TIDMRNEW
RNS Number : 1834W
Ecofin US Renewables Infrastr.Trust
14 April 2023
LEI: 2138004JUQUL9VKQWD21
14 April 2023
Ecofin U.S. Renewables Infrastructure Trust PLC
Annual Financial Report for the year ended 31 December 2022
Ecofin U.S. Renewables Infrastructure Trust plc ("RNEW" or the
"Company") is pleased to announce its audited results for the year
ended 31 December 2022 ("Year").
Objective
The Company's investment objective is to provide Shareholders
with an attractive level of current distributions by investing in a
diversified portfolio of mixed renewable energy and sustainable
infrastructure assets predominantly located in the U.S. with
prospects for modest capital appreciation over the long term.
Highlights
Financial
As at 31 December 2022
Net Asset Value ("NAV") per NAV Share price
share
94.3 cents $130.2 million 83.3 cents(2)
78.0 pence(1) GBP107.7 million(1) 68.5 pence(2)
Leverage
33.3%(3)
For the year ended 31 December 2022 ("Year")
NAV total return Share price total return Dividends per share declared
1.1%(4) -10.8%(4) 5.6 cents
Operational
Weighted average remaining Assets Equivalent number of households
term of revenue contracts 65 supplied in 2022
14.6 years(5) 31,400
Portfolio generating capacity CO(2) e avoided in Clean electricity generated
2022 in 2022
177 MW(6) 203,500 tonnes(7) 335 GWh(6)
Figures reported either as at the referenced date or over the
year ended 31 December 2022. All references to cents and dollars
($) are to the currency of the U.S., unless stated otherwise.
1. 31 December 2022 exchange rate of GBP0.8273 = $1.00
2. RNEW & RNEP LSE closing price as at 31 December 2022
3. Calculated based on Gross Asset Value ("GAV") and aggregate
debt. Additional information can be found in the financing section
of the Investment Manager's Report in the Annual Financial
Report.
4. These are alternative performance measures. ("APMs").
Definitions of how these APMs and other performance measures used
by the Company have been calculated can be found in the Annual
Financial Report.
5. Includes all construction-stage and committed assets.
6. Represents the Company's share of portfolio generating
capacity (including assets under construction).
7. CO(2) e based on the Company's proportionate ownership
interest in the assets. CO(2) e calculations are derived using the
U.S. Environmental Protection Agency's ("EPA") Emissions &
Generation Resources Integrated Database.
Portfolio
Remaining
revenue
Number contract
Investment Capacity of Acquisition term
Name Sector (MW)(1) assets State Ownership(2) Phase Status (years)
------------- -------------- -------- ------- -------------- ------------ ------------ ----------- ---------
SED Solar Commercial Massachusetts, Completed
Portfolio Solar 11.3 52 Connecticut 100% Operational Dec. 2020 13.6
Ellis Road Commercial Completed
Solar Solar 7.1 1 Massachusetts 100% Operational Dec. 2020 18.5
Commercial Completed
Oliver Solar Solar 4.8 1 California 100% Operational Dec. 2020 12.9
Utility-Scale Completed
Beacon 2 Solar 29.5 1 California 49.5% Operational Feb. 2021 20.0
Utility-Scale Completed
Beacon 5 Solar 23.9 1 California 49.5% Operational Feb. 2021 20.0
Skillman Commercial Completed
Solar Solar 2.6 1 New Jersey 100% Operational Sept. 2021 14.6
Commercial Completed
Delran Solar Solar 2.0 1 New Jersey 100% Operational Oct. 2021 12.5
Completed
Whirlwind Wind 59.8 1 Texas 100% Operational Oct. 2021 5.0
Echo Solar Commercial Completed
- MN Solar 13.7 1 Minnesota 100% Operational Oct. 2021 25.0
Echo Solar Commercial Completed
- VA 1 Solar 2.7 1 Virginia 100% Operational Jun. 2022 25.0
Echo Solar Commercial Completed
- VA 2 Solar 4.2 1 Virginia 100% Construction Jun. 2022 25.0
Echo Solar Commercial Completed
- VA 3 Solar 6.5 1 Virginia 100% Construction Aug. 2022 25.0
Echo Solar Commercial Completed
- VA 4 Solar 2.9 1 Virginia 100% Construction Aug. 2022 25.0
Echo Solar
- DE 1 25.0
Commercial Completed
Solar 5.9 1 Delaware 100% Construction Aug. 2022
---------
Total(3) 176.9 65 14.6(4)
----------------------------- -------- ------- -------------- ------------ ------------ ----------- ---------
1. Capacity reflects RNEW's proportionate ownership interest in the assets.
2. Cash equity ownership.
3. Membership Interest Purchase Agreement ("MIPA") for remainder
of Echo Solar Portfolio (VA/DE) comprising five projects was
terminated in December 2022 and an 18-month Right of First Offer
agreement was executed for these five projects that were not closed
and are not included in the table above.
4. Average remaining revenue contract term (years).
Our Business Model
Investment Objective
The Company's investment objective is to provide Shareholders
with an attractive level of current distributions by investing in a
diversified portfolio of Renewable Assets predominantly located in
the U.S. with prospects for modest capital appreciation over the
long term.
Structure
The Company's business model follows that of an externally
managed investment trust. As such, the Company does not have any
employees and outsources its activities to third party service
providers, including the Investment Manager and Administrator who
are the principal service providers.
The Company makes its investments through a wholly-owned U.S.
holding company, RNEW Holdco LLC ("Holdco"), other intermediate
holding companies and underlying special purpose vehicles ("SPVs",
organised as U.S. limited liability companies or LLCs) that hold
the Renewable Assets. The Company has the ability to use short and
long-term debt at the Company, Holdco and SPV levels subject to
limits defined in its gearing policy. On 19 October 2021, the
Company, through a wholly-owned U.S. subsidiary, RNEW Capital, LLC,
entered into a $65 million secured Revolving Credit Facility
("RCF") with KeyBank, one of the premier lenders to the U.S.
renewable energy industry. The RCF comprises a $50 million,
two-year tranche priced at London Interbank Offered Rate ("LIBOR")
plus 1.75% and a $15 million, three-year tranche priced at LIBOR
plus 2.00%. The RCF also includes an accordion option for an
additional $20 million of capital which can be accessed subject to
certain conditions. The RCF has been structured to provide RNEW
with operational flexibility and liquidity to advance its pipeline
and continue to grow. As a result of active discussions with
KeyBank, it is anticipated that the RCF will be renewed or extended
on substantially similar terms in second half of 2023, at which
time the Secured Overnight Financing Rate ("SOFR") will replace
LIBOR. Additionally, through the Company's acquisition of a 49.5%
stake in the Beacon 2 and 5 operating solar assets, it assumed its
share of non-recourse amortising project term loans secured on
those projects that totalled $45.8 million as at 31 December
2022.
Management of the Company
The Company has an independent board of four non-executive
Directors (details of whom can be found in the Directors'
Experience and Contribution section of the Corporate Governance
Statement). The Board's role is to manage the governance of the
Company in the interests of Shareholders and other stakeholders. In
particular, the Board monitors adherence to the Investment Policy
and gearing policy limits, determines the risk appetite, sets
Company policies and monitors the performance of the Investment
Manager and other key service providers. The Board meets a minimum
of four times a year for regular Board meetings, with additional ad
hoc meetings taking place dependent upon the requirements of the
business. The Board reviews the performance of all key service
providers on an annual basis through its Management Engagement
Committee.
The Company has appointed Ecofin as its AIFM and Investment
Manager to provide portfolio and risk management services to the
Company. The Board takes advice from the Investment Manager on
matters concerning the market, the portfolio and new investment
opportunities. Day-to-day management of the Company's portfolio is
delegated to the Investment Manager, with investment decisions in
line with the Company's Investment Policy delegated to an
Investment Committee consisting of senior members of the Investment
Manager. Further information on the Investment Manager is provided
in the Investment Manager's Report.
As an investment trust, the Company does not have any employees
and is reliant on third party service providers for its operational
requirements. Likewise, the SPVs which hold the portfolio assets do
not have any employees and services are provided through third
party providers. The Board has delegated administration, fund
accounting and company secretarial services to Apex Listed
Companies Services (UK) Limited (formerly Sanne Fund Services (UK)
Limited). Each service provider has an established track record and
has in place suitable policies and procedures to ensure it
maintains high standards of business conduct and corporate
governance.
Investment Manager
-- Manages the portfolio of Renewable Assets to achieve the Company's Investment Objective
-- Sources, evaluates and implements the pipeline of new investments
-- Monitors financial performance against Company targets and forecasts
-- Advises the Board on investment strategy and portfolio
composition to achieve the desired target returns within the agreed
risk appetite
-- Manages the process and analysis for semi-annual valuations
(March/September) and coordinates the process with the independent
valuer (June/December)
-- Ensures good financial and cash management of the Company and
its assets having regard to accounting, tax and debt usage and
covenants
-- Manages the Company's investor reporting and investor relations activities
Chair's Statement
Introduction
On behalf of the Board, I am pleased to present the annual
report for Ecofin U.S. Renewables Infrastructure Trust PLC for the
year ended 31 December 2022 ("Annual Report").
The Company has made sound progress during the Year:
-- In May, the Company raised $13.1 million in new equity
(before costs) at a share price of 101.5 cents per share through a
placing and retail offer. The net proceeds were deployed into new
investments and used to pay down debt drawn on the Company's
RCF;
-- In June, the Company closed on the acquisition of two
ground-mounted solar projects at the construction stage in Virginia
("VA") totalling 6.9MWdc, forming part of the Echo Solar
Portfolio;
-- In August, the Company closed on three further ground-mounted
solar projects at the construction stage in VA and Delaware ("DE")
totalling 15.3MWdc, which also form part of the Echo Solar
Portfolio;
-- In October, the Company successfully entered into a $17.7
million tax equity commitment which will be used to fund the Echo
Solar Portfolio; and
-- In December, two of the projects in the Echo Solar portfolio
came into commercial operation following construction. The
remaining four projects in this sub-portfolio currently under
construction are expected to reach commercial operation in Q2
2023.
Investment Manager
On 24 October 2022, the Company announced that the Investment
Manager had appointed Eileen Fargis as group lead and portfolio
manager for RNEW. Eileen has over 20 years' industry experience,
most recently as Head of Investments for InterEnergy Holdings (UK)
Limited, an independent developer, owner and operator of 2.1GW of
energy generation assets and a utility in the Caribbean and Latin
America. Eileen is also the former Co-Head of the $1 billion
International Finance Corporation ("IFC") African, Latin American
and Caribbean Fund LP, a private equity fund investing on behalf of
IFC.
The appointment of Eileen followed the resignations in July, of
portfolio managers Jerry Polacek, Matthew Ordway and Prashanth
Prakash, who decided to leave their roles at Ecofin in order to
pursue a new venture. The Board was very disappointed by these
resignations, particularly as the short notice periods in the U.S.
meant that there was no opportunity to effect an immediate
hand-over to a new team.
Following the resignations, the Board asked Ecofin to
concentrate on two priorities: recruitment of a new leadership team
and portfolio management.
The Board welcomed Eileen's appointment and believes she and the
wider Ecofin team have the ability and credentials to keep growing
RNEW's asset base and to deliver value on behalf of Shareholders.
Since joining, Eileen has spent a significant part of her time
visiting a number of RNEW's assets and meeting investors and
analysts.
The Board has engaged regularly with the wider Ecofin team to
ensure continued focus on portfolio management.
Portfolio management
As at 31 December 2022, RNEW continued to benefit from a
high-quality portfolio of 65 solar and wind assets with a combined
capacity of 177MW across eight states: California, Connecticut, DE,
Massachusetts, Minnesota, New Jersey, Texas and VA.
The assets all benefit from long term contracted revenues with
investment grade quality off-takers and an overall weighted average
remaining contract term of 14.6 years. Entering into long-term
contracts means that revenue streams from RNEW's investments are
insulated from short term volatility in power and/or gas prices
(the latter tending to drive power prices in most U.S. power
markets) and are therefore that much more predictable and
reliable.
As at 31 December 2022, 61 assets were in operation and four
assets were under construction, with operating assets making up 89%
of the portfolio valuation. Total generation during the year was
335 GWh (2021: 169 GWh), 5.5% below budget. Overall, output from
solar assets was 3.7% below budget while our wind asset delivered
output 7.0% below budget. This was due to a combination of
circumstances including construction delays, inverter outages, and
the impact of storms in late 2022. This is described further in the
Portfolio Production Update section of the Investment Manager's
Report.
The clean electricity generated by the Company's assets in 2022
avoided the emission of approximately 203,500 tonnes of CO(2)
e.
Details of each asset and its performance are set out in the
Investment Manager's Report.
Results
NAV as at 31 December 2022 was 94.3 cents per Share (31 December
2021: 98.9 cents per Share). Over the Year, NAV per share decreased
by 4.7% due to a number of factors as described further in the
Portfolio Valuation section of the Investment Manager's Report.
The Directors' valuation of the portfolio as at 31 December 2022
was supported by an independent valuation carried out by Marshall
& Stevens. In the valuation, projected cash flows were
discounted at an underlying weighted average pre-tax discount rate
of 7.5% (31 December 2021: 7.2%). Discount rates were increased by
25 basis points as at 30 June 2022 against a background of interest
rate increases and rising bond yields, but as at 31 December 2022,
the view of the Company's independent valuer was that no further
change was required.
RNEW's profit before tax for the Year ended 31 December 2022 was
$1.2 million (31 December 2021: $3.4 million). Earnings per Share
were 0.9 cents (31 December 2021: 3.7 cents per Share).
The Company's total gearing at 31 December 2022 was 33.3% (31
December 2021: 30.2%) based on a GAV of $193.4 million and
aggregate debt of $64.4 million. The Company had non-recourse debt
at project level ($45.8 million secured on the two Beacon solar
projects in California) and debt at group level, consisting of
$18.6 million drawn under the Company's RCF.
Dividends
During the Year, the Company paid four interim quarterly
dividends each of 1.4 cents per Share, which included one in
respect of the previous financial period ended 31 December 2021. On
31 January 2023, after the year end, the Board declared a fourth
interim dividend of 1.4 cents per Share for the quarter ended 31
December 2022. Together the four dividends declared and paid for FY
2022 totalled 5.6 cents, meeting the Company's stated annual
target(1) dividend range of 5.25 to 5.75 cents.
The dividend was supported by net cash flow from the Company's
assets and dividend cover(2) at both RNEW and Holdco level for the
year ended 31 December 2022 was 1.0 times(2) . The Board and Ecofin
are particularly focused on dividend cover at both the RNEW and
Holdco level and expect it to be broadly maintained during 2023 as
a result of a focus on cost reductions and, as referred to above,
as assets currently under construction from the Echo Solar
portfolio become operational.
Share price
At 31 December 2022, the share price was 83.25 cents per Share,
representing an 11.7% discount to NAV of 94.3 cents per Share at
the same date. The share price has traded at a discount to NAV
since the Ecofin management resignations in July noted above, and
this has prevented the Company from issuing further equity to
support the growth of the asset base.
The current discount to NAV is obviously disappointing. Both the
Board and the Investment Manager believe that the strong
fundamentals of the Company and its portfolio, together with
continued confidence in the target(1) dividend yield into 2023,
provide a positive platform for the share price to increase from
its current level.
Board
There are four members of the Board (two women and two men) who
together have a good balance of sector and financial knowledge,
accounting, investment trust experience, and other relevant
experience, including the benefit of geographic market knowledge
from U.S. residency and citizenship. Appointments to the Board will
always be made on merit. In due course, the Board would like to
appoint a further director with an ethnic minority background,
recognising the benefits of having greater diversity on the Board.
At present, given the Company's size, cost base and the early stage
of its development, the Directors do not feel it is currently
appropriate to increase the size of the Board.
I would like to thank my fellow Directors, the Ecofin team and
all our advisers for the significant contribution they have made
during 2022.
Annual General Meeting
We look forward to welcoming Shareholders at the Company's
Annual General Meeting ("AGM") to be held on 1 June 2023 at the
offices of the Company Secretary located at 6(th) Floor, 125 London
Wall, EC2Y 5AS, London. For more information, please see the
enclosed AGM Notice.
1. The target returns and dividends set out above are targets
only and are not profit forecasts. There can be no assurance that
these targets can or will be met and they should not be seen as an
indication of the Company's expected or actual results or returns.
The Company's ability to distribute dividends will be determined by
the existence of sufficient distributable reserves, legislative
requirements and available cash reserves. Accordingly, investors
should not place any reliance on these targets in deciding whether
to invest in the Shares or assume that the Company will make any
distributions at all.
2. Calculated based on portfolio net cash distributions divided
by dividends paid in respect of the quarters ended 31 March 2022,
30 June 2022 and 30 September 2022 and the dividend declared in
respect of the quarter ended 31 December 2022.
Outlook
The U.S. renewable energy sector continues to offer strong
prospects for investment and growth.
The passage of the Inflation Reduction Act ("IRA") in August
2022 represents an unprecedented long-term policy boost for U.S.
renewable energy with some $369 billion allocated to climate
infrastructure and energy security. The IRA includes provisions for
extending tax credits for solar and wind energy until 2035 and also
introduced a new tax credit for standalone battery storage. As
solar panel manufacturing is increasingly onshored in the U.S. in
response to the IRA's green subsidies, solar installation timelines
are expected to benefit. In addition, as set out in more detail in
the Investment Manager's report, the IRA coincides with two other
significant pieces of U.S. legislation, the intent of which is to
allocate billions of U.S. dollars into, inter alia, zero-carbon
businesses, clean energy research and grid modernisation. These
additional pieces of legislation will also benefit renewable energy
expansion in the U.S., for which there is strong support at both
federal and individual state level.
RNEW continues to play an important role in the global drive for
a more sustainable future, as an owner and operator of existing
Renewable Assets and in bringing new assets from construction into
operation.
While the Company's investment pipeline remains strong, Ecofin
is at present primarily focused on managing RNEW's portfolio and on
overseeing assets currently under construction to ensure they move
successfully into operation.
As stated above, the Board was pleased to see the appointment of
Eileen Fargis as group lead and portfolio manager for RNEW. Eileen
has strong credentials in the sector and has quickly familiarised
herself with the portfolio and the business. As a Board, we are
strong believers in the opportunities within the U.S. renewable
energy sector and in the Company's investment strategy. Against
this background, we believe that Ecofin has the capability and
bandwidth to deliver growth for the Company. Together, these
provide strong fundamentals for the share price to trade above NAV
and for RNEW to raise new funds to take advantage of the growth
opportunities available. However, as stated in our half-year
report, we are also very conscious of our duties to Shareholders
and remain open to exploring all options for the future of RNEW
consistent with good governance.
Patrick O'D Bourke
Chair of the Board
13 April 2023
Investment Manager's Report
About Ecofin
Ecofin Investments, LLC, the parent company of the Investment
Manager, is a sustainable investment firm with roots dating to the
1990s and an international footprint with offices in the U.S. and
UK. As at 31 December 2022, Ecofin Investments, LLC had assets
under management of $2.2 billion across several listed U.S. and UK
funds, private funds, and separately managed accounts.
Eileen Fargis joined Ecofin as the Group Lead for Ecofin's
Private Equity Sustainable Infrastructure team in October 2022 and
was appointed as the Ecofin group lead and portfolio manager for
the Company. In her role, Eileen works closely with Ecofin's team
of experienced professionals, originating and managing the firm's
U.S. Renewable Assets. Eileen has over 20 years' industry
experience, most recently as Head of Investments for InterEnergy
Holdings (UK) Ltd, an independent developer, owner, and operator of
2.2 GW of energy generation assets and a utility in the Caribbean
and Latin America. Working closely with Eileen is Jason Benson, who
has been heavily involved with RNEW since IPO. Jason also oversees
portfolio management and funding activities for the Company.
The Finance and Asset Management team, led by Nancy Johnson, has
over 45 years of combined experience in the energy industry. The
team works with Eileen and Jason to onboard new assets seamlessly
and strives to attain operational excellence for each of the
Renewable Assets in order to maximise profitability for
Shareholders. The team interfaces with engineers and plant
operators to ensure plant optimisation. Strong relationships and
constant communication with our outsourced asset management and
O&M service providers are key to smooth operations and have
remained unchanged since the IPO. Continuous process improvement is
at the forefront for the team to steadily advance the effectiveness
of data analytics. Additionally, the team is focused on keeping
current with new accounting guidance and reporting requirements
that impact the portfolio.
