and will continue to work with specialist energy storage consultants in 2022. As well as continuing to originate opportunities in mature US state solar markets, the Investment Manager is actively broadening its focus within the existing mandate to include emerging US state solar markets, multi-offtake arrangements, distributed generation, and suitable co-investment opportunities.

The Investment Manager continues to take a conservative approach to valuation of acquisition opportunities. It also continues to strictly adhere to a process that is consistent with the strategy and return targets of the Company. While the Investment Manager has observed an increasing level of competition for large-scale solar assets in 2021, the Company was successful in increasing the portfolio by 100MWDC including the exercise of the option for Tranche Two of MS2 (50MWDC) post year end.

In September 2021, USF increased the size of the undrawn $25 million RCF to a $40 million facility and extended the tenor for two years. As of the date of this report, the RCF remains undrawn, which alongside investible cash on hand following the acquisition of Tranche Two of MS2, is available to fund suitable pipeline opportunities.

FUNDS COMMITTED

As at 31 December 2021 USF had invested $283 million in the operating portfolio. On 10 February 2022, USF exercised its option to acquire Tranche 2 of MS2, which will require an additional $21 million to be funded from cash on hand. Following the acquisition, USF is forecast to have $16 million of investible cash remaining, which is intended to be used for further acquisitions or storage opportunities.

EVENTS AFTER THE PERIOD

As noted above, in February 2022, USF announced it had exercised its option over Tranche Two of MS2, bringing USF's ownership of the project to 50% (100MWDC).

On 24 March 2022, the Company announced a dividend of 1.5 cents per Ordinary Share for the period ending 31 December 2021, bringing total dividends declared for the twelve-month period to 5.5 cents per Ordinary Share, meeting the dividend target. The dividend is expected to be paid on or around 29 April 2022.

CORONAVIRUS

USF continues to operate well during the COVID-19 pandemic, with no material impact on the Company to date. USF continues to adjust its work environment to ensure the health and safety of its employees, contractors, and stakeholders. Both the New York and Sydney offices of the Investment Manager have arrangements that adhere to local guidelines including limited staffing, remote work and staggered access arrangements as and when needed. The Investment Manager also recently moved to larger premises in New York to accommodate increased distancing between team members. As the Board and Investment Manager have been accustomed to working across three continents since inception, remote meetings and communicating across time zones and flexibility were already efficiently managed by all parties.

The generation and provision of electricity in most of the US has not been significantly disrupted by the pandemic as it has consistently been considered an essential service. With construction completed, USF's projects have continued to operate and service personnel have been permitted to travel to sites to conduct work as needed, with no material supply chain impacts for spare parts. The Investment Manager continues to assess the current and potential impact of the COVID-19 measures implemented by the US federal and state governments on the Company's investment strategy and operations.

INVESTMENT PORTFOLIO

As at 31 December 2021 the Company owned 42 utility scale solar projects, totalling 493MWDC. All assets in USF's portfolio have achieved commercial operations and are generating revenue for the Company. Table 3 sets out the location and further information regarding each project.

Table 3: Portfolio Overview

ACQUISITIONS

As at 31 December 2021, the Company had closed six acquisitions. Milford and Olympos completed in 2019, Granite, Heelstone and Euryalus were completed in 2020 and the first 25% tranche of MS2 in 2021. As set out in Figure 5, while the timing is dependent on the US regulator, approval for the Company's acquisition Tranche Two of MS2 is expected to be provided by the Federal Energy Regulatory Commission (FERC), which will bring USF's ownership of that project to 50% (100MWDC) and the total portfolio to 543MWDC subsequent to year end.

Table 4: Portfolio Acquisition Valuation

* The $5m fair value movement shown in US cash and working capital relates to the derivative asset value of the option over the second tranche of MS2 at 31 December 2021.

Table 4 shows USF's completed and committed acquisitions and valuation change between 31 December 2020 to 31 December 2021. Approximately $92 million[19] was invested over the period for the Heelstone Portfolio (Acquisition Four) debt refinancing, resulting in an Acquisition Four valuation of $119.7 million as at the end of the period. Similarly, approximately $7 million was used to repay debt on the Euryalus (Acquisition Five) portfolio, resulting in a valuation of $36.7 million as at 31 December 2021. Milford (Acquisition 1) and MS2 (Acquisition 6) also saw an uplift in valuation across the period primarily due to cost of capital rerates. As of the end of the period, the Fair Value of the portfolio acquisitions was $289 million.

A detailed summary of the movement during the period can be found in Note 17 to the financial statements.

INVESTMENT PERFORMANCE

At 31 December 2021, the Company's shares were trading at $0.96 per Ordinary Share and have continued to trade around this level since year end. This represents a 1.6% discount to the 31 December 2021 NAV of $324.0 million or $0.975 per Ordinary Share. The NAV is defined as the total assets less any liabilities.

The Company generated a gain after tax of $14,954,943 ($0.052 per Ordinary Share) during the period. Intercompany loan interest income of $1,988,957, foreign exchange gains of $106,649 on funds that were retained in GBP, US distributions of $2,996,992, MSA fee income of $4,673,924 from management services provided to the Fund's wholly owned US subsidiaries, and a net gain on investments of $9,118,692, were offset by administrative and other expenses of $3,930,271. The net fair value gain on investments was attributable to updated discount rates, useful life revisions and an increase in value on the MS2 option as detailed in Figure 6.

The financial statements of the Company are presented on pages 82 to 85. The Fund's sensitivity to discount rates and power prices is detailed below.

Table 5: Performance Summary

Figure 7 details the 1.8 cents per Ordinary Share movement in the "FV gain on solar investments" category shown in Figure 6. The roll forward uplift is a result of bringing forward the valuation date to 31 December 2021, thereby removing cash flows from prior periods and bringing forward future cash flows. This resulted in a slight decrement across the portfolio this period due to the cash flow profiles of Granite, Heelstone, and Euryalus.

Discount rates were generally revised downwards to reflect current market rates, maturing operational track-records, and de-geared capital structures, resulting in an uplift in valuations. MS2's (Acquisition Six) equity valuation increased from its acquisition valuation primarily due to an updated discount rate to reflect improved operating performance more aligned with run-rate expectations, longer operating history, and general market conditions.

USF engaged a leading independent engineer (IE) to review portfolio useful lives, which resulted in 30 of the 42 assets having their useful lives extended to 40 years. The IE reviewed the geotechnical and structural design, historical operational performance, budgeted operating costs, and other key components to determine a recommended useful life and associated assumptions, including additional maintenance and capital expenditure. Assets that were considered for extensions have permits, contracts, and land control to support the term of useful life. The Investment Manager's extension of useful lives was independently reviewed by both the Company's external engineer and valuer along with it being considered as part of the fair value of the Company's investments in the auditor's report accompanying the financial statements.

The uplift in MS2's valuation as at 31 December 2021 has also increased the value of the Company's Tranche 2 option to acquire a further 25% stake in MS2 as reflected in the 1.6c uplift in the waterfall. Post-period end, the Company announced that it had exercised this option.

The change in merchant curve reflects the update of forecast power prices to use the most recent two power price forecasts from two market consultants. Over the course of 2021, independent forecasts of merchant prices have generally been revised downwards, resulting in a negative impact on NAV. Further details on the change in merchant curve and the impact on the Company's investments can be found in the Valuation section below.

The adjustment to USF model reflects the updated valuation method to align with third-party valuation methods, noting the Investment Manager's valuation for each asset (and therefore on a portfolio basis) are within the valuation ranges prepared by the independent valuer.

Net working capital adjusts for changes in project level cash, assets, and liabilities, and the change in transaction costs reflects actual acquisition and capital raise costs incurred during H1 2021 compared to forecast.

ONGOING CHARGES

The ongoing charges ratio of the Company is 1.36% of the average NAV for the year ended 31 December 2021. The ratio has been calculated using the AIC recommended methodology.

VALUATION

NET ASSET VALUE

The NAV for the period ending 31 December 2021 is $324.0 million, or $0.975 per Ordinary Share.

The valuation of the Solar Assets produced by the Investment Manager fully takes into account the overall valuations by an independent appraiser on a semi-annual basis as at 30 June and 31 December. The Company's valuations are within the valuation ranges of the independent appraiser. These valuations form part of the NAV calculation of the Company, which is subject to review/audit. Additionally, an unaudited NAV and NAV per Ordinary Share is calculated in US dollars on a quarterly basis as at 31 March and 30 September by the administrator, JTC (UK) Limited, (Administrator) in conjunction with the Investment Manager.

VALUATION METHODOLOGY

The Company has engaged an independent third-party appraiser to value operational Solar Assets acquired by the Company and its Project Special Purpose Vehicle (SPV), every six months as at 30 June and 31 December.

At each quarter-end, the Investment Manager provides the relevant third-party or internal valuations of the Solar Assets, together with the valuations of the other assets of the Company and its Project SPVs, to the Company Secretary and Administrator of the Company.

The Administrator, in conjunction with the Investment Manager, calculates the NAV and the NAV per Ordinary Share as at the end of each quarter of the Company's financial year, and submits the same to the Board for its approval.

The valuation has been calculated in accordance with Uniform Standards of Professional Appraisal Practice (USPAP) as applied to PV electricity generation systems in the US.

