TIDMUSF TIDMUSFP
RNS Number : 2321U
US Solar Fund PLC
27 March 2023
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INDIRECTLY, IN WHOLE OR IN PART, TO US PERSONS OR INTO OR WITHIN
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INVESTMENTS IN ANY JURISDICTION.
27 March 2023
US SOLAR FUND PLC (USF, the "Company")
Annual Results to 31 December 2022, Notice of AGM and Dividend
Announcement
US Solar Fund plc (LON: USF (USD)/USFP (GBP)) announces its
annual results. This covers the period ended 31 December 2022.
The Company also announces that its 2023 Annual General Meeting
will be held on Wednesday, 24 May 2023 at 12.00 p.m. at the offices
of JTC (UK) Limited, The Scalpel, 18th Floor, 52 Lime Street,
London EC3M 7AF.
The Company's Annual Report and Financial Statements for the
year ended 31 December 2022 and the formal Notice of the Annual
General Meeting will be posted to shareholders and in accordance
with Listing Rule 9.6.1 copies of the documents have been submitted
to the UK Listing Authority and will shortly be available to view
on the Company's corporate website at http://www.ussolarfund.co.uk
and for inspection from the National Storage Mechanism at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
Highlights during the year
-- During the year, the portfolio grew to 543MW(DC) . The
Company continued to comfortably cash cover the 2022 dividend
target of 5.58 cents, which included a 1.5% increase from the
previous year dividend, as targeted at IPO, and dividend cover for
the 12 months to 31 December was 1.20x.
-- USF's audited NAV as at 31 December 2022 was $320.0 million
or $0.963 per Ordinary Share, marginally lower than the 30 June
2022 NAV of $321.2 million or $0.967 per Ordinary Share. While the
portfolio experienced an overall fair value uplift, this was offset
by dividends paid, operating costs at the plc level, and US tax
losses (deferred tax liabilities arising from an increase in asset
valuations), resulting in the reduction in NAV.
-- While NAV decreased slightly, the increase in the portfolio's
fair value was driven by a modest uplift in electricity price
forecasts and improved operating cost assumptions which more than
offset the impact of increased discount rates driven by sustained
higher interest rates.
-- Generation for 2022 remained within the expected range of
annual variance, producing 904GWh (including reimbursed
curtailment). USF continues to benefit from having a high-quality,
diversified portfolio as assets largely continued performing well
and contracted cashflows from long-term PPAs provided stability.
The distribution of assets across different locations gave the
portfolio the benefit of varying weather conditions, mitigating
volatility from any particular event or local weather trend
throughout the year.
-- All assets in the portfolio have power purchase agreements
(PPAs) with contracted prices for 100% of electricity generated.
The portfolio weighted average PPA term is 13.8 years as at 31
December 2022, and all PPA counterparties are investment-grade
(S&P rated A to BBB).
-- In October 2022, USF's Board announced that it was
undertaking a strategic review of the options available to the
Company to maximise value for shareholders (Strategic Review) and
that it expected to conclude the Strategic Review by the end of Q1
2023. The Strategic Review is considering all options available to
the Company including a sale of the entire Company, a sale of the
Company's portfolio assets, or changing the Company's investment
management arrangements.
-- Since the Strategic Review commenced the Board and its
advisors have engaged with a significant number of parties and,
following receipt of indicative proposals, have shortlisted several
parties who have proceeded to the next phase of the Strategic
Review process. In order to provide the shortlisted parties with
the requisite time to finalise their due diligence and submit
binding proposals, the Board now expects to update shareholders on
the Strategic Review within the next six to eight weeks.
Dividends
-- The Company paid its Q3 2022 dividend of 1.52 cents per
Ordinary Share on 6 January 2023. The dividend is consistent with
the Company's target full year dividend of 5.58 cents per Ordinary
Share. Dividend cover for the twelve months to 31 December 2022 was
1.20x.
-- The Company confirms that the dividend for the quarter ended
31 December 2022 is 1.52 cents per Ordinary Share, which will be
paid as timetabled below:
Ex-Dividend 6 April 2023
Date:
Record Date: 11 April 2023
Pay Date: 28 April 2023
-- Companies which have been approved as investment trusts by
HMRC are able, provided certain conditions are met, to designate
all or part of the dividends that they pay as interest
distributions.
-- Of this dividend declared of 1.52 cents per Ordinary Share,
0.30 cents per Ordinary Share has been designated as an interest
distribution while the remaining 1.22 cents per Ordinary Share will
be paid as a dividend.
Highlights post period-end
-- In January 2023, the Company announced that MN8, a renewable
energy business formerly known as Goldman Sachs Renewable Power
LLC, had exercised its purchase option over USF's 50% interest in
the 200MW(DC) Mount Signal 2 asset (MS2), with financial close
expected to occur in Q2 2023. The sale will generate total proceeds
(including the $1 million option fee) of $53.2 million and implies
a gross return of 11% per annum since USF announced the agreement
to acquire up to 50% of MS2 from New Energy Solar in December 2020.
The Company will update shareholders regarding use of proceeds at
the conclusion of the Strategic Review (or the financial close of
the MS2 sale if earlier).
Gill Nott, Chair of the Company said:
"2022 was a significant year for the Company. The portfolio grew
to over half a gigawatt, we increased the dividend and continued to
cash cover the payments, and USF received a compelling offer for
its ownership in MS2. However, with the sustained share price
discount to net asset value impeding the ability of the Company to
grow, we also announced that the Company was conducting a strategic
review in the interest of all shareholders.
We are proud of the high-quality portfolio USF has built and
look forward to providing an update to shareholders in due
course."
For further information, please contact:
US Solar Fund
Whitney Voute +1 718 230 4329
Cenkos Securities plc
James King
Tunga Chigovanyika
Will Talkington +44 20 7397 8900
Jefferies International Limited
Stuart Klein
Gaudi le Roux +44 20 7029 8000
KL Communications +44 20 3995 6673
Charles Gorman USF@kl-communications.com
Charlotte Francis
Millie Steyn
About US Solar Fund plc
US Solar Fund plc, established in 2019, is listed on the premium
segment of the London Stock Exchange. 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 543 MW(DC) , 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
1.2GW(DC) .
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
( Company Registration Number 11761009)
ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2022
1. Highlights
Table 1: Highlights for the period
12 Months Ended 6 Months Ended 12 Months Ended
31 December 30 June 2022 31 December
2022 2021
------------------------------------ --------------- -------------- ---------------
FINANCIAL
------------------------------------ --------------- -------------- ---------------
Net Asset Value (NAV) $320.0m $321.2m $324.0m
------------------------------------ --------------- -------------- ---------------
NAV per share* $0.963 $0.967 $0.975
------------------------------------ --------------- -------------- ---------------
Ordinary shares outstanding 332.2m 332.2m 332.2m
------------------------------------ --------------- -------------- ---------------
Share price based on closing price
of indicated date $0.84 $0.88 $0.96
------------------------------------ --------------- -------------- ---------------
Premium (discount) to NAV* (12.8%) (9.0%) (1.6%)
------------------------------------ --------------- -------------- ---------------
Market capitalisation based on
closing price of indicated date $279m $292m $319m
------------------------------------ --------------- -------------- ---------------
Dividends paid [1] $18.4m $10.0m $10.3m
------------------------------------ --------------- -------------- ---------------
Dividend cover* 1.20x 1.19x 1.82x
------------------------------------ --------------- -------------- ---------------
Shareholder total return (from
inception)* [2] (5.95%) (4.06%) 3.13%
------------------------------------ --------------- -------------- ---------------
NAV total return (from inception)*
[3] 9.98% 7.76% 5.55%
------------------------------------ --------------- -------------- ---------------
Profit/(loss) $14.5m $6.4m $15.0m
------------------------------------ --------------- -------------- ---------------
Earnings per share (cents) 4.4 1.9 5.2
------------------------------------ --------------- -------------- ---------------
Ongoing charges [4] 1.37% 1.35% 1.36%
------------------------------------ --------------- -------------- ---------------
Gearing* 44.2% 44.2% 38.4%
------------------------------------ --------------- -------------- ---------------
OPERATIONAL
------------------------------------ --------------- -------------- ---------------
Projects [5] fully operational 42 42 42
------------------------------------ --------------- -------------- ---------------
Total capacity (ownership stake) 543MW(DC) [6] 543MW(DC) (6) 493MW(DC)
------------------------------------ --------------- -------------- ---------------
Total electricity generation 904GWh(6) 452GWh(6) 851GWh
------------------------------------ --------------- -------------- ---------------
Generation shortfall (percentage
of budget) (4.9%)(6) (3.0%)(6) (3.9%)
------------------------------------ --------------- -------------- ---------------
Weighted average PPA term remaining 13.8 years 14.3 years 14.4 years
------------------------------------ --------------- -------------- ---------------
Average offtaker credit rating BBB+ BBB+ BBB+
------------------------------------ --------------- -------------- ---------------
ENVIRONMENTAL [7]
------------------------------------ --------------- -------------- ---------------
CO(2) emissions displaced 618,000t 336,000t 639,000t
------------------------------------ --------------- -------------- ---------------
Equivalent US homes powered 95,000 46,000 87,000
------------------------------------ --------------- -------------- ---------------
Equivalent US cars removed from
the road 134,000 73,000 139,000
------------------------------------ --------------- -------------- ---------------
* Marked metrics are Alternative Performance Measures (APM's)
used by the Company to monitor performance against expectations.
Calculations are defined in the glossary in section 21 of this
Annual Report or in USF's quarterly RNS updates and other market
announcements. USF's APM's may not be comparable with similarly
titled measures presented by other companies.
2. Chair's Statement
I am pleased to present the Annual Report for US Solar Fund plc
for the period ended 31 December 2022. In May this year, the
portfolio increased by 50 MW(DC) bringing total capacity to over
half of a GW. The Company continued to comfortably cash cover the
2022 dividend target of 5.58 cents, which included a 1.5% increase
from the previous year dividend, as targeted at IPO.
However, the Company's share price performance continued to be
disappointing compared to its peers. Ongoing and unexpected
softness in long-term US electricity price forecasts has offset the
otherwise favourable discount rate compression the Company has
achieved as it completed construction projects and they became
operational. Additionally, the supply of "construction-ready"
projects in the US has become more limited as market participants
have increased their risk appetite and acquired earlier stage
projects than previously, invested in development pipelines, or
invested in development platforms. These factors have prevented the
Company from growing as all stakeholders had hoped.
As a result, the Board announced in October 2022 that USF was
undertaking a Strategic Review which it expected to conclude by the
end of Q1 2023. The Strategic Review is considering all options
available to the Company including a sale of the entire Company, a
sale of the Company's portfolio assets, or changing the Company's
investment management arrangements. Since the Strategic Review
commenced, the Board and its advisors have engaged with a
significant number of parties and, following receipt of indicative
proposals, have shortlisted several parties who have proceeded to
the next phase of the Strategic Review process. In order to provide
the shortlisted parties with the requisite time to finalise their
due diligence and submit binding proposals, the Board now expects
to update shareholders on the Strategic Review within the next six
to eight weeks.
As noted in the half-year report, USF remains a stable and
solidly performing company despite the volatility in energy markets
around the world. In the UK, wholesale electricity prices
experienced dramatic swings throughout 2022, with a high of
GBP363/MWh and a low of GBP110/MWh; much more volatile than US
wholesale electricity markets [8] . At 31 December 2022, UK prices
were GBP285/MWh and have since fallen due to warmer winter weather
and the increased availability of liquefied natural gas in Europe
and the UK as these countries seek to reduce reliance on Russian
gas.
USF was structured to provide dividend stability from long-term
contracted cash flows and, as such, has no exposure to short-term
electricity price volatility. At 31 December 2022, the weighted
average remaining PPA term for the portfolio was 13.8 years. While
this has not allowed the Company to benefit from higher US spot
electricity prices in the last year, it does mean that the Company
can consistently deliver the steady cash flows that result from
having long-term contracts in place for the electricity generated
by its high-quality renewable energy assets. While USF's assets do
not benefit from spot electricity price increases during their
PPAs, they are also insulated from electricity price reductions.
Following the PPA term, USF's projects can seek to recontract at
market prices.
Throughout the period USF shares traded between $0.82 and $0.98
on the London Stock Exchange. At 30 December 2022, the Company's
shares were trading at $0.84. This represents a 12.8% discount to
the NAV of $320.0 million or $0.963 per Ordinary Share. Including
dividends paid during the period, shareholder total return from
inception to 31 December is (5.95%).
PORTFOLIO DEVELOPMENTS
In May, USF's portfolio grew to 543MW(DC) with the acquisition
of a second 50MW(DC) tranche of MS2, bringing USF's total ownership
to 100MW(DC) or 50% of the project. In August, USF announced that
it had sold a purchase option (Option) over its 50% interest in MS2
to MN8 (MN8), a renewable energy business formerly known as Goldman
Sachs Renewable Power LLC. For a non-refundable fee of $1 million,
the Option gave MN8 the right to acquire USF's interest in MS2 for
$52.2 million excluding working capital for a period of six months
from August 2022. MN8 exercised the Option in January 2023.