While the status of the near-term new project pipeline remains
strong, Ecofin is currently maintaining its focus on managing
RNEW's existing assets and near-term funding obligations until
opportunities for new capital and deployment become available.
Senior Management Team
Eileen Fargis
Eileen has over 20 years' industry experience, most recently as
Head of Investments for InterEnergy Holdings (UK) Ltd, an
independent developer, owner, and operator of 2.2 GW of energy
generation assets and a utility in the Caribbean and Latin America.
She is the former Co-Head of the $1 billion IFC African, Latin
American and Caribbean Fund LP, a private equity fund investing
alongside the International Finance Corporation on behalf of the
Company's investors. Eileen started her career in energy and
infrastructure with Skadden Arps and spent nine years at GE Capital
Markets, GE Energy Financial Services and GE Structured Finance
with a focus on global energy and infrastructure assets. She has
previously served on the boards of InterEnergy Holdings,
CityExpress Hotels and SURA Asset Management. Eileen is a graduate
of Hamilton College and the John Hopkins School of Advanced
International Studies.
Jason Benson
Jason is a member of Ecofin's Private Equity Sustainable
Infrastructure investment team focused on construction-ready and
operating, commercial and utility-scale solar and wind assets,
supporting origination, valuation & underwriting and financing.
Jason started his career as an investment banker with Greentech
Capital Advisors (now Nomura Greentech) where he focused on M&A
advisory in the renewable energy, energy storage and energy
efficiency sectors. He also held similar positions with Cowen and
Company and Murray Devine, focusing on broad industrials sectors.
Jason earned a Master of Science degree in finance from Villanova
University and a Bachelor of Science degree with a concentration in
finance and a minor in economics from Seton Hall University.
Nancy Johnson, CPA
Nancy manages the accounting, financial reporting and analysis
and asset management for the RNEW portfolio. She has over 12 years
experience in the industry. Prior to Ecofin, Nancy was at NextEra
Energy where her primary focus was on Energy Trading Accounting and
Process Improvements. Nancy is a graduate of the University of
Florida and earned her Master of Accounting degree from Florida
Atlantic University. She is also a certified public accountant.
Investments - Summary of the year
During the Year, the Investment Manager continued to focus on
maximising operating activity of the portfolio and meeting dividend
targets, while optimising the Company's financing structure. The
portfolio delivered 335 GWh of clean electricity to its offtakers.
While this was 5.5% below budget, net cash flow generated was able
to cover $7.7 million of dividends, or 5.6 cents per Share, meeting
the Company's stated annual target(1) dividend range of 5.25% to
5.75%.
While the majority of IPO proceeds were deployed in the 12
months following the Company's launch, there was significant
funding activity during the Year, relating primarily to
construction projects and tax equity financings. The Investment
Manager closed on two tax equity partnerships, providing financing
for the Skillman Solar project as well as the Echo Solar Portfolio.
Coinciding with these financings, the Investment Manager brought
three new projects to commercial operation, including Skillman
Solar, Echo Solar - MN and Echo Solar - VA 1.
The Company successfully closed on a placing and retail offer of
new Shares in May 2022, raising $13.1 million (before costs), the
proceeds of which were used to repay the drawn balance on the RCF
as well as fund the June and August 2022 acquisitions of projects
within the Echo Solar Portfolio.
Investment Activity
2022
7 January 2022 - the Company obtained a $15.9 million
non-recourse construction loan from Seminole Financial Services,
LLC, a U.S. specialist renewable lender, for the construction of
the Echo Solar - MN project.
28 January 2022 - the Company closed a tax equity partnership
for the Skillman Solar project.
23 March 2022 - the Company finalised a negotiation for a buyout
wherein the Company sold one 41 kWdc asset within the SED Solar
Portfolio, as per the terms of the PPA, reducing the total number
of assets remaining in the SED Solar Portfolio to 52 (11.3 MWdc)
and the Company's total assets to 60 at the time.
25 March 2022 - the Company declared mechanical completion of
the Skillman Solar project and completed a major milestone tax
equity funding.
28 June 2022 - the Company closed on the acquisition of two
ground mount solar projects in VA at construction stage in the Echo
Solar Portfolio, comprising the 2.7 MWdc Monroe Solar Partners, LLC
project (Echo Solar - VA 1) and the 4.2 MWdc Randolf Solar
Partners, LLC project (Echo Solar - VA 2) with an aggregate closing
value of $2.6 million, bringing the Company's total assets to 62 at
the time. Future fundings of these projects would be sourced from
tax equity commitments and the Company's RCF.
29 July 2022 - the Company declared mechanical completion of the
Echo Solar - MN project.
22 August 2022 - the Company closed on the acquisitions of three
additional ground mount solar projects at construction stage in the
Echo Solar Portfolio, comprising the 6.5 MWdc Hemings Solar
Partners, LLC project in VA (Echo Solar - VA 3), the 2.9 MWdc Small
Mouth Bass Solar Partners, LLC project in Virginia (i.e., Echo
Solar - VA 4), and the 5.9 MWdc Heimlich Solar Partners, LLC
project in DE (Echo Solar - DE 1) and with an aggregate closing
value of approximately $5.5 million, bringing the Company's total
assets to 65. This deployed the balance of the $12.9 million net
proceeds from the placing and retail share offer completed in May
2022. Future fundings of these projects are expected to be sourced
from tax equity commitments and the Company's RCF.
26 September 2022 - the Company declared substantial completion
of the Skillman Solar project and closed the final tax equity
funding, completing the financing of the project, after having
achieved commercial operation on 15 August 2022.
7 October 2022 - the Company closed a tax equity commitment of
$17.7 million for the Echo Solar Portfolio, which will be funded
upon the achievement of sequential construction milestones at each
project within the portfolio.
5 December 2022 - the Company negotiated a partial termination
of the MIPA for the five remaining unclosed Echo Solar Portfolio
projects, which included an 18-month Right of First Offer on the
unclosed projects.
16 December 2022 - the Company declared commercial operation at
the Echo Solar - MN project, after receiving permission to operate
from the utility on 13 December 2022. The system was fully
energised and delivering power immediately.
30 December 2022 - the Company declared commercial operation at
the Echo Solar - VA 1 project, after receiving permission to
operate from the utility on 16 November 2022. The system was fully
energised and delivering power immediately.
As at 31 December 2022, the portfolio was heavily weighted
towards operating assets with 89% of NAV invested in operating
assets held at fair market value ("FMV"). The portfolio benefits
from geographic diversification spanning eight U.S. states to
provide risk mitigation against regulatory and resource exposures.
Furthermore, RNEW's portfolio reflects diversification across three
renewable energy sectors: utility scale solar (18%) commercial
solar (49.5%) and wind (33%), to mitigate resource, regulatory,
technology and market risks.
Portfolio Summary(1)
FMV by asset name
Asset name Portfolio %
Beacon 2&5 18%
------------
SED Solar Portfolio 12%
------------
Oliver Solar 5%
------------
Ellis Road Solar 7%
------------
Skillman Solar 3%
------------
Delran Solar 2%
------------
Whirlwind 33%
------------
Echo Solar 20%
------------
FMV by sector
Sector Portfolio %
Utility scale solar 18%
------------
Commercial solar 49%
------------
Wind 33%
------------
FMV by operating/construction status
Operating - 89%
Construction - 11%
1. Includes closed and committed assets based on equity exposure at FMV.
Summary of Investments
1. SED Solar Portfolio
The SED Solar Portfolio consists of 51 predominantly rooftop
commercial solar projects in Massachusetts and 1 rooftop commercial
solar project in Connecticut, totalling 11.3 MW. The projects'
output is fully contracted to a variety of investment grade quality
schools, universities, municipalities and corporations under long
term fixed price PPAs. This investment demonstrates many of the
most favourable aspects of Ecofin as a highly experienced manager
specialising in the middle market. The transaction came about
through a bilateral negotiation with a vendor who was considering
monetising its interest in the portfolio which it had successfully
developed and operated for several years. The Investment Manager
represented an acquirer who had the expertise to efficiently
underwrite and reliably execute an acquisition spanning 52 assets
and dozens of revenue counterparties. Ecofin closed the acquisition
just days after completing RNEW's IPO in December 2020. Following
the transaction, Ecofin secured a fixed price revenue contract with
an investment grade rated electric power company to hedge the price
risk for 100% of SED Solar Portfolio's Solar Renewable Energy
Credit ("SREC") through 2027.
2. Ellis Road Solar
Ellis Road Solar is a 7.1 MW ground mount solar project in
Massachusetts that commenced operations in 2021. This project sells
100% of its output to an investment grade utility on a fixed price
basis for 20 years through the state of Massachusetts's renewable
incentive program, Solar Massachusetts Renewable Target (SMART).
Ellis Road was initially sourced bilaterally by Ecofin through its
relationship with a commercial solar developer focused on
Northeastern U.S. markets and became one of the four seed assets
identified as part of RNEW's IPO. Following the closing of the
acquisition in December 2020, Ecofin actively monitored the
remaining construction process through to its successful completion
and secured a tax equity investment on customary terms from a large
U.S. corporate with which Ecofin has previously transacted.
3. Oliver Solar
Oliver Solar is a 4.8 MW commercial solar project in San Joaquin
County, California that commenced operations in 2021. The project
is strategically located on a major logistics and distribution
centre owned by the world's largest global e-commerce company that
also serves as the power purchaser under a long-term fixed price
PPA. The project experienced construction delays due to Covid-19
related impacts and inspection delays. Shortly after energisation,
the offtake/ building owner requested that the project be
de-energised for further testing/ recommissioning, after they had
experienced an arch event and fire on another one of their
facilities, instigating extreme scrutiny and oversight on their
entire fleet of rooftop projects including Oliver Solar.
Re-energisation has been delayed until a second inspection occurs;
this inspection has been delayed due to a requirement for
sub-contractors to obtain a specific safety compliance certificate
in order to be allowed on the offtaker's roof. Since closing the
acquisition, Ecofin has secured a tax equity investment on
customary terms from a large U.S. corporate with which it has
previously transacted. Despite delays, Ecofin has continued with
billing and collecting revenue from the offtaker under the contract
on modelled P50 production.
4. Beacon Solar 2
Beacon Solar 2 is a 59.6 MW utility scale solar project in Kern
County, California that has been operating since December 2017. The
project's location in the Mojave desert of Southern California
contributes to its strong solar resource. In addition, the project
has in place a fixed price PPA with an investment grade rated
utility for 100% of its output on an as generated basis to provide
a long-term stable source of revenues. Ecofin secured this
acquisition bilaterally from a leading infrastructure investor
where there existed a longstanding relationship and the vendor
valued reliable execution to close in 2020 over achieving the best
price. RNEW obtained a 49.5% ownership interest to align with the
structuring objectives of the vendor. An equivalent 49.5% ownership
interest was sold to an international infrastructure company. Since
closing in December 2020, Ecofin has established a strong operating
relationship with its new partner through monthly operations
meetings and quarterly Board meetings. Both parties share a mutual
objective of optimising operations and cash flow. Of note, we have
expanded the use of NextTracker's TrueCapture technology designed
to increase project output through real-time tracker adjustments to
reduce row-to-row shading that occurs at different points of the
day. We have also collaborated with the operator to assess the
level of equipment spares and procure an increased level of solar
module spares to reduce downtime over the coming year.
5. Beacon Solar 5
Beacon Solar 5 is a 48.2 MW utility scale solar project in Kern
County, California that has been operating since December 2017. The
project was developed in parallel with Beacon Solar 2 and shares an
almost identical project contractual structure including a PPA with
the same offtaker. The project is located in close proximity to
Beacon Solar 2 which provides operating and maintenance synergies.
Beacon Solar 5 was acquired in parallel with Beacon Solar 2 from
the same vendor and has the same ownership structure in place. For
additional information, see the summary above on Beacon Solar
2.
6. Skillman Solar
Skillman Solar is a 2.6 MW commercial solar project in New
Jersey that completed construction in Q1 2022 and achieved its
Commercial Operations Date ("COD") on 25 March 2022. The project
provides power under a long-term fixed-price PPA to a corporate
campus of a privately held financial, software, data, and media
corporation that is a global leader in its respective segments. The
project also generates substantial revenues through the state of
New Jersey's fixed-price feed-in-tariff style renewable incentive
program for a 15-year period. This project was originated
bilaterally through a longstanding relationship with a commercial
solar developer with which Ecofin has transacted in the past. While
this project did experience some construction delays, Ecofin
actively managed the process with the construction firm through its
contractual rights to ensure RNEW was not adversely impacted. Due
to the investment structure, no negative impact has occurred to the
investment valuation as a result of these delays.
7. Echo Solar Portfolio
As at 31 December 2022, the Company had closed on six solar
projects in Minnesota, Virginia and Delaware totalling 35.9 MW
within the Echo Solar Portfolio. As at 31 December 2022, two of
these projects declared commercial operation. The remaining four
projects are expected to complete construction and begin operations
during Q2 2023. The Echo Solar Portfolio sells 100% of its output
to two investment grade rated utilities under long term fixed price
PPAs. This portfolio was originated through a leading global
renewable energy company with which Ecofin has a longstanding
relationship and has transacted with in the past, which provided
the vendor with confidence in Ecofin's reliable execution. Ecofin
is actively managing the construction process through weekly calls
with the construction firm to approve milestone-based payments and
address any issues as they arise.
8. Delran Solar
Delran Solar is a 2.0 MW commercial rooftop solar project in New
Jersey that commenced operations in 2020. The project provides
power under a long-term fixed-price PPA to a logistics centre owned
by a large publicly traded U.S. media corporation. The project also
generates substantial revenues through the state of New Jersey's
fixed-price feed-in-tariff style renewable incentive program for a
remaining 12.5-year period. This project was originated bilaterally
through a longstanding relationship with a commercial solar
developer with whom Ecofin had transacted in the past.
9. Whirlwind
Whirlwind is a proven operating wind asset, placed in service in
December 2007, using 26 Siemens 2.3 MW wind turbine generators by
Siemens Gamesa under a long-term O&M agreement. It benefits
from a fixed-price PPA with an investment grade electric utility
with approximately five years remaining on the initial contract
term, providing predictable cash flow. Whirlwind is located in
Texas, which is experiencing sustained growth in electricity demand
due to population growth and corporations migrating to this
business-friendly state. With electricity prices linked to natural
gas prices, which have been rising, these factors provide a good
backdrop for recontracting in the future and potential for
inflation protection. Whirlwind demonstrates Ecofin's sourcing
network breadth beyond solar and was originated bilaterally with
the vendor. We believe this type of bilateral negotiation generates
increased value for RNEW's investors. As part of our portfolio
management strategy, Ecofin will continue to evaluate the potential
to repower this asset at the appropriate time and/or develop
co-located battery storage as battery costs decline and/or tax
credits are expanded for batteries. Given the deregulated nature of
the Texas powermarket, it represents one of the most attractive for
siting battery storage and offers the potential for enhancing
Whirlwind's offering of dispatchable power under medium term
recontracting scenarios.
Portfolio Production Update
During the twelve months ended 31 December 2022, the portfolio
generated 335 GWh of clean energy, 5.5% below budget. Of the total,
solar assets generated 150.0 GWh, 3.7% below budget (see project
variances and explanations below) and wind assets generated 184.6
GWh, 7.0% below budget principally due to low wind resource and
curtailments caused by Winter Storm Elliott, which impacted large
parts of the U.S. including Texas, in Q4 2022.
The performance of the underlying operating portfolio combined
with its 100% contracted revenue structure generated revenues of
$13.4 million for the Company. Overall, cash flows were below
budget by 11.4%. While Echo Solar - MN and Echo Solar - VA 1
achieved commercial operation in Q4 2022, both experienced
construction delays. There were also lower than expected cash
distributions from Beacon 2 & 5 due to overheating fuse holders
throughout the year. Ellis Road also experienced inverter outages
in Q3 2022 and inverter replacements in Q4 2022, while Winter Storm
Elliott caused a utility shutdown at Skillman in December 2022.
This was partially offset by higher than expected cash flows from
the SED Solar Portfolio and Skillman during the summer due to high
insolation and a strong Q2 2022 from Whirlwind due to increased
wind resource.
Net Production Variance vs. Budget (GWh)
GWh Above % Above
Actual Budget (Below) (Below)
Investment Name(2) Sector State (GWh) (GWh) Budget Budget
-------------------- ----------------- --------------------------- ------ ------ --------- ----------
Utility-Scale
Beacon 2(1) Solar California 63.1 65.7 (2.6) (4.0%)(a)
Utility-Scale
Beacon 5(1) Solar California 50.7 51 (0.3) (0.6%)(b)
SED Solar Portfolio Commercial Solar Massachusetts, Connecticut 13.2 12.3 0.9 7.3%(c)
Ellis Road Solar Commercial Solar Massachusetts 8.3 8.6 (0.3) (3.5%)(d)
Oliver Solar(2) Commercial Solar California 7.5 7.5 - -
Delran Solar Commercial Solar New Jersey 2.4 2.4 - -
Skillman Solar Commercial Solar New Jersey 2.5 3.1 (0.6) (19.4%)(e)
Echo Solar -
MN Commercial Solar Minnesota 2.0 5.0 (3.0) (60.0%)(f)
Echo Solar -
VA 1(1) Commercial Solar Virginia 0.3 0.2 0.1 50.0%(f)
-------------------- ----------------- --------------------------- ------ ------ --------- ----------
Solar Subtotal 150.0 155.8 (5.8) (3.7%)
-------------------------------------------------------------------- ------ ------ --------- ----------
Whirlwind Wind Texas 184.6 198.4 (13.8) (7.0%)(g)
-------------------- ----------------- --------------------------- ------ ------ --------- ----------
Wind Subtotal 184.6 198.4 (13.8) (7.0%)
-------------------------------------------------------------------- ------ ------ --------- ----------
Total 334.6 354.2 (19.6) (5.5%)
-------------------------------------------------------------------- ------ ------ --------- ----------
Values and totals have been rounded to the nearest decimal.
1. Reflects RNEW's pro forma share of production based on ownership.
2. Oliver Solar reached COD on 29 November 2021 and has been
accruing PPA revenue based on P50 modelled production since that
date. However, due to some commissioning and testing delays with
the offtaker, the world's largest e-commerce company, the system
had not been energised as at 31 December 2022.
Production variance summary:
a, b Underperformance due to overheating fuse holders. Corrective actions ongoing.
c Outperformance primarily due to higher than expected insolation.
d Underperformance due to inverter faults in Q3 and early Q4;
replacements have been completed.
e Underperformance due to construction delays in the first half
of the year and Winter Storm Elliott which resulted in utility
shutdown for a 10--day period in Q4.
f Variances due to construction delays and timing of obtaining commercial operation.
g Underperformance due to lower wind resource in Q1, Q3 and Q4
and curtailments caused by Winter Storm Elliott in Q4.
Revenues
As at 31 December 2022, RNEW's portfolio had 100% of its revenue
contracted with a weighted average remaining term of 14.6 years;
this includes all construction and committed assets. Approximately
99% of the portfolio benefits from fixed-price revenues, many with
annual escalators of 1-2%, through PPAs, contracted SREC, and fixed
rents under leases. These fixed price contracts mitigate market
price risk for the term of the contracts.
Less than 1% of the portfolio has a variable form of revenue
contract. These contracts are set at a discount to a defined
Massachusetts utility electricity rate, which provides an ongoing
economic benefit to the customer (i.e., the offtaker/rooftop
owner), as opposed to receiving the higher utility electric rate
when consuming electricity from the grid. While the variable rate
contract introduces an element of price volatility, it also offers
the potential to hedge inflation risk as utility rates in
Massachusetts have appreciated 3.0% on average per annum from
1990-2022.
The revenue profile below(3,4) represents a projection of RNEW's
existing revenue contracts as at 31 December 2022 and does not
assume any replacement revenue contracts following the expiry of
these contracts. With increased adoption of renewable energy in the
U.S. and rising natural gas prices (which tend to result in higher
power prices in U.S. markets where natural gas is the marginal
fuel), Ecofin is confident that RNEW's prospects for re-contracting
at the end of revenue contract terms are positive.