Fair value for operational Solar Assets is derived from a discounted cash flow (DCF) methodology. For Solar Assets that are still under construction at the time of valuation, the purchase price of the Solar Power Asset including construction and acquisition costs is normally used as an appropriate estimate of fair value, provided no significant changes to key underlying economic considerations (such as major construction impediments or natural disasters) have arisen.

Primary valuation methodology:

· The equity fair values of USF's construction assets are based on the equity purchase price plus transaction costs (no assets were valued on this basis for 31 December 2021 as all assets were operational during the period and at period end).

· The equity fair values of USF's operational assets are based on DCF modelling of pre-tax cash flows to equity as at 31 December 2021. This methodology more accurately reflects the valuation impact of the discrete debt instruments that USF has in place when compared to an unlevered valuation.

· A post-tax valuation is conducted at the US Holding Corp. level to cross-check the implied post-tax discount rate.

In a DCF analysis, the fair value of the Solar Power Asset is the present value of the asset's expected future cash flows, based on a range of operating assumptions for revenues and costs and an appropriate discount rate range.

The Investment Manager has reviewed a range of sources in determining the fair market valuation of the Solar Assets, including but not limited to:

· discount rates publicly disclosed by the Company's global peers;

· discount rates applicable to comparable infrastructure asset classes; and

· capital asset price model outputs and implied risk premium over relevant risk-free rates.

A broad range of assumptions are used in valuation models. Where possible, assumptions are based on observable long-term historical market and technical data given the long-term life of the assets. The Investment Manager also engages technical experts such as long-term electricity price forecasters, and for the current valuation cycle an independent engineer, to provide or validate long-term inputs for use in its valuations.

Long-term electricity price forecasts are obtained every six months from two leading independent power price forecasting firms for each jurisdiction in which Solar Assets are located. The most recent two electricity price forecasts from each firm are averaged and provided to the independent valuer to project the prices at which existing PPAs will be re-contracted. The averaging of curves and providers is used to prevent the valuation of the portfolio being unduly influenced by one forecaster's set of assumptions; to mitigate potential forecaster errors in a particular period; and to reduce the timing risk inherent in valuing the portfolio shortly before curve updates are released. The independent valuer assesses these forecast prices for reasonableness against their own internal forecasts and others in the marketplace.

The Investment Manager has used its judgement in arriving at appropriate discount rates which are consistent with the discount rates derived by the independent valuer. The Investment Manager's view of discount rates is based on its knowledge of the market, considering intelligence gained from its bidding activities, discussions with financial advisers in the appropriate market, and publicly available information on relevant transactions.

The Investment Manager engaged independent valuer KPMG to calculate the fair value of its operating renewable energy assets. KPMG is one of the largest valuation firms in the US with significant experience in estimating the fair value of solar and other renewable energy assets. In line with USF policy, all 42 of USF's operating assets were externally valued at 31 December 2021.

The Company uses the average of the most recent two forecasts (available at the valuation date) from two independent providers (a total of four price forecasts). The impact of merchant electricity price forecasts was partially offset by a gain of $0.037 per share from favourable reductions to discount rates reflecting the portfolio's maturing full run-rate operations, improved operating performance, as well as the reduction in leverage achieved through the refinancing of the Heelstone portfolio and the repayment of debt on the Euryalus portfolio. The weighted average pre-tax cost of equity used for levered assets was 7.8% (December 2020: 8.3%), and the weighted average pre-tax weighted average cost of capital (WACC) for unlevered assets was 6.3% (December 2020: 6.7%). A driver of the reduction in pre-tax cost of equity was the Heelstone Debt Refinancing. In addition, reductions in discount rates typically occur as a project progresses from construction start to one full year of operations.

MS2 (Acquisition Six) saw an equity valuation increase from its initial acquisition cost primarily due to an updated discount rate to reflect improved operating performance more aligned with run-rate expectations, longer operating history and general market conditions.

The Investment Manager conducted a useful life analysis with a reputable IE in December 2021. The Investment Manager has historically relied on IE support and recommendations for useful life of the projects in our portfolio. Many of the assets within USF's portfolio are contractually able to support a longer useful life so long as the project can support it technically and structurally. The Investment Manager initially reviewed the projects in the portfolio that had adequate contractual protections to support a longer useful life such as land control and interconnection terms. The IE then reviewed geotechnical and structural design, major equipment, material selection, historical operating performance, budgeted operating costs and future forecasts, and other key technical inputs to assess the useful life and provide additional assumptions that would need to be included in the models to support it. As a result of the analysis, 30 of 42 assets within USF's portfolio had their operating lives extended to from 35 to 40 years from commencement of commercial operations. The useful life extensions resulted in a NAV uplift of $0.045 over the period.

TAX EQUITY

At a federal level in the US, the Investment Tax Credit (ITC) introduced in 2005 to give project owners tax credits for installing designated renewable energy generation equipment, has been highly successful in driving renewable energy adoption in the US. In addition, certain solar PV assets are eligible for accelerated depreciation, enhancing US tax effectiveness. At 31 December 2021, tax equity financing was in place for all projects in the Company's portfolio except for Granite (Acquisition Three). US tax equity structures customarily include a mechanism for the tax equity investor to exit the structure after a time or return-based target is met. For valuation purposes, the Investment Manager assumes tax equity partners exercise their purchase or withdrawal options at the earliest possible date, and as expected at the time of acquisition, US Bancorp fully exited the Granite (Acquisition Three) tax equity structure during the period.

Table 6 below details the tax equity arrangements for the Company's portfolio.

Table 6: Tax Equity Summary

GEARING

Taking the US operating subsidiaries and holding companies into account (which we also refer to as being on a look-through basis), USF had outstanding debt of $201.9 million as at 31 December 2021, based on the face value of drawn debt. This equates to 38.4% of Gross Asset Value (GAV) (calculated as NAV plus outstanding debt). This is below USF's long-term target of 50%.

Refer to Note 10 of the financial statements for further information on USF's debt facilities.

SENSITIVITY ANALYSIS

The Investment Manager and the Company use sensitivity analysis to assess the impact of changes in key assumptions on the fair value of the Company's investments. The sensitivities shown in Figure 9 assume the relevant input is changed over the entire useful life of each of the underlying renewable energy assets, while all other variables remain constant. All sensitivities have been calculated independently of each other. The full sensitivity analysis, including comments on key assumptions and sensitivities, is included in Note 13 to the financial statements.

INFLATION

Rising inflation became a key area of focus in the US during 2021. USF considers inflation in terms of potential impact on cash flows from the existing portfolio, NAV, and pipeline opportunities.

For the existing portfolio, which is fully operational, the Company is protected from near-term increases in capital and operating costs. While replacement of equipment in the near-term is unlikely given the age of the portfolio, any required near-term equipment replacements are expected to be under manufacturer warranties. Contracted operating costs such as operations and maintenance (O&M) and asset management are fixed under the terms of the Company's contracts with third party providers for terms of one to four years and are often subject to extensions at predetermined pricing independent of inflation. Given this, along with increasing competition and continued efficiency gains in the solar O&M and asset management market, upcoming renewals are expected to be at the same, or lower, pricing. In terms of revenue, although USF's PPA's do not contain direct inflation linkages (which are uncommon in the US), some of the contracts escalate at a specified percentage annually.

In terms of NAV, in an inflationary environment USF would expect the discount rates used in valuation to increase. However, the price at which the projects can re-contract or sell electricity after the PPA period expires could also be expected to increase with higher inflation and interest rates, which would partially offset the impact of higher discount rates. Base interest rates on the Company's drawn amortising debt facilities are fully hedged for the term of the relevant loan, and for one or more subsequent re-financings.

For pipeline opportunities, higher raw material prices for new projects mean those projects need higher revenues to earn the same return. This could see some future projects delayed until economics improve however, given the already competitive economics of solar, this is expected to be a very small number and, importantly, USF does not invest until PPA prices and construction costs are certain .

SHARE CAPITAL

On 16 April 2019, the Company was admitted to the premium listing segment of the Official List of the FCA and to trading on the main market of the London Stock Exchange.

As at 31 December 2021 332,192,361 Ordinary Shares were issued and no other classes of shares were in issue at that date. At 31 December 2020, 200,192,361 Ordinary Shares were issued and at 31 December 2019 there were 200,092,323 Ordinary Shares issued.

During the period, 132,000,000 shares were issued following a successful Initial Issue bringing the total Ordinary shares to 332,192,361 on issue at 31 December 2021.

Also during the period, the Investment Manager acquired 221,176 Management Fee Shares on 1 October 2021 at an average market price of $1.01 per share, reflecting the Management Share Amount due to the Investment Manager for the period from 1 July 2020 to 30 June 2021.

INFORMATION ON THE INVESTMENT MANAGER

USF is managed by New Energy Solar Manager Pty Limited, which also manages New Energy Solar (www.newenergysolar.com.au). Combined, US Solar Fund and New Energy Solar have committed approximately US$1.3 billion to 57 projects totalling 1.2GWDC.

The Investment Manager has been given responsibility, subject to the overall supervision of the Board, for active discretionary investment management of the Portfolio in accordance with the Company's investment objective and policy. The Investment Manager offers in-house deal origination, execution, and asset management capabilities with experience in equity, tax equity, debt structuring and arranging, and active asset management. The Investment Manager's team currently consists of more than 20 investment and asset management professionals located in Sydney and New York. The Investment Manager is a corporate authorised representative of E&P Funds Management Pty Limited.