The MS2 sale is expected to generate total proceeds (including
the Option fee and excluding working capital) of $53.2 million and
implies a gross return of 11% per annum [9] since USF announced the
agreement to acquire up to 50% of MS2 from New Energy Solar in
December 2020.
The MS2 sale price was based on the net asset value at which USF
held MS2 at 31 March 2022, which remains consistent with MS2's 31
December 2022 net asset value (adjusted for the option fee and
working capital) of $51.7 million. The Option exercise and expected
resultant MS2 sale has no impact on the Strategic Review and
simplifies the Company's structure for a sale of the whole Company
or its assets as MS2 was the only asset in which USF had partial
ownership. The Company will update shareholders regarding use of
proceeds at the conclusion of the Strategic Review (or the
financial close of the MS2 sale if earlier).
As the Option was exercised after the end of the period, the
portfolio comprised 543MW(DC) across 42 fully operating projects in
four states at 31 December 2022. During the period, the assets
produced 904 GWh of electricity. This was within the expected range
of annual generation variance and ensured the continued strong cash
cover of the dividend.
PERFORMANCE
USF's audited NAV at 31 December 2022 was $320.0 million or
$0.963 per Ordinary Share, marginally lower than the 31 December
2021 NAV of $324.0 million or $0.975 per Ordinary Share and 30 June
2022 NAV of $321.2 million or $0.967 per Ordinary Share. The Fair
Value (FV) of solar investments increased from June 2022 as
increases in discount rates were offset by favourable reductions in
future operating costs reflecting ongoing efficiency gains in the
solar operations and maintenance market. This increase in FV was
offset by dividends paid, the IM fee, expenses and US tax losses
(deferred tax liabilities arising from an increase in asset
valuations) which resulted in the reduction in NAV.
DIVID
For the period ending 31 December, the Company declared and paid
three dividends including 1.27 cents (31 March), 1.27 cents (30
June) and 1.52 cents (30 September). The final dividend for the
period, 1.52 cents per Ordinary Share, is declared in this Report
and will be paid on 28 April 2023. The total dividends meet the
2022 target dividend of 5.58 cents per Ordinary Share, a 1.5%
increase over the 2021 full year dividend of 5.5 cents.
Dividend cover for the 12 months to 31 December was 1.20x. As a
reminder, USF's highest power generation, and therefore operating
cash flows, are produced in the summer months; electricity sales
must then be converted to distributable cash flow at the Company
level. The profile of dividend payments and the dividend cash cover
throughout the year broadly reflects this seasonality of the
Company's underlying cash flows.
The target annual dividend for 2023 is 5.66 cents per Ordinary
Share, a 1.5% increase over the prior year's annual dividend of
5.58 cents per Ordinary Share.
INVESTMENT MANAGER PERSONNEL
In December, the Company announced that Liam Thomas, previously
CEO of USF's Investment Manager, will cease full-time employment
with the Investment Manager from 31 December 2022. However, from 1
January 2023, Liam has been engaged as a consultant to the
Investment Manager to spend 25% of his time focused on the
Strategic Review. At the same time, it was announced that Adam
Haughton, previously CIO, was departing to pursue another
opportunity. Subsequently, Bert Snarr has been promoted to Director
of the Investment Manager and is serving as commercial lead on the
Strategic Review. Warwick Keneally (CFO) along with Brian Disler,
formerly general counsel of E&P Financial Group Limited's
(Investment Manager's parent company) US operations, are currently
providing management oversight and support as well as legal
expertise.
US SOLAR INDUSTRY
The year was significant for the solar industry in the US.
Growth in utility-scale development continued to slow through the
third quarter. Fourth quarter data has not yet been released but if
it reaches Wood Mackenzie's 2022 target of 10.3GW(DC) , this will
be a 40% drop from 2021. This slow-down was expected for 2022 based
on supply chain constraints, high commodity prices and complex
trade policy. Growth is forecast to return in 2023, with targets
exceeding the records set in 2021. Importantly, the trend toward
more solar in general remains strong. Solar PV accounted for 45% of
new electricity-generating capacity additions through the third
quarter, its highest share to date; 140 GW(DC) of utility -- scale
solar is forecast to be added between 2023 and 2027. This forecast
growth is despite headwinds from inflation and higher interest
rates, continued supply chain constraints, and trade and tariff
uncertainty. However, these are being offset by tax credit
additions and extensions as a result of the Inflation Reduction Act
and federal investment in transmission and resource planning.
In early June, President Biden removed tariffs on solar panels
for at least 24 months, and concurrently, the US government is
working to bring more solar panel production online in the US.
Related to these initiatives, the US also has enacted the Uyghur
Forced Labor Prevention Act, which is intended to prevent
polysilicon produced from forced labour from entering the US market
by requiring clear supply chain documentation. In the short term it
is causing some delays on key imports as all parties work through
how best to source and provide the information required. In the
medium and long term, the initiatives will potentially help to
mitigate uncertainty around supply chain concerns and to reduce the
risk of the US market participating in human rights violations.
In early August, after a year of negotiations and stalled
efforts, landmark climate legislation was passed through Congress
and signed by President Biden as part of the Inflation Reduction
Act (IRA). The measures are expected to drive a huge shift in
replacing existing fossil fuel generation with new, cheaper clean
energy to increase its share of energy production in the US and
includes the restoration of the Investment Tax Credit (ITC)
(through the end of 2035). Commencing in 2022 the IRA also allows
developers to elect a $0.026 /kWh production tax credit in lieu of
the ITC which rises with inflation.
Despite these tailwinds, USF's ability to acquire projects that
align with the investment strategy has been limited by both its
inability to raise capital due to muted NAV and share price
performance and the previously described changes in the US market.
At inception, USF was able to acquire high-quality,
construction-ready projects from credible developers. However, as
capital continued to flow into the sector, risk appetites increased
and market participants who previously took little to no
development risk began investing directly in development pipelines
or development platforms. This limited the supply of projects
available for USF to purchase and increased the price of those
projects that were available.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE & SUSTAINABILITY
USF continues to focus on Environmental, Social and Governance
(ESG) reporting as a priority. This year the Company engaged an
external consultant, Carbon Responsible, to assist in the Company's
carbon footprint calculation to further enhance data collection and
analysis. We are releasing our annual Sustainability Report
following the annual report and hope that all of our stakeholders
find it helpful and engaging. We have continued to follow many of
the valuable frameworks we have previously reported against like
the Sustainable Financial Disclosure Regulation (SFDR) Annexe One
and the mandatory Task Force on Climate-related Financial
Disclosures (TCFD) because data from these templates are most often
requested from our investors, and the templates provide detailed
and straightforward approaches for our ESG and Sustainability
communications.
OUTLOOK
Global financial markets and politics were defined by volatility
during 2022. Much of this has derived from the appalling war in
Ukraine, which led to a surge in energy prices, markets in turmoil,
and concerns about recessions across the globe. Of course, this
happened on the heels of global concerns about the recovery from
the Covid pandemic. This was particularly true for China, a major
driver of global trade, where the pandemic led to lower economic
growth. Another challenge for global markets has been rising
interest rates. In 2022, the US Federal Funds Effective Rate rose
from 0.08% to 4.10%, bringing concerns about the future pace of
growth in the US economy. Unfortunately, 2023 thus far also seems
to be dominated by volatility and concerns about potential economic
recession.
However, alongside this, we are seeing important and exciting
developments around climate policy and renewables adoption. In
2019, the UK was the first G7 economy to pass a net zero target.
Today, after just four years, the countries that have a net zero
target account for 91% of the world's GDP [10] . In the US, the
White House has repeatedly committed to taking meaningful action
regarding climate change, including reducing US greenhouse gas
emissions 50-52% below 2005 levels in 2030, reaching 100% carbon
pollution-free electricity by 2035 and achieving a net-zero
emissions economy by 2050. These efforts will require a significant
shift toward clean energy, suggesting the outlook for renewable
energy in the US is positive and, while we have been pleased to
participate in this exciting market during a time of great growth
and development, acquiring a high-quality portfolio of assets, it
is disappointing that US Solar has not been in a position deliver
ongoing growth for shareholders.
The Board continues to consider the needs of all shareholders
and, while it is too early in the Strategic Review to provide
further information, we look forward to providing an update as the
process progresses.
GILL NOTT
CHAIR
24 March 2023
3. Investment Manager's Report
SUMMARY OF THE PERIOD
Over the course of 2022, the Company has continued to pay and
cash-cover the target dividend as the portfolio moved into its
second full year of operations. All cash flows from USF's assets
continue to be contracted with US investment-grade offtakers for a
weighted average remaining term of 13.8 years [11] .
The Investment Manager completed the acquisition of a second
50MW(DC) tranche of MS2 in May 2022, bringing total ownership to
100MW(DC) or 50% of the project. In August, USF announced that it
had sold a purchase option (Option) over this 50% interest in MS2
to MN8 (MN8), a renewable energy business formerly known as Goldman
Sachs Renewable Power LLC. The other 50% of the asset was acquired
by MN8 as part of a broader portfolio transaction during 2022.
As announced with this report, the Company has met the annual
dividend target of 5.58 cents per Ordinary share for 2022. Coverage
of dividends paid during the period by free cash flow and any cash
flows carried forward was 1.20x [12] .
Over the course of the year and as part of normal Asset
Management strategy, the Investment Manager has continued to
proactively investigate plant performance to reduce downtime and
improve operations. Reflecting the geographic diversity of the
plants, performance for the year was within 4.9% of budget.
NET ASSET VALUE
USF's audited NAV at 31 December 2022 was $320.0 million or
$0.963 per Ordinary Share, marginally lower than the 30 June 2022
NAV of $321.2 million or $0.967 per Ordinary Share. While the
portfolio experienced an overall fair value uplift, this was offset
by dividends paid, and operating costs at the plc level, as well as
US tax losses (deferred tax liabilities arising from an increase in
asset valuations), resulting in the reduction in NAV.
The fair value increase was driven by a modest uplift in
electricity price forecasts and improved operating cost assumptions
which more than offset the impact of increased discount rates
driven by sustained higher interest rates.
US SOLAR FUND STRUCTURE
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 2022, the Company and USF
Holding Corp. have available cash of $7.3 million and $3.5 million
respectively, for a total balance of $10.8 million which may be
used to meet the obligations of USF. At 31 December 2022, the
Company had access through USF Avon LLC (a wholly owned subsidiary
of the Company) to a $40.0 million revolving credit facility (RCF)
of which $36.5 million is undrawn, providing further liquidity
support.
PORTFOLIO UPDATE
As previously mentioned, USF's portfolio grew to 543MW(DC) with
the acquisition of a second 50MW(DC) tranche of MS2 in May 2022,
bringing total ownership to 100MW(DC) or 50% of the project. In
August, USF announced that it had sold a purchase option (Option)
over this 50% interest in MS2 to MN8 (MN8), a renewable energy
business formerly known as Goldman Sachs Renewable Power LLC. The
other 50% of the asset was sold to MN8 as part of a broader
portfolio transaction during 2022. Under the terms of the Option,
MN8 paid USF a non-refundable option fee of $1 million. MN8
exercised the Option in January 2023, with financial close expected
during Q2 of this year.
The sale is expected to generate total proceeds (including the
option fee) of $53.2 million and implies a gross return of 11% per
annum [13] since USF announced the agreement to acquire up to 50%
of MS2 from New Energy Solar (NEW) in December 2020. The valuation
is consistent with the net asset value at which USF held MS2 at 31
March 2022. The Option exercise and expected resultant MS2 sale has
no impact on the Strategic Review and the Company will update
shareholders regarding use of proceeds at the conclusion of the
Strategic Review (or the financial close of the MS2 sale if
earlier).
As the Option was exercised after the end of the period, the
portfolio comprised 543MW(DC) across 42 projects at 31 December
2022. The portfolio is fully operating and diversified across four
states with all production sold to a variety of investment-grade
offtakers (S&P rated: A to BBB).
PORTFOLIO GENERATION UPDATE
Figure 2 above shows actual and budgeted generation from the
assets during the full year, including 50% of MS2 generation from
the end of May 2022. 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 out of the summer months.
During the period, the assets produced 904GWh (including
reimbursed curtailment). As shown in Figure 3 below, a 0.8%
increase in generation from better-than-expected weather was more
than offset by decreases from availability, unscheduled
maintenance, and non-reimbursed curtailment, resulting in
generation 4.9% below budget. Some of the lost generation and
revenue related to inverter failure is expected to be reimbursed
through business interruption insurance claims, and the Investment
Manager expects the majority of future curtailment to be
reimbursable as per the PPA curtailment provisions. Unscheduled
maintenance was largely due to grid instability in Oregon and North
Carolina as a result of weather and storms across the country.
USF has a high-quality, diversified portfolio of assets that are
largely continuing to perform well with their long-term PPAs. The
distribution of assets across different locations gave the
portfolio the benefit of varying weather conditions, mitigating
volatility from any particular event or local weather trend
throughout the year. The period's generation is within the expected
range of annual variance and did not impact USF's ability to
continue to achieve an appropriate level of cash cover against the
target dividend.