RNEW Portfolio Revenue Breakdown
Contracted Contracted Contracted
- Fixed Price - Variable Price - Fixed Price Uncontracted
Year Revenue Revenue Incentive Revenue - Market Revenue
2022 86.2% 0.4% 13.4% 0.0%
--------------- ------------------ ------------------- ------------------
2023 87.8% 0.9% 11.3% 0.0%
--------------- ------------------ ------------------- ------------------
2024 89.6% 0.9% 9.5% 0.0%
--------------- ------------------ ------------------- ------------------
2025 89.4% 2.1% 8.5% 0.0%
--------------- ------------------ ------------------- ------------------
2026 88.9% 2.2% 8.9% 0.0%
--------------- ------------------ ------------------- ------------------
2027 91.1% 2.3% 6.6% 0.0%
--------------- ------------------ ------------------- ------------------
2028 53.3% 2.8% 3.1% 40.8%
--------------- ------------------ ------------------- ------------------
2029 52.7% 2.8% 2.7% 41.8%
--------------- ------------------ ------------------- ------------------
2030 51.9% 2.8% 2.7% 42.6%
--------------- ------------------ ------------------- ------------------
2031 51.3% 2.9% 2.7% 43.1%
--------------- ------------------ ------------------- ------------------
2032 51.3% 2.9% 2.7% 43.1%
--------------- ------------------ ------------------- ------------------
2033 50.8% 3.0% 2.7% 43.5%
--------------- ------------------ ------------------- ------------------
2034 50.2% 3.0% 2.6% 44.2%
--------------- ------------------ ------------------- ------------------
2035 50.0% 2.9% 2.0% 45.1%
--------------- ------------------ ------------------- ------------------
2036 46.7% 2.8% 1.3% 49.2%
--------------- ------------------ ------------------- ------------------
2037 45.4% 2.7% 0.9% 51.0%
--------------- ------------------ ------------------- ------------------
2038 82.9% 3.4% 0.0% 13.7%
--------------- ------------------ ------------------- ------------------
2039 83.1% 0.3% 0.0% 16.6%
--------------- ------------------ ------------------- ------------------
2040 83.1% 0.0% 0.0% 16.9%
--------------- ------------------ ------------------- ------------------
2041 78.9% 0.0% 0.0% 21.1%
--------------- ------------------ ------------------- ------------------
2042 76.6% 0.0% 0.0% 23.4%
--------------- ------------------ ------------------- ------------------
3. The increase in uncontracted market revenue from 2028 onwards
is due to the maturity of the Whirlwind PPA.
4. The decrease in uncontracted market revenue from 2038 onwards
is due to Whirlwind reaching the conclusion of its technical useful
life.
Active Management
Ecofin maintains an active approach to managing RNEW's portfolio
and is in the process of bringing certain previously outsourced
asset management functions in-house. For operating assets, Ecofin's
process involves actively monitoring production through direct,
real-time system access, review of monthly O&M and asset
management reports, and meeting at least monthly with project
operators and asset managers to review and enhance performance. For
construction stage assets, the process is appropriately structured
for more frequent engagement with the relevant EPC contractor to
review project milestones and troubleshooting issues, review and
approve payments in accordance with contracts.
Financing
As at 31 December 2022, the Company's U.S. subsidiaries at a
project level had debt balance of $45.8 million, with an additional
$18.6 million drawn down under the RCF. This total debt balance
corresponds to approximately 33.3% of GAV and compares to the
maximum limit of 65% in the Company's Investment Policy, as further
detailed in the table below. Given that the Company's portfolio
primarily comprises operating assets that have long-term
fixed-price revenue contracts with investment grade counterparties,
construction and term loan financing opportunities at both a
project and group level are widely available on attractive terms.
With that in mind, the Company's Investment Manager and Board
favour a measured approach to using leverage to mitigate interest
rate and default risk. The Company has proactively and successfully
put in place both an RCF and non-recourse construction loan at its
U.S. subsidiaries as described below:
-- On 19 October 2021, RNEW Capital, LLC, entered into a $65.0
million secured RCF with KeyBank, one of the premier lenders to the
U.S. renewable energy industry. The RCF comprises a $50.0 million,
two-year tranche priced at LIBOR plus 1.75% and a $15.0 million,
three-year tranche priced at LIBOR plus 2.00%. The RCF is secured
upon certain of the Company's investment assets and offers the
ability to substitute reference assets. The RCF also includes an
accordion option which provides access to an additional $20.0
million of capital which can be accessed subject to certain
conditions. This substantial commitment with attractive pricing and
terms reflects the high quality of RNEW's portfolio. As at 31
December 2022, this RCF was drawn at $18.6 million. Ecofin is in
dialogue with KeyBank on extending and refinancing the RCF, as well
as gauging the market for alternative lenders. Ecofin anticipates
being able to renew or extend the RCF on similar terms, coinciding
with a switch in reference rate from LIBOR to SOFR.
-- On 7 January 2022, a wholly-owned U.S. subsidiary of RNEW,
Westside Solar Partners, LLC ("Echo Solar - MN"), entered into a
$15.9 million non-recourse construction loan related to and secured
by the 13.7 MW Minnesota commercial solar asset (Echo Solar - MN)
within the Echo Solar Portfolio. The outstanding balance on the
facility was repaid on 21 September 2022 and the facility was
retired.
Through the 49.5% acquisition of the Beacon 2 and 5 operating
solar assets, the Company assumed its share of amortising project
term loans secured on those projects that totalled $45.8 million at
31 December 2022, as referred to above.
On 31 December 2022, the Company had GAV of $193.4 million, and
total recourse and non-recourse debt of $64.4 million, resulting in
total leverage of 33.3%. The borrowing facilities available to the
Company and its subsidiaries at 31 December 2022 are as set out in
the table below:
Facility Amount
amount drawn Applicable
Loan type Provider Borrower ($m) ($m)(5) Maturity rate
----------------- --------- --------------- -------- -------- -------- -----------
Revolving credit RNEW Capital,
facility KeyBank LLC(6) $50.0 $18.6 Oct-23 LIBOR+1.75%
Revolving credit RNEW Capital,
facility KeyBank LLC(6) $15.0 $0.0 Oct-24 LIBOR+2.00%
Term loan KeyBank Beacon Solar 2 $25.3 $25.3 May-26 LIBOR+1.25%
Term loan KeyBank Beacon Solar 5 $20.5 $20.5 May-26 LIBOR+1.25%
----------------- --------- --------------- -------- -------- -------- -----------
Total Debt $110.8 $64.4
--------------------------------------------- -------- -------- -------- -----------
5. As at 31 December 2022.
6. Includes security interests in the borrower and several of
its direct and indirect subsidiaries.
Portfolio Valuation
Valuation of the Company's portfolio is performed on a quarterly
basis. A discounted cash flow ("DCF") valuation methodology is
applied which is customary for valuing privately owned operating
Renewable Assets. The valuation is performed by Ecofin at 31 March
and 30 September, and by an independent third -- party valuation
firm at 30 June and 31 December.
Fair value for each investment is derived from the present value
of the investment's expected future cash flows, using reasonable
assumptions and forecasts for revenues and operating costs, and an
appropriate discount rate. More specifically, such assumptions
include annual energy production, curtailment, merchant power
prices, useful life of the assets, and various operating expenses
and associated annual escalation rates often tied to inflation,
including O&M, asset management, balance of plant, land leases,
insurance, property and other taxes, and decommissioning bonds,
among other items.
At IPO on 22 December 2020, the Company raised $125.0 million
(before costs) by issuing 125,000,000 Shares. Subsequently, on 10
May 2022, the Company announced a placing and retail offer of new
ordinary shares ("New Ordinary Shares") of $0.01 each at an issue
price of $1.015 per New Ordinary Share. The Company raised $13.1
million (before costs) by issuing a total of 12,927,617 New
Ordinary Shares. Admission of these New Ordinary Shares to the LSE
became effective on 24 May 2022.
2022 NAV Bridge ($MM)
NAV 31 Dec 2021 $123.7
Capital Raised $12.9
-------
Change in ProjectCo DCF Roll Forward ($0.7)
-------
Change in ProjectCo DCF - Discount
Rates ($3.5)
-------
Change in ProjectCo DCF - Assumptions $2.1
-------
Distributions from ProjectCos to
RNEW $9.9
-------
Dividends to Shareholders ($7.5)
-------
Expenses Paid ($2.4)
-------
Changes in Financial Assets ($3.0)
-------
Changes in Deferred Tax ($1.3)
-------
NAV 31 Dec 2022 $130.2
-------
Capital raised: Represents proceeds raised from the May 2022
placing and retail offer net of commissions retained by brokers,
fees to intermediaries and other transaction expenses.
Change in project company DCF: Represents the impact on RNEW NAV
from changes to DCF depreciation and quarterly cashflow
roll-forward and change in project-level debt outstanding balances,
including principal amortisation.
Change in project company DCF Discount Rates: Represents the
impact on RNEW NAV from an increase to the discount rates applied
to the DCF models of each project company. As at 31 December 2022,
the weighted average unlevered pre-tax discount rate was 7.5% (31
December 2021: 7.2%), which was increased by 25 basis points
principally due to the rise in inflation and interest rates.
Change in project company DCF merchant curves: Represents the
impact on RNEW NAV from changes to the forward merchant price
curves used in the DCF models of each project company. The increase
was principally due to the update of the DCF models with the most
recently published regional market forward power prices by the U.S.
Energy Information Administration ("EIA").
Distributions from project companies to RNEW: Represents cash
generated by project companies, which was distributed up to RNEW
during the Year.
Dividends to shareholders: Dividends for Q4 2021, Q1 2022, Q2
2022, and Q3 2022 of $7.5 million (5.6 cents per Share) were paid
during the Year. After the Year end, the Company declared a further
dividend of 1.4 cents per Share in respect of the quarter ended 31
December 2022. Over the twelve-month period ended 31 December 2022,
the portfolio generated net revenue sufficient to cover the
dividend approximately 1.0 times.
Expenses paid: Represents the impact on RNEW NAV due to
management fees and expenses paid during the Year.
Change in financial assets: Represents the impact on RNEW NAV
due to increases or decreases in cash, receivables, payables and
other net working capital account balances.
Deferred tax liability: Represents the impact on RNEW NAV due to
accruals arising from operations in the Year and from a project
level prior period adjustment at RNEW Holdco, LLC, the Company's
wholly-owned U.S. subsidiary, which is subject to U.S. income
taxes.
Portfolio Valuation Sensitivities
The figure below shows the impact on the portfolio valuation of
changes to the key input valuation assumptions ("sensitivities")
with the horizontal x-axis reflecting the impact on NAV per Share.
The valuation sensitivities are based on the portfolio of assets as
at 31 December 2022. For each sensitivity illustrated, it is
assumed that potential changes occur independently with no effect
on any other assumption. It should be noted that the relatively
moderate impact of a change in forecast merchant power prices
reflects the long-term fixed price contracted revenues of the
Company's portfolio, with a weighted average remaining contracted
term of 14.6 years as at 31 December 2022. Similarly, the moderate
impacts due to variations in operational expenses reflect a number
of the Company's assets having fixed price, long-term operating
expenses including O&M, property leases and payments in lieu of
taxes.
Sensitivity Impact on NAV per Share
Energy Production P75/P25 (6.3%) to 6.5%
------------------------
Merchant Power Prices +/- 10.0% (5.2%) to 5.4%
------------------------
Discount Rates +/- 50 bps (4.9%) to 5.4%
------------------------
Operating Expenses +/- 10.0% (4.1%) to 4.3%
------------------------
Curtailment +/- 50% (3.9%) to 3.6%
------------------------
Market Outlook
The U.S. renewables industry's prospects for growth are more
encouraging than ever. Predicted highlights for 2023--24 include a
steady rise in energy demand and increased private investment,
backed by strong long-term incentives creating powerful tailwinds.
For some time to come, renewable energy is projected to be one of
the more promising investment themes in the U.S. Not only does it
support sustainability and preserve the environment for future
generations, but investments in the sector are also well-positioned
to outperform most other sectors. This is as a result of relevant
U.S. legislation which is discussed in more detail below. Clean
energy of the kind owned and operated by RNEW is a safe, smart,
potentially recession-resistant, government-supported asset class
for investors seeking attractive risk-adjusted yields.
The enactment of the IRA in summer 2022 was positively received
by U.S. renewables producers, investors, and workers, as was
emphasised in our half-year report. The IRA combines the dual
objectives of reducing domestic inflation (brought on in part by
rising global energy prices) while addressing climate change
issues. It is significant in many important ways. This is the first
time the U.S. renewables sector has seen 10-year incentives (versus
2-5 years previously) which provides certainty for and de-risks
long term projects. The legislation is also historic in size. A
total of $369 billion has been committed to renewables and related
sectors dedicated to improving energy security and achieving
emission reduction goals. This includes funding for carbon capture,
utilisation and storage projects, battery storage, electric
vehicles and related infrastructure, as well as traditional
(solar/wind) renewables, representing incentives that are more
widely spread than previous incentives. Further important aspects
of the IRA are production tax credits (PTCs), investment tax
credits (ITCs), credit transferability and flexibility in how the
incentives are used.
We concur with many analysts that the $369 billion figure
anticipated to be spent under the IRA significantly understates the
amount of investment this legislation could ultimately spur in the
U.S. renewable energy sector. Several of the IRA's most significant
measures, such as its incentives for zero-carbon electricity and
electric vehicles, are "uncapped" tax credits, i.e. so long as you
abide by the conditions they will be awarded.
As such, the amount of money that the federal government can
spend under this legislation is not constrained by a budget or
other legal provisions. The amount that the IRA is expected to
commit toward combating climate change is largely based on the U.S.
government's projection of how much these tax credits will be
utilised. But the IRA's ultimate spending could far exceed this
projection, and during the next decade, total climate spending
could reach well over $1.5 trillion, with federal spending
stimulating further state, local and private investment.
The Biden Administration has also passed two additional
significant pieces of legislation. A further $280 billion under the
CHIPS and Science Act, which was passed around the same time as the
IRA, will be used to revive the U.S. semiconductor industry. Of
this, $67 billion (or around 25%) has been set aside to promote the
expansion of zero--carbon businesses (such as renewable energy) and
climate-related research. The Infrastructure Investment and Jobs
Act (IIJA)(1) , also referred to as the Bipartisan Infrastructure
Law, which was passed in November 2021, provides $1.2 trillion to
support, among other things, grid modernisation and clean energy
research and deployment. Of that amount, $65 billion has been
allocated for the transmission of clean energy and improvements to
the nation's electrical infrastructure. In the U.S., utility-scale
clean power is expected to increase by 525 to 550 GW by 2030,
according to projections.
There are numerous other drivers of significant growth worth
noting, including:
-- The desire for greater energy security and energy
independence in the U.S. - this involves both national security
concerns and economic motivations such as reducing volatility from
exposure to energy price fluctuations and creating jobs in the U.S.
renewables sector. It also reflects the desire to re-domesticate
the production of energy equipment and reduce the dual
vulnerabilities the country faces to Russian and Middle Eastern oil
and gas and Chinese production of most of the world's polysilicon
and PV solar panels. Building domestic manufacturing capacity for
renewable energy equipment would ensure the security of industrial
supply chains, reduce dependency on China for critical products and
materials, and enhance job opportunities and living standards for
working class Americans.
-- Increasing demand for energy overall - especially as the U.S.
seeks to decarbonise industry and electrify transportation and
other sectors of the economy. Rising energy demand over the next
few years could compound already existing supply chain limitations
and interconnection bottlenecks, which may cause prices to rise and
could extend project timelines on average, but these are short-term
problems that are already sorting themselves out.
-- Societal concerns about climate change - concerns about more
frequent and increasingly severe natural disasters, and the desire
to save the planet for future generations, spurred the Biden
Administration to rejoin the Paris Climate Accord and reinforced
global commitments to achieve net-zero by 2050.
-- Steadily declining costs of installing solar and onshore wind
generation - which on a combined basis, have decreased by over 70%
in the last decade (even before the recent trio of relevant
legislation was passed), despite supply chain and import tariff
issues of recent years, have led to greater cost competitiveness
for renewables. While supply chain challenges may lead to higher
renewable energy costs in the short term, renewable generation like
solar and wind will likely persist as the cheapest energy sources.
With inflation high and the war in Ukraine continuing, fuel costs
for conventional generation have been rising faster than renewable
costs. Meanwhile, a virtuous cycle of increased investment in solar
and other technologies is driving more innovation, which in turn
further drives down costs and attracts more investment.
-- The size and relative under-penetration of the U.S.
renewables market versus its peers in the UK and Europe -- the U.S.
power market is 12 times the size of the UK power market and 1.3
times the size of the European power market. This creates abundant
opportunities for RNEW. The U.S. needs to install at least 40--60
GW (estimates vary) of wind and solar capacity each year to achieve
its carbon reduction goals by 2050.
It should be noted that these structural forces are not
political in nature and should prevail irrespective of the
political administration in the U.S. Twenty-two states and the
District of Columbia are aiming towards carbon-free power or 100%
renewable energy by the year 2050, frequently through mandates and
incentives for clean and renewable energy. State incentives tend to
cross party lines. In the race to construct more renewable
capacity, so-called "red" or conservative states are among the
front-runners, with Texas exceeding New York and California
combined in terms of onshore wind and solar capacity. States like
Texas, Wyoming, and Montana stand to gain significantly from IRA
spending, and create many new jobs.
Despite all these growth drivers and incentives, there are still
problems preventing the U.S. renewables market from expanding more
quickly. Three of the largest market obstacles at the moment are
trade policy issues, permitting complications and delays, and
transmission and interconnection constraints. According to
estimates, the U.S. must build 60% more transmission lines by 2050
in order to achieve its carbon reduction targets. Furthermore, in
order for the nation to swiftly construct enough power lines and
sustainable energy infrastructure, permitting bottlenecks must be
resolved. Regarding customs and tariff issues, a ruling in an
important trade case in early December 2022 reinvigorated fears
that trade policy could disrupt the U.S. solar industry. Tariffs on
solar modules manufactured by certain Chinese companies may resume
in 2024 and it is unlikely that U.S. manufacturing capacity will be
sufficient by that time to totally satisfy U.S. demand for solar
modules. Other negative forces include a) higher interest rates
making financing more expensive and harder to secure and b) IRA
standards like worker training, competitive wages and domestic
component requirements, which may slow progress toward building a
new supply chain in the short term.
However, the net effect of all of these drivers, positive and
negative, is that RNEW should benefit from significant, long-term,
structural tailwinds that are poised to supercharge the U.S.
renewables market in the coming decade and beyond. The market
opportunity and addressable pipeline for RNEW in the U.S.
renewables sector significantly exceeds the current size of the
Company. RNEW has a large and attractive pipeline of investment
opportunities and will continue for the foreseeable future.
Furthermore, Ecofin has the industry relationships and experience
to identify and pursue the most attractive of these projects for
RNEW.
[1] The IIJA includes:
-- $90 billion in new infrastructure funding and reauthorisations
-- $65 billion in funding for clean energy transmission and power infrastructure upgrades
-- $66 billion in funding for Amtrak maintenance and development
-- $40 billion in new funding for bridge repair, replacement, and rehabilitation
-- $55 billion in funding for clean drinking water
-- $65 billion in funding to create universal access to reliable high-speed internet
Impact Report
ESG Integration and Impact
The Company's and Ecofin's strategy is to allocate capital using
an ESG integrated investment process to build and operate a
diversified portfolio of Renewable Assets that achieves RNEW's
investment objective.
RNEW is focused on allocating capital using an investment
process which fully integrates ESG considerations and analysis to
build and operate a diversified portfolio of Renewable Assets
consistent with RNEW's investment objective.
Ecofin, through its parent company, is a signatory to the
Principles for Responsible Investment (PRI) and incorporates ESG
analysis into its investment and reporting process. All of Ecofin's
investment strategies for renewables infrastructure are designed to
provide investors with attractive long-term returns and a level of
impact that aligns with United Nations Sustainable Development
Goals:
This strategy seeks to achieve positive impacts that align with
the following UN Sustainable Development Goals
-- 7 Affordable and clean energy
-- 8 Decent work and economic growth
-- 9 Industry, innovation and infrastructure
-- 11 Sustainable cities and communities
-- 13 Climate action
The Investment Manager's sustainability and impact policy is
further described in the Sustainability & Impact section of its
website ecofininvest.com/sustainability-impact.