SENIOR MANAGEMENT TEAM

The senior members of the Investment Manager who are responsible for the management of US Solar Fund are set out below. Further information on the Investment Manager team is provided at www.ussolarfund.co.uk.

LIAM THOMASBAgribus (Curtin), MSc (Curtin), MBA (Melbourne)CHIEF EXECUTIVE OFFICER, NESM

Liam joined the Investment Manager as Director - Investments in March 2016 to lead transaction origination and execution activities, and succeeded John Martin as CEO in August 2021. Liam has over 16 years' experience in mergers and acquisitions, corporate and business development, projects, and commercial management in the energy, infrastructure, mining, and agribusiness sectors. Prior to joining the Investment Manager, Liam was a senior member of the International Development team at Origin Energy, which focused on the investment and development strategy for utility-scale solar, hydro, and geothermal projects in Latin America and South-East Asia. Liam's previous roles have included General Manager of Commercial Development at Aurizon, Commercial Manager for the Northwest Infrastructure iron ore port joint venture, and Project Manager at Orica, focusing on large-scale mining-related infrastructure and manufacturing projects.

ADAM HAUGHTONBS (Materials Engineering) (UMD), MBA (UT Austin)CHIEF INVESTMENT OFFICER, NESM

Adam joined the Investment Manager as a Director in July 2018, focusing on due diligence and transaction execution for new fund investments, and succeeded Liam Thomas as CIO in August 2021. Before joining the Investment Manager, Adam was a Vice President at Greentech Capital Advisors, an investment bank focused on mergers and acquisitions and capital raising transactions for companies within the sustainable infrastructure industry. Prior to Greentech, Adam worked in Bank of America Merrill Lynch's Global Industrials Investment Banking Group where he advised on a range of public and private mergers and acquisitions and capital market transactions. Earlier in his career, Adam was a Development Engineer at SunEdison where he was responsible for the development and design of utility-scale and commercial and industrial solar installations in the US.

WARWICK KENEALLYBEcon (ANU), BCom (ANU), CACHIEF FINANCIAL OFFICER, NESM

Prior to joining NESM, Warwick was the interim CFO of NESM's parent, E&P Financial Group Limited. Warwick has worked in chartered accounting firms specialising in turnaround and restructuring. Warwick started his career with KPMG working in its Canberra, Sydney, and London offices and has undertaken a range of complex restructuring and insolvency engagements across Europe, UK, and Australia, for a range of Australian, UK, European and US banks. Warwick has worked with companies and lenders to develop and implement strategic business options, provide advice in relation to continuous disclosure requirements, develop cash forecasting training for national firms, and lectured on cash management.

SCOTT FRANCISBS (Mechanical Engineering) (UR), MBA (UR)HEAD OF ASSET MANAGEMENT, NESM

Scott joined the Investment Manager in July of 2021, focusing on Asset Management and Operations across the portfolio of projects. Scott brings over 15 years of energy industry experience and has managed over 1,000MWs of solar and 2,500MWs of wind projects. Most recently, Scott was Director of Asset Management at Apex Clean Energy, a leading developer and operator of US utility scale solar and wind power, where Scott led the Asset Management team. Scott and his team provide comprehensive asset management in all aspects of projects including performance, reporting, optimisation, revenue assurance (PPA and Merchant), insurance, and contractual performance obligations. Prior roles have included various positions managing operations and business development for Dominion Energy's (Fortune 500 Utility) renewable assets.

4. Environmental, Social and Governance

ESG AND SUSTAINABILITY REPORTING DEVELOPMENTS

USF was established to both capitalise on and contribute to the world's increasing awareness of the impact of climate change and the need to better manage the world's resources for present and future generations. The Company is focused on sustainability, primarily as an investor in the solar industry, but also in the way the Company is managed. The Company's Board and Investment Manager are committed to providing transparent, and thorough reporting on ESG and Sustainability, and will regularly review new frameworks and initiatives that may improve or refine USF's approach.

Since its 2019 IPO, USF has consistently reported on ESG and Sustainability considerations throughout its interim and annual reports. In February 2022, the Company published its first annual Sustainability Report covering 2021, which forms part of the Company's reporting on the Taskforce on Climate-related Financial Disclosures (TCFD). The USF Sustainability report included and also expanded on existing frameworks like the United Nations Sustainable Development Goals (UN SDG), adding detailed descriptions of Environmental, Social, and Governance considerations and initiating reporting within the European Union Sustainable Financial Disclosure Regulation (EU SFDR) Annex One framework. Although USF is not required to report through the SFDR framework, the Board and Investment Manager recognise the value of the framework broadly and the specific relevance to EU based investors who support USF. Key ESG and Sustainability metrics will be mentioned in the Annual and Interim Reports while fulsome reporting will be captured in the Sustainability Report.

In April 2021, the parent of the Investment Manager became a signatory to the United Nations Principles for Responsible Investing (UNPRI) and mandatory reporting will commence in 2023 (a slight delay to typical timelines given a change in systems at the UNPRI organisation). As a signatory, the Company's Investment Manager has committed to incorporating ESG issues into their policies and practices and also to seek and promote appropriate ESG disclosures.

The Board and Investment Manager have commenced reporting against the TCFD framework in this annual report, referring to the Company's Sustainability Report where relevant disclosures have been made in that document. We believe that the TCFD framework will further assist investors and other market participants to review and understand USF's approach and consideration of ESG and Sustainability risks and opportunities. This is our first time engaging with the framework, and we recognise that over time we will continue to refine and expand our reporting. We have included our responses to the framework below in addition to our regular reporting on Principal Risks and Uncertainties in the following section.

TCFD Recommendations and Supporting Recommended Disclosures

USF's TCFD Reporting (Climate Change Related Risks and Opportunities)

As mentioned above, USF was established to both capitalise on and contribute to the world's increasing awareness of the impact of climate change and the need to better manage the world's resources for present and future generations. This is the principal way in which the Company engages with opportunities related to climate change. The Company is focused on sustainability, primarily as an investor in the solar industry, but also in the way the Company is managed as discussed below.

The disclosures on the following pages report against all 11 of the TCFD recommendations. USF has complied with LR 9.8.6R by including climate‑related financial disclosures consistent with the recommendations, other than including integrated climate related risk scenarios and emissions reporting, which will be incorporated in future reporting.

SITE-SPECIFIC ESG INITIATIVES DURING OWNERSHIP

As assets are onboarded and in-construction assets become operational, site-specific KPIs are implemented based on a list of potential measures for each asset. The US is vast and contains many different ecological environments. The measures used for each site depend on the local environment as well as the size of the asset. As USF assets range from 2MWDC to 200MWDC different measures are appropriate for different size assets. The list below includes actual measures that have been implemented and options that are being considered at various USF sites:

ENVIRONMENTAL

· Minimisation of water usage and monitoring consumption (all sites).

· Vegetation management at or below county regulations to minimise the impact of wildfires (all sites).

· Planting of local/indigenous grasses, plants or wildflowers (Milford, Benson, Eagle Solar, Lane II, Pilot Mountain, Tate, Willard).

· Implementation of sustainable drainage and flood control measures (Benson, Eagle Solar, Lane II, Pilot Mountain, Tate, Willard, Four Oaks).

SOCIAL

· Attendance at local community and government meetings to maintain community engagement and dialogue.

· Ongoing relationship development with O&M providers, construction contractors, and landowners to encourage local community engagement and contribution (all sites).

· Effective complaint reporting and handling (all sites).

· Engagement with local education institutions to help develop understanding of renewable energy (Alkali, Rock Garden, Suntex, West Hines I).

· Contributions to select local and regional charitable organisations (Granger, Alkali, Rock Garden, Suntex, Pilot Mountain).

· On site, all injuries and incidents must be reported immediately, and reporting is followed by a well-documented investigation process, detailed report, and corrective action (all sites).

GOVERNANCE

· Periodic and regular review of safety statistics and site visits with site service providers to ensure compliance with local and regional laws and the Investment Manager's ESG practices (all sites).

· Annual review of contract compliance (including health and safety plans) with site service providers (all sites).

· Regular review of site permits and obligations to ensure safe and effective operations within the regulatory guidelines (all sites).

Governance considerations also require a company to examine its structure, leadership, shareholder rights and internal controls. USF's Board of Directors is independent of the Investment Manager and seeks to implement a system of rules and practices that preserves the integrity and efficiency of its operations. The Board has worked with the Investment Manager and Company Secretary to maintain a framework of governance to meet the interests of stakeholders including shareholders, customers, financiers, government, suppliers and the community. The Company also considers acquisition and asset management principles and practices as they relate to dealing with anti-corruption and labour standards. USF recognises that these governance considerations are critical to building a successful, long-term business.

5. Principal Risk and Uncertainties

The Board is responsible for financial reporting and controls, including the approval of the Annual Report and Accounts, the dividend policy, any significant changes in accounting policies or practices, and treasury policies including a use of derivative financial instruments.

The Company faces a broad range of risks that the Board and Investment Manager aim to mitigate through internal controls and other actions. These risks are regularly assessed on a periodic basis to ensure that the business operates smoothly and that any adverse effect on the Company's performance and share value is mitigated. To the extent possible, the Board also maintains a risk register that is subject to a detailed review annually under the risk management framework in place to minimise the impact of these risks should they occur. The risks that the Board and Investment Manager believe to be the most relevant to the business can be organised into key categories as set out below:

· climate-related risks (refer to disclosures made in Section 4 and USF's Sustainability Report);

· legal & regulatory risks;

· financial & market risks; and

· operational risks.

