TIDMAEIT TIDMAEIP
RNS Number : 4980A
Asian Energy Impact Trust PLC
22 January 2024
LEI: 254900V23329JCBR9G82
22 January 2024
Asian Energy Impact Trust plc
(the "Company" or "AEIT")
AUDITED RESULTS TO 31 DECEMBER 2022
Asian Energy Impact Trust plc, the renewable energy investment
trust providing direct access to sustainable energy infrastructure
in fast-growing and emerging economies in Asia, announces its
audited results for the period from 1 November 2021 to 31 December
2022 ("2022 Annual Report").
Following this announcement, the 2022 Annual Report will need to
be appropriately electronically tagged in compliance with DTR 4.1
and uploaded to the National Storage Mechanism ("NSM"). Uploading
to the NSM is a necessary step before the Company may apply to the
FCA for a restoration of the listing. The Company is working on the
electronic tagging of the accounts, following which it will apply
to the FCA for the restoration of the listing and will make a
further announcement in due course.
FINANCIAL HIGHLIGHTS
As at
31 December
2022
(audited)
----------------------------------- --- -------------
GAAP Measures
Net assets - US$ million 86.6
Fair value of investment portfolio
- US$ million 11.5
Cash held at AEIT - US$ million 115.8
Dividends declared in respect
of the period - cents per share 2.5
Alternative Performance Measures
NAV per share - cents 49.3
NAV total return per share -49.2
Gearing (as a % of Adjusted
GAV) 27.0%
Ongoing charges ratio 2.50%
IMPACT HIGHLIGHTS
As at
31 December 2022
(audited)
------------------ --------------------------------- ------------------
Alternative Performance Measures
Total installed capacity 132MW
Renewable energy generated in the period 85,199 MWh
Estimated tonnes of carbon avoided from generated 62,770 tCO(2) e
electricity
Jobs supported (full time equivalents) 148
Investments qualifying as sustainable in line
with the EU Taxonomy 100%
key points
-- Net assets at 31 December 2022 of US$86.6 million (NAV of
49.3 cents per share), underpinned by a robust independent
valuation process. Since IPO, the NAV per share decreased from 98.0
cents to 49.3 cents, principally as a result of a very substantial
write down in the portfolio valuation at the period end and the
recording of an onerous contract provision in respect of the
commitment to acquire the remaining 57% interest in SolarArise
India Projects Private Limited ("SolarArise").
-- As at 31 December 2022, the Company had invested, or
committed to invest, US$99.9 million, equivalent to 55% of total
capital raised. The Board has suspended acquisitions of, or
commitments to, new investments pending the outcome of the Board's
strategic review of the options for the Company's future, which is
expected to be completed before the end of Q1 2024.
-- As at 31 December 2022, the Company had cash balances of
US$115.8 million. During the 12 months ended 31 December 2023 the
Company: acquired the remaining 57% of SolarArise for US$38.5
million and 99.8% of Viet Solar System Company Limited for US$3.1
million; funded the construction of the 200MW solar project that
forms part of the Rewa Ultra Mega Solar Park (the "RUMS project"),
via a US$20 million loan; paid post period dividends of US$4.4
million; and paid recurring and exceptional running costs of the
Company. As at 31 December 2023, the Company had cash reserves of
US$41.4 million and its wholly owned UK subsidiary, AEIT Holdings
Limited, had cash reserves of US$1.7 million.
-- The annualised ongoing charges ratio was 2.5% for the period
ended 31 December 2022. In view of the Company's substantially
reduced size, the Board is reviewing, with the Transitional
Investment Manager, the Company's cost base to assess where it may
be possible to make cost savings.
-- As at 31 December 2022, gearing in AEIT's investment
portfolio represented 27.0% of the Adjusted GAV, increasing to 46%
including committed acquisitions.
-- The future of the Company relies heavily on the outcome of
the current strategic review of the options for the future of the
Company. While the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational existence
for the foreseeable future and the going concern basis of
accounting has been adopted in preparing the 2022 Annual Report and
Financial Statements, the result of the strategic review is not
known at this time and potential outcomes could include a managed
wind down of the Company. As a result, there remains a material
uncertainty surrounding the Company's future and in respect of
going concern.
-- The Company has also published its 2023 Interim Report today.
Details are available through the published interim results RNS and
on the Company's website, www.asianenergyimpact.com .
UPDATE ON THE RUMS PROJECT
Construction of the RUMS project has commenced. On the
recommendation of the Transitional Investment Manager, the Company
has appointed Fichtner as the owner's technical advisor to the RUMS
project, providing boots on the ground to oversee the construction
of the asset on a day-to-day basis. An official extension has been
granted to the deadline for the scheduled commercial operation date
to 5 February 2024. The third of five shipments of panels have
arrived on site. Although risks remain on timing and the overall
cost due to the size and tight timelines of the project, it is
currently expected to be commissioned before 31 March 2024.
Q4 2022 FACTSHEET
The Company's factsheet for the quarter ended 31 December 2022
will be available shortly on its website, www.asianenergyimpact.com
.
Sue Inglis, Chair of Asian Energy Impact Trust plc, said: " I
would like to thank shareholders for their patience over the past
year. It would be disingenuous to say the period since IPO has not
been without disappointment and challenges. However, the Board is
encouraged by the Company's progress following Octopus Energy
Generation's appointment last November and we firmly believe in the
investment opportunity to deliver an impact-led renewable
investment strategy in Asia. However, the future of the Company
will be determined by the outcome of the strategic review, on which
shareholders will get a vote. In the meantime, a key priority is to
look for ways to recover value from existing investments and our
transitional investment manager is providing the active management
to do that as we undertake the strategic review."
Enquiries
Asian Energy Impact Trust plc Tel: +44 (0)20 3757 1892
Sue Inglis, Chair
Octopus Energy Generation (Transitional Investment Manager) Tel: +44 (0)20 4530 8369
Press Office aeit@octopusenergygeneration.com
Shore Capital (Joint Corporate Broker) Tel: +44 (0)20 7408 4050
Robert Finlay / Rose Ramsden / Anita Ghanekar (Corporate)
Adam Gill / Matthew Kinkead / William Sanderson (Sales)
Fiona Conroy (Corporate Broking)
Peel Hunt LLP (Joint Corporate Broker) Tel: +44 (0)20 7418 8900
Luke Simpson / Huw Jeremy (Investment Banking Division)
Alex Howe / Richard Harris / Michael Bateman / Ed Welsby (Sales)
Smith Square Partners LLP (Financial Advisor) Tel: +44 (0)20 3696 7260
John Craven / Douglas Gilmour
Camarco (PR Advisor) Tel: +44 (0)20 3757 4982
Louise Dolan / Eddie Livingstone-Learmonth / Phoebe Pugh asianenergyimpacttrust@camarco.co.uk
About Asian Energy Impact Trust plc
Asian Energy Impact Trust plc listed on the premium segment of
the main market of the London Stock Exchange in December 2021 and
was awarded the Green Economy Mark upon admission. The Company is
an Article 9 fund under the EU Sustainable Finance Disclosure
Regulation.
With effect from 1 November 2023, the Company appointed Octopus
Energy Generation as its transitional investment manager until 30
April 2024 (the "Transitional Investment Management Period"). The
Transitional Investment Management Period will allow the Board with
its advisers to complete the strategic review of options for the
Company's future.
Further information on the Company can be found on its website
at www.asianenergyimpact.com .
About Octopus Energy Generation
Octopus Energy Generation ("OEGEN") is driving the renewable
energy agenda by building green power for the future. Its
London-based, leading specialist renewable energy fund management
team invests in renewable energy assets and broader projects
helping the energy transition, across operational, construction and
development stages. The team was set up in 2010 based on the belief
that investors can play a vital role in accelerating the shift to a
future powered by renewable energy. It has a 13-year track record
with approximately GBP6 billion of assets under management (AUM)
(as of September 2023) across 16 countries and total 3.2GW. These
renewable projects generate enough green energy to power 2.3
million homes every year, the equivalent of taking over 1.2 million
petrol cars off the road. Octopus Energy Generation is the trading
name of Octopus Renewables Limited.
Further details can be found at www.octopusenergygeneration.com
.
Overview
About the Company
Asian Energy Impact Trust plc ("AEIT" or the "Company", formerly
ThomasLloyd Energy Impact Trust plc) is a closed--ended investment
company incorporated in England and Wales. The Company's ordinary
shares were admitted to the premium listing segment of the Official
List of the Financial Conduct Authority and to trading on the main
market of the London Stock Exchange on 14 December 2021.
The Company has a triple return investment objective which
consists of: (i) providing shareholders with attractive dividend
growth and prospects for long-term capital appreciation (the
financial return); (ii) protecting natural resources and the
environment (the environmental return); and (iii) delivering
economic and social progress, helping build resilient communities
and supporting purposeful activity (the social return).
The Company seeks to achieve its investment objective by
investing in a diversified portfolio of unlisted sustainable energy
infrastructure assets in the areas of renewable energy power
generation, transmission infrastructure, energy storage and
sustainable fuel production ("Sustainable Energy Infrastructure
Assets"), with a geographic focus on fast--growing and emerging
economies in Asia.
The Board is undertaking a strategic review of the options for
the Company's future, which is expected to be concluded by the end
of the first quarter of 2024. At the date of this Annual Report,
based on the information currently available, the most likely
outcomes of the strategic review are a proposal for either the
relaunch of the Company, potentially with a new investment
objective, investment policy, target returns and/or Investment
Manager but maintaining the impact-led, Asian focus, or a managed
wind-down and subsequent winding-up of the Company. The outcome of
the strategic review will be subject to shareholder approval.
This Annual Report and the Company's website may contain certain
'forward-looking statements' with respect to the Company's
financial condition, results of its operations and business, and
certain plans, strategies, objectives, goals and expectations with
respect to these items and the markets in which the Company
invests. Forward-looking statements are sometimes, but not always,
identified by their use of a date in the future or such words as
'aims', 'anticipates', 'believes', 'estimates', 'expects',
'intends', 'targets', 'objective', 'could', 'may', 'should', 'will'
or 'would' or, in each case, their negative or other variations or
comparable terminology. Forward-looking statements are not
guarantees of future performance. By their very nature
forward-looking statements are inherently unpredictable,
speculative and involve risk and uncertainty because they relate to
events and depend on circumstances that will occur in the future.
Many of these assumptions, risks and uncertainties relate to
factors that are beyond the Company's ability to control or
estimate precisely. There are a number of such factors that could
cause the Company's actual investment performance, results of
operations, financial condition, liquidity, dividend policy and
financing strategy to differ materially from those expressed or
implied by these forward-looking statements. These factors include,
but are not limited to: changes in the economies and markets in
which the Company operates; changes in the legal, regulatory and
competition frameworks in which the Company operates; changes in
the markets from which the Company raises finance; the impact of
legal or other proceedings against or which affect the Company;
changes in accounting practices and interpretation of accounting
standards under IFRS; and changes in power prices and interest,
exchange and discount rates. Any forward-looking statements made in
this Annual Report or the Company's website, or made subsequently,
which are attributable to the Company, or persons acting on its
behalf (including the Investment Manager), are expressly qualified
in their entirety by the factors referred to above. Each
forward-looking statement speaks only as of the date it is made.
Except as required by its legal or statutory obligations, the
Company does not intend to update any forward-looking statements.
Nothing in this Annual Report or the Company's website should be
construed as a profit forecast or an invitation to deal in the
securities of the Company.
2022 Performance Highlights
As at 31 December 2022
Financial
Capital raised to Net asset value ("NAV") Gross asset value NAV per share (1
date ("GAV") (2 3) 3)
US$180.9m US$86.6m US$127.3m 49.3 cents
Dividend per share NAV total return Cash held at AEIT Fair value of investment
(4) per share since IPO portfolio
(3)
2.5 cents (49.2)% US$115.8m US$11.5m
Adjusted gross asset Market capitalisation Net operational Gearing ratio (3
value ("Adjusted GAV") (3) asset value (3 6) 7)
(3 5)
US$173.3m US$207.3m US$23.5m 27%
Impact (8)
Total installed capacity Renewable energy generated Estimated tonnes of carbon
132 MW in the period avoided from generated electricity
85,199 MWh 62,770 tCO (2) e
GHG intensity of investee Jobs supported (full time Investments qualifying
companies tCO (2) e/USDm equivalents) as sustainable (EU Taxonomy)
35.9 148 100%
(1) Calculated on the basis of 175,684,705 ordinary shares in
issue.
(2) GAV a measure of the value of the assets of the Company,
being the sum of all investments held in the investment portfolio
at the balance sheet date together with any cash and cash
equivalents.
(3) An alternative performance measure ("APM").
(4) Total dividends declared in relation to the period from IPO
to 31 December 2022.
(5) Adjusted GAV is GAV plus proportionate share of asset level
debt.
(6) The value of the Company's operational portfolio excluding
construction assets.
(7) Group debt and non-Group investment debt (calculated on a
proportionate basis) as a % of Adjusted GAV.
(8) These metrics have been proportioned to account for AEIT's
share of the SolarArise and NISPI assets during the reporting
period.
Investment Portfolio
As at 31 December 2022
Total
Total renewable
renewable energy
energy generating Average
generating capacity remaining
capacity based on life of Economic
on economic asset ownership
Revenue a 100% basis share modelled Economic -
Plant or site Technology Country type (MWp) (MWp) (years) ownership committed
------------- ----------- ------------ ------------- ------------ ----------- ---------- ---------- ----------
NISPI 80 32
Wholesale
electricity
Islasol IA Solar Philippines market 18 7 18.5 40% 40%
Wholesale
electricity
Islasol IB Solar Philippines market 14 6 18.5 40% 40%
Wholesale
electricity
Islasol II Solar Philippines market 48 19 18.5 40% 40%
SolarArise
(9) 433 186
25 year fixed
Telangana I Solar India price PPA 12 5 18.5 43% 100%
25 year fixed
Telangana II Solar India price PPA 12 5 18.5 43% 100%
25 year fixed
Karnataka I Solar India price PPA 40 17 19.5 43% 100%
25 year fixed
Karnataka II Solar India price PPA 27 12 20.0 43% 100%
25 year fixed
Maharashtra Solar India price PPA 67 29 21.5 43% 100%
25 year fixed
Uttar Pradesh Solar India price PPA 75 32 23.0 43% 100%
Total operating
generating
capacity 233 100
Madhya
Pradesh 25 year fixed
(10) Solar India price PPA 200 86 n/a 43% 100%
Total 'ready
to build' generating
capacity 200 86
VSS (11) 6 0
Mo Cay Solar Vietnam 20 year PPA 2 n/a 17.0 n/a 99.8%
Hoang Thong Solar Vietnam 20 year PPA 4 n/a 17.0 n/a 99.8%
Total generating
capacity including
committed assets 319 132
Total 'ready
to build' capacity 200 86
------------------------------------------------------- ------------ ----------- ---------- ---------- ----------
(9) Represents the acquisition of the 43% economic interest in
SolarArise, completed on 19 August 2022, and the remaining 57%
economic interest, committed to be acquired on 20 June 2022, and
which completed on 13 January 2023.
(10) A construction-ready project (the "RUMS project"). As at 31
December 2022 the project was not proceedable. Post the period end,
a decision has been taken to proceed and it is expected to
commission before 31 March 2024.
(11) A committed acquisition at 31 December 2022, which
completed on 31 May 2023.
Strategic Report
Chair's Statement
With thanks to shareholders for their patience, I present the
Annual Report for Asian Energy Impact Trust plc (formerly
ThomasLloyd Energy Impact Trust plc) for the period ended 31
December 2022, our first Annual Report since IPO in December
2021.
For much of the period, the Board was encouraged by the
Company's progress:
-- the Company's IPO was achieved despite an extremely challenging fundraising environment;
-- a few days later, we completed the acquisition of our first
seed asset, a 40% economic interest in Negros Island Solar Power
Inc ("NISPI"), the 80 MW Philippines investment platform with three
operating solar plants;
-- a category 5 Typhoon Rai struck the Philippines almost
simultaneously with completion of the NISPI acquisition and,
although damage across the Philippines was significant, NISPI's
solar plants proved resilient and were undamaged;
-- although completion of our other seed asset, a 43% economic
interest in SolarArise India Projects Private Limited
("SolarArise"), an Indian investment platform with six operating
solar plants (233 MW) and one construction-ready solar plant (200
MW), did not occur until August 2022, the delay enabled us to
secure changes to the acquisition terms, including a reduction in
the acquisition price and a 16% increase in the price at which the
consideration shares were issued, thereby reducing the number of
consideration shares issued;
-- in June 2022 we committed to acquire the remaining 57% economic interest in SolarArise;
-- in November 2022, the Company expanded its activities, making
its first investment in Vietnam and entering into a strategic
partnership providing the Company with right of first refusal on
additional Vietnamese investment opportunities;
-- in November 2022, we also increased the size of the Company
through a further fund raise; and
-- we appeared to have a substantial, diversified pipeline of
exciting new investment opportunities.
Overall, the Company seemed to be making good progress in
achieving its triple return investment objective, including our
impact objectives.
However, the pace of deployment of the net IPO proceeds was
slower than expected; with less than 75% of the proceeds deployed
within 12 months of the IPO, triggering the requirement to propose
a Continuation Resolution at the 2023 Annual General Meeting.
Post the period end, we faced challenges with regard to
receiving the information we were seeking from the Investment
Manager in connection with the preparation of the 2022 annual
report and financial statements. In addition, the Audit and Risk
Committee challenged key inputs into the 31 December 2022 portfolio
valuation proposed by the Investment Manager, in particular with
regard to the forward price curve being used in the NISPI valuation
and the valuation of the RUMS project, SolarArise's
construction-ready asset. Matters came to a head in April 2023 when
the Investment Manager provided the Audit and Risk Committee with
material new information on the RUMS project, which brought into
question its commercial viability and the potential liabilities
that would arise if the project was abandoned. The resulting
material uncertainty in the Company's financial position led to the
temporary suspension of the listing of, and trading in, the Company
shares on 25 April 2023. This was all against the backdrop of
substantial changes to the investment environment over the period.
London-listed renewable energy investment companies continue to
trade at material discounts to NAV and there was a more challenging
macroeconomic environment with high inflation, rising interest
rates and later falling power prices.
Events since the temporary share suspension have been
well-documented through our frequent shareholder updates, including
the termination of the appointment of our original Investment
Manager and the appointment of a new transitional Investment
Manager with effect from 1 November 2023. The Board is encouraged
by the Company's progress following the Transitional Investment
Manager's appointment and is pleased to report that it has quickly
established an open and robust working relationship with the
Transitional Investment Manager and the Board is now receiving the
full and timely information it expects from its Investment
Manager.
The Board is bitterly disappointed that, after what seemed a
very promising start for the Company, this promise has not been
fulfilled, with the NAV per share having fallen by approximately
50% since IPO, principally as a result of a very substantial write
down in the portfolio valuation. We regret the shareholder
experience over the past year and the actions taken by the Board in
response are detailed in this report.
In light of the significant delay in the publishing this Annual
Report, events up to the signing date are also presented and
considered as post period events.
Impact
The Company was launched in response to investor interest in an
impact led investment trust focused solely on fast--growing
emerging economies in Asia where greenhouse gas emissions ("GHG")
continue to grow rapidly. At IPO, the Company was the first, and it
continues to be the only, London-listed renewable energy investment
company focused on Asia, being the region with the most urgent need
for investment in sustainable energy infrastructure and where
capital invested can have the greatest impact.
Our investment portfolio is constructed to address the climate
change mitigation priorities set out in our target countries'
Nationally Determined Contributions under the Paris Agreement on
Climate Change by avoiding GHG emissions. Our investments also
support those countries' efforts to achieve the United Nations
Sustainable Development Goals ("UN SDGs"), whilst having a positive
impact in the communities around our assets.
The Company is classified as an Article 9 fund under the EU
Sustainable Finance Disclosure Regulation ("SFDR") and will make a
minimum of 95% (12) sustainable investments with an environmental
objective under the EU Taxonomy. I am pleased to report that 100%
(13) of investments made to date are aligned with the EU
Taxonomy.
(12) Excludes cash not yet invested.
(13) This calculation excludes cash held by the Company.
IPO and subsequent placing
On 14 December 2021, the Company's shares were listed in the
premium listing category of the FCA's Official List and admitted to
trading on the London Stock Exchange's main market, raising gross
cash proceeds of US$115.4 million from a diversified institutional
and retail investor base, as well as the UK Government's FCDO.
In the November 2022 placing, we raised US$35.3 million of
additional capital from both existing and new investors in support
of a strong deployment pipeline. When combined with IPO proceeds
and the seed asset consideration share capital issued, total
capital raised to date is US$181 million.
Investment activity
At the time of the IPO, we had committed to acquire interests in
portfolios of assets in India, being a 43% economic interest in
SolarArise, and the Philippines, being a 40% economic interest in
NISPI, for a combination of new ordinary shares to be issued by the
Company and cash.
We completed the acquisition of the interest in NISPI, the 80 MW
Philippines investment platform with three operating solar plants,
for a cash consideration of US$25.4 million on 17 December 2021.
NISPI's solar plants export electricity to the grid at the
wholesale electricity spot market ("WESM") price.
SolarArise is a 433 MW Indian investment platform with six
operating solar plants totalling 233 MW and one construction--ready
200 MW solar plant. The completion of the acquisition of the 43%
economic interest in SolarArise was for a consideration of US$30.2
million, settled through the issue of 26.0 million ordinary shares
at US$1.16035 per share. In addition, cash of US$2.7 million was
paid by SolarArise to the Indian tax authorities on behalf of the
sellers. Post the period end (on 13 January 2023), the acquisition
of the remaining 57% of SolarArise was completed for a cash
consideration of US$38.5 million and, at the date of this Annual
Report, the Company owns 100% of SolarArise for a total
consideration of US$71.4 million.
On 1 November 2022, the Company committed to acquire Viet Solar
System Company Limited ("VSS") a privately-owned company which
holds 6.12 MW of rooftop solar assets for US$3.1 million. This
acquisition completed on 31 May 2023 and represents a 99.8%
interest in VSS.
As at 31 December 2022, the Company had invested, or had
committed to invest US$99.9 million, 55% of total capital raised.
Following the temporary share suspension, the Board suspended
acquisitions of, or commitments to, new investments. The Board will
not make any acquisitions or commitments to new investments pending
the outcome of the Board's strategic review of the options for the
Company's future.
Portfolio performance
Since acquisition, our proportion of generation from the
investment portfolio was 85,199 MWh, 17% below budget. Irradiance
was 7% below expectations and, therefore, excluding the impact of
irradiance, performance was 10% below expectations. NISPI
generation was impacted by outages resulting from Typhoon Rai
(known as Typhoon Odette in the Philippines) in December 2022 and
curtailment from damage to the Negros-Cebu subsea cable. The
curtailment was resolved in October 2022 after which the assets
performed in line with the weather-adjusted budget. In India, three
of the solar plants were impacted by a particularly heavy monsoon
season, with one additional plant experiencing poor on-site air
quality, leading to lower generation. In relation to the poor air
quality, the Transitional Investment Manager is working with the
on--site asset managers to increase cleaning frequency of the
panels to improve generation, whilst also investigating the source
and legality of the cause of the increased pollution.
During the period, in May 2022, the construction of the 200 MW
RUMS project in Madhya Pradesh, India, which was originally
scheduled for completion in the first half of 2023, was formally
postponed due to a delay in the infrastructure construction
directed by the solar park owner. Post the period end, the
disclosure of economic unviability meant that the Board took the
decision not to continue with construction of the project as the
resulting liabilities from not proceeding were less than the
negative value associated with proceeding. More recently in October
2023, the Board revisited this decision in light of an improved
position presented by the Former Investment Manager, following a
substantial decline in solar module prices in May and June 2023,
and the Board has since decided to proceed with the project. As
this investment could have resulted in the portfolio breaching the
single country limit in the Company's investment policy (50% of
GAV), a change to the investment policy was proposed and approved
by shareholders in October 2023. The RUMS project is expected to be
commissioned before 31 March 2024, and, as a new source of
renewable energy, will make a significant contribution towards
achieving our impact objectives.
Results
The NAV of the Company as at 31 December 2022 was US$86.6
million. Since IPO, the NAV per share decreased from 98.0 cents to
49.3 cents, principally as a result of a very substantial write
down in the portfolio valuation at the period end. Significant
deficiencies in how assets have been valued historically alongside
overly aggressive assumption sets have materialised through the
preparation of the 31 December 2022 portfolio valuation. This is
coupled with less controllable movements in value due to FX
depreciation and downwards pressure on WESM pricing. The asset
valuations now presented as at 31 December 2022 are based on what
could and should have been known at that time.
The Company had a cash balance of US$115.9 million at the period
end, of which US$41.6 million was committed to the acquisition of
the 57% economic interest in SolarArise and the 99.8% economic
interest in VSS. At the same date, the Company had no gearing and
gearing on a 'look-through' basis to its underlying investments was
27% of Adjusted GAV.
The Company made a loss for the period of US$88.8 million. This
was largely driven by the material decrease in the fair value of
investments seen over the period and the recognition of a US$38.5
million onerous contract provision with respect to the 57%
SolarArise acquisition. The Company received no investment income
during the period.
The annualised ongoing charges ratio was 2.5% at the period end.
In view of the Company's substantially reduced size, we are
reviewing, with the Transitional Investment Manager, the Company's
cost base to assess where it may be possible to make cost
savings.
The Directors declared a fourth interim dividend of 1.18 cents
per share which was paid on 23 May 2023 to shareholders on the
register at close of business on 21 April 2023. In respect of the
period under review, the Company paid total dividends of 2.5 cents
per share, equivalent to a 2.5% dividend yield on the IPO price of
US$1.00 per share. All dividends were paid out of the Company's
distributable capital reserves. EBITDA from the Company's
operational assets over the period, excluding the costs within the
SolarArise holding company, was US$4.9 million (14) compared to the
aggregate cost of dividends paid to shareholders in respect of the
period of US$4.0 million.
(14) EBITDA generated from dates in which the underlying assets
were owned, pro-rated for economic ownership.
Post-period end developments
As mentioned earlier, the post-period end events which have had
a very significant impact on the Company have been well-documented
through our frequent updates to shareholders, so I am not repeating
them in this statement. However, a detailed summary, including a
full outline, of recent events can be found within this Annual
Report.
The Board and the Transitional Investment Manager have worked
hard to make meaningful improvements to the Company's governance
structure across its portfolio companies and improve the
transparency of information provided to the Board.
In light of the poor operational performance, the Board has
commissioned an independent technical advisor to undertake full
updated technical due diligence across all assets in the portfolio
and we expect to report the outcome by the end of January 2024.
Upstreaming cash back to the UK from the underlying assets is
problematic under the current structures. A key priority for 2024
will be to undertake capital restructurings to mitigate the current
issues.
Despite the tumultuous times since the temporary share
suspension, support from the majority of our shareholders for the
actions that the Board has taken post the period end has continued
to prevail and shareholders have repeatedly indicated their support
for the Company's investment philosophy of being an impact-led,
renewables-focused investor in emerging Asian markets. On behalf of
the Board, I thank shareholders for their continued support of the
Board throughout the numerous General Meetings held in 2023 and
also for their levels of engagement with the Board since the
temporary share suspension.
Restoration of the listing
Following the announcement of the financial results for 2022
this Annual Report needs to be appropriately electronically tagged
in compliance with DTR 4.1, before it can be uploaded to the NSM.
Uploading to the NSM is a necessary step before the Company may
apply to the FCA for a restoration of the listing. The Company is
working on the electronic tagging of the Annual Report, following
which it will apply to the FCA for the restoration of the listing
and will make a further announcement in due course.
Status of strategic review
The strategic review of the options for the Company's future is
reaching an advanced stage. At the date of this Annual Report,
based on the information currently available, the most likely
outcome of the strategic review remains a proposal for either the
relaunch of the Company (potentially with a new investment
objective, investment policy, target returns and/or Investment
Manager but maintaining the impact-led, Asian focus) or a managed
wind-down.
Having analysed with our advisers the initial proposals received
for a relaunch of the Company, the Board will be inviting a shorter
list of potential investment managers to submit final proposals.
Any proposal to relaunch the Company would need to offer a
compelling investment proposition for both existing and prospective
investors to enable the Company to scale up its size significantly
over time as, at its current size, the Company will not have a
viable long-term future.
Any managed wind-down proposal would seek to achieve an optimal
balance between maximising shareholder value and timely return of
cash to shareholders, before a formal winding up once substantially
all of the Company's assets have been realised.
The Board will continue to consult shareholders at appropriate
stages of the strategic review and expects to conclude the
strategic review by the end of the first quarter of 2024. The Board
does not intend to declare a dividend in respect of the quarter
ended 31 December 2023 prior to completion of the strategic
review.
Outlook
The financial results for 2022 are clearly very disappointing
for the Board and for shareholders. Despite the results, my Board
colleagues and I continue to firmly believe in the investment
opportunity to deliver an impact-led renewable energy investment
strategy in the fast growing and emerging markets in Asia and that
the investment philosophy of the Company remains sound:
-- Investing in sustainable energy solutions in emerging Asia
can have a far higher environmental impact than investing in
renewable energy in Europe and North America due to the higher
carbon intensity.
-- Asia is home to more than half the world's population and its
GHG emissions attributable to energy are predominantly being
generated from fossil fuels.
-- Demand for energy is rising faster in Asia than any other
region with population growth, urbanisation and rising standards of
living and consumption driving demand for energy.
-- The fastest-growing major power generation markets globally
are in emerging and developing Asia.
-- Investment in sustainable energy infrastructure also enables
a substantial social impact, by supporting direct job creation and
catalysing economic activity.
As an example, India is now ranked the sixth most attractive
market for renewable energy investment and deployment opportunities
(15) and has the fastest rate of renewable electricity growth of
any major economy, with solar leading the transition. Government
policies, incentives and targets continue to underpin the region as
attractive for investment. In addition, the private sector,
commercial and industrial (C&I) companies in particular, are
increasingly turning to renewable PPAs as they seek lower-cost
electricity whilst reducing emissions. Storage technologies in this
market are becoming increasingly important to address
intermittency.
(15) Renewable Energy Country Attractiveness Index 61.
Vietnam also offers an attractive market, and the focus is
turning to offshore wind where a production target of 7 GW by 2030
has been set, alongside the onshore wind target of 16 GW, with the
sector's growth expected to reach 65 GW by 2045 (16) .
(16)
https://www.evwind.es/2023/03/17/vietnam-looks-to-offshore-wind-power-in-transition-to-renewable-energy/90797.
Notwithstanding the investment opportunity, the future of the
Company will be determined by the outcome of the strategic review.
In particular, a relaunch would rely heavily on shareholders
continuing to support that option and their willingness to
participate, alongside new investors, in future fundraising growth,
without which the Company would not have a viable long-term future.
Having voted against the resolution to wind up the Company at the
general meeting held on 19 December 2023, shareholders have
provided the Board with the additional time needed to complete the
strategic review, which we will continue to work tirelessly to
conclude at the earliest opportunity.
Irrespective of the outcome of the strategic review, a key
short-term priority is to look for ways to recover value from
existing investments and there are opportunities for optimising
value through more efficient structuring and asset level
improvement initiatives.
Sue Inglis
Chair
22 January 2024
Our Operating Model
AEIT was incorporated as a public company limited by shares and
carries on business as an investment trust within the meaning of
section 1158 of the Corporation Tax Act 2010. The Company's shares
were admitted to trading on the premium segment of the main market
of the London Stock Exchange on 14 December 2021.
The Company invests in Sustainable Energy Infrastructure Assets,
with a geographic focus on fast-growing and emerging economies in
Asia. Assets within the investment portfolio are held through
locally incorporated holding companies or special purpose vehicles
("SPVs").
At 31 December 2022, the Company owned directly nine solar SPVs
with 313 MW of operational capacity and one 200 MW
construction-ready asset (the "RUMS project"). Based on information
now available and knowable as at 31 December 2022, the valuation of
proceeding with the RUMS project was estimated to be negative
US$33.3 million based on 100% ownership, whereas the liabilities
associated with aborting the project were estimated to be in the
region of US$14.1-US$33.2 million, with the lower end assuming 100%
success in implementing a mitigation strategy. As such, as at 31
December 2022, the least value destructive option for shareholders
was to abort the RUMS project. Subsequent to the period end,
investments were made in Vietnam through the Company's UK
intermediate holding company, AEIT Holdings Limited ("AEIT
Holdings").
External debt financing is only at locally incorporated holding
company or SPV levels. As at 31 December 2022, this comprised
outstanding principal amounts of US$45.9 million (17) in the Indian
solar portfolio, representing a leverage ratio of 27%. (18)
(17) Pro-rated for 43% economic ownership.
(18) See APM calculation
The Company has a 31 December financial year end and plans to
announce half-year results in September and full-year results in
March. The Company also announces quarterly NAVs as at 31 March and
30 September in May and November respectively. The Company
currently pays dividends quarterly, targeting payments in March,
June, September and December each year.
The Company has an independent board of non-executive directors
and has appointed Adepa Asset Management S.A as its Alternative
Investment Fund Manager ("AIFM") to provide portfolio and risk
management services to the Company. The AIFM has delegated the
provision of portfolio management services to the Investment
Manager. For the period from IPO to 31 October 2023, the Investment
Manager was ThomasLloyd Global Asset Management (Americas) LLC (the
"Former Investment Manager"). From 1 November 2023 Octopus
Renewables Limited, trading as Octopus Energy Generation ("OEGEN"
or "Octopus Energy Generation"), was appointed as a transitional
Investment Manager (the "Transitional Investment Manager") for the
Company and assumed all day-to-day portfolio management
responsibilities for the Company from this date. OEGEN has been
appointed for an initial six-month term until 30 April 2024.
As an investment trust, the Company does not have any employees
and is reliant on third-party service providers for its operational
requirements. With the exception of NISPI which has employees from
the third-party asset manager, the SPVs do not have any direct
employees and services are provided through third-party providers.
The AEIT Management Engagement Committee ("MEC") reviews the
service levels and performance of the Company's key service
providers at least annually, as described in the 'Management
Engagement Committee Report' section in the Governance Report. In
the period, the MEC identified the top priorities for improving the
performance of the Former Investment Manager during 2023, included
improving the robustness of the Investment Manager's internal
processes, significantly enhancing the quality, transparency and
timeliness of management and other information and continuing to
add strength in depth to the teams responsible for the Company.
Post the period end, a decision was taken to terminate the
appointment of the Former Investment Manager and Octopus Energy
Generation was appointed as the Transitional Investment Manager
from 1 November 2023.
Figure 1: AEIT Operating Model and Group Structure
--
Shareholders
---------------------- -------------------------------------- ------------------------------------------------------
Independent Board Asian Energy Impact Trust Plc, Company Service Providers
of Directors
Listed on the LSE Main Market
AIFM: Adepa Asset * Brokers: Shore Capital and Peel Hunt
Management
Former Investment
Manager: ThomasLloyd * Fund Administrator & Company Secretary: JTC UK
Group
Transitional
Investment * Depository: Indos
Manager:
Octopus Energy
Generation * Registrar: Computershare
* External Auditor: Deloitte
* Independent Valuation Expert: PwC
* PR Advisor: Camarco
* Tax Advisors: PwC
* VAT Advisor: PKF
* Legal: Stephenson Harwood
AEIT Holdings Ltd
VSS* Negros Island Solar SolarArise Investment Portfolio Service
Power Inc. India Projects Providers
Private Ltd** * External asset managers
* Operations & maintenance ('O&M') contractors
* Engineering procurement and construction ('EPC')
contractors
* Technical advisors
* Tax and structuring advisors
* Local legal advisors
* External auditors
VSS SPVs Portfolio Investments India SPVs
Held in SPVs
Debt Providers - Asset Level Debt
----------------------------------------------------------------
* At 31 December 2022, the Company had committed to buying a
99.8% interest in VSS, a Vietnamese rooftop solar platform for
US$3.1 million. This completed on 31 May 2023.
** In January 2023, the company completed its acquisition of the
remaining 57% economic interest in SolarArise. On completion, the
Company owns 100% of SolarArise.
Objectives and KPIs
The Company has a triple return investment objective which
consists of: (i) financial return; (ii) environmental return; and
(iii) social return.
Objective KPI Performance commentary
------------------------------------------------------------ --------------------------- ---------------------------
Financial return(19) 2.5 cents per share Financial performance
* Target annual dividend yield (based on the IPO price) dividend throughout
of 2-3% for 2022, 5-6% for 2023 and at least 7% for paid in respect of the 2022 was disappointing.
2024, with the aim of progressively increasing the period from IPO to 31 The key contributors to
nominal target thereafter December the poor performance was
2022, equivalent to a the slow deployment of
yield the net IPO proceeds and
* Target 10-12% NAV total return per annum (based on of 2.5% based on the IPO the material decline in
the IPO price) once the investment portfolio is fully price the Company's investment
operational on a fully invested and geared basis NAV per share of 49.3 portfolio valuation.
cents The Board have made some
at 31 December 2022, active changes to key
* Over the medium term (from IPO), target annual a-49.2% service
dividends fully covered by EBITDA from the return based on the providers during the
operational assets that results from the MWh of clean opening course
energy generated; in the short term, the Directors post-IPO NAV of 2023 and is exploring
may determine to pay all or part of any dividend from EBITDA from the Company's ways to optimise value
capital reserves operational assets over throughout the investment
the period, excluding the portfolio and to reduce
costs within the costs at the Company
SolarArise level.
holding company, was
US$4.9
million (20) compared to
the aggregate cost of
dividends
paid to shareholders in
respect of the period of
US$4.0 million.
85,199 MWh clean energy
generated
------------------------------------------------------------ --------------------------- ---------------------------
Environmental return 62,770 tCO(2) e of GHG The 132 MW of installed
* Protecting natural resources and the environment with emissions avoided (21) capacity avoids GHG
significant greenhouse gas avoidance 132 MW installed emissions
operational through the generation
capacity (AEIT's share) of clean energy. The
133 MW commitments to 62,770
additional tonnes of GHG emissions
capacity (22) avoided is equivalent to
100% EU Taxonomy alignment avoiding the amount of
emissions associated with
34,427 cars on the road
in the UK (23) . As at
31 December 2022, AEIT
had commitments to acquire
an additional 57% of
SolarArise
and an 99.8% interest in
VSS. On completion of
those
acquisitions in 2023,
AEIT's
total operational capacity
to 271 MW (pro--rata share
based on ownership).
100% of investments
substantially
contribute to climate
change
mitigation in line with
the EU Taxonomy criteria.
------------------------------------------------------------ --------------------------- ---------------------------
Social return
* Delivering economic and social progress, helping 148 FTEs The portfolio provided
build resilient communities and supporting purposeful Employment directly social returns through
activity - aligned with the UN Sustainable supported the creation and support
Development Goals full time equivalent jobs of quality jobs. As at
(24) 31 December 2022, the
4 SDGs contributed to portfolio
directly supported 148
full time equivalent
jobs,
helping to ensure the
Just
Transition.
Investments made
purposeful
contributions to SDGs 7,
8, 13, 15
------------------------------------------------------------ --------------------------- ---------------------------
(19) The Board is continuing undertaking a strategic review of
the options for the Company's future. The outcome of the strategic
review is likely to result in changes to the Company's target
financial return. For further information on the strategic review,
see Chair's Statement.
(20) EBITDA generated from dates in which the underlying assets
were owned, pro-rated for economic ownership.
(21) Carbon avoided is calculated using the International
Financial Institution's approach for harmonised GHG accounting.
(22) The construction-ready RUMS project has been excluded as
this project was not proceedable as at 31 December 2022.
(23) Equivalent cars is calculated using a factor for displaced
cars derived from the UK government GHG Conversion Factors for
Company Reporting.
(24) Total FTE jobs supported as at 31 December 2022 through
AEIT's proportional share of the NISPI and SolarArise
portfolios.
Investment Strategy and Policy(25)
(25) The Board is continuing undertaking a strategic review of
the options for the Company's future, and it is expected that the
outcome of the strategic review will result in changes to the
Company's investment strategy and policy. For further information
on the strategic review, see Chair's Statement.
The Company seeks to achieve its investment objective by
investing directly, predominantly via equity and equity-like
instruments, in a diversified portfolio of unlisted sustainable
energy infrastructure assets in the areas of renewable energy power
generation, transmission infrastructure, energy storage and
sustainable fuel production ("Sustainable Energy Infrastructure
Assets"), with a geographic focus on the fast-growing and emerging
economies in Asia.
The Company aims to adopt a socially and environmentally
responsible investment approach that is geared towards sustainable
business values and which reduces investment risk through
diversification across countries, sectors and technologies.
Investment restrictions
The Investment Manager will ensure that the Company's portfolio
is diversified, so as to ensure a sufficient diversification of
investment risk, while also taking into account ESG criteria in
making its investment decisions.
The following specific investment restrictions apply to the
Company:
-- the Company will only invest in Sustainable Energy
Infrastructure Assets situated in the fast-growing and emerging
countries in Asia;
-- in relation to: (i) the Company's investments in Sustainable
Energy Infrastructure Assets situated in any single country; (ii)
the Company's investment in any single Sustainable Energy
Infrastructure Asset; and (iii) the Company's investments in
Sustainable Energy Infrastructure Assets under contract with any
single governmental or quasi--governmental offtaker, the relevant
investment restriction will vary depending on the Company's NAV, as
follows:
% of Company's GAV
------------------------------------------- --------------------------------------------
Exposure Exposure
to single to single
Sustainable governmental
Energy or quasi-
Exposure to Infrastructure governmental
Company's NAV single country Asset offtaker
------------------------------------------- -------------- -------------- ------------
Up to and including US$1 billion 50% 25% 25%
Above US$1 billion and up to and including
US$3 billion 40% 20% 20%
Above US$3 billion 30% 15% 15%
------------------------------------------- -------------- -------------- ------------
-- due to the exceptional circumstances of avoiding the greater
value destruction associated with abandoning the project rather
than proceeding with construction, assessment of the single country
limit will exclude any funds invested in the RUMS project up to
completion of commissioning. The Company's assessment of the single
country limit as set out in the table above will otherwise apply
and, from the point of making the decision to commit to construct
the RUMS project, no further Sustainable Energy Infrastructure
Assets shall be acquired, or projects committed to, with exposure
to India until the Company is in compliance with that limit;
-- the Company's investments in Sustainable Energy
Infrastructure Assets under contract with any single private
offtaker will not exceed 20% of GAV for investment grade offtakers
and 10% of GAV for non-investment grade offtakers;
-- the Company will only invest in countries, which the
Investment Manager considers as having a stable political system, a
transparent and enforceable legal system and which recognise the
rights of foreign investors;
-- the Company will only invest in operational assets, or in
construction phase assets where: (i) an offtake agreement has been
entered into; (ii) the land on which the Sustainable Energy
Infrastructure Asset is situated, is identified or contractually
secured where appropriate; and (iii) all relevant permits have been
granted;
-- the Comp any will only invest in technologies, such as solar
panels, wind turbines, boilers and steam turbine generators, the
commercial use of which has already been proven;
-- the Company will only hold investments that are denominated
in currencies which are freely transferable;
-- the Company will not invest in other externally managed
investment companies or collective investment schemes; and
-- the Compa ny will not typically provide funding for
development or pre-construction projects and any such funding will,
in any event, not exceed 5% of the GAV in aggregate and 2.5% of GAV
per development or pre-construction project and would only be
undertaken when supported by customary security.
The investment restrictions and limits set out above will be
measured at the time of the relevant investment. These investment
restrictions and limits apply to the Group (comprising the Company
and its proportionate interest in investments, intermediate holding
companies and project SPVs) as a whole on a look-through basis.
Where the Company holds its interest in Sustainable Energy
Infrastructure Assets through a project SPV, the investment
restrictions and limits will apply directly to the underlying
Sustainable Energy Infrastructure Asset as if it was held directly
by the Company, save where the relevant project SPV is part of a
co-obligor group with other project SPVs in which case any
co-obligor group will be assessed on an aggregated basis as set out
below under 'Gearing'.
The Company will not be required to dispose of any investment or
to rebalance the investment portfolio as a result of a change in
the respective valuations of its assets. However, in such
circumstances, the Investment Manager will take such steps as it
considers appropriate to enable the Company to comply with its
investment restrictions, unless the Investment Manager reasonably
believes that doing so would be prejudicial to the interests of the
Company and its shareholders as a whole.
Gearing
Subject to the limits set out below, the Company will maintain
gearing at a level which the Directors and the Investment Manager
consider to be appropriate in order to enhance returns and to
provide flexibility to make investments and for cash management
purposes.
Gearing will not be employed at the level of the Company and
will generally be employed at the level of the relevant project SPV
or intermediate holding company. The level of long-term gearing to
be employed in relation to any project SPV or intermediate holding
company will be assessed so that it is commensurate with the terms
of the offtake agreement for the underlying Sustainable Energy
Infrastructure Asset. Gearing, save for construction projects where
the guarantee of the intermediate holding company is required, will
generally be structured as non-recourse finance, typically at the
level of the relevant project SPV or intermediate holding company,
including but not limited to bank borrowings, public bond issuance
or private placement borrowings, provided that aggregate borrowings
across all project SPVs and intermediate holding companies will not
exceed 65% of the sum of: (i) the Company's GAV; (ii) the aggregate
borrowings of the Company's intermediate holding companies; and
(iii) the Company's proportionate share of borrowings at the level
of its Sustainable Energy Infrastructure Assets (the "Adjusted
GAV"), with the Company targeting below 50% in the medium term.
This limit will be measured based on the Adjusted GAV at the time
any project SPV or intermediate holding company enters into the
relevant facility.
Although co-obligor guarantee arrangements between multiple SPVs
will normally be avoided, any such arrangements will be considered
as bringing the SPVs concerned into a single asset and, therefore,
subject to the single Sustainable Energy Infrastructure Asset
restriction referred to in the table above at the time that such
arrangement is entered into.
No financing arrangements on a cross border basis between the
Company's subsidiaries will be entered into, so keeping the
Company's various pools of assets and liabilities insulated within
their own geographies.
The Company expects all borrowings to be denominated in the
currency of the relevant Sustainable Energy Infrastructure Asset or
US Dollars to help offset any foreign currency exposure. In
addition, borrowings will typically be amortising over the term of
the associated offtake agreement.
For the avoidance of doubt, any investments by the Company in
project SPVs or intermediate holding companies which are structured
as debt will not be considered gearing for these purposes and,
therefore, will not be subject to the restrictions set out
above.
