Chairwoman's Statement

Throughout the year under review NESF has delivered consistent performance in the face of both difficult macroeconomic conditions and a lower-than-anticipated solar generation environment. The Company’s portfolio continued to perform as expected and delivered a 1.3x cash-covered dividend for the reporting year, its tenth consecutive year delivering a healthy cash-covered dividend. As at 31 March 2024, the Company’s Net Asset Value (“NAV”) was £618.6m, equivalent to 104.7p per ordinary share (31 March 2023: £674.4m, 114.3p per ordinary share). Ordinary Shareholder Total Return was -23.8% (31 March 2023: 8.6%) and the NAV total return per ordinary share was -1.1% (31 March 2023: 7.3%). The reduction in NAV was largely attributable to falling power price forecasts and an increase in the valuation discount rate during the year.

Since its inception, NESF has made a substantial impact on the UK energy landscape by delivering a portfolio of c.1GW capacity of solar and energy storage assets against a total of c.16GW of solar currently deployed across the whole of the country. These assets have generated a total of 5.8TWh of clean energy, supporting UK and global net zero goals whilst returning significant value to shareholders. During the reporting year, energy generated was 852GWh (31 March 2023: 899GWh) and the portfolio achieved a generation performance of +0.3% against budget (31 March 2023: +5.5%).

NESF prides itself on the active management of its portfolio whilst continuing to observe a disciplined allocation of capital. In April 2023, the Company announced its phased Capital Recycling Programme involving the divestment of five subsidy-free UK solar assets totalling 246MW. These assets were carefully selected due to observed buyer demand in the sector and where the Company could ensure a competitive sales process to maximise shareholder value. The Programme, which was the first in the sector, was announced after multiple months of shareholder engagement in the face of a changing macroeconomic environment, to provide a clear path for the Company to realise true value from its assets and reduce gearing.

During the year, the Company completed the first phase of its Capital Recycling Programme with the successful sale of Hatherden, a 60MW ready to build solar project, for £15.2m. The transaction was NAV accretive to shareholders and generated an uplift of 1.27p in the Company’s 31 December 2023 valuation. The transaction represents a 2.0x multiple on invested capital and an attractive 57% IRR. The accretive value of the transaction demonstrates the maximisation of value throughout the development of Hatherden, including various initiatives ranging from 

securing an import connection and associated rights for installation of the 7MW co-located energy storage project, increasing the installed capacity of the project from 50MW to 60MW through technical optimisation, and securing a Contract for Difference (“CfD”) under Auction Round 4 for 100% of its generation capacity. Hatherden is one of many examples where the Company has brought sound decision-making and portfolio management to its shareholders over the last ten years. 

Post year end, the Company announced the sale of Whitecross, which is the second phase of its Capital Recycling Programme. Whitecross is a 35MW subsidy-free solar asset in Lincolnshire and was developed as part of the Company’s self-developed project pipeline.

The transaction is NAV accretive to shareholders and will generate an estimated uplift of 0.57p, which will be reflected in the Company’s NAV per ordinary share as at 30 June 2024. The transaction represents a 1.3x multiple on invested capital and an attractive 14% IRR. The proceeds of the sale will be used to reduce the Company’s short-term debt via its revolving credit facilities (“RCFs” and each an “RCF”).

NESF has a well-structured and disciplined capital structure, which includes £200m of fixed-rate preference shares that significantly reduce the Company’s variable interest rate exposure. The Company’s weighted average cost of debt (including preference shares) is 4.5% as at 31 March 2024.

Of the NESF Group’s outstanding debt and preference shares totaling £536m, 68% remains fixed-rate and is not exposed to changes in interest rates. Where the Company does have exposure to floating‑rate debt at the HoldCo and SPV levels, it has focused on prioritising the reduction of this debt.

As a result of the market-driven weakness in the ordinary share price, the Company will face an automatic discontinuation vote at our AGM in August. The Board reiterates its complete confidence that the Company can continue to deliver on its objectives and especially that it can and will deliver significant shareholder value over the medium and long term given the steps we are taking. Therefore, we are unanimous in recommending that shareholders vote against the resolution to discontinue. The Company will remain in operation unless 75% or more of votes are cast in favour of discontinuation.