The principal risks for the period and their mitigants are summarised in the tables below.

LEGAL & REGULATORY RISKS

FINANCIAL & MARKET RISKS

OPERATIONAL RISKS

LONGER TERM VIABILITY

The Board is responsible for financial reporting and controls, including the approval of the Annual Report and Accounts, the dividend policy, any significant changes in accounting policies or practices, and treasury policies including the use of derivative financial instruments. The Board of the Company is also required to assess the long-term prospects of the Company according to the Association of Investment Companies (AIC) Code. The Board has assessed the principal risks facing the Company set out above over a five-year period, which it considers appropriate given the long-term nature of the Company's investments and its long-term planning horizon. The Board considers a five-year timeframe to be reasonable on the basis that the Company is in the initial stage of operating assets. The key risks facing the Company including, but not limited to, the risks mentioned on pages 30 to 34 have been individually assessed by the Board. The likelihood and impact of each risk on the Company prior to and after specific risk mitigation controls have taken place have been evaluated.

The Company owns a portfolio of Solar Assets in the US that are fully constructed, operational and generating renewable electricity. As a result, it benefits from predictable and reliable long-term cash flows and is subject to a set of risks that can be identified and assessed. Each Solar Asset is supported by a detailed financial model at acquisition and incorporated into the Company's valuation model for quarterly valuations, which are independently reviewed every half-year. The Board believes the geographical diversification within the Company's portfolio of Solar Assets helps to withstand and mitigate the emerging and principal risks the Company is most likely to face. The Company's revenues from investments provide substantial cover to the operating expenses of the SPVs, USF Holding Corp., and the Company and any other costs likely to be faced by any of them over the viability assessment period. The Investment Manager also prepares a rolling detailed monthly two-year short term cash flow forecast to address and specifically consider the sustainability of the dividends.

After assessing these risks, and reviewing the Company's liquidity position, together with the Company's commitments, available but undrawn credit facilities, and forecasts of future performance under various scenarios, the Board has a reasonable expectation that the Company is well positioned to continue to operate and meet its liabilities over the short term and the five-year outlook period. While the Board has no reason to believe that the Company will not be viable beyond the specified outlook period, it is aware that it is difficult to foresee the viability of any business, including the potential impacts of climate related risks, over a longer period given the inherent uncertainty involved.

It is important to note that the risks associated with investments within the solar infrastructure sector, including rising inflation and climate related risks resulting in unfavourable weather conditions for extended periods, could result in a material adverse effect on the Company's performance and value of Ordinary Shares. When required, experts will be employed to gather information, including tax advisers, legal advisers, and environmental advisers.

SECTION 172

Section 172 of the Companies Act 2006 recognises that directors are responsible for acting fairly as between members and in a way that they consider, in good faith, is the most likely to promote the success of the Company for the benefit of its Shareholders as a whole. In doing so, they are also required to consider the broader implications of their decisions and operations on other key stakeholders and their impact on the wider community and the environment. Key decisions are those that are either material to the Company or are significant to any of the Company's key stakeholders. The Company's engagement with key stakeholders and the key decisions that were made or approved by the Directors during the year are described below:

SHAREHOLDERS

The Company relies on Shareholders for continued access to capital to support further growth of the Company. The Board is accountable to the Shareholders for running of the business, making key strategic decisions and all key service provider appointments. The Board is non-executive and independent and delegates certain key activities, including the day-to-day investment management and asset management to the Investment Manager, and administration and company secretarial functions to the Administrator.

The Board works closely with the Investment Manager, Company Secretary and its Corporate Brokers, to ensure it is aware of Shareholders' needs or concerns, and the Investment Manager liaises with Shareholders through specified reporting of Company performance, strategy and outlook at set dates in the calendar, as well as ad hoc reporting of major announcements, and sessions organised by the Company's brokers.

In addition, Shareholders have the opportunity to meet the Board at the Annual General Meeting (AGM), though during the pandemic these have been held virtually. The Board also endeavours to respond to any written queries made by Shareholders during the course of the period, or to meet with major Shareholders if so requested.

In addition to the formal business of the AGM, representatives of the Investment Manager and the Board are available to answer specific questions a Shareholder may have.

LENDERS

The Company also relies on Lenders for continued access to capital to support further growth of the Company, and to refinance existing debt facilities at maturity, or prior to maturity where it is accretive for Shareholders. The Company refinanced the Heelstone project debt facilities and extended the tenor and increased its corporate RCF limit during the period.

The Investment Manager liaises with Lenders through specified reporting of project level performance at set dates in the calendar, as well as ad hoc reporting of major announcements.

SERVICE PROVIDERS

Our service providers are fundamental to the quality of our product, being renewable power generation, and to ensuring that as a business we meet the high standards of conduct that we set ourselves. The Company has a set of corporate service providers, including the Investment Manager, Administrator and External Auditor, who provide services to ensure the smooth operation of the Company, and periodic independent review of financial statements.

The Board meets once a year to discuss and review the performance of the key service providers.

The Board has regular contact with the two main service providers: the Investment Manager and Administrator through quarterly board meetings with the Chair and Audit Chair meeting more regularly. The External Auditor typically attends two of the three Audit Committee meetings scheduled throughout the year, to present their reports on the interim review and annual audit.

The Company's underlying project companies also have project suppliers, including O&M and external asset managers who were incumbent at acquisition. Where assets are acquired in construction, the EPC contractors and Original Equipment Manufacturers (OEM) who supply panels, inverters, and other key components are key suppliers. While there are currently no projects under construction, the Investment Manager's asset management team maintains relationships with all project suppliers, including landowners for leased sites.

REGULATORS/GOVERNMENT

The Board regularly considers how it meets regulatory and statutory obligations and follows voluntary and best-practice guidance, including how any governance decisions it makes impact its stakeholders both in the short and long term.

The Association of Investment Companies (AIC) shapes the influence of the growing listed investment company segment in the London market, and USF seeks to apply AIC guidelines where relevant to its operations, including the 2019 AIC Code of Corporate Governance.

PPA OFFTAKERS

The Offtakers for the Company's projects provide the main source of operating cash inflows to the Company, and the Company requires Offtake agreements be entered into with credit-worthy counterparties as part of its investment mandate. No Offtaker is a related party of the Board or Investment Manager. The Company is focused on ensuring assets operate in line with weather-adjusted expectations to deliver power to their PPA Offtakers.

LOCAL COMMUNITIES

The local communities, within which the Company's projects are based, provide local support as well as human resources to work on the project sites. The Company works actively with landholders and city councils, to resolve matters including egress and access, erosion, and land management issues. Complaint handling procedures are in place at all sites, with no significant complaints received during the year, and one minor complaint regarding screening and vegetation buffers at the Chiloquin site in the process of being resolved at year end.

SECTION 172(1) STATEMENT

The Company provides disclosures relevant to Section 172(1) of the Companies Act 2006 throughout the Annual Report and specific responses and references to where this information can be found is set out below.

GILL NOTT Chair

Date: 24 March 2022

8. Directors' Responsibility Statement

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

As a Company listed on the London Stock Exchange, US Solar Fund plc is subject to the FCA's Listing Rules and Disclosure and Transparency Rules, as well as to all applicable laws and regulations in England and Wales where it is registered.

The financial statements have been prepared in accordance with UK-adopted international accounting standards. Under the UK Companies Act 2006, the Directors must not approve the financial statements unless they are satisfied they give a true and fair view of the state of affairs of the Company and of the profit or loss for the period. In preparing these financial statements, the Directors should:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable;

· specify which generally accepted accounting principles have been adopted in their preparation; and

· prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping proper accounting records which are sufficient to show and explain the Company's transactions and are to disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are also responsible for preparing the Annual Report and financial statements and the Directors confirm that they consider that, taken as a whole, the Annual Report and financial statements are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy. In accordance with the FCA's Disclosure and Transparency Rules, the Directors confirm to the best of their knowledge that:

a) the financial statements, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company taken as a whole;

b) the Annual Report and accounts include a fair view of important events that have occurred during the financial period; and

c) the Annual Report and accounts include the related parties' transactions that have taken place in the financial period and that have materially affected the financial position or the performance of the enterprise during that period.

The Directors have acknowledged their responsibilities in relation to the financial statements for the period to 31 December 2021.Signed by order of the Board,

GILL NOTT Chair 24 March 2022

14. Statement of Profit and Loss and Other Comprehensive Income

FOR THE YEAR ENDED 31 DECEMBER 2021

All items dealt with in arriving at the result for the year relate to continuing operations.

The Total column of this statement represents the Company's profit and loss account. The financial statements have been prepared in accordance with UK-adopted international accounting standards. The supplementary revenue and capital columns are presented for information purposes, in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies, as further explained in Note 2.