Cash management policy
Whilst it is the intention of the Company to be fully or near
fully invested or contractually committed in normal market
conditions, the Company may in its absolute discretion decide to
hold cash on deposit or invest in cash equivalent investments,
which may include short-term investments in money market funds and
tradeable debt securities ("Cash and Cash Equivalents"). There is
no restriction on the amount of Cash and Cash Equivalents that the
Company may hold and there may be times when it is appropriate for
the Company to have significant holdings of Cash and Cash
Equivalents instead of being fully or near fully invested or
contractually committed. No financial transactions are permitted
with counterparties with a credit rating of less than BBB- from
Standard & Poor's or Baa3 from Moody's.
Changes to investment policy
No material change will be made to the Company's investment
policy without the prior approval of shareholders by ordinary
resolution and the prior approval of the FCA. Any changes to the
Company's investment policy are also required to be notified to
HMRC in advance of the filing date for the accounting period in
which the investment policy is amended (together with details of
why the change does not impact the Company's status as an
investment trust).
Timeline of Key Events since IPO
Date Event
--------------- ---------------------------------------------------------------------------
14 December Completion of IPO, raising gross proceeds of US$115.4 million,
2021 admission to trading on the London Stock Exchange and contractual
commitments to acquire a 40% economic interest in Negros Island
Solar Power Inc. ('NISPI') and a 43% economic interest in SolarArise
India Projects Private Limited ('SolarArise').
--------------- ---------------------------------------------------------------------------
17 December Completion of the acquisition of the 40% economic interest
2021 in NISPI and its three solar power projects in the Philippines,
totalling 80 MW for a cash consideration of US$25.4 million.
--------------- ---------------------------------------------------------------------------
20 June 2022 Contractual commitment to acquire the remaining 57% economic
interest in SolarArise which owns six operating and one construction-ready
solar power projects in India, for a cash consideration of
US$38.5 million.
--------------- ---------------------------------------------------------------------------
19 August 2022 Completion of the acquisition of the 43% economic interest
in SolarArise for a consideration of US$30.2 million, settled
through the issue of 26.0 million ordinary shares at US$1.16035
per share. In addition, cash of US$2.7 million was paid to
the Indian tax authorities on behalf of the sellers.
--------------- ---------------------------------------------------------------------------
1 November 2022 Expansion into Vietnam following a contractual commitment to
acquire 99.8% economic interest in Viet Solar System Company
Limited ('VSS'), which holds 6 MW of rooftop solar assets,
for US$4.6 million (being the total value of the investment,
including debt, and represented a net US$3.1 million equity
investment).
--------------- ---------------------------------------------------------------------------
8 November 2022 Confirmation that AEIT classifies under Article 9 of the EU
SFDR, with investments substantially contributing to climate
mitigation under the EU Green Taxonomy.
--------------- ---------------------------------------------------------------------------
18 November Admission to trading of 34.3 million new ordinary shares issued
2022 following a subsequent placing that raised gross proceeds of
US$35.3 million.
--------------- ---------------------------------------------------------------------------
Material events post period end
--------------------------------------------------------------------------------------------
13 January 2023 Completion of the acquisition of the remaining 57% economic
interest in SolarArise.
--------------- ---------------------------------------------------------------------------
25 April 2023 Temporary share suspension at the Company's request due to
a material uncertainty regarding the fair value of its assets
and liabilities, in particular with regard to the RUMS project.
--------------- ---------------------------------------------------------------------------
31 May 2023 Decision not to proceed with construction of the RUMS project,
predominantly due to high solar panel prices. Completion of
the acquisition of the 99.8% economic interest in VSS and its
two solar power projects.
--------------- ---------------------------------------------------------------------------
30 June 2023 Annual General Meeting held.
Alongside the standard annual resolutions to re-elect the Board
which were passed, a Continuation Resolution was proposed as
75% of the net IPO proceeds had not been deployed within 12
months of admission to trading.
--------------- ---------------------------------------------------------------------------
12 July 2023 Company announced that the final portfolio valuation as at
31 December 2022 could reflect a material downward movement
that would be in addition to the costs written off and potential
abandonment liabilities associated with not proceeding with
the RUMS project.
--------------- ---------------------------------------------------------------------------
1 August 2023 The Company's only development project (the 'TT8 Project'),
a 150 MW DC solar PV project, held by a special purpose vehicle
of SolarArise, signed a power purchase agreement with Maharashtra
State Electricity Distribution Company Limited.
--------------- ---------------------------------------------------------------------------
15 August 2023 Company announced receipt of new information under protections
of its whistleblowing policy revealing that ThomasLloyd Global
Asset Management (Americas) LLC was aware of material information
relating to the RUMS project by August 2022 and, therefore,
it appeared that key information had been withheld from the
Board, and misleading information given to it, over a protracted
period of time.
--------------- ---------------------------------------------------------------------------
24 August 2023 Shareholders representing 58% of the votes cast (and a majority
of the issued share capital) voted against the Continuation
Resolution in line with the Board's recommendation. As a result,
the Board was required to bring forward proposals for the reconstruction,
reorganisation or winding-up of the Company for shareholder
approval within four months.
Strategic review of options for the Company's future commenced.
--------------- ---------------------------------------------------------------------------
15 September Company served notice terminating ThomasLloyd Global Asset
2023 Management (Americas) LLC's appointment as Investment Manager
with effect from 31 October 2023.
--------------- ---------------------------------------------------------------------------
25 September Shareholders representing approximately 54% of the Company's
2023 total issued share capital supported the current Board and
the resolutions to replace the current Board were not passed.
--------------- ---------------------------------------------------------------------------
11 October 2023 Decision to proceed with the RUMS project due to it being the
least value destructive option for shareholders.
--------------- ---------------------------------------------------------------------------
27 October 2023 Company changed its name to Asian Energy Impact Trust plc.
--------------- ---------------------------------------------------------------------------
31 October 2023 Shareholders representing over 91% of the issued share capital
voted in favour of changes to the Company's investment policy
(to avoid any potential breach of the single country limit
as a consequence of proceeding with the RUMS project and make
clarificatory changes to the gearing policy), in line with
the Board's recommendation. Termination of the Former Investment
Manager's appointment effective.
--------------- ---------------------------------------------------------------------------
1 November 2023 Octopus Energy Generation appointed as Transitional Investment
Manager.
AEIT launched a new corporate website
--------------- ---------------------------------------------------------------------------
13 December Unaudited NAV as at 30 September 2023 announced of US$88.5
2023 million (50.4 cents per share). Company announced that moving
forward with the development of the TT8 Project whilst the
strategic review is underway may not be the best option for
the Company.
--------------- ---------------------------------------------------------------------------
19 December Shareholders representing 83% of the votes cast (and 69% of
2023 the issued share capital) voted against a resolution to wind
up the Company, in line with the Board's recommendation.
--------------- ---------------------------------------------------------------------------
Post Period Updates
The material uncertainty surrounding the investment portfolio
valuation as at 31 December 2022 and the subsequent events that
followed throughout 2023, including the temporary share suspension
effective from 7.30 am on 25 April 2023 have had adverse
consequences for the Company and its shareholders. A summary of the
key events is set out below.
Temporary share suspension
On 25 April 2023 the Company announced a temporary suspension in
the listing of, and trading in, the Company's shares (the
"temporary share suspension"). The temporary share suspension was
at the Company's request due to a material uncertainty regarding
the fair value of its assets and liabilities, in particular with
regard to the 200 MW construction-ready RUMS project, which was
acquired as part of the SolarArise portfolio. Further work was
required to assess the quantum of the liabilities and commercial
viability of the project. Due to this, the Company was unable to
finalise the accounts within four months after the accounting
period end date, as required by the FCA's Disclosure Guidance and
Transparency Rules.
Decision not to proceed with the RUMS project
Following the temporary share suspension, the Board appointed
independent advisors to undertake detailed reviews of the
liabilities associated with abandoning the RUMS project and the
Company's options for the project (including proceeding with
constructing it or abandoning it). In parallel, the Former
Investment Manager re-evaluated the options for the RUMS project,
including the funding requirement in the event of proceeding with
construction. Based on the reviews undertaken at that time, and the
information provided to the Board on 31 May 2023 by the Former
Investment Manager, the Board concluded that it would not be in the
interests of shareholders to proceed with the construction of the
RUMS project. As well as being commercially unviable, predominantly
due to the high solar panel prices at that time, proceeding would
breach the Company's investment policy restrictions.
Re-evaluation of 31 December 2022 portfolio valuation proposed
by the Former Investment Manager
Due to the ongoing material uncertainties regarding the
Company's financial position and in support of progressing the
audit and annual report and accounts for the period ended 31
December 2022, the Board also appointed, in May 2023,
PricewaterhouseCoopers LLP ("PwC") to undertake a detailed review
of the key assumptions included in the financial models and the
valuation methodology of the operational assets within the
portfolio, namely the SolarArise portfolio and NISPI, as at 31
December 2022 proposed by the Former Investment Manager. On 12 July
2023, the Board announced it had received a draft report from PwC
and that the Board anticipated the final portfolio valuation as at
31 December 2022 could reflect a material downward movement that
would be in addition to the costs written off and potential
abandonment liabilities associated with not proceeding with the
RUMS project.
2023 Annual General Meeting
At the Annual General Meeting held on 30 June 2023, alongside
the standard annual resolutions to re-elect the Board which were
passed, a Continuation Resolution was proposed as 75% of the net
IPO proceeds had not been deployed within 12 months of admission to
trading. If the Continuation Resolution did not pass, the Directors
would be required by the Company's Articles of Association to put
forward proposals for the reconstruction, reorganisation or winding
up of the Company to shareholders for their approval within four
months of the date of the meeting at which the Continuation
Resolution was proposed. Given the uncertainty of the Company's
financial situation, the Board recommended that shareholders
abstain from voting on the Continuation Resolution and adjourned
the AGM ahead of the shareholder vote on the Continuation
Resolution.
General meetings requisitioned by entities and funds affiliated
with the Former Investment Manager
On 11 July 2023, the Company received a notice from certain
entities and funds affiliated with the Former Investment Manager
(the "Requisitioners"), which held 14.8% of the Company's issued
share capital, requisitioning a general meeting of the Company's
shareholders to vote on, amongst other things, the Continuation
Resolution.
On 31 July 2023 in the notices for the requisitioned general
meeting and adjourned Annual General Meeting (the "August
Meetings"), the Board recommended shareholders to vote against the
Continuation Resolutions to be proposed at those meetings as
shareholders would be unable to form a considered view of the
Company as, at that time, (i) its valuation was uncertain, (ii) its
principal construction asset was believed to be commercially
unviable and the non-completion liabilities were expected to be
substantial, (iii) the audit of its financial statements for the
period ended 31 December 2022 and associated annual report and
accounts could not be completed, (iv) its shares were suspended
from listing and (v) there was no clear strategy for the future of
the Company.
Prior to the August Meetings a second notice from the
Requisitioners was received by the Company requisitioning a further
general meeting to consider ordinary resolutions that the current
Board be removed from office as directors of the Company and
replaced with new directors nominated by the Requisitioners with
immediate effect.
Ahead of the August Meetings that were held on 24 August 2023,
the Board continued to provide updates to shareholders on material
new information in support of its recommendation to vote against
the Continuation Resolutions. At the August Meetings, shareholders
representing 58% of the votes cast (and a majority of the issued
share capital) voted against the Continuation Resolutions in line
with the Board's recommendation. The Board immediately commenced an
evaluation of the options for the Company's future in view of its
obligation, under the Company's Articles of Association to put
proposals to shareholders for the reconstruction, reorganisation or
winding-up of the Company, by 24 December 2023.
The second requisitioned general meeting was held on 25
September 2023. Shareholders representing approximately 54% of the
Company's total issued share capital supported the current Board
and the resolutions to replace the current Board were not
passed.
Change of Investment Manager
As the Continuation Resolutions were not passed at the August
Meetings, the Company was entitled to terminate its investment
management agreement with the Former Investment Manager summarily
at any time and without further payment in respect of the Former
Investment Manager's initial five-year term of appointment. Due to
the deteriorated relationship with the Former Investment Manager
and concerns on the quality, validity and timeliness of information
provided by it to the Board, the Board determined it would be in
the best interests of shareholders to terminate the Former
Investment Manager's appointment as the Investment Manager.
Following a competitive tender process, the Board announced on 28
September 2023 that it had agreed heads of terms to appoint Octopus
Energy Generation as the Transitional Investment Manager for an
initial term expiring on 30 April 2024. Following completion of the
customary take--on and regulatory procedures, Octopus Energy
Generation's appointment with immediate effect was subsequently
confirmed on 1 November 2023.
Decision to proceed with the RUMS project due to changed
circumstances
On 11 October 2023 the Board announced its decision to proceed
with the RUMS project due to it having become the least value
destructive option for shareholders. This was based on the advice
received from the Former Investment Manager that:
-- panel prices had fallen by 30% which meant that the negative
NPV was significantly less than at 31 December 2022;
-- aborting the RUMS project would: (i) crystallise an immediate
write off of US$8.9 million of costs incurred in respect of the
project as at 30 September 2023; (ii) result in the encashment of
US$1.2 million of performance bank guarantees; (iii) potentially
indirectly expose SolarArise to abandonment liabilities (net of the
performance bank guarantees) of up to US$32.3 million and likely
protracted associated litigation; and (iv) lead to reputational
damage that could adversely impact the value of the SolarArise
platform; and
-- whilst the RUMS project was clearly not value accretive,
proceeding to construct it would: (i) allow SolarArise to better
manage its liabilities in respect of the RUMS project, providing
greater certainty compared to a very uncertain process of aborting
it, both in terms of the value of any potential abandonment
liabilities and the expected timeline for settlement; and (ii) add
a further 200 MW of capacity to the SolarArise platform and, once
operational as part of a wider portfolio, may facilitate a more
attractive exit of SolarArise in any future liquidity event.
To proceed with the RUMS project, the Board put forward a
resolution to amend the single country limit in the Company's
investment policy to avoid any potential breach of that limit as a
consequence of proceeding with the RUMS project (and also to make
clarificatory changes to the gearing policy), which was passed at a
general meeting held on 31 October 2023.
Change of name and new corporate website
On 27 October 2023, the Company changed its name to Asian Energy
Impact Trust plc. The Company launched a new corporate website,
www.asianenergyimpact.com, on 1 November 2023.
Unaudited NAV as at 30 September 2023
On 13 December 2023, the Board announced the unaudited NAV as at
30 September 2023 in order to provide investors with the most
recent financial information at the earliest possible time.
Unaudited net assets as at 30 September 2023 were US$88.5
million (NAV of 50.4 cents per share), a marginal increase on the
net assets (and NAV per share) as at 31 December 2022.
The unaudited NAV as at 30 September 2023 (relative to 31
December 2022) reflects an uplift the portfolio valuation resulting
from the negative NPV of proceeding with the RUMS project as at 30
September, being materially lower than costs of not proceeding with
it reflected in the 31 December 2022 portfolio valuation, which was
largely offset by a further material reduction in the Philippines
wholesale electricity spot market over the period and additional
non-recurring professional fees incurred since the temporary share
suspension.
At 30 September 2023, the Company had cash balances of US$63.6
million and held US$1.7 million in its UK subsidiary, AEIT
Holdings. The Company has invested a further US$20.0 million in
SolarArise to provide funding required for constructing the RUMS
project.
As at 30 September 2023, gearing in AEIT's investment portfolio
represented 54.6% of the Adjusted GAV.
Winding-up proposal
In accordance with its obligation to put forward proposals for
the reconstruction, reorganisation or winding-up of the Company to
shareholders for their approval within four months of the
Continuation Resolutions not having been passed, the Board convened
a further general meeting on 19 December 2023 to consider a
resolution to wind-up of the Company and appoint liquidators. The
Board had considered possible options for a reconstruction or
reorganisation of the Company but, given, in particular, the
concentrated and illiquid nature of the Company's portfolio and the
current size of the Company, the Board concluded that a
reorganisation or reconstruction was not viable or in the best
interests of shareholders as a whole. Accordingly, in order to
comply with its obligation under the Articles, the Board's only
option was to put a winding up proposal, but recommended
shareholders to vote against the resolution principally for the
following reasons: (i) if the resolution was passed, it was
expected that the listing of the Company's shares would be
permanently suspended; and (ii) if the resolution was not passed
(in-line with the Board's voting recommendation), the Board would
have the additional time needed to complete the strategic review of
the options for the Company's future and shareholders would have
the opportunity to vote on the outcome of the strategic review.
Shareholders representing 83% of the votes cast (and 69% of the
issued share capital) voted against the winding-up resolution, in
line with the Board's recommendation.
Investments
No. of individual assets Net operational asset value(27) Adjusted GAV
purchased in the period(26) US$ 23.5m US$ 173.3m
10
(26) Includes the 200 MW construction project in Rewa Ultra Mega
Solar Park (the "RUMS project") in India.
(27) The value of the Company's operational investment portfolio
excluding construction assets.
At the time of the IPO, the Company had committed to acquire
interests in portfolios of assets in India, being a 43% economic
interest in SolarArise India Projects Private Limited
("SolarArise"), and the Philippines, being a 40% economic interest
in Negros Island Solar Power Inc ("NISPI"), for a combination of
cash and new ordinary shares to be issued by the Company.
Summary of deployment
AEIT proportion
of
Acquisition AEIT proportion
price Total operational on construction-ready
Investment Proportion paid (US$ million) capacity completion capacity
----------- ---------- ------------------ ----------------- --------------- ------------------
SolarArise 43.0% 32.9(29) 233 MW 100 MW 86 MW
----------- ---------- ------------------ ----------------- --------------- ------------------
57.0%(28) 38.5 133 MW 114 MW
----------- ---------- ------------------ ----------------- --------------- ------------------
NISPI 40.0% 25.4 80 MW 32 MW n/a
----------- ---------- ------------------ ----------------- --------------- ------------------
VSS(2) 99.8% 3.1 6 MW 6 MW n/a
----------- ---------- ------------------ ----------------- --------------- ------------------
Totals 99.9 319 MW 271 MW 200 MW
----------- ---------- ------------------ ----------------- --------------- ------------------
(28) Completed post the period end.
(29) Includes payment of US$2.7 million to Indian tax authorities on behalf of the sellers.
The acquisition of NISPI, the 80 MW Philippines investment
platform with three operating solar plants, completed on 17
December 2021 for a cash consideration of US$25.4 million. The
sites are in the Central Visayas region, located across two sites
on Negros, the fourth largest island of the Philippines. The 40%
economic interest in NISPI was acquired from an associate of the
Former Investment Manager and the remaining 60% is owned by Ayala
Clean Energy Inc. No gearing is employed within the portfolio. The
three solar power plants currently generate revenue through the
sale of power to the grid at the WESM price. This means in-year
performance and its value is at risk to wholesale energy market
price movements in both the short term and long term within the
Philippines.
The seed asset acquisition in India reflected a 43% economic
interest in SolarArise, the 433 MW Indian investment platform with
six operating solar plants totalling 233 MW and one 200 MW
construction-ready solar plant (the "RUMS project". All operating
assets benefit from long-term fixed price power purchase agreements
with central government agencies such as Solar Energy Corporation
of India Ltd. ("SECI") or state government electricity utilities.
The acquisition of the 43% economic interest was acquired from
associates of the Former Investment Manager and completed in August
2022 following an amendment to the sale and purchase agreement to
update the fair value to a more recent date, being 30 June 2022.
Due to the strengthening of the US Dollar, this reduced the
purchase consideration from US$34.6 million as outlined in the IPO
prospectus to US$32.9 million. Completion comprised of
consideration of US$30.2 million, settled through the issue of 26.0
million ordinary shares at US$1.16035 per share and cash of US$2.7
million that was paid by SolarArise to the Indian tax authorities
on behalf of the sellers.
On 20 June 2022 the Company committed to acquire the remaining
57% economic interest in SolarArise from the remaining shareholders
including the founders of SolarArise. The commitment was made for a
cash consideration of US$38.5 million, reflecting a 5.2% discount
to the acquisition price of the 43% economic interest agreed in
November 2021 primarily due to the strengthening of the US Dollar.
This acquisition completed post the period end on 13 January 2023
and at the date of this Annual Report the Company owns 100% of
SolarArise. At at 31 December 2022, the 200 MW construction-ready
asset was not commercially viable to proceed, with the potential
liabilities associated with aborting the project being less than
the negative NPV to the Company from constructing the project. Post
the period end, the viability of the project improved, principally
due to panel prices having fallen by 30% which meant that the
negative NPV resulting from construction was significantly less
than the potential abandonment liabilities, and a decision was made
in October 2023 to proceed with construction.
On 1 November 2022, the Company, through its subsidiary AEIT
Holdings Limited ("AEIT Holdings"), made its first investment in
Vietnam through a contractual agreement to acquire Viet Solar
System Company Limited ("VSS"), a privately-owned company which
holds 6.12 MW of rooftop solar assets for US$3.1 million. The gross
value of the assets was US$4.6 million including external debt. The
acquisition completed on 31 May 2023 and represents a 99.8%
economic interest in VSS. This acquisition was the start of a new
local partnership with Solar Electric Vietnam ("SEV"), an
engineering, procurement and construction provider and renewable
energy developer in Vietnam. Additionally, AEIT Holdings entered
into an investment agreement for an additional US$25.4 million of
uncommitted funding for other renewable energy pipeline assets once
such assets have been identified and to be acquired on agreeable
terms. No further assets have been acquired post the period end
through this arrangement.
200 MW construction-ready RUMS project
The RUMS project is held by a wholly-owned special purpose
subsidiary, Talettutayi Solar Projects Nine Private Limited ("TT9")
of SolarArise.
Background
TT9 successfully bid for the RUMS project in a reverse auction
conducted on 19 July 2021 and received the letter of award on 1
September 2021. Power purchase agreements ("PPAs") were signed on
25 November 2021 with Rewa Ultra Mega Solar Limited ("RUMSL"), the
operator of the solar park of which the RUMS project forms part,
and M.P. Power Management Company Limited and Indian Railways, with
a fixed rate tariff of INR 2.339 per kWh for 25 years. The original
deadline for the scheduled commercial operating date ("SCOD") was
25 June 2023, but in September 2022 this was extended to 8
September 2023 due to a delay by RUMSL in getting the initial
tariff and other related approvals from the state regulatory
agencies. The original bid projections were for an overall project
cash cost of INR 5,880 million (US$78.4 million) funded by debt of
INR 4,700 million (US$62.7 million) and equity of INR 1,180 million
(US$15.7 million) with an IRR of 13.5%. It was expected that the
equity financing required for the construction of the RUMS project
would be funded entirely from existing cash resources within
SolarArise and ongoing operating cash flow from its operational
solar portfolio.
Increased cost estimates leading to temporary share
suspension
During April 2023 it was disclosed to the Board that the cost of
the RUMS project and the attendant equity funding requirement had
gone up significantly thereby calling into question its economic
viability. The cost increase had arisen principally due to
increases in module costs, the cost of the EPC contract, goods and
services tax and adverse movements in exchange rates in comparison
to the costs in the original bid assumptions. For example, the RUMS
project was originally bid with a module cost of US$24.2 cents per
watt peak ('c/Wp') but prices rose significantly during 2022, in
particular due to supply chain issues in the market and following
the implementation of basic customs duty of 40% on imported solar
modules and 25% on imported solar cells from 1 April 2022. This
caused prices to rise to a peak of approximately US$40 c/Wp, but
had fallen to approximately US$29 c/Wp by December 2022.
Later in April 2023, the Board was further advised by the Former
Investment Manager that potentially significant non--completion
liabilities would arise in TT9 in the event that it did not proceed
with the construction of the RUMS project. Having received
information that suggested the RUMS project may no longer be
commercially viable and that there were potentially significant
non-completion liabilities, the Company immediately sought the
temporary share suspension to undertake further work to clarify the
position and complete its 2022 audit and Annual Report.
Valuation of RUMS project
As at 30 September 2022, the fair value of the RUMS project
included within the valuation of SolarArise prepared by the Former
Investment Manager was US$4.9 million (US$2.1 million for the 43%
interest owned at that date). This represented the fair value of
the project cashflows of US$14.1 million offset by the assumed
equity funding required of US$9.2 million.
In the days following the temporary share suspension, the Board
and Former Investment Manager commenced a number of important
workstreams including taking advice regarding potential liabilities
in the event that the RUMS project was not constructed in
accordance with the contractual documentation and on the valuation
of the RUMS project.
Based on information now available and knowable as at 31
December 2022, the valuation of proceeding with the construction
project was estimated to be negative US$33.3 million based on 100%
ownership, whereas the potential liabilities associated with
aborting the project were estimated to be US$14.1-US$33.2 million,
with the lower end assuming 100% success in implementing a
mitigation strategy. As there is significant subjectivity in
determining the specific abort case liabilities to include in the
valuation, it has been determined that a market participant would
view the SolarArise portfolio in its entirety and that an
appropriate assumption would be to write the SolarArise portfolio
down to zero as the potential abort liabilities would have exceeded
the value of SolarArise (before providing for such liabilities).
This results in applying an abort liability of US$12.0 million for
the 43% ownership. Including the abort liabilities in the valuation
of SolarArise as at 31 December 2022 also gives rise to an onerous
contract for the commitment to purchase the remaining 57% as the
committed price to pay was less than the value of the contract.
Latest updates
Falling solar module prices resulted in the Former Investment
Manager continuing to re-evaluate the project and the Board
appointed an Indian-based independent financial advisor to complete
a commercial assessment of the RUMS project. The EPC provider was
identified with high-level commercials agreed and JA Solar was
selected as the preferred solar panel provider with an agreed price
of US$15.5 c/Wp (US$22.3 c/Wp including import duties). Updating
the model with the declining panel prices and other assumption
changes reduced the overall negative NPV of the project to
approximately US$13 million. Based on advice from the Former
Investment Manager, on 11 October 2023, the Board agreed to provide
funding of US$20 million by way of an INR-denominated external
commercial borrowings loan from the Company to SolarArise to enable
construction of the RUMS project to proceed.
The Transitional Investment Manager has since refined the RUMS
project model and the published valuation as at 30 September 2023
is a negative NPV of US$14.6 million.
Construction of the RUMS project has commenced. On the
recommendation of the Transitional Investment Manager, the Company
has appointed Fichtner as the owner's technical advisor to the RUMS
project, providing boots on the ground to oversee the construction
of the asset on a day-to-day basis. An official extension has been
granted to the deadline for the SCOD to 5 February 2024. As at
early January 2024, the third of five shipments of panels have
arrived on site. Although risks remain due to the size and tight
timelines of the project, it is currently expected to be
commissioned before 31 March 2024.
Portfolio Breakdown
The following charts are representative of the pro-rata share of
the assets owned as at 31 December 2022.
Geographical diversification - as a % of generating capacity
(MWp)
Asset phase - as a % of generating capacity (MWp)
Revenue structure - as a % of generating capacity (MWp)
Portfolio Performance
During 2022, the investment portfolio's electricity generation
was 85,199 MWh. This reflects the proportionate share of the
electricity generated by investments from the date of acquisition
and therefore takes into account 40% of NISPI from 1 January 2022
and 43% of SolarArise from 19 August 2022.
Across the investment portfolio, electricity generation was 17%
below budget, driven by lower irradiation, poor weather and low air
quality in India and grid curtailment in the Philippines.
Output generated by underlying Revenue generated by underlying EBITDA generated by underlying
operating assets(30) operating assets(30) operating assets(30)
85,199 MWh US$7.8m US$4.9m
(30) Pro-rated for economic ownership and from the 1 January
2022 for NISPI and 19 August 2022 for SolarArise (the date of
investment). T hese are not IFRS measures and are KPIs used to
monitor the performance of the underlying assets.
Philippines
The Philippines portfolio comprises NISPI, an investee company
with three operating solar plants with a total capacity of 80 MW
situated on the island of Negros. All three solar plants export
electricity to the grid at the wholesale electricity spot market
("WESM") price.
Generation during 2022 was 19% lower than budget due to grid
curtailment stemming from the effects of Typhoon Rai (December
2021) and the damaged Negros-Cebu subsea cable. The damaged subsea
cable was restored in October 2022. In the final two months of
2022, the portfolio generated 6% below budget which was in line
with the variance in irradiation observed in the period.
Although generation was lower than expected, WESM prices
continued to increase throughout the year with an average of 7.79
PHP per kWh achieved by NISPI, in comparison to a budgeted price in
the investment case of 7.74 PHP per kWh in 2022 and 4.81 PHP per
kWh achieved in 2021. The steep trend upwards was driven by global
energy market instability and increased demand as the nation-wide
lockdowns were released and economic activity resumed, alongside
rising fossil fuel prices. Whilst higher prices were achieved
during the year compared to the prior years, the current valuation
of the NISPI investment is based on modelled future cash flows and
is highly dependent on assumed operational performance and the
price that is assumed longer term to be achieved. In the December
2022 valuation, the valuation methodology has been updated to
utilise leading market forecasters for the future WESM price
curves. Prior periods utilised the Former Investment Manager's
in-house power price curve based on historical prices achieved,
indexed for future prices subject to the price cap. The updated
methodology utilises independent third-party advisor curves and
these curves are depicting a significant downwards trend in future
energy prices in the short to medium term, before levelling off in
the long term.
Energy prices are driven by commodity prices, in particular
delivered coal and liquefied natural gas, which are expected to
fall from the heightened prices seen during global events such as
the pandemic and the start of the Russia-Ukraine conflict. Further,
at the end of 2022 and into early 2023, commodity prices showed
sharp declines. Future budgets will be set utilising the
independent forecasted prices and performance reported against
these models. Further detail can be found in the Portfolio
Valuation section.
At 31 December 2022, on a 100% basis, NISPI had PHP 538 million
of cash reserves, equivalent to US$9.7 million and generated EBITDA
of PHP 378 million, equivalent to US$6.8 million during 2022. NISPI
has no debt.
India
As at 31 December 2022, the Indian portfolio comprised a 43%
economic interest in SolarArise, an Indian platform with interests
in six operating solar plants and the 200 MW construction-ready
RUMS project, situated across five states in India and with a total
potential capacity of 433 MW. All plants are or will export
electricity under 25-year fixed-price government PPAs.
In comparison to budget for the full year of 2022, energy
generation declined by 14% driven by lower irradiation, heavy rains
during monsoon season resulting in floods at two of the sites
(Telangana I and Telangana II) and air quality issues at
Maharashtra. During the period of ownership from 19 August 2022,
generation was 15% under budget. The Transitional Investment
Manager is working closely with the asset management team on the
ground to put in place mitigating actions to prevent the effects of
flooding, test pollution levels in comparison to legislation and
increase cleaning cycles at Maharashtra.
At 31 December 2022, excluding the amounts paid out to
shareholders for the 57% acquisition in January 2023, on a 100%
basis, SolarArise had INR 653 million of cash reserves, equivalent
to US$7.9 million of which approximately US$5.1 million had been
generated from operations during the period of ownership. At 31
December 2022, SolarArise had approximately US$106.8 million of
borrowings.
Portfolio Valuation
Valuation process
Regular valuations are undertaken for the Company's portfolio of
assets. The process follows International Private Equity Valuation
Guidelines, typically using a discounted cashflow ("DCF")
methodology. The DCF methodology is deemed the most appropriate
valuation basis where a detailed projection of likely future cash
flows is possible. Due to the asset class, availability of market
data and the ability to project the asset's performance over the
forecast horizon, a DCF valuation is typically the basis upon which
renewable assets are traded in the market. In a DCF analysis, the
fair value of the investee companies is the present value of the
expected future cash flows, based on a range of operating
assumptions for revenues, costs, leverage and any distributions,
before applying an appropriate discount rate. Key macro-economic
and fiscal assumptions for the portfolio valuation are set out in
note 9 to the Financial Statements. The assets held in the
Company's UK subsidiary, AEIT Holdings, substantially comprise
working capital balances and therefore the Directors consider the
fair value of AEIT Holdings to be equal to its book value.
Following the material uncertainty surrounding the portfolio
valuation as at 31 December 2022, detailed in the Post Period
Updates section, the Board, Transitional Investment Manager and
AIFM have made a number of changes to the valuation process which
have been implemented to arrive at the 31 December 2022 valuation
presented in this Annual Report.
In addition to the above, an updated valuation policy reflecting
the change in assumption methodologies and review process has been
adopted.
In accordance with the Company's valuation policy, the
investment portfolio at 31 December 2022 has been valued by the
Transitional Investment Manager. PwC was engaged as an independent
valuation expert to provide a private independent opinion on the
reasonableness of the valuations which were prepared by the
Transitional Investment Manager, and adopted by the Board and AIFM
when they approved the 31 December 2022 valuations.
Changes in relation to operational assets
PwC was appointed to assist the Company with a detailed review
of the key assumptions included in the financial models and the
valuation methodology for the Company's operational assets in India
and the Philippines which had been prepared by the Former
Investment Manager for the purpose of the 31 December 2022
valuation. As previously announced, following this review, the
Company identified several areas for concern, including assumptions
regarding revenues, operating costs, tax projections and cash
extraction which were either inaccurate or considered to be
unrealistically optimistic.
Following the PwC review, the operational asset models have been
re-worked by the Transitional Investment Manager.
-- This included updating the basis of the macro-economic
assumptions in the models, utilising leading third-party market
forecasters for power prices in the Philippines and a number of
other material changes based on the Transitional Investment
Manager's experience.
-- The SolarArise holding company model was revised to
accurately reflect asset management costs, cash extraction and tax
assumptions in respect of SolarArise.
Changes in relation to the RUMS project
A commercial assessment of the construction-ready RUMS project
was undertaken by an Indian-based independent financial adviser
alongside a new model being built by an external specialist
modelling firm which was reviewed by a model audit company, under
the supervision of the Former Investment Manager.
While the model audit review was never finalised, a draft report
was prepared. The outstanding issues noted in the draft report were
reviewed and updated by the Transitional Investment Manager in new
model in determining the appropriate valuation for the RUMS
project.
Portfolio valuation as at 31 December 2022
The fair value of the Company's investment portfolio as at 31
December 2022 was USS11.5 million. The movements from IPO are
detailed in the bridge below and exclude the onerous contract
provision.
Fair value of investments from IPO to 31 December 2022
The basis of assumptions used by the Transitional Investment
Manager in the 31 December 2022 portfolio valuations are outlined
in the 'Portfolio Valuation' section.
(31) The Company has received advice that abort liabilities
associated with the RUMS project are restricted to the level of the
SolarArise holding company and therefore the value of SolarArise
can not fall below US$nil.
Basis of assumptions
Economic assumptions
The main economic assumptions used in the portfolio valuation as
at 31 December 2022 are inflation forecasts, interest rates,
foreign exchange rates and power price forecasts.
-- Inflation forecasts: Our approach is to blend two inflation
forecasts from reputable third-party sources.
-- Interest rates: Interest rate forecasts are only relevant for
the Indian portfolio of assets. As existing facility agreements are
in place, we have assumed the rates as at 31 December 2022 are the
long-term rates.
-- Foreign exchange rate: Underlying valuations are calculated
in local currency and converted back to US Dollars at the spot rate
at the relevant valuation date.
-- Power price forecasts: All assets in the SolarArise portfolio
have long-term fixed price power purchase agreements and therefore
market forecasts are not required. The NISPI portfolio generates
revenue through the sale of power to the grid at the wholesale
electricity spot market ("WESM") price and is fully exposed to
volatility in WESM price curves. In determining the forecast for
the WESM prices, our approach is to blend at least two wholesale
energy price curves as prepared by market advisors that are
reputable in the relevant market. By blending two or more
forecasts, if there are any differences in methodology or
assumptions this provides a hedge against the different market
eventualities that the advisors reflect and minimises the risk of
using a single curve which is too prudent or too optimistic. Prior
period valuations relied on the Former Investment Manager's
in-house assumptions which were not based on independent market
forecasts and were materially higher than independent market
forecasters' forecasted prices utilised in the 31 December 2022
valuations, particularly in the long term.
Discount rates
To determine the reasonable ranges, the applicable cost of
equity for the solar market was estimated considering data points
from transactional and other valuation benchmarks, disclosures in
broker reports, other public disclosures and broader market
experience of investors in the market. The Transitional Investment
Manager compared the range to its own risk-adjusted discount rate
analysis and determined the appropriate discount rates to
apply.
Generation
Each asset's valuation assumes a 'P50' level of electricity
output based on yield assessments prepared by technical advisors.
The P50 output is the estimated annual amount of electricity
generation that has a 50% probability of being exceeded-both in any
single year and over the long-term and a 50% probability of being
underachieved. P50 is the market standard assumption to utilise in
valuation models. There is observed historical underperformance of
the Company's operational assets when compared with the level of
generation assumed at the time of acquisition. A technical advisor
has been appointed to provide updated P50 yield assessments which
are expected to be lower than these original assumptions. In lieu
of receiving these, an estimated reduction has been applied for the
31 December 2022 valuations.
Adjustments to modelling methodology and timing of cash
extraction
There are three elements to these adjustments.
-- Asset management costs at the SolarArise holding company
level: The ongoing asset management costs associated with the SPVs
are charged at the holding company, rather than at the underlying
SPV level. Previously, these costs were excluded from the
valuation. For 31 December 2022, there has been a change in the
SolarArise holding company valuation methodology which now uses a
discounted cash flow methodology to reflect the ongoing liabilities
and asset management fees required to operate the underlying assets
which are paid from the holding company.
-- Taxes at the SPV and SolarArise holding company levels: Tax
inputs have been corrected within the models to align with the
underlying tax returns.
-- Cash extraction: Prior to 31 December 2022, the capital
position of the underlying assets was not modelled appropriately
and, in particular, negative distributable reserves at NISPI and
SolarArise were not taken into account in the valuations.
Correcting for the actual capital position of the assets had a
negative impact on the valuations. Partially mitigating the impact
of this modelling change, the valuations include an assumption that
NISPI, the SolarArise holding company and each of the SolarArise
SPVs will undertake a number of actions including capital
reductions within a reasonable timeframe and within the boundaries
of permissible cash extraction to eliminate some of the cash traps
in the future. There remains a risk that these mitigations may take
longer than forecast or may not be achievable. Conversely, more
radical restructuring options are being looked into by the
Transitional Investment Manager, which could lead to further
valuation optimisations.
Carbon credits
For the SolarArise portfolio, carbon credit revenue was
previously included in the base case. These revenues are now
treated as an upside as opposed to a base case assumption and,
therefore, have been removed.
Other adjustments
This refers to the balance of valuation movements in the period
excluding the factors noted above including the inclusion of actual
performance figures during the period. In addition, a number of
other assumptions that were either inaccurate, or incongruent with
standard market practice for the Company's assets, have been
adjusted. These include updating lease and other operational costs
to reflect contractual terms and inclusion of capex for inverter
replacements.
Valuation approach for SolarArise
SolarArise has been valued as a total portfolio and this
includes the six operational assets, the liabilities associated
with the construction-ready RUMS project that was commercially not
viable to proceed as at 31 December 2022, and the costs, assets and
liabilities of the holding company, all based on a 43% ownership
share. As the liabilities associated with abandoning the RUMS
project represented a broad range of possible outcomes, the worst
of which would be greater than the value of the assets held, it has
been determined that the fair value of the SolarArise portfolio as
at 31 December 2022 was US$nil (31) . This represents abort
liabilities for the RUMS project of US$12.0 million for the 43%
ownership.
The RUMS project
The total bridge movement of the RUMS project reflects the cash
put in since IPO from the SolarArise holding company and the
negative valuation of US$12.0 million at 31 December 2022.
Valuation sensitivities
The sensitivities are based on owning 43% of SolarArise and 40%
of NISPI as at 31 December 2022. For each of the sensitivities
shown, it is assumed that potential changes occur independently
with no effect on any other assumption. The sensitivity movements
are presented both on a cents per share basis and as a percentage
of the Company 's NAV. For SolarArise, the sensitivities in the
chart below are calculated on its operational portfolio, excluding
the RUMS project. As the total value of SolarArise (including the
RUMS project) as at 31 December 2022 is US$nil, the downsides shown
below are not reflective of the actual impact on the Company (as
the value of SolarArise can not fall below US$nil).
Discount rate: A range of discount rates are applied in
calculating the fair value of investments, considering the
location, technology and lifecycle stage of each asset as well as
leverage and the split of fixed to variable revenues. A 100bps
increase or decrease in the levered cost of equity for each
portfolio has been applied.
Generation: The sensitivity assumes a 10% increase or decrease
in total forecast generation relative to the base case for each
year of the asset life.
Power price curve: The sensitivity assumes a 25% increase or
decrease in power prices relative to the base case for each year of
the asset life (excluding any period covered by a PPA).
Inflation: The sensitivity assumes a 1% increase or decrease in
inflation relative to the base case for each year of the asset
life. Where revenue or cost items have a contractually defined
indexation profile, this has not been sensitised.
RUMS project abort liabilities: As at 31 December 2022, the
least value destructive option was to abort the RUMS project.
Third-party advisors were engaged to review the range of abort
liabilities that could arise. The potential outcomes ranged from a
worst case liability of US$33.2 million to a mitigated case of
US$14.1 million on a 100% basis. The sensitivity shows the impact
on Company value by adopting the ends of these ranges vs. the
assumed abort estimation of US$27.8 million.
Cash extraction: As at 31 December 2022, NISPI, the SolarArise
holding company and each of the SolarArise SPVs had significant
negative distributable reserve balances, prohibiting the payment of
dividends. The valuations have been updated to reflect this but
assume that some measures to eliminate cash traps within a
reasonable timeframe are implemented, for example, capital
reductions. The sensitivity assumes that such measures to eliminate
cash traps are delayed by c. 12 months at both NISPI and
SolarArise.
FX rate: Investments are held in the currency of the territory
in which the asset is located. At 31 December 2022, the Company was
impacted by the US Dollar strengthening against both the Philippine
Peso and the Indian Rupee over the period. A flat decrease or
increase of 10% in the relevant rate over the remaining asset life
of each plant has been applied to the final values as at 31
December 2022.
Financial Review
The Financial Statements of the Company for the period from 1
November 2021 to 31 December 2022 are set out in this report. The
Financial Statements have been prepared in accordance with United
Kingdom adopted international accounting standards and the
applicable legal requirements of the Companies Act 2006.
Basis of accounting
The Company applies IFRS 10 and Investment Entities: Amendments
to IFRS 10, IFRS 12 and IAS 28, which state that investment
entities should measure all their subsidiaries, joint ventures and
associates that are themselves investment entities at fair value.
The primary impact of this application, in comparison to
consolidating subsidiaries, is that the cash balances, the working
capital balances and borrowings in its subsidiaries are presented
as part of the Company's fair value of investments.
The comparative period is the period from incorporation on 6
September 2021, to 31 October 2021, being the Company's first
accounting period. On 16 November 2021, the Company extended its
accounting period to 31 December 2022. The Company did not commence
its operating activities until the listing of its ordinary shares
on the London Stock Exchange on 14 December 2021, and therefore,
there is no profit or loss up to this date.
Results for the period ended 31 December 2022
US$m
-------------------------------------------------------------- ------
Net asset value 86.6
Fair value of Company's investments 11.5
Net assets per share (cents) 49.3
Movement on fair value of investments (47.0)
Onerous contract provision with respect to 57% acquisition of
SolarArise (38.5)
Loss for the period (88.8)
-------------------------------------------------------------- ------
Net assets
The net asset value as at 31 December 2022 was US$86.6 million
or 49.3 cents per ordinary share. The fair value of the Company's
investment portfolio as at 31 December 2022 was USS11.5
million.
The valuation of the underlying portfolio has decreased
significantly due to a detailed review of all modelled assumptions
affecting the valuations.
Net asset value bridge - IPO to 31 December 2022
Notes to the NAV bridge
-- IPO cash proceeds: US$115.4 million raised at IPO (before
associated listing expenses), resulting in the issue of 115.4
million shares.
-- Consideration shares issued on SolarArise 43% acquisition: In
August 2022, AEIT completed the acquisition of 43% of SolarArise.
Completion comprised of consideration of US$30.2 million, settled
through the issue of 26.0 million ordinary shares at US$1.16035 per
share and cash of US$2.7 million that was paid by SolarArise to the
Indian tax authorities on behalf of the sellers.
-- Gross proceeds received in subsequent placing: The number of
shares subsequently increased from 141.4 million to 175.7 million
during Q4 2022 pursuant the placing of shares for cash that closed
on 16 November 2022 raising gross proceeds of US$35.3 million.
-- Change In fair value of investments: The change of -US$47.0
million represents the decrease in fair value of the underlying
investments relative to their acquisition prices. This is outlined
further in note 9 to the Financial Statements. The fair value of
the Company's investments held on the balance sheet as at 31
December 2022 only includes the fair value of NISPI. Given the
likely value of the crystallised abort liabilities on the RUMS
project has been assumed that a market participant would look at
the SolarArise platform in its entirety and would write the value
of SolarArise as a whole down to US$nil. This represents a total
abort liability of US$27.8 million (100% basis).
-- Onerous contract provision: At 31 December 2022, the Company
had a commitment to purchase the remaining 57% of SolarArise. This
transaction completed in January 2023 for a total consideration of
US$38.5 million. Based on the 31 December 2022 valuation of
SolarArise, the value of 57% of SolarArise was significantly lower
than the consideration payable, and effectively US$nil, and
therefore, an onerous contract has been recognised in the Company's
balance sheet. See note 13 to the Financial Statements for further
information.
-- Other Company-level costs: This relates to the Company-level
costs incurred in the period of US$3.5 million, offset by FX gains
of US$1.7 million. Included in these costs are exceptional costs
incurred following the temporary share suspension of US$1.2
million, relating to the 31 December 2022 valuations and the
finalisation of the 2022 audit. See note 4 to the Financial
Statements.
Income
In accordance with the Statement of Recommended Practice:
Financial Statements of Investment Trust Companies and Venture
Capital Trusts ("SORP") issued in July 2022 by the Association of
Investment Companies ("AIC"), the statement of comprehensive income
differentiates between the 'revenue' account and the 'capital'
account, and the sum of both items equals the Company's profit for
the year. Items classified as capital in nature either relate
directly to the Company's investment portfolio or are costs deemed
attributable to the long-term capital growth of the Company.
In the period ended 31 December 2022, the Company's total
revenue was negative US$85.5 million comprising of the movement of
fair value of investments (US$47.0 million) and an onerous contract
provision recognised in respect of the purchase price of the
remaining 57% of SolarArise (US$38.5 million). The operating
expenses included in the statement of comprehensive income for the
year were US$3.3 million. These comprise US$1.4 million Former
Investment Manager fees and US$3.5 million operating expenses
offset by US$1.7 million net foreign exchange gains in the period.
The details on how the Former Investment Manager's fees were
charged are as set out in note 19 to the Financial Statements.