ESG integration
The Company has been established to offer investors direct
exposure to renewable energy and sustainable infrastructure assets
including solar, wind, and battery storage that reduce greenhouse
gas ("GHG") emissions and promote a positive environmental impact.
The Investment Manager integrates analysis of ESG issues throughout
the lifecycle of its investment activities spanning due diligence,
investment approval, and ongoing portfolio management.
Environmental criteria analysis considers how an investment
performs as a steward of nature; social criteria analysis examines
its impact and relationships with employees, suppliers, customers
and the communities in which it operates; and governance criteria
analysis examines internal controls, business ethics, compliance
and regulatory status associated with each investment.
Ecofin has developed a proprietary ESG due diligence risk
assessment framework ("ESG Risk Assessment") that combines both
qualitative and quantitative data. This ESG Risk Assessment is
embedded in Ecofin's investment memoranda and systematically
applied by the investment team to all opportunities prior to
investment authorisation by Ecofin's Investment Committee. Each of
the Company's eight closed and committed investments spanning 65
assets was analysed through Ecofin's ESG Risk Assessment prior to
investment commitment. Ecofin believes this approach to assessing
ESG issues serves to mitigate risk and enhance RNEW's impact.
Environmental factors affecting climate risk are reviewed to
determine an investment's impact and ability to reduce GHG
emissions, air pollution and water consumption.
Analysis of environmental issues also considers the impact that
the investment will have on land use and considers mitigation plans
when issues are identified. Analysis of social issues may encompass
an investment's impact on the local community and consider health
and safety together with the counterparties to be engaged to
construct and operate the assets. Governance is reviewed in
partnership with qualified third-party legal counsel to ensure
compliance with all laws and regulations, strong ongoing corporate
governance through strict reporting protocols with qualified
operators, project asset managers and annual independent financial
statement audits.
Ecofin applies a systematic approach to ESG monitoring once
acquisitions are closed. Through Ecofin's engagement with third
party O&M and asset management service providers, Ecofin
reviews asset level reporting on health and safety metrics,
environmental matters and compliance. Issues identified are
reviewed and addressed with service providers through periodic
meetings such as monthly operations meetings.
Importantly, ESG factors are analysed then reported in a
transparent manner so that investors and key stakeholders can
measure their impact.
Impact
RNEW's portfolio produced approximately 335 GWh of clean
electricity during 2022, enough to power approximately 31,400
homes, offsetting approximately 203,500 tonnes of CO(2) e and
avoiding the consumption of approximately 42,300 million litres of
water. RNEW focuses on investments that have a positive
environmental impact by reducing GHG emissions, air pollution and
water consumption. Ecofin seeks to analyse and report on ESG
factors on a consistent basis to maximise the impact of its
investment activities. To assess environmental impact, Ecofin goes
beyond measuring CO(2) emissions avoided and quantifies other GHG
emissions, such as methane and nitrous oxide, and also measures the
contribution that investments make to save water consumption. Water
is consumed by thermoelectric (i.e. coal and gas) power plants in
the cooling process associated with steam turbine generators. Water
savings occur in the same way that renewable energy generation
offsets CO(2) emissions from thermoelectric generators. Ecofin
calculates estimated water savings by reference to the EIA
thermoelectric cooling water data by location and applying it to
the production from RNEW's portfolio.
Ecofin's methodology for calculating the environmental impact of
investments relies on trusted data sources including the U.S. EPA
and the EIA.
Portfolio impact
203,500 42,300M
Tonnes of CO(2) e Reduction Litres of water savings
31,400 16,900
Households supplied Olympic size swimming pools
Task Force on Climate-related Financial Disclosures
Investment in renewables is considered an important component of
climate change mitigation as replacing fossil fuel--based forms of
electrical generation is key in helping the global energy sector
transition to a lower carbon economy. While investment in
renewables helps mitigate the effects of climate change, renewable
investments are not exempt from the potential impacts of climate
change. RNEW routinely identifies climate-related risks and
opportunities that may have a material financial impact on the
performance of its investments.
The Task Force on Climate-Related Financial Disclosures ("TCFD")
was established to develop voluntary, consistent climate-related
financial risk disclosures for use by companies in providing
information to investors, lenders, insurers, and other
stakeholders. The TCFD recommends that all organisations provide
climate-related disclosures in their annual reports and accounts,
providing a framework to help companies assess the risks and
opportunities associated with climate change.
The FCA issued a proposal at the start of 2020 that required all
premium listed commercial companies with a financial year end from
December 2021 to align their reporting to the TCFD framework. While
RNEW, as a UK Investment Trust, is currently exempt from this
reporting requirement, RNEW has decided to make specific
disclosures on opportunities and risks the Company faces relating
to climate change. An outline of RNEW's current approach to the
recommendations suggested by TCFD is included below.
TCFD Recommendation RNEW Disclosure
---------------------------------------- ------------------------------------------------------------
Governance
---------------------------------------- ------------------------------------------------------------
Disclose the organisation's governance The Company has an board of four non-executive
around climate-related risks independent Directors. The Board's role
and opportunities. is to oversee the governance of the Company
in the interests of Shareholders and other
stakeholders. In particular, the Board monitors
adherence to the Investment Policy, determines
the risk appetite, sets Company policies
and monitors the performance of the Investment
Manager and other key service providers.
The Board is responsible for the ongoing
identification, evaluation and management
of the principal risks (including climate-related
risks and opportunities) faced by the Company
and the Board has established a process
for the regular review of these risks and
their mitigation. The Board meets a minimum
of six times a year for scheduled Board
meetings, with additional ad hoc meetings
taking place dependent upon the requirements
of the business. The Board reviews the performance
of all key service providers on an annual
basis through its Management Engagement
Committee. Under their ongoing supervision,
the Directors have delegated responsibility
for managing the assets in the RNEW portfolio
to Ecofin.
In managing the RNEW portfolio to achieve
its investment objective, Ecofin employs
an institutional level investment process
to identify and mitigate risk (including
climate-rated risks) covering sourcing,
underwriting, due diligence and portfolio
management.
---------------------------------------- ------------------------------------------------------------
Strategy
---------------------------------------- ------------------------------------------------------------
Disclose the actual and potential Consideration of climate-related opportunities
impacts of climate--related risks and risks is embedded throughout RNEW's
and opportunities on the organisation's business and investment strategies, as implemented
businesses, strategy, and financial by Ecofin. Examples of areas considered
planning where such information include:
is material. * Consideration of changing weather conditions that may
positively or negatively impact renewable energy
generation or cause issues related to the physical
placement of assets.
* Political conditions that may or may not make a 2.0
degree centigrade rise in temperature more likely
through increasing / impairing the value and pace of
investment in Renewable Assets.
* Changes in technology or the cost of technology that
could make a 2.0 degree centigrade rise in global
temperature more or less likely and positively /
negatively impact the value of existing and future
Renewable Assets investments.
* How the deployment of renewable energy and future
technology may impact commodity prices including the
future price of electricity and have a positive or
negative impact on existing and future investment in
Renewable Assets.
As these and other material or potentially
material risks and opportunities are identified,
Ecofin seeks to incorporate structural mitigation
(i.e. obtain insurance for those risks)
and/or perform sensitivities on power price
forecasts and adjust required returns on
investment.
---------------------------------------- ------------------------------------------------------------
Risk Management
---------------------------------------- ------------------------------------------------------------
Disclose how the organisation The Directors and Ecofin understand that
identifies, assesses, and manages climate change could impact RNEW's strategy
climate-related risks. and underlying assets and include the consideration
of climate change opportunities and risks
throughout the investment process. When
conducting due diligence on new investment
opportunities, Ecofin uses its ESG Risk
Assessment framework to evaluate the impact
of CO(2) and other GHG emissions / pollutants,
assess the impact on the site (through review
of a Phase I Environmental Site Assessment),
and compliance with permits and regulations.
Environmental factors are considered during
both the initial screening process as well
as during the project-focused due diligence
stage in concert with specialist environmental
consultants and legal advisers, as needed.
These environmental factors and risks are
documented in Ecofin's investment memoranda
that are reviewed by its Investment Committee
prior to investments being approved.
When a new asset is added to the portfolio,
Ecofin establishes a monitoring plan that
is aligned with mitigating the key risks
and achieving RNEW's investment objective.
Environmental factors are included in the
ongoing analysis and reporting process for
each asset in the portfolio.
---------------------------------------- ------------------------------------------------------------
Metrics and Targets
---------------------------------------- ------------------------------------------------------------
Disclose the metrics and targets Due to the nature of the Renewable Assets
used to assess and manage relevant in the portfolio, the Scope 1 & 2 emissions
climate-related risks and opportunities for RNEW are de minimis. The power generated
where such information is material. from the Renewable Assets displaces electricity
generated from marginal fossil fuel emitting
sources. As part of the investment diligence
and monitoring, Ecofin attempts to quantify
the negative environmental factors avoided
from the actual or anticipated generation
of its assets.
Ecofin analyses and considers several environmental
factors including GHG emissions from CO(2)
, methane (CH(4) ) and nitrous oxide (N(2)
O), air pollutants such as sulphur dioxide
(SO(2) ) and nitrogen oxides (NOX) as well
as the project's water consumption to provide
a broad view of environmental impact. For
calculating the emission reductions from
Ecofin investments in Renewable Assets,
non-baseload fossil fuel generation emission
rates are appropriate. Non-baseload fossil
fuel generation represents the generation
most likely to be reduced or replaced by
energy efficiency projects or renewable
energy projects. Ecofin aggregates and evaluates
data according to the EPA's eGrid subregions
in the U.S. These subregions are defined
by the EPA to establish an aggregated area
where emission rates are anticipated to
most accurately represent the generation
and emissions from the power plants operating
within that region. This allows the environmental
impact from an Ecofin investment in Renewable
Assets to be more accurately quantified
from the asset's operation.
For reporting purposes, non-CO(2) GHG emissions
are often converted to CO(2) equivalent
and reported in aggregate as CO(2) e.
---------------------------------------- ------------------------------------------------------------
Investment Objective and Investment Policy
The Company's investment objective and investment policy
(including defined terms) are as set out in its 2020 IPO
prospectus.
Investment objective
The Company's investment objective is to provide Shareholders
with an attractive level of current distributions by investing in a
diversified portfolio of mixed renewable energy and sustainable
infrastructure assets ("Renewable Assets") predominantly located in
the United States with prospects for modest capital appreciation
over the long term.
Investment policy and strategy
The Company intends to execute its investment objective by
investing in a diversified portfolio of Renewable Assets
predominantly in the United States, but it may also invest in other
OECD countries.
Whilst the principal focus of the Company will be on investment
in Renewable Assets that are solar and wind energy assets ("Solar
Assets" and "Wind Assets" respectively), sectors eligible for
investment by the Company will also include different types of
renewable energy (including battery storage, biomass, hydroelectric
and microgrids) as well as other sustainable infrastructure assets
such as water and waste water.
The Company will seek to invest primarily through
privately-negotiated middle market acquisitions of long-life
Renewable Assets which are construction-ready, in-construction
and/or currently in operation with long-term PPAs or comparable
offtake contracts with investment grade quality counterparties,
including utilities, municipalities, universities, schools,
hospitals, foundations, corporations and others. Long-life
Renewable Assets are those which are typically expected by Ecofin
to generate revenue from inception for at least 10 years.
The Company intends to hold the Portfolio over the long term,
provided that it may dispose of individual Renewable Assets from
time to time.
Investment restrictions
The Company will invest in a diversified portfolio of Renewable
Asset subject to the following investment limitations which, other
than as specified below shall be measured at the time of the
investment:
-- once the Net Initial Proceeds are substantially fully
invested, a minimum of 20 per cent. of Gross Assets will be
invested in Solar Assets;
-- once the Net Initial Proceeds are substantially fully
invested, a minimum of 20 per cent. of Gross Assets will be
invested in Wind Assets;
-- a maximum of 10 per cent. of Gross Assets will be invested in
Renewable Assets that are not Wind Assets or Solar Assets;
-- exposure to any single Renewable Asset will not exceed 25 per cent. of Gross Assets;
-- exposure to any single Offtaker will not exceed 25 per cent. of Gross Assets;
-- once the Net Initial Proceeds are substantially fully
invested, investment in Renewable Assets that are in the
construction phase will not exceed 50 per cent. of Gross Assets,
but prior to such time investment in such Renewable Assets will not
exceed 75 per cent. of Gross Assets. The Company expects that
construction will be primarily focused on Solar Assets in the
shorter term until the Portfolio is more substantially invested and
may thereafter include Wind Assets in the construction phase;
-- exposure to Renewable Assets that are in the development
(namely pre-construction) phase will not exceed 5 per cent. of
Gross Assets;
-- exposure to any single developer in the development phase
will not exceed 2.5 per cent. of Gross Assets;
-- the Company will not typically provide Forward Funding for
development projects. Such Forward Funding will, in any event, not
exceed 5 per cent. of Gross Assets in aggregate and 2.5 per cent.
of Gross Assets per development project and would only be
undertaken when supported by customary security;
-- Future Commitments and Developer Liquidity Payments, when
aggregated with Forward Funding (if any), will not exceed 25 per
cent. of Gross Assets;
-- once the Net Initial Proceeds are substantially fully
invested, Renewable Assets in the United States will represent at
least 85 per cent. of Gross Assets; and
-- any Renewable Assets that are located outside of the United
States will only be located in other OECD countries. Such Renewable
Assets will represent not more than 15 per cent. of Gross Assets.
References in the investment restrictions detailed above to
"investments in" or "exposure to" shall relate to the Company's
interests held through its Investment Interests.
For the purposes of the 2020 IPO Prospectus, the Net Initial
Proceeds will be deemed to have been substantially fully invested
when at least 75 per cent. of the Net Initial Proceeds have been
invested in (or have been committed in accordance with binding
agreements to investments in) Renewable Assets.
The Company will not be required to dispose of any investment or
to rebalance the Portfolio as a result of a change in the
respective valuations of its assets. The investment limits detailed
above will apply to the Group as a whole on a look-through basis,
namely, where assets are held through a Project SPV or other
intermediate holding entities or special purpose vehicles, and the
Company will look through the holding vehicle to the underlying
assets when applying the investment limits.
Gearing policy
The Group primarily intends to use long-term debt to provide
leverage for investment in Renewable Assets and may utilise
short-term debt, including, but not limited to, a revolving credit
facility, to assist with the acquisition of investments.
Long-term debt shall not exceed 50 per cent. of Gross Assets and
short-term debt shall not exceed 25 per cent. of Gross Assets,
provided that total debt of the Group shall not exceed 65 per cent.
of Gross Assets, in each case, measured at the point of entry into
or acquiring such debt.
The Company may employ gearing either at the level of the
relevant Project SPV or at the level of any intermediate subsidiary
of the Company. Gearing may also be employed at the Company level,
and any limits set out in this Prospectus shall apply on a
consolidated basis across the Company, the Project SPVs and any
such intermediate holding entities (but will not count any
intra-Group debt). The Company expects debt to be denominated
primarily in U.S. Dollars.
For the avoidance of doubt, financing provided by tax equity
investors and any investments by the Company in its Project SPVs or
intermediate holding companies which are structured as debt are not
considered gearing for this purpose and are not subject to the
restrictions in the Company's gearing policy.
Currency and hedging policy
The Group may use derivatives for the purposes of hedging,
partially or fully:
-- electricity price risk relating to any electricity or other
benefit including renewable energy credits or incentives, generated
from Renewable Assets not sold under a PPA, as further described
below;
-- currency risk in relation to any Sterling (or other non-U.S.
Dollar) denominated operational expenses of the Company;
-- other project risks that can be cost-effectively managed
through derivatives (including, without limitation, weather risk);
and
-- interest rate risk associated with the Company's debt facilities.
In order to hedge electricity price risk, the Company may enter
into specialised derivatives, such as contracts for difference or
other hedging arrangements, which may be part of a tripartite or
other PPA arrangement in certain wholesale markets where such
arrangements are required to provide an effective fixed price under
the PPA.
Members of the Group will only enter into hedging or other
derivative contracts when they reasonably expect to have an
exposure to a price or rate risk that is the subject of the
hedge.
Cash management policy
Until the Company is fully invested the Company will invest in
cash, cash equivalents, near cash instruments and money market
instruments and treasury notes ("Near Cash Instruments"). Pending
re-investment or distribution of cash receipts, the Company may
also invest in Near Cash Instruments as well as Investment Grade
Bonds and exchange traded funds or similar ("Liquid Securities"),
provided that the Company's aggregate holding in Liquid Securities
shall not exceed 10 per cent. of Gross Assets measured at the point
of time of acquiring such securities.
Amendments to the investment objective, policy and investment
restrictions
In the event that the Board considers it appropriate to amend
materially the investment objective, investment policy or
investment restrictions of the Company, Shareholder approval to any
such amendment will be sought by way of an ordinary resolution
proposed at an annual or other general meeting of the Company.
Risk Management
Principal Risks
The Board is responsible for the ongoing identification,
evaluation and management of the principal risks faced by the
Company. On behalf of the Board, the Risk Committee has established
a process for the regular review of these risks and their
mitigation. This process principally involves a semi-annual review
of the Company's risk matrix and accords with the UK Corporate
Governance Code (the "UK Code") and the Financial Reporting
Council's ("FRC") Guidance on Risk Management, Internal Control and
Related Financial and Business Reporting. The Directors have
carried out a robust assessment of the principal risks facing the
Company, including those that would threaten its business model,
future performance, solvency and liquidity. The following sections
detail the risks the Board considers to be the most significant to
the Company:
Change in
risk assessment
during the
Risk Possible Consequences Year Risk Mitigation And Controls
--------------- ----------------------------- ----------------- ---------------------------------------------
Electricity Lower electricity No change The Company's policy is to reduce
Price prices in the U.S. its exposure to electricity price
could negatively impact risk by investing in Renewable Assets
the Company's returns which sell their output under long
and/or the value of term offtake arrangements with credit
its investments. worthy counterparties. As at 31 December
2022, the portfolio benefited from
a weighted average revenue contract
term of 14.6 years. In its asset
valuations, the Company uses long-term
electricity price forecasts prepared
by independent third parties. Ecofin
also performs a sensitivity analysis
to show the impact of a 10% increase/
decrease in electricity prices during
each project's remaining economic
useful life. As at 31 December 2022,
a 10% increase in electricity prices
from forecast levels would increase
NAV by 5.4% and a 10% decrease in
electricity prices from forecast
levels would reduce NAV by 5.2%.
--------------- ----------------------------- ----------------- ---------------------------------------------
Interest The Company may be Higher Interest, currency and inflation
Rate, Currency adversely affected rates are monitored regularly by
and Inflation by changes in interest, the Company. The Company may implement
currency exchange interest and currency rate hedging
and inflation rates. by fixing a portion of the Company's
Rising interest rates exposure to any floating rate obligation
may lead to higher using interest or currency rate swaps
discount rates. or other means. Where possible, the
Company enters into medium to long
term contracts to fix costs. Inflation
risk can also be partly mitigated
where projects' revenue offtake arrangements
are subject to indexation.
In light of the macro-economic situation
brought about by the Russian invasion
of Ukraine, the Directors fully considered
each of the Company's investments.
The Directors do not foresee any
immediate material risk to the Company's
investment portfolio and income from
underlying SPVs.
Discount rates are reviewed regularly
by the Investment Manager, and on
a semi-annual basis by the independent
valuer.
--------------- ----------------------------- ----------------- ---------------------------------------------
Investment The Company may not No change Ecofin has a well-defined investment
Performance achieve its investment strategy and processes in place which
objective; are regularly reviewed and monitored
The Company may fail by the Board. Ecofin has significant
to deliver its dividend experience originating, underwriting,
target; and managing Renewable Assets and
The Company may not applies its experience to mitigate
be able to acquire risks and achieve the Company's investment
suitable Renewable objective. The Board reviews the
Assets consistent portfolio quarterly and discusses
with its investment new investments, the investment rationale,
policy; and and the performance of the Company
The Company's revenue at each Board meeting.
can vary due to variations By their nature, solar irradiation
in the amount of power and wind speed are outside the Company's
that can be generated control, albeit some projects' returns
and sold. are neither wholly nor directly linked
to the volume of power produced.