Over the course of the year, the Investment Manager has
continued to proactively investigate plant performance to remediate
production losses and improve operations. The Direct Current (DC)
health of each facility remains to be one of the major areas of
focus related to plant performance and the Investment Manager in
conjunction with the site's O&M providers have implemented
strategies to identify and remediate negative impacts to DC
performance. For instance, the Investment Manager has upgraded the
data analytics tool to better track DC health by comparing
individual combiner boxes to the expected output and thereby
identifying string or panel level losses, including soiling losses.
Further, the frequency of thermal aerial drone scans have been
increased where needed to ensure the DC health issues are
identified and rectified as quickly as possible. To help reduce the
duration of future outages, the team is continually reviewing the
site spare parts inventory, evaluating items that may be subject to
increased lead time or manufacturing constraints and purchasing as
necessary.
USF measures "Actual" performance against "Budgeted"
performance. "Actual" production is the number of GWh generated and
sold to the offtaker. "Budget" 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, unplanned maintenance and grid outages.
STRATEGIC REVIEW AND SALE PROCESS UPDATE
The Company is currently undertaking a sale process for USF as a
part of the Strategic Review to maximise value for shareholders.
The process has invited expressions of interest for the entire USF
plc, USF's US assets, or the investment management rights. Since
the Strategic Review commenced, the Board and its advisors have
engaged with a significant number of parties and, following receipt
of indicative proposals, have shortlisted several parties who have
proceeded to the next phase of the Strategic Review process. In
order to provide the shortlisted parties with the requisite time to
finalise their due diligence and submit binding proposals, the
Board now expects to update shareholders on the Strategic Review in
the next six to eight weeks.
FUNDS COMMITTED
At 31 December 2022, USF had invested $304 million in the
operating portfolio. USF has $11 million of available cash and an
undrawn RCF balance of $36.5 million remaining.
EVENTS AFTER THE PERIOD
On 23 January 2023, the Company announced that MN8, a renewable
energy business formerly known as Goldman Sachs Renewable Power
LLC, has exercised its purchase option over USF's 50% interest in
the 200MW(DC) Mount Signal 2 asset, with financial close expected
to occur in Q2 2023. The sale will generate total proceeds
(including the option fee) of $53.2 million and implies a gross
return of 11% per annum [14] since USF announced the agreement to
acquire up to 50% of MS2 from NEW in December 2020.
On 24 March 2023, the Company declared a dividend of 1.52 cents
per Ordinary Share for the period ending 31 December 2022, bringing
total dividends declared for the twelve-month period to 5.58 cents
per Ordinary Share, meeting the dividend target. The dividend is
expected to be paid on or around 28 April 2022.
INVESTMENT PORTFOLIO
As at 31 December 2022 the Company owned 42 utility scale solar
projects, totalling 543MW(DC) . All assets in USF's portfolio have
achieved commercial operations and are generating revenue for the
Company. Table 2 sets out the location and further information
regarding each project.
Table 2: Portfolio Overview
Asset Capacity Location Acquisition Energy Offtaker Offtaker Remaining COD
(MW(DC) Date Credit Rating PPA Length [16]
) [15] (Years)
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Milford 127.8 Utah Aug 19 PacifiCorp S&P: A 22.9 Nov 20
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
MS2 99.8 California Mar 21 Southern California S&P: BBB 17.4 Jan 20
[17] Edison
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Portland General
Suntex 15.3 Oregon Jun 20 Electric S&P: BBB+ 8.6 Jul 20
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Portland General
West Hines 15.3 Oregon Jun 20 Electric S&P: BBB+ 8.6 Jun 20
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Portland General
Alkali 15.1 Oregon Jun 20 Electric S&P: BBB+ 8.7 Jun 20
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Portland General
Rock Garden 14.9 Oregon Jun 20 Electric S&P: BBB+ 8.7 Jun 20
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Chiloquin 14.0 Oregon Mar 20 PacifiCorp S&P: A 9.0 Jan 18
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Dairy 14.0 Oregon Mar 20 PacifiCorp S&P: A 8.8 Mar 18
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Tumbleweed 14.0 Oregon Mar 20 PacifiCorp S&P: A 9.0 Dec 17
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Lakeview 13.7 Oregon Mar 20 PacifiCorp S&P: A 8.8 Dec 17
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Turkey Hill 13.2 Oregon Mar 20 PacifiCorp S&P: A 8.8 Dec 17
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Merrill 10.5 Oregon Mar 20 PacifiCorp S&P: A 8.8 Jan 18
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Lane II 7.5 North Carolina Dec 19 Duke Energy Progress S&P: BBB+ 10.7 Jul 20
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Pilot Mountain 7.5 North Carolina Dec 19 Duke Energy Carolinas S&P: BBB+ 10.7 Sep 20
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Virginia Electric
Davis Lane 7.0 North Carolina Mar 20 & Power S&P: BBB+ 10.0 Dec 17
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Virginia Electric
Gauss 7.0 North Carolina Mar 20 & Power S&P: BBB+ 10.6 Oct 18
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
North Carolina
Jersey 7.0 North Carolina Mar 20 Electric S&P: A- 5.0 Dec 17
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Sonne Two 7.0 North Carolina Mar 20 Duke Energy Carolinas S&P: BBB+ 8.6 Dec 16
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Red Oak 6.9 North Carolina Mar 20 Duke Energy Progress S&P: BBB+ 9.0 Dec 16
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Virginia Electric
Schell 6.9 North Carolina Mar 20 & Power S&P: BBB+ 9.0 Dec 16
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Siler 421 6.9 North Carolina Mar 20 Duke Energy Progress S&P: BBB+ 8.6 Dec 16
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Cotten 6.8 North Carolina Mar 20 Duke Energy Progress S&P: BBB+ 8.9 Nov 16
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Tiburon 6.7 North Carolina Mar 20 Duke Energy Carolinas S&P: BBB+ 8.6 Dec 16
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Monroe Moore 6.6 North Carolina Mar 20 Duke Energy Carolinas S&P: BBB+ 8.6 Dec 16
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Four Oaks 6.5 North Carolina Dec 19 Duke Energy Progress S&P: BBB+ 7.8 Oct 15
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Princeton 6.5 North Carolina Dec 19 Duke Energy Progress S&P: BBB+ 7.8 Oct 15
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Tate 6.5 North Carolina Dec 19 Duke Energy Progress S&P: BBB+ 10.7 Aug 20
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Freemont 6.4 North Carolina Mar 20 Duke Energy Carolinas S&P: BBB+ 8.6 Dec 16
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Mariposa 6.4 North Carolina Mar 20 Duke Energy Carolinas S&P: BBB+ 8.7 Sep 16
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
S. Robeson 6.3 North Carolina Jan 20 Progress Energy S&P: BBB+ 4.6 Jul 12
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Sarah 6.3 North Carolina Dec 19 Duke Energy Progress S&P: BBB+ 7.5 Jun 15
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Nitro 6.2 North Carolina Dec 19 Duke Energy Progress S&P: BBB+ 6.9 Jul 15
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Sedberry 6.2 North Carolina Mar 20 Duke Energy Progress S&P: BBB+ 8.6 Dec 16
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Willard 6.0 North Carolina Dec 19 Duke Energy Progress S&P: BBB+ 10.7 Oct 20
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Benson 5.7 North Carolina Dec 19 Duke Energy Progress S&P: BBB+ 10.7 Aug 20
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Eagle Solar 5.6 North Carolina Dec 19 Duke Energy Progress S&P: BBB+ 10.7 Aug 20
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
San Diego Gas
Granger 3.9 California Mar 20 & Electric S&P: BBB+ 13.7 Sep 16
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
San Diego Gas
Valley Center 3.0 California Mar 20 & Electric S&P: BBB+ 13.9 Dec 16
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
County Home 2.6 North Carolina Mar 20 Duke Energy Carolinas S&P: BBB+ 8.6 Sep 16
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Progress
1 2.5 North Carolina Jan 20 Progress Energy S&P: BBB+ 9.3 Apr 12
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Progress
2 2.5 North Carolina Jan 20 Progress Energy S&P: BBB+ 5.0 Apr 13
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Faison 2.3 North Carolina Dec 19 Duke Energy Progress S&P: BBB+ 7.3 Jun 15
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
Grand Total 542.8 13.8 [18]
--------------- -------- -------------- ----------- --------------------- -------------- ----------- ------
ACQUISITIONS
As at 31 December 2022, the Company had closed six acquisitions.
Milford and Olympos completed in 2019, Granite, Heelstone and
Euryalus were completed in 2020. The first 25% tranche of MS2 was
completed in 2021 and subsequent second tranche financially closed
in 2022, bringing the total portfolio to 543MW(DC) as at 31
December 2022. In January 2023, USF announced it would sell its
interests in MS2, bringing the total portfolio capacity back to
443MW(DC) .
INVESTMENT PERFORMANCE
At 31 December 2022, the Company's shares were trading at $0.84
per Ordinary Share. This represents a 12.8% discount to the 31
December 2022 NAV of $320.0 million or $0.963 per Ordinary Share.
The NAV is defined as the total assets less any liabilities.
The financial statements of the Company are presented in
Sections 14-17 of this document. For further detail, please see
Section 14: Condensed Statement of Profit and Loss and Other
Comprehensive Income.
Table 3 below summarises the performance of the Company during
the period.
Table 3: Performance Summary
12 MONTHSED 6 MONTHSED 12 MONTHSED
31 DECEMBER 2022 30 JUNE 2022 31 DECEMBER
2021
------------------------------------- ----------------- -------------- ---------------
Number of projects [19] 42 42 42
------------------------------------- ----------------- -------------- ---------------
Capacity of projects 543MW(DC) 543MW(DC) 493MW(DC)
------------------------------------- ----------------- -------------- ---------------
NAV $320.0m $321.2m $324.0m
------------------------------------- ----------------- -------------- ---------------
NAV per share $0.963 $0.967 $0.975
------------------------------------- ----------------- -------------- ---------------
Ordinary shares issued 332m 332m 332m
------------------------------------- ----------------- -------------- ---------------
Closing share price (USF) $0.84 $0.88 $0.96
------------------------------------- ----------------- -------------- ---------------
Market capitalisation (based
on closing price) $279m $292m $319m
------------------------------------- ----------------- -------------- ---------------
Dividends paid [20] $18.4m $10.0m $10.3m
------------------------------------- ----------------- -------------- ---------------
NAV total return performance 9.98% 7.76% 5.55%
------------------------------------- ----------------- -------------- ---------------
Share price total return performance
(from inception) (5.95%) (4.06%) 3.13%
------------------------------------- ----------------- -------------- ---------------
The Figure below shows the Company's NAV progression from 31
December 2021 to the end of the period, 31 December 2022. During
the period, positive impacts from distributions from solar assets
and fair value gain on solar investments were offset by dividends,
the IM fee, expenses, and US tax loss. The US tax losses refer to
increases in deferred tax liabilities arising from an increase in
asset valuations.
The Company generated a profit after tax of $14,494,994 (4.4
cents per share) during the period. As set out in note 10 of the
Financial Statements and summarised in Figure 6 below, dividend
income of $15,911,710 (4.8 cents per share), intercompany loan
interest income of $1,988,965, MSA fee income of $5,499,339 and an
unrealised loss on investment of $4,008,758 sum to a net gain from
the Company's investment in USF Holding Corp. over the period of
$19,391,256 or 5.8 cents per share. This was offset by foreign
exchange losses of $366,763 on funds that were retained in GBP,
interest income of $3,905 and administrative, Investment Management
fees and other expenses of $4,533,404.
The net improvement in fair value of the underlying solar power
plants of $0.028 per share is broken down into its individual
movements in fair value in Figure 7 below but is most significantly
impacted by the roll forward, updated merchant curve and operating
assumptions in the modelling of the solar plants in the portfolio,
offset by updated discount rates.
Dividends paid by the Company to its shareholders incorporates
the corresponding movement of earnings from the subsidiaries to the
Company on a per share basis in the table above.
The movement in US taxes of $0.014 per share represents the
increase in estimated deferred US taxes expected to be payable from
a sale of the Company's portfolio of solar assets.
Figure 7 details the $0.028 cents per Ordinary Share movement in
the "FV gain on solar investments" category shown in Figure 6. The
increase reflects the updated operating assumptions, updated
merchant curves and net working capital impacts on the valuations
between 31 December 2021 and 31 December 2022.
The roll forward category is a result of bringing forward the
valuation date to 31 December 2022 from 31 December 2021, thereby
removing cash flows from prior periods and bringing forward future
cash flows.
Updated operating assumptions include revised assumptions
regarding expenses like vegetation management fees or recontracted
O&M fees and had a net positive effect on the FV of the
portfolio over the period through price reductions. These
assumptions are based on real market data at year-end, however,
future outcomes will depend on the market pricing at the time
current contracts expire and are renewed.
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 H2 2022, independent
forecasts of merchant prices (i.e. energy, capacity and RECs
forecasts post the contracted PPA period) have generally been
revised upwards, resulting in a positive impact on NAV.