Ongoing charges
The ongoing charges ratio ("OCR") is a measure, expressed as a
percentage of average net assets, of the regular, recurring annual
costs of running the Company. It has been calculated and disclosed
in accordance with the AIC methodology, as annualised ongoing
charges (i.e. excluding acquisition costs and other non-recurring
items) divided by the average published undiluted NAV in the year.
For the period ended 31 December 2022, the OCR was 2.5%. The OCR is
an APM.
Financing
The Company does not have any debt. However it is permitted to
have debt within its underlying investments. Per the Company's
investment policy, gearing should not exceed 65% of the Adjusted
GAV, with the Company targeting gearing of below 50% in the medium
term. External debt financing is only at the level of the Indian
solar portfolio and, as at 31 December 2022, this comprised
outstanding principal amounts of US$45.9 million (pro rated for
economic ownership), representing a leverage ratio of 27%,
increasing to 46% on a committed basis (including 100% of
SolarArise).
Dividends
During the period, interim dividends totalling US$1.9 million
were paid (0.44 cents per share paid in respect of the period from
IPO to 31 March 2022 in June 2022, 0.44 cents per share paid in
respect of the quarter to 30 June 2022 in September 2022 and 0.44
cents per share paid in respect of the quarter to 30 September 2022
in December 2022).
Post the period end, a further interim dividend of 1.18 cents
per share was declared in respect of the quarter to 31 December
2022 and paid in May 2023, and therefore dividends of 2.5 cents per
share were paid in respect of the period under review.
Impact Report
Impact highlights (32)
Providing financial returns through clean energy generation
Installed operational capacity Clean energy generated - MWh EU Taxonomy alignment
- MW (33)
100 - SolarArise 85,199 100%
32 - NISPI
Providing environmental returns through GHG emission avoidance
GHG emissions avoided - tCO Equivalent UK cars taken off
(2) e the road - No.
62,770 34,427
Providing environmental returns through GHG emission avoidance
Employment directly supported
full time equivalent ("FTE")
jobs - No.
148
Contributing to UN SDGs
32 These metrics have been proportioned to account for AEIT's
share of the SolarArise and NISPI assets during the reporting
period.
33 This calculation excludes cash held by the Company.
Impact and ESG approach
Objective
The Company delivers on climate change mitigation through its
investments. Nowhere is it more urgent to invest in renewable
energy solutions that provide an alternative to polluting fossil
fuels and coal than in Asia. The Company's investments in
sustainable energy target these rapidly growing and emerging
economies where greenhouse gas emissions ("GHGs") continue to grow
rapidly. The investee companies within the investment portfolio
address the climate change mitigation priorities set out in those
countries' Nationally Determined Contributions ("NDCs") under the
Paris Agreement on Climate Change, and efforts to achieve the
United Nations Sustainable Development Goals ("UN SDGs"). The
investment strategy finances renewable energy generation and avoids
GHG emissions, while having a positive impact in the communities in
which it invests.
As a result of this inherently green contribution, the Company
was awarded the Green Economy Mark by the London Stock Exchange in
December 2021. In 2022 AEIT was also classified as an Article 9
financial product with a sustainable objective under the EU
Sustainable Finance Disclosure Regulation ("SFDR").
2022 highlighted the challenges of realising global ambitions to
rapidly transition to the low-carbon and resilient economic
trajectories that climate science shows to be both imperative and
overdue. Despite geopolitical shocks, such as the war in Ukraine
that forced a new focus on energy security at all costs and
commodity price volatility, there was significant momentum around
climate action in the Company's target markets.
Country Commitments to renewable energy transition in 2021 and 2022
----------- -----------------------------------------------------------------
Bangladesh Updated NDC targets in 2021 to lower GHG emissions by 7% by 2030,
largely through renewable energy. (34)
----------- -----------------------------------------------------------------
Indonesia US$10 billion in public finance and US$10 billion in private
finance from the Just Energy Transition Partnership with the
US, Japan and European countries over the next five years (from
2022), to peak power sector emissions by 2030 and to increase
carbon emission reduction targets by 25%. (35)
----------- -----------------------------------------------------------------
Vietnam Just Energy Transition Partnership to mobilise US$15 billion
in public and private finance. (36)
----------- -----------------------------------------------------------------
Philippines 35% renewable energy by 2030, and 50% by 2040. In 2021, committed
to a 75% emissions reduction by 2030, and moratorium on new coal
power. (37)
----------- -----------------------------------------------------------------
India New NDCs, strengthening its 2030 emissions intensity target to
45% below 2005 levels, and 50% of electricity from non-fossil
fuel energy sources and net zero emissions by 2070. (38)
----------- -----------------------------------------------------------------
Approach
The Company integrates environmental, social and governance
("ESG") risk management into its due diligence and management
systems and applies a triple-return approach that considers social
and environmental objectives alongside the financial returns of the
Company.
Financial return (39) Environmental return Social return
----------------------------- ---------------------------- ------------------------------
Providing shareholders with Protecting natural resources Delivering economic and
attractive dividend growth and the environment. social progress, through
and prospects for long--term job creation and contribution
capital appreciation. to UN SDGs.
----------------------------- ---------------------------- ------------------------------
The Investment Manager supports investee companies in monitoring
and reporting on mandatory Principle Adverse Impact ("PAI")
indicators established under the SFDR framework, and a range of
additional ESG-related indicators, as part of its approach to
active investment management.
The Company uses a set of key performance indicators ("KPIs")
that aims to balance economic, environmental and social
considerations, aligning the triple-return approach to the impact
areas of generating clean energy, avoiding emissions and supporting
quality jobs. The KPIs are listed below:
Impact Area Metric Unit Definition Definition framework
------------------- --------------------- ------- --------------------------------- ----------------------
Financial return: Installed operational MW Total amount of energy IRIS+. Energy
Generating clean capacity the portfolio can transmit Capacity (PD3764).
energy as of the end of the
reporting period
------------------- --------------------- ------- --------------------------------- ----------------------
New energy capacity MW Amount of new energy IRIS+. Energy
added capacity connected to Capacity Added
the grid during the reporting (PI9448)
period
------------------- --------------------- ------- --------------------------------- ----------------------
Energy generated MWh Amount of energy generated IRIS+. Energy
for sale and sold to offtaker(s) Generated for
during the reporting Sale:
period Renewable (PI5842)
------------------- --------------------- ------- --------------------------------- ----------------------
Environmental Avoided emissions tCO (2) Avoided emissions from IFI Joint Methodology
return: e renewable energy generation for Renewable
Avoiding emissions estimated using standardised Energy Accounting
grid emission factor approach
per MWh.
------------------- --------------------- ------- --------------------------------- ----------------------
Social return: Jobs in directly Number Number of full-time equivalent IRIS+. Jobs in
Quality Jobs financed companies of FTE employees working for Directly Supported/
jobs enterprises financed Financed Enterprises.
or supported by the organisation (PI4874)
as of the end of the
reporting period, aligned
with HIPSO Direct Jobs
Supported (Operations
and Maintenance)
------------------- --------------------- ------- --------------------------------- ----------------------
34 https://www.global-climatescope.org/markets/bd/.
35
https://www.reuters.com/business/cop/us-japan-partners-mobilise-20-bln-move-indonesia-away-coal-power-2022-11-15/.
36
https://www.reuters.com/business/energy/g7-vietnam-reach-155-bln-climate-deal-cut-coal-use-sources-2022-12-14/.
37
https://www.reuters.com/business/environment/philippines-raises-carbon-emission-reduction-target-75-by-2030-2021-04-16/.
38 https://climateactiontracker.org/countries/india/targets/#::text=Target%20Overview, capacity%20to%2050%25%20by%202030.
39 The Board is continuing undertaking a strategic review of the
options for the Company's future. The outcome of the strategic
review is likely to result in changes to the Company's target
financial return. For further information on the strategic review,
see Chair's Statement.
Beyond the Company contributions to these selected impact KPIs,
investments support a range of positive contributions in the
communities where the Company operates assets, including through
ancillary corporate social responsibility efforts. These additional
sustainability contributions are also monitored and highlighted in
this impact report.
Financial return: generating clean energy
The financial return target, in particular yield through
dividends, is contributed to through the generation of clean energy
and the operational performance of assets. Put simply, with all
other things being equal, the more green energy an asset produces,
the better the financial returns for investors through receiving
revenue for the electricity that is sold. In this respect, there is
no trade-off between financial returns and positive impact through
avoided emissions.
In looking through the impact lens, financial returns are
generated though the installed operational capacity and the
resulting clean energy generated, and these returns are sustainable
through the alignment to the EU Taxonomy.
The following KPIs are proportionally based on 43% ownership of
SolarArise from 19 August 2022 and 40% ownership of NISPI.
Installed operational Clean energy generated EU Taxonomy alignment
capacity - MW - 100%
100 - SolarArise MWh
32 - NISPI 85,199
--------------------- ---------------------- ---------------------
In 2022 the investment portfolio comprised interests in 313 MW
of installed operational capacity. The proportional share of this
was 132 MW of generating capacity which generated 85,199 MWh of
clean renewable energy in the Philippines and India in 2022. This
clean energy generation is equivalent to providing 41,954 people in
the Philippines and 52,080 people in India with clean electricity.
This directly supports the Philippines' and India's NDCs, helping
to address their climate mitigation priorities.
Equivalent number of people provided with clean electricity
41,954 in the Philippines 52,080 in India (41)
(40)
------------------------- --------------------
Considering post period completions on the remaining 57% equity
share in SolarArise (including the decision in October 2023 to
proceed with the RUMS project) and a 99.8% equity share in VSS, the
generation potential of the operational AEIT portfolio increases to
an estimated 704,757 MWh/year in 2024.
Potential MWh contribution of AEIT's operational portfolio
following post period completions
40 On the basis of: IEA 2020. Average per capita electricity
consumption in Philippines (0.84 MWh).
41 On the basis of: IEA 2020. Average per capita electricity consumption in India (0.96 MWh).
The Company aims for 100% alignment of sustainable investments
with the EU Taxonomy. In some cases, bringing infrastructure assets
into alignment with the full requirements of technical screening
criteria may be part of the value addition of the acquisition.
Investee companies may also make substantial contributions to other
environmental objectives of the EU Taxonomy. To ensure no
significant harm to biodiversity and ecosystems, environmental
screening is conducted for all investments. Physical climate risk
and vulnerability assessments have been completed for all investee
company sites by an external consultant. Investee companies will
continue to develop longer term climate change risk management
plans as part of their ongoing ESG management approach.
As at 31 December 2022 100% of existing investments made a
significant contribution to climate change mitigation and were
aligned with the EU Taxonomy.
This analysis was conducted by the Former Investment Manager,
and reviewed by the ESG Committee and Transitional Investment
Manager, drawing on publicly available information and proprietary
data sets, and information provided directly by investee companies.
Where necessary, inputs from third-party technical advisors may be
reflected.
Improving the resilience of the investment portfolio is another
way to ensure long-term financial returns. Climate change is a
daily lived reality at the renewable energy sites operated by
investee companies, which are located in some of the most climate
vulnerable regions of the world. The Company's efforts to assess
climate risk and develop scenarios for its investment portfolio are
discussed as part of its 'Task Force on Climate- Related Financial
Disclosures' in this Annual Report.
The EU Taxonomy
The EU Taxonomy was published in 2020, the culmination of an
extensive effort to develop a shared framework for defining
environmentally sustainable activities across the European Union.
The EU Taxonomy specifies six environmental objectives:
-- climate change mitigation;
-- climate change adaption;
-- protecting marine and water resources;
-- transitioning to a circular economy; preventing pollution;
-- protecting and restoring biodiversity and ecosystems
The EU Taxonomy is a critical element of the EU's Sustainable
Finance Action Plan, and has a central role in the EU SFDR which
requires definition of the extent to which investments with an
environmentally sustainable objective will meet EU Taxonomy
requirements.
Environmental return: avoiding emissions
Through investments in renewable energy, the Company protects
natural resources and the environment, directly avoiding greenhouse
gas emissions.
The following KPIs are proportional based on 43% ownership of
SolarArise from 19 August 2022 and 40% ownership of NISPI.
Avoided emissions-tCO (2) Equivalent cars taken GHG intensity of investee
e (42) off the road in the UK companies -
40,928 - SolarArise (43) tCO(2) e/US$m
21,842 - NISPI 34,427 35.87
------------------------- ----------------------- -------------------------
The total 85,199 MWh of clean energy generated resulted in a
total of 62,770 tonnes of avoided CO (2) emissions. This is
equivalent to 34,427 cars taken off the road in the UK for a
year.
Considering post period completions on the remaining 57% equity
share in SolarArise (including the decision in October 2023 to
proceed with the RUMS project) and a 99.8% equity share in VSS, the
potential contribution of AEIT's operational portfolio to carbon
avoided emissions increases substantially to 568,164 tCO (2) e/year
in 2024 (44) .
Potential tCO (2) e avoided emissions and impact from AEIT's
operational portfolio following post period completions
The Former Investment Manager engaged with its investee
companies to measure their GHG emissions. Some GHG emissions will
inevitably be associated with investments even though they help
avoid emissions that would otherwise result if the same electricity
was produced using fossil fuels.
2022 carbon footprint
During the reporting period, the Former Investment Manager
engaged with an external advisor to help calculate the first GHG
emissions footprint and this has been reviewed by the Transitional
Investment Manager and recommended by the ESG Committee for
approval by the Board. The Company has quantified and reported its
carbon footprint using guidance from the Partnership for Carbon
Accounting Financials' ("PCAF") 2022 'Global GHG Accounting and
Reporting Standard for the Financial Industry' ('Financed Emissions
Standard'). The PCAF 'Financed Emissions Standard' was developed
with the purpose of providing financial institutions with
transparent, harmonised methodologies to measure and report
emissions in conformance with the requirements of the 'Greenhouse
Gas Protocol Corporate Value Chain (Scope 3) Accounting and
Reporting Standard'. The Company has consolidated its approach for
carbon accounting using guidance from the operational control
approach for unlisted equity. Additionally, for SolarArise, the
Company received a carbon footprint for the whole 2022 calendar
year. As such, SolarArise's emissions have been proportioned to
AEIT's stake and pro-rated from 19 August 2022, the date of
investment and the pro-rated share of NISPI's emissions are
considered. More detail on how different activities were allocated
to different scopes is laid out below:
Portfolio
('financed') Company
emissions emissions Total emissions Percentage
(tCO (2) (tCO (2) (tCO (2) of total
Scope e) e) e) (%)
--------------------------------- ------------- ---------- --------------- ----------
1 - Direct emissions 22.98 0.00 22.98 1
--------------------------------- ------------- ---------- --------------- ----------
2 - Indirect emissions 191.49 0.00 191.49 7
--------------------------------- ------------- ---------- --------------- ----------
3 - Indirect emissions 1,909.10 490.71 2,399.81 92
--------------------------------- ------------- ---------- --------------- ----------
Carbon footprint - Scope 1, 2, 3 2,123.57 490.71 2,614.29 100
--------------------------------- ------------- ---------- --------------- ----------
42 Carbon avoided is calculated using the International
Financial Institution's approach for harmonised GHG accounting.
43 Equivalent cars is calculated using a factor for displaced
cars derived from the UK government GHG Conversion Factors for
Company reporting.
44 These calculations are based on the operational asset's
'generation potential', which is based on the operational asset's
'P50' yield assumptions for the next available full operational
year (including asset degradation that occurs naturally over the
asset's lifetime and the 'hair cut' included in the 31 December
2022 valuation models).
Scope 1 emissions are primarily associated with on-site fuel
combustion. In 2022, Scope 1 emissions accounted for the smallest
proportion of the investment portfolio's carbon footprint. This
figure reflects limited use of on-site combustion due to the 2022
portfolio consisting solely of operational solar assets. Scope 2
emissions are associated with imported electricity to the solar
portfolio, and accounted for 7% of its total emissions. The
Company, as a legal entity, has no direct employees, owned or
leased real estate, or direct assets, and therefore the Company has
no Scope 1 or 2 emissions.
Scope 3 emissions account for the majority of emissions, making
up 92% of the total carbon footprint. These emissions are
associated with activities that are indirectly associated with the
Company and its portfolio investments. The Company's emissions
relate to AEIT's purchased goods and services (for example the
emissions relating to the Company's legal services and the Former
Investment Manager's services) and AEIT's Board travel. In line
with the PCAF methodology, all of the portfolio Scope 3 emissions
for these various activities are captured by the GHG Protocol's
Scope 3 Category 15 - Investments, also known as 'financed
emissions'. The majority of financed emissions are related to
purchased goods and services, fuel- and energy-related activities
(not included in Scope 1 and 2), travel and waste.
In 2022, the carbon intensity was 19.76 tCO (2) e/MW capacity.
This includes Scope 1, 2 and 3 of the whole of AEIT's emissions.
Absolute emissions will continue to grow as the Company invests
into more assets, with the relative proportion of Scope 1 emissions
likely to increase as construction assets are added to the
portfolio. The weighted average carbon intensity ("WACI") in 2022,
which represents the emissions intensity per million US Dollars of
revenue generated, was calculated to 35.87 tCO (2) e/ US$m
revenue.
Data quality
The Company recognises the challenges in measuring its GHG
emissions for its sites and activities. In particular:
-- quality and availability of data collected for conversion
calculations can significantly impact the accuracy of the final
emissions output; and
-- availability and specificity of emissions factors used to
convert data into related emissions can also impact the validity of
final emissions output.
In 2022, the Former Investment Manager received a combination of
physical activity-based data and spend-based data for Scope 1 and 2
activities and spend data only for Scope 3 activities. Spend-based
emissions factors are typically derived on industry average
greenhouse gas emissions, and therefore are less specific than
activity-based emissions factors. In addition, spend-based
emissions factors for the Philippines were not available, and
therefore the external advisor calculated the majority of the NISPI
portfolio's emissions using its default French emission factors.
Given that the majority of emissions were calculated via
spend-based emissions factors and that there was a lack of
appropriate emissions factors for the geographic locations of the
investment portfolio, the Transitional Investment Manager has low
confidence in the precision of these emission calculations.
Supply chain visibility and quantification, and the availability
of appropriate emissions factors are considerable challenges facing
companies seeking to calculate and report on their carbon
footprint. Given the difficulties in capturing and calculating the
carbon footprint, the Transitional Investment Manager will continue
to develop and refine its methodology, working with asset
management service providers to reduce reliance on spend data and
with carbon consultants to improve the specificity of emissions
factors.
Social return: quality jobs
The Company aims to contribute to delivering economic and social
progress and help build resilient communities through supporting
jobs and contributing to the UN SDGs.
Employment - directly supported Number of UN SDGs contributed
full time equivalent jobs to
148 4 - SDGs 7, 8, 13, 15
------------------------------- -----------------------------
As at 31 December 2022, the investment portfolio (proportioned
by share) supported 5 FTE salaried jobs at its investee companies
and 143 FTE contractor positions. While the FTE employee numbers
remained largely stable throughout 2022, contractor numbers at
SolarArise reduced in Q4 2022 as scheduled maintenance work
concluded.
FTE employee opportunities FTE contractor employment
supported opportunities supported
5 143
-------------------------- -------------------------
Considering the post-period completion on the remaining 57%
equity share in SolarArise (which was a committed investment before
the end of the period), the potential contribution of the portfolio
to total supported jobs increases substantially to 287 (45) .
The vast majority of both direct and contractor jobs were
occupied by men. Gender pay-gap analysis was not possible in most
cases given no female employees at the investee companies. A
substantial gender pay gap was reported at one investee company,
with the average daily gross pay for men being 51% higher than
women. Attracting and retaining diverse talent, including female
employees, remains a challenge. No targets have been set in the
reporting period.
No major health and safety incidents resulting in lost working
time were reported on any of the investee company sites in 2022.
This may have resulted from the proactive efforts to promote health
and safety understanding, including mandatory health and safety
training for contractors and other workers at operating solar
sites.
Adherence with global standards and guidelines on human rights
and good governance, such as the UN Principles on Business and
Human Rights and the OECD Guidelines for Multinational Enterprises,
are key to the Company's commitments. All investee companies in the
investment portfolio established grievance mechanisms through which
any stakeholder could raise concerns about their project
implementation frameworks. In 2022 no complaints related to
adherence with these frameworks were reported to the Former
Investment Manager. The Transitional Investment Manager will
continue to work closely with investee companies to identify and
action areas where implementation of these frameworks can be
further enhanced, make information about the functioning of these
mechanisms more readily available, and establish appropriate
policies to promote respect for human rights in all activities,
including with their suppliers.
Our commitment to enhance impact opportunities is reflected by
the partnerships NISPI has made with the Philippines Department of
Environment and a local organisation in Negros. This collaboration
is introducing stingless bees in Mt. Kanla-on Natural Park to
support honey production and boost biodiversity. Meanwhile, NISPI's
Agrovoltaics program combines food agriculture with solar plants,
yielding peanuts and allowing goats to graze for additional income.
Future collaborations with community-focused NGOs are planned to
maximise agricultural potential and benefit the local
community.
45 This calculation excludes potential jobs created during the
construction phase of RUMS project and estimates the number of jobs
supported by considering a 40% share of jobs supported at NISPI
during Q4 2022 and a 100% share of jobs supported at SolarArise
during at 31 December 2022.
Contribution to UN SDGs
Through its investments and additional impact activities, the
Company made active contributions to four UN SDGs as outlined
below.
AEIT contribution to UN SDG targets
Affordable and clean energy
7.2: Reducing India's and the Philippines' reliance on fossil
fuels through renewable energy generation by AEIT's assets.
Decent work and economic growth
8.5: Achieve productive employment and decent work, illustrated
by the 148 jobs supported by the portfolio and the additional
income generated for locals through the robotics program at
NISPI.
8.8: Protecting labour rights and promoting safe and secure
working environments for all workers through policies and grievance
mechanisms and health and safety training.
Take urgent action to combat climate change and its impacts
13.1: Strengthening resilience of portfolio to climate-related
hazards through climate risk analysis and monitoring.
13.2: Contributing to national strategies to increase share of
renewable energy to the grid in the fight against climate
change
Life on land
15.5: Reduce the degradation of natural habitats and loss of
biodiversity, protecting and preventing impacts to threatened
species and other local flora and fauna through the implementation
of environmental screening and monitoring at AEIT's assets and the
delivery of additional initiatives such as the introduction of bees
in Mt. Kanla-on National Park.
Risk and Risk Management
Risk appetite
The Board is ultimately responsible for defining the level and
type of risk that the Company considers appropriate, ensuring it
remains in line with the Company's investment objective and
investment policy that sets out the key components of its risk
appetite. The Company's risk appetite is considered in light of the
emerging and principal risks that the Company faces, including
having regard to, amongst other things, the level of exposure to
power prices, gearing and financing risk and operational risk.
Risk management
The Company's risk management framework is overseen by the Audit
and Risk Committee, comprising independent non-executive
Directors.
The Company's risk management policies and procedures do not aim
to eliminate risk completely, as this is neither possible nor
commercially viable. Rather, they seek to reduce the likelihood of
occurrence, and ensure that the Company is adequately prepared to
deal with risks and minimise their impact if they materialise.
Procedures to identify principal or emerging risks:
The purpose of the risk management framework and policies
adopted by the Company is to identify risks and enable the Board to
respond to risks with mitigating actions to reduce the potential
impacts should the risk materialise. The Board regularly reviews
the Company's risk matrix, with a focus on ensuring appropriate
controls are in place to mitigate each risk. The risk management
framework was implemented at IPO and has been in place for the
period under review and continues to be in operation.
The following is a description of the procedures for identifying
principal risks that each service provider highlights to the Board
on a regular basis.
-- Alternative Investment Fund Manager: The Company has
appointed Adepa Asset Management S.A to be the Alternative
Investment Fund Manager of the Company (the "AIFM") for the
purposes of UK AIFM Directive. Accordingly, the AIFM is responsible
for exercising the risk management function in respect of the
Company. As part of this the AIFM has put in place a Risk
Management Policy which includes stress testing procedures and risk
limits. As part of this risk management function, the AIFM
maintains a register of identified risks including emerging risks
likely to impact the Company. This is updated quarterly following
discussions with the Investment Manager and presented to the Board
for review and challenge.
-- Investment Manager: Portfolio Management has been delegated
by the AIFM to the Investment Manager. The Investment Manager
provides a report to the Board at least quarterly on asset level
risks, industry trends, insight to future challenges in the
renewable sector including the regulatory, political and economic
changes likely to impact the renewables sector.
-- Brokers: Brokers provide regular updates to the Board on
Company performance, advice specific to the Company's sector,
competitors and the investment company market whilst working with
the Board and Investment Manager to communicate with
shareholders.
-- Company Secretary and Auditors: Brief the Board on
forthcoming legislation/regulatory change that might impact on the
Company. The Auditor also has specific briefings at least
annually.
Procedures for oversight:
The Audit and Risk Committee undertakes a quarterly review of
the Company's risk matrix and a formal review of the risk
procedures and controls in place at the AIFM and other key service
providers to ensure that emerging (as well as known) risks are
adequately identified and, so far as practicable, mitigated.
The Board has completed a robust assessment of the company's
emerging and principal risks, including:
(a) a description of its principal risks;
(b) what procedures are in place to identify emerging risks;
and
(c) an explanation of how these are being managed or
mitigated.
Following the issues that came to light during the audit of the
2022 Annual Report and Financial Statements, the Audit and Risk
Committee has reflected on risks that have subsequently
crystallised and the steps it has taken and changes it has made as
a result. These are detailed in the table below:
Crystallised
risk Impact of crystallisation Steps taken/changes made
------------- ------------------------------------------------------------- -------------------------------------------------------------
Valuation
process * Temporary share suspension due to a material * A detailed review of the key assumptions included in
uncertainty regarding the fair value of the Company's the financial models and the valuation methodology
assets for the Company's operational assets in India and the
Philippines which had been prepared by the Former
Investment Manager carried out by an independent
* Identified errors and inaccuracies in the prior third-party, PwC
period valuations
* Inaccurate or aggressive valuation assumptions
identified by the Company following this review have
been updated in line with best practice and market
standards
* Introduction of a SolarArise holding company model to
accurately reflect asset management costs, Indian tax
liabilities and cash repatriation out of India
* Replacement of the Former Investment Manager
effective 31 October 2023 by the Transitional
Investment Manager
* Replacement of the former independent valuer
* Appointment of PwC as an independent valuation expert
to provide a private independent opinion on the
reasonableness of the valuations that are prepared by
the Transitional Investment Manager in respect of the
31 December 2022 and subsequent valuations
* Commenced a review of value optimisation strategies
with Transitional Investment Manager
------------- ------------------------------------------------------------- -------------------------------------------------------------
Asset
valuations * Large decreases in the NAV when subsequent valuations * Replacement of the Former Investment Manager
carried out using less aggressive assumptions in line effective 31 October 2023 by the Transitional
with best practice and market standards Investment Manager
* Updated valuation process as detailed above
* The Transitional Investment Manager has additional
controls in place for any conflicted transactions
------------- ------------------------------------------------------------- -------------------------------------------------------------
Reliance on
third-party * Valuations based on inaccurate or aggressive * Replacement of the Former Investment Manager
service assumptions subsequently being updated in line with effective 31 October 2023 by the Transitional
providers best practice and market standards, leading to a Investment Manager. The Transitional Investment
(Company and large decline in the NAV Manager has a comprehensive due diligence process
asset level) that should flag pre-construction risks at the point
at which commitments were made
* Inherited asset structures that do not optimise cash
extraction by AEIT, thus requiring reorganisation
* The Transitional Investment Manager is currently
undertaking a review of governance procedures across
* Asset management contracts have not been formalised all of the investment portfolio to propose potential
improvements to the Board
* Reports from whistleblowers of key information being
withheld from the Board, particularly with regard to * The former independent valuer has been stepped down
the cost and funding of the proposed construction of and PwC have been appointed as the independent
the RUMS project and the potential penalties that valuation expert to provide a private independent
would result from aborting it opinion on the reasonableness of the valuations that
are prepared by the Transitional Investment Manager
in respect of the 31 December 2022 and subsequent
valuations
* The Board, which had embedded itself in the detail of
the Company's activities, has ensured, in so far as
possible, that the new service providers have been
given the appropriate handover and information to
carry out their duties
* Getting in place appropriate asset management
agreements is a priority for the Transitional
Investment Manager
* Changes made to SPV governance to ensure that the
Board is aware of all commitments made in the
underlying investments prior to signing
------------- ------------------------------------------------------------- -------------------------------------------------------------
Construction
risk * Changes in macro-economic factors from the commitment * Appointment of independent legal advisors to review
date to the construction commencement date, such as potential abandonment liabilities associated with the
the increase in solar panel prices (and EPC costs) RUMS project and determine probability of
and the changes in FX rates crystallisation
* Commitments made without the Board being made aware * Appointment of an independent India-based financial
of all associated risks of the project adviser to advise the Board on the options for the
RUMS project, including proceeding with construction
and aborting it, and the associated risks of each
option
* Appointment of an independent technical advisor,
Fichtner, to oversee the RUMS project and provide
independent reports to the Transitional Investment
Manager and the Board
------------- ------------------------------------------------------------- -------------------------------------------------------------
Generation
* Operational assets acquired underperformed against * Appointment of independent technical advisor, Sgurr,
P50 technical assumptions to conduct refreshed due diligence on the P50
technical assumptions to validate or update modelled
assumptions in 31 December 2023 and subsequent
valuations
* Pending receipt of the Sgurr report, a reduction has
been applied to the P50 yield assessments used for
the 31 December 2022, 30 June 2023 and 30 September
2023 valuations to reflect observed historical
underperformance of the operational assets when
compared with the level of generation assumed at the
time of acquisition
------------- ------------------------------------------------------------- -------------------------------------------------------------
Principal risks and uncertainties
The Board has defined principal risks that have the potential to
materially impact the Company's business model, reputation or
financial standing. The Board considers the following to be the
principal risks faced by the Company along with the potential
impact of these risks and the steps taken to mitigate them.
External economic, political and climate risk factors for the
Company - external risks that could impact the income and value of
the Company's investments
Risk Potential impact Mitigation
------------------ ----------------------------------------- ------------------------------------------
Foreign currency The Company's functional currency While the Company does not hedge
is US Dollars (USD), but the translational risk on the valuation
Company's investments are based of the investment portfolio,
in countries whose local currency the Company may hedge revenues
is not USD. which are to be received by
Therefore, changes in foreign the Company in currencies other
currency exchange rates may than the US Dollar and used
affect the value of the investments to fund dividend payments to
due to adverse changes in currencies shareholders.
or dividend income from the The Investment Manager monitors
investment portfolio may be foreign exchange exposures using
less than expected when received short and long-term cash flow
in US Dollars. forecasts. The Company's portfolio
concentrations and currency
holdings are monitored regularly
by the Board, AIFM and Investment
Manager.
------------------ ----------------------------------------- ------------------------------------------
Interest rates While most borrowing arrangements The Company seeks to maintain
are on fixed rate terms, the a leverage ratio of below 65%
timing of entering into such of Adjusted GAV.
agreements when interest rates The Company seeks to limit its
are increasing, may lead to exposure to interest rate volatility
reduced project returns and and therefore the investee companies
a lower valuation of the investment fix the finance costs at the
portfolio. date of signing.
Where rates are variable, rising Interest rate assumptions are
rates could lead to adverse reviewed and monitored regularly
debt-cover ratios. by the AIFM and Investment Manager
Refinancing of such borrowings in the valuation process. Debt
may also be at higher interest cover ratios are monitored monthly
rates than expected resulting at the investee company level.
in lower returns and decreased
revenue flows to AEIT.
Macro level changes in interest
rates may affect the valuation
of the investment portfolio
by impacting the valuation discount
rates and could also impact
returns on any cash deposits.
------------------ ----------------------------------------- ------------------------------------------
Inflation The expenditure of the Company's Inflation assumptions are reviewed
investments are frequently partially and monitored regularly by the
index-linked and therefore any AIFM and Investment Manager
discrepancy with the Company's in the valuation process.
inflation expectations could
impact positively or negatively
on the Company's cash flows.
The India portfolio currently
has a non-index linked fixed
price revenue stream over the
life of the asset presenting
the risk that high-cost inflation
could cannibalise returns.
------------------ ----------------------------------------- ------------------------------------------
Tax Changes to the existing rates The Company considers tax matters
and rules could have an adverse at the point of investment and
effect on the valuation of the actively considers forthcoming
investment portfolio and levels changes in the jurisdictions
of dividends paid to shareholders. in which it operates and has
tax advisors to ensure it is
abreast of any upcoming changes
to tax legislation and rates,
and can implement necessary
changes.
Investment in multiple jurisdictions
diversifies exposure to individual
country regulations and hence
risk. During the period, the
Board commissioned additional
tax advice, particularly in
relation to SolarArise.
------------------ ----------------------------------------- ------------------------------------------
Reputation Events over the course of 2023, Since the temporary share suspension,
namely the temporary share suspension, the Board has worked tirelessly
the decline in the Company's to finalise the December 2022
NAV and public allegations raised valuations, complete the 2022
by the Board and Former Investment Annual Report and work with
Manager can impact the Company's the Auditor to finalise the
reputation and ultimately have 2022 financial audit as soon
an adverse effect on shareholder as practicable. In doing so,
returns. the Board has appointed external
advisors to perform detailed
reviews; has actively and transparently
engaged with shareholders notifying
them of issues as soon as they
arise and has made positive
changes to improve the Company's
future and outlook.
------------------ ----------------------------------------- ------------------------------------------
Government policy Relevant government support The Company aims to hold a diversified
or regulatory for the transition to clean investment portfolio, and a
changes affordable energy in the countries diversified set of electricity
in which the investment portfolio sale arrangements within target
is situated may change or decrease. countries, so that it is unlikely
Changes to government policy that all assets will be affected
may lead to changes in tax incentives, equally by any single potential
auction processes for PPAs, change in regulation or policy.
and other contracting and pricing Country level investment strategies
mechanisms for renewable energy, have assessed government commitments
which could lead to opportunities to scaling up low carbon energy
being commercially unviable and taking ambitious action
or unattractive which may lead on climate change, and the Investment
to lower returns or slower deployment Manager and investee companies
of capital. monitor policy developments
closely.
Additionally, the investment
portfolio does not benefit from
any revenue subsidies.
------------------ ----------------------------------------- ------------------------------------------
Climate change Climate-related risks relate Climate risk assessments are
Further detail to transition risks and physical undertaken for each asset in
can be found risks. the portfolio as part of the
in the TCFD The prominent transition risk investment process and screening
disclosures relates to oversupply of renewable for EU Taxonomy alignment.
energy over time, which may There is growing demand for
cause downward pressure on long-term consistent, comparable, reliable,
power price forecasts setting and clear climate related financial
lower capture prices, including disclosure from many participants
the risks associated with periods in financial markets. The Board,
of negative power prices and AIFM and Investment Manager
power price volatility in markets have included TCFD as part of
This could ultimately lead to the Company's Annual Report
a shortfall in anticipated revenues which provides a detailed analysis
to the Company. of risks and opportunities associated
The prominent physical risks with climate change.
relate to long-term changes
to weather patterns, which could
cause a material adverse change
to an asset's energy yield from
that expected at the time of
investment. Physical risks associated
with acute and chronic temperature
change could lead to flooding,
storms and typhoons, and high
winds. This could damage equipment
and force operational downtime
resulting in reduced revenue
capability and profitability
of the portfolio of assets.
------------------ ----------------------------------------- ------------------------------------------
Internal risk factors for the Company - internal risks that
could impact target returns and result in Company objectives not
being met over the longer term.
Risk Potential impact Mitigation
---------------------- ----------------------------------------- -----------------------------------------
Availability A deterioration of the investment The Board and Investment Manager
of pipeline pipeline may impact the ability oversee the investment pipeline
investments to commit and deploy capital and abort exposure and frequently
into suitable opportunities in monitor its progress in relation
the expected time frame. Competition to Company targets.
in the infrastructure market There will be no further investment
remains strong which could limit acquisitions until the strategic
the ability of the Company to review has concluded.
acquire assets in line with target
returns, or incur abort costs
where transactions are unsuccessful.
Both deployment risks could ultimately
impact shareholder returns.
---------------------- ----------------------------------------- -----------------------------------------
Investment Failure to comply with the investment The Board monitors compliance
restrictions restrictions may arise due to through information provided
foreign currency movements, construction by the Investment Manager, Company
over-spend, asset allocation Secretary and AIFM on a quarterly
or failure to deploy capital basis or prior to commitment
in a timely manner. of capital. The assessment of
Breaches of investment restrictions potential or actual breaches
may result in lower returns than to investment restrictions forms
expected, lower dividend income part of the Board's risk management
or reputational damage. framework.
The decision to proceed with
the RUMS project may result in
a breach of the single country
limit and as a mitigation measure
shareholder and FCA approval
was sought, and received, to
amend the investment policy.
---------------------- ----------------------------------------- -----------------------------------------
Conflicts of The appointments of the AIFM The AIFM and Investment Manager
interest and Investment Manager are on have clear conflicts of interest
a non-exclusive basis and each and allocation policies in place.
of the AIFM and Investment Manager Transactions where there may
manages other accounts, vehicles be potential conflicts of interest
and funds pursuing similar investment follow these policies.
strategies to that of the Company. Conflict of interest policies
This has the potential to give are also in place at the Board
rise to conflicts of interest. and Company levels.
Asset transfers between funds The Board, AIFM and Investment
managed by the Investment Manager Manager are responsible for establishing
give rise to potential conflicts and regularly reviewing procedures
of interest. to identify, manage, monitor
There are possibilities for the and disclose conflicts of interest
Board to have conflicts of interest. relating to the activities of
the Company.
---------------------- ----------------------------------------- -----------------------------------------
Reliance on The Company has no employees All third-party service providers
Company level and therefore it has contractually are subject to ongoing oversight
third-party delegated to third-party service by the Board and AIFM and the
service providers providers the day-to-day management performance of the key service
(crystallised of the Company. providers is reviewed on a regular
risk post period) A deterioration in the performance basis. The Board's Management
of any of the key service providers Engagement Committee (the "MEC")
including the Investment Manager, performs a formal review process
AIFM and Administrator could at least once a year to consider
have an impact on the Company's the ongoing performance of the
performance and there is a risk Investment Manager and other
that the Company may not be able service providers and makes a
to find appropriate replacements recommendation on the continuing
should the engagement with the appointments.
service providers be terminated. As explained under 'Procedures
In particular, the Company relies for oversight', following the
on the experience and recommendations reliance on third-party service
of the Investment Manager for provider risk crystallised post-period,
the achievement of its investment changes have been made to further
objective. mitigate the crystallisation
of this risk in the future.
---------------------- ----------------------------------------- -----------------------------------------
Valuations The valuation of the investment It is Company policy to include
process (crystallised portfolio is dependent on financial sign off by an independent third-party
risk post period) models which utilise certain on the quarterly valuations provided
key drivers and assumptions: by the Investment Manager. Valuations
principally discount and local are reviewed by the Audit and
inflation rates, near and long-term Risk Committee and approved by
electricity price outlooks and the AIFM and Board before adoption
the amount of electricity generated in the quarterly results.
and sold. As explained under 'Procedures
Some assumptions and projections for oversight', following the
are based on the experience and valuation process risk crystallised
judgement of the Investment Manager. at the period end, changes have
Actual results may vary significantly been made to further mitigate
from the projections and assumptions the crystallisation of this risk,
which may reduce the valuations at the time of both acquisitions
and profitability of the Company of investments and subsequent
leading to reduced returns to valuations, in the future.
shareholders.
Errors may occur in financial
models.
---------------------- ----------------------------------------- -----------------------------------------
Environmental, Material ESG risks may arise The Board has put in place an
Social and such as health and safety, human ESG Committee to specifically
Governance rights, bribery, corruption and review and monitor ESG-related
('ESG') Policy environmental damage that may polices, processes and risks.
impact shareholder returns. ESG risk consideration is embedded
If the Company fails to adhere in the investment cycle. Ongoing
to its public commitments and operational and construction
policies as stated in its SFDR ESG risk management is reviewed
pre-contractual disclosures and periodically by the Investment
its Triple Return commitment, Manager, who works closely with
this could result in shareholder asset managers on ESG and impact
dissatisfaction and adversely standards and reporting.
affect the reputation of the
Company.
---------------------- ----------------------------------------- -----------------------------------------
Cyber security Attempts may be made to access Cyber security policies and procedures
the IT systems and data used implemented by key service providers
by the Investment Manager, Administrator are reported to the Board and
and other service providers through AIFM periodically to ensure conformity.
a cyber-attack or malicious breaches Thorough third-party due diligence
of confidentiality that could is carried out on all suppliers
impact the Company's reputation engaged to service the Company.
or result in financial loss. All providers have processes
in place to identify cyber security
risks and apply and monitor appropriate
risk plans.
---------------------- ----------------------------------------- -----------------------------------------
Compliance Failure to comply with any relevant The Board monitors compliance
with relevant laws, regulations and rules, with relevant laws, regulations
laws, regulations including section 1158 of the and rules and associated information
and rules Corporation Tax Act 2010, the provided by the Company Secretary,
rules of the FCA, (including AIFM and Investment Manager on
the Listing Rules and the Prospectus a quarterly basis and the assessment
Regulation Rules), the Companies of associated risks forms part
Act 2006, the UK Market Abuse of the Board's risk management
Regulation, AIFMD, Accounting framework. All parties are appropriately
Standards and the General Data qualified professionals and ensure
Protection Regulation, could that they keep informed with
result in financial penalties, any developments or updates to
loss of investment trust status, relevant laws, regulations and
legal proceedings against the rules.
Company and/or its Directors
or reputational damage.
---------------------- ----------------------------------------- -----------------------------------------
Risk factors for the investment portfolio - risks that could
adversely impact the portfolio's performance and, as a result, the
ability to achieve the Company's objectives and target returns over
the longer term.
Risk Potential impact Mitigation
------------------ -------------------------------------------------------- ----------------------------------------
Power prices Revenues of certain investee The Investment Manager will seek
companies in the investment portfolio to acquire assets which have
are wholly dependent on the wholesale a PPA in place, or obtain a PPA
electricity market price achieved to ensure visibility of revenue
and therefore such revenue is streams. It is targeted that
subject to volatility. more than 75% of an investee
The income and value of the Company's company's revenue, on an aggregated
investments may be adversely basis, will be secured by a mid
impacted by changes in the prevailing to long-term PPA therefore minimising
market prices of electricity the impact of declining energy
and/or prices achievable for prices.
offtaker contracts. Model assumptions are based on
There is a risk that the actual quarterly reports from a number
prices received vary significantly of independent established market
from the model assumptions, leading consultants to inform on the
to a shortfall in anticipated electricity prices over the longer
revenues to the Company and dividends term. A new policy has been adopted
payable to shareholders. by the Company, effective for
the 31 December 2022 and subsequent
valuations, to blend at least
two wholesale electricity spot
market price curves as prepared
by market advisors that are reputable
in these markets.
------------------ -------------------------------------------------------- ----------------------------------------
Capital structure The ability to extract cash efficiently The Transitional Investment Manager
from the underlying investee has ensured that the underlying
companies is imperative to maximise valuation models reflect the
the value of the Company's Investment current capital structure of
portfolio. the underlying investments.
The risk that cash extraction Assumptions have been made within
is delayed/trapped due to inefficient the underlying valuation models
capital structures can decrease with regard to capital restructuring
the value of the underlying investments. and the timing required to put
these into effect. The sensitivity
of delays in this timing are
shown in note 9.
------------------ -------------------------------------------------------- ----------------------------------------
Credit risk Some investee companies may have Prior to taking part in the auction
one offtaker therefore increasing process for a PPA, the Investment
the concentration of credit risk. Manager diligences and assesses
Late or non-payment of sales the credit risk of an offtaker
invoices issued by the investee to conclude on credit worthiness.
companies may lead to lower cash Where possible, late interest
flows and revenues received by payment terms will be included
the Company. in offtake agreements.
The Investment Manager ensures
asset managers monitor outstanding
balances and actively chase
non-payments.
------------------ -------------------------------------------------------- ----------------------------------------
Construction Construction projects carry the Where an investment is made in
(crystallised risk of over-spend, supply chain a construction phase asset, it
risk at the risk, delays or disruptions to must have an offtake agreement
period end) construction milestones, connection in place; the land for the construction
failures, changes in market conditions must be identified or
and/ or inability of contractors contractually-secured
to perform their contractual where appropriate; and all relevant
commitments, all of which could permits must have been granted.
impact Company performance. These The Investment Manager carries
include, but are not limited out due diligence on any external
to: third-party construction contractors
* increase in prices of component parts (for example prior to engaging. Its ESG due
solar panels) diligence processes also support
efforts to anticipate and manage
construction related risks.
* legislative changes impacting the construction Construction of the RUMS project
timeline or construction cost has seen a number of these risks
being crystallised. The Company
has appointed an independent
* inaccurate assessment of aborting projects technical advisor, Fichtner,
post-commitment to oversee the construction going
forward.
------------------ -------------------------------------------------------- ----------------------------------------
Generation The volume of solar irradiation The Company utilised technical
available on a given day is out consultants prior to acquisition
of the Company's control and to advise on the assumptions
this is a risk on the performance which should be made regarding
of the assets. volume and its impact on performance
Inconsistent irradiation may for each investment and to minimise
have a significant effect on downtime.
performance of the investment The Investment Manager works
portfolio if actual electricity with investee companies to stay
generation is significantly different informed of grid and supporting
from the assumptions made in infrastructure maintenance arrangements,
the commercial model. This may and liaises with relevant operators
negatively impact project returns to seek to anticipate and minimise
or expected dividend income. interruptions.
Additionally, the investment The investee companies have in
portfolio may be subject to the place insurance to cover certain
risk of interruption in grid losses and damage.
connection or irregularities The Company will seek to diversify
in overall power supply infrastructure. the renewable energy technologies
Circumstances may arise that it invests in to achieve a consistent
adversely affect the performance generation profile across the
of the relevant renewable energy investment portfolio.
asset. The Board has appointed an independent
These include health and safety, technical advisor, Sgurr, to
grid connection, material damage review the technical assumptions
or degradation, equipment failures associated with each asset in
and environmental risks. the portfolio.
------------------ -------------------------------------------------------- ----------------------------------------
Reliance on The performance of some investee Prior to entering into a service
asset level companies may be dependent on contract, the Investment Manager
third-party external O&M service providers carries out due diligence on
service providers and/or asset managers in remote third-party suppliers to assess
locations and relies upon them reputation, experience and breadth
performing their duties with of the local team.
the required skill or level of The Investment Manager seeks
care. to include service level metrics
in O&M agreements with minimum
production, overall plant performance
metrics and health and safety
targets at a minimum.