--------------- ----------------------------- ----------------- ---------------------------------------------
Investment The valuation of assets No change Ecofin has significant experience
Valuation is inherently subjective in the valuation of Renewable Assets
and uncertain. Projections and through its investment activities
are based on the independent is continually exposed to the prices
valuer's and the Investment paid for Renewable Assets in the
Manager's assessment U.S. market. The Board and Ecofin
at the date of valuation review asset valuations quarterly.
and are only estimates The Company has appointed an independent
of future results. valuer to conduct a valuation of
Actual results may its assets, including a review of
vary significantly discount rates, on a semi- -- annual
from projected amounts. basis.
--------------- ----------------------------- ----------------- ---------------------------------------------
Political Future investment No change Both the current U.S. Administration
opportunities and/or and individual states are supportive
the value of existing of renewable energy. Ecofin has significant
investments may be experience investing in Renewable
impacted by changes Assets and undertakes due diligence
in government policy at purchase with support from its
(e.g. increased property legal advisers and performs ongoing
taxes, lower tax credits), monitoring of political and regulatory
in government policy risks. When incentive programs are
incentives or in U.S. changed, the changes typically affect
tax laws. projects that have yet to be built.
Existing projects are usually grandfathered
and retain the benefits associated
with the incentive scheme in place
when they were constructed. Ecofin
seeks to reduce exposure to political
and regulatory risk by entering into
long term contracts to fix both revenue
streams associated with incentives
and costs (e.g. property taxes).
Ecofin also actively monitors potential
changes in policy that could affect
RNEW's portfolio.
--------------- ----------------------------- ----------------- ---------------------------------------------
Discount The Shares may trade Higher The Company's Brokers monitor the
Management at a discount to NAV, market for the Company's Shares and
which may make it report at quarterly Board meetings.
more difficult for The Board regularly reviews the relative
the Company to raise level of discount against the sector.
new equity for future The Board has authority to buy back
investments. Shares.
--------------- ----------------------------- ----------------- ---------------------------------------------
Cyber Ecofin's information No change The Company relies on the systems
and technology systems of its service providers. Cyber security
and those of other policies and procedures are maintained
service providers by key service providers and are
to the Company may reported to the Board periodically.
be vulnerable to cyber Ecofin, the Administrator and the
security breaches Board include cyber risk in their
and identity theft reviews of counterparties.
which could adversely
impact the Company's
ability to continue
to operate without
interruption.
--------------- ----------------------------- ----------------- ---------------------------------------------
Service The Company has no No change The Board meets with Ecofin and the
Provider employees and is reliant Administrator on a quarterly basis
Reliance on the performance to review their work and monitor
of third-party service their performance. Service providers'
providers. resources are also discussed. Additionally,
through its Management Engagement
Committee, the Board conducts a formal
assessment of each key service provider's
performance once a year. To assist
its ability to properly oversee the
Company's service providers, the
Board requires them to notify it
as soon as reasonably practicable
following any material breach of
their contracts with the Company.
--------------- ----------------------------- ----------------- ---------------------------------------------
Counterparty There is the potential No change A fundamental part of the Investment
for losses to be incurred Manager's due diligence process involves
due to default by reviewing the most recent credit
an offtaker or other rating of the offtaker provided by
counterparty. a third party credit rating agency
or performing an independent credit
review of the offtaker's credit status.
The credit status of other counterparties
(e.g. banks) is also assessed and
monitored..
--------------- ----------------------------- ----------------- ---------------------------------------------
Pandemic A new pandemic, such Lower Updates on operational resilience
as COVID -- 19, could are received from the Investment
create operational Manager, Administrator and other
challenges for the key service providers. In addition,
Company's service the Investment Manager is in close
providers and with contact with each asset's O&M provider.
the construction and
operation of the Company's
assets.
--------------- ----------------------------- ----------------- ---------------------------------------------
Climate The Company is exposed No change When conducting due diligence on
to the impacts of potential investments, the Investment
climate change i.e. Manager considers the potential impact
risks relating to the weather may have on electricity
weather conditions production. Ecofin also considers
and performance of the impact of storms and other weather
equipment. conditions when determining the appropriate
level of insurance coverage for an
asset. Investing in diverse projects
spread across the U.S. mitigates
the impact of any localised, potentially
unfavourable weather conditions.
--------------- ----------------------------- ----------------- ---------------------------------------------
ESG Risks such as health No change ESG is embedded in Ecofin's investment
and safety, respect process via a formal ESG rating matrix.
for human rights, The Company monitors the portfolio
bribery, corruption, and quantifies the ESG impact of
environmental management its investments.
practices, duty of Each service provider has and is
care and compliance responsible for its own health and
with relevant laws safety policies and procedures.
and regulations, may
also arise.
--------------- ----------------------------- ----------------- ---------------------------------------------
Financing The Company may be New The Company has access to a wide
unable to obtain debt range of debt providers and has to
financing on acceptable date successfully raised debt finance
terms, either at a both for asset construction and for
project or at a holding general purposes.
company level. Portfolio allocations and debt limits
are monitored by Ecofin and reviewed
by the Board.
--------------- ----------------------------- ----------------- ---------------------------------------------
Risks are managed and mitigated by the Board through continual
review, policy setting, and regular reviews of the Company's risk
matrix by the Risk Committee to ensure that procedures are in place
with the intention of minimising the impact of the above-mentioned
risks.
Members of the Risk Committee bring external knowledge of the
renewable energy, investment trust (and financial services
generally) marketplace, trends, threats etc. as well as macro/
strategic insight. The Risk Committee carried out a formal risk
assessment at its meetings held on 27 July 2022 and 25 January
2023.
The Investment Manager advises the Board at quarterly Board
meetings on industry trends, providing insight on the political and
regulatory environment in which the Company's assets operate, and
future challenges in these markets. The Company's Brokers regularly
report to the Board on markets, the investment company sector and
the Company's peer group. The Investment Manager works with
reputable EPC firms to reduce the risk that any materials sourced
from vendors employing the use of forced labour end up in the
Company's projects and actively monitors developments on this
issue. The Company is not aware of any such materials having been
used in the Company's projects.
The Company Secretary briefs the Board on forthcoming
legislation/regulatory change in the UK that might impact the
Company. The Auditor also provides an annual update on regulatory
changes relevant to the Company.
The Company is a member of the Association of Investment
Companies ("AIC"), which provides regular technical updates as well
as drawing members' attention to forthcoming industry/ regulatory
issues and advising on compliance obligations.
When required, experts are employed to provide information and
technical advice, including legal and tax.
Key Performance Indicators
The Company's Board of Directors meets regularly and at each
meeting reviews performance against a number of key performance
indicators which include the following:
-- Performance;
-- Dividends;
-- Premium/discount of share price to NAV per Share; and
-- Ongoing charges ratio.
Performance
As the Company's objective is to seek to provide Shareholders
with an attractive level of distributions with prospects of modest
capital growth over the long term, performance is best measured in
terms of total return. The Company's NAV and share price total
returns for the Year were 1.1% and (10.8)% respectively. There is
no single index against which the Company's performance may be
meaningfully assessed. Therefore, the Board refers to a variety of
relevant data and this is reflected in both the Chair's Statement
and the Investment Manager's Report contained in the Annual
Financial Report.
As explained in the Chair's Statement, the Board has reviewed
the performance in the Year and is satisfied with the longer term
prospects of the portfolio.
The Company's NAV per Share is shown on the Statement of
Financial Position in the Annual Financial Report.
Dividends
Dividends form a key component of the Company's investment
objective. The Company declared four interim dividends in respect
of the Year (total of 5.6 cents per Share), in line with the
Company's dividend target.
The Board's Dividend Payment Policy is to pay dividends on a
quarterly basis in May, August, November and February in respect of
each accounting year. The timing of these regular three-monthly
payments means that Shareholders do not have an opportunity to vote
on a final dividend. Recognising the importance of shareholder
engagement, although not required by any regulation, Shareholders
will be given an opportunity to vote on this policy at the
forthcoming AGM.
Premium/discount of share price to NAV per Share
The Board monitors the price of the Company's Shares in relation
to NAV and the premium/discount at which the Shares trade. The
Company has Shareholder authority to issue and buy back Shares,
which could assist short term management of premium and discount
respectively. However, the level of discount or premium is mostly a
function of investor sentiment and associated demand for the
Shares, over which the Board may have limited influence. The share
price stood at a 11.7% discount to NAV as at 31 December 2022.
Ongoing charges ratio
The expenses of managing the Company are carefully monitored by
the Board. The standard performance measure of these is the ongoing
charges ratio ("OCR"), which is calculated by dividing the sum of
such expenses over the course of the year, including those charged
to capital, by the average NAV over the year. This ratio provides a
guide to the effect on performance of annual operating costs. The
Company's OCR for the year to 31 December 2022 was 1.8% (IPO to 31
December 2021: 1.5%).
Business Review
The Strategic Report in the Annual Financial Report has been
prepared to provide information to Shareholders to assess how the
Directors have performed their duty to promote the success of the
Company.
The Strategic Report contains certain forward-looking
statements. These statements are made by the Directors in good
faith based on the information available to them up to the time of
their approval of this report and such statements should be treated
with caution due to the inherent uncertainties, including both
economic and business risk factors, underlying any such
forward-looking information.
The Company is an alternative investment fund ("AIF") under the
European Union's alternative investment fund managers' directive
("AIFMD") and has appointed Ecofin Advisors, LLC as its AIFM.
The Directors are responsible for managing the business affairs
of the Company in accordance with the Articles and have overall
responsibility for the Company's activities including the review of
investment activity and performance and the overall supervision of
the Company. The Directors may delegate certain functions to other
parties such as the Investment Manager, the Administrator and the
Registrar. In particular, the Directors have delegated
responsibility for managing the portfolio to the Investment
Manager.
All the Directors are non-executive. All the Directors were
considered by the Board to be independent of the Investment Manager
upon and since appointment.
A description of the role of the Board can be found in the
Corporate Governance Statement.
Statement of Directors' Responsibilities in Respect of the
Financial Statements
Directors' responsibilities
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with international
accounting standards in conformity with the requirements of the
Companies Act 2006 (the "Act") and applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year and the Directors must not
approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the
Company and of the profit or loss for the Company for that period.
The Directors are also required to prepare financial statements in
accordance with UK adopted international accounting standards.
In preparing these financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with
international accounting standards in conformity with the
requirements of the Act, subject to any material departures
disclosed and explained in the financial statements
-- state whether they have been prepared in accordance with UK
adopted International accounting standards, subject to any material
departures disclosed and explained in the financial statements;
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business; and
-- prepare a Directors' Report, a Strategic Report and
Directors' Remuneration Report which comply with the requirements
of the Act.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and 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 Act and, as regards the
financial statements, Article 4 of the IAS Regulation.
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
responsible for ensuring that the Annual Report and financial
statements, taken as a whole, are fair, balanced, and
understandable and provide the information necessary for
Shareholders to assess the Company's performance, business model
and strategy.
Website publication
The Directors are responsible for ensuring the Annual Report and
the financial statements are made available on a website. Financial
statements are published on the Company's website in accordance
with legislation in the United Kingdom governing the preparation
and dissemination of financial statements, which may vary from
legislation in other jurisdictions. The maintenance and integrity
of the Company's website is the responsibility of the Investment
Manager and the Directors. The Directors' responsibility also
extends to the ongoing integrity of the financial statements
contained therein.
Directors' responsibilities pursuant to DTR4
The Directors confirm to the best of their knowledge:
-- The financial statements have been prepared in accordance
with the applicable set of accounting standards and Article 4 of
the IAS Regulation and give a true and fair view of the assets,
liabilities, financial position and profit and loss of the Company;
and
-- The Annual Report includes a fair review of the development
and performance of the business and the financial position of the
Company, together with a description of the principal risks and
uncertainties that it faces.
Patrick O'D Bourke
Chair of the Board
13 April 2023
Statement of Comprehensive Income
For the year ended 31 December 2022
For the period
from
For the year ended Incorporation on 12
31 December August 2020
to 31 December
2022 2021
Revenue Capital Total Revenue Capital Total
Notes $'000 $'000 $'000 $'000 $'000 $'000
------------------------------------ ----- ------- ------- ------- ------- ------- -------
Losses on investment 4 - (6,368) (6,368) - (322) (322)
Net foreign exchange gains/(losses) - 4 4 - (334) (334)
Income 5 9,878 - 9,878 6,130 - 6,130
Investment management fees 6 (1,300) - (1,300) (872) - (872)
Other expenses 7 (1,033) - (1,033) (1,056) (103) (1,159)
------------------------------------ ----- ------- ------- ------- ------- ------- -------
Profit/(loss) on ordinary
activities before
taxation 7,545 (6,364) 1,181 4,202 (759) 3,443
Taxation 9 - - - - - -
------------------------------------ ----- ------- ------- ------- ------- ------- -------
Profit/(loss) on ordinary
activities after
taxation 7,545 (6,364) 1,181 4,202 (759) 3,443
Earnings per Share (cents)
- basic and diluted 8 5.68c (4.79c) 0.89c 4.54c (0.82c) 3.72c
------------------------------------ ----- ------- ------- ------- ------- ------- -------
The total column of the Statement of Comprehensive Income is the
profit and loss account of the Company.
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
during the Year.
Profit on ordinary activities after taxation is also the total
comprehensive profit for the Year. The notes contained in the
Annual Financial Report form part of these financial
statements.
Statement of Financial Position
As at 31 December 2022
As at As at
31 December 31 December
2022 2021
Notes $'000 GBP'000
------------------------------------------- ----- ----------- -----------
Non-current assets
Investment at fair value through profit or
loss 4 127,375 118,882
Current assets
Cash and cash equivalents 3,394 5,362
Trade and other receivables 10 11 1
------------------------------------------- ----- ----------- -----------
3,405 5,363
Current liabilities: amounts falling due
within one year
Trade and other payables 11 (593) (522)
------------------------------------------- ----- ----------- -----------
Net current assets 2,812 4,841
Net assets 130,187 123,723
Capital and reserves: equity
Share capital 12 1,381 1,251
Share premium 12,732 29
Special distributable reserve 14 121,250 121,250
Capital reserve (7,123) (759)
Revenue reserve 1,947 1,952
------------------------------------------- ----- ----------- -----------
Total Shareholders' funds 130,187 123,723
Net assets per Share (cents) 15 94.3c 98.9c
------------------------------------------- ----- ----------- -----------
Approved and authorised by the Board of directors for issue on
13 April 2023.
Patrick O'D Bourke
Chair of the Board
Statement of Changes in Equity
For the year ended 31 December 2022
Special
Share Share distributable Capital Revenue
capital premium reserve reserve reserve Total
Notes $'000 $'000 $'000 $'000 $'000 $'000
---------------------------- ----- ------- ------- ------------- ------- ------- -------
Opening equity as
at
1 January 2022 1,251 29 121,250 (759) 1,952 123,723
Transactions with
Shareholders
Shares issued during
the Year 12 129 13,027 - - - 13,156
Shares issued to Investment
Manager 12 1 94 - - - 95
Share issue costs - (418) - - - (418)
Dividend distribution 13 - - - - (7,550) (7,550)
---------------------------- ----- ------- ------- ------------- ------- ------- -------
Total transactions
with
shareholders 130 12,703 - - (7,550) 5,283
---------------------------- ----- ------- ------- ------------- ------- ------- -------
Profit/(loss) and total
comprehensive income
for the Year - - - (6,364) 7,545 1,181
---------------------------- ----- ------- ------- ------------- ------- ------- -------
Closing equity as
at
31 December 2022 1,381 12,732 121,250 (7,123) 1,947 130,187
---------------------------- ----- ------- ------- ------------- ------- ------- -------
Statement of Changes in Equity
For the year ended 31 December 2022
Special
Share Share distributable Capital Revenue
capital premium reserve reserve reserve Total
Notes $'000 $'000 $'000 $'000 $'000 $'000
---------------------------- ----- ------- --------- ------------- ------- ------- -------
Opening equity as
at
12 August 2020 - - - - - -
Transactions with
Shareholders
Shares issued at IPO 12 1,250 123,750 - - - 125,000
Shares issued to Investment
Manager 12 1 52 - - - 53
Share issue costs - (2,523) - - - (2,523)
Transfer to Special
distributable
reserve - (121,250) 121,250 - - -
Dividend distribution 13 - - - - (2,250) (2,250)
---------------------------- ----- ------- --------- ------------- ------- ------- -------
Total transactions
with shareholders 1,251 29 121,250 - (2,250) 120,280
Profit/(loss) and total
comprehensive
income for the period - - - (759) 4,202 3,443
---------------------------- ----- ------- --------- ------------- ------- ------- -------
Closing equity as
at 31 December 2021 1,251 29 121,250 (759) 1,952 123,723
---------------------------- ----- ------- --------- ------------- ------- ------- -------
The Company's distributable reserves consist of the Special
distributable reserve, the Capital reserve attributable to realised
gains and losses and the Revenue reserve. Total distributable
reserves as of 31 December 2022 were $123.2 million (31 December
2021: $123.2 million).
The Company may use its distributable reserves to fund
dividends, redemptions of Shares and share buy backs.
Statement of Cash Flows
For the year ended 31 December 2022
For the period
from
Incorporation
on
For the year 12 August 2020
ended to
31 December 31 December
2022 2021
Notes $'000 $'000
---------------------------------------- ----- ------------ --------------
Operating activities
Profit on ordinary activities
before taxation 1,181 3,443
Adjustment for unrealised losses
on investments 6,368 322
Adjustment for non-cash investment
management fee 95 53
Increase in trade and other receivables (10) (1)
Increase in trade and other payables 71 522
---------------------------------------- ----- ------------ --------------
Net cash flow from operating
activities 7,705 4,339
Investing activities
Purchase of investments 4 (14,861) (119,204)
---------------------------------------- ----- ------------ --------------
Net cash flow used in investing (14,861) (119,204)
Financing activities
Proceeds of share issues* 12 12,897 122,977
Share issue costs* (159) (500)
Dividends paid 13 (7,550) (2,250)
---------------------------------------- ----- ------------ --------------
Net cash flow from financing 5,188 120,227
---------------------------------------- ----- ------------ --------------
(Decrease)/Increase in cash (1,968) 5,362
---------------------------------------- ----- ------------ --------------
Cash and cash equivalents at
start of Year/Period 5,362 -
---------------------------------------- ----- ------------ --------------
Cash and cash equivalents at
end of Year/Period 3,394 5,362
---------------------------------------- ----- ------------ --------------
* The net proceeds from share issues and the share issue costs
are being shown net after the money due to the underwriter of
$259,000 (2021: $2,023,000) which related to their commission was
retained.
As at 31
December As at
31 December
2022 2021
$'000 $'000
------------------------------------------------------ --------- -----------
Cash and cash equivalents
Cash at bank - 1
Money market cash deposits 3,394 5,361
------------------------------------------------------ --------- -----------
Total cash and cash equivalents at end of Year/Period 3,394 5,362
------------------------------------------------------ --------- -----------
The notes below form part of these financial statements.
Notes to the Financial Statements
For the year ended 31 December 2022
1. General Information
Ecofin U.S. Renewables Infrastructure Trust PLC ("RNEW" or the
"Company") is a public company limited by shares incorporated in
England and Wales on 12 August 2020 with registered number
12809472. The Company is a closed ended-- investment company with
an indefinite life. The Company commenced operations on 22 December
2020 when its Shares were admitted to trading on the LSE. The
Directors intend, at all times, to conduct the affairs of the
Company so as to enable it to qualify as an investment trust for
the purposes of section 1158 of the Corporation Tax Act 2010, as
amended.
The registered office and principal place of business of the
Company is 6th Floor, 125 London Wall, London, EC2Y 5AS.
The Company's investment objective is to provide Shareholders
with an attractive level of current distributions, by investing in
a diversified portfolio of mixed renewable energy and sustainable
infrastructure assets predominantly located in the U.S. with
prospects for modest capital appreciation over the long term.
The financial statements comprise only the results of the
Company, as its investment in RNEW Holdco, LLC ("Holdco") is
included at fair value through profit or loss ("FVTPL") as detailed
in the key accounting policies below.
The Company's AIFM and Investment Manager is Ecofin Advisors,
LLC.
Apex Listed Companies Services (UK) Limited (formerly Sanne Fund
Services (UK) Limited), provides administrative and company
secretarial services to the Company under the terms of an
administration agreement between the Company and the
Administrator.
2. Basis of Preparation
The financial statements have been prepared in accordance with
applicable law and the UK-adopted international accounting
standards. The financial statements have been prepared on the
historical cost basis, as modified for the measurement of certain
financial instruments at FVTPL.