15. Statement of Financial Position

AS AT 31 DECEMBER 2021

The financial statements of US Solar Fund plc (registered number 11761009) were approved by the Board of Directors and authorised for issue on 24 March 2022. They were signed on its behalf by:

GILL NOTT Director

Date: 24 March 2022

16. Statement of Changes in Equity

For the year ended 31 December 2021

For the year ended 31 December 2020 

17. Statement of Cash Flows

For the year ended 31 December 2021

18. Notes to the Financial Statements

FOR THE YEAR ENDED 31 DECEMBER 2021

1. GENERAL INFORMATION

US Solar Fund plc (the Company) was incorporated as a Public Company, limited by shares, in England and Wales on 10 January 2019 with registered number 11761009. The registered office of the Company is The Scalpel, 18th Floor, 52 Lime Street, London EC3M 7AF. Its share capital is denominated in US Dollars and currently consists of ordinary shares. The Company's principal activity is to invest in a diversified portfolio of Solar Power Assets located in North America and other countries forming part of the Organisation for Economic Co-operation and Development (OECD) in the Americas.

2. BASIS OF PREPARATION

The financial statements have been prepared in accordance with UK-adopted international accounting standards and also considers Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts", issued by the Association of Investment Companies, (the AIC SORP) in April 2021. The financial statements have been prepared on a historical cost basis, except where balances are recognised at fair value. The principal accounting policies are set out in Note 5.

In terms of the AIC SORP, the Company presents a Statement of Profit and Loss and Other Comprehensive Income, which shows amounts split between those which are revenue and capital in nature.

The determination of the revenue or capital nature of a transaction is determined by giving consideration to the underlying elements of the transaction and is carried out in accordance with the recommendations and principles as set out in the AIC SORP. Capital transactions are considered to be those arising as a result of the appreciation or depreciation in the value of assets, whether due to the retranslation of assets held in foreign currency or fair value movements on investments held at fair value through profit and loss.

Revenue transactions are all transactions, other than those which have been identified as capital in nature.

FUNCTIONAL AND PRESENTATION CURRENCY

The currency of the primary economic environment in which the Company operates (the functional currency) is US Dollar, which is also the presentation currency.

GOING CONCERN

The financial position of the Company, its cash flows, liquidity position and borrowing facilities are described in the financial statements and related notes. In addition, Note 16 to the financial statements includes the policies and processes for managing its capital, its financial risk management, details of its financial instruments and its exposure to credit risk and liquidity risk. The impact of COVID-19 is detailed in the Investment Manager's report on page 12. In the opinion of the Directors, the Company has sufficient financial resources and expectation of growth in the medium-term to meet its financial obligations.

The Company generated profit after tax of $15.0 million and operating cash flows of $5.7 million for the year. As at 31 December 2021, the Company is in a net current asset position of $9.6 million, comprised of cash ($16.2 million) and receivables ($0.2 million) in excess of dividends payable ($5.0 million) and other payables ($1.9 million). As of the same date, the Company's subsidiary, USF Holding Corp., has available cash of $21.0 million, which is available to meet the obligations of the Company. As such the Directors believe that the Company will continue into the foreseeable future and have adopted the going concern basis of preparation in preparing these financial statements. In September 2021, the Company (through a wholly owned US subsidiary) upsized its existing revolving credit facility with Fifth Third Bank National Association (RCF) from $25 million to S40 million. With an undrawn balance as at 31 December 2021, the RCF provides liquidity for capital expenditures, working capital and general corporate purposes, including funds to acquire the second tranche of MS2.

3. CRITICAL JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amount of assets, liabilities, income and expenses. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to the accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

During the year, the Directors considered the following significant judgements, estimates and assumptions:

JUDGEMENTS

ASSESSMENT AS AN INVESTMENT ENTITY

Entities that meet the definition of an investment entity within IFRS 10 are required to measure their subsidiaries at fair value through profit or loss rather than consolidate them unless they provided investment related services to the Company. To determine that the Company continues to meet the definition of an investment entity, the Company is required to satisfy the following three criteria:

a) the Company obtains funds from one or more investors for the purpose of providing those investors with investment management services;

b) the Company commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and

c) the Company measures and evaluates the performance of substantially all of its investments on a fair value basis. The Company meets the criteria as follows:

· the Company provides investment management services and has several investors who pool their funds to gain access to infrastructure related investment opportunities that they might not have had access to individually;

· the stated strategy of the Company is to deliver stable returns to shareholders through investing in a diversified portfolio of utility-scale solar power plants and associated infrastructure, which may include transmission and storage (e.g. battery) assets which will typically be co-located with the solar power plant (together, Solar Power Assets) located in North America and other OECD countries in the Americas; and

· the Company measures and evaluates the performance of all of its investments on a fair value basis. The fair value method is used to represent the Company's performance in its communication to the market, including investor presentations. In addition, the Company reports fair value information internally to Directors, who use fair value as the primary measurement attribute to evaluate performance.

The Directors are of the opinion that the Company has all the typical characteristics of an investment entity and continues to meet the definition in the standard. This conclusion will be reassessed on an annual basis.

In respect of the second criterion the Company's purpose is to invest funds for returns from capital appreciation and investment income. In respect of the requirement that investments should not be held indefinitely but should have an exit strategy for their realisation the Company may hold these assets until the end of their expected useful lives, unless there is an opportunity in the market to dispose of the investments at a price that is considered appropriate. There continues to be an active secondary market for renewables projects in the countries in which we operate.

As at 31 December 2021, the Company only had one subsidiary, USF Holding Corp. Being an investment entity, it is measured at fair value as opposed to being consolidated on a line-by-line basis, meaning its cash, debt and working capital balances are included in the fair value of investments rather than the Group's current assets.

ESTIMATES

VALUATION OF INVESTMENT IN SUBSIDIARY

The significant estimate in the Company's financial statements that carry the most significant risk of a material effect on next year's financial statements are the fair value of investments. This estimate is considered to be at risk of actual outcomes in the next 12 months varying from the estimates made in determining discount rates applied in calculating the reported amount of an asset, as the assumptions used are subject to measurement uncertainty and possible changes could be significant. Refer to Note 17 for further year-end detail on the fair value measurement as at 31 December 2021 and detail on the sensitivity analysis on inputs including discount rate, electricity production, electricity prices and operational expenses.

4. NEW AND REVISED STANDARDS AND INTERPRETATIONS

APPLICATION OF NEW AND REVISED STANDARDS

The accounting policies adopted in the preparation of the Annual Report and Audited Financial Statements for the year ended 31 December 2021 are consistent with those of the previous financial year. The adoption of new standards, interpretations and amendments in the current year has not had a material impact. The Company has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective at 31 December 2021.

NEW AND REVISED STANDARDS IN ISSUE BUT NOT YET EFFECTIVE

The following standards have been issued but are not effective for this accounting period and have not been adopted early:

· IAS 1 (amended) - Amendments regarding classifications of liabilities, and disclosure of accounting policies - effective from 1 January 2023

· IAS 8 (amended) - Amendments regarding the definition of accounting estimates - effective from 1 January 2023.

· IAS 12 (amended) - Amendments regarding deferred tax on leases and decommissioning obligations - effective from 1 January 2023.

Adoption of the new or amended standards and relevant interpretations in future periods is not expected to have a material impact on the financial statements of the Company.

5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies used in the preparation of the financial statements have been consistently applied during the year ended 31 December 2021 as well as the prior period.

The principal accounting policies applied in the preparation of the financial statements are set out below:

SEGMENTAL INFORMATION

The Board is of the opinion that the Group is engaged in a single segment business, being the investment in Solar Power Assets located in North America and other countries forming part of the OECD in the Americas.

INCOME

Income comprises interest income (bank interest and loan interest). Interest income is recognised when it is probable that the economic benefits will flow to the Company and the amount of revenue can be measured reliably. Loan interest income is accrued by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition. Dividend income is recognised in profit or loss on the date on which the Group's right to receive payment is established.

No income is earned from contracts with customers and as such IFRS 15 has not been applied.

EXPENSES

Operating expenses are the Company's costs incurred in connection with the on-going management of the Company's investments and administrative costs. Operating expenses are accounted for on an accruals basis.

The Company's management and administration fees, finance costs and all other expenses are charged through the Statement of Profit and Loss and Other Comprehensive Income.

Directly attributable acquisition costs of assets are capitalised on purchase of assets. Costs directly relating to the issue of ordinary shares are charged to share premium.

NET GAIN OR LOSS ON INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS

The Company recognises movements in the fair value of investments in subsidiaries through profit and loss.

TAXATION

The Company is approved as an Investment Trust Company under sections 1158 and 1159 of the Corporation Taxes Act 2010 and Part 2 Chapter 1 Statutory Instrument 2011/2999 for accounting periods commencing on or after 25 May 2018. The approval is subject to the Company continuing to meet the eligibility conditions of the Corporations Tax Act 2010 and the Statutory Instrument 2011/2999. The Company intends to ensure that it complies with the Investment Trust Company regulations on an ongoing basis and regularly monitors the conditions required to maintain Investment Trust Company status.

From 1 April 2015 there is a single corporation tax rate of 19%. Tax is recognised in the Statement of Profit and Loss and Other Comprehensive Income except to the extent that it relates to the items recognised as direct movements in equity, in which case it is similarly recognised as a direct movement in equity. Current tax is the expected tax payable on any taxable income for the period, using tax rates enacted or substantively enacted at the end of the relevant period.

INVESTMENT IN SUBSIDIARIES

Subsidiaries are entities controlled by the Company. Control exists when the Company is exposed, or has rights, to variable returns from its involvement with the subsidiary entity and has the ability to affect those returns through its power over the subsidiary entity.