It is now understood that asset
management agreements are outstanding
on some portfolio assets and
this is a priority for the Transitional
Investment Manager.
------------------ -------------------------------------------------------- ----------------------------------------
Cyber security Attempts may be made to access Processes in place and training
the IT systems and data used for the Transitional Investment
by the third-party asset managers Manager to mitigate risks associated
through a cyber-attack or phishing with receiving emails from bad
attempts that could result in actors.
financial loss. Third-party due diligence is
carried out on asset managers
engaged to manage investment
portfolio.
------------------ -------------------------------------------------------- ----------------------------------------
Further financial risks are detailed in note 18 to the Financial
Statements.
Emerging risks
The Board is of the opinion that these are the principal risks,
but mindful of their obligations under the changes made to the AIC
Code of Corporate Governance issued in February 2019, the Board has
also considered emerging risks which may impact the forthcoming
six-month period. These include:
Internal risk factors for the Company - risks that impact target
returns and result in Company objectives not being met over the
longer term.
Risk Potential impact Mitigation
---------------- --------------------------------------- -----------------------------------------------------------
Changes in Post the period end the Board The Board has embedded itself
key service has appointed OEGEN as Transitional in the detail of the Company's
providers Investment Manager for an initial activities and ensured in so
six-month period. There is a far as possible, that the new
risk that these service providers service providers have been given
fail to get up to speed on the the appropriate handover and
Company's affairs as quickly information to carry out their
as required and are not able duties.
to deliver to the targets they Both PwC and the Transitional
have been set by the Board. Investment Manager are experienced
in their relevant fields and
were appointed on the basis of
their experience, track record
and depth of knowledge.
---------------- --------------------------------------- -----------------------------------------------------------
Strategic review At the General Meeting held on Irrespective of the outcome of
19 December 2023, shareholders the strategic review, the Board
voted against the proposal for and Transitional Investment Manager
the winding-up of the Company are focussed on, in particular:
and appointment of liquidators. * developing plans to maximise the value of the current
Consequently, the Board is continuing investment portfolio by developing remediation plans
with its strategic review of to address asset-specific performance issues and
the options for the Company's optimisation plans for the capital structures within
future, which is expected to the investment portfolio; and
be concluded by the end of the
first quarter of 2024.
At this stage, based on the information * having regard to the increase in the Company's
currently available, the most ongoing charges ratio as a result of its
likely outcome of the strategic substantially reduced size, undertaking a review of
review is a proposal for either all of the Company's costs with the objective of
the relaunch of the Company, making cost savings where appropriate.
potentially with a new investment
objective, investment policy,
target returns and/or Investment Any recommendation to relaunch
Manager but maintaining the impact-led, the Company will be subject to
Asian focus, or a managed wind-down the Board, with its advisers,
and subsequent winding-up of having completed a thorough analysis
the Company. In either of the of the recommended proposal,
expected scenarios, as a consequence with a particular focus on the
of the Company's current size, proposed investment strategy,
the Company is likely to have the proposed Investment Manager's
a higher ongoing charges ratio relevant investment experience
than its renewable energy investment and track record and marketing
company peers. capabilities and resources available
The outcome of the strategic to the Company, prospective returns
review will be subject to shareholder risks and risk management and
approval. Until such time as whether, overall, the proposal
shareholders have approved proposals offers a compelling investment
for the Company's future, the proposition for both existing
Company's future will remain and prospective investors to
uncertain, and this could adversely enable the Company to scale up
affect the price at which the its size significantly over time.
shares trade once the temporary Any recommended proposal for
share suspension has been lifted. a managed wind-down will seek
to achieve an appropriate balance
between optimising shareholder
value and timely return of capital
to shareholders.
---------------- --------------------------------------- -----------------------------------------------------------
Task Force on Climate-Related Financial Disclosures
Compliance statement
The Company has complied with the requirements of LR 9.8.6(8)R
by including climate-related financial disclosures consistent with
the TCFD recommendations and recommended disclosures except for
quantitative information around climate risks and opportunities
alongside transition plans as required by TCFD Strategy principle
(b), and accurate Scope 3 emission data as required under Metrics
and Targets principle (b). The Company will work to provide this
information as soon as practically possible.
Kristine Damkjaer
ESG Committee Chair
22 January 2024
Governance
a) Describe the Board's oversight of climate-related risks and
opportunities
Addressing climate change through investment in renewable energy
in fast growing and emerging economies in Asia is the essence of
the investment strategy. The Board has established a delegated ESG
Committee to review and monitor ESG-related matters, which include
climate-related risks. The ESG Committee meets at least two times a
year and reports back to the Board to provide recommendations for
how sustainability should be considered within the Company
Strategy. The Committee understands climate change issues and
sought support from external advisors to supplement its work.
The Company embeds climate change within its triple return
investment strategy through investments into assets that support
the transition to a low carbon economy, or which mitigate the
effects of climate change. The Board have considered climate change
as an integral component of the investment objective and have
defined the Company as an Article 9 Fund under the SFDR, targeting
95% of investments to be aligned with the EU Taxonomy's Climate
Change Mitigation criteria. In 2022, as part of the Company's
annual EU Taxonomy alignment assessment, the Board instructed the
Former Investment Manager to appoint an external advisor to
undertake climate change assessments on AEIT's portfolio to
identify climate related risks and potential mitigation strategies.
These reports have been reviewed by the ESG Committee as part of
preparing this report.
The Audit and Risk committee ("ARC") also considers climate
change as part of its oversight of investment processes. The ESG
Committee and ARC work closely to oversee climate-related
disclosures and agree remedial measures. Climate change risk is
included within the Company's risk register.
b) Describe management's role in assessing and managing
climate-related risks and opportunities
The Former Investment Manager had an ESG Monitoring and
Stewardship Committee and considered climate change as part of its
remit. Climate risk assessments were completed for prospective
investments reports were shared with the Former Investment Manager,
and opportunities to build resilience around investments were
considered. The Transitional Investment Manager will continue to
assess climate risks and consider opportunities for mitigation for
existing and prospective investments.
Strategy
The Company aims to finance climate action by investing in
sustainable energy and the business model is expressly designed to
accelerate the low-carbon transition in Asian emerging economies,
both benefitting from and reinforcing efforts to act on climate
change. As highlighted in the 'Impact Report' section of this
Annual Report, the investment portfolio has contributed to climate
change mitigation. The Company invests in some of the most
climate-vulnerable countries in the world, and is seeking to assess
and manage climate risk, and foster resilience through its
investment strategy.
a) Describe the impact of climate-related risks and
opportunities the organisation has identified over the short,
medium and long term
The Former Investment Manager coordinated a transition risk
analysis, with external specialist support using an independent
sustainability advisor's Climate Risk and Impacts Solutions
Platform, based on transition scenarios from the International
Energy Agency (the "IEA") and aligned with Intergovernmental Panel
on Climate Change (IPCC) scenarios under three time-horizons: 2025,
2030 and 2040. These time-horizons have been selected to reflect
the asset lives. The IEA Announced Pledges Scenarios ("APS") was
used as the low-carbon scenario, and assumes that all climate
commitments made by governments around the world will be met in
full and on time. APS assumes global warming will reach 1.70C by
2100. The IEA Stated Policies Scenario (STEPS) was used as the
business-as-usual carbon scenario which reflects current
sector-by-sector and country by country assessment of the existing
policies that are in place. STEPS assumes global warming will reach
2.5 C by 2100. The transition assessment considered transition
indicators including eight opportunity indicators (carbon price,
national decarbonisation plans, per capita emissions, annual
investment in renewables, solar PV power generation, biomass power
generation, battery storage capacity, reputation) and one risk
indicator (increase in critical metals demand). The choice of these
indicators was driven by the IEA model used to support the
transition risk assessment.
Physical climate risk analysis was performed for each of the
investee company sites using the external specialist's proprietary
physical risk screening tool. Using the IPCC's 2021 Sixth
Assessment Report scenarios, a low and high greenhouse gas
emissions scenario (SSP1-2.6 and SSP5-8.5) were selected under
three time-horizons: baseline, 2030 and 2050. On this basis, four
key hazards were identified: tropical cyclones, water stress &
drought, wildfire weather, and extreme heat, which are expected to
increase in the medium (2030) and long (2050) term. A potential
impact from these hazard types could include increased costs for
energy and water resources. The combined conditions of high
temperature, high wind speed and low humidity may also increase the
risk of wildfires.
b) Describe the impact of climate-related risks and
opportunities on the organisation's businesses, strategy and
financial planning
The tables below are a summary of the key material risks and
opportunities that are likely to affect portfolio investments, the
investment strategy and financial planning in the short, medium and
long term. Risks included are those that the Investment Manager
estimate to be potentially significant (e.g. significant revenue
decrease, costs increases NAV decrease, increased cost of
capital).
Climate-related risks
Time horizon Risk type Impact
------------------ ------------------------------------------------------------ -------------
Short-term (2025) Policy change and power price volatility: Climate Financial
and sustainable energy policies are evolving and planning
dynamic in core target markets. These changes are
monitored closely as increased efforts to increase
energy supply and the share of renewables in the
grid could present itself as a competition risk.
Increased competition for investments may lead
to a reduction in financial returns of new projects.
In countries with dynamic markets, there is a risk
of renewable energy cannibalisation.
------------------ ------------------------------------------------------------ -------------
Grid capacity limitations: The capacity of local Strategy,
grids in target economies to accommodate large financial
increases in intermittent energy supply is a concern, planning
given current technical specifications and management
capacities. This may impact the project's ability
to sell its maximum energy generation potential.
------------------ ------------------------------------------------------------ -------------
Supply chain risk: More copper for grids, silicon Strategy,
for solar panels and lithium for battery storage financial
is required to transition to low-emissions power planning
systems. Rapidly growing critical mineral demand
for clean energy technologies is resulting in supply
chain competition, increases in costs, and supply
chain sustainability risk management issues.
------------------ ------------------------------------------------------------ -------------
Medium-term (2030) Climate-related hazards: Risks associated with Portfolio
tropical cyclones are already high, and factored investments,
into asset design in most cases, but may increase. financial
High wind speeds can cause physical damage to sites, planning
equipment, and vehicles and can lead to increased
expenditure for reparations. Extreme heat could
cause a health and safety risk for personnel and
could overheat electrical equipment. Flooding can
also lead to physical damage of the assets that
will require additional expenditure for reparations
and lost revenue during the reparations period.
------------------ ------------------------------------------------------------ -------------
Construction risk: Climate-related physical risks Portfolio
may also affect construction projects, including investments
inaccurate assessment of the opportunity, and changes
in market conditions linked to climate-related
disruptions.
------------------ ------------------------------------------------------------ -------------
Technology obsolescence risk: As more resources Strategy
and scientific research are dedicated to achieving
net zero goals, new technologies may emerge that
could replace current renewables or environmental
infrastructure technologies.
------------------------------------------------------------ -------------
Price uncertainty: A faster than forecast transition Financial
to a global renewable energy supply would increase planning
the penetration of zero marginal cost electricity
leading to 'price cannibalisation' and could result
in generating assets without long-term PPAs selling
their power for less than forecast at investment.
------------------ ------------------------------------------------------------ -------------
Long-term (2050) Climate-related physical risks: As climate change Portfolio
worsens, portfolio investments could face a higher investments
likelihood of experiencing extreme weather events,
both chronic (for example, altered rainfall patterns,
wildfires, and extreme heat) and acute (for example,
more frequent and severe tropical cyclones, storms,
heat waves, droughts, and floods), potentially
resulting in more physical damage to on-site infrastructure
and off-site transmission and distribution systems.
------------------ ------------------------------------------------------------ -------------
Climate-related opportunities
Time horizon Opportunity type Impact
------------------ ---------------------------------------------------------- ------------
Short-term (2025) National decarbonisation plans: Target governments Strategy
remain committed to climate action and increasing
the share of renewable energy in the energy mix.
Governments in target countries continue to offer
incentives to invest in the focus technologies,
notably solar energy, but also in wind.
------------------ ---------------------------------------------------------- ------------
Demand for renewable energy: There is a growing Financial
demand for renewable energy, and pressure on businesses planning,
and corporations to decarbonise and purchase renewable strategy
energy through both regulatory and climate-related
commitments is growing. The investment strategy
targets fast growing economies in Asia, with expanding
populations. This increased demand creates short-term
opportunities to sell renewable energy at a premium.
An increase in public support for decarbonisation
is also poised to increase demand for impact-focused
investment in public markets. Growing demand for
baseload renewable energy power creates new opportunities
for pipeline portfolio technologies, such as biopower.
------------------ ---------------------------------------------------------- ------------
Integration of new energy technologies including Portfolio
those that address intermittency issues: Energy investments
storage technologies, such as lithium-ion batteries,
are becoming more widely adopted and efficient,
making it possible to store solar energy for later
use. This presents short-term opportunities to
provide more reliable and consistent solar supply.
------------------ ---------------------------------------------------------- ------------
Medium-term (2030) Technological advancements: Can further reduce Financial
the levelised cost of energy, and create attractive planning
new pipeline opportunities. For example, the use
of higher-efficiency solar cells can increase the
energy output of solar panels, while reducing the
cost per unit of energy produced.
------------------ ---------------------------------------------------------- ------------
Carbon pricing and taxation: Could help direct Strategy
capital towards renewable technologies and away
from carbon-intensive sources
------------------ ---------------------------------------------------------- ------------
Long-term (2050) Continued commitment to decarbonisation and technology Strategy
innovation: As the viability and cost effectiveness
of low-carbon sustainable energy solutions become
mainstream in emerging Asia, so will the business
model. These may provide opportunities to broaden
investment mandate, including by taking on different
approaches and technologies.
------------------ ---------------------------------------------------------- ------------
c) Describe the resilience of the organisation's strategy,
taking into consideration different future climate scenarios,
including a 2degC or lower scenario
Overall, the Company is well positioned to take advantage of the
investment opportunities that arise from this transition over the
short-, medium- and long-term. The speed and efficiency of the
transition will have a notable effect on the performance of the
Company. If global temperature change is to be limited to a 2degC
increase from pre-industrial levels by 2100, it is expected there
will need to be significant intervention from governments,
regulators, and the market. Given the investment mandate, there is
a direct correlation between the transition to a low-carbon future
and the size of the investment opportunity over the long-term. If
temperatures increase beyond 2degC, the physical effects of climate
change will be more severe, creating additional risks for the
assets acquired. Climate-related risks and opportunities on balance
provide more opportunities to the Company than risks to the Company
is likely to benefit from an APS scenario more than the STEPS
scenario pathway.
Risk management
a) Describe the organisation's processes for identifying and
assessing climate-related risks
Addressing climate change is the central mandate of the Company.
With the support of an independent sustainability advisor and its
software and proprietary tools, the Former Investment Manager
completed an exercise whereby climate-related risks and
opportunities to the Company were identified and assessed. This was
reviewed by the ESG Committee. All principal risks are integrated
into the Company's risk register and management frameworks.
b) Describe the organisation's processes for managing
climate-related risks
There are a number of risk mitigation strategies the Company can
utilise to mitigate climate-related risk:
-- Diversify the investment portfolio across technologies,
geographies and development stage
-- Carry out diligence and analysis to understand latest trends
and dynamics and status of policy, using external experts where
appropriate
-- Work with policy makers and regulators to educate and
influence policy and frameworks that accelerate the transition to a
clean energy future, and actively engage with stakeholders and
communities to mitigate resistance to renewable energy assets.
-- Actively manage and engage with investee companies on climate-related issues, risks and opportunities, encouraging asset-level adaptation plans that mitigate most material risks (for example, ensuring effective insurance cover, diversified supply chains, and equipment spares)
For example, while the NISPI facilities were not damaged by
Super Typhoon Rai in December 2021 and continuing rain tested the
adequacy of the site drainage system. In response, increased
maintenance of the drainage system was introduced to avoid
potential flooding. This paid off during the 2022 typhoon season in
Negros, when, despite severe rains., NISPI's sites were not
disrupted.
Site managers at the SolarArise facilities across India are also
taking precautionary approaches: when severe rains or flooding are
envisaged, plants can be shut-down to avoid costly damage that
would result in long-term service disruptions. Major drainage works
are also being undertaken at flood-vulnerable sites, to adapt to
increasingly strong rains, alongside proactive measures to re-wire
the plants to make them more flood resistant.
c) Describe how processes for identifying, assessing, and
managing climate-related risks are integrated into the
organisation's overall risk management
In 2022, the Former Investment Manager completed comprehensive
physical climate risk assessments for all AEIT's infrastructure
assets to capture any potential climate-related risks not already
considered in existing risk-management frameworks. These
assessments were carried out with the external specialist in line
with EU Taxonomy Do No Significant Harm requirements, using its
proprietary assessment and data tool. The tool has been developed
using best-in-class open-source climate data and was used to
extract data on relevant natural hazards that may have an impact
under present day climate conditions, as well as in the future
climate scenario.
Further monitoring of how severe weather events may affect the
operations of AEIT's investee companies, and opportunities to
reduce service interruptions will continue to build portfolio
resilience against climate change and help manage risks going
forward.
Metrics and targets
a) Disclose the metrics used by the organisation to assess
climate-related risks and opportunities
The Company continues to develop its framework for assessing
climate-related risks and opportunities.
Opportunity metrics:
The investment strategy is aligned to climate mitigation.
Therefore, the metrics presented below measure the contribution
made through generating clean energy and driving a transition to
net zero. These metrics measure the scale of the climate-related
opportunities the Company has taken advantage of. The following
KPIs track this contribution:
-- installed operational capacity: MW
-- clean energy generated: MWh
-- EU Taxonomy alignment: %; and
-- GHG emissions avoided: tCO (2) (e)
Risk metrics:
In 2022, the Former Investment Manager undertook a review of
100% of infrastructure assets which were screened for physical and
transition-related climate change risks. Portfolio diversification
is also a core metric to monitor climate-related risk.
-- 100% infrastructure assets screened for climate-related risks.
-- Portfolio diversification
b) Disclose Scope 1, Scope 2, and if appropriate, Scope 3
greenhouse gas emissions, and the related risks
Efforts to measure and manage the Company's GHG footprint
complement the focus on avoiding GHG emissions by investing in
sustainable energy in fast growing and carbon intensive economies
in Asia where demand for energy continues to soar, as well as its
adherence with the highest standards of good practice for financial
products with a sustainability objective under the EU Sustainable
Finance Disclosure Regulation. The transition risks associated with
future constraints on emissions, whilst not expected to be a high
risk for a low-carbon portfolio, can also be monitored through
carbon measurement.
The Former Investment Manager worked with all investee companies
and an external advisor, to account for GHG emissions. The external
advisor is a certified B-Corporation offering support and a
software solution that estimates the GHG emissions associated with
financial expenditures. Disclosure of Scope 1, 2 and 3 emissions
can be found in the Impact Report.
c) Describe the targets used by the organisation to manage
climate-related risks and opportunities and performance against
targets
The Transitional Investment Manager has set a climate-related
risk management target to maintain the investment portfolio's
current status of 100% of infrastructure assets screened for
climate-related risks.
2022 was the first year of operation for AEIT. The metrics set
out in the Impact Report set an initial GHG footprint for the
Company. Most investee companies are poised to grow their renewable
energy asset base. As a result, at this stage, quantitative GHG
emission reduction targets which would address any risks in
relation to future constraints on emissions are not being
specified. As the infrastructure investment portfolio becomes more
established, the Company will explore the viability and value
addition of setting portfolio level targets given these risks are
not expected to be high for the portfolio. This is expected to
occur in 2024. In the meantime the Transitional Investment Manager
has set a qualitative target to continue to work with investee
companies to improve key elements of GHG measurement related to
operations and maintenance service providers.
A climate-related opportunity management target has already been
set as part of AEIT's SFDR disclosures. AEIT has a target of 100%
alignment of sustainable investments with the EU Taxonomy.
Key TCFD catch ups and progress throughout 2022
Target
1. 100% of infrastructure 2. Improve key elements 3. 100% alignment of sustainable
assets screened for climate-related of GHG measurement related investments with the EU
risks. to operations and maintenance taxonomy alignment.
service providers.
------------------------------------ ------------------------------ --------------------------------
Achieved in 2022
2. First carbon footprinting
exercise completed with
guidance from an external
advisor. Large proportion
1. 100% of data based on spend data. 3. 100% (46)
------- ----------------------------- ------------
46 This calculation excludes cash held that is committed and is awaiting deployment.
Stakeholder Engagement
The Board is aware of the need to foster the Company's business
relationships with suppliers, customers and other key stakeholders
through its stakeholder management activities as described below.
The Board believes that positive relationships with each of the
Company's stakeholders are important to support the Company's
long-term success.
Key stakeholders How we engage Key communication
---------------------------- ----------------------------------------------------------- ---------------------------
Shareholders of AEIT The Board communicates Following positive
The Board looks to attract with shareholders through feedback
long-term investors in the the following ways: from shareholders to
Company and, in doing so, * Dialogue with shareholders participate
it has sought out regular in a further fund raise
opportunities to communicate by the Company, which led
with shareholders. * Regular market announcements to the subsequent placing
in November 2022
Since the temporary share
* Dedicated website, providing information on strategy suspension, the Board has
, worked determinedly with
performance and investment portfolio the Auditor to finalise
the 2022 Annual Report
and Accounts and the audit
* The Board receives shareholder feedback after as soon as practicable.
meetings and agrees actions with the Investment In doing so, the Board
Manager has actively and
transparently
engaged with shareholders,
* Material communications to shareholders, such as NAV discussing with them
announcements, the Annual and Interim Reports and issues
significant business events as soon as they rise and
has made other positive
changes to improve the
* Regular discussions with and briefings for investors Company's future and
and analysts on evolution of KPIs and reporting outlook.
metrics The next key milestone
will be the completion
of the strategic review
and the Board will
continue
to engage proactively with
shareholders, taking their
feedback into account in
reaching a conclusion on
the best option for the
Company's future.
---------------------------- ----------------------------------------------------------- ---------------------------
Service providers, including The Board receives regular From the IPO, the Board
the Investment Manager, reports from the Investment had endeavoured to use
AIFM, Administrator and Manager and maintains ongoing its collective skills,
Company Secretarial and dialogue between scheduled knowledge and experience
other corporate service meetings. Representatives to work collaboratively
providers of the Investment Manager with and support the
Building trusted attend Board and Committee Former
relationships meetings. Investment Manager, taking
through an on-going two To build and maintain strong into account the Former
way communication and working relationships, Investment Manager's lack
aligned the Company's key service of prior experience of
objectives for growth and providers are invited to managing a London-listed
development attend quarterly Board investment company, and
meetings to present their engaged frequently with
respective reports. This members of the Former
enables the Board to exercise Investment
effective oversight of Manager's team responsible
the Company's activities. for the Company, including
The Board also has in place communicating the Board's
a Management Engagement expectations. For further
Committee that meets annually information, see the
to review service provider 'Annual
performance. Further information evaluation of the
on the Management Engagement Investment
Committee can be found Manager' in the Management
in the Management Engagement Engagement Committee
Committee Report. Report
The Company's Auditor is and 'Evaluation of the
invited to attend all of Board post temporary share
the Audit and Risk Committee suspension' in the
meetings and attends at Nomination
least one meeting per year. Committee Report.
The Chair of the Audit From 1 November 2023, the
and Risk Committee maintains Company has appointed a
regular contact with the transitional Investment
Auditor, Investment Manager Manager with clear
and Administrator to oversee objectives
the audit process. for its initial term that
The Board spends time engaging runs until April 2024.
with the Company's key A key milestone was
service providers outside reached
of scheduled Board meetings following the announcement
to develop its working of the 30 September 2023
relationship with those NAV on 13 December 2023
service providers and ensure following a robust
the smooth operational valuation
function of the Company. process. The Board was
heavily involved in this
process and ensured all
parties were made aware
of the history of the
investments.
The Board has maintained
constant communication
with the Company's Auditor
following the temporary
share suspension, making
it aware of the steps
taken
to rectify historic issues
and updated timelines for
signing off the 2022
Annual
Report and Accounts and
completing the audit.
---------------------------- ----------------------------------------------------------- ---------------------------
Asset service providers The Investment Manager A key focus for the
to the investee companies actively manages asset Transitional
Building trusted level service providers, Investment Manager is
partnerships including third-party asset reviewing
through shared learnings managers, operations and all contractual and
and an ongoing dialogue maintenance ('O&M') contractors, governance
and aligned objectives for construction managers, provisions of the local
growth and development owners engineers, suppliers, asset managers to ensure
HSE (Health, Safety, and they are working within
Environment) contractors delegated authority
and Landowners. frameworks.
Communications with service Updated technical due
providers are managed across diligence
a variety of platforms is currently being
to ensure focus on day-to-day conducted
operational performance across all operational
of the assets. The Investment sites and the Transitional
Manager undertakes quarterly Investment Manager will
meetings with external feed these findings back
asset managers to review to the Board and through
performance against service to the valuations once
provisions, weekly calls available.
with all operators and
formal annual contract
reviews.
The Investment Manager's
whistleblowing framework
allows employees supported
by the investee companies
to confidentially raise
any concerns or issues.
---------------------------- ----------------------------------------------------------- ---------------------------
Local communities Social responsibility engagement The Company received no
Making a meaningful by investee companies is complaints through the
contribution highlighted in the Impact grievance mechanisms and
in the communities where Report. a key focus of the
we invest advances AEIT Strategic priorities for Transitional
impact objective. investee company community Investment Manager will
engagement are agreed on be to review the existing
a rolling basis. impact initiatives on
Support of investment entity sites
senior management continuing which benefit the local
active dialogue with key communities to see if
stakeholders within the there
community. are any more opportunities
Active maintenance of grievance for enhancement.
mechanisms at investee
companies that enable communities
to engage around any complaints.
---------------------------- ----------------------------------------------------------- ---------------------------
Section 172(1) statement
The Company provides disclosure relevant to the requirements of
section 172(1) (a - f) throughout the Strategic Report. As an
externally managed investment trust, the Company has no employees,
however, the Directors assess the impact that the Company's
activities and the delivery of its investment objective has on its
stakeholders as an investor in clean energy generation. These
stakeholders can be the employees of the investee companies within
the investment portfolio, co-shareholders, local communities and
the end customers or investors.
The Directors confirm that they have acted in good faith to
promote the success of the Company for the benefit of shareholders
as a whole and have considered and addressed the references within
section 172(1) as below:
S172(1) reference Reference
--------------------------------------------- ---------------------------------------------
a. the likely consequences of any decision Refer to 'Chair's Statement', 'Our
in the long term, operating model', 'Objectives and KPIs'
and 'Post Period Updates' sections
of the Strategic Report
----------------------------------------- ---------------------------------------------
b. the interests of the company's employees, The Company does not have any direct
employees. However, the Board has widened
the assessment to include employees
of the investee companies within the
investment portfolio (for example,
through collecting people-related KPIs
such as gender pay gap and diversity
statistics).
----------------------------------------- ---------------------------------------------
c. the need to foster the company's Refer to the 'Stakeholder Engagement'
business relationships with suppliers, section of the Strategic Report.
customers and others,
----------------------------------------- ---------------------------------------------
d. the impact of the company's operations Refer to the 'Environmental return'
on the community and the environment, and 'Social return' sections of the
Impact Report.
----------------------------------------- ---------------------------------------------
e. the desirability of the company Refer to the first table in this 'Stakeholder
maintaining a reputation for high Engagement' section of the Strategic
standards of business conduct, and Report and the Report of the Management
Engagement Committee in the Governance
Report.
----------------------------------------- ---------------------------------------------
f. the need to act fairly as between Refer to the Impact Report and the
members of the company. first table in this 'Stakeholder Engagement'
section of the Strategic Report and
the 'Corporate Governance Report' section
of the Governance Report.
----------------------------------------- ---------------------------------------------
The Board reviews ongoing progress, issues and any updates as
part of the quarterly Board meetings through updates from the
Investment Manager and the Brokers. The Investment Manager provides
updates on relationships with stakeholders such as co-shareholders,
O&M providers and EPC contractors, where relevant. The Brokers
provide updates on communications with shareholders and the
Management Engagement Committee reviews the Company's relationships
with key suppliers. The Company's risk review framework also
facilitates the identification of items relevant to the section
172(1) statement. During the annual review of the strategy,
objectives and processes, the Board assesses the longer -term
factors relating to the Company's decisions and the implications
for the communities and environments in which we invest and
operate.
Non-financial Information Statement
Non-financial information area Reference
---------------------------------------- -----------------------------------------
Environmental matters (including the See 'Environmental return' section of
impact of the Company's business on the Impact Report.
the environment)
---------------------------------------- -----------------------------------------
The Company's employees As a closed-ended investment company,
the Company has no direct employees.
Information on indirect employees can
be found in the 'Social return' section
of the Impact Report.
---------------------------------------- -----------------------------------------
Community issues See 'Social return' section of the Impact
Report.
---------------------------------------- -----------------------------------------
Social matters See 'Social return' section of the Impact
Report.
---------------------------------------- -----------------------------------------
Respect for human rights See 'Social return' section of the Impact
Report.
---------------------------------------- -----------------------------------------
Anti-corruption and anti-bribery matters See 'Anti-bribery, anti-corruption and
tax evasion' section of the Directors'
Report
---------------------------------------- -----------------------------------------
This Strategic Report has been approved by the Board of
Directors and signed on its behalf by:
Sue Inglis
Chair
22 January 2024
Governance
Board of Directors
Sue Inglis
Chair
Date of appointment
18 October 2021
Committee membership
A E M N R
Relevant skills and experience
Sue is an experienced lawyer and corporate financier with
comprehensive investment company sector knowledge and technical
expertise from more than 30 years advising listed investment
companies and financial institutions. Her executive roles included
Managing Director - Corporate Finance in the investment companies
team at Cantor Fitzgerald Europe and investment companies and
financial institutions teams at Canaccord Genuity. Sue was a
partner and head of the funds and financial services group at
Shepherd & Wedderburn, a leading Scottish law firm. In 1999 she
was a founding partner of Intelli Corporate Finance, an advisory
boutique firm focusing on the asset management and investment
company sectors, which was acquired by Canaccord Genuity in
2009.
Sue retired as an executive in 2018 to pursue a career as a
non-executive director, focusing on investment companies. Sue has
previously served on the boards of several listed investment
companies, including NextEnergy Solar Fund Limited, and was chair
of The Bankers Investment Trust PLC.
Current external appointments
Listed companies: Sue is the senior independent director of
Baillie Gifford US Growth Trust PLC and Seraphim Space Investment
Trust PLC. She is also the senior independent director and chair of
the audit committee of CT Global Managed Portfolio Trust PLC.
Other significant appointments: None.
Mukesh Rajani
Senior Independent Director
Date of appointment
18 October 2021
Committee membership
A E M N R
Relevant skills and experience
Mukesh is an experienced advisory, tax, structuring and audit
professional with more than 40 years of experience. He worked at
PricewaterhouseCoopers ('PwC') for 35 years, where he was a partner
for 25 years. During his time at PwC, Mukesh advised leading UK and
international organisations on a broad range of complex business
issues including market assessment, entry strategy, regulatory
requirements, partner selection, mergers, acquisitions, disposals,
business reorganisations, capital markets, tax structuring, tax
litigation and complex cross-border matters. He was a member of
PwC's Emerging Markets Group and established and led PwC's India
Business Group for more than 20 years.
Mukesh was previously an independent non-executive director and
chair of the audit committee of the UK India Business Council, an
advocacy and strategic advisory business on a mission to build
economic prosperity in the UK and India.
Mukesh is a Fellow of the Institute of Chartered Accountants in
England and Wales.
Current external appointments
Listed companies: None.
Other significant appointments: None.
Kirstine Damkjaer
Director
Date of appointment
18 October 2021
Committee membership
A E M N R
Relevant skills and experience
Kirstine is a chair and non-executive director at several
companies in Africa, Denmark and the UK. She has over 25 years of
international investment and asset management experience from
positions as non -- executive director, CEO of EKF the Danish
Export Credit Agency, Chief Investment Officer and Global Head of
Equity at the International Finance Corporation and Principal with
the World Bank Pension Plan and Endowment.
Kirstine has worked across multiple sectors with a strong focus
on the sustainability and climate investment agendas. Kirstine is a
graduate of the University of Aarhus, Denmark and a Chartered
Financial Analyst (CFA), and has attended trainings at Stanford,
IMD, INSEAD and Copenhagen Business School.
Current external appointments
Listed companies: None.
Other significant appointments: Kirstine is non-executive chair
at Formuepleje. She is also a non-executive director at Africa
Finance Corporation, PensionDanmark, ResourceDanmark and Bladt
Industries.
Clifford Tompsett
Director
Date of appointment
18 October 2021
Committee membership
A E M N R
Relevant skills and experience
Clifford is an experienced advisory, transaction and audit
professional having spent his whole career at
PricewaterhouseCoopers ( ' PwC ' ), including the last 26 years as
a partner. He has deep experience and knowledge of work in emerging
markets and across a range of sectors and the execution of complex
transactions, including mergers and acquisitions. He created, built
and led PwC's Global IPO Centre based in London and with hubs in
Hong Kong and New York.
Clifford has previously served as an independent non-executive
director and the chair of the audit committee of three Nasdaq
listed purpose acquisition companies: Kismet Acquisition One Corp,
which completed the US$1.9 billion acquisition of Nexters Inc. an
international game development company in 2021, Kismet Acquisition
Three Corp, and Quadro Acquisition One Corp. He is also a former
senior independent director and chair of the audit and risk
committee of Cello Health plc, the AIM-listed global healthcare
advisory company.
Clifford is a Fellow of the Institute of Chartered Accountants
in England and Wales.
Current external appointments
Listed companies: None
Other significant appointments: Clifford is an independent non
-- executive director and chair of the audit committee of REED
Global Limited (the recruitment company).
Committee membership
A Audit and Risk Committee
E ESG Committee
M Management Engagement Committee
N Nomination Committee
R Remuneration Committee
Committee Chair
Directors' Report
The Directors present their report for the financial period from
1 November 2021 to 31 December 2022.
Information contained elsewhere in this Annual Report
The information listed in the table below is incorporated into
this Report by reference.
Information Section
---------------------------------- ----------------------------------------------
Business review Strategic Report
Financial results Financial Statements
Related party transactions Financial Statements - note 19
Dividends Financial Statements - note 7
Principal risks and uncertainties Strategic Report - Principal Risks and
Uncertainties
Financial risk management Financial Statements - note 18
Post-balance sheet events Strategic Report - Post Period Updates
Financial Statements - note 22
Likely future developments in Chair's Statement - 'Strategic Review',
the Company's business 'Outlook'
Corporate governance statement Corporate Governance - Corporate Governance
Report
S.172 Companies Act 2006 statement Strategic Report - 'S.172(1) statement'
Directors Board of Directors
Directors' terms of appointment Corporate Governance - Corporate Givernance
Report
Directors' remuneration Corporate Governance - Directors' Remuneration
Report
Directors' indemnities Corporate Governance - Directors' Remuneration
Report
Directors' interests in shares Corporate Governance - Directors' Remuneration
Report
---------------------------------- ----------------------------------------------
Principal activity
The Company is an investment company as defined in section 833
of the Companies Act 2006 and operates as an investment trust in
accordance with sections 1158 and 1159 of the Corporation Tax Act
2010. It invests in a diversified portfolio of sustainable energy
infrastructure assets in fast -- growing markets in Asia with the
current objectives (47) of:
(47) The Board is undertaking a strategic review of the options
for the Company's future, and it is expected that the outcome of
the strategic review will result in changes to the Company's
investment strategy and policy. For further information on the
strategic review, see page [--].
-- providing shareholders with attractive dividend growth and
prospects for long-term capital appreciation;
-- protecting natural resources and the environment; and
-- delivering economic and social progress, helping build
resilient communities and supporting purposeful activity.
The Company's operating activities commenced on 14 December 2021
when the Company's ordinary shares were admitted to trading on the
London Stock Exchange's Main Market.
Investment trust status
The Company has been approved as an investment trust under
sections 1158 and 1159 of the Corporation Tax Act 2010 with effect
from 14 December 2021. The Company had to meet relevant eligibility
conditions to obtain approval as an investment trust and must
comply with ongoing requirements to maintain its investment trust
status, including, but not limited to, retaining no more than 15%
of its eligible investment income.
The Directors are of the opinion that the Company conducted its
affairs during the financial period under review, and has continued
to conduct its affairs since 31 December 2022, in compliance with
the Investment Trust (Approved Company) (Tax) Regulations 2011. The
Directors intend to continue to conduct the affairs of the Company
to enable it to continue to qualify as an investment trust under
sections 1158 and 1159 of the Corporation Tax Act 2010.
Appointment and replacement of Directors
The rules concerning the appointment and replacement of
Directors are contained in the Company's Articles of Association,
which require that all Directors shall be subject to re-appointment
at the first AGM after appointment and re--appointment annually
thereafter. At the AGM of the Company held on 30 June 2023, the
re-appointment of all Directors was approved by shareholders.
Capital structure, rights and restrictions
At 1 November 2021, the Company's issued share capital comprised
one ordinary share of US$0.01 and 5,000,000 redeemable preference
shares of GBP0.01 each. No shares were held in treasury.
On 14 December 2021, 115,393,126 ordinary shares of US$0.01 each
were issued for cash at US$1.00 per share pursuant to the IPO
(gross proceeds: US$115.4 million). The shares were issued to
institutional and retail investors, as well as the UK Government's
FCDO.
On 22 March 2022, the Company effected a court approved capital
reduction process which included the cancellation of the preference
shares and the related reduction of an amount receivable from
related parties of US$66,000 and the reduction of the share premium
reserve and related transfer to the special distributable reserve
of US$112.0 million. The special distributable reserve is
distributable and may be used, where the Board considers it
appropriate, by the Company for the purposes of paying dividends to
shareholders and, in particular, augmenting or smoothing payments
of dividends to shareholders.
Prior to the IPO, the Company agreed to acquire a 43% economic
interest in SolarArise from ThomasLloyd Cleantech Infrastructure
Holding GmbH, ThomasLloyd SICAV - Sustainable Infrastructure Income
Fund and ThomasLloyd Cleantech Infrastructure Fund SICAV, with the
consideration to be settled in ordinary shares of US$.0.01 each. On
19 August 2022, 26,014,349 ordinary shares were issued in
settlement of the consideration due on completion of that
acquisition, based on an issue price of US$1.16035 per share (gross
consideration: US$30.2 million). The issue price represented a
discount of 2.5% to the Company's closing share price of US$1.190
on 12 August 2022 (the date on which the issue price was fixed) and
a premium of 16.2% to the unaudited NAV per share as at 30 June
2022.
On 18 November 2022, 34,277,228 ordinary shares of US$0.01 each
were issued for cash at US$1.03 per share pursuant to a
non-pre-emptive placing (gross proceeds: US$35.3 million). The
placing price represented a premium of 2.5% to the Company's
closing share price of US$1.005 on 7 November 2022 (the date on
which the placing price was fixed) and a premium of 2.2% to the
unaudited NAV per share as at 30 September 2022. The shares were
issued to institutional investors.
No ordinary shares have been issued since 18 November 202 2 . No
shares were bought back or held in treasury during the financial
period under review or since 31 December 2022.
At 31 December 2022 (and the date of this Report), the Company's
issued share capital comprised 175,684,705 ordinary shares and no
shares were held in treasury. The total number of voting rights of
the Company at 31 December 2022 (and the date of this Report) was,
therefore, 175,684,705. All of the issued ordinary shares have been
admitted to trading on the premium segment of the main market of
the London Stock Exchange.
Shareholders are entitled to all dividends paid by the Company.
On a winding up, provided the Company has satisfied all its
liabilities, shareholders are entitled to the surplus assets of the
Company. Shareholders are entitled to attend and vote at all
general meetings of the Company and, on a poll, to one vote for
each ordinary share held.
There are:
-- no restrictions on the transfer of securities in the Company except:
-- where the Company is legally entitled to impose such
restrictions, such as restrictions on transfers by Directors and
persons closely associated with them during closed periods;
-- where the Company's Articles of Association allow the Board
to decline to register a transfer of shares or otherwise impose a
restriction on shares to prevent the Company breaching any law or
regulation; or
-- pursuant to a lock-up agreement between the Company and the
Former Investment Manager's related entities restricting the
transfer of the 26,014,349 ordinary shares issued pursuant to the
acquisition of the 43% economic interest in SolarArise, which
prohibits the transfer of such shares prior to 19 August 2023
except with the prior approval of the Company; (48)
(48) This restriction has since expired.
-- no restrictions on exercising voting rights save where the
Company is legally entitled to impose such restrictions, such as
if, having been served with a notice under section 793 of the
Companies Act 2006, a shareholder fails to disclose details of any
past or present beneficial interest;
-- no agreements between holders of securities regarding their
transfer or voting rights which are known to the Company; and
-- no special rights with regard to control attached to securities in the Company.
Temporary share suspension
Following the material uncertainty regarding the fair value of
the Company's investment portfolio as at 31 December 2022, the
Company requested the FCA to suspend the listing of its ordinary
shares (with a corresponding request made to the London Stock
Exchange for a suspension of trading) with effect from 7.30 a.m. on
25 April 2023, with reference to the FCA's Listing Rule 5.1.2G(3).
Following the announcement of the financial results for 2022 the
results need to be appropriately electronically tagged in
compliance with DTR 4.1, before they can be uploaded to the NSM.
Uploading to the NSM is a necessary step before the Company may
apply to the FCA for a restoration of the listing. The Company is
working on the electronic tagging of the accounts, following which
it will apply to the FCA for the restoration of the listing and
will make a further announcement in due course.
Share issue and buy-back authorities
By way of special resolutions passed on 11 November 2021, the
Directors currently have a general authority to allot shares with
an aggregate nominal value of up to US$8.2 billion for cash on a
non -- pre -- emptive basis. This authority will expire on 10
November 2026. Unless specifically authorised by shareholders, no
issue of ordinary shares on a non -- pre -- emptive basis will be
made at a price less than the prevailing NAV per ordinary share at
the time of issue.
By way of a special resolution passed on 24 August 2023, the
Company was granted authority to make market purchases up to 14.99%
of its issued share capital. The Company has not bought back any
shares under this authority, which expires at the conclusion of the
2024 AGM. The Company may cancel bought-back shares or hold
bought-back shares in treasury and then sell such shares for cash.
Shares will only be re-sold from treasury at a premium to the NAV
per share. The share issue and buy-back authorities provide the
Company with additional flexibility in the management of its
capital base.
Major interests in shares
As at 31 December 2022 and 21 January 2024 (the latest
practicable date prior to the publication of this Annual Report),
the Company was aware of the following interests in 3% or more of
the voting rights in the Company's issued share capital.
31 December 2022 21 January 2024
% of voting % of voting
Investor No. of shares rights No. of shares rights
-------------------------------------- ------------- ----------- ------------- -----------
Secretary of State for Foreign,
Commonwealth and Development Affairs 32,321,899 18.4 32,321,899 18.4
Brevan Howard Investment Products
Limited 29,708,737 16.9 29,708,737 16.9
ThomasLloyd Global Asset Management 26,004,420 14.8 26,004,420 14.8
AllianceBernstein 17,214,584 9.8 17,214,584 9.8
Credit Suisse Private Banking 9,500,000 5.4 11,500,000 6.6
Liontrust Sustainable Investments 8,770,802 5.0 8,770,802 5.0
Schroder Investment Management 8,135,810 4.6 8,135,810 4.6
Privium Fund Management 6,800,000 3.9 6,800,000 3.9
Charles Stanley 6,236,487 3.6 3,871,958 2.2
WH Ireland 5,872,412 3.3 5,872,412 3.2
-------------------------------------- ------------- ----------- ------------- -----------
Going concern
The Company has undertaken an evaluation of its cashflow
forecasts and going concern position to 31 March 2025, including
downside scenarios. This evaluation demonstrated that the Company
has sufficient cash to meet all of its liabilities within the going
concern assessment period, which is a period of at least 12 months
from the date the Financial Statements were authorised for
issue.
In reaching this conclusion, the Directors considered the
Company's net assets as at 31 December 2022 of US$86.6 million, its
cash reserves at that date of US$115.8 million, consequences of the
share suspension and its recurring operating expenditure
requirements, both to date and into the future. During the 12
months ended 31 December 2023, the Company paid out all of its
commitments as disclosed in note 21 to the Financial Statements,
being US$38.5 million to acquire 57% of SolarArise in January 2023
and US$3.1 million to acquire 99.8% of VSS in May 2023, funded the
construction of the RUMS project via a US$20.0 million loan, paid
dividends to its shareholders of US$4.4 million and paid the costs
of the Company. As at 31 December 2023 the Company had cash
reserves of US$41.4 million and AEIT Holdings had cash reserves of
US$1.7 million. This cash position has been used in assessing the
Company's going concern position and cash flow forecasts.
The Company continues to meet its day-to-day liquidity needs
through its cash resources. Assumed future cash inflows over the
going concern period include the receipt of dividend and interest
income from its underlying investments and the main cash outflows
are the ongoing running costs of the Company and the payment of
dividends to its shareholders. A key priority for 2024 for the
Board and Transitional Investment Manager is to undertake capital
restructuring to facilitate the repatriation of cash out of the
underlying investment portfolio. A downside scenario that was
modelled within the cash flows in the going concern assessment
assumed this repatriation is delayed until after the end of the
going concern period (i.e. no dividend or interest income is
received from the Company's investments during that period). Even
in this scenario, the Company has sufficient cash reserves to
continue as a going concern. The cash flow forecasts in the
downside scenario also assume no further investment commitments
during the going concern period. The Company had no outstanding
investment commitments at 31 December 2023 and at the date of
signing this Annual Report.
The future of the Company relies heavily on the outcome of the
current strategic review of the options for the future of the
Company which is expected to be to conclude by the end of the first
quarter of 2024. At the date of this Annual Report, based on the
information currently available, the most likely outcomes of the
strategic review remain a proposal for either the relaunch of the
Company (potentially with a new investment objective, investment
policy, target returns and/or Investment Manager but maintaining
the impact-led, Asian focus) or a managed wind-down. Shareholders
will have the opportunity to vote on the outcome of the strategic
review.
The Board does not intend to declare a dividend in respect of
the quarter ended 31 December 2023, nor does it intend to make any
further acquisitions or commitments prior to completion of, the
strategic review.