The increase in net working capital (NWC update) reflects the
increase in cash balances and movements in working capital at the
holding company subsidiaries.
The MS2 option valuation difference refers to the difference
between the option valuation as recorded at 31 December 2021 and
the exercised 30 June 2022 valuation of tranche two of MS2.
Model update refers to the amendment of underlying fair value
modelling mechanisms of the portfolio. Over the period there was a
minor amendment made to the MS2's model to adjust for updated tax
equity buyout estimates, resulting in a negative impact on the
valuation of that asset. MS2's valuation was previously
underestimating the cash flow associated with the tax equity
buyout. There were no changes made to the generation assumptions
over the course of the period.
Discount rates were reviewed and generally revised upwards for
the period, resulting in a negative impact on FV. Further details
on the discount rates can be found in the Valuation Methodology
section below.
ONGOING CHARGES
The ongoing charges ratio of the Company is 1.37% of the average
NAV for the period ended 31 December 2022. The ratio has been
calculated using the AIC recommended methodology.
VALUATION
NET ASSET VALUE
The NAV for the period ending 31 December 2022 is $320.0
million, or $0.963 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 2022 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
2022. 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
2022.
The weighted average pre-tax cost of equity used for levered
assets was 7.8% (June 2022: 7.6%, December 2021: 7.8%), and the
pre-tax weighted average cost of capital (WACC) for unlevered
assets was 7.0% (June 2022: 6.7%, December 2021: 6.3%). The key
driver of the increase in pre-tax cost of equity and pre-tax WACC
was increased risk-free rates.
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 2022, tax equity financing was in place for all projects
in the Company's portfolio except for Granite and two assets in the
Heelstone portfolio. 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,
Table 4 below details the tax equity arrangements for the
Company's portfolio.
Table 4: Tax Equity Summary
Solar Asset Tax Equity Partner Funding Status
----------- ------------------------------------------- -----------------
Milford Wells Fargo Fully funded and
active
----------- ------------------------------------------- -----------------
Olympos US Bancorp Fully funded and
active
----------- ------------------------------------------- -----------------
Granite None (previously US Bancorp) Fully funded and
exited
----------- ------------------------------------------- -----------------
Heelstone Hartford Insurance Company; Valley National Fully funded and
Bank; and US Bancorp partially active
----------- ------------------------------------------- -----------------
Euryalus US Bancorp Fully funded and
active
----------- ------------------------------------------- -----------------
MS2 Wells Fargo Fully funded and
active
----------- ------------------------------------------- -----------------
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 $253 million as at 31 December 2022,
based on the face value of drawn debt ($201.9 million as at 31
December 2021). This equates to 44.2% of Gross Asset Value (GAV -
calculated as NAV plus outstanding debt) (38.4% as at 31 December
2021). This is below USF's long-term target of 50%.
Refer to Note 8 of the financial statements for further
information on USF's debt facilities.
SENSITIVITY ANALYSIS
The Investment Manager and the Company use sensitivity analysis
to assess the impact of changes in key assumptions on the fair
value of the Company's investments. The sensitivities shown assume
the relevant input is changed over the entire useful life of each
of the underlying renewable energy assets, while all other
variables remain constant. All sensitivities have been calculated
independently of each other. The full sensitivity analysis,
including comments on key assumptions and sensitivities, is
included in Note 13 to the financial statements.
Reduction
or
Increase CHANGE IN CHANGE CHANGE IN NAV
in input INPUT IN NAV PER SHARE
($'M) (cents per share)
----------------------------- ---------- --------- ------- -----------------
Discount rate Increase +1.0% -37.25 -11.21
Reduction -1.0% +45.70 +13.76
----------------------------- ---------- --------- ------- -----------------
Electricity production
(change from P50) Reduction P90 -45.89 -13.81
Increase P10 +45.93 +13.83
----------------------------- ---------- --------- ------- -----------------
Merchant Period Electricity
Prices Reduction -10% -24.23 -7.29
Increase +10% +24.23 +7.29
----------------------------- ---------- --------- ------- -----------------
Operations and maintenance
expenses Increase +10% -16.82 -5.06
Reduction -10% +16.06 +4.83
----------------------------- ---------- --------- ------- -----------------
Operating life Reduction - 3 years -14.83 -4.46
Increase + 3 years 12.2 +3.67
----------------------------- ---------- --------- ------- -----------------
Tax rate Increase +5% -15.36 -4.63
Reduction -5% +15.40 +4.64
----------------------------- ---------- --------- ------- -----------------
INFLATION
Rising inflation continued to be a concern in the US over the
course of 2022 and has continued into 1Q 2023. USF considers
inflation in terms of potential impact on cash flows from the
existing portfolio and NAV. US consumer inflation expectations for
the year ahead have lowered since June 2022 and, as of December
2022, are holding at low levels not seen since the end of 2021.
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 PPAs 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 a sustained inflationary environment, USF
expects the discount rates used in valuations 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.
INTEREST RATE ON DEBT FACILITIES
Base interest rates on the Company's drawn amortising debt
facilities are fully hedged for amortisaton period of the relevant
loan which includes the initial term and one or more subsequent
re-financings. In general, the amortisation period on term loans
matches the PPA term.
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 2022 332,192,361 Ordinary Shares were in issue
and no other classes of shares were in issue at that date. At 31
December 2021 332,192,361 Ordinary Shares were in issue, 31
December 2020, 200,192,361 Ordinary Shares were in issue and at 31
December 2019 there were 200,092,323 Ordinary Shares in issue.
During the period,
-- the Investment Manager acquired 176,112 Management Fee Shares
on 13 April 2022 at an average market price of $0.916 per share,
reflecting the Management Share Amount due to the Investment
Manager for the period from 1 July 2021 to 31 December 2021;
and
-- the Investment Manager acquired 185,352 Management Fee Shares
on 10 October 2022 at an average market price of $0.86 per share,
reflecting the Management Share Amount due to the Investment
Manager for the period from 1 January 2022 to 30 June 2022.
INFORMATION ON THE INVESTMENT MANAGER
USF is managed by New Energy Solar Manager Pty Limited, who also
established and built New Energy Solar, which was an Australian
listed solar fund ( www.newenergysolar.com.au ). Combined, US Solar
Fund and New Energy Solar have committed approximately $1.3 billion
to 57 projects totalling 1.2GW(DC) . New Energy Solar is in the
process of returning capital to investors after successfully
selling its US solar projects during 2022
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 12
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, a wholly
owned subsidiary of the Investment Manager's parent entity, E&P
Financial Group 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. With the
exception of Liam Thomas who is now a contractor, all senior
management and staff are employees of the Investment Manager.
Further information on the Investment Manager team is provided at
www.ussolarfund.co.uk .
LIAM THOMAS
BAgribus (Curtin), MSc (Curtin), MBA (Melbourne)
PREVIOUSLY CHIEF EXECUTIVE OFFICER, NESM; CURRENTLY ADVISOR TO
USF
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. As of December
2022, Liam has ceased full-time employment with the Investment
Manager; however, from 1 January 2023, Liam has been engaged as a
consultant to the parent company of the Investment Manager,
spending 25% of his time focused on USF's Strategic Review. 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.
BERT SNARR
MPA (Harvard), MBA (UCLA), BEcon (UM)
DIRECTOR, INVESTMENTS, NESM
Bert joined the Investment Manager in June 2022, focusing on due
diligence and transaction execution. Prior to NESM, Bert was a Vice
President in Bank of America Merrill Lynch's Emerging Growth
Investment Banking Group. Previously he was a Vice President in the
firm's Global Industrials Investment Banking Group. Bert led a
variety of M&A and capital markets transactions in both roles,
ranging from IPOs to private company acquisitions. Earlier in his
career, Bert worked in Macquarie Capital's Emerging Markets
Division, where he structured equity-linked notes and other
derivative products before moving to fixed income trading, where he
made markets in corporate and sovereign bonds.
WARWICK KENEALLY
BEcon (ANU), BCom (ANU), CA
CHIEF 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 FRANCIS
BS (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.
BRIAN DISLER
BA (UPenn), JD (Brooklyn)
HEAD OF US, NESM
Brian was previously Co-Head of the US Masters Residential
Property Fund, a REIT listed on the Australian Securities Exchange,
which owns 1-4 family residential properties in the New York Metro
area. Prior to that, he was General Counsel of E&P's US
Division, overseeing all legal functions for the group. Brian began
his career as an attorney at a large NY based law firm - where his
practice focused on a wide-range of real estate matters,
predominately for large corporate clients.
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 with the symbols (), () and
() denoting an increase, decrease and no change respectively in
the assessed risk over the period since the 2021 Annual Report. The
Directors do not consider that the risks to the Company resulting
from Brexit, the Ukraine conflict or the Covid-19 pandemic
significantly affect the principal risks and uncertainties set out
below.
LEGAL & REGULATORY RISKS
Risk Impact on Company Mitigant
Changes in laws Regulation changes may adversely The Company and Investment Manager
or regulations affect the business and performance monitor changes in legislation
governing the of the Company. for relevant jurisdictions to
Company's operations The Company is sensitive enable rapid and effective response.
or the Investment to tax changes for example, This ensures that any upcoming
Manager's operations including but not limited changes in legislation are proactively
( ) to income tax, Investment accounted for when evaluating
Tax Credits and tax restrictions potential investment opportunities.
on renewables. An adverse The Company and Investment Manager
change in tax legislation also consult with tax and regulatory
may impact the Company's experts as required.
overall returns. US legislation remains supportive
of an energy transition, with
the Infrastructure and Jobs Act
passed through Congress in November
2021, which included $65 billion
to upgrade transmission capabilities,
which will assist integration
of renewable generation into
US grids. In August 2022, the
Inflation Reduction Act [21]
was passed which includes $370
billion in clean energy incentives,
many of which are directly targeting
the solar industry.
------------------------------------ ---------------------------------------
Political risk Political risks often translate As the Company's assets are in
( ) to elevated political uncertainties the US, the Investment Manager
and have detrimental effects does not consider separation
on investment and currency from the EU to cause significant
markets. The separation of risks to the US renewables market.
the United Kingdom (UK) from While the Company was able to
the European Union (EU) may raise capital in April 2021,
impact the Company's ability it has not been in a position
to raise additional funds. to do so since that time, contributing
The outcome from US Congress to the Board's decision to undertake
decisions and changes in the Strategic Review.
US administration, and the The Company and Investment Manager
impacts on renewable energy monitor changes in legislation
credits, tax concessions for relevant jurisdictions to
and support for the renewable enable rapid and effective response.
generation sector are uncertain. The Company and Investment Manager
also consult with tax and legislation
experts as required.
The policy objectives of the
Biden administration regarding
net zero carbon emission energy
generation have lowered the political
risk associated with investment
in US renewable energy.
--------------------- ------------------------------------ ---------------------------------------
FINANCIAL & MARKET RISKS
Risk Impact on Company Mitigant
Long-term power PPA terms are generally shorter The Company secures revenue by
price fluctuations than the expected useful life acquiring assets that have long-
( ) of Solar Assets so price forecasts term PPAs in place (with a minimum
are used to estimate the value PPA term of 10 years for each
of cash flows between PPA project or portfolio acquisition
expiry and the end of the and a target weighted average
asset's useful life. Lower PPA term of approximately 15
or higher wholesale electricity years for the Company's entire
price forecasts will reduce portfolio at acquisition). The
or increase the revenue that Company continues to regularly
the Solar Assets are expected monitor changes in expert energy
to generate after PPA expiry, price forecasts and ensures that
thereby impacting asset valuations. they are appropriately factored
into asset valuations. The Company
averages forecast price curves
from two reputable providers
over their most recent two periods
(i.e., four curves in total)
to mitigate the impact on asset
values from any one forecaster
changing views.
----------------------------------------------------------- ------------------------------------
Valuation of The Investment Manager's due The Company appoints an independent
assets diligence process used in reputable firm to undertake
( ) evaluating acquisitions of valuations
Solar Assets may not reveal of its Solar Assets on at least
all facts that may be relevant an annual basis. Further, the
in connection with such investments, Company appoints reputable third
including the impacts of climate parties with industry specific
-- related risks. This could skills to assist in the due
lead to valuation errors that diligence
affect the returns achieved process including reviewing detailed
by the underlying assets or financial model inputs.
results in inaccurate reporting
to investors and other stakeholders.
----------------------------------------------------------- ------------------------------------
Access to capital The Company may not be able Debt and tax equity financing
from tax equity to source funding from suitable is in place for all projects
partners and debt tax equity partners and debt in the Company's portfolio except
providers providers which may limit for Granite (Acquisition Three)
() the amount of capital the and two assets in the Heelstone
Company is able to invest. portfolio (Acquisition Four),
Additionally, the Company with the respective tax equity
may be exposed to risks from partner fully exiting the tax
its contractual relationships equity structure as expected
in relation to tax equity during the period. The Company
financing with any tax equity has appointed a reputable and
partner. experienced Investment Manager
with strong existing banking
and tax equity relationships.
These existing relationships,
in addition to new relationships,
developed with experienced tax
equity partners allow for various
avenues to appoint a partner
best suited for the project.