In accordance with the exception under IFRS 10 Consolidated financial statements, an investment entity is not required to consolidate its subsidiaries where certain conditions are met, therefore it is required to account for its investments in subsidiaries at fair value. The Company recognizes the movements in fair value of investments in subsidiaries through profit and loss. See Note 17 to the Financial Statements for a summary of the fair value movement over the period along with the valuation process and methodology

The Company does not have any subsidiaries that provide investment management services and are not themselves investment entities. As a result the Company, being an investment entity, does not consolidate any of its subsidiaries.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise cash at bank and deposits held with the bank, with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

TRADE AND OTHER RECEIVABLES

Trade and other receivables are recognised initially at fair value and subsequently stated at amortised cost less loss allowance which is calculated using the provision matrix of the expected credit loss model, the effect of which is considered immaterial.

TRADE AND OTHER PAYABLES

Trade and other payables are recognised initially at fair value and subsequently stated at amortised cost.

EQUITY

Equity instruments issued by the Company are recorded at the amount of the proceeds received, net of directly attributable issue costs. Costs not directly attributable to the issue are immediately expensed in the Statement of Profit and Loss and Other Comprehensive Income. The Company's capital is represented by the Ordinary Shares, Share Premium (until cancellation), Accumulated losses and Capital Reduction Reserve.

FINANCIAL INSTRUMENTS

In accordance with IFRS 9, the Company classifies its financial assets and financial liabilities at initial recognition into the categories of amortised cost or fair value through profit or loss. None of the financial instruments are classified as fair value through other comprehensive income.

FINANCIAL ASSETS

The Company classifies its financial assets at amortised cost or fair value through profit or loss on the basis of both:

· the entity's business model for managing the financial assets

· the contractual cash flow characteristics of the financial asset.

FINANCIAL ASSETS MEASURED AT AMORTISED COST

A debt instrument is measured at amortised cost if it is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The Company includes in this category short-term non-financing receivables including cash and financial instruments classified as trade and other receivables.

FINANCIAL ASSET MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS (FVPL)

A financial asset is measured at fair value through profit or loss if:

a) its contractual terms do not give rise to cash flows on specified dates that are solely payments of principal and interest (SPPI) on the principal amount outstanding; or

b) it is not held within a business model whose objective is either to collect contractual cash flows, or to both collect contractual cash flows and sell; or

c) it is classified as held for trading (derivative contracts in an asset position).

The Company's investment in subsidiaries (which comprises both debt and equity) is held at fair value through profit or loss under IFRS 9 as the equity portion of the investment does not meet the SPPI test nor will the Company elect to designate the investments at fair value through other comprehensive income. The debt investment forms part of a group of assets that are managed and the performance evaluated on a fair value basis.

The Company includes in this category equity instruments including investments in subsidiaries (which comprises both debt and equity). There are no consolidated subsidiaries.

FINANCIAL LIABILITIES MEASURED AT AMORTISED COST

This category includes all financial liabilities, other than those measured at fair value through profit or loss, including short-term payables.

RECOGNITION AND DERECOGNITION

Financial assets are recognised on trade date, the date on which the Company commits to purchase or sell an asset. A financial asset is derecognised where the rights to receive cash flows from the asset have expired, or the Company has transferred its rights to receive cash flows from the asset. The Company derecognises a financial liability when the obligation under the liability is discharged, cancelled or expired.

IMPAIRMENT OF FINANCIAL ASSETS

The company holds trade receivables with no financing component and which have maturities of less than 12 months at amortised cost and, as such has chosen to apply an approach similar to the simplified approach for expected credit losses (ECL) under IFRS 9 to all of its trade receivables.

Interest receivable on cash balances, fall within the scope of IFRS 9. The Company has completed some high-level analysis and forward looking qualitative and quantitative information, the Directors consider the interest receivable to be low credit risk as the deposits are held with reputable financial institutions.

For interest receivable that are low credit risk, IFRS 9 allows a 12 month expected credit loss to be recognised. The Directors have concluded that any ECL on the interest receivable would be immaterial to the Annual Financial Statements and therefore no impairment adjustments were accounted for.

Investment held at fair value through profit or loss is not subject to IFRS 9 impairment requirements.

FAIR VALUE MEASUREMENT AND HIERARCHY

Fair value is the price that would be received on the sale of an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market. It is based on the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interest. A fair value measurement of a non-financial asset takes into account the best and highest value use for that asset.

The level in the fair value hierarchy within which the fair value measurement is categorised is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose significance of the inputs is assessed against the fair value measurement in its entirety. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs or any other significant unobservable inputs, that measurement is a Level 3 measurement.

The fair value hierarchy to be applied under IFRS 13 is as follows:

Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are carried at fair value and which will be recorded in the financial information on a recurring basis, the Company will determine whether transfers have occurred between levels in the hierarchy by reassessing categorisation at the end of each reporting period.

6. INTEREST INCOME

7. ADMINISTRATIVE AND OTHER EXPENSES

1 The non-audit services provided relates to the review of the interim financial statements and an agreed upon procedures engagement.

The Company has no employees and therefore no employee related costs have been incurred.

8. TAXATION

The Company is approved as an Investment Trust Company with effect as of 16 April 2019 and is subject to tax at the UK corporation tax rate of 19%. An Investment Trust Company can claim a corporation tax deduction for dividends designated as interest distributions that are derived from net interest income. Therefore, no UK corporation tax charge has been recognised by the Company for the period ended 31 December 2021.

The tax credit of $376,563 (2020: $41,823) arose as a result of dividends payable in respect of the year being designated as interest distributions in accordance with UK tax legislation specific to Investment Trust Companies. Investment Trust Companies which have been approved by HM Revenue & Customs are exempt from UK corporation tax on their capital gains. Due to the Company's status as an approved Investment Trust Company, and the intention to continue meeting the conditions required to maintain that approval for the foreseeable future, the Company has not provided for deferred tax in respect of any gains or losses arising on the revaluation of its investments. The Company has an unrecognised deferred tax asset of $36,288 (2020: $19,465) in respect of tax losses which are available to be carried forward and offset against future taxable profits. A deferred tax asset has not been recognised as it is considered unlikely that the Company will generate taxable profits in excess of deductible expenses in future periods. The unrecognised deferred tax asset has been calculated using a corporation tax rate of 25% (2020: 19%).

9. EARNINGS PER SHARE

Earnings per share amounts are calculated by dividing the profit or loss for the year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares in issue during the year. As there are no dilutive instruments outstanding, basic and diluted earnings per share are identical.

During the year ended 31 December 2021, the Company issued 132,000,000 (2020: 100,038) shares at US$1 (2020: US$1) per share. Shares were issued in the prior year to the Investment Manager in accordance with the fee arrangement established in the IPO Prospectus. During the current year Investment Manager acquired 221,176 (2020:Nil) at an average price of $1.01 per share, reflecting the Management Share Amount due to the Investment Manager from 1 July 2020 to 30 June 2021.

10. INVESTMENT IN SUBSIDIARY

From establishment to 31 December 2021, the Company has funded USF Holding Corp. with equity and debt, with the total amount of debt funding based on several criteria, including an arm's length gearing test satisfying thin capitalisation rules. During the period, the Company contributed an additional $110,000,000 in equity to USF Holding Corp., of which the majority was used for the refinancing of the Heelstone portfolio and to reduce gearing across its subsidiaries. Note 17 of these financial statements contains the components of the 31 December 2021 equity and loans balance. Fair value relates to USF's share of the underlying Solar Asset investment and cash flows only (i.e. balances exclude tax equity investment amounts) and expected returns and fair values are modelled after allowing for distributions to tax equity investors. Included in the net fair value movement of $9,118,692 are dividends paid to USF from underlying US entities of $2,996,992.

The net fair value movement comprises the following:

On 28 June 2019, the Company entered into a Management Services Agreement (MSA) with its subsidiary USF Holding Corp. The Board of the Company, with further assistance by delegation of its duties to the Investment Manager, provides strategic management services to USF Holding Corp relating to its current portfolio of US Solar Assets and potential acquisitions. The fair value gain for the year to 31 December 2021 includes an MSA fee of $4,673,924 (period to 31 December 2020: $3,000,000 included within the net fair value movement).

The investment in subsidiaries comprises on a 'look-through' basis the following:

(i) The balance recorded at 31 December 2021 relates to the Company's interest in the Acquisition One - Milford, Acquisition Two - Olympos, Acquisition Three - Granite, Acquisition Four - Heelstone, Acquisition Five - Euryalus and Acquisition Six - MS2 portfolio of Solar Assets.

(ii) Fair value of 3rd party loan funding provided and the fair value of interest rate swaps at 31 December 2021 was $209,378,865 (2020: $253,658,021), comprised of the following:

On 29 August 2019, USF Bristol Class B Member, LLC and Milford Solar I Holdings, LLC, each as Milford (Acquisition One) borrowers, entered into a financing agreement with Zions Bancorporation, N.A. and KeyBank National Association, each as lenders. The facility included a construction loan commitment and an ITC bridge loan commitment of $48.5 million and $79.2 million, respectively. The ITC bridge loan was repaid in November 2020 using proceeds from the tax equity investor. Concurrently, the construction loan converted to a term loan with a mini-perm structure, which will be fully amortised over a 25-year period. The initial tenure of the loan is a 7-year period, after which the loan will be refinanced. The term loan facility is hedged with fixed interest rate swaps for the full duration of the amortisation period. As at 31 December 2021, the drawn fair value of the loan includes mark-to-market revaluation of associated interest rate swaps of $0.48 million.