While the Directors therefore have a reasonable expectation that
the Company has adequate resources to continue in operational
existence for the foreseeable future and the going concern basis of
accounting has been adopted in preparing the Financial Statements,
the outcome of the strategic review as set out above is not within
the control of the Board and is therefore uncertain, and will
solely be down to a vote of the shareholders, who may vote for a
managed wind up of the Company. In light of this shareholder vote
and that shareholders may vote for a managed wind up of the
Company, this constitutes a material uncertainty related to events
or conditions that may cast significant doubt on the Company's
ability to continue as a going concern.
Viability statement
In accordance with the UK Corporate Governance Code and the AIC
Code, the Directors have assessed the prospects of the Company over
a longer period than the 12 months required for the going concern
assessment.
The Board has assessed the viability of the Company for the
period to 31 January 2026. This is a period of approximately two
years from when the 2022 Annual Report and Accounts were approved.
In reviewing the Company's viability, the Directors are mindful of
the ongoing work surrounding the strategic review referred to under
'Going concern' above and the subsequent shareholder vote on the
outcome of the strategic review, which remains outside of the
Directors' control and therefore gives rise to a material
uncertainty surrounding the going concern of the Company (all of
which are set out in the going concern disclosures on also on this
page).
At the date of this Annual Report, based on the information
currently available, the most likely outcome of the strategic
review remains a proposal for either the relaunch of the Company
(potentially with a new investment objective, investment policy,
target returns and/or Investment Manager but maintaining the
impact-led, Asian focus) or a managed wind-down.
Having analysed with the Company's advisers the initial
proposals received for a relaunch of the Company, the Board will be
inviting a shorter list of potential investment managers to submit
final proposals. Any proposal to relaunch the Company would need to
offer a compelling investment proposition for both existing and
prospective investors to enable the Company to scale up its size
significantly over time as, at its current size, the Company may
not have a viable long--term future. The Board is of the opinion
that the ongoing workstreams associated with a relaunch of the
Company, such as establishing an investment pipeline, making
further investments and fundraising will take up to two years and
for this reason a period of two years has been selected for this
viability statement.
Any managed wind-down proposal would seek to achieve an optimal
balance between maximising shareholder value and timely return of
cash to shareholders, before a formal winding up once substantially
all of the Company's assets have been realised. The Board also
expects this process to take up to two years.
The Board, therefore, believes that this period, being
approximately two years from the signing of the Financial
Statements, is an appropriate time horizon over which to assess the
viability of the Company.
In their assessment of the prospects of the Company over the
Period, the Directors considered each of the principal risks and
uncertainties and are hopeful that proposals to relaunch the
Company, along with key changes to the Company's third-party
service providers, will aid the future success of the Company. In
assessing the Company's prospects, the Directors have reviewed cash
flow forecasts to 31 January 2026 which assume no further
investment commitments and that all ongoing costs will be met by
the Company's cash resources of US$41.4 million at 31 December
2023. The cash flow forecasts for the viability assessment assume
that dividend or interest income will be received from the
Company's underlying investments, but, even in the scenario that
the Company receives no dividend or interest income from its
underlying investments over the Period, the Company will still have
sufficient cash to meet all its liabilities over the period.
In assessing the viability of the Company, the Board concludes
that:
o In the event that shareholders vote in favour of a managed
wind down, the Company has the resources to complete this without
the need for further capital and will be able to meet its
liabilities as they fall due.
o However, if the shareholders vote in favour of continuation of
the Company, further funding will be needed in order to fund future
investments and meet other liabilities as they fall due.
Dividend policy
The Company pays dividends on a quarterly basis. The Company
may, where the Directors consider it appropriate, use the special
distributable reserve created by the cancellation of its share
premium account to pay dividends. Distributions made by the Company
may take either the form of dividend income or of 'qualifying
interest income' which may be designated as interest distributions
for UK tax purposes.
All dividends are paid as interim dividends. As the Company does
not pay final dividends, shareholders are not provided the
opportunity to vote on the payment of a final dividend.
Accordingly, in line with good corporate governance practice, the
Board will ask shareholders to approve the Company's dividend
policy at each AGM.
In light of the strategic review, the dividend policy of the
Company remains uncertain. The Board does not intend to declare a
dividend in respect of the quarter ended 31 December 2023 prior to
completion of the strategic review.
Streamlined energy and carbon reporting
As an investment company with all its activities outsourced to
third parties, the Company does not have any physical assets,
property, employees or operations of its own and, therefore, the
Company's own direct environmental impact is minimal. In relation
to the Streamlined Energy and Carbon Reporting ("SECR ),
implemented by The Companies (Directors' Report) and Limited
Liability Partnerships (Energy and Carbon Reporting) Regulations
2018, for the financial period ended 31 December 2022 the Company
is considered to be a low energy user (<40,000 KWh) and,
therefore, falls below the threshold to produce an energy and
carbon report.
The energy and emissions metrics for the investment portfolio
for the year ended 31 December 2022 are disclosed in the Impact
Report.
Modern slavery
The Company is committed to maintaining the highest standards of
ethical behaviour and expects the same of its business partners.
The use of slavery and human trafficking is unacceptable and
entirely incompatible with its ethics as a business. The Company
believes that all efforts should be made to eliminate it from its
supply chains.
The majority of services supplied to or on behalf of the Company
are from the financial services, energy and construction industries
and other services associated with those industries. As such, the
Company believes there to be a low risk profile of anyone supplying
it directly with services being involved in slavery and/or human
trafficking. The most significant area of risk for the Company is
in relation to its investee companies in relation to sourcing solar
panels as there is widely known evidence to suggest that a large
proportion of the current global polysilicon supply chain is at
high risk of forced labour violations. Polysilicon is the raw
material required to create most solar panels. The Company has put
in place supplier due diligence processes and traceability
requirements to reduce this risk.
Anti-bribery, anti-corruption and tax evasion
It is the Company's policy to conduct all of its business in an
honest and ethical manner. The Company takes a zero--tolerance
approach to bribery and corruption and is committed to acting
professionally, fairly and with integrity in all its business
dealings and relationships wherever it operates. The Company is
committed to ensuring that the Company and its subsidiaries and
investment entities, and anyone contracting with the Company and
its subsidiaries and investment entities (including by the
Investment Manager and other key service providers), comply with
the requirements of the UK Bribery Act 2010 or equivalent
legislation in other jurisdictions.
The Company does not tolerate tax evasion in any of its forms in
its subsidiaries and investment entities. The Company complies with
the relevant UK law and regulation in relation to the prevention of
facilitation of tax evasion and supports efforts to eliminate the
facilitation of tax evasion worldwide. It also works to make sure
its business partners share this commitment.
Donations and contributions
No political or charitable donations were made during the
financial period under review.
Amendment to the Company's Articles
The Company's Articles of Association may only be amended by a
special resolution passed by shareholders.
Listing Rule 9.8.4
The FCA's Listing Rule 9.8.4 requires the Company to include
certain information in a single identifiable section of the Annual
Report or a cross reference table indicating where the information
is set out. The Directors confirm that there are no disclosures to
be made in this regard other than in accordance with Listing Rule
9.8.4(7) (details of an allotment for cash of equity securities
made during the financial period), the information on which is
detailed under 'Capital structure, rights and restrictions.
Disclosure of information to the Auditor
Having made enquiries of key service providers, each of the
Directors holding office at the date of this Report confirms
that:
-- as far as they are aware, there is no relevant audit
information of which the Auditor is unaware; and
-- they have taken all the steps a Director might reasonably be
expected to have taken to make themselves aware of any relevant
audit information and to establish that the Auditor is aware of
that information.
This confirmation is given and should be interpreted in
accordance with section 418 of the Companies Act 2006.
Auditor
The Company's Auditor, Deloitte LLP, was appointed prior to
AEIT's IPO and is willing to continue in office. Resolutions to
re-appoint Deloitte LLP and authorise the Board to determine the
Auditor's remuneration will be proposed at the forthcoming Accounts
General Meeting.
Accounts General Meeting
As the Company was required to hold its 2023 AGM before this
Annual Report was available, a general meeting of the Company will
be convened at which resolutions of a financial nature typically
considered at an AGM will be proposed. The notice of the Accounts
General Meeting and details of the resolutions to be proposed will
be contained in a separate circular to shareholders.
Approval
This Directors' Report was approved by the Board and signed on
its behalf by:
Sue Inglis
Chair
22 January 2024
Corporate Governance Report
This Corporate Governance Report forms part of the Directors'
Report.
The Company became a member of the AIC with effect from 14
December 2021 following completion of its IPO. As such, the Board
has considered the principles and provisions of the AIC Code of
Corporate Governance (the "AIC Code ). The AIC Code addresses the
principles and provisions set out in the UK Corporate Governance
Code (the "UK Code"), as well as setting out additional provisions
on issues that are of specific relevance to the Company.
The Board considers that reporting against the principles and
provisions of the AIC Code, which has been endorsed by the
Financial Reporting Council provides more relevant information to
shareholders.
The AIC Code is available on the AIC website (www.theaic.co.uk)
and the UK Corporate Governance Code can be found on the Financial
Reporting Council's website (www.frc.org.uk). The AIC Code includes
an explanation of how it adapts the principles and provisions set
out in the UK Code to make them relevant for investment
companies.
Compliance with the AIC Code
Throughout the period ended 31 December 2022, the Company
complied with the principles and provisions of the AIC Code except
that the Chair of the Company is a member of the Audit Committee
and is also Chair of the Nomination Committee. Given the size of
the Board of which all members are independent non-executive
Directors and the knowledge and experience of the Chair, the
Directors consider that this is appropriate.
Division of responsibilities
The Board has overall responsibility for the Company's
activities. However, the Company has delegated or outsourced
various matters to its standing Committees and key service
providers, most notably the AIFM, Investment Manager and
Administrator, all of which operate within clearly defined terms of
reference or agreements that set out their roles, responsibilities
and authorities.
Board
The Board provides overall leadership and is collectively
responsible for the long-term sustainable success of the Company,
generating value for shareholders, contributing to the fight
against climate change and benefitting the communities in which our
assets are located. Accordingly, the Board's principal
responsibilities include:
-- determining the Company's strategic objectives and risk appetite;
-- ensuring that the necessary resources are in place for the
Company to meet its objectives and fulfil its obligations to
shareholders, within a framework of high standards of corporate
governance and effective risk management and internal controls;
-- business conduct and implementation of its key investment,
financial, operational and compliance policies, ensuring they are
aligned with AEIT's purpose and strategy and the Board's culture
and values and that any necessary corrective action is taken;
-- scrutinising the performance of the Investment Manager,
Administrator and other key service providers and holding them to
account;
-- reviewing the proposed valuations of AEIT's investments;
-- ensuring effective engagement with, and encouraging
participation from, shareholders and other key stakeholders;
and
-- providing strategic guidance and offering specialist advice,
whilst providing constructive and effective challenge, especially
with regard to portfolio management.
Matters not delegated or outsourced to Committees and key
service providers are reserved for consideration and approval by
the Board (including those matters listed in a formal schedule of
reserved matters approved by the Board), thus enabling the Board to
maintain full and effective control over strategic issues and all
operational matters of a material nature. The reserved matters
include:
-- approving AEIT's long-term objectives and any matters of a
strategic nature, including any changes to the investment
objective, policy and restrictions (including those which may need
to be submitted to shareholders for approval) and target
returns;
-- the appointment and removal of key service providers and any
material amendments to the Company's agreements with them;
-- approving any other material contracts and agreements entered into, varied or terminated;
-- approving any transactions with related parties;
-- approving Annual and Interim Reports and quarterly NAV and other financial announcements;
-- approving the Company's operating budget;
-- setting the Company's dividend policy and approving dividends;
-- approving the raising of new capital;
-- approving prospectuses, circulars and other shareholder communications;
-- Board appointments and removals; and
-- the Company's corporate governance arrangements .
The primary focus at Board meetings is a review of investments
and associated matters (such as performance against budget and
KPIs, compliance with investment restrictions, investment pipeline,
investment strategy, projected cash flows, gearing and currency
hedging), financial analyses, share price premium/discount,
investor relations and marketing, industry, legal and regulatory
(including corporate governance) developments and other matters of
an operational nature.
Chair
The Chair is Sue Inglis. Her primary role as Chair is to provide
leadership to the Board. The principal responsibilities of the
Chair include:
-- ensuring the overall effectiveness of the Board in directing the Company;
-- taking a leading role in setting the Company's strategic
objectives in conjunction, and through regular interaction with,
the Investment Manager;
-- facilitating open, honest and constructive debate among
Directors and the effective contribution of all Directors;
-- ensuring the Company is meeting its responsibilities to
shareholders and other stakeholders; and
-- engaging with shareholders to ensure that the Board has a
clear understanding of their views.
Full details of the role and responsibilities of the Chair are
available on the Company's website.
Senior Independent Director
The Senior Independent Director is Mukesh Rajani. His primary
responsibilities as such are to serve as a sounding board for the
Chair, act as an intermediary for other Directors and be available
to respond to shareholders' concerns if they cannot be resolved
through the normal channels of communication (i.e. through the
Chair). The Senior Independent Director leads the annual evaluation
of the Chair.
Board Committees
The Board has five standing Committees, being the Audit and Risk
Committee, ESG Committee, Management Engagement Committee,
Nomination Committee and Remuneration Committee: Given its size and
the diverse range of skills and experience of the Directors, the
Board has considered it appropriate for all Directors to serve on
all standing Committees.
Details of the principal responsibilities of the Committees are
included in their respective reports on pages [ -- ] to [ -- ] and
the terms of reference of each Committee are available on the
Company's website. The Committees review their terms of reference
at least annually, with any proposed changes recommended to the
Board for approval. Committee Chairs attend AGMs to answer any
questions on each of their Committee's activities.
The Board may also establish additional Committees from time to
time to take operational responsibility on specific matters. These
Committees ensure that key matters are dealt with efficiently and
in a timely manner.
AIFM
The Company is classified as an Alternative Investment Fund
under the EU Alternative Investment Fund Managers' Directive as
incorporated into UK law (the "AIFMD") and is, therefore, required
to have an AIFM. The Company's AIFM is Adepa Asset Management
S.A.
The AIFM's responsibilities include:
-- portfolio management (which it has delegated to the Investment Manager);
-- monitoring and ensuring compliance with the Company's investment policy;
-- risk management;
-- approval of quarterly portfolio valuations and NAVs; and
-- ensuring compliance with AIFMD regulations and reporting.
The AIFM is entitled to an annual management fee, subject to a
minimum fee of US$75.000 per annum, at the following rates, based
on the NAV and payable quarterly in arrears:
NAV Fee rate
--------------------------- --------
Up to US$200 million 0.055%
Between US&200-400 million 0.045%
Between US&400-1,000
million 0.035%
Above US$1 billion 0.025%
--------------------------- --------
The AIFM is also entitled to annual risk management fee and
AIFMD reporting fees of EUR14,500. The AIFM's appointment is
terminable by either party on not less than six months' notice in
writing.
Investment Manager
The AIFM, with the agreement of the Company, has delegated the
portfolio management of the Company to the Investment Manager. The
Investment Management Agreement between the AIFM, Company and
Investment Manager (the "IMA") sets out the matters in respect of
which the Investment Manager has authority and responsibility,
subject to the overall control and supervision of the Board. These
include:
-- having full discretion in relation to AEIT's portfolio
management activities in accordance with AEIT's investment policy
and any other restrictions imposed in the IMA or by the Board from
time to time;
-- managing cash not yet invested by the Company or otherwise
applied in respect of its operating expenses; and
-- promoting the Company and investor relations.
In advance of Board meetings, the Investment Manager provides
regular reports, which include operating updates on the Company's
investments, cash flow forecasts and other relevant information.
Senior representatives of the Investment Manager attend Board
meetings. The Investment Manager is responsible for keeping the
Board informed, in a timely manner, of any material developments
arising from its portfolio management activities or other relevant
matters, including interactions with shareholders and other key
stakeholders.
For the period from IPO to 31 October 2023, the Investment
Manager was ThomasLloyd Global Asset Management (Americas) LLC (the
"Former Investment Manager"). Under the relevant IMA, the Former
Investment Manager was entitled to a management fee, details of
which are included in note 19 to the Financial Statements. On 15
September 2023, following the failure of the Continuation
Resolution at both the requisitioned general meeting and the
adjourned annual general meeting held on 24 August 2023, the Board
served notice on the Former Investment Manager terminating the IMA
with effect from 31 October 2023. From 1 November 2023, Octopus
Energy Generation ("OEGEN") was appointed as Transitional
Investment Manager to cover an initial period through to 30 April
2024. For this initial term, the Company will pay OEGEN a
management fee of US$1.35 million. At the end of the term, at the
discretion of the Board, there is scope for OEGEN to earn an
additional management fee of up to US$0.55 million for its services
during the transitional period.
The Board, together with its advisors, is currently conducting a
strategic review of the options for the Company's future, including
the appointment of an Investment Manager for the period post 30
April 2024.
Administrator/Company Secretary
The Company has appointed JTC UK Ltd as the Company's
Administrator to provide fund accounting, company secretarial and
other administrative services. The Administrator's responsibilities
include:
-- undertaking the day-to-day financial and administration
functions of the Company, including calculation of the NAV and
maintenance of the Company's accounting and statutory records;
-- providing the company secretarial functions required by the Companies Act 2006;
-- ensuring that the Company complies with applicable laws,
rules and regulations, including laws and regulations applicable to
investment trusts, the FCA rules applicable to listed investment
companies and the London Stock Exchange rules;
-- advising on all governance matters;
-- supporting the Board and its Committees to ensure that they
have the policies, processes and information they need to function
effectively and efficiently and to enable the Directors to
discharge their responsibilities; and
-- ensuring that Board and Committee procedures are followed.
In advance of Board meetings, the Administrator provides regular
reports, which include operational information, details of any
breaches or complaints and relevant legal and regulatory, corporate
governance and other technical updates. The Administrator is
responsible for keeping the Board informed, in a timely manner, of
any material developments regarding matters within the scope of its
role and responsibilities.
Board and Committee meetings
Regular Board and Committee meetings are scheduled throughout
the year. In addition, valuation meetings are held in advance of
each scheduled Audit and Risk Committee meeting to review
preliminary quarterly valuations of the Company's investments. Ad
hoc Board and Committee meetings are also held between scheduled
meetings in preparation for or to follow-up after scheduled
meetings, to consider investment proposals and to deal with any
other matters arising between scheduled meetings. Typically, all
Directors attend valuation and ad hoc meetings, although this is
not always feasible or necessary and any Director who is unable to
attend a meeting can communicate their views ahead of the
meeting.
Attendance at scheduled meetings
Management
Audit and Engagement Nomination Remuneration
Board Risk Committee ESG Committee Committee Committee Committee
-------------------------- ----- --------------- ------------- ----------- ---------- ------------
No. of scheduled meetings
held 5 4 2 1 1 1
Sue Inglis 5 4 2 1 1 1
Mukesh Rajani 5 4 2 1 1 1
Clifford Tompsett 5 4 2 1 1 1
Kirstine Damkjaer 5 4 2 1 1 1
-------------------------- ----- --------------- ------------- ----------- ---------- ------------
Board composition and succession
Board composition and independence
The Board consists of four non-executive Directors, all of whom
were appointed prior to the Company's IPO and are (and were on
appointment) independent of the Investment Manager. The Chair and
each of the other Directors is (and was on appointment) also
independent when assessed against the circumstances set out in
provision 13 of the AIC Code. The independence of the Directors is
reviewed at least annually by the Nomination Committee.
The current Board was selected to bring a breadth of skills,
knowledge and experience relevant to the Company's structure and
strategy. Details of the Directors, including their skills and
experience, are set out on pages [ -- ] and [ -- ].
The composition of the Board is a fundamental driver of its
success as the Board must provide strong and effective leadership
of the Company without any one individual or small group dominating
the decision making. The strong and diverse mix of experienced
individuals on the current Board enables high calibre debate and
constructive challenge. The Board is able to use the skills,
knowledge and experience of the individual Directors to their
maximum potential and make decisions that are in the best long-term
interests of the Company. In particular, the Board uses the
Directors' skills, knowledge and experience to review information
provided by the Company's key service providers, make enquiries,
raise challenges and request additional information as required.
However, as the Directors are all non-executive, the effective
operation of the Board is heavily dependent on receiving accurate,
transparent and timely information (including in response to the
Board's requests for information) from the Company's key service
providers and, in particular, the AIFM, Investment Manager and
Administrator.
The Board's tenure, succession and diversity policies seek to
ensure that the Board continues to be well-balanced and refreshed
regularly by the appointment of new Directors with the necessary
skills, knowledge, experience and personal qualities and who can
bring fresh perspectives. The Board will review the appropriateness
of its composition in light of the outcome of the current strategic
review of the options for the Company's future and, if necessary,
make changes to ensure that the Board has the necessary skills,
knowledge and experience to implement the outcome of the strategic
review.
Board diversity
Given the small size of the Board, that it comprises only
non-executive Directors and the Company's specialist nature as an
externally managed investment company, setting specific diversity
targets may provide challenges when recruiting new Directors. The
Board does not consider, therefore, it appropriate to set specific
diversity targets. However, the Directors acknowledge that
diversity in its broadest sense is important to ensure that the
Company can draw on a broad range of backgrounds, skills,
experience and perspectives to achieve effective stewardship of the
Company and the long-term sustainable success of the Company. As
explained under 'Appointments to the Board' below, an integral part
of the process for recruiting new Directors will include,
therefore, the consideration of diversity generally, taking into
account gender, social and ethnic backgrounds and cognitive and
personal strengths, as well as skills, knowledge and
experience.
The FCA's Listing Rules now require companies to report on
whether they have met the following targets on board diversity:
-- at least 40% of the individuals on the board are women;
-- at least one of the senior board positions (in the case of
the Company, these are the Chair and Senior Independent Director)
is held by a woman; and
-- at least one director is of an ethnic minority background.
As shown in the tables below, at 31 December 2022 (and at the
date of this Report), the Company met all of these diversity
targets.
No. of senior
Gender diversity No. of Board positions % of Board positions on Board
----------------- ---------------------- ---------- ------------------
Male 2 50 1
Female 2 50 1
----------------- ---------------------- ---------- ------------------
No. of senior
Ethnic diversity No. of Board positions % of Board positions on Board
----------------------------------------------------------- ---------------------- ---------- ------------------
White British or other (including minority - white groups) 3 75 1
Asian/Asian British 1 25 1
----------------------------------------------------------- ---------------------- ---------- ------------------
As an externally managed investment company with solely non --
executive Directors, the Company does not have a chief executive or
a chief financial officer (both being 'senior positions' under the
relevant FCA Listing Rule) and has no employees. Accordingly, there
are no disclosures about executive management positions to be
included. The information in the tables above was provided by
individual Directors in response to a request from the
Administrator.
Appointments to the Board
The Nomination Committee reviews at least annually the
composition and effectiveness of the Board and its Committees with
the objective of ensuring that these have the appropriate balance
of skills, knowledge and experience required to meet the current
and future opportunities and challenges facing the Company and
succession plans are implemented in an orderly manner. The
Nomination Committee makes recommendations to the Board when it
considers that a new Director should be recruited.
Once a decision has been taken by the Board to recruit a new
Director, the Nomination Committee will oversee the recruitment
process. At the outset, the Nomination Committee will review the
current balance and diversity of the Board, taking into account
gender, social and ethnic backgrounds and cognitive and personal
strengths, and identify any specific skills, knowledge, experience
and personal qualities that are required to ensure the continued
effective operation of the Board. The Nomination Committee will
then set objective selection criteria to ensure a formal rigorous
and transparent appointment process and protect against potential
discrimination. The Nomination Committee intends to use
non--executive director recruitment consultants and/or open
advertising when recruiting new Directors. The Nomination Committee
will seek to ensure that longlists of candidates should include
diverse candidates, taking into account gender, social and ethnic
backgrounds, with the appropriate skills, knowledge experience and
personal qualities. Following the creation of a shortlist of
candidates, the decision-making process will be based on merit,
with due consideration of the objective selection criteria
identified.
When considering new appointments, the Nomination Committee will
also take into account other demands on the candidates' time. In
advance of joining the Board, successful candidates will be asked
to disclose any existing significant commitments with an indication
of the time involved and to confirm that they are able to allocate
sufficient time to the business of the Company and that there are
no situations where they have, or could have, a direct or indirect
interest that conflicts, or possibly could conflict, with the
Company's interests.
Directors are not appointed for any specific term and are
subject to annual re-appointment at AGMs.
Directors' appointments are reviewed by the Nomination Committee
ahead of their submission for election or re-election, with
submission being contingent on a satisfactory performance
evaluation. A Director may resign, and the Company may terminate a
Director's appointment at any time, by not less than one month's
notice in writing. The Articles of Association permit a Director to
be removed without prior notice in certain circumstances. Directors
are not entitled to any compensation payments for loss of
office.
At the time of appointment, a new Director receives a letter of
appointment that sets out their duties and obligations. Copies of
the letters of appointment of the current Directors are available
for inspection at the Company's registered office and at each
AGM.
Induction and professional development
Any new Directors will receive an induction on joining the Board
covering the Company's strategy, policies, operational structure
and governance, which will be coordinated by the Administrator. In
addition, new Directors will be briefed fully about the Company's
strategy and portfolio by the Investment Manager.
The Administrator is charged with assisting in the ongoing
training and development of all Directors, including providing the
Directors with details of the Company's regulatory and statutory
obligations (and changes thereto). Directors are able to receive
training or additional information on any specific subject
pertinent to their role as a Director that they request or require.
The Directors are encouraged to participate generally in industry
events and to attend any other relevant seminars and conferences,
if necessary at the Company's expense. Directors' individual
training requirements are considered as part of the annual
evaluation process.
Information and support
To enable the Board to function effectively and the Directors to
discharge their responsibilities, the Directors are regularly
updated on investment, financial, investor and other stakeholder
engagement and other matters. In addition to periodic reporting at
scheduled Board and Committee meetings, the Directors receive, and
may request, ad hoc information from the Investment Manager,
Administrator and other key service providers. As the Directors are
all non-executive, the effective functioning of the Board is
heavily dependent on receiving accurate, transparent and timely
information ( i ncluding in response to the Board's requests for
information) from the Company's key service providers and, in
particular, the AIFM, Investment Manager and Administrator.
The Directors have access to the advice and services of the
Administrator. In addition, there is a procedure in place for
Directors to take independent professional advice at the Company's
expense should this be required to aid them in their duties. No
such independent professional advice was sought during the
financial period under review.
Time commitment
All Directors are aware of the need to allocate sufficient time
to the Company in order to discharge their responsibilities
effectively. Directors must obtain prior approval from the Board
when they take on any additional external appointments and it is
their responsibility to ensure that such appointments will not
prevent them meeting their required time commitments to the
Company.
Where a significant additional external appointment is approved
by the Board, the reasons for permitting the appointment will be
explained in the next Annual Report. No such appointments were
approved during the financial period under review.
Conflicts of interest
Directors have a duty to avoid situations where they have, or
could have, a direct or indirect interest that conflicts, or
possibly could conflict, with the Company's interests ('conflict
situations'). As permitted by the Companies Act 2006, the Company's
Articles of Association allow the Directors to authorise conflict
situations, where appropriate.
The Board has a procedure in place to deal with conflict
situations. As part of this process, Directors must submit any
actual or potential conflict situations they may have to the Board
for approval as soon as possible. In deciding whether to approve a
conflict situation, the Board will act in a way it considers, in
good faith, will be most likely to promote the Company's success,
taking into consideration whether the Director's ability to act in
accordance with their wider duties is affected. The Administrator
maintains the register of approved conflict situations (which also
includes a list of other external positions held), which is tabled
and considered at each Board meeting. Directors have a duty to keep
the Board updated about any changes to their approved conflict
situations. In certain circumstances the conflicted Director may be
required to absent themself from discussions or decisions on the
matter on which they are conflicted (in which event, the Director
will not be counted when determining whether the meeting is
quorate). No such circumstances arose during the financial period
under review. Neither the Chair nor any of the other Directors has,
or has had, any potential conflicts of interest of the nature
listed in provisions 6 and 12 of the AIC Code.
Election and re-election by shareholders
Directors are required to stand for re-appointment at the first
AGM following their appointment and annual re-appointment at each
subsequent AGM. A Director who retires at an AGM may, if willing to
continue to act, be reappointed at that meeting.
Having considered their effectiveness, demonstration of
commitment to the role, attendance at meetings and contribution to
the Board's and its Committees' deliberations, the Board approved
the nomination for re-appointment of all the Directors at the
annual general meeting held on 30 June 2023, and this was
subsequently approved by shareholders.
Board tenure
The Board's policy on Director, including Chair, tenure is that
a Director should normally serve no longer than nine years but,
where it is in the best interests of the Company, its shareholders
and other stakeholders, a Director may serve for a limited time
beyond that.
The Board believes that the continuity of knowledge and
experience of its Directors is important and that a suitable
balance requires to be struck with the need for refreshing of the
skills and experience of the Board. The Board believes that some
limited flexibility in its approach to Director, including Chair,
tenure will enable it to manage succession planning more
effectively.
Succession planning
The Nomination Committee is responsible for succession planning
and its approach to succession planning is explained in the
Nomination Committee Report.
Annual performance evaluations
Board, Committees, Chair and individual Directors
Details on the 2022 formal evaluations of the Board, its
standing Committees, the Chair and individual Directors, conducted
by the Nomination Committee, are included in the Nomination
Committee Report. Having considered them, the Board accepted all of
the Nomination Committee's recommendations.
Investment Manager
The performance of the Investment Manager is considered at every
Board meeting, with a formal evaluation by the Management
Engagement Committee at least once each year.
Details on the 2022 formal evaluation of the Investment Manage
are included 'in the Management Engagement Report.
AIFM, Administrator and other key service providers
The performance of the Administrator and other key service
providers is monitored by the Board and its standing Committees on
an ongoing basis and formally evaluated by the Management
Engagement Committee (or, in the case of the Auditor, the Audit and
Risk Committee) at least annually. Information on the 2022 formal
evaluations is included in the Management Engagement Committee
Report and Audit and Rick Committee Report.
Directors' remuneration
The Directors' Remuneration Report includes the Directors'
remuneration policy and details of the remuneration of each
Director.
Principal risks
The Company's principal and emerging risks, together with
details of how the Board seek to manage and mitigate them, are set
out in the Strategic Report. The Company's financial instrument
risks are discussed in note 18 to the Financial Statements.
Internal controls
The Board is responsible for maintaining the Company's systems
of risk management and internal controls (such as financial,
operational and compliance controls). The AIC Code requires the
Board to review the effectiveness of the Company's systems of risk
management and internal controls at least annually.
Although the Board has contractually delegated services that the
Company requires to external third parties, it remains fully
informed of the internal control framework established by each
relevant service provider. Any changes or amendments to the
internal control frameworks of the third-party providers, along
with commentary on the effectiveness of financial controls are
discussed at the Audit and Risk Committee.
The Board has undertaken a review of the aspects covered by the
guidance and has identified risk management controls in the key
areas of business objectives, accounting, compliance, operations
and secretarial as being matters of particular importance upon
which it requires reports from the relevant key service
providers.
During the finalisation of the 2022 audit, a number of failings
and weaknesses in the valuation process became apparent to the
Board, and more than just judgemental macroeconomic factors, and
ultimately led to a material fall in the valuation of the
investment portfolio as at 31 December 2022. These failings and the
steps the Board has taken to address them are outlined in the Audit
and Risk Committee Report. Also refer to the 'Risk and Risk
Management' section for details of the risks crystallised in the
period.
Internal audit function
The Audit and Risk Committee has considered the need for an
internal audit function and considers that this is not appropriate
given the nature and circumstances of the Company as an externally
managed investment company with external service providers.
Relations with investors and other stakeholders
The Board is mindful of the importance of engaging with AEIT's
shareholders, as well as with the AIFM, Investment Manager,
Administrator and other key stakeholders. Details of our engagement
with all of the Company's key stakeholders and how we had regard to
those stakeholders in our decision-making processes during the
financial period under review are set out in the Strategic
Report.
The Board recognises that relationships with suppliers are
enhanced by prompt payment and the Administrator, in conjunction
with the Investment Manager, ensures payments are processed on a
timely basis.
Approval
This Corporate Governance Report was approved by the Board and
signed on its behalf by:
Sue Inglis
Chair
22 January 2024
Audit and Risk Committee Report
I present the Audit and Risk Committee Report for the financial
period ended 31 December 2022, which sets out the Committee's
responsibilities and its work and focus during, and with respect
to, the financial period.
The issues surrounding the finalisation of the 31 December 2022
portfolio valuation, the 2022 Annual Report and Accounts and
subsequent audit have been extremely disappointing. In addition to
the principal responsibilities outlined below, the Audit and Risk
Committee has overseen some significant changes to the valuation
process, including the replacement of the Former Investment Manager
and of the previous independent valuer and the introduction of a
reasonableness opinion from an independent valuation expert. This
brought a fresh and independent view to the valuations which the
Committee determined was required.
Committee's principal responsibilities
-- Monitoring and, as appropriate, challenging the integrity of
AEIT's Financial Statements, including its Annual and Interim
Reports and any other formal announcements relating to its
financial performance.
-- Reviewing the valuation of AEIT's investments prepared by the
Investment Manager and reported on by the independent valuation
expert.
-- Reviewing the content of the Annual Report, including the
Financial Statements, and advising the Board on whether, taken as a
whole, it is fair, balanced and understandable and provides
shareholders with sufficient information to assess the Company's
performance, business model and strategy.
-- Assessing AEIT's principal and emerging risks, including
those that would threaten its business model, future performance,
solvency or liquidity and reputation, and how they are managed and
mitigated.
-- Working with the ESG Committee, ensuring the effective
integration of ESG-related risks into AEIT's risk management
framework.
-- Keeping under review the adequacy and effectiveness of AEIT's
risk management and internal control systems.
-- Considering the ongoing assessment of AEIT as a going concern
and assessment of its longer-term viability.
-- Managing the relationship with the Auditor, including
reviewing the Auditor's remuneration, independence and
performance.
-- Considering annually whether there is a need for AEIT to have
its own internal audit function.
-- Reporting to the Board on how the Committee has discharged its responsibilities and making recommendations as appropriate.
The Committee consists of all the Directors and is chaired by
Clifford Tompsett. The Chair of the Board is a member of the Audit
and Risk Committee. The Board believes that Sue Inglis' knowledge
and experience is of significant benefit to the Committee.
The AIC Code requires the Committee to have at least one member
with recent and relevant financial experience. Two of the Committee
members are qualified accountants (of which the Committee Chair is
one), one member has a relevant investment background and one
member is a former investment banker with extensive experience of
listed closed -- ended funds. The Board is satisfied, therefore,
that the Committee has sufficient recent and relevant financial and
sector experience to discharge its responsibilities.
The Audit and Risk Committee's authority and duties are clearly
defined within its written terms of reference which are available
on the Company's website. The terms of reference include all
matters indicated by the FCA's Disclosure Guidance and Transparency
Rule 7.1 and the AIC Code. The terms of reference are reviewed at
least annually.
The Committee operates to a forward-planned agenda linked to the
Company's financial calendar. It has four scheduled meetings each
year and meets at such other times as may be required. The
Committee met six times during the financial period ended 31
December 2022. Since the period end, the Committee has met --
times.
Representatives of the Company Secretary, Investment Manager,
independent valuation expert and Auditor are invited to attend
Committee meetings and the Chair may invite other external
specialists as and when deemed appropriate.
At least once a year the Committee meets with the Auditor
without any representative of the Investment Manager or
Administrator being present. During the period the Committee met
privately with the Auditor once. The Auditor was also present at
all Committee meetings where there was a review of the Financial
Statements or formal announcements relating to financial
performance. The Committee Chair also maintains regular contact
with the Auditor outside the formal Committee meeting schedule.
Financial statement and significant reporting matters
As part of its monitoring of the integrity of the Financial
Statements and NAV publications, the Committee reviews whether
suitable accounting policies have been adopted and whether
appropriate estimates and judgements have been made. The Committee
considered the following significant judgements and other areas of
audit focus in respect of the Financial Statements for the period
ended 31 December 2022. These areas have been identified as being
significant by virtue of their materiality.
In this section we disclose the key chronology of events that
led to the temporary share suspension in addition to the final
judgements and assumptions adopted in finalising the December 2022
Annual Report and Accounts and how the Committee challenged and
concluded on each key judgement and significant reporting
matters.
Valuation of investments
The valuation of the Company's investments relies on a number of
key assumptions. The key assumptions (which are set out in notes 2
and 9 to the Financial Statements) include future power prices,
renewable energy generation, discount rates, inflation rates and
the timing of dividends given some of the investments have capital
structures which make the payment of dividends more difficult.
Sensitivities of the key inputs used within the models are detailed
in note 9. In addition, there is significant subjectivity and
estimation uncertainty in determining the fair value of the
Company's investment in SolarArise and the valuation of the RUMS
project. Further detail on the RUMS project is set out in notes 2
and 9 to the Financial Statements.
This report sets out the issues associated with the valuation of
the Company's investment portfolio and how the Committee challenged
the key assumptions set out above.
The period leading up to 17 April 2023 Audit and Risk Committee
meeting
During 2022, the Committee held a number of ad hoc meetings with
the Former Investment Manager, the Company's previous independent
valuer and the AIFM to review and challenge the integrity of the
Former Investment Manager's valuation models. In particular, the
Committee queried the use of 'in-house' wholesale electricity spot
market ("WESM") price curves that were prepared by the Former
Investment Manager in the NISPI valuation when it is market
standard to use an independent source. The Committee also had
questions over the tax provisioning and financial modelling,
particularly with regard to SolarArise. In response to the
Committee's challenges, the following actions were taken by the
Former Investment Manager in arriving at the initial draft 31
December 2022 valuations:
-- the appointment of a third-party model audit firm to review
the integrity of the valuation models including tax assumptions;
and
-- the appointment a leading independent power consultant to
provide forecast WESM price curves for wholesale market prices in
the Philippines (these curves were received in early February 2023
and reported low, base and high case WESM forecasts).
In late February 2023, initial draft valuations prepared by the
Company's former independent valuer, together with presentations
prepared by the Former Investment Manager, were circulated for a
valuation co -- ordination meeting held on 2 March 2023 (the "March
Meeting"). A number of significant matters were discussed and
challenged at the March Meeting and in the period leading up to the
Committee meeting held on 17 April 2023 (the "April Meeting"),
including the following:
-- NISPI: At the March Meeting, the Former Investment Manager
proposed a valuation of US$32.1 million for the 40% interest in
NISPI. The power price forecast in this NISPI valuation applied a
75% weighting to the Former Investment Manager's in-house forecast
and a 25% weighting to the high case of the independent power
consultant's forecast. The valuation materials also disclosed that,
if the independent base case power price curve had been used only,
the valuation would have been reduced to US$14.5 million (a
decrease of US$17.6 million (55%) to the original valuation
proposed).
The Committee was unable to get comfortable the WESM prices used
in this initial valuation, reiterating that using an independent
source is best practice and market standard. The valuation was
subsequently updated to US$26.8 million reflecting 100% of the
independent power consultant's high case power curve. The adoption
of the high case power curve referenced above had resulted in a
US$10.2 million valuation reduction but this had been offset by the
Former Investment Manager changing other assumptions in its model
which increased the valuation by US$5.0 million, including updating
generation forecasts (US$2.6 million), accelerated cash extraction
(US$1.4 million) and a reduction in the discount rate (US$1.0
million). The Former Investment Manager also provided the Committee
with a report highlighting the differing judgements made by the
independent power consultant to its own assumptions and judgements
used in its 'in-house' price forecasts. Examples of these differing
judgements included the timing and implications of falling
commodity prices, the ability of the grid to meet demand and the
availability of alternative energy sources to meet demand,
particularly the speed of renewables uptake in the Philippine
market. In addition, analysis prepared by the Former Investment
Manager showed that the high case independent forecast tracked most
closely to historic WESM market prices achieved by NISPI and that
the base case projection was significantly below historic prices.
As such, the Former Investment Manager advised the Committee that,
based on its experience and knowledge in the market, using the high
case independent forecast would be a reasonable balanced assumption
in light of the subjectivity surrounding the wider macroeconomic
factors driving the forecast WESM price curves and this was
supported by the independent valuer.
-- SolarArise: At the March Meeting, the Former Investment
Manager proposed a valuation of US$30.5 million for the 43%
interest in SolarArise. This included a valuation of the RUMS
project at cost (US$2.1 million) rather than using a DCF valuation
as had been used in prior period valuations. Despite being
requested by the Committee, the Former Investment Manager did not
provide the Committee with a copy of the RUMS project model to
justify that the project returns supported the costs incurred to
date. This remained an outstanding issue and the Committee was
unable to sign off on the valuation of the RUMS project at that
time.
Other matters discussed at the March Meeting and subsequently
included:
o Asset performance: Reports provided by the Former Investment
Manager showed that generation of SolarArise's assets was
underperforming budget, but the Committee was told these
performance issues were largely due to one-off events (like
flooding, etc.) and that the overall generation profiles adopted
were consistent with the initial P50 generation forecasts obtained
at the time that each asset was commissioned.
o Adequacy of tax provisions: Questions were raised by the
Committee on the completeness of tax provisions and the modelling
of tax within the valuations. Members of the Committee were
involved in detailed discussions with the Auditor about this and an
audit adjustment was proposed to deal with this issue.
o Cash extraction: The Former Investment Manager had made the
Committee aware that cash extraction in SolarArise's assets had
some challenges but had previously advised that the requirement to
model these intricacies was not required as the impact was not
deemed to be material after potentially available mitigations were
modelled.
The Committee was guided by the Former Investment Manager's
knowledge and experience in the Indian market and the draft report
from the independent valuer and was conscious that an independent
third-party model review was underway to justify the Former
Investment Manager's conclusions and identify any potential
additional issues which may need to be included within the
valuations.
-- Third-party model review: At the time of the April Meeting
the third-party model review had not been completed. Draft reports
from the third-party model audit firm subsequently received showed
that there remained a number of substantive unanswered questions,
particularly in the areas of taxation, distributable reserves and
the ability to extract cash from the underlying SPVs to SolarArise
and from SolarArise and NISPI to the Company. This work by the
third -- party model audit firm was never completed and was
superseded by the valuation work carried out by
PricewaterhouseCoopers LLP ("PwC") and the Transitional Investment
Manager and the updated valuation process as discussed below.
The 17 April 2023 Audit and Risk Committee meeting and
subsequent temporary share suspension
In the draft financial statements circulated in advance of the
17 April 2023 meeting the RUMS project was carried at cost, but
still with no explanation of the economic viability of the project.
Furthermore, on the morning of, and 10 minutes prior to, the April
Meeting a presentation on the RUMS project was emailed by the
Former Investment Manager to the Committee which disclosed that the
cost of the RUMS project and the equity funding requirement had
gone up significantly, thereby calling into question its economic
viability. These cost increases had arisen principally due to
increases in module costs, the estimated cost of the EPC contract,
goods and services tax and adverse movements in exchange rates in
comparison to the costs in the original bid assumptions and those
used in the prior valuations. On 21 April 2023, the Board was
further advised by the Former Investment Manager that potentially
significant non-completion liabilities would arise in the event
that the SPV did not proceed with the construction of the RUMS
project.
The Board and Auditor agreed over the weekend of 22/23 April
2023 that there would not be sufficient time before 30 April 2023
(the date by which AEIT was required to publish its 2022 Annual
Report to avoid a suspension of the listing of its shares) to
assess the impact of the new information presented with regard to
the RUMS project on the SolarArise valuation and the Company's
Financial Statements for the financial period ended 31 December
2022, nor for the financial implications to be thoroughly audited
by Deloitte LLP such that the quality of the 2022 Financial
Statements and audit process could be maintained. Over the same
weekend and having taken advice from the Company's professional
advisors, the Board concluded that the new information created a
material uncertainty regarding the fair value of the Company's
assets and liabilities and, following discussion with the FCA, the
listing of, and trading in the Company's shares was suspended on 25
April 2023.
The period post the temporary share suspension up to the
appointment of OEGEN as Transitional Investment Manager
It was against this background and the failure of the Former
Investment Manager to satisfactorily answer the Board's and
Auditor's outstanding questions on the valuations that the Board
and AIFM appointed PwC to complete a detailed review of the key
assumptions included in the financial models and the valuation
methodology of the Company's operational assets in India and the
Philippines which had been prepared by the Former Investment
Manager to assist them with the finalisation of the valuations of
the Company's investment portfolio as at 31 December 2022.
As announced by the Company in July 2023, following this review,
the Company identified several areas for concern, including
material errors and inconsistencies, more than just judgemental
macroeconomic factors, inaccurately shown within the valuations.
Examples included unrealistically optimistic revenue and operating
cost assumptions, inaccurate tax calculations and a failure to
properly consider limitations on cash extraction. The announcement
also stated that the portfolio valuation could reflect a downward
movement relative to the 30 September 2022 valuation (and the draft
valuations as at 31 December 2022 provided by the Former Investment
Manager) and that this downward movement could be material.
A copy of the PwC report was provided to the Former Investment
Manager on 22 July 2023. However, other than some clarificatory
questions received on 15 August 2023, no response was received from
the Former Investment Manager in relation to the findings.
Following discussions with a range of stakeholders, it was
concluded that the appointment of a transitional Investment Manager
was appropriate, and also would be the most effective way to
finalise the 31 December 2022 and 30 June 2023 valuations, 2022
audit and Annual Report and Accounts and 2023 Interim Report and
ensure the temporary share suspension could be lifted as soon as
possible.
Finalisation of the 31 December 2022 investment valuations
Following the appointment of OEGEN, all of the items highlighted
in PwC's report have been addressed and adjusted in the investment
valuations (as at 31 December 2022 and in subsequent valuation
periods). The key assumptions used and the approach taken by the
Transitional Investment Manager in the 31 December 2022 valuations
are outlined on pages X to X and in notes 2 and 9 of the Financial
Statements. In particular, the Committee reviewed the following
material judgements and key sources of estimation uncertainty:
-- Macro-economic assumptions : OEGEN confirmed that it is best
practice and common amongst market participants to utilise
third-party forecasts prepared by independent and reputable
providers when formulating macro-economic assumptions used in
financial models and that it had done so with regard to inflation,
FX and power prices (see below). The Committee reviewed these
assumptions, understood the methodology applied, the source of the
forecasts and whether they were independent and was satisfied with
the assumptions adopted.
-- WESM pricing: OEGEN's approach is to blend at least two WESM
price curves as prepared by market advisors that are reputable in
the relevant markets. By blending two or more forecasts, if there
are any differences in methodology or assumptions, this provides a
hedge against the different market eventualities that the advisors
reflect and minimises the risk of using a single curve which is too
prudent or too optimistic. OEGEN appointed, with the agreement of
the Committee, two new independent forecasters to provide forecast
price curves for WESM. The Committee was satisfied with this
approach and noted that these price curves were materially similar
to the independent forecasts previously received.