The Company also continues to
monitor compliance with tax equity
financing provisions. The Company
successfully refinanced its
Acquisition
Four (Heelstone Portfolio) debt
facility, using existing banking
relationships of the Investment
Manager, with the Company's next
facility maturity being the USF
Avon LLC corporate revolving
credit facility in September
2023.
------------------- ----------------------------------------------------------- ------------------------------------
Unable to source The Company may not be able The IPO proceeds and 2021 capital
suitable solar to source suitable assets raising proceeds are largely
assets in future, which would result invested with $11 million remaining.
() in Company holding levels In addition, the Company has
of cash which are higher than an $36 million undrawn within
optimal. This cash would likely the RCF to deploy. The ability
generate much lower levels of the Company to access suitable
of returns than the assets solar assets was a contributing
in the Company, consequentially factor to the Board's decision
adversely affecting the level to commence the Strategic Review.
of returns to shareholders
and the market value of the
Company.
----------------------------------------------------------- ------------------------------------
Interest rate The Company has debt facilities The base interest rate for all
risk with both fixed and floating amortising debt is fully hedged
( ) interest rates. The Company for the term of the relevant
is also exposed to interest loan, and for one or more subsequent
rate risk though holding variable re-financings. The FTB Facility
rate bank deposits. As such, has a floating interest rate
changes in interest rates which is not hedged but is currently
may have a positive or negative undrawn. The interest rate risk
impact directly on the Company's on this instrument and on bank
net income and, consequently, deposits is not significant given
the profits of the Company. the relatively low balances and
Changes in interest rates current low level of interest
may also affect the discount rates. The Company does not bear
rates used in the valuation interest rate risk on its loan
of the assets. to USF Holding Corp. as the loan
Interest rate risk, along rate is fixed for the duration
with increasing operating of the loan facility. Changes
costs, offset by higher long in interest rate that affect
term merchant power prices the discount rates used in the
are areas that the broader valuation of the assets will
market risk of rising inflation also tend to impact long-term
impacts the Company (refer electricity price forecasts which
below). provides a partial hedge. In
the event of the Company investing
in new projects, the Company's
standard practice is to hedge
the floating rate risk on the
actual and anticipated debt
amortisation
profile at the time of investment.
----------------------------------------------------------- ------------------------------------
Inflation risk Inflation in the Company's USF's operating cash flows are
() context is likely to result relatively fixed, except for
in higher: the period of merchant generation
* capital costs for new projects; beyond the term of existing PPAs.
Higher long-term interest rates,
however, will result in higher
* operating and maintenance costs for existing and new discount rates being applied
projects; to all cash flows for valuing
USF's assets and equity investments.
Adverse changes in valuations
* revenues from higher spot and PPA electricity prices; are likely to apply to all asset
classes (not just solar generation)
which have relatively fixed cash
* interest rates for servicing debt (refer above); flows, so USF's cash flows, which
are relatively fixed in the
medium-term
* market rates of return required for equity invested due to existing PPAs and interest
in new projects; and rate hedging, are likely to be
impacted. A potential mitigant
is a reduction is the asset-specific
* discount rates for valuing equity in existing risk premium applied for each
projects. USF asset as well as potentially
higher forecast electricity prices
after the term of the existing
PPAs which would partially offset
rising rates.
Higher capital costs, operating
costs and required returns of
capital are likely to present
additional challenges to new
projects. If USF is investing
in new projects, inflation may
make it more difficult for new
projects to meet required returns.
USF has existing fixed term O&M
contracts in place, but these
are generally of much shorter
term (up to 5 years) than project
PPAs and interest rate hedging
(typically over 10 years). Higher
costs may be expected from
replacement
contracts, which, along with
higher prices for replacement
parts and equipment, is likely
to result in higher overall
operating
costs.
USF's existing long-term PPAs
means that the Company's assets
will not be able to benefit from
higher PPA prices until the existing
PPAs expire. The net impact from
inflation on the current portfolio
is uncertain as it depends on
changes to post-PPA revenue,
O&M costs, debt service costs
and valuation effects from higher
discount rates.
------------------- ----------------------------------------------------------- ------------------------------------
OPERATIONAL RISKS
Risk Impact on Company Mitigant
Operational fraud The Company is potentially The Investment Management Agreement
( ) exposed to financial losses (IMA) provides USF with certain
from fraudulent activities protections through passing certain
related to receipts from counterparties responsibilities to the Investment
or wholesale markets, or payments Manager. The Investment Manager
made to construction entities, maintains and adheres to policies
maintenance providers and and processes to mitigate the
capital investors. risk of fraud. The E&P Financial
Group Limited, of which the Investment
Manager is a member, holds insurance
which covers fraudulent incidents.
---------------------------------------- ------------------------------------------
Unfavourable The Company may be exposed The Company and Investment Manager
weather conditions to a lower than expected volume consider the impacts of climate
including climate of revenue generation produced change risks on financial planning
change or events by the Solar Assets. Additionally, by conducting sensitivity analysis
( ) the Solar Assets may face over the medium term (5 years)
damages due to extreme weather and longer term (useful asset
conditions arising from climate life) using a range of power
change. generation forecasts when evaluating
acquisitions. However, isolated
or localised conditions such
as storms, heavy snowfall, or
smoke and dust events may cause
production shortfalls outside
the range of power generation
forecasts. Investing in geographically
diverse projects mitigates the
impact of localised, unfavourable
weather conditions.
Wider climate change risks include
changes to the US energy grid
and mix which may impact grid
stability; with US federal and
state- based incentives for new
solar having positive benefits
for the Company. The Investment
Manager performs sensitivity
analysis as, policy monitoring,
retains capable O&M contractors
to respond to physical risks,
improved grid monitoring and
having geographic mix of assets
(to monitor physical and transitional
risk).
---------------------------------------- ------------------------------------------
Under-performance The underperformance of Solar The Company uses third-party
of solar power Assets may lead to reductions independent engineers to review
plants relative in energy generated and thereby the assets and provide independent
to acquisition a reduction in revenue that reports on performance before
assumptions the asset would be expected acquisition, to ensure that reasonable
( ) to produce. generation assumptions are utilised.
The Company and Investment Manager
also conduct sensitivity analyses
on power generation when evaluating
the acquisition target. The Company
and the Investment Manager also
seek to engage with reputable
O&M and EPC contractors and include
market-standard contractual protections
in the relevant contracts.
------------------- ---------------------------------------- ------------------------------------------
Pandemics Global health concerns often The Investment Manager has established
( ) translate to elevated uncertainties systems and procedures that allow
in financial markets and have remote monitoring of the solar
detrimental effects on the power assets and remote work
global economy. Pandemics by staff. These systems have
may impact the Company's supply operated throughout COVID-19,
chain and service providers included extended periods of
(such as higher O&M costs, lock-down restrictions. The Investment
longer response times, and Manager manages costs by using
higher insurance costs) and fixed-time and fixed-cost contracts
also its ability to raise for construction, working closely
additional funds. with EPC contractors during the
construction of assets, and with
O&M contractors and other key
suppliers once assets become
operational. The Company was
able to successfully raise funds
in 2021 during the recent Covid-19
pandemic.
---------------------------------------- ------------------------------------------
Counterparty There is the potential for There have been no material changes
credit risk losses to be incurred due to the creditworthiness of any
( ) to defaults by PPA counterparties, of the USF counterparties as
EPC contractors, derivative a result of COVID-19, and the
counterparties, and deposit Company and the Investment Manager
taking institutions. diversifies credit risk across
multiple investment-grade counterparties.
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. The Investment
Manager will continue to monitor
credit market conditions, including
as they apply to PPA counterparties.
---------------------------------------- ------------------------------------------
Supply chain The potential for financial The Investment Manager is acutely
disruption losses from not being able aware of the potential for foregone
() to obtain essential parts, revenue where supply chain delays
components or specialist skills or blockages do not enable the
when required to keep availability timely repair and replacement
at desired levels due to delays of components. Where feasible,
or blockages in supply chains the Investment Manager works
with O&M contractors to hold
adequate inventories of spare
parts. In addition, industry
connections are maintained with
component manufacturers, engineering
advisors and other industry participants
to enable the early identification
of potential supply chain issues.
------------------- ---------------------------------------- ------------------------------------------
Stability of With changes to the Company's The Investment Manager's initial
the Investment strategy, stability and retention 5-year management agreement with
Manager of the Investment Manager the Company to provide investment
() and key staff will be important management and other services
as the Board works through to the Company expires in April
the Strategic Review. 2024. In circumstances where
the Investment Manager can no
longer provide the contracted
services stipulated in the management
agreement, subject to its terms,
the Board can replace the Investment
Manager with an alternative investment
manager with the requisite capabilities.
------------------- ---------------------------------------- ------------------------------------------
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 if the Strategic Review does not subsequently lead
to an earlier realisation of the portfolio. 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 principal risks
facing the Company 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 Board considers longer term viability in the context of the
current base case forecast, and given the Company is relatively
sensitive to electricity production, were there to be a
generation/production shortfall of 10% across the whole portfolio
for the entirety of the forecast period. This is viewed as
conservative as USF operated at 4.9% below budget in 2022 (2021:
3.9% below). The Board reviews the sensitivities impact on forecast
cash flows, dividend cover and average dividend yield over a
five-year timeframe.
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 many of the emerging
and principal climate, regulatory and operational risks the Company
is 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.
The Company's dividend policy is to target increasing annual
dividends of 1.5% to 2.0% per annum from a 5.5 cents per share from
when the Company's solar portfolio became fully operational in
2020. This takes into consideration forecast operating cash flows,
expected dividend cover, inflation, the outlook for electricity
prices and the operational performance of the Company's portfolio.
Dividends are discretionary and declared quarterly. Each year, as
the target dividend for the next financial year is established, the
Directors consider the expected forward-looking cash flows and
consider the sustainability of the proposed dividend. Each quarter,
as dividends are declared, the Directors consider the projected
operating cash flows and dividend cover levels.
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.
GILL NOTT
Chair
24 March 2023
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
2022.
Signed by order of the Board,
GILL NOTT
Chair
24 March 2023
14. Statement of Profit and Loss and Other Comprehensive
Income
FOR THE YEARED 31 DECEMBER 2022
FOR THE YEARED FOR THE YEARED
31 DECEMBER 2022 31 DECEMBER 2021
------------------------------------- ------------------------------------
Notes Revenue Capital Total Revenue Capital Total
$ $ $ $ $ $
----------------------------------- ----------- ----------- ----------- ----------- ---------- -----------
Net (loss)/gain on investments
at fair value through profit
and loss 10 - (4,008,758) (4,008,758) - 9,118,692 9,118,692
MSA fee income 10 5,499,339 - 5,499,339 4,673,924 - 4,673,924
Dividends received 10 15,911,710 - 15,911,710 2,996,992 - 2,996,992
Intercompany interest income 10 1,988,965 - 1,988,965 1,988,957 - 1,988,957
Interest income 6 3,905 - 3,905 - - -
------------------------------- ----------- ----------- ----------- ----------- ---------- -----------
Total income 23,403,919 (4,008,758) 19,395,161 9,659,873 9,118,692 18,778,565
------------------------------- ----------- ----------- ----------- ----------- ---------- -----------
Expenditure
Administrative and other
expenses 7 (4,533,404) - (4,533,404) (3,930,271) - (3,930,271)
------------------------------- ----------- ----------- ----------- ----------- ---------- -----------
Operating profit for the
year 18,870,515 (4,008,758) 14,861,757 5,729,602 9,118,692 14,954,943
Loss on foreign exchange - (366,763) (366,763) - 106,649 106,649
------------------------------- ----------- ----------- ----------- ----------- ---------- -----------
Profit before taxation 18,870,515 (4,375,521) 14,494,994 5,729,602 9,225,341 14,954,943
Taxation 8 - - - - - -
------------------------------- ----------- ----------- ----------- ----------- ---------- -----------
Profit and total comprehensive
income
for the year 18,870,515 (4,375,521) 14,494,994 5,729,602 9,225,341 14,954,943
Earnings per share (basic
and diluted) - cents/share 9 5.681 (1.317) 4.363 2.009 3.235 5.244
------------------------------- ----------- ----------- ----------- ----------- ---------- -----------
All items dealt with in arriving at the result for the year
relate to continuing operations. No other sources of other
comprehensive income, therefore no separate statement is
presented.
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.
The Notes form an integral part of these financial
statements.