In accordance with the Company’s articles of incorporation, the Board is required to propose a special resolution at the AGM to consider discontinuation of the Company. The requirement for the discontinuation resolution arises as the Company’s ordinary shares traded at an average discount of over 10% to the Company’s NAV over the financial year.

The Company continues to deliver on its initial prospectus commitments producing robust risk-adjusted investment returns for shareholders, principally in the form of a regular, attractive dividend. It is well-placed to continue delivering value for investors over the long term, benefiting from a resilient, diverse portfolio of operational assets, a secure investment pipeline and market-leading ESG and sustainability practices. Through the Company’s Capital Recycling Programme and a reduction in short-term debt, the Board has been proactive in taking prudent steps to close the discount to NAV over time.

In the event that Shareholders do vote in favour of a discontinuation of the Company, the Board will be required to put forward proposals to wind up or otherwise reconstruct the Company. Bearing in mind the illiquid nature of the Company’s underlying assets and the macroeconomic factors that have contributed to the discontinuation vote being triggered, the Board expects that the Company would continue in existence for at least 12 months from the date of signing of this Annual Report notwithstanding the initiation of any such process.

On 19 March 2024, the Company announced the commercial launch of its first standalone 50MW energy storage asset in Scotland, named Camilla, of which NESF has a 70% holding. However, NESF remains focussed on utility-scale solar assets and, as of 31 March 2024, its portfolio comprised 102 operating solar assets and 1 operating energy storage asset.

The Company regards UK energy storage as a highly complementary asset class to the existing large solar portfolio that will provide multiple diversification benefits for shareholders over the medium term from a revenue, technical, and geographical perspective. The IEA finds that energy storage is critical in achieving net zero and estimates that installed grid-scale energy storage capacity needs to expand 35x by 2030.The Company notes that energy storage will have an important part to play in its future evolution and has an existing investment policy limit allowing it to invest up to 10% of the Company’s Gross Asset Value in standalone energy storage.

However, after consultation with some shareholders the Board and Investment Adviser have decided to pause any increase in this limit at this current time as NESF focusses on maximising the value of its existing energy storage assets. The Company continues to build an attractive pipeline of long-term renewable investment opportunities in both the UK and internationally, whilst maintaining its disciplined approach to capital allocation to ensure accretive investment activity consistent with the Company’s investment objective of providing ordinary shareholders with attractive risk-adjusted returns.

Over the last ten years the Company has declared total dividends of £345m and achieved a healthy dividend cover of between 1.1x-1.8x. The Company’s current ordinary share price discount offers an attractive entry point and opportunity for both new and existing investors, with a dividend yield of 11.7% as at 31 March 2024, as well as the potential for capital appreciation as the discount narrows. In May 2024, the Board approved a target dividend of 8.43 pence per ordinary share for the year ending 31 March 2025, an increase of 1% from the previous year’s dividend of 8.35 pence per ordinary share. The Company continues to maintain a progressive annual dividend policy where the Board considers the percentage increase each year. Throughout the ten years since IPO, the Company has continually increased and achieved its annual target dividend, whilst maintaining a strong dividend cover. The Company continues to target a covered dividend both in the coming financial year and beyond.

The Board has approved a fourth interim dividend payment of 2.09p per ordinary share, which will be payable on 28 June 2024 to ordinary shareholders on the register as at the close of business on 24 May 2024. Following the payment of the fourth interim dividend, the Company would have paid total dividends of 8.35p per ordinary share for the year ended 31 March 2024 (2023: 7.52p).

Robust health and safety practices are essential to the Company’s policies and procedures. The practice of strong health and safety measures is integral to the Company at both the SPV and fund level (further detail about our SPVs is in Our Business Model section). I am pleased that the Investment Adviser has hired a dedicated Head of Health & Safety and recently expanded its team to ensure best practices remain implemented.

NESF benefits from this as certain management services are provided by NextEnergy Capital (the Investment Adviser) and WiseEnergy (the Operating Asset Manager) which are part of the NextEnergy Group. The NextEnergy Group employs over 300 individuals worldwide and has experts across numerous fields, with a focus on solar power and energy storage. The Board and I are proud that the Company can utilise such expert knowledge when addressing health and safety matters which are of top priority on the Board’s agenda.