-- Discount rates: Discount rate ranges are based on the
applicable cost of equity for the solar market considering data
points from transactional and other valuation benchmarks,
disclosures in broker reports, other public disclosures and broader
market experience of investors in the market. OEGEN compared the
range to its own risk-adjusted discount rate analysis and
determined the appropriate discount rates to apply. The Committee
was satisfied with this approach and was mindful that these rates
were also in the ranges of the independent valuation expert and the
Auditor.
-- Generation profile: Given that there is an observed
historical underperformance of the Company's operational assets
when compared with the level of P50 generation assumed at the time
of acquisition, OEGEN has applied a 'haircut' to the original P50
generation profiles to align the generation profile in the
valuation models to current performance. The Committee was
satisfied with this approach and was mindful that a technical
advisor has been appointed to provide updated P50 yield
assessments. It was agreed amongst OEGEN and the Committee that,
once received, the revised P50 generation profiles would be used in
future valuation periods (without the need for a 'haircut').
-- Cash extraction : Given the current structure of the
investments is not optimal for cash extraction, OEGEN's DCF models
assume a degree of capital restructuring for each investment to
enable cash to be extracted more efficiently. The Committee
reviewed the cash extraction methods and assumptions in the
underlying models and was satisfied with the plans to restructure
each asset to extract cash and the judgements adopted in the timing
on when cash can be received from each investment.
-- SolarArise holding company: Previously the costs, tax and
cash extraction limitations of the holding company were omitted
from the SolarArise valuation. These have now been valued using a
DCF model and included in the total SolarArise valuation. This
approach was discussed with the independent valuation expert, PwC,
and the Committee was satisfied with this.
-- Fair value of the RUMS project: As at 31 December 2022, the
DCF valuation of proceeding with the RUMS project was a negative
NPV of US$33.3 million (predominantly due to significantly higher
assumed module prices than those previously assumed as well as the
higher than budgeted interest rate as per the facility agreement
with Tata Cleantech Capital Limited signed on 2 November 2022)
whereas the expected liabilities from aborting the project were
between US$14.1 million (assuming 100% success of a mitigation
strategy) and US$33.2 million. Therefore, as at 31 December 2022,
the valuation of SolarArise assumes that the RUMS project would be
aborted, and any costs paid into the project would be written off
to US$nil. As a significant judgement was required on the likely
value of the crystalised abort liabilities as at 31 December 2022,
it has been assumed that a market participant would look at the
SolarArise platform in its entirety and consider the potential
abort liabilities such that they would write the value of
SolarArise as a whole down to US$nil. This represents total abort
liabilities of US$27.8 million (on a 100% basis). This judgement
was discussed with the independent valuation expert, and the
Company's Auditor and the Committee was satisfied with this. The
Committee also considered advice that the Company had received
detailing that the abort liabilities associated with the RUMS
project were restricted to the level of the SolarArise holding
company and not the Company itself and therefore the value of
SolarArise to the Company could not be negative. As disclosed in
note 22 to the Financial Statements, post period end a decision was
taken to proceed with the RUMS project in light of a substantial
fall in panel prices and improvement in certain macro -- economic
factors.
PwC was engaged as the independent valuation expert to provide a
private independent opinion on the reasonableness of the 31
December 2022 valuations of SolarArise and NISPI prepared by the
Transitional Investment Manager.
In its assessment of the material judgements and key sources of
estimation uncertainty in the valuations, the Committee also
considered the views of the Company's independent valuation expert,
PwC, and the work and conclusions of Deloitte LLP as external
auditor. The Committee was satisfied with the basis of assumptions
and valuation approach adopted by the Transitional Investment
Manager and recommended to the Board that the final valuations as
at 31 December 2022 were within a reasonable range and should be
approved.
Onerous contract provision
As at 31 December 2022, the Company owned 43% of SolarArise
which has been valued at US$nil as set out above. However, given
that it had also made a commitment at the balance sheet date to
purchase the remaining 57%, an onerous contract provision of
US$38.5 million has also been recognised. The onerous contract
provision has been valued based on the difference between the
agreed acquisition price of US$38.5 million and the value of the
57% interest using the fair value ascribed to the 43% investment of
US$nil. The Committee considered the papers prepared by the
Transitional Investment Manager on the valuation and recording of
the onerous contract provision and the work of Deloitte LLP, the
independent Auditor.
Going concern and viability statement
The Committee reviewed the Company's financial resources and
concluded that the continued use of the going concern basis was
appropriate but, given the strategic review and the options
available to shareholders, including the potential for shareholders
to vote for a managed wind up, that a material uncertainty existed
in respect of going concern. The Committee considered the going
concern papers prepared by the Transitional Investment Manager, the
disclosures presented and the work of the Auditor, Deloitte LLP,
and concluded that adopting the going concern basis of accounting,
but with a material uncertainty, was appropriate. The Committee
also considered and reviewed the Company's viability statement and
considered the period of two years and why it is an appropriate
period to use. The full going concern disclosure and viability
statement are included in the Directors' Report.
Other key activities during, and in respect of, the financial
period ended, 31 December 2022
Financial reports and NAV announcement
The Committee reviewed the Company's accounting policies and
critical estimates and judgements. In addition, the Committee
considered the format and content of the Interim Reports for the
periods ended 31 March 2022 and 30 June 2022 and the announcement
of the NAV and trading update as at 30 September 2022 before
recommending their approval to the Board.
The Committee also received and discussed with the Auditor its
report on the results of its interim review of the Interim Report
for period ended 31 March 2022 and status updates and its initial
report and results for the financial period ended 31 December
2022.
Fair, balanced and understandable
The Committee has concluded that the Annual Report, taken as a
whole, is fair, balanced and understandable and provides the
necessary information for shareholders to assess the Company's
financial position, performance, business model and strategy. The
Committee has reported its conclusions to the Board of Directors.
The Committee reached this conclusion through a process of review
of this Annual Report and enquiries of the various parties involved
in the production of the Annual Report and ensuring that there is
sufficient balance of the events of the past eight months following
the suspension of trading in the Company's shares.
Risk management and internal controls
The Committee oversaw the establishment of the Company's risk
management and internal controls framework. The Committee continued
to monitor the effectiveness of the framework during the financial
period, making refinements as required. Improvements made to the
control environment following the crystalised risks in, and
following, the period are detailed in the Risk and Risk Management
section. The Committee will continue to assess how improvements can
continue to be made to the Company's overall control
environment.
Under the AIC Code, the Board is required to establish
procedures to manage risk, oversee the internal control framework
and determine the nature and extent of the principal risks the
Company is willing to take in order to achieve its long-term
strategic objectives. A principal role of the Committee is to
assist the Board in this regard. Details of the Company's risk
management and internal control framework are set out in the Risk
and Risk Management section. The Company's principal and emerging
risks, together with details of how the Board seeks to manage and
mitigate them, are also set out in that section.
The Board relies on the accuracy and transparency of the
information provided by its key third--party service providers in
order to make its decisions, in particular the experience and
knowledge of the Investment Manager in making decisions surrounding
valuations and investments.
The Committee has taken steps to make improvements to the
Company's overall control environment. The appointment of the
Transitional Investment Manager, the redesign of the Company's
valuation process to include a private independent opinion on the
reasonableness of the valuations prepared by the Transitional
Investment Manager by PwC as the independent valuation expert, and
the willingness of the Board to seek third-party advice to clarify
outstanding issues such as the potential abort liabilities
associated with the RUMS project are all examples of (and/or
enhancements to) the Company's control framework designed to
mitigate the impact of these risks from re-occurring. The Board is
also working closely with the Transitional Investment Manager to
review the controls surrounding investment acquisitions, which
include improved governance within the underlying investee
companies. The Committee will continue to assess the Company's
control environment and further improvements that can be made,
particularly around the investment valuation process.
Internal audit
The Committee has considered the need for an internal audit
function and considers that this is not appropriate given the
nature and circumstances of the Company as an externally managed
investment company with external service providers. The Board is of
the opinion that the appointment of the Transitional Investment
Manager and the changes made to the risk framework are sufficient
and do not warrant the need for an internal audit function.
However, the Board and the Committee will continue to keep this
under review.
Effectiveness of the audit
To form a view on audit quality and the effectiveness of
Deloitte LLP as Auditor, the Committee reviewed and considered:
-- the Auditor's fulfilment of the agreed audit plan and variations from it;
-- discussions or reports highlighting the major issues that
arose during the course of the audit;
-- feedback from the Transitional Investment Manager evaluating
the performance of the audit team, including the robustness of the
audit, the level of challenge offered by the audit team, the
skills, experience and overall quality of the audit team, the
timeliness of delivering the tasks required for the audit and
reporting to the Committee and the overall quality of the
service;
-- the updated discussions through 2023 and additional reporting
required to close off the audit; and
-- the Committee's own observations and interactions with the Auditor.
The Committee also considered the Auditor's technical
competence, its understanding of the Company's business and whether
it demonstrated an appropriate level of diligence, professional
scepticism and challenge. Following this review, the Committee was
satisfied that Deloitte LLP had carried out its duties in a
diligent and professional manner and provided a high level of
service.
Independence of the Auditor
The Committee is satisfied that there are no issues in respect
of the independence of the Auditor.
The Committee has put a policy in place on the supply of any
non-audit services provided by the Auditor. Such services are
considered on a case-by-case basis and may only be provided to the
Company if such services are compatible with the 'white list' of
permissible services under the Revised Ethical Standards 2019 of
the FRC and that the provision of such services is at a reasonable
and competitive cost and does not constitute a conflict of interest
or potential conflict of interest which would prevent the Auditor
from remaining objective and independent.
Details of fees paid to the Auditor are shown in note 4 to the
Financial Statements. The Committee considered and agreed the audit
fee during the period. Total fees paid for non-audit services were
US$489,000, of which US$282,000 related to the Auditor's role as
reporting accountant for the IPO, US$164,000 related to tax
structuring services delivered prior to the IPO and US$43,000
related to the review of the Interim Report for the period ended 31
March 2022. Non-audit work as a percentage of total fees paid was
52% and, excluding IPO-related services, was 5%. In the opinion of
the Board, none of the non-audit services provided caused any
concern as to the Auditor's independence or objectivity. The
Committee also considered if there were any other factors impacting
the Auditors' independence and objectivity and concluded that there
were none.
Deloitte LLP confirmed that all its partners and staff involved
with the audit were independent of any links to the Company and
that these individuals had complied with Deloitte LLP's ethics and
independence policies and procedures which are fully consistent
with the Financial Reporting Council's Ethical Standards.
Tenure and reappointment of the Auditor
This is the second financial period that Deloitte LLP has
audited the financial statements of the Company. The reappointment
of the Auditor is subject to annual shareholder approval. There are
no contractual obligations restricting the choice of Auditor and
the Company will put the audit services contract out to tender at
least every 10 years. In accordance with professional guidelines,
the statutory auditor will be rotated at least every five years.
The current statutory auditor, Daryl Winstone, has completed his
second year in the role. The Company hastherefore complied with the
Statutory Audit Services Order 2014 for the financial year under
review.
Having satisfied itself as to the effectiveness and independence
of Deloitte LLP as the Company's Auditor, the Committee recommended
to the Board that Deloitte LLP be reappointed as Auditor for the
year ended 31 December 2023. Accordingly, a resolution proposing
the reappointment of Deloitte LLP as the Auditor will be put to
shareholders at the forthcoming Accounts General Meeting.
The Committee will continue to monitor the performance of the
Auditor on an annual basis and will consider its independence and
objectivity, taking account of appropriate guidelines. In addition,
the Committee Chair will continue to maintain regular contact with
the lead audit partner outside the formal Committee meeting
schedule, not only to discuss formal agenda items for upcoming
meetings, but also to review any other significant matters.
Whistleblowing
The Committee reviewed the whistleblowing policy in place for
each of the Investment Manager and the Administrator and was
satisfied the relevant staff could raise concerns, in confidence,
about possible improprieties relating to financial reporting or
other matters that may affect the Company.
On 15 August 2023, the Company announced that new information
had come to light under the protections of the Company's
whistleblowing policy revealing that the Former Investment Manager
was aware of material information relating to the RUMS project by
August 2022. Based on the information provided by the
whistleblowers to the Company, it appears, therefore, that key
information was withheld from the Board, and misleading information
given to it, over a protracted period of time. The investment
management agreement between the AIFM, the Company and the Former
Investment Manager was subsequently terminated with effect from 31
October 2023. From 1 November 2023, Octopus Energy Generation were
appointed as a transitional Investment Manager to cover the period
through to 30 April 2024.
Approval
This Audit and Risk Committee Report was approved by the Audit
and Risk Committee and signed on its behalf by:
Clifford Tompsett
Audit and Risk Committee Chair
22 January 2024
ESG Committee Report
I present the ESG Committee Report for the financial period
ended 31 December 2022.
Committee's principal responsibilities
Reviewing reports from, and overseeing AEIT's ESG and impact
activities undertaken by the Investment Manager, including:
-- development, maintenance, and implementation of AEIT's ESG and impact strategy and KPIs;
-- reviewing external insights which will inform the ESG and impact strategy;
-- monitoring performance in relation to ESG matters, impact objectives, and KPIs;
-- effective management and governance of ESG and impact matters
(including policies, procedures, processes, resourcing and
management) by the Investment Manager;
-- supporting compliance with relevant legal and regulatory
requirements, industry standards and guidelines relating to ESG and
impact matters; and
-- ESG and impact reporting and disclosures.
-- reporting to the Board on how the Committee has discharged its responsibilities and making recommendations as appropriate.
The Committee consists of all the Directors and is chaired by
Kirstine Damkjaer.
The Committee's authority and duties are clearly defined within
its written terms of reference which are available on the Company's
website. The terms of reference are reviewed at least annually.
During the financial period under review, the Committee met
three times, including two scheduled meetings.
Principal activities during the financial period
KPIs and reporting
In conjunction with the Former Investment Manager, the Committee
set the Company's initial KPIs. The Committee oversaw the reporting
on ESG matters in the Company's Interim Reports for the period
ended 31 March 2022 and 30 June 2022. For this Annual Report, the
Transitional Investment Manager has reviewed the KPI data
previously prepared by the Former Investment Manager and updated it
for the Committee to review.
Impact and ESG Action Plan 2022
The Committee reviewed the Impact and ESG Action Plan 2022
prepared by the Former Investment Manager and assessed the Former
Investment Manager's internal resources, with a particular focus on
the key priorities, allocation of responsibilities between the
Company and the Former Investment Manager and the resources
available to the Former Investment Manager to implement the plan.
Subsequently the Former Investment Manager undertook a review to
refresh and further refine its internal processes, including to
respond to new regulatory developments such as those reflected in
the regulatory technical standards of the EU Sustainable Finance
Disclosure Regulation ("SFDR"), as well as global industry good
practices, with support from an external independent
globally-renowned sustainability consultancy.
Article 9 classification
The Committee oversaw the process that enabled the Company to
disclose, in November 2022, that it classifies under Article 9 of
the EU SFDR as a financial product that has sustainable investment
as its objective.
Committee evaluation
An evaluation of the Committee formed part of the annual Board
evaluation process completed in December 2022. It was concluded
that the Committee, as a whole, had the appropriate skills,
knowledge and experience to carry out its responsibilities.
Approval
This Report is approved on behalf of the ESG Committee by:
Kirstine Damkjaer
ESG Committee Chair
22 January 2024
Management Engagement Committee Report
I present the Management Engagement Committee Report for the
financial period ended 31 December 2022.
Committee's principal responsibilities
-- Evaluating the performance and appropriateness of the
continuing appointment of the Investment Manager.
-- Reviewing the level and method of the Investment Manager's remuneration.
-- Reviewing the terms of the Investment Management Agreement,
including considering whether they remain appropriate, are fair,
comply with all regulatory requirements and conform with market and
industry practice.
-- Considering the merit of obtaining an independent appraisal
of the Investment Manager's services.
-- Evaluating the performance of the AIFM, Administrator and
other key service providers (except for the Auditor) and
considering whether their fees are reasonable and competitive.
-- Assessing whether the culture, policies and practices of the
Investment Manager, Administrator and other key service providers
are consistent with good risk management, compliance and regulatory
frameworks.
-- Reporting to the Board on how the Committee has discharged its responsibilities and making recommendations as appropriate.
The Committee consists of all the Directors and is currently
chaired by Mukesh Rajani.
The Committee's authority and duties are clearly defined within
its written terms of reference which are available on the Company's
website. The terms of reference are reviewed at least annually.
The Committee has one scheduled meeting each year and meets at
such other times as may be required. It met once during the
financial period ended 31 December 2022.
The activities of the Committee are complemented by the Board's
and its Committees' ongoing oversight of, and engagement with, the
Investment Manager, Administrator and other key service
providers.
Principal activities during the financial period
Annual evaluation of the Investment Manager
The Investment Manager during the period under review was
ThomasLloyd Global Asset Management (Americas) LLC (the Former
Investment Manager).
The Committee met in December 2022 for the purpose of the formal
annual evaluation of the Former Investment Manager's performance
and to review the terms of the Investment Management and
Distribution Agreement (the "IMA"), including the fee and notice
provisions. The Committee reviewed a detailed questionnaire
completed by the Former Investment Manager, which included sections
on the Former Investment Manager's systems, controls and policies.
In addition, the Committee reviewed the results of an in-depth
questionnaire completed by the Directors evaluating the performance
of the Former Investment Manager. The feedback from the
questionnaires completed in connection with the annual Board
evaluation, to the extent relevant to the evaluation of the
Investment Manager, was also considered. Areas of focus of the
Committee's review included:
-- execution of the investment strategy, including pace of
deployment of capital, and investment results achieved to date;
-- the quality, experience and continuity of the Former
Investment Manager's team involved in managing all aspects of the
Company's business, considering, in particular, the Investment
Manager's plans for additional senior recruitments;
-- the Former Investment Manager's engagement with the Board and
other key stakeholders, including investors;
-- the Former Investment Manager's investor relations and
marketing activities on behalf of AEIT;
-- the Investment Manager's compliance with contractual
arrangements and duties, including compliance with AEIT's
investment policy;
-- the level and method of the Former Investment Manager's
remuneration (details of which are included in note 19 to the
Financial Statements) and the period of notice required to
terminate the Former Investment Manager's appointment, having
regard to those of comparable listed investment companies; and
-- the Former Investment Manager's culture and strategy and goals for developing its business.
The Committee noted that the information flow and reporting to
the Board and its Committees needed significant enhancement in
quality, transparency and timeliness and that the Chair and
Committee Chairs would continue to collaborate with the Former
Investment Manager to achieve this.
The Committee also noted that the pace of deployment of capital
was slower than expected at the time of the IPO. The Committee had
concerns about the level of strength and depth of the Former
Investment Manager's teams responsible for the Company but was
encouraged by the additional resources being added to strengthen
its investment team. This was expected to improve the overall
performance of the Former Investment Manager and, in particular,
improve the pace of capital deployment and build further its
in-house asset management capabilities, facilitating optimisation
of the performance of the Company's operating assets.
The Committee identified the top priorities for improving the
performance of the Former Investment Manager during 2023, including
improving the robustness of the Former Investment Manager's
internal processes, significantly enhancing the quality,
transparency and timeliness of management and other information and
continuing to add strength in depth to the teams responsible for
the Company.
Having completed the review, feedback was given to the Former
Investment Manager, including areas requiring significant
improvement.
Based on its review, the Committee was generally satisfied with
the performance of, and services provided by, the Former Investment
Manager subject to the Former Investment Manager demonstrating
positive progress with regard to the areas requiring significant
improvement.
However, following the events that led to the delay in the 2022
audit and specifically the issues surrounding the investment
portfolio valuations (discussed further in the Audit and Risk
Committee Report) and information the Board received in August 2023
revealing that the Former Investment Manager had withheld key
information from the Board, the Board served notice on ThomasLloyd
Global Asset Management (Americas) LLC to terminate the IMA, with
effect from 31 October 2023. Following a competitive tender
process, Octopus Energy Generation was appointed as the
transitional Investment Manager to cover the period from 1 November
2023 to 30 April 2024.
Annual evaluation of other key service providers
At its meeting in December 2022, the Committee also undertook
the formal annual evaluation of the Administrator's and other key
service providers' performance and reviewed their respective
remuneration. The Committee reviewed a detailed questionnaire
completed by the other key service providers, which included
sections on their systems, controls and policies. In most
instances, relationships with the other key service providers are
managed by the Investment Manager and/ or the Administrator on
behalf of the Board and the Committee considered feedback received
from the Former Investment Manager and the Administrator regarding
the levels of service provided by, and relationships with, the
other key service providers. There were no material issues to
report as a result of the evaluation.
The Committee was satisfied with the levels of service provided
by the Administrator and other key service providers and that the
fees were fair and competitive. The Committee concluded that, in
its opinion, the continuing appointments of the Administrator and
other key service providers on the terms agreed remained
appropriate and in the interests of the Company and recommended
this to the Board. The Board agreed with the Committee's
recommendations and approved the continuing appointments of the
other key service providers on the terms agreed.
Committee evaluation
An evaluation of the Committee formed part of the annual Board
evaluation process completed in December 2022. It was concluded
that the Committee members had the appropriate skills and
experience to assess the performance and terms of engagement of the
Investment Manager, Administrator and other key service
providers.
Approval
This Report is approved on behalf of the Management Engagement
Committee by:
Mukesh Rajani
Management Engagement Committee Chair
22 January 2024
Nomination Committee Report
I present the Nomination Committee Report for the financial
period ended 31 December 2022.
Committee's principal responsibilities
-- Developing and reviewing periodically policies on diversity and Board tenure.
-- Reviewing the structure, size and composition of the Board and its Committees.
-- Undertaking an annual performance evaluation of the Board,
its Committees, the Chair and each of the other Directors.
-- Reviewing the time required from the Directors and their outside commitments.
-- Ensuring plans are in place for orderly succession to the Board.
-- Identifying, evaluating and recommending candidates for new Board appointments.
-- Reporting to the Board on how the Committee has discharged its responsibilities and making recommendations as appropriate.
The Committee consists of all the Directors and is chaired by
Sue Inglis. The Board considers that given the size of the Board
and that all members are non-executive it is appropriate that all
Directors sit on this Committee. Individual Directors are not
involved in decisions connected with their own appointments.
The Committee's authority and duties are clearly defined within
its written terms of reference which are available on the Company's
website. The terms of reference are reviewed at least annually.
The Committee has one scheduled meeting each year, with
additional meetings as required. The Committee met once during the
year, in December 2022.
Principal activities during the financial period
Annual evaluation of the Board, Committees and Directors
The Committee ensures that there is a formal and rigorous annual
evaluation of the performance of the Board, its Committees, the
Chair and each of the other Directors.
For the 2022 evaluation, the Committee opted to undertake an
internal performance evaluation process, assisted by the
Administrator. This involved the Directors completing in-depth
questionnaires prepared by the Administrator. The questionnaires
included a comprehensive assessment of various areas,
including:
-- overall strategy of the Company;
-- oversight of investment and operating activities;
-- risk management;
-- shareholder accountability;
-- support and relationship with key stakeholders;
-- Board and Committee compositions, processes and effectiveness;
-- corporate governance and regulatory compliance;
-- Board skills, knowledge, experience and diversity;
-- each Director's independence, commitment and contribution; and
-- performance of the Chair.
The feedback from the completed questionnaires was collated by
the Administrator and then considered by the Committee. The
Committee also sought the views of the Former Investment Manager as
part of the evaluation process. The performance evaluation of the
Board Chair was led by the Senior Independent Director.
Following a robust review, the Committee concluded that:
-- each Director continued to be independent of the Former
Investment Manager and no circumstances had been identified that
were likely to, or could appear to, impair their independent
judgement;
-- the skills, knowledge and experience of each Director were a
significant benefit to the Board;
-- each Director had demonstrated their ability to commit the time required to discharge their responsibilities fully and effectively;
-- the Directors (individually and collectively) had been operating effectively;
-- as all Directors had been in office for less than two years,
there were no issues with respect to long tenure;
-- the Board and each of its Committees had a good balance of
relevant skills, knowledge, experience and diversity and their
structures, sizes and compositions were appropriate at this stage
in the Company's life and, accordingly, no changes were expected to
be required for at least the next 12 months;
-- the Committees continued to support the Board in fulfilling its duties;
-- the reporting and information flow from the Former Investment
Manager to the Directors required significant improvement to
enhance the effectiveness of the Board and its Committees and it
was noted that the Chair and Committee Chairs would continue to
collaborate with the Investment Manager to achieve this;
-- to develop the understanding of ESG matters of the Board as a
whole, the Chair of the ESG Committee, in conjunction with the
Investment Manager, should develop an ESG education programme for
the Directors; and
-- the proposed election of each Director at the 2023 AGM should be recommended by the Board.
The Committee made recommendations to the Board based on the
outcome of its deliberations.
Diversity and Board tenure policies
The Committee reviewed the policies on diversity and Board
tenure and recommended them to the Board for approval (see 'Board
diversity' and 'Board tenure' respectively for details of these
policies, as approved by the Board).
Succession planning
The Committee considered succession planning and, in particular,
whether a detailed succession plan was required. It concluded that,
as the Company is in an early stage of its life and all Directors
have served less than two years, a detailed succession plan is not
required at this time.
The tenure of all Directors, including the Chair, is expected
not to exceed nine years unless exceptional circumstances warrant,
such as to allow for phased retirements of the current Directors,
all of whom were appointed at the time of the IPO. The Committee
intends, in due course, to develop a detailed succession plan that
seeks to achieve an appropriate balance between preservation of
knowledge and experience and bringing in fresh ideas and
perspectives. Accordingly, the Committee expects that the detailed
succession plan will:
-- preserve continuity by phasing the retirement of the original
Directors so that they do not all retire at once after serving nine
years; and
-- take into account the current and future opportunities and
challenges facing the Company and the skills, knowledge, experience
and diversity needed on the Board in the future.
The Committee will consider succession planning, including the
need for a detailed succession plan, at least annually.
Committee evaluation
As noted earlier in this Report, an evaluation of the Committee
formed part of the annual performance evaluation process. The
conclusion from the process was that the Committee was operating
effectively with the right balance of membership and skills.
Evaluation of the Board post temporary share suspension
At its scheduled meeting held in November 2023, the Committee
reviewed the performance the Board since its last scheduled meeting
and also revisited the performance of the Board over the preceding
period from IPO.
It was noted that the Board had endeavoured to use its
collective skills, knowledge and experience to work collaboratively
with the Former Investment Manager from the outset, taking into
account the Former Investment Manager's lack of previous experience
of managing a London-listed investment company. The Committee
agreed that members of the Former Investment Manager's senior
management team had seemed to struggle with the Board's oversight
and requests for information. Having considered the interaction
between the Board and Former Investment Manager during 2022, the
Committee concluded that the collaborative approach adopted by the
Board had not adversely affected the Board's ability to request
information from and challenge the Former Investment Manager and,
in particular, that the Board had been asking the correct questions
on material matters. However, the Committee noted that, as the
Directors are all non-executive, the Board is heavily dependent on
receiving accurate, transparent and timely information (Including
in response to the Board's requests for information) from the
Company's key service providers and, in particular, the Investment
Manager. It was also noted that the Chair and Audit and Risk
Committee Chair had met with the Chief Executive Office and Chief
Financial Officer of the Former Investment Manager at its head
office in December 2022 to address what, at that time, appeared to
be 'teething issues' in providing the information required by the
Board and to agree a 'reset' on how the Former Investment Manager
would work with the Board going forward, to ensure the Board was
receiving accurate and transparent information in a timely manner,
which the Former Investment Manager had supported. Finally, it was
noted that the Board only became aware, when it received
information under the protections of the Company's whistleblowing
policy in August 2023, that key information was withheld from the
Board, and misleading information given to it, over a protracted
period of time (and as early as August 2022), which related to
matters in respect of which the Board had repeatedly made enquiries
of the Investment Manager.
The Committee noted that the key events following the temporary
share suspension and the subsequent breakdown in relationship with
the senior management team of the Former Investment Manager had
required the Board to take a more day-to-day hands-on approach in
order to find a resolution and act in the best interests of
shareholders. This has required each of the Directors to call upon
their wide-ranging skills, knowledge and experience to, in
particular (and with the assistance of external advisers reporting
directly to the Board), investigate in detail the Company's
underlying investments and their respective valuations and the
Company's consequential financial position, develop a strategy to
enable the temporary share suspension to be lifted, undertake a
strategic review of the options and communicate with shareholders
and other stakeholders in a detailed, transparent and timely
manner.
After a robust discussion, the Committee concluded that, whilst,
with the benefit of hindsight, there were some matters that the
Board could have handled differently, those were not material and
would not have led to a different outcome or avoided the temporary
share suspension. Furthermore, the Committee agreed that the
Company had benefited from the skills, knowledge and experience of
each Director throughout. The Committee also agreed, and
recommended to the Board, that the composition of the Board should
be reviewed once the outcome of the strategic review of the options
for the Company's to ensure that, in particular, the Board has the
necessary skills, knowledge and experience to implement the outcome
of the strategic review.
Approval
This Report is approved on behalf of the Nomination Committee
by:
Sue Inglis
Nomination Committee Chair
22 January 2024
Directors' Remuneration Report
The Board presents the Directors' Remuneration Report for the
financial period ended 31 December 2022, which has been prepared in
accordance with the requirements of the Companies Act 2006 and the
Large and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008. By law, the Company's Auditor is required to
audit certain of the disclosures provided in this Report. Where
disclosures have been audited, they are indicated as such. The
Auditor's opinion is given in the Independent Auditor's Report.
Remuneration committee
Committee's principal responsibilities
-- Determining the Directors' remuneration policy and reviewing
its ongoing appropriateness and relevance.
-- Setting the Directors' remuneration, including any ad hoc
payments to Directors in relation to duties undertaken over and
above normal business.
-- Reporting to the Board on how the Committee has discharged its responsibilities and making recommendations as appropriate.
The Committee consists of all the Directors and is chaired by
Mukesh Rajani. The Board considers that given the size of the Board
and that all members are non-executive it is appropriate that all
Directors sit on this Committee. The Chair of the Board is eligible
to serve on the Committee as, on appointment, she was (and remains)
independent. Individual Directors are not involved in decisions
connected with their own remuneration.
The Committee's authority and duties are clearly defined within
its written terms of reference, which are available on the
Company's website. The terms of reference are reviewed by the
Committee at least annually.
The Committee has one scheduled meeting each year, and meets at
such other times as the Committee Chair shall require. The
Committee met once during the year, in December 2022
Directors' remuneration policy
It is the Company's policy that the level of Directors'
remuneration should be sufficient to attract and retain Directors
with the skills, knowledge and experience necessary for the
effective stewardship of the Company and reflect the expected
contribution of the Board, as a whole, to the long-term sustainable
success of the Company. In addition, the Directors' remuneration
should be fair and reasonable in relation to the remuneration of
directors of comparable listed investment companies of similar size
and complexity as the Company. The duties and responsibilities of,
and time expected to be spent on the Company's business by,
individual Directors should also be taken into account.
Director's fees are determined within the limit set out in the
Company's Articles of Association. Within that limit, it is the
responsibility of the Board as a whole to determine and approve the
Directors' remuneration, following a recommendation from the
Remuneration Committee.
There are no performance conditions attaching to the Directors'
remuneration as the Board does not consider such arrangements
necessary or appropriate for non-executive Directors. Accordingly,
the Directors' remuneration is wholly in the form of fixed annual
fees, which are payable in cash quarterly in arrears. Annual fees
are pro-rated where a change takes place during a financial year.
The Directors' fee rates are reviewed by the Remuneration Committee
at least annually, but reviews will not necessarily result in a
change to the rates.
As permitted by the Company's Articles, Directors may be paid
additional ad hoc fees where they undertake any special or material
additional duties or services outside their ordinary duties as a
Director which require a meaningful time commitment (details of any
additional fees paid and the associated work undertaken will be
disclosed in the Directors' Remuneration Report in the next Annual
Report).
The Directors are entitled to the reimbursement of reasonable
fees and expenses incurred by them in the performance of their
duties. Where expenses are recognised as a taxable benefit, a
Director may receive the grossed-up costs of that expense as a
benefit.
Directors have no entitlement to pensions or pension-related
benefits, medical or life insurance schemes, share options or
long-term incentive schemes.
The Directors do not have a service contract. Each Director has
signed a letter of appointment with the Company. The letters of
appointment provide for a minimum period of one month's notice of
termination by either party. On termination, a Director shall only
be entitled to accrued fees as at the date of termination together
with reimbursement of any expenses properly incurred to that
date.
The Board is committed to ongoing investor engagement and any
feedback received from investors will be taken into account when
reviewing the Directors' remuneration policy and Directors'
fees.
Subject to this policy being approved by shareholders at the
Accounts General Meeting, it is intended that the policy will
continue in force until the 2026 AGM.
Annual report on Directors' remuneration (audited
information)
For the financial period ended 31 December 2022, the Directors'
fees were GBP40,000 per annum for each Director with an additional
GBP10,000 per annum for being the Chair of the Board or a Board
Committee. Following the Remuneration Committee's annual review of
Directors' remuneration, for the financial year ended 31 December
2023, the Director's remuneration has been set at GBP50,000 per
annum, with the remuneration for the Chair of the Board set at
GBP65,000 per annum and for the Chair of the Audit and Risk
Committee at GBP55,000 per annum.
The following table shows, in respect of each Director, all
remuneration earned during the financial period ended 31 December
2022 and the remuneration that was set for the year ending 31
December 2023. Directors' fees are paid in sterling, as presented
below, and, for the purpose of the Financial Statements converted
into US Dollars at the exchange rate applicable at the time of
payment.
2022 2022 2022 2023
Benefits Total
Director Role Fee (GBP)(49) (GBP)(50) (GBP)(49) Fee (GBP)
------------------ ---------------------------------------- ------------- ---------- ---------- ---------
Sue Inglis Chair, Nomination Committee Chair 52,692 - 52,692 65,000
Kirstine Damkjaer ESG Committee Chair 52,692 2,163 54,855 50,000
Senior Independent Director, Management
Engagement Chair, Remuneration
Mukesh Rajani Committee Chair 52,692 - 52,692 50,000
Clifford Tompsett Audit and Risk Committee Chair 52,692 - 52,692 55,000
------------------ ---------------------------------------- ------------- ---------- ---------- ---------
Total 210,768 2,163 212,931 220,000
------------------------------------------------------------ ------------- ---------- ---------- ---------
None of the Directors received any additional ad hoc fees during
the financial period ended 31 December 2022.
(49) The 2022 financial period commended on 1 November 2021 and
ended on 31 December 2022. The Directors were appointed on 18
October 2021 but were only entitled to fees from 14 December 2021,
when the Company's IPO completed.
(50) Reimbursement of travelling and accommodation expenses to
attend Board meetings.
Directors' liability insurance and indemnification
The Company maintains appropriate directors' and officers'
liability insurance in respect of legal action against the
Directors on an ongoing basis.
In addition, as permitted by the Company's Articles of
Association, the Company has indemnified each Director in respect
of costs which they may incur relating to the defence of any
proceedings brought or threatened against them arising out their
position as a Director but subject to applicable law and other
exclusions and limitations, including the indemnity not applying if
they are convicted or a court judgement is given against.
Company performance
The following chart shows the Company's shareholder return (with
reference to its share price, including dividends reinvested) and,
for comparison purposes, the total return of the FTSE All-Share
Index (in US Dollar terms, including dividends reinvested), with
both rebased to 100 at 14 December 2021 (the date the Company's IPO
completed). As the Company does not have a specific benchmark
index, the Remuneration Committee has deemed the FTSE All-Share
Index (in US Dollar terms) to be the most appropriate comparator
for the Company's performance for the purpose of this Annual Report
as it is a publicly available broad equity index which focuses on
smaller companies and is, therefore, more relevant than most other
publicly available indices. The choice of the FTSE All-Share Index
is also in line with our peer group.
Company's performance since IPO
While the above graph can be a helpful benchmark, as well as its
performance return target, the Company also has a number of impact
targets which it holds in equal regard. Both performance and impact
targets are considered when setting Directors' remuneration.
Relative importance of spend on pay
In order to show the relative importance of spend on pay, the
table below sets out the aggregate Directors' remuneration paid
during the financial period ended 31 December 2022 compared with
the distributions to shareholders by way of dividends during that
financial period. During the financial period under review, no
ordinary shares were bought back by the Company and there were no
other distributions, payments or other uses of the Company's net
return or cash flow deemed to assist in the understanding of the
relevant importance of spend on pay.
2022
US$'000
------------------------------ -------
Total Directors' remuneration 256
Dividends paid 1,901
------------------------------ -------
Directors' interests in shares (audited information)
There are no requirements for the Directors to own shares in the
Company.
The interests of the Directors in the Company's ordinary shares
at 31 December 2022, all of which are beneficial, are shown in the
table below. There have been no changes to the Directors' interests
between 31 December 2022 and the date of this Report.
31 December
2022
Director No. of shares
------------------ -------------
Sue Inglis 65,000
Kirstine Damkjaer -
Mukesh Rajani 33,000
Clifford Tompsett 33,000
------------------ -------------
Shareholder resolutions
The Directors' Remuneration Report is put to an advisory
shareholder vote on an annual basis.
The Directors' remuneration policy is subject to shareholder
approval every three years (or sooner if a material alteration to
the policy is proposed).
Ordinarily, such resolutions would be put to shareholders at the
AGM. However, as the Company was required to hold its 2023 AGM
before this Annual Report was available, ordinary resolutions will
be put to shareholders at the forthcoming Accounts General Meeting
to approve the Directors' Remuneration Report and the Directors'
remuneration policy. As the Directors' remuneration policy has not
been approved previously by shareholders, it is subject to the
relevant resolution being passed at the Accounts General Meeting
and, if approved, will become effective on the passing of the
resolution.
Remuneration Committee's principal activities during the
financial period
Review of Directors' remuneration policy
The Committee reviewed the Directors' remuneration policy and
recommended it to the Board for approval by shareholders, which
will be sought at the Accounts General Meeting.
Review of Directors' remuneration
The Committee reviewed the level at which the Directors' fees
should be set for the year ended 31 December 2023. Having been
provided with a detailed schedule of directors' fees paid by
comparable listed investment companies, which had been prepared by
the Administrator, the Committee agreed that it was not necessary
to obtain advice from an independent remuneration consultant.
Subsequent to the period end, the Committee concluded that, for
the year ended 31 December 2023, the standard Director's
remuneration should be set at GBP50,000 per annum. In recognition
of their role, responsibilities and additional time commitments,
the remuneration for the Chair of the Board was set at GBP65,000
per annum and for the Chair of the Audit and Risk Committee, set at
GBP55,000 per annum.
Committee evaluation
An evaluation of the Committee was undertaken as part of the
overall Board evaluation completed in December 2022. The evaluation
concluded that there was a good balance of skills amongst the
members of the Committee, enabling the Committee to operate
effectively.
Approval
This Directors' Remuneration Report was approved by the Board
and signed on its behalf by:
Mukesh Rajani
Remuneration Committee Chair
22 January 2024
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report,
including the Financial Statements, in accordance with applicable
law and regulations, including the FCA's Listing Rules and
Disclosure Guidance and Transparency Rules.
UK company law requires the Directors to prepare Financial
Statements for each financial year. Under UK company law:
-- the Directors are required to prepare Financial Statements in
accordance with UK-adopted international accounting standards
("IFRS"); 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 of
the Company for that period.
In preparing the Financial Statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- state whether applicable IFRS have been followed, subject to
any material departures disclosed and explained in the Financial
Statements;
-- make judgements and accounting estimates that are reasonable and prudent; and
-- prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping 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 Companies Act 2006. They
are also responsible for safeguarding the assets of the Company
and, hence, for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for ensuring that the Annual
Report, including the 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,
including 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 Directors. The Directors' responsibility also
extends to the ongoing integrity of the Financial Statements
contained therein.
Responsibility statement
Each of the Directors confirms that, to the best of their
knowledge:
-- the Financial Statements, which have been prepared in
accordance with IFRS, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the
Company;
-- the Strategic 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; and
-- the Annual Report, including the Financial Statements, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company's
position and performance, business model and strategy.
This responsibility statement was approved by the Board and is
signed on its behalf by:
Sue Inglis
Chair
22 January 2024
Independent Auditor's Report to the Members of Asian Energy
Impact Trust Plc
Report on the audit of the financial statements
1. Opinion
In our opinion the financial statements of Asian Energy Impact
Trust plc (the "Company"):
-- give a true and fair view of the state of the Company's
affairs as at 31 December 2022 and of its loss for the period then
ended;
-- have been properly prepared in accordance with United Kingdom
adopted international accounting standards; and
-- have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
-- the statement of comprehensive income;
-- the statement of financial position;
-- the statement of changes in equity;
-- the statement of cash flows; and
-- the related notes 1 to 22.
The financial reporting framework that has been applied in their
preparation is applicable law and United Kingdom adopted
international accounting standards.
2. Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
auditor's responsibilities for the audit of the financial
statements section of our report.
We are independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the Financial Reporting Council's
(the "FRC's") Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. The non-audit services
provided to the Company for the year are disclosed in note 4 to the
financial statements. We confirm that we have not provided any
non-audit services prohibited by the FRC's Ethical Standard to the
Company.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
3. Material uncertainty related to going concern
We draw your attention to note 2 in the financial statements,
which indicates that the outcome of the strategic review is outside
the control of the Board and is therefore uncertain and will be
solely down to a vote of the shareholders who may vote for a
managed wind up of the Company.
As stated in note 2, these events or conditions along with the
other matters set out in note 2, indicate that a material
uncertainty exists that may cast significant doubt on the Company's
ability to continue as a going concern. Our opinion is not modified
in respect of this matter.
In auditing the financial statements, we have concluded that the
Directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the Directors' assessment of the Company's
ability to continue to adopt the going concern basis of accounting
included the following procedures:
-- We obtained an understanding of the relevant controls that
the Company has established regarding the drafting, review and
approval of the going concern model and going concern
assessment;
-- We challenged the Directors on the assumptions made in the
cash flow model used to prepare the going concern forecasts. This
includes checking the accuracy of the going concern model;
-- We assessed the risks to the forecasts and whether the
sensitivities run were appropriate to reflect these risks. This
includes performing a sensitivity analysis to consider specific
scenarios, including a reduction in dividend income from
investments and associated cashflows;
-- We reviewed the future commitments of the Company and
assessed the Company's ability to fulfil these commitments;
-- We challenged the appropriateness of the Company's
disclosures within note 2 of the financial statements over the
going concern basis and the material uncertainty arising with
reference to, our knowledge and understanding of the assumptions
taken by the Directors, the options available to shareholders
within the strategic review.
In relation to the reporting on how the Company has applied the
UK Corporate Governance Code, we have nothing material to add or
draw attention to in relation to:
-- the Directors' statement in the financial statements about
whether the Directors considered it appropriate to adopt the going
concern basis of accounting; and
-- the Directors' identification in the financial statements of
the material uncertainty related to the Company's ability to
continue as a going concern over a period of at least twelve months
from the date of approval of the financial statements.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report.
4. Summary of our audit approach
Key audit matters The key audit matters that we identified in the current year
were:
* G oing concern (see material uncertainty related to
going concern section);
* The valuation of the company's 40% investment in
Negros Island Solar Power inc in the Philippines
("NISPI") and the 43% investment in SolarArise
(India), each of which are held at fair value through
profit and loss, including the valuation of
termination penalties relating to the Rewa Ultra
Solar Park ("RUMS") construction asset in SolarArise
and the subsequent impact on valuing the company's
43% investment in SolarArise; and
* The valuation and recoding of the onerous contract
provision for the Company's commitment to acquire a
further 57% in SolarArise.
----------------- -------------------------------------------------------------------------
Materiality Overall materiality was set at US$1.7 million, determined
based on 2% of net assets.
----------------- -------------------------------------------------------------------------
Scoping We perform a full scope audit on the Company's financial statements,
with a particular focus on the fair value of the Company's
40% investment in NISPI in the Philippines and the 43% investment
in SolarArise in India and the recording of the onerous contract
provision.
All audit work is performed by the same audit team.
----------------- -------------------------------------------------------------------------
Significant This is the first year we have audited the Company as a listed
changes in our entity and the first year that the Company has held investments.
approach On 25 April 2023, the Company announced a temporary share
suspension. This was due to the Board identifying a material
uncertainty regarding the fair value of the Company's investment
in SolarArise with a specific focus on the valuation and viability
of a 200 MW construction asset being Rewa Ultra Mega Solar
Park (the "RUMS project") initially acquired as part of the
SolarArise investment. The uncertainty identified related
to the feasibility of completing construction of this asset.
This was principally due to the high cost of solar panels
and the resulting impact on the assets returns and the termination
penalties payable should construction not proceed. Subsequent
to year end, following a decline in the price of solar panels,
the Board decided to proceed with construction of the asset
although those events and conditions did not exist at the
balance sheet date.
In addition, linked to the events summarised above, the Board
decided to terminate the investment management agreement with
the former investment manager and from 1st November 2023,
Octopus Renewables Limited (trading as Octopus Energy Generation)
were appointed as the transitional investment manager. The
Board have also launched a strategic review which will allow
shareholders to vote on the future of the Company which will
either lead to (a) a relaunch of the Company with a new investment
objective, investment policy and target returns; or (b) a
managed wind-down.
The above matter(s) have increased the risk associated with
the audit. In response to these risks, we updated our risk
assessment and audit planning and:
* Identified additional key audit matters in respect of
(1) The valuation of termination penalties relating
to the RUMS construction asset in SolarArise and the
subsequent impact on valuing the Company's 43%
investment in SolarArise (2) The recording and
valuation of the onerous contract provision for the
Company's commitment to acquire a further 57% in
SolarArise; and (3) a material uncertainty relating
to going concern; and
* Reduced performance materiality from 70% to 50% of
materiality to increase the extent of audit
procedures across key balances.
----------------- -------------------------------------------------------------------------
5. Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
In addition to the matter described in the material uncertainty
related to going concern section, we have determined the matters
described below to be the key audit matters to be communicated in
our report.
5.1. The valuation of the Company's 40% investment in NISPI
(Philippines) and the 43% investment in SolarArise (India), each of
which are held at fair value through profit or loss
Key audit matter The Company's principal activity is to invest in a diversified
description investment portfolio of sustainable energy infrastructure
assets in fast-growing and emerging economies in Asia. As
at 31 December 2022, the company held two investments being
a 40% interest in NISPI and a 43% interest SolarArise.