15. Statement of Financial Position
AS AT 31 DECEMBER 2022
31 DECEMBER 31 DECEMBER
2022 2021
Notes $ $
---------------------------------- ----------- -----------
Non-current assets
Investment held at fair value 10 317,634,210 314,442,968
------------------------------ ----------- -----------
317,634,210 314,442,968
------------------------------ ----------- -----------
Current assets
Trade and other receivables 11 1,215,366 243,782
Cash and cash equivalents 12 7,325,703 16,161,464
------------------------------ ----------- -----------
8,541,069 16,405,246
------------------------------ ----------- -----------
Total assets 326,175,279 330,848,214
------------------------------ ----------- -----------
Current liabilities
Trade and other payables 13 1,104,143 1,868,616
Dividends payable 14 5,049,324 4,982,886
------------------------------ ----------- -----------
6,153,468 6,851,502
------------------------------ ----------- -----------
Net current assets 1,316,402 9,553,744
------------------------------ ----------- -----------
Total net assets 320,021,811 323,996,712
------------------------------ ----------- -----------
Shareholders equity
Share capital 18 3,321,924 3,321,924
Share premium 18 128,035,864 128,035,864
Capital reduction reserve 18 175,007,789 175,080,315
Capital reserve 19 8,470,669 12,648,250
Retained earnings 19 5,185,565 4,910,359
------------------------------ ----------- -----------
Total shareholders equity 320,021,811 323,966,712
------------------------------ ----------- -----------
Net asset value per share 20 0.963 0.975
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 2023. They were signed on its behalf by:
GILL NOTT
Director
Date: 24 March 2023
The Notes form an integral part of these financial
statements
16. Statement of Changes in Equity
FOR THE YEARED 31 DECEMBER 2022
CAPITAL
SHARE SHARE REDUCTION CAPITAL RETAINED TOTAL
CAPITAL PREMIUM RESERVE RESERVE EARNINGS Equity
Notes $ $ $ $ $ $
--------------------------------- --------- ----------- ----------- ----------- ------------ ------------
Balance at 1 January
2022 3,321,924 128,035,864 175,080,315 12,648,250 4,910,359 323,996,712
--------------------------- ---- --------- ----------- ----------- ----------- ------------ ------------
Dividends 14 - - (72,526) - (18,397,369) (18,469,895)
Tax credit/(charge) 8 - - - 197,940 (197,940) -
Total comprehensive income
for the year - - - (4,375,521) 18,870,515 14,494,994
--------------------------- ---- --------- ----------- ----------- ----------- ------------ ------------
Balance at 31 December
2022 3,321,924 128,035,864 175,007,789 8,470,669 5,185,565 320,021,811
--------------------------- ---- --------- ----------- ----------- ----------- ------------ ------------
FOR THE YEARED 31 DECEMBER 2021
CAPITAL
SHARE SHARE REDUCTION CAPITAL RETAINED TOTAL
CAPITAL PREMIUM RESERVE RESERVE EARNINGS Equity
Notes $ $ $ $ $ $
--------------------------------- --------- ----------- ------------ ---------- ----------- ------------
Balance at 1 January
2021 2,001,924 184,786 188,176,521 3,271,402 524,715 194,159,348
----------------------------- --------- ----------- ------------ ---------- ----------- ------------
Issue of share capital 18 1,320,000 127,851,078 - - - 129,171,078
Dividends 14 - - (13,096,206) - (1,192,451) (14,288,657)
Tax credit/(charge) 8 - - - 151,507 (151,507) -
Profit & total comprehensive
income
for the year - - - 9,225,341 5,729,602 14,954,943
----------------------------- --------- ----------- ------------ ---------- ----------- ------------
Balance at 31 December
2021 3,321,924 128,035,864 175,080,315 12,648,250 4,910,359 323,996,712
----------------------------- --------- ----------- ------------ ---------- ----------- ------------
The Notes form an integral part of these financial
statements
17. Statement of Cash Flows
FOR THE YEARED 31 DECEMBER 2022
YEARED YEARED
31 DECEMBER 31 DECEMBER
2022 2021
Notes $ $
----------------------------------------------------- ----- ------------ -------------
Cash flows from operating activities
-----------------------------------------------------------------------------------------
Profit for the year 14,494,994 14,954,943
Adjustments for:
Net loss/(gain) on investments at fair value
through profit and loss 10 4,008,758 (9,118,692)
Gain/(loss) on foreign exchange 366,763 (106,649)
----------------------------------------------------- ----- ------------ -------------
Operating cash flows before movements in
working capital 18,870,515 5,729,602
----------------------------------------------------- ----- ------------ -------------
Increase in trade and other receivables (971,582) (198,195)
(Decrease)/increase in trade and other payables (764,474) 1,135,893
----------------------------------------------------- ----- ------------ -------------
Net cash generated from operating activities 17,134,459 6,667,300
----------------------------------------------------- ----- ------------ -------------
Cash flows used in investing activities
Purchases of investments 10 (7,200,000) (110,000,000)
----------------------------------------------------- ----- ------------ -------------
Net cash inflow/(outflow) from investing
activities (7,200,000) (110,000,000)
----------------------------------------------------- ----- ------------ -------------
Cash flows generated from/(used in) financing
activities
Dividends paid (18,403,457) (10,306,733)
Proceeds from issue of ordinary shares at
a premium - 131,032,911
Share issue costs - (1,861,833)
----------------------------------------------------- ----- ------------ -------------
Net cash outflow from financing activities (18,403,457) (4,002,347)
----------------------------------------------------- ----- ------------ -------------
Net increase/(decrease) in cash and cash equivalents
for the year (8,468,998) (15,531,645)
Effect of foreign exchange rate movements (366,763) 106,649
Cash and cash equivalents at the beginning
of the year 16,161,464 523,170
----------------------------------------------------- ----- ------------ -------------
Cash and cash equivalents at the end of the
year 7,325,703 16,161,464
----------------------------------------------------- ----- ------------ -------------
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 2023. They were signed on its behalf by:
GILL NOTT
Director
Date: 24 March 2023
The Notes form an integral part of these financial
statements
18. Notes to the Financial Statements
FOR THE YEARED 31 DECEMBER 2022
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 using accounting
policies consistent with UK-adopted international accounting
standards in conformity with the requirements of the Companies Act
2006 and the 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 July 2022. The financial statements have been prepared
on a historical cost basis, except for the investment portfolio at
fair value through the profit and loss. The principal accounting
policies are set out in Note 5.
In the prior year, the MSA fees charged to its subsidiary USF
Holding Corp (Note 10) were included in the net fair value
movement. This is now included in profit and loss on an accrual
basis in order to give a true and fair view of the transaction.
This has not been applied retrospectively as the effect on earlier
periods is not considered material.
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 the US Dollar ($ or
USD), which is also the presentation currency.
GOING CONCERN
In assessing the going concern basis of accounting the Directors
have had regard to the guidance issued by the Financial Reporting
Council. 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 Company generated profit after tax of $14.5 million and
operating cash flows of $18.9 million for the year. As at 31
December 2022, the company is in a net current asset position of
$1.3 million and has available cash of $7.3 million. As of the same
date, the Company's subsidiary, USF Holding Corp., has available
cash of $3.5 million, which is available to meet the obligations of
the Company. The Directors and the Investment Manager have been
able to ensure the operational and trading integrity of the Company
and based on the aforementioned, the Company appears to have
sufficient cash resources to continue its operations for a period
of at least 12 months from the date of approval of the accounts. 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 addition,
the Company (through a wholly owned US subsidiary) has access to a
$40 million revolving credit facility with Fifth Third Bank
National Association (RCF). With an undrawn balance of $36.5
million at 31 December 2022, the RCF provides additional liquidity
for capital expenditures, working capital and general corporate
purposes. The RCF matures in September 2023, and the Investment
Manager expects to amend and extend the facility agreement. In
accordance with the terms of the facility, at the date of this
report, the RCF had been paid down to nil as part of its annual
30-day paydown requirement. As noted in the Chair's letter, at this
early stage the range of potential outcomes arising from the
Strategic Review process being undertaken by the Board are not
sufficiently certain and therefore do not to alter the Directors
assessment of the going concern basis of preparation.
3. CRITICAL ACCOUNTING 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:
CRITICAL ACCOUNTING 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:
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.
batteries) 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 2022, 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 carries the most significant risk of a material effect on next
year's financial statements is the fair value of investments. The
determination of the fair value of investment in subsidiary depends
on certain assumptions, which include selection of the discount
rate, operational life, power generation, post-PPA period merchant
prices and re-contracted O&M costs, which have a significant
risk of causing a material adjustment to the carrying amounts of
assets within the next financial year. Refer to note 17 for further
year-end detail on the fair value measurement as at 31 December
2022 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 2022 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 2022.
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 2022 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.
INCOME
Income comprises interest income (bank interest and loan
interest), Management Services Agreement (MSA) fee and dividend
income. 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.
Previously, the MSA fee was included in the net fair value
movement. This is now included in profit and loss on an accrual
basis in order give a true and fair view of the transaction. This
has not been applied retrospectively as the effect on earlier
periods are not considered material.
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 Tax Act 2010 and Part 2
Chapter 1 Statutory Instrument 2011/2999 for accounting periods
commencing on or after 16 April 2019. The approval is subject to
the Company continuing to meet the eligibility conditions of the
Corporation 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. 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.
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.
The MSA fee receivable is classified as trade and other receivables
following its inclusion in profit and loss on an accrual basis.
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; and
-- 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 OR and financial
instruments classified as trade and other receivables.
FINANCIAL ASSET MEASURED AT FAIR VALUE THROUGH PROFIT LOSS
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
While cash and cash equivalents are also subject to the
impairment requirements of IFRS 9, there has been no impairment
loss identified. Investment held at fair value through profit or
loss is not subject to IFRS 9 impairment requirements.
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.
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
31 December 31 December
2022 2021
$ $
------------- ----------- -----------
Bank interest 3,905 -
------------- ----------- -----------
3,905 -
------------- ----------- -----------
7. ADMINISTRATIVE AND OTHER EXPENSES
31 December 31 December
2022 2021
$ $
---------------------------------------------------- ----------- -----------
Administrative fees 157,333 140,409
Director & officer insurance 97,822 79,910
Directors' fees 266,760 271,591
Fees payable to the Company's auditor for the audit
of the Company's financial statements 144,063 137,730
Fees payable to the Company's auditor for non-audit
services(1) 23,987 45,643
Investment Management expenses/(recoupment) 75,190 38,867
Investment Management fees 3,220,609 2,880,537
Legal and professional fees 211,799 55,559
Regulatory fees 27,315 7,151
Sundry expenses 308,526 272,874
---------------------------------------------------- ----------- -----------
4,533,404 3,930,271
---------------------------------------------------- ----------- -----------
(1) The non-audit services provided relates to the review of the
interim financial statements. In addition Deloitte LLP is paid to
audit certain subsidiary investments at a cost of $50,000.
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 2022.
31 December 31 December
2022 2021
$ $
----------------------------- ----------- -----------
Tax charge in profit or loss:
- UK corporation tax - -
----------------------------- ----------- -----------
31 December 31 December
2022 2021
$ $
----------------------------------------------------- ------------- -------------
Reconciliation of the tax charge for the year
Pro t before tax 14,494,994 14,954,943
----------------------------------------------------- ------------- -------------
Tax at UK main rate of 19% 2,754,049 2,841,439
Tax effect of:
Fair value gains/(losses) on investments not taxable 563,724 (1,884,059)
Foreign exchange (gain) / loss not taxable 69,685 (20,263)
Non-deductible expenditure 24,031 759
(Utilisation)/non-utilisation of excess expenses
that no deferred tax is recognised on (11,043) 8,115
Non-taxable dividend income (3,023,225) (569,428)
Dividends designated as interest distributions (377,221) (376,563)
----------------------------------------------------- ------------- -------------
Tax charge for the year - -
----------------------------------------------------- ------------- -------------
The tax credit of $377,221 (2021: $376,563) 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 $21,758 (2021: $36,288) 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% (2021: 25%).
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.
31 December 31 December
2022 2021
$ $
--------------------------------------------------- ----------- -----------
Net profit attributable to ordinary shareholders 14,494,994 14,954,939
Weighted average number of ordinary shares for the
year 332,192,437 285,178,711
--------------------------------------------------- ----------- -----------
Earnings per share - Basic and diluted (cents per
share) 4.363 5.244
--------------------------------------------------- ----------- -----------
During the year ended 31 December 2022, the Investment Manager
acquired 361,464 shares at an average price of $0.89 per share
(2021: 221,176 shares at an average price of $1.01 per share)
reflecting the Management Share Amount due to the Investment
Manager from 1 July 2021 to 30 June 2022.
10. INVESTMENT IN SUBSIDIARY
Place of Percentage
Business Ownership
----------------- ---------- ----------
Delaware,
USF Holding Corp USA 100%
----------------- ---------- ----------
Opening Equity Loans: Principal Net Fair Closing
Equity And Acquisitions Advanced Value Balance:
Loans during the during the Movement Equity and
Year Year During the Loans
Year
$ $ $ $ $
------------------- ----------- ------------- ---------------- ----------- -----------
USF Holding Corp. 314,442,968 7,200,000 - (4,008,758) 317,634,210
------------------- ----------- ------------- ---------------- ----------- -----------
From establishment to 31 December 2022, 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 $7,200,00 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 2022 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 total fair value movement of $4,008,758 are
dividends paid to USF from underlying US entities of
$15,911,710.