The financial statements have also been prepared as far as is
relevant and applicable to the Company in accordance with the
Statement of Recommended Practice ("SORP") issued by the AIC in
July 2022.
The functional currency of the Company is U.S. Dollars as this
is the currency of the primary economic environment in which the
Company operates and where its investments are located. The
Company's investment in Holdco is denominated in U.S. Dollars and a
substantial majority of its income is receivable, and of its
expenses is payable, in U.S. Dollars. Also, a majority of the
Company's cash and cash equivalent balances is retained in U.S.
Dollars. Accordingly, the financial statements are presented in
U.S. Dollars rounded to the nearest thousand dollars.
Comparative financial information is at 31 December 2021 and for
the period from the Company's Incorporation on 12 August 2020 to 31
December 2021 ("Period"), being the Company's first accounting
period.
Basis of consolidation
The Company has adopted the amendments to IFRS 10 which state
that investment entities should measure all of their subsidiaries
that are themselves investment entities at fair value.
The Company owns 100% of its subsidiary Holdco and invests in
SPVs through its investment in Holdco. The Company and Holdco meet
the definition of an investment entity as described by IFRS 10.
Under IFRS 10, investment entities measure subsidiaries at fair
value rather than consolidate them on a line-by-line basis, meaning
Holdco's cash, debt and working capital balances are included in
investments held at fair value rather than in the Company's current
assets and liabilities. Holdco has one investor, which is the
Company. In substance, Holdco is investing the funds of the
investors in the Company on its behalf and is effectively
performing investment management services on behalf of such
unrelated beneficiary investors.
Characteristics of an investment entity
Under the definition of an investment entity, the Company should
satisfy all three of the following tests:
-- Company obtains funds from one or more investors for the
purpose of providing those investors with investment management
services;
-- Company commits to its investors that its business purpose is
to invest funds solely for returns from capital appreciation,
investment income, or both; and
-- Company measures and evaluates the performance of
substantially all of its investments on a fair value basis.
In assessing whether the Company meets the definition of an
investment entity set out in IFRS 10, the Directors note that:
-- the Company has multiple investors and obtains funds from a
diverse group of shareholders who would otherwise not have access
individually to investing in renewable energy and sustainable
infrastructure investments ("Renewable Assets") due to high
barriers to entry and capital requirements;
-- the Company intends to hold its Renewable Assets for the
remainder of their useful lives for the purpose of investment
income. The Renewable Assets are expected to generate renewable
energy output for 25 to 30 years from their relevant COD and the
Directors believe the Company is able to generate returns to
investors during that period; and
-- the Company measures and evaluates the performance of all of
its investments on a fair value basis which is the most relevant
for investors in the Company. Management uses fair value
information as a primary measurement to evaluate the performance of
all of the Company's investments and in decision making.
The Directors are of the opinion that the Company meets all the
characteristics of an investment entity and therefore meets the
definition set out in IFRS 10. The Directors are satisfied that
investment entity accounting treatment appropriately reflects the
Company's activities as an investment trust.
Going concern
The Directors have adopted the going concern basis in preparing
the financial statements. In reaching their conclusion, the
Directors considered the Company's cash flow forecasts, cash and
net debt position, and the financial covenants in its borrowing
facilities. The Company's net assets at 31 December 2022 were
$130.2 million (31 December 2021: $123.7 million). As at 31
December 2022, the Company held $3.4 million in cash (31 December
2021: $5.4 million) and had borrowings of $64.4 million (31
December 2021: $52.1 million) and $46 million headroom on its RCF
(31 December 2021: $60 million). The Directors are confident that
the Company's RCF, which is currently due to expire in October
2023, will be extended or renewed during the second half of 2023.
Active discussions are currently taking place to agree specific
terms.
The Company's holds 100% of the share capital of Holdco which in
turn holds investments in renewable energy project companies
through SPVs. Underlying SPV revenues are derived from the sale of
electricity by project companies under PPAs in place with
creditworthy utilities, municipalities, and corporations. Most of
these PPAs are contracted over a long period with a weighted
average remaining life as at 31 December 2022 of 14.6 years (31
December 2021: 16.7 years).
The Company continues to meet its day-to-day liquidity needs
through its cash resources. Total expenses for the year ended 31
December 2022 were $2.3 million Period from incorporation to 31
December 2021: $2.0 million), which represented approximately 1.8%
of average net assets during the Year (Period from incorporation to
31 December 2021: 1.6%). At the date of approval of this Annual
Report, based on the aggregate of investments and cash held, the
Company had substantial cover for its operating expenses.
The major cash outflows of the Company are the acquisition of
new investments and the payment of dividends. The Directors review
financial reporting and forecasts at each quarterly Audit Committee
meeting, which includes reporting related to indebtedness,
compliance with borrowing covenants and fund investment limits. The
Directors are confident that the Company has sufficient cash
balances, borrowing headroom and anticipated tax equity
arrangements in order to fund the commitments detailed in note 19
to the financial statements, should they become payable.
As a result of the macro-economic situation brought about by the
Russian invasion of Ukraine and the recovery from the COVID-19
pandemic, the Directors have fully considered each of the Company's
investments. The Directors do not foresee any immediate material
risk to the Company's investment portfolio and/or the income it
receives from underlying SPVs. A prolonged and deep market decline
could lead to falling values in the underlying investments or
interruptions to cashflow, however the Company currently has
sufficient liquidity available to meet its future obligations. The
Directors are also satisfied that the Company would continue to
remain viable under downside scenarios, including decreasing U.S.
government regulated tax credits and a decline in long term power
price forecasts.
The Company's ability to continue as a going concern has been
assessed by the Directors for a period of at least 12 months from
the date the financial statements were authorised for
publication.
Critical accounting judgements, estimates and assumptions
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 are, by their
nature, based on judgement and available information, hence actual
results may differ from these judgements, estimates and
assumptions. The estimates and assumptions that have a significant
risk of causing a material adjustment to the carrying value of
assets and liabilities are those used to determine the fair value
of the investments as disclosed in note 4 to the financial
statements.
Key judgements
As disclosed above, the Directors have concluded that both the
Company and Holdco meet the definition of an investment entity as
defined in IFRS 10. This conclusion involved a degree of judgement
and assessment as to whether the Company met the criteria outlined
in IFRS 10.
Key estimation and uncertainty: Investments at fair value
through profit or loss
The Company's investments in unquoted investments are valued by
reference to valuation techniques approved by the Directors and in
accordance with the International Private Equity and Venture
Capital Valuation (IPEV) Guidelines.
The Company uses discounted cash flow ("DCF") models to
determine the fair value of the underlying assets in Holdco. The
value of Holdco includes any working capital not accounted for in
the DCF models (deferred tax liabilities, cash plus any receivables
or payables at the entity and not at the asset level). The fair
value of each asset is derived by projecting its future cash flows,
based on a range of operating assumptions for revenues and
expenses, and discounting those future cash flows to the present
using a discount rate appropriately calibrated to the risk profile
of the asset and market dynamics. The key estimates and assumptions
used within the DCF include discount rates, annual energy
production, curtailment, merchant power prices, useful life of the
assets, and various operating expenses and associated annual
escalation rates often tied to inflation, including O&M, asset
management, balance of plant, land leases, insurance, property and
other taxes and decommissioning bonds, among other items. An
increase/(decrease) in the key valuation assumptions would lead to
a corresponding decrease/(increase) in the fair value of the
investments as described in note 4 to the financial statements. The
Company's investments at fair value are not traded in active
markets.
The estimates and assumptions used to determine the fair value
of investments are disclosed in note 4 to the financial
statements.
Segmental reporting
The Chief Operating Decision Maker, which is the Board, is of
the opinion that the Company is engaged in a single segment of
business, being investment in renewable energy infrastructure
assets to generate investment returns whilst preserving capital.
The financial information used by the Chief Operating Decision
Maker to manage the Company presents the business as a single
segment.
All of the Company's income is generated within the U.S. All of
the Group's non-current assets are located in the U.S.
New Standards, Interpretations and Amendments adopted from 1
January 2022
A number of new standards, amendments to standards are effective
for annual periods beginning after 1 January 2022. None of these
have a significant effect on the measurement of the amounts
recognised in the financial statements of the Company.
New Standards and Amendments issued but not yet Effective
The relevant new and amended standards and interpretations that
are issued, but not yet effective, up to the date of issuance of
the Company's financial statements are disclosed below. These
standards are not expected to have a material impact on the entity
in future reporting periods and on foreseeable future
transactions.
Amendments to IAS 1: Classification of Liabilities as Current or
Non-current
In January 2020, the IASB issued amendments to paragraphs 69 to
76 of IAS 1 to specify the requirements for classifying liabilities
as current or non-current. The amendments are effective for annual
reporting periods beginning on or after 1 January 2023. This
amendment is not yet endorsed in the UK.
Definition of Accounting Estimates - Amendments to IAS 8
In February 2021, the IASB issued amendments to IAS 8, in which
it introduced a definition of 'accounting estimates'. The
amendments are effective for annual reporting periods beginning on
or after 1 January 2023.
Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS
Practice Statement 2
In February 2021, the IASB issued amendments to IAS 1 and IFRS
Practice Statement 2 Making Materiality Judgements. The amendments
to IAS 1 are applicable for annual periods beginning on or after 1
January 2023.
3. Significant Accounting Policies
Financial Instruments
Financial assets
The Company's financial assets principally comprise an
investment held at FVTPL (investment in Holdco) and trade and other
receivables.
The Company's investment in Holdco, being classified as an
investment entity under IFRS 10, is held at FVTPL in accordance
with IFRS 9. Gains or losses resulting from movements in fair value
are recognised in the Company's Statement of Comprehensive Income
at each valuation point.
Trade and other receivables are initially recognised at fair
value and subsequently measured at amortised cost using the
effective interest rate method.
Financial liabilities
The Company's financial liabilities include trade and other
payables and other short term monetary liabilities which are
initially recognised at fair value and subsequently measured at
amortised cost using the effective interest rate method.
Recognition, derecognition and measurement
Financial assets and financial liabilities are recognised in the
Company's Statement of Financial Position when the Company becomes
a party to the contractual provisions of the instrument. Financial
assets and financial liabilities are initially measured at fair
value.
Transaction costs that are directly attributable to the
acquisition or issue of financial assets and financial liabilities
(other than financial assets and financial liabilities at FVTPL)
are added to or deducted from the fair value of the financial
assets or financial liabilities, as appropriate, on initial
recognition. Transaction costs directly attributable to the
acquisition of financial assets or financial liabilities at FVTPL
are recognised immediately in profit or loss.
Financial assets are derecognised when the rights to receive
cash flows from the investments have expired or the Company has
transferred substantially all risks and rewards of ownership.
A financial liability (in whole or in part) is derecognised when
the Company has extinguished its contractual obligations, it
expires or is cancelled.
Subsequent to initial recognition, financial assets at FVTPL are
measured at fair value. Gains and losses resulting from movements
in fair value are recognised in the Statement of Comprehensive
Income.
Financial liabilities are subsequently measured at amortised
cost using the effective interest rate method.
Taxation
The following accounting policies for taxation and deferred tax
are in respect of UK tax and deferred taxation.
Investment trusts which have approval under Section 1158 of the
Corporation Tax Act 2010 are not liable for taxation on capital
gains. Shortly after listing the Company received approval as an
Investment Trust by HMRC. Current tax is the expected tax payable
on the taxable income for the Year, using tax rates that have been
enacted or substantively enacted at the date of the Statement of
Financial Position.
Deferred taxation
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit, and is accounted for using the
statement of financial position liability method. Deferred tax
liabilities are recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited to the Statement of
Comprehensive Income except when it relates to items charged or
credited directly to equity, in which case the deferred tax is also
dealt with in equity.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off tax assets against tax
liabilities and when they relate to income taxes levied by the same
taxation authority and the Company intends to settle its current
tax assets and liabilities on a net basis.
Income
Income includes investment income from financial assets at FVTPL
and finance income.
Dividend income is recognised when received and is reflected in
the Statement of Comprehensive Income as Investment Income. Bank
deposit interest income is earned on bank deposits on an accruals
basis.
Expenses
All expenses are accounted for on an accruals basis. In respect
of the analysis between revenue and capital items presented within
the Statement of Comprehensive Income, all expenses, including the
Investment Management fee, are presented in the revenue column of
the Statement of Comprehensive income as they are directly
attributable to the operations of the Company with the exception of
costs incurred in the acquisition of the seed assets in the Period
ended 31 December 2021, which were charged as a capital item in the
Statement of Comprehensive Income.
Details of the Company's fee payments to the Investment Manager
are disclosed in note 6 to the financial statements.
Foreign currency
Transactions denominated in foreign currencies are translated
into U.S. Dollars at actual exchange rates as at the date of the
transaction. Monetary assets and liabilities denominated in foreign
currencies at the Year end are reported at the rates of exchange
prevailing at the Year end. Any gain or loss arising from a change
in exchange rates subsequent to the date of the transaction is
included as an exchange gain or loss to capital or revenue in the
Statement of Comprehensive Income as appropriate. Foreign exchange
movements on investments are included in the Statement of
Comprehensive Income within gains on investments.
Cash and cash equivalents
Cash and cash equivalents include deposits held at call with
banks and other short-term deposits with original maturities of
three months or less.
Share capital and share premium
Shares are classified as equity. Costs directly attributable to
the issue of new Shares (that would have been avoided if there had
not been an issue of new Shares) are recognised against the value
of the Share premium account.
Repurchases of the Company's own Shares are recognised and
deducted directly in equity. No gain or loss is recognised in
profit or loss on the purchase, sale, issue or cancellation of the
Company's own equity instruments.
Nature and purpose of equity and reserves:
Share capital represents the nominal value (1 cent per share) of
the issued share capital. The Share premium account arose from the
net proceeds of new Shares.
The Special distributable reserve, which can be utilised to fund
distributions to the Company's Shareholders, was created following
confirmation of the Court, through the cancellation and transfer of
$121,250,000 in January 2021 from the Share premium account.
The capital reserve reflects any:
-- gains or losses on the disposal of investments;
-- exchange movements of a capital nature;
-- the increases and decreases in the fair value of investments
which have been recognised in the capital column of the Statement
of Comprehensive Income; and
-- expenses which are capital in nature.
The revenue reserve reflects all income and expenditure
recognised in the revenue column of the Statement of Comprehensive
Income and is distributable by way of dividend.
The Company's distributable reserves consists of the Special
distributable reserve, the Capital reserve attributable to realised
profits and the Revenue reserve.
Dividend payable
Dividends payable are recognised as distributions in the
financial statements when the Company's obligation to make payment
has been established.
4. Investment Held at Fair Value Through Profit or Loss
As at 31 December 2022, the Company had one investment, being
Holdco. The cost of the investment in Holdco was US$ 134,065,052
(31 December 2021: US$119,203,824).
31 December 31 December
2022 2021
Total Total
$'000 $'000
------------------------------------------------ ----------- -----------
(a) Summary of valuation
Analysis of closing balance:
Investment at fair value through profit or loss 127,375 118,882
------------------------------------------------ ----------- -----------
Total investment as at 31 December 127,375 118,882
(b) Movements during the Year/Period:
Opening balance of investment, at cost 119,204 -
Additions, at cost 14,861 119,204
------------------------------------------------ ----------- -----------
Cost of investment as at 31 December 134,065 119,204
Revaluation of investment to fair value:
Unrealised movement in fair value of investment (6,690) (322)
------------------------------------------------ ----------- -----------
Fair value of investment as at 31 December 127,375 118,882
(c) Losses on investment in Year/Period
Unrealised movement in fair value of investment
brought forward (322) -
Unrealised movement in fair value of investment
during the year (6,368) (322)
------------------------------------------------ ----------- -----------
Losses on investment (6,690) (322)
------------------------------------------------ ----------- -----------
Fair value measurements
IFRS 13 requires disclosure of fair value measurement by level.
The level of fair value hierarchy within the financial assets or
financial liabilities is determined on the basis of the lowest
level input that is significant to the fair value measurement.
Financial assets and financial liabilities are classified in their
entirety into only one of the following three levels:
Level 1
The unadjusted quoted price in an active market for identical
assets or liabilities that the entity can access at the measurement
date.
Level 2
Inputs other than quoted prices included within Level 1 that are
observable (i.e. developed using market data) for the asset or
liability, either directly or indirectly.
Level 3
Inputs are unobservable (i.e. for which market data is
unavailable) for the asset or liability.
31 December
2022
Level 1 Level 2 Level 3 Total
$'000 $'000 $'000 $'000
----------------------------------- ------- ----------- ------- -------
Investment at fair value through
profit or loss
Equity investment in Holdco - - 127,375 127,375
----------------------------------- ------- ----------- ------- -------
Total investment as at 31 December
2022 - - 127,375 127,375
----------------------------------- ------- ----------- ------- -------
31 December
2021
Level 1 Level 2 Level 3 Total
$'000 $'000 $'000 $'000
----------------------------------- ------- ----------- ------- -------
Investment at fair value through
profit or loss
Equity investment in Holdco - - 118,882 118,882
----------------------------------- ------- ----------- ------- -------
Total investment as at 31 December
2021 - - 118,882 118,882
----------------------------------- ------- ----------- ------- -------
Due to the nature of the underlying investments held by Holdco,
the Company's investment in Holdco is always expected to be
classified as Level 3. There have been no transfers between levels
during the Year/Period.
The movement on the Level 3 unquoted investment during the
Year/Period is shown below:
As at As at
31 December 31 December
2022 2021
$'000 $'000
--------------------------------- ----------- -----------
Opening balance 118,882 -
Additions during the Year/Period 14,861 119,204
Unrealised loss on investment (6,368) (322)
--------------------------------- ----------- -----------
Closing balance 127,375 118,882
--------------------------------- ----------- -----------
Valuation methodology
The Company owns 100% of its subsidiary Holdco through which the
Company has acquired all its underlying investments in SPVs.
As discussed in Note 2, the Company meets the definition of an
investment entity as described by IFRS 10, and as such the
Company's investment in Holdco is valued at fair value. In
accordance with Company policy, the Investment Manager has engaged
an independent valuation firm, Marshall & Stevens, to carry out
fair market valuations of the underlying investments as at 31
December 2022.
Fair value of operating assets is derived using a DCF
methodology, which follows International Private Equity Valuation
and Venture Capital Valuation Guidelines. DCF is deemed the most
appropriate methodology when a detailed projection of future cash
flows is possible. The fair value of each asset is derived by
projecting the future cash flows of an asset, based on a range of
operating assumptions for revenues and expenses, and discounting
those future cash flows to the present day with a pre-tax discount
rate appropriately calibrated to the risk profile of the asset and
market dynamics. Due to the asset class and available market data
over the forecast horizon, a DCF valuation is typically the basis
upon which renewable assets are traded in the market. Assets that
are not yet operational and still under construction at the time of
the valuation are held at cost as an estimate of fair value,
provided no significant changes to key underlying economic
considerations (such as major construction impediments or natural
disasters) have arisen.
The Company measures the total fair value of Holdco by its net
asset value, which is made up of cash, working capital balances and
the aforementioned fair value of the underlying investments as
determined using the DCF methodology.
The Directors have satisfied themselves as to the methodology,
the discount rates used and key assumptions applied and the
valuation.
Valuation Sensitivities
A sensitivity analysis is carried out to show the impact on NAV
of changes to key assumptions. For each of the sensitivities, it is
assumed that potential changes occur independently of each other
with no effect on any other key assumption, and that the number of
investments in the portfolio remains static throughout the modelled
life. The resulting NAV per share impacts are discussed below.
(i) Discount rates
Pre-tax discount rates applied in the DCF valuations are
determined by Marshall & Stevens using a multitude of factors,
including pre-tax discount rates disclosed by the Company's global
peers and comparable infrastructure asset classes as well as the
internal rate of return inherent in the original purchase price
when underwriting the asset. The DCF valuations utilize two classes
of pre-tax discount rates:
a) contracted discount rate applied to the contracted cash flows
of each asset and b) uncontracted discount rate (higher) applied to
the uncontracted (or "merchant") cash flows of each investment
which will occur after the initial PPA and/or other contract
term.