The Company acquired NISPI for US$28.3 million and SolarArise
for US$32.8 million. At 31 December 2022, the Company had
also agreed to acquire the further 57% interest in SolarArise
for a consideration of US$38.5 million. The acquisition completed
on 13 January 2023.
These investments are measured at fair value through profit
and loss and at 31 December 2022 were valued at US$11.5 million
(NISPI) and US$nil (SolarArise) respectively. The valuation
of US$nil ascribed to SolarArise is principally due to the
termination penalties associated with RUMS construction asset.
The Company engaged an independent valuation firm to review
the valuation of each investment prepared by the transitional
investment manager, Octopus Energy Generation.
As described in the significant accounting policies in note
2 and note 9 (investments at fair value through profit or
loss), the fair value of each investment is determined using
a discounted cash flow methodology, which corresponds to the
income approach under IFRS13 'Fair value measurement'.
The fair value of each investment is based on a number of
significant assumptions, the most critical of which are:
* The forecast power prices adopted in valuing NISPI,
as the asset has not entered into a power purchase
arrangement ("PPA") and consequently sells its output
on the Philippines spot market (the wholesale energy
spot market ("WESM")). SolarArise has fixed price
PPA's and consequently power price risk is limited.
The directors engaged a range of third party
providers to provide power price forecasts to aid
them in their selection of power price forecasts for
NISPI. This assumption is not relevant to SolarArise
as it has fixed price power purchase arrangements.
* The discount rate used in valuing the investment in
both NISPI and SolarArise.
* Th e termination penalties associated with the RUMS
construction asset within SolarArise.
Other key assumptions include forecast energy generation,
the timing of dividends and the availability of distributable
reserves and inflation. The Company's 43% investment in SolarArise
has been valued at US$nil as the potential termination penalties
relating to the RUMS construction asset (at 43% interest)
are higher than the value ascribed to the remaining assets
within SolarArise.
The Company has identified the valuation of investments as
a key source of estimation uncertainty (Fair value estimation
for investments at fair value), with further details provided
in note 2 and note 9 to the financial statements. This includes
the value ascribed to any termination penalties associated
with the RUMS project in SolarArise. Note 9 also provides
disclosure on the sensitivity of the valuation of investments
to a change in the above assumptions. The significant assumptions
adopted in valuing each investment is also referred to within
the Audit and Risk Committee report.
Given the inherent subjectivity in the above assumptions,
and the risk of bias in the assumptions adopted, in particular
the discount rate and forward power prices, we identified
a risk of fraud in the adoption of the discount rate (NISPI
and SolarArise) and forward power prices (NISPI only) and
the valuation of the termination penalties associated with
the RUMS project in SolarArise.
---------------- -------------------------------------------------------------------
How the scope Procedures to address the risk around future power prices
of our audit and the discount rates adopted included:
responded to * obtaining an understanding of relevant controls
the key audit established around the valuation of investments and
matter the selection of key assumptions;
* agreeing the power prices adopted in valuing NISPI to
the external forecasts obtained by the Directors and
Investment Manager (Octopus Energy Generation),
assessing whether the forecasts adopted were within a
reasonable range and whether there was bias in the
forecasts adopted. We also assessed the competence,
capability and objectivity of the providers of those
forecasts;
* with the assistance of our internal valuation
specialist, we calculated an independent discount
rate range for each investment. We assessed whether
the discount rate adopted by the Directors fell
within this range. Where additional risk premia were
added to the discount rate, we assessed whether these
were reasonable taking into account the specific risk
characteristics.
Procedures to address the risk around the termination penalties
in valuing 'RUMS' in SolarArise included:
* Reviewing the legal advice obtained regarding the
termination penalties associated with the RUMS
construction asset in SolarArise. We confirmed the
penalties by reference to the relevant agreements and
assessed the judgements around those termination
penalties in valuing the Company's investment in
SolarArise.
Procedures to address other aspects of the valuation included:
* assessed the competence, capability and objectivity
of the Company's independent valuation expert. We
also met wit h them to understand their scope of work,
the process undertaken (including quality control
procedures) and the overall methodology and
assumptions applied;
* we agreed the generation forecasts to the technical
reports for each asset and assessed the historical
generation levels of each asset;
* we benchmarked the inflation rate adopted to external
forecasts.
* for SolarArise, where there are fixed price PPA's, we
agreed the price per Mwh to those PPA's;
* we recomputed each valuation and tested the
mechanical accuracy of the valuation model; and
* we assessed the appropriateness of the disclosures
made in the financial statements including the key
assumptions, sensitivities applied and challenging
whether these reflect a reasonable possible range.
---------------- -------------------------------------------------------------------
Key observations We considered the valuation ascribed to NISPI of US$11.5 million
to be within an acceptable range.
We considered the value ascribed to SolarArise of US$nil to
be within an acceptable range. This takes into consideration
the range of termination penalties associated with the RUMS
construction asset.
---------------- -------------------------------------------------------------------
5.2. The recording and valuation of the onerous contract
provision for the Company's commitment to acquire a further 57% in
SolarArise
Key audit matter At December 2022, and as set out in the key audit matter in
description section 5.1 above, the value ascribed to the Company's 43%
investment in SolarArise was US$nil.
The Company in 2022 agreed to acquire the remaining 57% of
SolarArise for US$38.5 million. This transaction completed
on 13 January 2023. Given the value ascribed to the 43% stake
(US$nil), the Directors have concluded that an onerous contract
existed at the balance sheet date relating to the agreement
to acquire the remaining 57%. This is because the acquisition
was for an agreed price of $38.5m, but the fair value of the
additional investment is $nil, consistent with the investment
of 43% already owned as noted in section 5.1 above.
Given the size of the provision and its impact on the financial
statements, we have identified this as a key audit matter.
A fraud risk has also been identified in respect of this provision
given the judgements involved in valuing the 57% investment
and therefore the value of the onerous contract provision.
There is also an identified risk around potential fraud around
the recording of this onerous contract provision. Further
details on the onerous contract provision can be found in
Note 13 to the financial statements.
---------------- -------------------------------------------------------------------
How the scope
of our audit * We eva luated the onerous contract provision by
responded to agreeing the consideration to the transaction
the key audit agreements.
matter
* We assessed the fair value ascribed to the 43%
interest (see the separate key audit matter in
section 5.1 above) which was used to compute the
value of the onerous contract provision ascribed to
the 57% commitment.
* We recomputed the value of the onerous contract
provision.
* We assesse d the appropriateness of the disclosures
made in the financial statements.
---------------- -------------------------------------------------------------------
Key observations Based on our work performed, we agree with the recording and
valuation of the onerous contract provision for US$38.5 million.
---------------- -------------------------------------------------------------------
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Materiality US$1.7 million.
For the audit of the income statement, materiality was limited
to US$0.85 million.
--------------------- -------------------------------------------------------------------
Basis for determining 2% of net assets as at 31 December 2022.
materiality We applied a lower materiality of 50% of overall materiality
to specific balances in the income statement.
--------------------- -------------------------------------------------------------------
Rationale for We have considered the users of the financial statements
the benchmark when selecting the appropriate benchmark. The Company's investment
applied objective is to achieve long-term capital appreciation from
its investments. We therefore evaluated the Company's net
assets as the most appropriate benchmark as it is one of
the principal considerations for members of the Company in
assessing financial performance and represents total shareholders'
interest.
Our procedures on the income statement (excluding fair value
and exchange rate movements) were performed to a lower level
of materiality for which we believe misstatements of lesser
amounts than materiality for the financial statements as
a whole could be reasonably expected to influence the users'
assessment of the financial performance of the Company.
--------------------- -------------------------------------------------------------------
6.2. Performance materiality
We set performance materiality at a level lower than materiality
to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial
statements as a whole. Performance materiality was initially set at
70% of materiality but following the events which led to the
suspension of shares (see section 4 above) we decided to reduce
performance materiality to 50% of materiality (i.e., approximately
US$0.85m). In determining performance materiality, we considered
the following factors:
-- the increased inherent risks following the announcement and
impact of the share suspension in April 2023;
-- the complexity of the Company and the risks associated with
the valuation of the Company's two investments and onerous contract
provision; and
-- the quality of the control environment and that were not able to rely on controls.
6.3. Error reporting threshold
We agreed with the Audit and Risk Committee that we would report
to the Committee all audit differences in excess of US$88,000, as
well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds. We also report to the
Audit and Risk Committee on disclosure matters that we identified
when assessing the overall presentation of the financial
statements.
7. An overview of the scope of our audit
7.1. Scoping
Our audit was scoped by obtaining an understanding of the entity
and its environment, including internal control, and assessing the
risks of material misstatement. Audit work to respond to the risks
of material misstatement was performed directly by the audit
engagement team. In September 2022 and November 2023, we visited
the NISPI operations in the Philippines and Solarise operations in
India respectively, visiting the assets or meeting with local
management to further our understanding of the asset and the
dynamics of the local energy market. This visit and the knowledge
gained was factored into our risk assessment and our audit
plan.
7.2. Our consideration of the control environment
We obtained an understanding of the control environment and the
relevant controls to address key aspects of the financial
statements, in particular controls over the valuation of
investments. Following the temporary share suspension announced in
April 2023, the Board appointed a new investment manager (Octopus
Energy Generation) to manage the investment portfolio and to
complete the Annual Report and Accounts. As set out in the Audit
and Risk Committee report and the Risk Management section,
deficiencies were identified by the Board in the overall control
environment including controls around the acquisition of and
valuation of investments and in assessing and valuing the RUMS
construction obligations within SolarArise.
As disclosed within the same sections referenced above, the
Board has taken steps to improve the overall control environment
including (amongst others) appointing a new investment manager,
undertaking a detailed review of the key assumptions in valuing
each of the Company's investments in conjunction with an
independent third-party, taking legal advice in respect of the
position of the RUMS construction asset and enhancing due diligence
on potential acquisitions.
Given the matters noted above we were unable to rely on controls
for the purpose of our audit.
7.3. Our consideration of climate-related risks
Climate change and the transition to a low carbon economy
("climate change") were considered in our audit where they have the
potential to directly or indirectly impact key judgements and
estimates within the financial statements, including the valuation
of investments.
The Directors have disclosed their climate risk considerations
(and opportunities) on pages 42 to 45. This is consistent with our
evaluation of the climate-related risks facing the company. We
assessed these disclosures by performing inquiries with the former
and current investment manager and independent industry research,
and we did not identify any climate related material risks of
misstatement. We also considered whether information included in
the climate related disclosures in the annual report were
materially consistent with our understanding of the business and
the financial statements and our knowledge obtained in the
audit.
8. Other information
The other information comprises the information included in the
annual report, other than the financial statements and our
auditor's report thereon. The directors are responsible for the
other information contained within the annual report.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated
in our report, we do not express any form of assurance conclusion
thereon.
Our responsibility is to read the other information and, in
doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether this
gives rise to a material misstatement in the financial statements
themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we
are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the Statement of Directors'
Responsibilities, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view, and for such internal control as the
Directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
10. Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC's website at:
www.frc.org. uk/auditorsresponsibilities. This description forms
part of our auditor's report.
11. Extent to which the audit was considered capable of
detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below.
11.1. Identifying and assessing potential risks related to
irregularities
In identifying and assessing risks of material misstatement in
respect of irregularities, including fraud and non-compliance with
laws and regulations, we considered the following:
-- the nature of the industry and sector, control environment
and business performance including the design of the company's
remuneration policies, key drivers for directors' remuneration,
bonus levels and performance targets;
-- results of our enquiries of the investment manager (both the
former investment manager and the new investment manager), the
directors and the Audit and Risk committee about their own
identification and assessment of the risks of irregularities,
including those that are specific to the company's sector;
-- any matters we identified having obtained and reviewed the
company's documentation of their policies and procedures relating
to:
o identifying, evaluating and complying with laws and
regulations and whether they were aware of any instances of
non-compliance;
o detecting and responding to the risks of fraud and whether
they have knowledge of any actual, suspected or alleged fraud;
o the internal controls established to mitigate risks of fraud
or non-compliance with laws and regulations;
-- the matters discussed among the audit engagement team and
relevant internal specialists, including tax and valuations
specialists regarding how and where fraud might occur in the
financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities
and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the valuation of
investments held at fair value principally (i) the valuation of the
Company's 40% investment in NISPI and the 43% investment in
SolarArise. This includes the valuation of termination penalties
relating to the RUMs construction asset in SolarArise and the
related impact on valuing the Company's 43% investment in in
SolarArise; and (ii) the valuation and recording of the onerous
contract provision for the Company's commitment to acquire a
further 57% in SolarArise. In common with all audits under ISAs
(UK), we are also required to perform specific procedures to
respond to the risk of management override.
We also obtained an understanding of the legal and regulatory
framework that the company operates in, focusing on provisions of
those laws and regulations that had a direct effect on the
determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this
context included the UK Companies Act, Listing Rules, the
Investment Trust SORP and UK tax legislation, given the Company's
qualification as an investment trust.
In addition, we considered provisions of other laws and
regulations that do not have a direct effect on the financial
statements but compliance with which may be fundamental to the
Company's ability to operate or to avoid a material penalty.
11.2. Audit response to risks identified
As a result of performing the above, we identified (i) the
valuation of the Company's 40% investment in NISPI and the 43%
investment in SolarArise, each of which are held at fair value
including the valuation of termination penalties relating to the
RUMs construction asset in SolarArise and the related impact on
valuing the Company's 43% investment in in SolarArise; and (ii) the
recording and valuation of the onerous contract provision for the
Company's commitment to acquire a further 57% in SolarArise as key
audit matters related to the potential risk of fraud. The key audit
matters section of our report explains the matters in more detail
and also describes the specific procedures we performed in response
to those key audit matters.
In addition to the above, our procedures to respond to risks
identified included the following:
-- revie wing the financial statement disclosures and testing to
supporting documentation to assess compliance with provisions of
relevant laws and regulations described as having a direct effect
on the financial statements;
-- enquiring of the former and new investment manager and the
Audit and Risk Committee concerning actual and potential litigation
and claims;
-- performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud;
-- reading minutes of meetings of those charged with governance;
-- in addressing the risk of fraud through management override
of controls, testing the appropriateness of journal entries and
other adjustments; assessing whether the judgements made in making
accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions
that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members including
internal specialists and remained alert to any indications of fraud
or non-compliance with laws and regulations throughout the
audit.
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act
2006
In our opinion the part of the directors' remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of
the audit:
-- the information given in the strategic report and the
directors' report for the financial year for which the financial
stateme nts are prepared is consistent with the financial
statements; and
-- the strategic report and the directors' report have been
prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the company
and its environment obtained in the course of the audit, we have
not identified any material misstatements in the strategic report
or the directors' report.
13. Corporate Governance Statement
The Listing Rules require us to review the directors' statement
in relation to going concern, longer-term viability and that part
of the Corporate Governance Statement relating to the Company's
compliance with the provisions of the UK Corporate Governance Code
specified for our review.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements and our knowledge obtained during the audit:
-- the directors' statement with regards to the appropriateness
of adopting the going concern basis of accounting and any material
uncertainties identified;
-- the directors' explanation as to its assessment of the
company's prospects, the period this assessment covers and why the
period is appropriate;
-- the directors' statement on fair, balanced and understandable;
-- the board's confirmation that it has carried out a robust
assessment of the emerging and principal risks;
-- the section of the annual report that describes the review of
effectiveness of risk management and internal control systems;
and
-- the section describing the work of the audit and risk committee.
14. Matters on which we are required to report by exception
14.1. Adequacy of explanations received and accounting
records
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
-- we have not received all the information and explanations we require for our audit; or
-- adequate accounting records have not been kept, or returns
adequate for our audit have not been received from branches not
visited by us; or
-- the financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
14.2. Directors' remuneration
Under the Companies Act 2006 we are also required to report if
in our opinion certain disclosures of directors' remuneration have
not been made or the part of the directors' remuneration report to
be audited is not in agreement with the accounting records and
returns.
We have nothing to report in respect of these matters.
15. Other matters which we are required to address
15.1. Auditor tenure
Following the recommendation of the Audit and Risk Committee, we
were appointed by board of directors on 28 October 2021 to audit
the financial statements for the period ending 31 October 2021 and
subsequent financial periods.
The comparative period for the Company is the period from
incorporation on 6 September 2021 to 31 October 2021, being the
Company's first accounting date. During the year the Company
extended its accounting period to 31 December 2022. This is the
first year of our audit of the Company as a listed entity (second
in total including the short comparative period in the prior year).
The period of total uninterrupted engagement including previous
renewals and reappointments of the firm is 2 years, covering the
years ending 31 October 2021 to 31 December 2022.
15.2. Consistency of the audit report with the additional report
to the audit committee
Our audit opinion is consistent with the additional report to
the audit committee we are required to provide in accordance with
ISAs (UK).
16. Use of our report
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Daryl Winstone FCA (Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
22 January 2024
Financial Statements
Statement of Comprehensive Income
For the period from 1 November 2021 to 31 December 2022
Revenue Capital Total
Notes US$'000s US$'000s US$'000s
---------------------------------------- ----- -------- -------- --------
Investment income - - -
Movement in fair value of investments 9 - (46,993) (46,993)
Onerous contract provision 13 - (38,500) (38,500)
---------------------------------------- ----- -------- -------- --------
Total revenue - (85,493) (85,493)
---------------------------------------- ----- -------- -------- --------
Investment management fees 3e (712) (712) (1,424)
Administration and professional fees 4 (3,240) (296) (3,536)
Net foreign exchange gains 5 1,669 - 1,669
---------------------------------------- ----- -------- -------- --------
Loss before taxation (2,283) (86,501) (88,784)
---------------------------------------- ----- -------- -------- --------
Taxation 6 - - -
---------------------------------------- ----- -------- -------- --------
Loss for the period (2,283) (86,501) (88,784)
---------------------------------------- ----- -------- -------- --------
Loss per ordinary share (cents) - basic
and diluted 8 (1.98) (75.14) (77.13)
---------------------------------------- ----- -------- -------- --------
The total column of the above 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.
There are no items of other comprehensive income in the current
period, other than the profit/(loss) for the period, and therefore
no separate income statement has been presented.
The Company was incorporated on 6 September 2021 and did not
commence its operating activities until the listing of its ordinary
shares on the London Stock Exchange on 14 December 2021. The
Company prepared its first set of statutory financial statements
prior to the IPO, for the period from incorporation, on 6 September
2021, to 31 October 2021. As there was no activity in the prior
period, comparative revenue or capital profit or loss has not been
presented.
The accompanying notes are an integral part of these Financial
Statements.
Statement of Financial Position
As at As at
31 December 31 October
2022 2021
Notes US$'000s US$'000s
------------------------------------------------- ----- ----------- ----------
Non-current assets
Investments at fair value through profit or loss 9 11,491 -
------------------------------------------------- ----- ----------- ----------
Current assets
Trade and other receivables 10 633 66
Cash and cash equivalents 11 115,819 -
------------------------------------------------- ----- ----------- ----------
116,452 66
Current liabilities: amounts falling due within
one year
Trade and other payables 12 (2,863) -
Onerous contract provision 13 (38,500) -
------------------------------------------------- ----- ----------- ----------
(41,363) -
------------------------------------------------- ----- ----------- ----------
Net current assets 75,089 66
------------------------------------------------- ----- ----------- ----------
Net assets 86,580 66
------------------------------------------------- ----- ----------- ----------
Capital and reserves: equity
Ordinary share capital 14 1,757 -
Preference share capital 14 - 66
Share premium 14 63,518 -
Special distributable reserve 15 110,089 -
Revenue reserve 3i (2,283) -
Capital reserve 3i (86,501) -
------------------------------------------------- ----- ----------- ----------
Shareholders' funds 86,580 66
------------------------------------------------- ----- ----------- ----------
Net assets per share (cents) 16 49.28 n/a
------------------------------------------------- ----- ----------- ----------
The Financial Statements were approved by the Board of Directors
and authorised for issue on 22 January 2024 and were signed on its
behalf by:
Sue Inglis Clifford Tompsett
Chair of the Board Director
The accompanying notes are an integral part of these Financial
Statements.
Incorporated in England and Wales with registered number
13605841
Statement of Changes in Equity
For the period from 1 November 2021 to 31 December 2022
Special
Share Preference Share distributable Capital Revenue
capital shares premium reserve reserve reserve Total
Notes US$'000s US$'000s US$'000s US$'000s US$'000s US$'000s US$'000s
Opening equity as at
6 September 2021 - - - - - - -
Shares issued in period 14 - 66 - - - - 66
---------------------------- ----- --------- ---------- --------- -------------- --------- --------- ---------
At 31 October 2021 - 66 - - - - 66
---------------------------- ----- --------- ---------- --------- -------------- --------- --------- ---------
Shares issues in the period 14 1,757 - 179,128 - - - 180,885
Share issue costs 14 - - (3,618) - - - (3,618)
Transfer to special
distributable
reserve 15 - - (111,992) 111,992 - - -
Cancellation of share
capital 14 - (66) - - - - (66)
Loss and comprehensive
income for the period - - - (86,501) (2,283) (88,784)
Dividends paid 7 - - (1,903) - - (1,903)
---------------------------- ----- --------- ---------- --------- -------------- --------- --------- ---------
Closing equity as at
31 December 2022 1,757 - 63,518 110,089 (86,501) (2,283) 86,580
---------------------------- ----- --------- ---------- --------- -------------- --------- --------- ---------
The accompanying notes are an integral part of these Financial
Statements.
Statement of Cash Flows
For the
period from From
1 November incorporation
2021 to to
31 December 31 October
2022 2021
Notes US$'000s US$'000s
Operating activities cash flows
Loss before taxation (88,784) -
Adjustments for:
Movement in fair value of investments 9 46,993 -
Increase in provisions 13 38,500 -
Foreign exchange gains (1,669) -
--------------------------------------------------- ----- ------------ --------------
Operating cash flow before movements in working
capital (4,960) -
Changes in working capital:
Increase in trade and other receivables 10 (633) -
Increase in trade and other payables 12 2,863 -
--------------------------------------------------- ----- ------------ --------------
Net cash flow used in operating activities (2,730) -
--------------------------------------------------- ----- ------------ --------------
Investing activities cash flows
Acquisition of investments 9 (28,298) -
--------------------------------------------------- ----- ------------ --------------
Net cash flow used in investing activities (28,298) -
--------------------------------------------------- ----- ------------ --------------
Financing activities cash flows
Dividends paid to shareholders 7 (1,903) -
Proceeds from issue of share capital during the
period 14 150,699 -
Costs in relation to issue of shares 14 (3,618) -
--------------------------------------------------- ----- ------------ --------------
Net cash flow from financing activities 145,178 -
--------------------------------------------------- ----- ------------ --------------
Cash and cash equivalents at start of period - -
--------------------------------------------------- ----- ------------ --------------
Net increase in cash and cash equivalents 114,150 -
Foreign exchange gains on cash or cash equivalents 1,669 -
--------------------------------------------------- ----- ------------ --------------
Cash and cash equivalents at end of period 11 115,819 -
--------------------------------------------------- ----- ------------ --------------
The accompanying notes are an integral part of these Financial
Statements.
Notes to the Financial Statements
For the period from 1 November 2021 to 31 December 2022
1. General information
Asian Energy Impact Trust plc ("AEIT" or the "Company") is a
public company limited by shares incorporated in England and Wales
on 6 September 2021 with registered number 13605841. The Company
changed its name from ThomasLloyd Energy Impact Trust plc on 27th
October 2023. The Company is a closed-ended investment company with
an indefinite life. The Company commenced its operations on 14
December 2021 when the Company's ordinary shares were admitted to
trading on premium segment of the London Stock Exchange's Main
Market (the "IPO"). The Directors intend, at all times, to conduct
the affairs of the Company 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 The Scalpel, 18th Floor, 52 Lime Street, London, EC3M
7AF, United Kingdom.
The Company's principal activity is to invest in a diversified
investment portfolio of sustainable energy infrastructure assets in
fast-growing and emerging economies in Asia. The Company has a
'Triple Return' investment objective which consists of: (i)
providing shareholders with attractive dividend growth and
prospects for long-term capital appreciation (the financial
return); (ii) protecting natural resources and the environment (the
environmental return); and (iii) delivering economic and social
progress, helping build resilient communities and supporting
purposeful activity (the social return). The Company seeks to
achieve its investment objective by delivering on its principal
activity.
The audited financial statements of the Company (the "Financial
Statements") are for the period from 1 November 2021 to 31 December
2022 and comprise only the results of the Company as the Company is
determined to be an investment entity and, therefore its
subsidiaries are measured at fair value and are not consolidated
(see note 2). On 16 November 2021, the Company extended its
accounting period to 31 December 2022. The comparative period is
the period from 6 September 2021 to 31 October 2021, being the
period from incorporation to the Company's first accounting
date.
The Company has appointed Adepa Asset Management S.A to be the
alternative investment fund manager of the Company (the "AIFM") for
the purposes of Directive 2011/61/EU of the European Parliament and
of the Council on Alternative Investment Fund Managers.
Accordingly, the AIFM is responsible for the portfolio management
of the Company and for exercising the risk management function in
respect of the Company. The AIFM, with the agreement of the
Company, has delegated the portfolio management of the Company to
the Investment Manager. For the period from IPO to 31 October 2023,
the Investment Manager was ThomasLloyd Global Asset Management
(Americas) LLC (the "Former Investment Manager"). Under the
relevant investment management agreement between the AIFM, Company
and Former Investment Manager (the "IMA") the Former Investment
Manager was entitled to a management fee, details of which are
included in note 19 to the Financial Statements. On 15 September
2023, the Board served notice on the Former Investment Manager
terminating the IMA with effect from 31 October 2023. From 1
November 2023, Octopus Energy Generation ("OEGEN") was appointed as
Transitional Investment Manager to cover an initial period through
to 30 April 2024. For this initial term, the Company will pay OEGEN
a management fee of US$1.35 million. At the end of the term, at the
discretion of the Board, there is scope for OEGEN to earn an
additional management fee of up to US$0.55 million for its services
during the transitional period.
JTC Limited (the "Administrator") provides administrative and
company secretarial services to the Company under the terms of the
Administration Agreement between the Company and the
Administrator.
2. Basis of preparation
The Financial Statements have been prepared in accordance with
United Kingdom adopted international accounting standards and the
applicable legal requirements of the Companies Act 2006.
The Financial Statements have also been prepared as far as is
relevant and applicable to the Company in accordance with the
Statement of Recommended Practice: Financial Statements of
Investment Trust Companies and Venture Capital Trusts ("SORP")
issued in July 2022 by the Association of Investment Companies
("AIC"). In line with the AIC SORP, the statement of comprehensive
income differentiates between the 'revenue' account and the
'capital' account, and the sum of both items equals the Company's
profit for the year. Items classified as capital in nature either
relate directly to the Company's investment portfolio or are costs
deemed attributable to the long-term capital growth of the
Company.
The Financial Statements are prepared on the historical cost
basis but as the Company qualifies as an investment entity under
the amendments to IFRS10, all investments in subsidiaries,
associates and joint ventures are measured at fair value through
profit or loss. They have been prepared on the basis of the
accounting policies, significant judgements, key assumptions and
estimates as set out in notes 2 and 3. These policies are
consistently applied.
The Financial Statements are presented in US Dollar ('US$'),
which is the Company's functional currency and are rounded to the
nearest thousand, unless otherwise stated. On 14 December 2021, the
date of the IPO, the Company changed its functional and
presentation currency to the US Dollar from the Great British Pound
('GBP'), with the change in functional currency being applied
prospectively.
Going concern
The Company has undertaken an evaluation of its cashflow
forecasts and going concern position to 31 March 2025, including
downside scenarios. This evaluation demonstrated that the Company
has sufficient cash to meet all of its liabilities within the going
concern assessment period, which is a period of at least 12 months
from the date the Financial Statements were authorised for
issue.
In reaching this conclusion, the Directors considered the
Company's net assets as at 31 December 2022 of US$86.6 million, its
cash reserves at that date of US$115.8 million, consequences of the
share suspension and its recurring operating expenditure
requirements, both to date and into the future. During the 12
months ended 31 December 2023, the Company paid out all of its
commitments as disclosed in note 21 to the Financial Statements,
being US$38.5 million to acquire 57% of SolarArise in January 2023
and US$3.1 million to acquire 99.8% of VSS in May 2023, funded the
construction of the RUMS project via a US$20.0 million loan, paid
dividends to its shareholders of US$4.4 million and paid the costs
of the Company. As at 31 December 2023 the Company had cash
reserves of US$41.4 million and AEIT Holdings had cash reserves of
US$1.7 million. This cash position has been used in assessing the
Company's going concern position and cash flow forecasts.
The Company continues to meet its day-to-day liquidity needs
through its cash resources. Assumed future cash inflows over the
going concern period include the receipt of dividend and interest
income from its underlying investments and the main cash outflows
are the ongoing running costs of the Company and the payment of
dividends to its shareholders. A key priority for 2024 for the
Board and Transitional Investment Manager is to undertake capital
restructuring to facilitate the repatriation of cash out of the
underlying investment portfolio. A downside scenario that was
modelled within the cash flows in the going concern assessment
assumed this repatriation is delayed until after the end of the
going concern period (i.e. no dividend or interest income is
received from the Company's investments during that period). Even
in this scenario, the Company has sufficient cash reserves to
continue as a going concern. The cash flow forecasts in the
downside scenario also assume no further investment commitments
during the going concern period. The Company had no outstanding
investment commitments at 31 December 2023 and at the date of
signing this Annual Report.
The future of the Company relies heavily on the outcome of the
current strategic review of the options for the future of the
Company which is expected to be to conclude by the end of the first
quarter of 2024. At the date of this Annual Report, based on the
information currently available, the most likely outcomes of the
strategic review remain a proposal for either the relaunch of the
Company (potentially with a new investment objective, investment
policy, target returns and/or Investment Manager but maintaining
the impact-led, Asian focus) or a managed wind-down. Shareholders
will have the opportunity to vote on the outcome of the strategic
review.
The Board does not intend to declare a dividend in respect of
the quarter ended 31 December 2023, nor does it intend to make any
further acquisitions or commitments prior to completion of, the
strategic review.
While the Directors therefore have a reasonable expectation that
the Company has adequate resources to continue in operational
existence for the foreseeable future and the going concern basis of
accounting has been adopted in preparing the Financial Statements,
the outcome of the strategic review as set out above is not within
the control of the Board and is therefore uncertain, and will
solely be down to a vote of the shareholders, who may vote for a
managed wind up of the Company. In light of this shareholder vote
and that shareholders may vote for a managed wind up of the
Company, this constitutes a material uncertainty related to events
or conditions that may cast significant doubt on the Company's
ability to continue as a going concern.
Critical accounting judgements, estimates and assumptions
The preparation of the Financial Statements requires management
to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets, liabilities, income and expenses. Actual results may differ
from these estimates. Estimates and underlying assumptions are
reviewed regularly on an on-going basis. Revisions to accounting
estimates are recognised in the period in which the estimates are
revised and in any future periods affected. Significant estimates,
judgements and assumptions for the period are set out as
follows:
Key sources of estimation uncertainty: fair value estimation for
investments at fair value
The Company's investments at fair value are not traded in active
markets. As such, the fair value of these investments is calculated
using discounted cash flow ("DCF") models based on valuation
methods and techniques generally recognised as standard in the
industry, specifically taking into account the International
Private Equity and Venture Capital Valuation Guidelines, which
includes recommendations and best practice.
The discounted cash flow models use observable data, to the
extent practicable. However, the key inputs require management to
make estimates. The key assumptions used in the DCF models at 31
December 2022 that the Directors believe would have a material
impact on the fair value of the investments should they change are
set out in note 9. The key unobservable inputs, and therefore the
key sources of estimation uncertainty, are future power prices,
renewable energy generation, discount rates, inflation rates and
the timing of dividends given some of the investments have capital
structures which make the realisation of dividends more difficult.
Sensitivities of the key inputs used in the DCF models are detailed
in note 9.
As at 31 December 2022, the Company held an investment in
SolarArise which owns 6 operational solar farms and 1 under
construction asset in India. The asset under construction is termed
the RUMS project.
In preparing the December 2022 valuation of SolarArise, the
Board identified a risk that the fair value of the RUMS project was
negative. At the balance sheet date, the valuation of proceeding
with the project was estimated to be negative US$33.3 million on a
100% basis. The Board has considered ways to mitigate this exposure
including aborting the project and not proceeding with
construction. However, termination penalties could arise if the
project were aborted which are estimated to be up to US$33.4
million (on a 100% basis).
There is therefore significant subjectivity and estimation
uncertainty in determining the fair value of the Company's
investment in SolarArise and the valuation of the RUMS project. In
determining the fair value of SolarArise, it has been determined
that a market participant would view the SolarArise portfolio in
its entirety and that an appropriate assumption would be to write
the SolarArise portfolio down to zero. This reflects a fair value
(pre RUMS abort liability) of US$12.0 million for the 43% ownership
held at the balance sheet date and the fact that it has been
assessed that there is a remote risk of further liabilities falling
on the Company such that the valuation cannot go below US$nil. The
sensitivity of this key input is detailed in note 9. Including the
abort liabilities in the valuation of SolarArise as at 31 December
2022 also gives rise to an onerous contract for the commitment to
purchase the remaining 57% of SolarArise. This is because on
acquisition, the remaining 57% stake acquired in January 2023 for
US$38.5 million would be written down to US$nil. Please see note 13
for further details. Post period end solar module prices have
fallen as China came out of lockdowns and opened up supply through
2023. This is the primary reason why the overall negative NPV of
the project has fallen to approximately US$13 million as at 1
September 2023, and based on advice from the Former Investment
Manager, on 11 October 2023, the Board agreed to provide funding of
US$20 million by way of an INR denominated external commercial
borrowings loan from the Company to SolarArise to enable
construction of the RUMS project to proceed on the basis that
proceeding with the project was now the a less disadvantageous
option rather than paying termination penalties. This loan was
provided on 18 October 2023. The Transitional Investment Manager
subsequently values the RUMS project at a negative NPV of US$14.6
million as at 30 September 2023. See note 22 for further
details.
Further considerations on currency risks, interest rate risks,
power price risks, credit risks, and liquidity risks are detailed
in note 18.
Critical accounting judgement: equity and loan investments
The Company considers the equity and loan investments to share
the same investment characteristics and risks and they are
therefore treated as a single unit of account for fair value
purposes (IFRS 13) and a single class for financial instrument
disclosure purposes (IFRS 9). As a result, the evaluation of the
performance of the Company's investments is done for the entire
portfolio on a fair value basis, as is the reporting to the key
management personnel and to the investors. In this case, all
equity, derivatives and debt investments form part of the same
portfolio for which the performance is evaluated on a fair value
basis together and reported to the key management personnel in its
entirety.
Critical accounting judgement: basis of non-consolidation
The Company has adopted the amendments to IFRS 10 which states
that investment entities should measure all of their subsidiaries
that are themselves investment entities at fair value (in
accordance with IFRS 9 Financial Instruments: Recognition and
Measurement, and IFRS 13 Fair Value Measurement).
Under the definition of an investment entity, the Company should
satisfy all three of the following tests:
(i) the Company obtains funds from one or more investors for the
purpose of providing those investors with investment management
services;
(ii) the Company commits to its investors that its business
purpose is to invest funds solely for returns from capital
appreciation, investment income, or both; and
(iii) the Company measures and evaluates the performance of
substantially all of its investments on a fair value basis.
In assessing whether the Company meet the definition of an
investment entity set out in IFRS 10 the Directors note that:
(i) the Company has multiple investors and obtains funds from a
diverse group of shareholders who would otherwise not have access
individually to invest in renewable energy infrastructure
investments due to high barriers to entry and capital
requirements;
(ii) the Company intends to hold its investments for the
remainder of their useful lives for the purpose of capital
appreciation and investment income in line with the Company's
stated strategy and the Directors believe the Company is able to
generate returns to the investors during that period (51) ; and
(iii) 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 use fair value information
as a primary measurement to evaluate the performance of all of the
investments and in decision making.
(51) Directors will be putting forward proposals for the
reconstruction and reorganisation of the Company to shareholders.
Included within these proposals will be a managed wind-down of the
Company. Shareholders will be given the option to vote on their
preferred proposal.
The Directors are of the opinion that the Company meets all the
typical 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.
Critical accounting judgement: functional currency
The Directors consider that the US Dollar is the currency that
most faithfully represents the economic effect of the underlying
transactions, events and conditions that impact the Company.
The Company's ordinary share capital is issued in US Dollars.
The primary activity of the Company is to invest in unlisted debt
and equity securities issued by companies involved in the
construction or operation of sustainable renewable energy
infrastructure assets in fast-growing and emerging economies in
Asia. Although these unlisted debt and equity securities are held
in their local currencies, the fair value associated with each
investment held is converted into US Dollars at the prevailing spot
exchange rate at the valuation date for presentation within the
Company's results. The US Dollar is the currency in which the
Company measures its performance and reports its results, as well
as the principal currency in which it receives subscriptions from
its investors.
The functional currency assessment also considers the cost
structure of the Company and the currencies in which it may pay
dividends and receive income. The majority of operating expenses
are denominated in US Dollars and the Company announces dividend
payments in US Dollars (although it may also settle in currencies
other than US Dollars). It is expected that the Company will
receive dividend income in currencies other than US Dollars,
although it may enter into a hedging programme to mitigate against
future volatility in those currencies in comparison to US
Dollars.
The functional currency assessment is reviewed periodically in
light of investments made and to be made.
Key sources of estimation uncertainty: contingent consideration
in relation to NISPI
The sale and purchase agreement to acquire the 40% economic
interest in NISPI included an additional contingent cash
consideration of up to US$22.0 million that was dependent upon
NISPI being awarded a Green Auction PPA prior to 1 June 2023. In
assessing the fair value of this contingent consideration at 31
December 2022, the Investment Manager and Directors have considered
a number of external factors, including macro-economic, political
and operational.
NISPI did not participate in a Green Auction during 2022 as it
was not eligible to participate. At 31 December 2022, the wholesale
power prices were higher than expected Green Auction solar prices
and it was expected that this will prevail through 1 June 2023.
Consequently, the likelihood that NISPI would participate in such
an auction prior to 1 June 2023 was assessed as being remote. As
such, the contingency is fair valued at US$nil at 31 December
2022.
Post the period end it has been confirmed that NISPI was not
awarded a Green Auction PPA by 1 June 2023 and no further
consideration is payable.
New and amended standards and interpretations
Effective from 1 November 2021 to January 2022
The Company applied the following amendments for the first time
for its annual reporting period commencing 1 November 2021:
-- onerous contracts - Cost of Fulfilling a Contract - Amendments to IAS 37; and
-- annual improvements to IFRS Standards 2018-2020.
The amendments listed above did not have any impact on the
amounts recognised in the current or prior period and are not
expected to significantly affect the current or future periods. The
Company has considered the above amendments in valuing the onerous
contract provision as detailed in note 13.
Effective on or after 1 January 2023
Certain new accounting standards, amendments to accounting
standards and interpretations have been published that are
effective for annual periods beginning on or after 1 January 2023
that have not been early adopted in preparing these Financial
Statements. These standards, amendments and interpretations are not
expected to have a material impact on the Company in the current or
future reporting periods, or on foreseeable future
transactions.
The new standards, amendments to existing standards and
interpretations that have been published and will be applied to the
Company in future periods, subject to UK endorsement, include:
-- disclosure of accounting policies and materiality judgements
- Amendments to IAS 1 and IFRS Practice Statement 2, effective 1
January 2023;
-- non-current liabilities with covenants - Amendments to IAS 1, effective 1 January 2024;
-- definition of accounting estimates - Amendments to IAS 8, effective 1 January 2023; and
-- deferred tax related to assets and liabilities arising from a
single transaction - Amendments to IAS 12, effective 1 January
2023.
These are not likely to have a material impact on the Company's
Financial Statements going forward.
3. Significant accounting policies
a) Financial instruments
Financial assets and financial liabilities are recognised on the
Company's Statement of Financial Position when the Company becomes
a party to the contractual provisions of the instrument. Financial
assets are derecognised when the contractual rights to the cash
flows from the instrument expire or the asset is transferred, and
the transfer qualifies for derecognition in accordance with IFRS 9
Financial Instruments.
Financial assets
As an investment entity, the Company is required to measure its
investments in its wholly owned direct subsidiaries, joint ventures
and associates at FVTPL. As explained in note 2, the Company has
made a judgement to fair value both the equity and debt investment
in its subsidiary together. Subsequent to initial recognition, the
Company measures its investments on a combined basis at fair value
in accordance with IFRS 9 Financial Instruments:
Recognition and Measurement and IFRS 13 Fair Value
Measurement
Trade receivables, loans and other receivables that are
non-derivative financial assets and that have fixed or determinable
payments that are not quoted in an active market are classified as
financial assets at amortised cost. These assets are measured at
amortised cost using the effective interest method, less allowance
for expected credit losses. The Company has assessed IFRS 9's
expected credit loss model and does not consider there to be any
material impact on these Financial Statements.
Trade receivables, loans and other receivables are included in
current assets, except where maturities are greater than 12 months
after the year end date in which case they are classified as
non-current assets.
Regular purchases and sales of investments are recognised on the
trade date - the date on which the Company commits to purchase or
sell the investment. Financial assets at FVTPL are initially
recognised at fair value. Transaction costs are expensed as
incurred within the Statement of Comprehensive Income. 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.
Subsequent to initial recognition, all financial assets and
financial liabilities at FVTPL are measured at fair value.
Gains and losses arising from changes in the fair value of the
'financial assets at FVTPL' category are presented in the Statement
of Comprehensive Income within investment income in the period in
which they arise.
Income from financial assets at FVTPL is recognised in the
Statement of Comprehensive Income within investment income when the
Company's right to receive payments is established.
Financial liabilities and equity
Debt and equity instruments are classified as either financial
liabilities or as equity in accordance with the substance of the
contractual arrangement.
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 and Measurement and IFRS 13 Fair Value
Measurement
Financial liabilities are subsequently measured at amortised
cost using the effective interest method, with interest expense
recognised on an effective interest rate method.
The Company derecognises financial liabilities when, and only
when, the Company's obligations are discharged, cancelled or they
expire.
Ordinary shares are classified as equity. An equity instrument
is any contract that evidences a residual interest in the assets of
an entity after deducting all of its liabilities. Equity
instruments issued by the Company are recognised at the proceeds
received, net of direct issue costs. Direct issue costs are charged
against the value of ordinary share premium.
b) Taxation
Investment trusts which have approval under section 1158 of the
Corporation Tax Act 2010 are not liable for taxation on capital
gains. The Company has successfully applied and has been granted
approval as an Investment Trust by HMRC.
Irrecoverable withholding tax is recognised on any overseas
income on an accrual basis using the applicable rate of taxation
for the country of origin.
The underlying intermediate holding companies and project
companies in which the Company invests provide for and pay taxation
at the appropriate rates in the countries in which they operate.
This is taken into account when assessing the value of the
subsidiaries, joint ventures and associates.
c) Segmental reporting
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 Board to
manage the Company presents the business as a single segment.
d) Investment income
Investment income comprises interest income and dividend income
received from the Company's subsidiaries. Interest income is
recognised in the Statement of Comprehensive Income using the
effective interest method. Dividend income is recognised when the
Company's entitlement to receive payment is established.
e) Expenses
All expenses are accounted for on an accrual basis. In
accordance with the Statement of Recommended Practice: Financial
Statements of Investment Trust Companies and Venture Capital Trusts
('SORP') issued in July 2022 by the Association of Investment
Companies ('AIC'), the statement of comprehensive income
differentiates between the 'revenue' account and the 'capital'
account, and the sum of both items equals the Company's profit for
the year/period. In respect of the analysis between revenue and
capital items presented within the Statement of Comprehensive
Income, expenses directly attributable to the long-term capital
growth of the Company are presented as capital items. See below for
specific examples:
-- Investment management fees : As per the Company's investment
objective, it is expected that income returns will make up 50% of
the Company's long-term return. Therefore, based on the estimated
split of future returns (which cannot be guaranteed), 50% of the
investment management fee is charged as a capital item within the
Statement of Comprehensive Income.
-- Transaction costs : Transaction costs incurred on completed
transactions are charged as capital items within the Statement of
Comprehensive Income.
f) Foreign currency
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the date of the
transaction. Monetary assets and liabilities denominated in foreign
currencies are retranslated into the functional currency using the
exchange rate prevailing at the statement of financial position
date. Foreign exchange gains and losses arising from translation
are included in the statement of comprehensive income. Foreign
exchange gains and losses relating to the financial assets carried
at fair value through profit or loss are presented in the statement
of comprehensive income.
g) Cash and cash equivalents
Cash and cash equivalents includes deposits held with banks and
other short-term deposits with original maturities of three months
or less.
h) Dividends payable
Final dividends payable to equity shareholders are recognised in
the Financial Statements when they have been approved by
shareholders and become a liability of the Company. Interim
dividends payable are recognised in the period in which they are
paid.
i) Reserves
The Company's capital is represented by the ordinary shares,
share premium, the special distributable reserve, retained losses
and other comprehensive income.
-- Share premium : Share premium includes the premium above
nominal value received by the Company on issuing shares, net of
issue costs, to the extent not subsequently cancelled and
transferred to another reserve.
-- Special distributable reserve : This reserve is distributable
and may be used, where the Board considers it appropriate, by the
Company for the purposes of paying dividends to shareholders (and,
in particular, augmenting or smoothing payments of dividends to
shareholders) or buying back shares. There is no guarantee that the
Board will make use of this reserve for such purposes. See note 15
for further information.
-- Retained losses : Retained losses are split between revenue
and capital reserves as follows:
-- Revenue reserve : This reserve reflects all income and costs
which are recognised in the revenue column of the statement of
comprehensive income. This reserve is distributable by way of
dividend.
-- Capital reserve : This reserve includes gains and losses on
disposal of investments and changes in fair values of investments,
foreign exchange differences determined to be of a capital nature
and the capital element of the management fee. Any associated tax
relief is also credited to this reserve. This reserve is
distributable by way of dividend.
j) Onerous contract provision
Present obligations arising under onerous contracts are
recognised and measured as provisions. An onerous contract is
considered to exist where the Company or its subsidiaries has a
contract under which the unavoidable costs of meeting the
obligations under the contract exceed the economic benefits
expected to be received under it. The Company's onerous contract
relates to the agreed acquisition of a further 57% in SolarArise
where the fair value of that 57% stake at the balance sheet date
has been determined to be less than the agreed consideration
payable. Please refer to note 13 for further detail. As the onerous
contract is linked to the fair value of the investment portfolio,
the income statement charge arising from the onerous contract has
been recognised in revenue.