The net fair value movement comprises the following:
Total
$
------------------------------------------------ ------------
Fair value gain on investments 25,400,945
Dividends paid (15,911,710)
Operating costs of USF Holding Corp (excluding
MSA fee) (6,009,852)
------------------------------------------------ ------------
Total fair value movement 3,479,383
MSA fee income - cash received transferred
to revenue reserve (1,041,792)
MSA fee income - cash receivable and received
for the year (4,457,384)
Intercompany interest - cash received transfer
to revenue reserve (1,988,965)
------------------------------------------------ ------------
Net fair value movement (4,008,758)
------------------------------------------------ ------------
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. Previously, the MSA fee was
included in the net fair value movement. This is now included in
profit and loss on an accrual basis in order give a true and fair
view of the transaction. This has not been applied retrospectively
as the effect on earlier periods are not considered material.
The investment in subsidiaries comprises on a 'look-through'
basis the following:
31 December 31 December
2022 2021
$ $
----------------------------------------------------- ------------- -------------
Fair value of underlying solar asset interests held
(i) 545,080,586 499,868,185
Cash or cash equivalents 3,526,852 21,038,732
Fair value of 3rd party loan funding provided (ii) (253,302,242) (201,916,761)
Fair value of interest rate swaps on 3rd party loan
funding provided (ii) 30,994,646 (7,462,104)
Deferred tax liability (8,080,938) (3,572,073)
Other net assets and liabilities (584,694) 6,487,010
----------------------------------------------------- ------------- -------------
Investment balance 317,634,210 314,442,968
----------------------------------------------------- ------------- -------------
(i) The balance recorded at 31 December 2022 relates to the
company's interest in the Milford, Olympos, Granite, Heelstone,
Euryalus and MS2 portfolio solar power plants.
(ii) Fair value of 3rd party loan funding provided and the fair
value of interest rate swaps at 31 December 2022 was $222,307,595
(2021: $209,378,865) is comprised of the following:
Drawn Fair
Facility Drawn Value of Debt
Size Face Value and Swaps
Issuing Bank Loan Type Held By ($ million) ($ million) ($ million)
---------------------- --------------- ----------------------------- ------------ ------------ --------------
Revolving
Fifth Third Bank, Credit
National Association Facility USF Avon, LLC 40.0 3.5 3.5
Zions Bancorporation, USF Bristol Class B Member,
N.A. Term Loan LLC (Milford) 23.6 23.6 18.0
KeyBank National USF Bristol Class B Member,
Association Term Loan LLC (Milford) 23.6 23.6 18.0
Fifth Third Bank, Heelstone Energy Holdings,
National Association Term Loan LLC (Heelstone) 68.8 68.8 60.7
Fifth Third Bank,
National Association Term Loan SC Oregon 2, LLC (Euryalus) 34.3 34.3 29.0
NES Hercules Class B Member,
Multiple Lenders Term Loan LLC (MS2) 99.5 99.5 93.1
Multiple Lenders Revolving NES Hercules Class B Member, 4.3 - -
Loan Facility LLC (MS2)
---------------------- --------------- ----------------------------- ------------ ------------ --------------
Total 294.1 253.3 222.3
---------------------------------------------------------------------- ------------ ------------ --------------
USF Bristol Class B Member, LLC as Acquisition One borrower, is
party to a financing agreement with Zions Bancorporation, N.A. and
KeyBank National Association, each as lenders. The facility is 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 seven-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 2022, the drawn fair value
of the loan includes mark-to-market revaluation of associated
interest rate swaps of $11.2 million.
In May 2021, the Live Oak Bank debt held by the projects in
Acquisition Four (Heelstone) was repaid and a new term loan was
entered into between Heelstone Energy Holdings LLC and Fifth Third
Bank, National Association. The new debt facility has a tenor of
seven years but is fully amortised over approximately 16 years to
match the duration of the underlying power purchase agreements. The
term loan is hedged with fixed interest rate swaps for the full
duration of the loan, with a mark-to-market valuation as at 31
December 2022 of $8.07 million, included in the drawn fair value of
the loan.
SC Oregon 2, LLC, entered into a term loan agreement with Fifth
Third Bank, National Association in September 2020. The term loan
has a miniperm structure and will be fully amortised over an
11-year period, with the initial tenure maturing in June 2026. In
June 2021, SC Oregon 2, LLC prepaid $7.14 million of the
outstanding principal balance. The 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 2022 of $5.32
million, included in the drawn fair value of the loan.
In March 2020, NES Hercules Class B Member LLC, the Acquisition
Six borrower, 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 amortised over a 20-year period, with
the initial tenure maturing on 31 January 2028. USF owns a 50%
interest in the plant therefore only 50% 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 2022, the
drawn fair value of the loan includes mark-to-market revaluation of
associated interest rate swaps of $6.42 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
Expense as required by the project. As at 31 December 2022, the
revolving loan was undrawn. The revolving loan matures on 31
January 2028. USF owns a 50% interest in the plant therefore only
50% of the available facility value has been recorded.
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 $19.8 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 $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
Heelstone Energy Holdings, LLC to the value of $6.8 million,
expiring in May 2028 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 $4.5 million, expiring in June 2026
concurrent with the mini-perm structure and will be refinanced
thereafter.
-- CoBank, ACB has provided a Letter of Credit 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
$28.3 million LC expiring in March 2023 and a $7.9 million LC
expiring in March 2025.
11. TRADE AND OTHER RECEIVABLES
31 December 31 December
2022 2021
$ $
-------------------- ----------- -----------
MSA fee receivable 1,071,201 -
Prepayments 81,808 86,324
VAT receivable 62,357 157,458
-------------------- ----------- -----------
1,215,366 243,782
-------------------- ----------- -----------
12. CASH AND CASH EQUIVALENTS
31 December 31 December
2022 2021
$ $
-------------- ----------- -----------
Cash at bank 7,325,703 16,161,464
-------------- ----------- -----------
7,325,703 16,161,464
-------------- ----------- -----------
13. TRADE AND OTHER PAYABLES
31 December 31 December
2022 2021
$ $
----------------------------------- ----------- -----------
Creditors and operating accruals 213,801 250,876
Investment management fee accrual 890,342 1,617,740
----------------------------------- ----------- -----------
1,104,143 1,868,616
----------------------------------- ----------- -----------
14. DIVIDS PAYABLE
During the year, the Company declared dividends totaling
$18,469,895 (31 December 2021: $14,288,657) of which $13,420,570
(31 December 2021: $9,305,771) has been paid as at 31 December
2022. The Company declared a dividend of 1.52 cents per share,
totaling $5,049,323.88 for the period ending 30 September 2022. The
dividend was paid on 7 January 2023.
15. CATEGORIES OF FINANCIAL INSTRUMENTS
31 December 31 December
2022 2021
$ $
--------------------------------------------------- ----------- -----------
Financial assets
Financial assets at fair value through profit and
loss: Investment in subsidiary 317,634,210 314,442,968
Financial assets at amortised cost:
Cash at bank 7,325,703 16,161,464
--------------------------------------------------- ----------- -----------
Total financial assets 324,959,913 330,604,432
--------------------------------------------------- ----------- -----------
Financial liabilities
Financial liabilities at amortised cost:
Trade and other payables 1,104,143 1,868,616
--------------------------------------------------- ----------- -----------
Total financial liabilities 1,104,143 1,868,616
--------------------------------------------------- ----------- -----------
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. The symbols (), () and () denoting an increase,
decrease and no change respectively in the assessed risk over the
period since the 2021 Annual Report.
CREDIT RISK ( )
The Company is exposed to third-party credit risk 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 2022.
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
2022 USF Holding Corp. held cash at bank of $2,858.869 and had
trade and other payables totaling $661,500. 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 the
Company's financial assets and liabilities.
<1 year 1 to 2 2 to 5 >5 years Total
years years
As at 31 December 2022 $ $ $ $ $
------------------------------------- --------- ------ ------ ---------- ----------
Financial assets
Financial assets at fair value
through profit and loss:
Loan to subsidiary* - - - 41,791,694 41,791,694
Financial assets at amortised cost:
------------------------------------- --------- ------ ------ ---------- ----------
Cash at bank 7,325,703 - - - 7,325,703
------------------------------------- --------- ------ ------ ---------- ----------
Total financial assets 7,325,703 - - 41,791,694 49,117,397
------------------------------------- --------- ------ ------ ---------- ----------
<1 year 1 to 2 2 to 5 >5 years Total
years years
As at 31 December 2022 $ $ $ $ $
------------------------------------ --------- ------ ------ -------- ---------
Financial liabilities
Financial liabilities at amortised
cost:
Trade and other payables 1,104,143 - - - 1,104,143
------------------------------------ --------- ------ ------ -------- ---------
Total financial liabilities 1,104,143 - - - 1,104,143
------------------------------------ --------- ------ ------ -------- ---------
<1 year 1 to 2 2 to 5 >5 years Total
years years
As at 31 December 2021 $ $ $ $ $
------------------------------------- ------- ------ ------ ---------- ----------
Financial assets
Financial assets at fair value
through profit and loss:
Loan to subsidiary* - - - 47,818,615 47,818,615
Financial assets at amortised cost:
------------------------------------- ------- ------ ------ ---------- ----------
Cash at bank 523,170 - - - 523,170
------------------------------------- ------- ------ ------ ---------- ----------
Total financial assets 523,170 - - 47,818,615 48,341,785
------------------------------------- ------- ------ ------ ---------- ----------
<1 year 1 to 2 2 to 5 >5 years Total
years years
As at 31 December 2021 $ $ $ $ $
------------------------------------ ------- ------ ------ -------- -------
Financial liabilities
Financial liabilities at amortised
cost:
Trade and other payables 732,723 - - - 732,723
------------------------------------ ------- ------ ------ -------- -------
Total financial liabilities 732,723 - - - 732,723
------------------------------------ ------- ------ ------ -------- -------
*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 interest rate risk, currency risk and
other price risks. 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.
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 2022, the Company had no direct exposure to
price risk. The effect of price risk on the Company's investments
is considered in note 17.
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 2022.
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 2022, the Company is indirectly exposed to
interest rate risk through its investment in the subsidiary.
However this risk is managed 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.
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 2022:
Level Level Level 3
1 2
$ $ $
-------------- ------ ------ -----------
Investment in
subsidiary - - 317,634,210
---------------------- ------ ------ -----------
The following table analyses within the fair value hierarchy the
Company's assets and liabilities measured at fair value at 31
December 2021:
Level Level Level 3
1 2
$ $ $
-------------- ------ ------ -----------
Investment in
subsidiary - - 314,442,968
---------------------- ------ ------ -----------
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.
31 December 31 December
2022 2021
$ $
------------------------------------------------- ----------- -----------
Opening balance 314,442,968 195,324,276
Add: purchases during the year 7,200,000 110,000,000
Less: receipt of MSA fee income (5,499,176) (4,673,924)
Less: receipt of intercompany interest (1,988,965) (1,988,957)
Total fair value movement through the profit or
loss (capital) 3,479,383 15,781,573
------------------------------------------------- ----------- -----------
Closing balance 317,634,210 314,442,968
------------------------------------------------- ----------- -----------
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 2022 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 the 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 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 2022
(construction assets were held at cost in previous periods). 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 2022 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
2022. 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.
In order to ensure that the potential impact of the pandemic is
considered in the valuations, KPMG has included a specific COVID-19
risk premium in the discount rate used in valuations, and the
Company has adopted merchant curves which include the impact of the
pandemic on future power prices.
A summary of the movement during the year is included in the
table below:
MILFORD OLYMPOS GRANITE HEELSTONE EURYALUS MS2
ACQUISITION ACQUISITION ACQUISITION ACQUISITION ACQUISITION ACQUISITION US CASH UK CASH
$ ONE TWO THREE FOUR FIVE SIX AND WC* AND WC(#) Total(#)
---------- ----------- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
31
December
2021 36,145,085 35,949,175 34,495,622 119,658,198 36,723,035 26,003,488 25,468,358 9,553,751 323,996,712
----------- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
Additions
(at cost) - 106,432 - 606,243 - 21,133,863 (27,969,500) (7,166,150) (13,289,111)
----------- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
Change
in fair
value 311,993 2,361,160 82,255 6,952,681 46,727 4,559,395^ (5,000,000^) - 9,314,210
---------- ----------- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
31
December
2022 36,457,078 38,416,767 34,577,876 127,217,121 36,769,763 51,696,747 (7,501,142) 2,387,601 320,021,811
---------- ----------- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
* Working capital (WC) is comprised of assets and liabilities
other than investments held at fair value.
^ Includes a $5 million reallocation from 'US Cash and WC' to
'MS2 - Acquisition Six' related to the derivative asset value of
the option over the second tranche of MS2 that was recorded as at
31 December 2021. The sale closed in May 2022 and the $5 million is
now reflected in the 'Change in Fair Value' of MS2.
# The Company's total net asst value (NAV) of $320,021,811 (31
December 2021: $323,996,731) less WC in the UK of $2,387,601 (31
December 2021: $9,553,744) equals the fair value of the Company's
investment in its US subsidiary of $317,634,210 (31 December 2021:
$314,442,968).
Excluding undrawn revolver capacity of $36.5 million as at 31
December 2022.