On 21 May 2021, Heelstone Energy Holdings, LLC (Acquisition Four) entered into a financing agreement with Fifth Third Bank, National Association. The mini-perm loan will be fully amortized over a 15-year period, with an initial tenure of 7 years. The term loan facility is hedged with fixed interest rate swaps for the full duration of the loan, with a mark-to-market revaluation of associated interest rate swaps of $(0.29) million as at 31 December 2021.

Between 9 May 2019 and 6 August 2019, the Euryalus (Acquisition Five) projects entered into construction loan agreements with Solar Construction Lending, LLC. The construction loans were repaid in September 2020 at substantial completion funding, and the managing member in the inverted lease structure, SC Oregon 2, LLC, entered into a term loan agreement with Fifth Third Bank, National Association. The term loan has a mini-perm structure and will be fully amortized over an 11-year period, with the initial tenure maturing in June 2026. This term loan facility is hedged with fixed interest rate swaps for the full duration of the loan, with a mark-to-market revaluation as at 31 December 2021 of $(1.23) million, included in the drawn fair value of the loan.

For MS2 (Acquisition Six), in March 2020 NES Hercules Class B Member LLC entered into a $203.4 million term loan facility with Santander Bank N.A., Cobank ACB, CIT Bank N.A., Société Générale, Canadian Imperial Bank of Commerce - New York Branch, KeyBank National Association and Seine Funding, LLC as lenders. The mini-perm loan will be fully amortized over a 20-year period, with the initial tenure maturing on 31 January 2028. USF owns a 25% interest in the plant therefore only 25% of the drawn facility values have been recorded. The Term Loan is secured by the assets of NES Hercules Class B Member, LLC with collateral pledges of various material project documents. As at 31 December 2021, the drawn fair value of the loan includes mark-to-market revaluation of associated interest rate swaps of $(8.88) million.

NES Hercules Class B Member LLC also has an $8.5 million revolving loan facility. The purpose of this facility is to provide short-term liquidity for the payment of Debt Service and O&M Expenses as required by the project. As at 31 December 2021, the revolving loan is undrawn. The loan matures on 31 January 2028. USF owns a 25% interest in the plant therefore only 25% of the available facility value has been recorded.

A revolving loan facility, established in December 2020, is held by USF Avon ,LLC with Fifth Third Bank, National Association as lender. The loan matures on 22 September 2023 and was undrawn as at 31 December 2021. The loan is secured by a first lien on cash flows from underlying subsidiaries of USF Avon, LLC.

In addition to the above, the following Letters of Credit have been issued:

KeyBank National Association has provided a Letter of Credit to USF Bristol Class B Member, LLC to the value of US$99.9 million, expiring in November 2026 concurrent with the mini-perm structure and will be refinanced thereafter.

Zions Bancorporation, N.A. has provided a Letter of Credit to USF Bristol Class B Member, LLC to the value of US$2.3 million, expiring in November 2026 concurrent with the mini-perm structure and will be refinanced thereafter.

Fifth Third Bank, N.A. has provided a Letter of Credit to SC Oregon 2, LLC to the value of US$4.5 million, expiring in June 2026 concurrent with the mini-perm structure and will be refinanced thereafter.

CoBank, ACB provides a Letter of Credit Facility to NES Hercules Class B Member, LLC on behalf of Imperial Valley Solar 2, LLC. There are currently two Letters of Credit issued under this facility - a US$16.97 million LC expiring in December 2027 and a US$7.89 million LC expiring in March 2025.

11. TRADE AND OTHER RECEIVABLES

12. CASH AND CASH EQUIVALENTS

13. TRADE AND OTHER PAYABLES

14. DIVIDENDS PAYABLE

During the year, the Company declared dividends totalling $14,288,657 (31 December 2020: $4,002,846) of which $9,305,771 (31 December 2020: $3,001,884) has been paid as at 31 December 2021. The Company declared a dividend of 1.5 cents per share, totalling $4,982,886 for the period ending 30 September 2021., which was paid to shareholders on 7 January 2022.

On 24 March 2022, the Company announced a dividend of 1.5 cents per Ordinary Share for the period ending 31 December 2021, bringing total dividends declared for the twelve-month period to 5.5 cents per Ordinary Share, meeting the dividend target. The dividend is expected to be paid on or around 29 April 2022.

15. CATEGORIES OF FINANCIAL INSTRUMENTS

At the balance sheet date, all financial assets and liabilities were measured at amortised cost except for the investment in subsidiary which is measured at fair value as further explained in Note 17.

16. FINANCIAL RISK MANAGEMENT

The Company is exposed to certain risks through the ordinary course of business and the Company's financial risk management objective is to minimise the effect of these risks. The management of risks is performed by the Directors of the Company and the exposure to each financial risk considered potentially material to the Company, how it arises and the policy for managing it is summarised below:

CREDIT RISK

The Company is exposed to third-party credit risk in several instances and the possibility that counterparties with which the Company and its subsidiaries, together the Group, contracts may fail to perform their obligations in the manner anticipated by the Group.

Counterparty credit risk exposure limits are determined based on the credit rating of the counterparty. Counterparties are assessed and monitored on the basis of their ratings from Standard & Poor's and/or Moody's. No financial transactions are permitted with counterparties with a credit rating of less than BBB- from Standard & Poor's or Baa3 from Moody's unless specifically approved by the Board.

Cash and other assets that are required to be held in custody will be held at bank. Cash and other assets may not be treated as segregated assets and will therefore not be segregated from the banks own assets in the event of the insolvency of a custodian. Cash held with the bank will not be treated as client money subject to the rules of the FCA and may be used by the bank in the ordinary course of its own business. The Company will therefore be subject to the creditworthiness of the bank. In the event of the insolvency of the bank, the Company will rank as a general creditor in relation thereto and may not be able to recover such cash in full, or at all.

Credit risk is mainly at subsidiary level where the capital commitments are being made and is managed by diversifying exposures among a portfolio of counterparties and through applying credit limits to those counterparties with lower credit standing.

Credit exposures may also be managed using credit derivatives. No credit derivatives were in place as at 31 December 2021.

Cash and bank deposits are held with major international financial institutions who each hold a Moody's credit rating of A2 or higher.

LIQUIDITY RISK

The objective of liquidity management is to ensure that all commitments which are required to be funded can be met out of readily available and secure sources of funding. The Company's only financial liabilities are trade and other payables. The Company intends to hold sufficient cash across the Company and Subsidiary's operating accounts to meet the working capital needs over a horizon of at least the next 6 months. Cash held at subsidiary level is available to meet the obligations of the Company. As at 31 December 2021 USF Holding Corp. held cash at bank of $21,038,132 and had trade and other payables totalling $583,028. Cash flow forecasts are prepared on a monthly basis for a rolling 2-year period to assist in the ongoing analysis of short-term cash flow.

The following table reflects the maturity analysis of financial assets and liabilities.

*Excludes the equity portion of the investment in subsidiary.

MARKET RISK

Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk reflects: (i) other price risks, (ii) interest rate risk, and (iii) currency risk. The objective is to minimise market risk through managing and controlling these risks to acceptable parameters, while optimising returns. The Company uses financial instruments in the ordinary course of business in order to manage market risks. Further commentary on financial and market risks is provided in the Principal Risks and Uncertainties section, including inflation.

(i) PRICE RISK

Price risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in market prices. At 31 December 2021, the Company had no direct exposure to price risk. The effect of price on the Company's investments is considered in Note 17.

(ii) INTEREST RATE RISK

Interest rate Risk is the risk of changes in the interest expense for debt, or interest received on deposits, as measured in the currency of that debt, due to movements in market interest rates.

The Company does not have any borrowings as at 31 December 2021. The Company may manage the cost of borrowing by borrowing using fixed rate instruments, and/or by overlaying interest rate derivatives against the Company's debt portfolio. Policy limits for the maximum and minimum levels of hedging relative to the expected net debt profile for rolling multi-year periods.

In considering whether to execute hedging transactions, the costs and benefits of hedging will be balanced against the effects of movements in interest rates on the debt portfolio.

At 31 December 2021, the Company is indirectly exposed to interest rate risk through its investment in the subsidiary. However this risk is managed through interest rate swaps at a subsidiary level and the effect of Interest rate risk on the Company is considered immaterial.

The Company may be exposed to changes in variable market rates of interest as this could impact the discount rate and therefore the valuation of the projects as well as the fair value of the loan to subsidiary.

(iii) CURRENCY RISK

The Net Asset Value of the Company is calculated in US Dollars whereas the financial instruments at year end may be in other currencies. The value in terms of USD of the financial instruments of the Company, which may be designated in any currency, may rise and fall due to exchange rate fluctuations of individual currencies. Adverse movements in currency exchange rates can result in a decrease and loss of capital. At year end, the currency exposure was considered immaterial.

Currency risk can be mitigated to some extent through transacting wherever possible in USD. Where non-USD exposures are unavoidable, the Company is able to manage exposures to movements in foreign currencies through foreign exchange derivative transactions.

CAPITAL RISK MANAGEMENT

The capital structure of the Company at year-end consists of equity attributable to equity holders of the Company, comprising issued capital, reserves and accumulated loss. The Company has no return on capital benchmark, but the Board continues to monitor the balance of the overall capital structure so as to maintain investor and market confidence. The Company is not subject to any external capital requirements.