The pre-tax discount rates used in the DCF valuation of the
investments are considered the most significant observable input
through which an increase or decrease would have a material impact
on the fair value of the investments at FVTPL. As of 31 December
2022, the blended pre-tax discount rates (i.e., the implied
discount rate of both the contracted and uncontracted discount
rates of each investment) applied to the portfolio ranged from 6.7%
to 8.0% (2021: 6.5% to 7.8%) with an overall weighted average of
7.5% (2021: 7.2%).
An increase or decrease of 0.5% in the discount rates would have
the following impact on NAV:
+ 50
Discount Rate bps - 50 bps
----------------------------------- ------- --------
Increase/(decrease) in NAV ($'000) (6,402) 6,998
NAV per Share 89.6c 99.4c
NAV per Share Change (4.6c) 5.1c
Change (%) (4.9%) 5.4%
----------------------------------- ------- --------
(ii) Energy Production
Solar and wind assets are subject to variation in energy
production over time. An assumed "P75" level of energy yield (i.e.
a level of energy production that is below "P50", with a 75%
probability of being exceeded) would cause a decrease in the total
portfolio valuation, while an assumed "P25" level of power output
(i.e. a level of energy production that is above "P50", with a 25%
probability of being achieved) would cause an increase in the total
portfolio valuation.
Energy production, as measured in MWh per annum, assumed in the
DCF valuations is based on a "P50" energy yield profile,
representing a 50% probability that the energy production estimate
will be met or exceeded over time. An independent engineer has
derived this energy yield estimate for each asset by taking into
account a range of irradiation, weather data, ground-based
measurements and design/site-specific loss factors including module
performance, module mismatch, inverter losses, and transformer
losses, among others. The "P50" energy yield case includes a 0.5%
annual degradation for solar assets and 1.0% annual degradation for
wind assets through the entirety of the useful life. In addition,
the P50 energy yield case includes an assumption of availability,
which ranges from 98.5% to 99% for solar assets and 96.0% for wind
assets, as determined reasonable by an independent engineer at the
time of underwriting the asset.
The application of a P75 and a P25 energy yield case would have
the following impact on NAV:
Energy Production P75 P25
----------------------------------- ------- ------
Increase/(decrease) in NAV ($'000) (8,197) 8,446
NAV per Share 88.3c 100.4c
NAV per Share Change (5.9c) 6.1c
Change (%) (6.3%) 6.5%
----------------------------------- ------- ------
(iii) Curtailment
Curtailment is the deliberate reduction (by the transmission
operator) in energy output of an asset below what could have been
produced in order to balance energy supply and demand or due to
transmission constraints. Due to the contracted nature of energy
production of its renewable energy investments held by Holdco and
with a substantial share of its solar assets being behind-the-meter
and directly connected to the energy consumer, the Company's NAV is
subject to a low overall level of curtailment, which has been
factored into NAV.
An increase or decrease of 50% from the assumed level of
curtailment would have the following impact on NAV:
Curtailment -50% +50%
----------------------------------- ------- -----
Increase/(decrease) in NAV ($'000) (5,037) 4,680
NAV per Share 90.6c 97.7c
NAV per Share Change (3.6c) 3.4c
Change (%) (3.9%) 3.6%
----------------------------------- ------- -----
(iv) Merchant Power Prices
All of the Company's assets have long-term PPAs and incentive
contracts in place with creditworthy energy purchasers, and thus
are not impacted by fluctuations in regional market energy prices
during the contract period. Future power price forecasts used in
the DCF valu-ations are derived from regional market forward prices
provided by the EIA, with a 10-50% discount applied based on the
characteristics of the asset as reasonably determined by Marshall
& Stevens. Inflationary pressures over the long-term could
present a circumstance of variability and increase merchant power
prices from previous forecasts.
An increase or decrease of 10% in future merchant power price
assumptions would have the following impact on NAV:
Merchant Power Prices -10.0% +10.0%
----------------------------------- ------- ------
Increase/(decrease) in NAV ($'000) (6,801) 7,021
NAV per Share 89.4c 99.4c
NAV per Share Change (4.9c) 5.1c
Change (%) (5.2%) 5.4%
----------------------------------- ------- ------
(v) Operating Expenses
Operating expenses include O&M, balance of plant, asset
management, site leases and easements, insurance, property taxes,
equip-ment reserves, decommissioning bonds and other costs. Most
operating expenses for solar and wind assets are contracted with
annual escalation rates, which typically range from 2-3% to account
for normalised inflation. As such, there is typically little
variation in annual operating expenses. However, there may be
incidents when certain expenses may be recontracted. Inflationary
pressures over the long-term could also affect future operating
expenses.
An increase or decrease of 10% in operating expenses would have
the following impact on NAV:
Operating Expenses +10.0% -10.0%
----------------------------------- ------- ------
Increase/(decrease) in NAV ($'000) (5,382) 5,599
NAV per Share 90.4c 98.3c
NAV per Share Change (3.9c) 4.1c
Change (%) (4.1%) 4.3%
----------------------------------- ------- ------
5. Income
For the For the
year Period
ended ended
31 December 31 December
2022 2021
$'000 GBP'000
----------------------- ----------- -----------
Income from investment
Dividends from Holdco 9,850 6,115
Deposit interest 28 15
----------------------- ----------- -----------
Total Income 9,878 6,130
----------------------- ----------- -----------
6. Investment Management Fees
For the year ended 31 December For the Period ended 31
2022 December 2021
Revenue Capital Total Revenue Capital Total
$'000 $'000 $'000 $'000 $'000 $'000
====================== ============ =========== ======= ========= ======== ======
Investment management
fees 1,300 - 1,300 872 - 872
====================== ============ =========== ======= ========= ======== ======
The Investment Management Agreement ("IMA") dated 11 November
2020 between the Company and Ecofin Advisors, LLC, appointed the
AIFM to act as the Company's Investment Manager for the purposes of
the AIFM Directive. Accordingly, the AIFM is responsible for
providing portfolio management and risk management services to the
Company.
Under the IMA, the Investment Manager receives a management fee
of 1.00% per annum of NAV up to and including $500 million; 0.90%
per annum of NAV in excess of $500 million up to and including $1
billion; and 0.80% per annum of NAV in excess of $1 billion,
invoiced quarterly in arrears. Until such time as 90% of the Net
Initial Proceeds of the Company's IPO was committed to investments,
the Investment Manager fee was only charged on the committed
capital of the Company. No performance fee or asset level fees are
payable to the AIFM under the IMA.
The Investment Manager reinvests 15% of its annual management
fee in Shares (the "Management Fee Shares"), subject to a rolling
lock-up of up to two years, subject to certain limited exceptions.
The Management Fee Shares are issued on a quarterly basis. Where
the Shares are trading at a premium to NAV, the Company will issue
new Shares to the Manager equivalent in value to the management fee
reinvested. Where the Shares are trading at a discount to NAV, the
Management Fee Shares will be purchased by the Company's Brokers at
the prevailing market price.
The calculation of the number of Management Fee Shares to be
issued is based upon the NAV as at the relevant quarter-end
concerned. The Investment Manager is also entitled to be reimbursed
for out-of-pocket expenses reasonably and properly incurred in
respect of the performance of its obligations under the IMA.
Unless otherwise agreed by the Company and the Investment
Manager, the IMA may be terminated by the Company or the Investment
Manager on not less than 12 months' notice to the other party, such
notice not to expire earlier than 36 months from the Effective Date
of the IMA (11 November 2020). The IMA may be terminated by the
Company with immediate effect from the time at which notice of
termination is given or, if later, the time at which such notice is
expressed to take effect in accordance with the conditions set out
in the IMA.
The Company has issued or the Company's Broker has purchased the
following Shares to settle investment management fees in respect of
the year under review:
Investment
management
fee Issue price Number of
Shares issued ($) (cents) Shares Date of issue
-------------------------------- ---------- ----------- --------- -------------
1 January 2022 to 31 March 2022 44,559 97.64 45,636 03 May 2022
1 April 2022 to 30 June 2022 50,359 97.32 51,745 28 July 2022
-------------------------------- ---------- ----------- --------- -------------
Investment
management
Purchase
fee price Number of
Shares purchased ($) (cents) Shares Date of purchase
------------------------------ ---------- -------- --------- ----------------
1 July 2022 to 30 September 01 November
2022 49,916 86.50 57,705 2022
1 October 2022 to 31 December 01 February
2022 49,346 83.50 59,096 2023
------------------------------ ---------- -------- --------- ----------------
7. Other Expenses
For the year ended 31 For the period ended
December 2022 31 December 2021
Revenue Capital Total Revenue Capital Total
$'000 $'000 $'000 GBP'000 GBP'000 GBP'000
------------------------------------- -------- -------- ----- ------- ------- -------
Secretary and Administrator
fees 175 - 175 223 - 223
Directors' fees 228 - 228 257 - 257
Directors' other employment
costs 36 - 36 31 - 31
Brokers' retainer 115 - 115 62 - 62
Auditor's fees
- Fees payable to the Company's
auditor for audit services 160 - 160 123 - 123
- Fees payable to the Company's
auditor for audit-related assurance
services - - - 62 - 62
FCA and listing fees 56 - 56 168 - 168
Research fees 51 - 51 - - -
Depository and custody fees 5 - 5 6 - 6
Registrar's fees 16 - 16 17 - 17
Marketing fees 9 - 9 10 - 10
Public relations fees 102 - 102 41 - 41
Printing and postage costs 45 - 45 27 - 27
Tax compliance - - - 8 - 8
Other expenses 35 - 35 21 - 21
Seed asset acquisitions - - - - 103 -
------------------------------------- -------- -------- ----- ------- ------- -------
Total expenses 1,033 - 1,033 1,056 103 1,159
------------------------------------- -------- -------- ----- ------- ------- -------
The Auditor's fee for the statutory audit of the Year is
$160,000 including VAT of $26,800 (2021: $123,000 including VAT of
$20,500).
8. Earnings Per Share
Earnings per Share is based on the profit for the year ended 31
December 2022 of $1,181,000 (2021: $3,443,000) attributable to the
weighted average number of Shares in issue of 132,933,277 in the
year to 31 December 2022 (2021: 92,475,686). Revenue and capital
profit/(loss) are $7,545,000 and ($6,364,000) respectively (2021:
$4,202,000 and ($759,000).
9. Taxation
(a) Analysis of charge in the Year/Period
For the year ended 31 For the period ended
December 2022 31 December 2021
Revenue Capital Total Revenue Capital Total
$'000 $'000 $'000 $'000 $'000 $'000
--------------- -------- -------- ----- -------- ------- -----
Corporation tax - - - - - -
--------------- -------- -------- ----- -------- ------- -----
Taxation - - - - - -
--------------- -------- -------- ----- -------- ------- -----
(b) Factors affecting total tax charge for the Year/Period:
The UK corporation tax rate applicable to the Company for the
Period is 19.00%. The actual tax charge differs from the charge
resulting from applying the standard rate of UK corporation
tax.
The differences are explained below:
For the year ended 31 For the period ended
December 2022 31 December 2021
Revenue Capital Total Revenue Capital Total
$'000 $'000 $'000 $'000 $'000 $'000
-------------------------------- ------- ------- ------- ------- ------- -------
Profit/(loss) on ordinary
activities before taxation 7,546 (6,364) 1,182 4,202 (759) 3,443
-------------------------------- ------- ------- ------- ------- ------- -------
Corporation tax at 19% 1,434 (1,209) 225 798 (144) 654
-------------------------------- ------- ------- ------- ------- ------- -------
Effects of:
-------------------------------- ------- ------- ------- ------- ------- -------
Dividends received (not subject
to tax) (1,877) - (1,877) (1,165) - (1,165)
-------------------------------- ------- ------- ------- ------- ------- -------
Loss on investments held
at fair value not allowable 1,209 1,209 - 125 125
-------------------------------- ------- ------- ------- ------- ------- -------
Unutilised management expenses 443 - 443 367 19 386
-------------------------------- ------- ------- ------- ------- ------- -------
Total tax charge for the
Year/Period - - - - - -
-------------------------------- ------- ------- ------- ------- ------- -------
Investment companies which have been approved by HMRC under
section 1158 of the Corporation Tax Act 2010 are exempt from tax on
UK capital gains. Due to the Company's status as an investment
trust, and the intention to continue meeting the conditions
required to obtain approval in the foreseeable future, the Company
has not provided for deferred tax on any capital gains or losses
arising on the revaluation of investments.
As at 31 December 2022, a deferred tax liability of $3,149,000
(2021: $1,884,000) representing U.S. Federal income taxes deferred
had been accrued and reflected in the valuation of the Company's
subsidiary, Holdco.
The Company has excess management expenses of $4,186,000 (2021:
$1,853,000) that are available for offset against future profits. A
deferred tax asset of $1,046,500 (2021: $462,250) has not been
recognised in respect of these losses as they will be recoverable
only to the extent that the Company has sufficient future taxable
profits.
The March 2021 Budget announced an increase to the main rate of
UK corporation tax to 25% effective from 1 April 2023. This
increase in the standard rate of corporation tax was enacted on 24
May 2021.
10. Trade and Other Receivables
As at 31 As at 31
December December
2022 2021
$'000 $'000
------------------------- -------- --------
Other receivables 9 1
Bank interest receivable 2 -
------------------------- -------- --------
Total 11 1
------------------------- -------- --------
11. Trade and Other Payables
As at 31 As at 31
December December
2022 2021
$'000 $'000
----------------- -------- --------
Accrued expenses 593 522
----------------- -------- --------
Total 593 522
----------------- -------- --------
12. Share Capital
For the year ended 31 For the period ended 31
December 2022 December 2021
Nominal Nominal Nominal Nominal
value value
of value of of value of
Shares Shares Shares Shares
------------------------------ ------------- ------- ------------ ------------- ----------- ------------
Allotted, issued and
fully paid: No. of Shares GBP $ No. of Shares GBP $
------------------------------ ------------- ------- ------------ ------------- ----------- ------------
Opening balance 125,053,498 - 1,250,534.98 - - -
------------------------------ ------------- ------- ------------ ------------- ----------- ------------
Allotted upon incorporation
Ordinary Shares of 1c
each ('Shares') - - - 1 - 0.01
Initial Redeemable Preference
Shares paid up to one
quarter of their nominal
value ('Initial Redeemable
Preference Shares') - - - 50,000 12,500.00 -
Allotted/redeemed following
admission to LSE
Shares issued - - - 125,000,000 - 1,250,000.00
Initial Redeemable Preference
Shares redeemed - - - (50,000) (12,500.00) -
Placing and retail
offer
Shares issued 12,927,617 - 129,276.17 - - -
Management Fee
Shares issued 97,381 - 973.81 53,497 - 534.97
------------------------------ ------------- ------- ------------ ------------- ----------- ------------
Closing balance as
at 31 December 138,078,496 - 1,380,784.96 125,053,498 - 1,250,534.98
------------------------------ ------------- ------- ------------ ------------- ----------- ------------
The Shares have attached to them full voting, dividend and
capital distribution (including on winding-up) rights. They confer
rights of redemption. The Initial Redeemable Preference Shares did
not carry a right to receive notice of or attend or vote at any
general meeting of the Company unless no other Shares were in issue
at that time. The Initial Redeemable Preference Shares were treated
as equity in accordance with the requirements of IFRS. The Initial
Redeemable Preference Shares did not confer the right to
participate in any surplus remaining following payment of such
amount.
On incorporation, the issued share capital of the Company was
$0.01 represented by one Share, which was subscribed for by Ecofin
Advisors, LLC. On 22 October 2020, the 50,000 Initial Redeemable
Preference Shares were allotted to Ecofin Advisors, LLC. The
Initial Redeemable Preference Shares were paid up as to one quarter
of their nominal value and were redeemed immediately following
Admission out of the proceeds of the Initial Issue.
On 22 December 2020, the Company was admitted to the premium
segment of the main market of the LSE and to the premium segment of
the Official List of the FCA ("Admission"). Pursuant to this,
125,000,000 Shares were issued at a price of $1.00 per Share.
On 24 May 2022 the Company issued 12,927,617 Shares at an issue
price of $1.015 per Share pursuant to a placing and retail
offer.
During the Year, the Company issued 45,636 Shares with respect
to the first quarter and 51,745 Shares with respect to the second
quarter to the Company's Investment Manager in relation to
investment management fees paid during the Year at an issuance
price of $0.9764 and $0.9732 respectively.
The Company's issued share capital at 31 December 2022 comprised
138,078,496 Shares (2021: 125,053,498) and this is the total number
of Shares with voting rights in the Company.
13. Dividends
(a) Dividends paid during the Year
The Company paid the following interim dividends during the
Year/Period:
For the year ended 31 December 2022
Special
distributable Revenue
Cents per reserve reserve Total
Share $'000 $'000 $'000
-------------------------------- ---------- ------------- ------- -----
Quarter ended 31 December 2021 1.40c - 1,751 1,751
-------------------------------- ---------- ------------- ------- -----
Quarter ended 31 March 2022 1.40c - 1,933 1,933
-------------------------------- ---------- ------------- ------- -----
Quarter ended 30 June 2022 1.40c - 1,933 1,933
-------------------------------- ---------- ------------- ------- -----
Quarter ended 30 September 2022 1.40c - 1,933 1,933
-------------------------------- ---------- ------------- ------- -----
Total 5.6c - 7,550 7,550
-------------------------------- ---------- ------------- ------- -----
For the period ended 31 December 2021
Special
distributable Revenue
Cents per reserve reserve Total
Share $'000 $'000 $'000
-------------------------------- ---------- --------------- ------- -----
Quarter ended 31 March 2021 0.40c - 500 500
-------------------------------- ---------- --------------- ------- -----
Quarter ended 30 June 2021 0.60c - 750 750
-------------------------------- ---------- --------------- ------- -----
Quarter ended 30 September 2021 0.80c - 1,000 1,000
-------------------------------- ---------- --------------- ------- -----
Total 1.8c - 2,250 2,250
-------------------------------- ---------- --------------- ------- -----
(b) Dividends paid and payable in respect of the financial
Year/Period
The dividends paid and payable in respect of the financial
Year/Period are the basis on which the requirements of s1158-s1159
of the Corporation Tax Act 2010 are considered.
For the year ended 31 December 2022
Special
distributable Revenue
Cents per reserve reserve Total
Share $'000 $'000 $'000
-------------------------------- ---------- ------------- ------- -----
Quarter ended 31 March 2022 1.40c - 1,933 1,933
-------------------------------- ---------- ------------- ------- -----
Quarter ended 30 June 2022 1.40c - 1,933 1,933
-------------------------------- ---------- ------------- ------- -----
Quarter ended 30 September 2022 1.40c - 1,933 1,933
-------------------------------- ---------- ------------- ------- -----
Quarter ended 31 December 2022 1.40c - 1,933 1,933
-------------------------------- ---------- ------------- ------- -----
Total 5.6c - 7,732 7,732
-------------------------------- ---------- ------------- ------- -----
For the period ended 31 December 2021
Special
Cents per distributable Revenue
Share reserve reserve Total
$'000 $'000 $'000
-------------------------------- ---------- --------------- ------- -----
Quarter ended 31 March 2021 0.40c - 500 500
-------------------------------- ---------- --------------- ------- -----
Quarter ended 30 June 2021 0.60c - 750 750
-------------------------------- ---------- --------------- ------- -----
Quarter ended 30 September 2021 0.80c - 1,000 1,000
-------------------------------- ---------- --------------- ------- -----
Quarter ended 31 December 2021 1.40c - 1,751 1,751
-------------------------------- ---------- --------------- ------- -----
Total 3.2c - 4,001 4,001
-------------------------------- ---------- --------------- ------- -----
After the Year-end, the Company declared an interim dividend of
1.4 cents per Share for the period 1 October 2022 to 31 December
2022, which was paid on 27 February 2023 to Shareholders on the
register at 10 February 2023.
14. Special Distributable Reserve
Following admission of the Company's Shares to trading on the
LSE, the Directors applied to the Court and obtained a judgement on
29 January 2021 to cancel the amount standing to the credit of the
share premium account of the Company. The amount of the share
premium account cancelled and credited to the Company's Special
distributable reserve was $121,250,000, which can be utilised to
fund distributions to the Company's Shareholders.
15. Net Assets Per Share
Net assets per share is based on $130,187,000 (2021:
$123,723,000) of net assets of the Company as at 31 December 2022
attributable to the 138,078,496 Shares in issue as at the same date
(2021: 125,053,498).