SENSITIVITY ANALYSIS
Set out below are the initial indications of the key assumptions
the Directors believe would have a material impact upon the fair
value of the investments should they change. In the absence of an
operating business model for each underlying renewable energy
asset, the sensitivities have been conducted on the acquisition
models of these assets. The following sensitivities assume the
relevant input is changed over the entire useful life of each of
the underlying renewable energy assets, while all other variables
remain constant. All sensitivities have been calculated
independently of each other.
The Directors consider the changes in inputs to be within a
reasonable expected range based on their understanding of market
transactions. This is not intended to imply that the likelihood of
change or that possible changes in value would be restricted to
this range.
Reduction
or
Increase CHANGE IN CHANGE CHANGE IN NAV
in input INPUT IN NAV PER SHARE
($'M) (cents per share)
----------------------------- ---------- --------- ------- -----------------
Discount rate Increase +1.0% -37.25 -11.21
Reduction -1.0% +45.70 +13.76
----------------------------- ---------- --------- ------- -----------------
Electricity production
(change from P50) Reduction P90 -45.89 -13.81
Increase P10 +45.93 +13.83
----------------------------- ---------- --------- ------- -----------------
Merchant Period Electricity
Prices Reduction -10% -24.23 -7.29
Increase +10% +24.23 +7.29
----------------------------- ---------- --------- ------- -----------------
Operations and maintenance
expenses Increase +10% -16.82 -5.06
Reduction -10% +16.06 +4.83
----------------------------- ---------- --------- ------- -----------------
Operating life Reduction - 3 years -14.83 -4.46
Increase + 3 years 12.2 +3.67
----------------------------- ---------- --------- ------- -----------------
Tax rate Increase +5% -15.36 -4.63
Reduction -5% +15.40 +4.64
----------------------------- ---------- --------- ------- -----------------
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
2022. A range of +/- 1.0% has been considered to determine the
resultant impact on the Company's NAV per share and the fair value
of its solar asset investments.
As at 31 December 2022, the weighted average discount rate range
used was 7.0% (December 2021: 6.3%) on a WACC basis, and 7.8%
(December 2021: 7.8%) 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 (nor for the duration of current PPAs).
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.
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.
Although a 10% increase / decrease is not typical, this figure 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
and as such there is typically little variation in annual operating
costs. 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 Company's maximum useful life assumption is 40
years (December 2021: 40 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
CAPITAL
ORDINARY SHARE REDUCTION TOTAL SHAREHOLDERS
SHARES CAPITAL SHARE PREMIUM RESERVE EQUITY
# $ $ $ $
----------------------------- ----------- --------- ------------- ------------ ------------------
As at 31 December 2020 200,192,361 2,001,924 184,786 188,176,521 190,363,231
Issue of fully paid Ordinary
Shares at 0.01 132,000,000 1,320,000 129,712,911 - 131,032,911
Equity issue costs - - (1,861,833) - (1,861,833)
Dividends - - - (13,096,206) (13,096,206)
----------------------------- ----------- --------- ------------- ------------ ------------------
As at 31 December 2021 332,192,361 3,321,924 128,035,864 175,080,315 306,438,103
Dividends - - - (72,526) (72,526)
----------------------------- ----------- --------- ------------- ------------ ------------------
As at 31 December 2022 332,192,361 3,321,924 128,035,866 175,007,789 306,365,577
----------------------------- ----------- --------- ------------- ------------ ------------------
The Company has an authorised share capital of 500,000,000
ordinary shares. On incorporation the Company issued one ordinary
share of $0.01 which was fully paid up.
Following a successful application to the High Court and
lodgement of the Company's statement of capital with the Registrar
of Companies, the Company was permitted to cancel its share premium
account. This was effected on 21 June 2019 by a transfer of the
balance of $194 million from the share premium account to the
capital reduction reserve. The capital reduction reserve is classed
as a distributable reserve and dividends to be paid by the Company
are to be offset against this reserve.
In line with its target dividend, the Company declared a
dividend of 1.52 cents per share, totaling $5,049,324 for the
period ending 30 September 2022. The dividend was paid on 7 January
2023. This brought total dividends declared during the year to
$18,469,895 '(or 5.6 cents per share). For the year ended 31
December 2022, the Company paid total dividends of $13,420,570 (or
4.04 cents per share).
19. RESERVES
The nature and purpose of each of the reserves included within
equity at 31 December 2022 are as follows:
-- Share premium reserve: represents the surplus of the gross
proceeds of share issues over the nominal value of the shares, net
of the direct costs of equity issues and net of conversion amount.
As at 31 December 2022 the share premium account has a balance of
$128,035,864 (2021: $128,035,964).
-- Capital reduction reserve: represents a distributable reserve
(which may be utilised in respect of dividend payouts) created
following a court approved reduction in capital. As at 31 December
2022 the capital reduction reserve has a balance of $175,007,789
(2021: $175,080,315).
-- Capital reserve: represents cumulative net gains and losses,
of a capital nature, recognised in the Statement of Profit and Loss
and Other Comprehensive Income and associated tax allocations
arising from the MSA fee income and interest distributions. As at
31 December 2022 the capital reserve reflects a profit of
$8,470,669 (2021: $12,648,250).
-- Retained earnings represent cumulative net gains and losses,
of an income nature, recognised in the Statement of Profit and Loss
and Other Comprehensive Income and associated tax allocations
arising from the MSA fee income and interest distributions. As at
31 December 2022, retained earnings reflects a profit of $5,185,565
(2021: $4,910,359).
The only movements in these reserves during the year are
disclosed in the statement of changes in equity.
20. NET ASSET VALUE PER SHARE
Basic NAV per share is calculated by dividing the Company's net
assets as shown in the statement of financial position that are
attributable to the ordinary equity holders of the Company by the
number of ordinary shares outstanding at the end of the period. As
there are no dilutive instruments outstanding, basic and diluted
NAV per share are identical.
31 December 31 December
2022 2021
$ $
------------------------------------------------ ----------- -----------
Net assets per Statement of Financial Position 320,021,811 323,996,712
Ordinary shares in issue as at 31 December 332,192,437 332,192,437
------------------------------------------------ ----------- -----------
NAV per share - Basic and diluted ($/share) 0.963 0.975
------------------------------------------------ ----------- -----------
21. CASH FLOW STATEMENT RECONCILIATION
IAS 7 Statement of Cash Flows require additional disclosures
about changes in an entity's financing liabilities, arising from
both cash flow and non-cash flow items. As at 31 December 2022 the
Company has no financing liabilities and therefore no further
disclosure is required.
22. TRANSACTIONS WITH RELATED PARTIES
The Company and the Directors are not aware of any person who,
directly or indirectly, jointly or severally, exercises or could
exercise control over the Company. The Company does not have an
ultimate controlling party.
Details of related parties are set out below:
NON-EXECUTIVE DIRECTORS
Directors are paid fees of GBP42,000 per annum. In addition to
this, Gillian Nott receives GBP21,000 per annum in respect of
serving as Chair of the Board and Jamie Richards receives GBP10,500
per annum in respect of serving as Chair of the Audit
committee.
Total Directors' fees of $266,759 (2021: $271,591) were incurred
in respect of the year with none being outstanding and payable at
the year-end (2021: $nil).
SUBSIDIARY
The Company previously issued loans totaling $43 million to its
subsidiary USF Holding Corp. The principal portions of the loans
are repayable in 7 years from issuance. The loans bear interest at
rates of 5% and 4.1% respectively, payable semi-annually in
arrears.
INVESTMENT MANAGER
The Investment Manager is entitled to management fees under the
terms of the Investment Management Agreement. The Company shall pay
to the Investment Manager an annual fee (exclusive of value added
tax, which shall be added where applicable) payable quarterly in
arrears calculated at the rate of:
ASSETS UNDER MANAGEMENT FEE BASED ON NAV
-------------------------- ----------------
< $500 million 1.0% per annum
$500 million to $1 billion 0.9% per annum
> $1 billion 0.8% per annum
-------------------------- ----------------
Based on the Net Asset Value on the last Business Day of the
relevant quarter.
The Management Fee due in respect of each quarter shall be
invoiced by the Manager to the Company as at the final Business Day
of the relevant quarter, and shall be due and payable in the
following manner:
a. no later than 10 Business Days after the Payment Date, 90% of
the Management Fee shall be paid to the Manager in cash to such
bank account as the Manager may nominate for this purpose; and
b. 10% of the Management Fee shall be paid to the Manager or an
Associate (as directed by the Manager) in the form of ordinary
shares in accordance with the provisions stated in the Investment
Management Agreement.
For the avoidance of doubt, where there are C Shares in issue,
the advisory fee will be charged on the Net Asset Value
attributable to the ordinary shares and C Shares respectively. On
10 November 2020, the Board approved a recommendation from the
Investment Manager to have the Administrator arrange for 10% of its
Management Fee to be applied to purchase ordinary USF shares in the
secondary market. From that time, the Company ceased issuing shares
to the Investment Manager.
A management fee of $3,220,609 (2021: $2,880,537) was incurred
during the year ($322,061 paid or payable in ordinary shares), of
which $890,342 (2021: $1,617,740) remained payable at 31 December
2022 ($162,339 payable in ordinary shares). In addition to the
management fee, the Manager shall also be entitled to payment of
the following:
a. a fee for any successful arrangement of debt services payable
at a rate of 0.5% of the debt face value; and
b. a fee for any oversight of asset construction services
payable at market rates, negotiated on an arms' length basis and
subject to the approval of the Board.
The Manager provides debt arranging services to the Fund,
including contacting and liaising with capital providers,
negotiating borrowing terms, obtaining credit ratings, implementing
interest rate hedging strategies and executing documentation. The
Manager was successful in securing debt, interest rate hedging and
letter of credit facilities at competitive terms for the Fund,
providing diversification to the Fund's capital sources.
For this service, the Manager receives debt arranging fees of
0.5% of the face value of new third-party debt and letter of credit
facilities.
No debt arranging fees were incurred during the year (2021:
$381,236). Asset management and construction services fees totaling
$1,641,728 ($294,470 accrued; $1,347,259 paid) were incurred during
the year (2021: $476,277).
23. CAPITAL COMMITMENTS
Other than disclosed in the post balance date events note, the
Company had no contingencies and no other significant capital
commitments at the reporting date.
24. POST BALANCE SHEET EVENTS
On 24 March 2023, the Company declared a dividend of 1.52 cents
per Ordinary Share for the period ending 31 December 2022.
In January 2023, the Company announced that MN8 had exercised
its purchase option over USF's 50% interest in the 200MW(DC) Mount
Signal 2 asset, with financial close expected to occur in Q2
2023.
[1] Dividends paid by the Company at 31 December 2022 does not
include the 1.52 cents per Ordinary Share dividend declared by the
Company for 3Q 2022 on 21 November 2022, paid to shareholders on 6
January 2023.
[2] Total return to shareholders is based on dividends paid and
reinvested (at ex-dividend date) throughout the period and share
price movement since the issue price of $1.00.
[3] NAV total return to is based on dividends paid throughout
the period and NAV movement since inception.
[4] The ongoing charges ratio is calculated in accordance with
the Association of Investment Companies (AIC) methodology.
[5] Solar Projects ( Projects ) or Solar Assets ( Assets ) are
used interchangeably throughout the report.
[6] Includes the second 50MW(DC) tranche of Mount Signal 2 (MS2)
from end of May 2022, per financial close.
[7] Environmental figures use actual generation figures for the
period. US CO(2) emissions displacement is calculated using data
from the US Environmental Protection Agency's "AVoid Emissions and
geneRation Tool" (AVERT), Equivalent US homes and cars removed
figures are based on CO(2) emissions displaced and data from the US
Environmental Protection Agency and US Energy Information
Administration .
[8] UK Ofgem day ahead baseload average
[9] Before taxes and transaction costs. Based on the MS2 sale
reaching financial close on 15 May 2023.
[10] "Six Reasons to be Cheerful About the Climate's Future."
The Times. 9 November 2022.
[11] Remaining PPA term from 31 December 2022.
[12] Dividend coverage is calculated based on dividends paid to
shareholders during the period.
[13] Before taxes and transaction costs. Based on the MS2 sale
reaching financial close on 15 May 2023.
[14] Before taxes and transaction costs. Based on the MS2 sale
reaching financial close on 15 May 2023.
[15] Duke Energy Carolinas, Duke Energy Progress and Progress
Energy are subsidiaries of Duke Energy Corporation and are separate
legal entities which are liable to meet their own financial
obligations and as such are subject to separate credit ratings.
[16] Commercial Operation Date.
[17] Represents the Company's MS2 interest as at 31 December
2022.
[18] Capacity-weighted average remaining PPA term as at 31
December 2022.
[19] Represents projects that had reached financial close on the
valuation date.
[20] Dividends paid by the Company at 31 December 2022 does not
include the 1.52 cents per Ordinary Share dividend declared by the
Company for 3Q 2022 on 21 November 2022, paid to shareholders on 6
January 2023.
[21]
https://www.whitehouse.gov/briefing-room/statements-releases/2021/11/06/fact-sheet-the-bipartisan-infrastructure-deal/
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END
FR EANDKASLDEFA
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