17. FAIR VALUE MEASUREMENT

The following table analyses within the fair value hierarchy the Company's assets and liabilities measured at fair value at 31 December 2021:

The following table analyses within the fair value hierarchy the Company's assets and liabilities measured at fair value at 31 December 2020:

The investments recognised at fair value through profit and loss are classified as Level 3 in the fair value hierarchy and the reconciliation in the movement of this Level 3 investment is presented below. No transfers between levels took place during the year.

The Company's policy is to recognise transfers into and transfers out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer.

In accordance with the guidelines of the Company's valuation policy, all assets held as at 31 December 2021 have been valued by an external valuation expert, as they are now fully operational.

VALUATION APPROACH AND METHODOLOGY

Fair value for operational Solar Assets is derived using a discounted cash flow ( DCF) methodology. For Solar Assets that are not yet operational or where the completion of the acquisition by the Company has not occurred at the time of valuation, the purchase price of the Solar Power Asset including acquisition costs is normally used as an appropriate estimate of fair value provided no significant changes to key underlying economic considerations (such as major construction impediments or natural disasters) have arisen.

In a DCF analysis, the fair value of the Solar Power Asset is the present value of the asset's expected future cash flows, based on a range of operating assumptions for revenues and costs and an appropriate discount rate range.

The Investment Manager has reviewed a range of sources in determining the fair market valuation of the Solar Assets, including but not limited to:

· discount rates publicly disclosed by the Company's global peers;

· discount rates applicable to comparable infrastructure asset classes; and

· capital asset price model outputs and implied risk premium over relevant risk-free rates.

A broad range of assumptions are used in valuation models. Given the long-term nature of the assets, valuations are assessed using long-term historical data to reflect the asset life.

Where possible, assumptions are based on observable market and technical data. The Investment Manager also engages technical experts such as independent engineers and long-term electricity price forecasters to provide long-term data for use in its valuations.

Long-term electricity price forecasts are obtained every six months from two leading independent power price forecasting firms for each jurisdiction in which Solar Assets are located. These two electricity price forecasts are averaged and provided to the independent valuer to project the prices at which existing power purchase agreements will be re-contracted. A blend of providers is used to prevent the valuation of the portfolio being unduly influenced by one forecaster's set of assumptions, to mitigate potential forecaster errors, and to reduce the timing risk inherent in valuing the portfolio shortly before curve updates are released. The independent valuer assesses these forecast prices for reasonableness against their own internal forecasts and others in the marketplace.

VALUATION PROCESS

NESM has engaged independent valuer KPMG to calculate the fair value of its operating renewable energy assets. KPMG is one of the largest valuation firms in the United States with significant experience in estimating the fair value of solar and other renewable energy assets. In accordance with Company policy, all 42 operating assets were externally valued at 31 December 2021. The valuation has been calculated in accordance with Uniform Standards of Professional Appraisal Practice (USPAP) as applied to photovoltaic electricity generation systems in the United States.

Primary valuation methodology:

· The equity fair values of USF's construction assets are based on the equity purchase price plus transaction costs (no assets were valued at cost for 31 December 2021 as all assets were operational at period end).

· The equity fair values of USF's operational assets are based on DCF modelling of pre-tax cash flows to equity as at 31 December 2021. This methodology more accurately reflects the valuation impact of the discrete debt instruments that USF has in place when compared to an unlevered valuation.

· A post-tax valuation is conducted at the US Holding Corp. level to compare the implied post-tax discount rate.

As at 31 December 2021, the weighted average discount rate range used was 6.3% (December 2020: 6.7%) on a WACC basis, and 7.8% (December 2020: 8.3%) on a pre-tax cost of equity basis. The use of a WACC or cost of equity in valuations is dependent on actual leverage employed.

A summary of the movement during the year is included in the table below:

* Working capital (WC) is comprised of assets and liabilities other than investments held at fair value.

** The $5m fair value movement shown in US cash and WC relates to the derivative asset value of the option over the second tranche of MS2 at 31 December 2021.

*** The Company's total NAV of $323,996,712, less cash and working capital in the UK of $9,553,744, equals the fair value of the Company US investments of $314,442,968 shown in Note 10.

SENSITIVITY ANALYSIS

Set out below are the initial indications of the key assumptions the Directors believe would have a material impact upon the fair value of the investments should they change. In the absence of an operating business model for each underlying renewable energy asset, the sensitivities have been conducted on the acquisition models of these assets. The following sensitivities assume the relevant input is changed over the entire useful life of each of the underlying renewable energy assets, while all other variables remain constant. All sensitivities have been calculated independently of each other.

The Directors consider the changes in inputs to be within a reasonable expected range based on their understanding of market transactions. This is not intended to imply that the likelihood of change or that possible changes in value would be restricted to this range.

DISCOUNT RATE

The sensitivity demonstrates the impact of a change in the discount rate applied to the pre-tax, equity cash flows from all of the Company's renewable energy asset investments as at 31 December 2021. A range of +/- 0.5% has been considered to determine the resultant impact on the Company's NAV per share and the fair value of its solar asset investments. A sensitivity of +/-0.5% is considered reasonable given historic Company discount rate changes and is inline with discount rate sensitivities utilised by the Company's peers.

As at 31 December 2021, the weighted average discount rate range used was 6.3% (December 2020: 6.7%) on a WACC basis, and 7.8% (December 2020: 8.3%) on a pre-tax cost of equity basis. The use of a WACC or cost of equity in valuations is dependent on actual leverage employed.

ELECTRICITY PRODUCTION

The Company's solar asset investments are valued based upon a forecast P50 solar energy generation profile (being a 50% probability that this generation estimate will be met or exceeded). A technical adviser has derived this generation estimate by taking into account a range of irradiation datasets, satellite and ground-based measurements, and site-specific loss factors including module performance degradation, module mismatch and inverter losses. These items are then considered in deriving the anticipated production of the individual solar asset (MWh per annum) based upon a 50% probability of exceedance.

The sensitivity estimates the impact on the fair value of solar asset investments and NAV per share of a change of production estimates to P90 (90% likely probability of exceedance) and a P10 generation estimate (10% probability of exceedance).

As P10 generation estimates were not independently obtained for each solar asset on or about the time of the asset acquisition, the Directors have determined a proxy P10 estimate for those assets by assessing the relationship between the independently determined P50 and P90 generation estimates for each of the assets in the Operating Portfolio (e.g., a one-year P90 generation estimate might be 92.5% of a one-year P50 generation estimate, implying that it is 7.5% lower than the P50 generation estimate).

In determining the proxy P10 generation estimate, the Directors have assumed that the relationship between a P50 generation estimate and a P10 generation estimate is the same as that between a P50 generation estimate and a P90 generation estimate in absolute terms. Therefore a one-year P10 generation estimate by this methodology would be 107.5% (i.e. 100% + 7.5%) of the asset's P50 generation estimate.

MERCHANT PERIOD ELECTRICITY PRICES

Each of the assets underlying the Company's solar asset investments have long-term PPAs in place with creditworthy energy purchasers and thus the PPA prices are not impacted by energy price changes during this period. For the post-PPA period of each solar asset, the Directors use long-term electricity price forecasts that have been prepared by a market consultant in their determination of the fair value of the Company's operating solar asset investments. These forecasts from market consultants take into consideration climate change related factors when pricing the electricity price forecasts. Further information is included in Section 4 - Environmental, Social and Governance, in the Company's response to recommendation 5 of the TCFD reporting framework.

The sensitivities show the impact of an increase / decrease in power prices for each year of the power price curve for each plant over the plant's remaining economic life after the conclusion of the existing PPAs. A flat 10% increase / decrease in market electricity prices from forecasted levels over the remaining asset life of all plants have been used in the sensitivity analysis. A 10% increase / decrease has been used as merchant period prices are determined upon the discretion of expert market consultants.

OPERATING EXPENSES

The operating costs of the assets underlying the Company's solar asset investments include annual operations and maintenance (O&M), asset management (AM), insurance expenses, land lease expenses, major maintenance and general administration expenses. Most operating expenses for the Solar Power Assets are contracted for a defined period of up to 5 years and as such there is typically little variation in annual operating costs. Provisions are also raised at the underlying project or SPV level of ongoing major maintenance/repairs and replacement parts throughout the assets' useful lives. However, there may be cases where all operating costs are recontracted at a 10% premium or discount.

The sensitivity above assumes a 10% increase/decrease in annual operating costs for all underlying assets and the resultant impact on the Company's fair value of investments and NAV per share.

OPERATING LIFE

The useful operating life of a solar asset is generally accepted by independent valuers to be the lesser of the lease term for asset site and the independent engineer's assessment of the asset's useful life. The Investment Manager conducted a useful life analysis with a reputable independent engineer in December 2021. As a result of the analysis, 30 of 42 assets within USF's portfolio had their operating lives extended to from 35 to 40 years from commencement of commercial operations. The Company's maximum useful life assumption is 40 years (December 2020: 35 years) for newly constructed assets.

The sensitivity above assumes a three-year increase/decrease in useful operating life of the Company's Solar Assets, and the resultant impact on the Company's fair value of investments and NAV per share.

TAX RATE

The United States imposes a tax on profits of US resident corporations at a rate of 21%. The sensitivity above assumes the US corporate tax rate increases / decreases by 5% (to 26% / 16%) and shows the resultant impact on the Company's fair value of investments and NAV per share.

18. SHARE CAPITAL