16. Related Party Transactions with the Investment Manager and
Directors
Investment Manager
Fees payable to the Investment Manager by the Company under the
IMA are shown in the Statement of Comprehensive Income. As at 31
December 2022, the fee outstanding but not yet paid to the
Investment Manager was $329,000 (2021: $317,000).
As at 31 December 2022, the Investment Manager's total holding
of Shares in the Company was 8,787,792 (2021: 8,606,995).
Directors
The Company is governed by a Board of Directors, all of whom are
non-executive, and it has no employees. Each of the Directors was
appointed on 22 October 2020.
Each of the Directors is entitled to receive a fee from the
Company at such rate as may be determined in accordance with the
Articles. Each Director currently receives a fee payable by the
Company at the rate of GBP40,000 per annum.
The Chair of the Board receives an additional GBP10,000 per
annum. The Chair of the Audit Committee, the Chair of the
Management Engagement Committee and the Chair of the Risk Committee
each receive an additional GBP6,000 per annum.
The aggregate remuneration and benefits in kind of the Directors
in respect of the Year ended 31 December 2022 which are payable out
of the assets of the Company were $228,500 (period ended 2021:
$301,500). The Directors are also entitled to out-of-pocket
expenses incurred in the proper performance of their duties.
The Directors had the following shareholdings in the Company,
all of which were beneficially owned.
Shares held Shares held
at 31 December at 31 December
Director 2022 2021
------------------- -------------- --------------
Patrick O'D Bourke 104,436 54,436
David Fletcher 59,406 41,165
Tammy Richards 25,000 25,000
Louisa Vincent 34,435 27,710
------------------- -------------- --------------
17. Financial Risk Management
The Investment Manager, AIFM and the Administrator report to the
Board on a quarterly basis and provide information to the Board
which allows it to monitor and manage financial risks relating to
the Company's operations. The Company's activities expose it to a
variety of financial risks: market risk (including price risk,
interest rate risk and foreign currency risk), credit risk and
liquidity risk. These risks are monitored by the AIFM. Each risk
and its management is summarised below.
(i) Currency Risk
Foreign currency risk is defined as the risk that the fair
values of future cash flows will fluctuate because of changes in
foreign exchange rates. Based on current operations, as the
Company's financial assets and liabilities are denominated in U.S.
Dollars and substantially all of its revenues and expenses are in
U.S. Dollars, the Directors do not expect frequent transactions in
other currencies and therefore currency risk is considered to be
low and no sensitivity to currency risk is presented. The Company's
Shares are traded in both U.S. Dollars and Sterling.
(ii) Interest Rate Risk
The Company's interest rate risk on interest bearing financial
assets is limited to interest earned on money market cash deposits.
The Company's interest and non-interest bearing assets and
liabilities as at 31 December 2022 are summarised below:
31 December 2022
Non-interest
Interest
bearing bearing Total
US$'000 US$'000 US$'000
---------------------------------------- -------- ------------ -------
Assets
Cash and cash equivalents 3,394 - 3,394
Trade and other receivables - 11 11
Investment at fair value through profit
or loss - 127,375 127,375
---------------------------------------- -------- ------------ -------
Total assets 3,394 127,386 130,780
Liabilities
Trade and other payables - (593) (593)
---------------------------------------- -------- ------------ -------
Total liabilities - (593) (593)
---------------------------------------- -------- ------------ -------
31 December 2021
Non-interest
Interest
bearing bearing Total
US$'000 US$'000 US$'000
---------------------------------------- -------- ------------ -------
Assets
Cash and cash equivalents 5,361 1 5,362
Trade and other receivables - 1 1
Investment at fair value through profit
or loss - 118,882 118,882
---------------------------------------- -------- ------------ -------
Total assets 5,361 118,884 124,245
Liabilities
Trade and other payables - (522) (522)
---------------------------------------- -------- ------------ -------
Total liabilities - (522) (522)
---------------------------------------- -------- ------------ -------
The money market cash deposits and bank accounts included within
cash and cash equivalents bear interest at relatively low interest
rates and therefore movements in interest rates will not materially
affect the Company's income and as such a sensitivity analysis is
not necessary.
The Company's subsidiary, Holdco, has interest rate risk through
drawings on the RCF and through certain SPVs' project level loans
which are priced by reference to LIBOR plus a margin. The total
exposure to debt through Holdco at 31 December 2022 was $64.4
million (2021: $52.1 million). An increase or decrease in interest
rates of 0.5% would impact the net asset value of Holdco and the
Company by $322,000 (2021: $260,000) negatively or positively
respectively.
Valuation of the Company's investment in Holdco is determined
using DCF methodology. Changes in interest rates can affect the
discount rates used. The sensitivity of the investment valuation to
changes in discount rate is shown in note 4.
(iii) Price Risk
Price risk is defined as the risk that the fair value of a
financial instrument held by the Company will fluctuate. As of 31
December 2022, the Company held one investment, being its
shareholding in Holdco, which is measured at fair value. The value
of the underlying renewable energy investments held by Holdco
varies according to a number of factors, including discount rate,
asset performance, solar irradiation, wind speeds, operating
expenses and forecast power prices. The sensitivity of the
investment valuation to price risk is shown in note 4. The
sensitivity shows the impact on the net asset value, however, the
impact on the profit and loss is the same.
(iv) Credit Risk
Credit risk is the risk of loss due to the failure of a borrower
or counterparty to fulfil its contractual obligations. The Company
is exposed to credit risk in respect of trade and other receivables
and cash at bank.
The Company's maximum exposure to credit risk exposure as at 31
December 2022 is summarised below:
As at As at
31 December 31 December
2022 2021
US$'000 US$'000
---------------------------- ----------- -----------
Cash and cash equivalents 3,394 5,362
Trade and other receivables 11 1
---------------------------- ----------- -----------
Total 3,405 5,363
---------------------------- ----------- -----------
Cash and cash equivalents are held with a U.S. Bank whose
Standard & Poor's credit rating is AA-. The Company's credit
risk exposure is minimised by dealing with financial institutions
with investment grade credit ratings. No balances are past due or
impaired.
Liquidity Risk
Liquidity risk is the risk that the Company may not be able to
meet a demand for cash or fund an obligation when due. The
Investment Manager and the Board continuously monitor forecast and
actual cashflows from operating, financing and investing activities
to consider payment of dividends, repayment of loans, further
investing activities, or other costs.
The following tables detail the Company's expected maturity for
its financial assets (excluding the equity investment in Holdco)
and liabilities together with the contractual undiscounted cash
flow amounts:
31 December 2022
Less than
1 year 1-2 years 2-5 years Total
US$'000 US$'000 US$'000 US$'000
---------------------------- --------- --------- --------- -------
Assets
Cash and cash equivalents 3,394 - - 3,394
Trade and other receivables 11 - - 11
Liabilities
Trade and other payables (593) - - (593)
---------------------------- --------- --------- --------- -------
Net financial assets 2,812 - - 2,812
---------------------------- --------- --------- --------- -------
31 December 2021
Less than
1 year 1-2 years 2-5 years Total
US$'000 US$'000 US$'000 US$'000
---------------------------- --------- --------- --------- -------
Assets
Cash and cash equivalents 5,362 - - 5,362
Trade and other receivables 1 - - 1
Liabilities
Trade and other payables (522) - - (522)
---------------------------- --------- --------- --------- -------
Net financial assets 4,841 - - 4,841
---------------------------- --------- --------- --------- -------
Capital management
The Company considers its capital to comprise Share capital,
Share premium, capital reserves, distributable reserves and
retained earnings. The Company is not subject to any externally
imposed capital requirements. The Company's share capital and
reserves are shown in the Statement of Financial Position at a
total of $130,187,000 (2021: $123,723,000).
The Company's primary capital management objectives are to
ensure the sustainability of its capital to support continuing
operations, meet its financial obligations and allow for growth
opportunities. Generally, acquisitions are anticipated to be funded
with a combination of current cash, borrowings and equity.
18. Unconsolidated Subsidiaries and Associates
The following table shows subsidiaries and associates of the
Company. As the Company is regarded as an Investment Entity as
referred to in note 2, these subsidiaries and associates have not
been consolidated in the preparation of the financial statements.
The ultimate parent undertaking is Ecofin U.S. Renewables
Infrastructure Trust PLC.
Ownership Country
Name Interest Investment Category of incorporation Registered address
--------------------- --------- ---------------------------------- ----------------- ------------------------
RNEW Holdco, 100% Holdco Subsidiary entity, United States 1209 Orange Street,
LLC owns RNEW Blocker, LLC Wilmington, DE 19801
RNEW Blocker, 100% Holdco Subsidiary entity, United States 1209 Orange Street,
LLC owns RNEW Capital, LLC Wilmington, DE 19801
RNEW Capital, 100% Holdco Subsidiary entity, United States 1209 Orange Street,
LLC owns underlying SPV Entities Wilmington, DE 19801
TC Renewable 100% Holdco Subsidiary entity, United States 1209 Orange Street,
Holdco I, LLC owns CD Global Solar CA Beacon Wilmington, DE 19801
2 Borrower, LLC and CD Global
Solar CA Beacon 5 Borrower,
LLC
TC Renewable 100% Holdco Subsidiary entity, United States 1209 Orange Street,
Holdco II, LLC owns TCA IBKR 2020 Holdco, Wilmington, DE 19801
LLC and TCA IBKR 2021 Holdco
TC Renewable 100% Holdco Subsidiary entity, United States 1209 Orange Street,
Holdco III, owns UCCT Solar Group, LLC, Wilmington, DE 19801
LLC Milford Industrial Solar,
LLC, SED Three, LLC, SED
Four, LLC, and Solar Energy
Partners 1, LLC
TC Renewable 100% Subsidiary entity, owns Heimlich United States 1209 Orange Street,
Holdco IV, LLC Solar Partners, LLC, Small Wilmington, DE 19801
Mouth Bass Solar Partners,
LLC, Hemings Solar Partners,
LLC and Randolf Solar Partners,
LLC
TC Renewable 100% Holdco Subsidiary entity, United States 1209 Orange Street,
Holdco V, LLC owns Echo Solar 2022 Holdco, Wilmington, DE 19801
LLC
TC Renewable 100% Holdco Subsidiary entity, United States 1209 Orange Street,
Holdco VI, LLC owns ESNJ-CB-DELRAN, LLC Wilmington, DE 19801
TC Renewable 100% Holdco Subsidiary entity, United States 1209 Orange Street,
Holdco VII, owns Whirlwind Energy, LLC Wilmington, DE 19801
LLC
TCA IBKR 2020 100%(1) Holdco Subsidiary entity, United States 1209 Orange Street,
Holdco, LLC owns Ellis Road Solar, LLC Wilmington, DE 19801
and Oliver Solar 1, LLC
TCA IBKR 2021 100%(1) Holdco Subsidiary entity, United States 1209 Orange Street,
Holdco, LLC owns ESNJ-BL-SKILLMAN, LLC Wilmington, DE 19801
Echo Solar 2022 100%(1) Holdco Subsidiary entity, United States 1209 Orange Street,
Holdco, LLC owns Westside Solar Partners, Wilmington, DE 19801
LLC and Monroe Solar Partners,
LLC
CD Global Solar 49.5%(1) Subsidiary entity, owns investment United States 1209 Orange Street,
CA Beacon 2 in Beacon 2 Wilmington, DE 19801
Borrower, LLC
CD Global Solar 49.5%(1) Subsidiary entity, owns investment United States 1209 Orange Street,
CA Beacon 5 in Beacon 5 Wilmington, DE 19801
Borrower, LLC
Ellis Road Solar, 100%(1) Subsidiary entity, owns investment United States 1209 Orange Street,
LLC in Ellis Road Solar Wilmington, DE 19801
Oliver Solar 100%(1) Subsidiary entity, owns investment United States 1209 Orange Street,
1, LLC in Oliver Solar Wilmington, DE 19801
UCCT Solar, 100% Subsidiary entity, owns one United States 155 Federal Street,
LLC of the 52 solar investments Suite 700, Boston,
in the SED Solar Portfolio MA 02110
owned by TC Renewable Holdco
III, LLC
Milford Industrial 100% Subsidiary entity, owns two United States 155 Federal Street,
Solar, LLC of the 52 solar investments Suite 700, Boston,
in the SED Solar Portfolio MA 02110
owned by TC Renewable Holdco
III, LLC
SED Three, LLC 100% Subsidiary entity, owns 30 United States 155 Federal Street,
of the 52 solar investments Suite 700, Boston,
in the SED Solar Portfolio MA 02110
owned by TC Renewable Holdco
III, LLC
SED Four, LLC 100% Subsidiary entity, owns six United States 155 Federal St,
of the 52 solar investments Suite 700, Boston,
in the SED Solar Portfolio MA 02110
owned by TC Renewable Holdco
III, LLC
Solar Energy 100% Subsidiary entity, owns 13 United States 155 Federal Street,
Partners 1, of the 52 solar investments Suite 700, Boston,
LLC in the SED Solar Portfolio MA 02110
owned by TC Renewable Holdco
III, LLC
ESNJ-BL-SKILLMAN, 100%(1) Subsidiary entity, owns investment United States 100 Charles Ewing
LLC in Skillman Solar Blvd., Suite 160,
Ewing, NJ 08628
Heimlich Solar 100% Subsidiary entity, owns investment United States 251 Little Falls
Partners, LLC in Heimlich Solar Drive, Wilmington
DE, 19808
Small Mouth 100% Subsidiary entity, owns investment United States 251 Little Falls
Bass Solar Partners, in Small Mouth Bass Solar Drive, Wilmington
LLC DE, 19808
Hemings Solar 100% Subsidiary entity, owns investment United States 251 Little Falls
Partners, LLC in Hemings Solar Drive, Wilmington
DE, 19808
Randolf Solar 100% Subsidiary entity, owns investment United States 251 Little Falls
Partners, LLC in Randolf Solar Drive, Wilmington
DE, 19808
Westside Solar 100%(1) Subsidiary entity, owns investment United States 251 Little Falls
Partners, LLC in Westside Solar Drive, Wilmington
DE, 19808
Monroe Solar 100%(1) Subsidiary entity, owns investment United States 251 Little Falls
Partners, LLC in Monroe Solar Drive, Wilmington
DE, 19808
ESNJ-CB-DELRAN, 100% Subsidiary entity, owns investment United States 100 Charles Ewing
LLC in Delran Solar Blvd., Suite 160,
Ewing, NJ 08628
Whirlwind Energy 100% Subsidiary entity, owns investment United States 615 South Dupont
LLC in Whirlwind Highway, Dover Kentucky
19901
--------------------- --------- ---------------------------------- ----------------- ------------------------
1. Represents percentage ownership of class B membership
interest in the tax equity partnership.
19. Commitments and Contingencies
As at 31 December 2022 the Company had the following future
investment obligations;
The Company had a collective future unlevered net equity
commitment amount of $22.4 million in respect of $17.5 million of
pending future equity obligations on closed construction assets.
These commitment figures are subject to change based on the
vendor's ability to deliver on certain conditions to close, which
may impact the price paid for certain projects. Additional funding
required is expected to be facilitated in the short term through
the RCF, and subsequently through a term debt facility as the
projects become operational.
20. Post Balance Sheet Events
Other than as disclosed in this Annual Report, no other post
balance sheet events have occurred.
Alternative Performance Measures
In reporting financial information, the Company presents
alternative performance measures, ("APMs"), which are not defined
or specified under the requirements of IFRS. The Company believes
that these APMs, which are not considered to be a substitute for or
superior to IFRS measures, provide stakeholders with additional
helpful information on the performance of the Company. The APMs
presented in this report are shown below:
(Discount)/Premium
The amount, expressed as a percentage, by which the share price
is greater or less than NAV per Share.
As at As at
31 December 31 December
2022 2021
------------------------------------ ----------- -----------
NAV per Share (cents) a 94.3 98.9
Share price (cents) b 83.3 99.0
---------------------- -------------- ----------- -----------
(Discount)/Premium (b÷a)-1 (11.7)% 0.1%
---------------------- -------------- ----------- -----------
Total return
Total return is a measure of performance that includes both
income and capital returns. It takes into account capital gains and
the assumed reinvestment of dividends paid out by the Company into
its Shares on the ex-dividend date. The total return is shown
below, calculated on both a share price and NAV basis.
Share price
For the year ended 31 December 2022 (cents) NAV cents
------------------------------------- ------------- ----------- ---------
Opening at 1 January 2022 a 99.0 98.9
Closing at 31 December 2022 b 83.3 94.3
Dividends paid during the Year c 5.6 5.6
Dividend/income adjustment factor(1) d 0.9939 1.0010
Adjusted closing e = (b +c) x d e 88.3 100.0
------------------------------------- -------------- ----------- ---------
Total return (d÷a)-1 -10.8% 1.1%
------------------------------------- -------------- ----------- ---------
1. The dividend adjustment factor is calculated on the
assumption that the dividends paid out by the Company are
reinvested into the shares of the Company at NAV at the ex-dividend
date.
Share price
For the period from IPO to 31 December
2021 (cents) NAV (cents)
--------------------------------------- ------------- ----------- -----------
Opening at IPO a 100.0 98.0
Closing at 31 December 2021 b 99.0 98.9
Dividends paid during the Year c 1.80 1.80
Adjusted closing (d=b + c) d 100.8 100.7
--------------------------------------- -------------- ----------- -----------
Total return (d÷a)-1 0.8% 2.8%
--------------------------------------- -------------- ----------- -----------
Ongoing charges ratio
A measure, expressed as a percentage of average NAV, of the
regular, recurring annual costs of running an investment
company.
For the For the
year period
from IPO
ended to
31 December 31 December*
2022 2021
---------------------------------------- ----------- ------------
Average NAV ($'000) a 129,345 123,744
Annualised expenses ($'000) b 2,332 1,817
---------------------------- ------------ ----------- ------------
Ongoing charges (b÷a) 1.80% 1.47%
---------------------------- ------------ ----------- ------------
* Annualised expenses from IPO on 22 December 2020 to 31
December 2021. Consisting of investment management fees and other
recurring expenses.
FINANCIAL INFORMATION
Year ended 31 December 2022
The figures and financial information for the year ended 31 December
2022 are extracted from the Company's Annual Financial Statements
for that period and do not constitute statutory financial statements
for that year. The Company's Annual Financial Statements for the
year ended 31 December 2022 have been audited but have not yet
been delivered to the Registrar of Companies. The Independent Auditor's
Report on the 2022 Financial Statements was unqualified, did not
include a reference to any matter to which the Auditors drew attention
without qualifying the report, and did not contain any statements
under sections 498(2) and 498(3) of the Companies Act 2006.
Period ended 31 December 2021
The figures and financial information for the period ended 31 December
2021 are extracted from the Company's Financial Statements for
that period and do not constitute statutory financial statements
for that period. The Company's Annual Financial Statements for
the period ended 31 December 2021 have been audited and delivered
to the Registrar of Companies. The Independent Auditor's Report
on the 2021 Financial Statements was unqualified, did not include
a reference to any matter to which the Auditors drew attention
without qualifying the report, and did not contain any statements
under sections 498(2) and 498(3) of the Companies Act 2006.
ANNUAL REPORT
The Annual Report for the year ended 31 December 2022 was
approved on 13 April 2023. The full Annual Report can be accessed
via the Company's website at:
https://uk.ecofininvest.com/funds/ecofin-us-renewables-infrastructure-trust-plc/
The Annual Report will be submitted to the National Storage
Mechanism and will shortly be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
This announcement contains regulated information under the
Disclosure Guidance and Transparency Rules of the FCA.
ANNUAL GENERAL MEETING ("AGM")
The AGM of Ecofin U.S. Renewables Infrastructure Trust plc will
be held at 6th Floor, 125 London Wall, London, EC2Y 5AS on 1 June
2023 at 3:00pm.
Even if shareholders intend to attend the AGM, all shareholders
are encouraged to cast their vote by proxy and to appoint the
"Chair of the Meeting" as their proxy. Details of how to vote,
either electronically, by proxy form or through CREST, can be found
in the Notes to the Notice of AGM in the Annual Report.
Shareholders are invited to send any questions for the Board or
the Investment Manager in advance by email to RNEWMBX@apexfs.group
by close of business on 30 May 2023.
14 April 2023
For further information contact:
Company Secretary and registered office:
Apex Listed Companies Services (UK) Limited
6th Floor, 125 London Wall, London, EC2Y 5AS
END
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