NESF Annual Report

Investment Adviser’s Report, in this section:

Investment Adviser’s Report
A note from Ross Grier
Introduction
Capital Recycling Programme
Future Market Outlook
Operating Portfolio Overview
Cash Flow Generation

Introduction

Over the financial year ended 31 March 2024,

NESF’s underlying portfolio delivered robust performance in line with expectations and the Company paid its full-year target dividend, whilst ensuring it remained well covered throughout the year. The Company continued to manage its disciplined capital structure throughout and remains comfortable with its current levels of total gearing during the period. The Company actively managed its gearing level down across its limited number of facilities with interest rate exposure.

The year-end marked a significant celebration in NESF’s journey, having reached over 1GW of installed net operating capacity coinciding with its ten-year anniversary.

During the reporting year, the Company achieved several NAV accretive objectives for shareholders, some of which are set out below, resulting in an increase in NAV of 3.0p per ordinary share. This is reflected in the Company’s NAV per share of 104.7p as at 31 March 2024 (2023: 114.3p):

Energisation of Whitecross, a 35MW solar asset;

Energisation of the Company’s two international solar asset co-investments, Santarem (210MW) and Agenor (50MW)1;

Energisation of Camilla, the Company’s first 50MW standalone energy storage asset; and

Completion of Phase I of the Company’s Capital Recycling Programme through the sale of an asset delivering 2x multiple on invested capital (MOIC).

The challenging macroeconomic backdrop resulted in a wide ordinary share price discount to the Company’s NAV, a phenomenon which was outside the Company’s control, impacting the entire investment company peer group. NextEnergy Capital continues to closely monitor this discount, alongside political and economic developments, particularly in advance of the UK General Election on 4 July 2024. NextEnergy Capital remains optimistic about the continued support for clean energy from the UK Government. Improvements in macroeconomic conditions will help aid the recovery and narrow the NESF share price discount. The Investment Adviser has access to a global team, which remains vigilant in monitoring the political and economic landscapes across international markets where NESF holds assets.

NESF’s NAV over the year decreased by 9.6p per ordinary share to 104.7p per ordinary share (31 March 2023: 114.3p), driven largely by a reduction in the external power price forecasts that the Company uses (-7.8p per ordinary share). This reduction was widely anticipated due to a combination of power prices recovering to normal levels following a prolonged period of extreme power price volatility caused by international conflict, and a flattening of inflation across the UK economy.

Other drivers of NAV over the period included a slight increase in discount rates to reflect the higher interest rate environment (-4.6p per ordinary share), and lower generation performance over the period. This lower generation is attributable directly to increased rainfall and humidity (which can affect the performance of certain components) during the year (-1.5p per ordinary share). However, generation performance was mitigated and improved due to NESF’s large geographically diversified portfolio of assets across the UK and abroad.

NESF’s Sustainability and ESG activity continues to lead the market. The Company provides comprehensive disclosures on this activity in its standalone Annual Sustainability and ESG Report, and is proud to publish this in line with the inaugural standards of the International Sustainability Standards Board, of which NESF is an early and voluntary adopter. The NESF Annual Sustainability and ESG Report to 31 March 2024, can be found on the Company’s website (nextenergysolarfund.com).

The year-end marked a significant celebration in NESF’s journey, having reached over 1GW of installed net operating capacity coinciding with its ten-year anniversary since listing on the London Stock Exchange in 2014. Over the ten years, the Company has maximised the investment opportunities presented by the global clean energy transition, to deliver robust financial returns for shareholders, maintained its strong dividend cover, and added diversification via energy storage and international co-investments to the Company’s portfolio; all whilst continuing to push boundaries in sustainability and ESG standards.

Post year end, NESF completed Phase II of the Company’s Capital Recycling Programme. 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 14% premium to its holding value (1.3x Multiple on Invested Capital) and an attractive 14% IRR.
1 NESF’s ownership stake is 13.6% in Santarem (29MW), 24.5% in Agenor (12MW) and 70.0% in Camilla (35MW).