4. Administration and professional fees
For the period ended 31
December 2022
---------------------------
Revenue Capital Total
US$'000 US$'000 US$'000
--------------------------------------------- -------- -------- -------
Administration fees 146 - 146
AIFM fees 94 - 94
Legal and professional fees 693 - 693
Transaction costs - 296 296
Compliance and regulatory fees 157 - 157
Directors' fees 267 - 267
Valuation fees 842 - 842
Company's audit and non-audit fees:
- in respect of audit services 445 - 445
- in respect of non-audit related services 207 - 207
Other operating expenses 389 - 389
--------------------------------------------- -------- -------- -------
3,240 296 3,536
--------------------------------------------- -------- -------- -------
Analysed as:
For the period
ended 31 December
2022
Total
US$'000
-------------------------------------------------------------------- ------------------
Ongoing and recurring costs of the Company 1,508
Exceptional costs incurred to finalise the December 2022 valuations
and 2022 audit 1,192
Other one-off costs 836
-------------------------------------------------------------------- ------------------
Total 3,536
-------------------------------------------------------------------- ------------------
Fees payable to the Company's Auditor during the period
were:
For the period
ended 31 December
2022
Total
US$'000
--------------------------------------------------------------------- ------------------
Fees payable to the Company's Auditor for the audit of the Company's
Financial Statements 445
Fees payable to the Company's Auditor for other services:
Audit-related services 43
Non-audit related services 446
--------------------------------------------------------------------- ------------------
Total 934
--------------------------------------------------------------------- ------------------
The audit-related services provided relate to the review of the
interim financial statements. During the period, the Company's
Auditor was also paid GBP215,000 (US$282,000 equivalent) for its
role as reporting accountant and GBP136,000 (US$164,000 equivalent)
for tax structuring advice in connection with the IPO. The
reporting accountant fee was recognised directly in equity as a
cost associated with the initial capital raising of the
Company.
In addition to the fees disclosed above, US$3,350 is payable to
the Company's Auditor in respect of audit services provided to the
Company's unconsolidated subsidiary, AEIT Holdings, that is not
included in the Company's expenses above.
The Company has no employees. Full detail on Directors' fees is
provided in note 19. Directors' fees in the table above include
employer social security contributions of US$11,000. In the period
from incorporation to 31 October 2021 and from 1 November 2021
until the date of IPO, Directors' fees were US$nil.
5. Net foreign exchange gains
Net foreign exchange gains primarily relate to foreign exchange
gains realised on the Company's IPO proceeds that have not yet been
deployed.
6. Taxation
(a) Analysis of charge in the period
For the period ended 31
December 2022
---------------------------
Revenue Capital Total
US$'000 US$'000 US$'000
------------------------- -------- -------- -------
Corporation tax - - -
------------------------- -------- -------- -------
Tax charge for the period - - -
------------------------- -------- -------- -------
(b) Factors affecting total tax charge for the period
The effective UK corporation tax rate applicable to the Company
for the period is 19%. The tax charge differs from the charge
resulting from applying the standard rate of UK corporation tax for
an investment trust company. The differences are explained
below:
Revenue Capital Total
US$'000 US$'000 US$'000
---------------------------------- ------- -------- --------
Loss before taxation (2,283) (86,501) (88,784)
Corporation tax at 19% (434) (16,435) (16,869)
Effects of:
Non-deductible capital losses - 16,244 16,244
Unutilised losses carried forward 434 191 625
---------------------------------- ------- -------- --------
Total tax charge for the period - - -
---------------------------------- ------- -------- --------
The Directors are of the opinion that the Company has complied
with the requirements for maintaining investment trust status for
the purposes of section 1158 of the Corporation Tax Act 2010. This
allows certain capital profits of the Company to be exempt from UK
tax. Additionally, the Company may designate dividends payable
wholly or partly as interest distributions for UK tax purposes.
Interest distributions are treated as tax deductions against
taxable income of the Company so that investors do not suffer
double taxation on their returns.
The Financial Statements do not directly include the tax charges
for any of the Company's subsidiaries as these are held at fair
value. Each of these companies are subject to taxes in the
countries in which they operate.
The Company has an unrecognised deferred tax asset of US$0.8
million based on the excess unutilised operating expenses of US$3.3
million at the prospective UK corporation tax rate of 25%. A
deferred tax asset has not been recognised in respect of these
operating expenses and will be recoverable only to the extent that
the Company has sufficient future taxable revenue.
7. Dividends
The dividends reflected in the Financial Statements for the
period are as follows:
For the period
ended
31 December 2022
-------------------
Cents per
ordinary Total
share US$'000
--------------------------------------------- --------- --------
Q1 2022 dividend - paid on 24 June 2022 0.44 508
Q2 2022 dividend - paid on 30 September 2022 0.44 622
Q3 2022 dividend - paid on 2 December 2022 0.44 773
--------------------------------------------- --------- --------
Total 1.32 1,903
--------------------------------------------- --------- --------
The dividends relating to the period ended 31 December 2022,
which is the basis on which the requirements of section 1159 (52)
of the Corporation Tax Act 2010 are detailed below:
(52) The requirement for an investment trust to pay out 85% of
profits generated in the year as dividends.
For the period
ended
31 December 2022
-------------------
Cents per
ordinary Total
share US$'000
--------------------------------------------- --------- --------
Q1 2022 dividend - paid on 24 June 2022 0.44 508
Q2 2022 dividend - paid on 30 September 2022 0.44 622
Q3 2022 dividend - paid on 2 December 2022 0.44 773
Q4 2022 dividend - paid on 23 May 2023 1.18 2,073
--------------------------------------------- --------- --------
Total 2.50 3,976
--------------------------------------------- --------- --------
As disclosed in note 22, the Company declared its dividend for
the fourth quarter on 13 April 2023 of 1.18 cents per share in
respect of the three-month period from 1 October 2022 to 31
December 2022. The dividend totalling US$2.1 million was paid on 23
May 2023.
See note 22 for details on additional dividends declared since
the period end.
8. Earnings per ordinary share
Earnings per ordinary share is calculated by dividing the profit
or loss attributable to equity shareholders of the Company by the
weighted average number of ordinary shares in issue during the
period:
For the period ended 31 December
2022
------------------------------------
Revenue Capital Total
----------------------------------------------- ---------- ----------- -----------
Loss attributable to the equity holders of the
Company (US$'000) (2,283) (86,501) (88,784)
Weighted average number of ordinary shares in
issue (000s) 115,177 115,177 115,177
----------------------------------------------- ---------- ----------- -----------
Earnings per ordinary share (cents) - basic
and diluted (1.98) (75.14) (77.13)
----------------------------------------------- ---------- ----------- -----------
9. Investments at fair value through profit or loss
As set out in note 2, the Company accounts for its interest in
its wholly owned direct subsidiaries as an investment at fair value
through profit or loss.
31 December
2022
US$'000
--------------------------------------------------------------------- -----------
Philippines 11,491
India -
AEIT Holdings -
--------------------------------------------------------------------- -----------
Total investments at FVTPL 11,491
--------------------------------------------------------------------- -----------
Movements in the period:
Acquisition of assets - cash settled 28,298
Acquisition of assets - consideration shares 30,186
Discount rate unwind 2,833
Changes to inflation 2,789
Change in FX (3,391)
Estimated termination penalties for RUMS project (14,071)
Adjustments to modelling methodology and timing of cash extraction (12,410)
Decrease in power prices (WESM) (9,036)
Changes to generation profile (3,328)
Increase in discount rates (826)
Removal of carbon credit revenues (SolarArise) (2,033)
Other movements in fair value of investments (7,520)
--------------------------------------------------------------------- -----------
Fair value of Company's investments as at 31 December 2022 11,491
--------------------------------------------------------------------- -----------
Fair value of the investment portfolio
The Transitional Investment Manager has carried out a fair
market valuation of the investments as at 31 December 2022. These
valuations have been reviewed by the Company's independent
valuation expert.
The Directors have satisfied themselves as to the methodology
used, the discount rates applied and the valuation. All investments
are in renewable energy assets and are valued using a discounted
cash flow methodology.
The key assumptions used in the DCF models at 31 December 2022
that the Directors believe would have a material impact on the fair
value of the investments should they change are set out in the
table below. The key unobservable inputs, and therefore the key
sources of estimation uncertainty, are future power prices,
renewable energy generation, discount rates and inflation rates.
The table below also includes other assumptions that the
Transitional Investment Manager consider to be key to the valuation
of each investment, such as the ability to extract cash from each
of the investments and the timing of dividend payments.
Key assumption Philippines India Description
----------------- -------------------------- ----------------------- --------------------------------------
Power prices Forecast WESM (53) Fixed price PPA All assets in the Indian portfolio
prices, are based have long--term fixed price
on a blend of two power purchase agreements and
wholesale energy price therefore market forecasts
curves as prepared are not required. The Philippine
by independent market portfolio generates revenue
advisors that are through the sale of power to
reputable in these the grid at the wholesale electricity
markets. market price and is fully exposed
to volatility in wholesale
energy price curves.
----------------- -------------------------- ----------------------- --------------------------------------
Energy generation P50 P50 Electricity output is based
on specifically commissioned
yield assessments prepared
by technical advisors. Each
asset's valuation assumes a
'P50' level of electricity
output, which is the estimated
annual amount of electricity
generation that has a 50% probability
of being exceeded-both in any
single year and over the long-term-
and a 50% probability of being
underachieved. The P50 provides
an expected level of generation
over the long-term. A 3-5%
' haircut ' has been applied
to the current P50 yields in
the models based on historical
underperformance.
----------------- -------------------------- ----------------------- --------------------------------------
Discount rate 12% 12% for operational The discount rate used in each
assets; DCF model reflects the current
12.5% for construction market assessment of the time
assets value of money and the risks
specific to each investment.
Key inputs to the discount
rates have been reviewed by
P w C, the independent valuation
expert.
----------------- -------------------------- ----------------------- --------------------------------------
FX rate US$1:PHP 55.616 US$1:INR 82.67 Underlying valuations are calculated
in local currency and converted
back to USD at the spot rate
at the relevant valuation date.
----------------- -------------------------- ----------------------- --------------------------------------
Inflation CPI trends downwards India CPI forecasts Inflation assumptions used
to a long -- term trend downwards in the model are a blend of
inflation rate assumption in the near term a leading market forecaster
of 3%. The Bangko to a long-term with International Monetary
Sentral ng Pilipinas inflation rate Fund (IMF) CPI forecasts for
(central bank of the assumption of all invested markets as at
Philippines) target 4.2%. This is 31 December 2022.
inflation range is in line with
2% to 4%. the Reserve Bank
of India target
inflation range
of 2% to 6%.
----------------- -------------------------- ----------------------- --------------------------------------
Capital structure Philippines: Capital India: Capital The current structure of each
reduction effective reduction effective of these investments is not
on 30 June 2023 on 31 December optimal for cash extraction.
2023 The DCF models assume a degree
of capital restructuring for
each investment to enable cash
to be extracted more efficiently.
Any delay to these restructuring
plans may delay the ability
of the Company to extract cash
out of its underlying investments.
----------------- -------------------------- ----------------------- --------------------------------------
(53) Philippine Wholesale Electricity Spot Market.
RUMS project
Within the SolarArise portfolio is a 200 MW asset under
construction (the "RUMS project") held through a separate
subsidiary. As at 31 December 2022, SolarArise had spent US$6.8
million on the RUMS project. In valuing the SolarArise portfolio,
the RUMS project was initially held at US$6.8 million i.e.
cost.
At 31 December 2022 the price of solar panels to complete
construction of the asset were high, primarily due to lockdowns in
China which limited global solar panel supply. The DCF valuation of
proceeding with the RUMS project as at 31 December 2022 was
therefore a negative NPV of US$33.3 million (100% basis) whereas
the potential liabilities from aborting the project were between
US$14.1million and US$33.2 million, with termination penalties
potentially being levied on SolarArise. Therefore the valuation of
SolarArise at 31 December 2022 assumes that the RUMS project would
be aborted, any costs paid into the project would be written off to
US $nil and that termination penalties would be levied on the rest
of the SolarArise investment. There is significant judgement in
determining the likely value of the crystallised abort liabilities
but in valuing SolarArise at 31 December 2022, it has been assumed
that a market participant would look at the SolarArise platform in
its entirety and consider either the termination liabilities or the
negative NPV of proceeding with the RUMS project in valuing the
investment and therefore the fair value of the SolarArise
investment as a whole has been written down to US$nil as the risk
of further liabilities being levied on the Company is deemed to be
remote such that the valuation cannot go below US$nil. This
represents total abort liabilities of US$27.8 million (100% basis).
As at 31 December 2022, the Company owned 43% of SolarArise.
However, given that it had also made a commitment to purchase the
remaining 57%, an onerous contract provision has also been
recognised for the 57% commitment - see note 13.
Post period end, following a decrease in panel prices and
re-evaluation of the project, the Board decided that proceeding
with the project represented the least value destructive option for
the Company. As at 30 September 2023, the valuation of the RUMS
project is a negative NPV of US$14.6 million. This excludes the
paid in capital to date of US$10.1 million. See note 22 for further
information.
AEIT Holdings
On 5 May 2022, the Company incorporated a wholly owned
subsidiary, AEIT Holdings, a private company, limited by ordinary
shares. AEIT Holdings' principal activity is to act as an
investment holding company and it is intended that the Company will
acquire its future investments directly through AEIT Holdings. It
is expected that the Company will finance AEIT Holdings through a
mix of equity and long-term debt. At 31 December 2022, AEIT
Holdings did not hold any investments and is therefore held at a
fair value of US$nil.
Valuation sensitivities
The following table presents the results and impact of the
sensitivity analysis completed on the key inputs used in the DCF
models. The sensitivities assume that the relevant input is changed
over the entire useful life of each of the underlying renewable
energy investments, while all other variables remain constant. All
sensitivities have been calculated independently of each other.
Each of these sensitivities have been assessed as reasonably
possible based on actual changes seen over the year.
The Directors have assessed the sensitivity applied to each of
the significant unobservable inputs and believe that each
sensitivity represents a reasonable possible long-term movement in
the significant unobservable input to which it relates,
notwithstanding the significant short-term movements that have
occurred in the period in relation to Philippine wholesale power
prices, foreign exchange, inflation rates and government bonds
yields due to the recent energy market disruption caused by the
ongoing Ukraine-Russia war.
While the Directors believe the changes in inputs calculated to
be within a reasonable expected range based on their understanding
of market transactions, this is not intended to imply the
likelihood of change or that possible changes in value would be
restricted to the range considered. For SolarArise, the
sensitivities in the chart below are calculated on its operational
portfolio, excluding the RUMS project. As the total value of
SolarArise (including the RUMS project) as at 31 December 2022 is
US$nil, the downsides shown below are not reflective of the actual
impact on the Company (as the value of SolarArise can not fall
below US$nil.
Impact of sensitivity
---------------------------------------------------------------
Significant
unobservable Fair value Fair value NAV per NAV per
input Relationship to fair value increase (decrease) share increase share (decrease)
---------------- ----------------------------------- -------------- ----------- --------------- -----------------
Power prices Power price sensitivities US$6.8 million US$(6.5) 3.9 cents (3.7) cents
have only been applied to million
investments whose underlying
assets are exposed to merchant
prices (i.e. revenue streams
which are not tied to a fixed-price
PPA). An increase in forecasted
power prices used for these
revenue streams would result
in an increase in fair value.)
Sensitivity: +/- 25%
---------------- ----------------------------------- -------------- ----------- --------------- -----------------
Renewable energy An increase in generation US$6.5 million US$(6.6) 3.7 cents (3.8) cents
generation would result in an increase million
in fair value.
Sensitivity: +/- 10%
---------------- ----------------------------------- -------------- ----------- --------------- -----------------
Discount rate A decrease in the discount US$1.4 million US$(1.3) 0.8 cents (1.1) cents
rate used would result in million
an increase in fair value.
Sensitivity: -/+ 1%
---------------- ----------------------------------- -------------- ----------- --------------- -----------------
Foreign exchange Deflation of the local currencies US$1.0 million US$(1.0) 0.6 cents (0.6) cents
rate in which the investments million
are held against the US Dollar
would result in an increase
in fair value.
Sensitivity: -/+ 10%
---------------- ----------------------------------- -------------- ----------- --------------- -----------------
Cost inflation A decrease in the inflation US$0.6 million US$(0.6) 0.3 cents (0.3) cents
rate used would result in million
an increase in fair value.
Sensitivity: -/+ 1%
---------------- ----------------------------------- -------------- ----------- --------------- -----------------
Cash extraction As at 31 December 2022, NISPI, - US$(1.2) - (0.7) cents
the SolarArise holding company million
and each of the SolarArise
SPVs has significant negative
distributable reserve balances,
prohibiting the payment of
dividends.
The updated valuations have
been updated to reflect this
but assume that some measures
to eliminate cash traps within
a reasonable timeframe are
implemented for example,
capital reductions. The sensitivity
assumes that such measures
to eliminate cash traps are
delayed by c. 12 months at
both NISPI and SolarArise.
Sensitivity: Delay to assumed
capital reductions +12 months
---------------- ----------------------------------- -------------- ----------- --------------- -----------------
RUMS termination As at 31 December 2022, the US$5.9 million US$(2.4) 3.3 cents (1.4) cents
liabilities least value destructive option million
was to abort the RUMS project.
Advice was sought on the
range of liabilities that
could arise. The potential
outcomes ranged from a worst
case liability of US$14.1
million to a mitigated case
of US$6.1 million on a 43%
basis.
The sensitivity shows the
impact on Company value by
adopting the ends of these
ranges vs. the concluded
abort estimation of $12.0
million.
Sensitivity: Third party
advisors worst case / mitigated
case
---------------- ----------------------------------- -------------- ----------- --------------- -----------------
10. Trade and other receivables
31 December 31 October
2022 2022
US$'000 US$'000
---------------------------------------- ----------- ----------
VAT receivable 541 -
Prepayments 92 -
Amounts receivable from related parties - 66
---------------------------------------- ----------- ----------
Total 633 66
---------------------------------------- ----------- ----------
Amounts receivable from related parties in the prior year
related to the ordinary share and preference shares issued on
incorporation, payable by the initial parent company, ThomasLloyd
Cleantech Infrastructure Holding GmbH. In March 2022, the
preference shares were cancelled (see note 14).
11. Cash and cash equivalents
The cash and cash equivalents were held in the following
currencies at the period end:
31 December 31 October
2022 2022
US$'000 US$'000
------ ----------- ----------
US$ 109,024 -
GBP 6,742 -
Euro 53 -
------ ----------- ----------
Total 115,819 -
------ ----------- ----------
12. Trade and other payables
31 December 31 October
2022 2022
US$'000 US$'000
----------------------------------- ----------- ----------
Trade payables 350 -
Accrued expenses 2,367 -
Amounts payable to related parties 146 -
----------------------------------- ----------- ----------
Total 2,863 -
----------------------------------- ----------- ----------
Amounts payable to related parties are management fees accrued
and payable to the previous Former Investment Manager. See note 19
for further information.
13. Provisions
31 December 31 October
2022 2022
US$'000 US$'000
--------------------------------- ----------- ----------
Opening balance - -
Additions in the period
Onerous contract provision 38,500 -
Amounts utilised in the period - -
--------------------------------- ----------- ----------
Balance at the end of the period 38,500 -
--------------------------------- ----------- ----------
On 20 June 2022 the Company made a commitment to purchase the
remaining 57% of SolarArise for a total consideration of US$38.5
million. The Company has identified an onerous contract and
recognised a provision of US$38.5 million in respect of this
commitment as the fair value of the 57% investment is lower than
the consideration paid to acquire this 57% investment, primarily
due to termination penalties relating to the RUMS project.
Completion of the purchase of 57% of SolarArise occurred on 13
January 2023. See note 9 for further details on how the fair value
of SolarArise was determined.
14. Share capital
Number Share Number Preference
of ordinary Share capital premium of preference share capital
Allotted, issued and fully paid: shares US$'000 US$'000 shares US$'000
------------------------------------ ------------ ------------- --------- -------------- --------------
At incorporation (6 September 2021) 1 - - - -
Issues of shares (18 October 2021) 1 - - 50,000 66
Cancellation of shares (18 October
2021) (1) - - - -
------------------------------------ ------------ ------------- --------- -------------- --------------
At 31 October 2021 1 - - 50,000 66
------------------------------------ ------------ ------------- --------- -------------- --------------
Issue of shares at IPO (14 December
2021) 115,393,127 1,154 114,239 - -
Cancellation of preference shares
(22 March 2022) - - - (50,000) (66)
Subsequent issue of shares (16
August 2022) 26,014,349 260 29,926 - -
Subsequent issue of shares (16
November 2022) 34,277,228 343 34,963 - -
Share issue costs - - (3,618) - -
Transfer to special distributable
reserve - - (111,992) - -
------------------------------------ ------------ ------------- --------- -------------- --------------
Closing balance 31 December 2022 175,684,705 1,757 63,518 - -
------------------------------------ ------------ ------------- --------- -------------- --------------
The Company was incorporated on 6 September 2021 with share
capital of GBP0.01, being one ordinary share of GBP0.01.
On 18 October 2021, the Company issued US$0.01 of ordinary share
capital, being one ordinary share of US$0.01 and preference share
capital of GBP50,000, being 5,000,000 preference shares of GBP0.01.
On this date, the Company cancelled the one ordinary share of
GBP0.01.
On 14 December 2021, at IPO, the Company issued 115,393,127
ordinary shares of US$0.01 each, at a price of US$1.00 per ordinary
share, raising gross proceeds of US$115.4 million.
On 22 March 2022, the Company effected a capital reduction
process which included the cancellation of the 50,000 preference
shares and the related reduction of an amount receivable from
related parties of US$66,000 and the reduction of the share premium
reserve and related transfer to the special distributable reserve
of US$111,992,000.
On 16 August 2022, the Company issued 26,014,349 ordinary shares
of US$0.01 each in consideration for the 43% economic interest in
SolarArise. SolarArise forms part of the seed assets of the IPO,
with the consideration shares forming part of the gross IPO
proceeds. The shares were issued at a price of US$1.16035 per share
that was based on the 10-day average share price prior to allotment
of the shares.
On 16 November 2022, pursuant to the subsequent placing
programme, the Company issued 34,277,228 ordinary shares of US$0.01
each at a price of US$1.030 per ordinary share, raising gross
proceeds of US$35.3 million. The shares were subsequently issued on
18 November 2022.
Expenses incurred of US$3.6 million were determined to be
directly attributable to the equity transactions and that would
have otherwise been avoided if the shares had not been issued.
These expenses include broker fees and commissions, sponsor fees,
amounts paid to lawyers, accountants and other professional
advisors in relation to the IPO and the subsequent placing
programme. Such expenses have been recognised directly in share
premium.
15. Special distributable reserve
In March 2022, the Company was granted court approval for a
capital reduction process to cancel US$112.0 million of share
premium which was transferred to the special distributable reserve.
During 2022, the Company paid dividends of US$1.9 million from this
reserve. At 31 December 2022, the special distributable reserve was
US$110.1 million and is fully distributable.
16. Net asset value per ordinary share
As at 31 December
2022
------------------------------------------- -----------------
Total shareholders' equity (US$'000) 86,580
Number of ordinary shares in issue (000) 175,685
------------------------------------------- -----------------
Net asset value per Ordinary Share (cents) 49.28
------------------------------------------- -----------------
17. Financial instruments by category
The table below sets out the classifications of the carrying
amounts of the Company's financial assets and financial liabilities
into categories of financial instruments. There are no
non-recurring fair value measurements.
As at 31 December 2022
-------------------------------------------------------------
Financial Financial
Financial assets at liabilities
assets at fair value at amortised
amortised through profit cost
cost US$'000 or loss US$'000 US$'000 Total US$'000
---------------------------------- ------------- ---------------- ------------- -------------
Non-current assets
Investments at fair value through
profit or loss - 11,491 - 11,491
Current assets
Cash and cash equivalents 115,819 - - 115,819
---------------------------------- ------------- ---------------- ------------- -------------
Total assets 115,819 11,491 - 127,310
Current liabilities
Trade and other payables - - (350) (350)
Total liabilities - - (350) (350)
---------------------------------- ------------- ---------------- ------------- -------------
Net assets 115,819 11,491 (350) 126,960
---------------------------------- ------------- ---------------- ------------- -------------
Financial instruments are held at carrying value as an
approximation to fair value unless stated otherwise.
IFRS 13 requires the Company to classify its investments in a
fair value hierarchy that reflects the significance of the inputs
used in making the measurements. IFRS 13 establishes a fair value
hierarchy that prioritises the inputs to valuation techniques used
to measure fair value. The three levels of fair value hierarchy
under IFRS 13 are as follows:
Level 1: fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities
Level 2: fair value measurements are those derived from inputs
other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices)
Level 3: fair value measurements are those derived from
valuation techniques that include inputs to the asset or liability
that are not based on observable market data (unobservable
inputs)
As at 31 December 2022
----------------------------------
Level 1 Level 2 Level 3 Total
US$'000 US$'000 US$'000 US$'000
----------------------------------------- ------- ------- ------- -------
Financial assets
Investments at fair value through profit
or loss - - 11,491 11,491
----------------------------------------- ------- ------- ------- -------
Total financial assets - - 11,491 11,491
----------------------------------------- ------- ------- ------- -------
There were no Level 1 or Level 2 assets during the period. There
were no transfers between Level 1 and 2, Level 1 and 3 or Level 2
and 3 during the period.
Reconciliation of level 3 fair value measurement of financial
assets and liabilities
An analysis of the movement between opening to closing balances
of the investments at fair value through profit or loss (all
classified as Level 3) is given in note 9.
The fair value of the investments at fair value through profit
or loss includes the use of Level 3 inputs. Refer to note 9 for
details on the valuation methodology.
18. Financial risk management
The Company is exposed to certain risks through the ordinary
course of business and its financial risk management objective is
to minimise the effect of these risks on its operations. The
management of risks is the responsibility of the Board. The
Investment Manager and AIFM 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 exposure to each financial risk considered potentially
material to the Company, how it arises and the policy for managing
it is summarised below.
(i) Currency risk
The Company operates internationally and holds both monetary and
non-monetary assets denominated in currencies other than the US
Dollar, the functional currency. Foreign currency risk, as defined
in IFRS 7, arises as the value of future transactions and
recognised monetary assets and monetary liabilities denominated in
other currencies fluctuate due to changes in foreign exchange
rates. IFRS 7 considers the foreign exchange exposure relating to
non-monetary assets and liabilities to be a component of market
price risk and not foreign currency risk. However, the Investment
Manager monitors the exposure on all foreign currency-denominated
assets and liabilities.
Whilst the Company will not pursue long-term currency hedging,
the Board intends to substantially hedge future dividend payments
to shareholders where those payments are funded by non-US
Dollar-denominated dividend income. This hedging programme may
cover up to a rolling two-year period. At 31 December 2022, the
Company had not entered into any foreign exchange hedging
transactions for the purpose of managing its exposure to foreign
exchange movements (both monetary and non-monetary).
In relation to local currency debt facilities held at the
investment portfolio level, these are and should be in the same
currency as the offtake agreement, which provides a natural hedge
to mitigate the currency risk. The Investment Manager also includes
prevailing assumptions on annualised currency depreciation in its
financial projections, so that its financial models contain
anticipated changes in currency value. As at 31 December 2022, the
SolarArise portfolio held debt of US$106.8 million on a 100% basis
(US$45.9 million on a 43% basis).
When the Investment Manager formulates a view on the future
direction of foreign exchange rates and the potential impact on the
Company, the Investment Manager factors that into its investment
portfolio decisions. While the Company has direct exposure to
foreign exchange rate changes on the price of non-US
Dollar-denominated investments, it may also be indirectly affected
by the impact of foreign exchange rate changes on the earnings of
certain of its investments and, therefore, the sensitivity analysis
below may not necessarily indicate the total effect on the
Company's net assets of future movements in foreign exchange
rates.
The table below summarise the Company's assets and liabilities,
both monetary and non-monetary, denominated in the currencies the
Company is exposed to, expressed in US$'000s.
US$ GBP PHP INR Other Total
------------------------------------------------- ------- ------- ------ -------- ----- --------
Assets
Investments at fair value through profit or loss - - 11,491 - - 11,491
Trade and other receivables - 633 - - - 633
Cash and cash equivalents 109,024 6,742 - - 53 115,819
Liabilities
Trade and other payables (593) (2,270) - - - (2,863)
Onerous contract provision - - - (38,500) - (38,500)
------------------------------------------------- ------- ------- ------ -------- ----- --------
Net assets 108,431 5,105 11,491 (38,500) 53 86,580
------------------------------------------------- ------- ------- ------ -------- ----- --------
% of NAV 125% 6% 13% (43%) 0% 100%
------------------------------------------------- ------- ------- ------ -------- ----- --------
(ii) Interest rate risk
The Company's interest and non-interest bearing assets and
liabilities (both monetary and non-monetary) as at 31 December 2022
are summarised below:
Non-interest
Interest bearing bearing Total
US$'000 US$'000 US$'000
------------------------------------------------- ---------------- ------------ --------
Assets
Cash and cash equivalents - 115,819 115,819
Trade and other receivables - 633 633
Investments at fair value through profit or loss - 11,491 11,491
------------------------------------------------- ---------------- ------------ --------
Total assets - 127,943 127,943
------------------------------------------------- ---------------- ------------ --------
Liabilities
Trade and other payables - (2,863) (2,863)
Onerous contract provision (38,500) (38,500)
------------------------------------------------- ---------------- ------------ --------
Total liabilities - (41,363) (41,363)
------------------------------------------------- ---------------- ------------ --------
(iii) Power price risk
The Company is also exposed to power price risk on its
investments, primarily being future power prices. Wholesale
electricity prices tend to be volatile and are impacted by a
variety of factors, including market demand, the electricity
generation mix in a specific market and fluctuations in the market
prices of certain commodities. Whilst SolarArise benefits from
fixed priced PPAs, NISPI's revenues are based on the wholesale
electricity spot market price in the Philippines. The Investment
Manager continually monitors the wholesale electricity spot market
price and forecasts and aims to put in place mitigating strategies,
such as securing fixed PPA contracts, to reduce the exposure of the
Company to this risk. However none were entered into either in the
year or subsequent to the balance sheet date. The valuation
sensitivity of the investment portfolio to power prices is shown in
note 9.
The Company's policy is to manage price risk arising from
investments through diversification of its investment portfolio and
selection of investments in renewable energy assets and other
financial instruments within the specified limits set out in the
Company's investment policy, or otherwise set by the Board.
(iv) Credit risks
The Company is exposed to third-party credit risk in several
instances and the possibility that a counterparty with which the
Company or its underlying investment entities contract may fail to
perform their obligations under a commitment that it has entered
into with the Company or its underlying investment entities, in the
manner anticipated by the Company.
Credit risk arises where capital commitments are being made and
is managed by diversifying exposures among a portfolio of
counterparties and through applying credit limits to those
counterparties with a lower credit standing.
Counterparty credit risk exposure limits are determined based on
the credit rating of the counterparty. Counterparties are assessed
and monitored on the basis of their ratings from Standard &
Poor's and/or Moody's. No financial transactions are permitted with
counterparties with a credit rating of less than BBB- from Standard
& Poor's or Baa3 from Moody's, unless specifically approved by
the Board.
Credit risk also arises from cash and other assets that are
required to be held in custody by banks and other financial
institutions. Cash held with banks and other financial institutions
will not be treated as client money subject to the rules of the FCA
and may be used by the bank in the ordinary course of its own
business. The Company will, therefore, be subject to the
creditworthiness of the bank or other financial institution. In the
event of insolvency of a bank or other financial institution, the
Company will rank as a general creditor in relation thereto and may
not be able to recover such cash in full, or at all. To mitigate
this risk, cash and bank deposits are only held with major
financial institutions with high credit ratings assigned by
international credit rating agencies.
The Company has assessed the expected credit loss model in IFRS
9 and does not consider any material impact on these Financial
Statements. No balances are past due or impaired.
(v) Liquidity risks
Liquidity risk is the risk that the Company may not be able to
meet its financial obligations as they fall due. The objective of
liquidity management is, therefore, to ensure that all commitments
which are required to be funded can be met out of readily available
and secure sources of funding.
At 31 December 2022, the Company's financial liabilities were
trade payables. The Company also held an onerous commitment for
$38.5m to acquire the remaining 57% interest in SolarArise and a
contingent liability in relation to contingent consideration
payable under the NISPI sale and purchase agreement. As detailed in
note 21 the fair value of this contingent liability was determined
to be US$nil at 31 December 2022 and the risk surrounding this
contingent liability has fallen away post the period end. The
Company intends to hold sufficient cash to meet its working capital
needs over a horizon of at least the next 12 months from the
signing of these Financial Statements. The Company held cash and
cash equivalents of US$115.8 million at 31 December 2022, with
total financial liabilities of US$0.35 million. The Company also
had non-financial liabilities, including amounts payable under an
onerous contract provision, of US$41.0 million.
Cash flow forecasts are prepared by the Investment Manager on a
quarterly basis for a rolling six-month period to assist in the
ongoing analysis of short-term cash flow, and for at least 12
months to cover the Company's going concern assessment. The
Directors monitor forecast and actual cash flows from operating,
financing and investing activities to consider payment of trade and
other payables, payment of dividends or the funding of additional
investing activities. The Company also ensures that it maintains
adequate cash reserves by monitoring the forecast and actual cash
flows.
The following table shows the maturity analysis of financial
assets and liabilities held at 31 December 2022.
Less than 1 year 1-5 years More than 5 years Total
US$'000 US$'000 US$'000 US$'000
------------------------------------------------- ---------------- --------- ----------------- -------
Assets
Investments at fair value through profit or loss - - 11,491 11,491
Cash and cash equivalents 115,819 - - 115,819
------------------------------------------------- ---------------- --------- ----------------- -------
Liabilities
Trade and other payables (350) - - (350)
------------------------------------------------- ---------------- --------- ----------------- -------
115,469 - 11,491 126,960
------------------------------------------------- ---------------- --------- ----------------- -------
Investments at fair value through profit and loss have been
presented as more than 5 years on account that they are held as
long term investments.
Capital risk management
The Company manages its capital to ensure that it will be able
to continue as a going concern while maximising the capital return
to shareholders. The capital structure of the Company at 31
December 2022 consists of equity attributable to equity holders of
the Company, comprising issued share capital and reserves,
including accumulated losses. The Board continues to monitor the
balance of the overall capital structure so as to maintain investor
and market confidence. The Company is not subject to any external
capital requirements.
The Company does not have any debt, however is permitted to have
debt within its underlying investments. Per the Company's
investment policy, gearing should not exceed 65% of the Adjusted
GAV, with the Company targeting gearing of below 50% in the medium
term. External debt financing is only at the level of the Indian
solar portfolio and as at 31 December 2022, this comprised
outstanding principal amounts of US$45.9 million (pro rated for
economic ownership), representing a leverage ratio of 27%
increasing to 46% on a committed basis (including 100% of
SolarArise).
19. Related party transactions
AIFM
The Company is classified as an Alternative Investment Fund
under the EU Alternative Investment Fund Managers' Directive as
incorporated into UK law (the 'AIFMD') and is, therefore, required
to have an AIFM. The Company's AIFM is Adepa Asset Management
S.A.
The AIFM is entitled to an annual management fee at the
following rates, based on the NAV and payable quarterly in
arrears:
Fee based on NAV
----------------------------- ----------------
Up to US$200 million 0.055%
Between US&200-400 million 0.045%
Between US&400-1,000 million 0.035%
Above US$1 billion 0.025%
----------------------------- ----------------
The AIFM is also entitled to an annual risk management fee of
EUR14,500.
For the period from IPO to 31 December 2022, the AIFM was
entitled to management fees of US$94,000. Of this total, US$38,000
remained outstanding at the balance sheet date and was included in
payables.
Investment Manager
The AIFM, with the agreement of the Company, has delegated the
portfolio management of the Company to the Investment Manager. For
the period from IPO to 31 October 2023, the Investment Manager was
ThomasLloyd Global Asset Management (Americas) LLC (the "Former
Investment Manager").
Management fees are payable quarterly in arrears and are
calculated at the following rates, based on the NAV on the last
business day of the relevant quarter:
Fee based on NAV
--------------------------------- ----------------
Up to US$700 million 1.3%
US$700 million to US$2.0 billion 1.1%
Over US$2.0 billion 1.0%
--------------------------------- ----------------
For the period from IPO to 31 December 2022, the Former
Investment Manager was entitled to management fees of US$1.4
million. Of this total, US$0.15 million remained outstanding at the
balance sheet date and was included in amounts payable to related
parties.
The Investment Management Agreement between the AIFM, Company
and Former Investment Manager (the "IMA") was terminated post
period end with effect from 31 October 2023. From 1 November 2023,
Octopus Energy Generation were appointed as Transitional Investment
Manager to cover an initial period through to 30 April 2024.
Transactions with the Former Investment Manager
Acquisition of SolarArise
The Company acquired its 43% economic interest in SolarArise
from ThomasLloyd SICAV, ThomasLloyd Cleantech Infrastructure Fund
SICAV and ThomasLloyd Cleantech Infrastructure Holding GmbH, all
related parties of the Former Investment Manager. The acquisition
agreement signed in November 2021 was amended prior to completion
in August 2022 to provide for the consideration to be changed from
a fixed number of ordinary shares to a variable number of shares
based on an average 10-day share price prior to date of allotment,
to update the fair value to that at 30 June 2022 as opined on by an
independent third-party and to provide for the number of ordinary
shares to be issued as consideration to be net of withholding tax
of US$2.7 million, which was required to be withheld and remitted
by the Company to the tax authorities on behalf of the sellers.
At November 2021, the consideration payable was US$34.6 million,
which was to be settled by the issue of 34,606,872 ordinary shares
in the Company (equivalent to an issue price of US$1.00 per share).
Following these amendments, completion of the acquisition of the
43% economic interest in SolarArise was for a consideration of
US$30.2 million, settled through the issue of 26,014,349 ordinary
shares at US$1.16035 per share. In addition, cash of US$2.7 million
was paid to the Indian tax authorities on behalf of the
sellers.
As at 31 December 2022 the Company's investment in SolarArise
was valued at US$nil. See note 9 for further information.
Acquisition of NISPI
The Company acquired its 40% economic interest in NISPI from
ThomasLloyd CTI Asia Holdings Pte Ltd, which is a related party of
the Former Investment Manager and shares an ultimate beneficial
owner with the Former Investment Manager. Under the acquisition
agreement, the Company paid an initial cash consideration of
US$25.4 million and may have led to paying an additional contingent
cash consideration of up to US$22.0 million if the Company, prior
to June 2023, was awarded a power purchase agreement pursuant to a
Green Auction carried out by the Department of Energy of the
Philippines. If such contingent consideration was payable, the
consideration would have been settled 10 business days after the
Green Auction purchase price agreement is awarded. On 10 June 2022,
the Company and ThomasLloyd CTI Asia Holdings Pte Ltd agreed to
extend the date for payment of any contingent consideration to the
earlier of (i) 31 December 2026 and (ii) 10 business days after a
further capital raise by the Company, the purpose of which includes
funding payment of contingent consideration (or, if the updated
valuation has not been received prior to such fundraise, 10
business days after the updated valuation has been received).
NISPI was not awarded a PPA under a Green Auction prior to June
2023 and therefore no further consideration is payable for the
acquisition of NISPI.
Directors
The Company has four non-executive Directors. Total Directors'
fees of US$255,000, with associated payroll taxes of US$11,000,
have been incurred in respect of the period since IPO. Total
expenses of US$6,000 were also paid to the Directors in the period,
of which US$1,000 was outstanding at 31 December 2022.
The Directors had the following shareholdings in the Company,
all of which were beneficially owned.
Ordinary shares held Ordinary shares held
as at date of this as at 31 December
report 2022
------------------ -------------------- --------------------
Sue Inglis 65,000 65,000
Kirstine Damkjaer - -
Mukesh Rajani 33,000 33,000
Clifford Tompsett 33,000 33,000
------------------ -------------------- --------------------
20. Subsidiaries, joint ventures and associates
As a result of applying Investment Entities (Amendments to IFRS
10, IFRS 12 and IAS 27), no subsidiaries have been consolidated in
these Financial Statements. The Company does not control each of
the subsidiaries listed below and therefore the transfer of
dividends is dependent on there being suitable distributable
reserves, and the approval of co-shareholders. For those
subsidiaries with external debt, all debt agreements are complied
with. See note 21 to the Financial statements fro further
information on the Company's commitments with respect to these
subsidiaries. The Company's subsidiaries are listed below:
Place of Registered Ownership
Name Category business Office* interest
----------------------------------- ---------------------- ------------ ----------- ---------
AEIT Holdings Limited Intermediate Holdings UK A 100%
Negros Island Solar Power Inc.
('NISPI') Project company Philippines B 34% (54)
SolarArise India Projects Private
Ltd ('SolarArise') Intermediate Holdings India C 43%
Talettutayi Solar Projects Private
Limited Project company India D 43%
Talettutayi Solar Projects One
Private Limited Project company India D 43%
Talettutayi Solar Projects Two
Private Limited Project company India D 43%
Talettutayi Solar Projects Four
Private Limited Project company India D 43%
Talettutayi Solar Projects Five
Private Limited Project company India D 43%
Talettutayi Solar Projects Six
Private Limited Project company India D 43%
Talettutayi Solar Projects Eight
Private Limited Project company India D 43%
Talettutayi Solar Projects Nine
Private Limited Project company India D 43%
Talettutayi Solar Projects Ten
Private Limited Project company India D 43%
----------------------------------- ---------------------- ------------ ----------- ---------
*Registered offices:
A - The Scalpel, 18th Floor, 52 Lime Street, London, EC3M 7AF,
United Kingdom.
B - Emerald Arcade, F.e. Ledesma 8t., San Carlos, Negros Island,
Philippines.
C - A-39, LGF, Lajpat Nagar, Part-1 New Delhi-110024, India.
D - Unit No. 1004, 10th Floor, BPTP Park Centra, Sector 30,
NH-8, Gurugram-122001, Haryana, India.
As at 31 December 2022, investments into AEIT Holdings, NISPI
and SolarArise were held directly. All other investments were held
indirectly.
(54) The Company's economic interest in NISPI is 40%.
21. Guarantees, contingent liabilities and other commitments
NISPI - contingent consideration
The sale and purchase agreement for the acquisition of the 40%
economic interest in NISPI provided for an initial cash
consideration of US$25.4 million and potentially an additional
contingent cash consideration of up to US$22.0 million. This
contingent cash consideration was dependent upon NISPI being
awarded a PPA, prior to June 2023, by the Philippine's Department
of Energy under their Green Auction process. As 31 December 2023
any payment was considered remote and therefore was fair valued at
US$nil.
NISPI was not awarded a PPA under a Green Auction prior to June
2023 and therefore this contingent liability no longer exists at
the date of signing these Financial Statements.
AEIT Holdings - funding
At the balance sheet date, the Company committed to provide
US$5.0 million of funding to AEIT Holdings to acquire a 99.8%
interest in VSS, a privately-owned company which holds 6.12 MWp of
rooftop solar assets. The funding was provided through the issue of
shares by AEIT Holdings to the Company for cash. The funding was
provided on 20 April 2023 and the acquisition of VSS completed on
31 May 2023 for US$3.1 million.
SolarArise - acquisition of additional 57% economic stake
On 20 June 2022 the Company made a commitment to purchase the
remaining 57% of SolarArise for a total consideration of US$38.5
million. The Company has identified an onerous contract and
recognised a provision of US$38.5 million in respect of this
commitment. This provision represents the Company's best estimate
of the fair value of 57% of SolarArise (which was US$nil after
factoring in the liabilities associated with the RUMS project) less
the consideration payable as of 31 December 2022. Completion of the
purchase of 57% of SolarArise occurred on 13 January 2023. See note
13 for further information.
22. Post period end events
There have been no reportable events after the balance sheet
date, other than as described below:
On 13 January 2023, the Company completed its acquisition of the
remaining 57% in SolarArise for US$38.5 million. At the period end,
the Company had an onerous contract provision in respect of this
commitment. See note 13 for further information.
The Company declared its fourth interim dividend of 1.18 cents
per ordinary share on 13 April 2023 in respect of the period from 1
October 2022 to 31 December 2022. The dividend was paid on 22 May
2023.
On 20 April 2023, the Company increased its investment in AEIT
Holdings by US$5.0 million. US$3.1 million of this amount was used
by AEIT Holdings to acquire Viet Solar System Company Limited
("VSS"), a privately-owned company which holds 6.12 MW of rooftop
solar assets. The acquisition completed on 31 May 2023 and
represents a 99.8% interest in VSS.
On 25 April 2023 the Company announced a temporary share
suspension. This was due to a material uncertainty regarding the
fair value of its assets and liabilities, in particular with regard
to the 200 MW construction-ready asset in Rewa Ultra Mega Solar
Park, the "RUMS project" acquired as part of the SolarArise
portfolio.
On 6 June 2023 the Company declared an interim dividend for the
period from 1 January 2023 to 31 March 2023 of 0.44 cents per
ordinary share. The dividend was paid on 19 July 2023 to
shareholders on the register on 16 June 2023.
On 10 August 2023 the Company declared an interim dividend for
the period from 1 April 2023 to 30 June 2023 of 0.44 cents per
ordinary share. The dividend was paid on 11 September 2023 to
shareholders on the register on 18 August 2023.
On 15 September 2023, the Board served notice on the Former
Investment Manager terminating the IMA with effect from 31 October
2023. From 1 November 2023, Octopus Energy Generation "OEGEN" was
appointed as Transitional Investment Manager to cover an initial
period through to 30 April 2024. For this initial term, the Company
will pay OEGEN a management fee of US$1.35 million. At the end of
the term, at the discretion of the Board, there is scope for OEGEN
to earn an additional management fee of up to US$0.55 million for
its services during the initial period.
On 11 October 2023 the Board announced its decision to proceed
with the RUMS project due to it being the least value destructive
option for shareholders. This was based on the advice received from
the Former Investment Manager. To proceed with the RUMS project,
the Board put forward an amendment to the Company's investment
policy with regard to the single country limit which was passed on
31 October 2023.
On 27 October 2023, the Company changed its name to Asian Energy
Impact Trust plc. with a new corporate website launched on 1
November 2023 www.asianenergyimpact.com.
On 8 November 2023 the Company declared an interim dividend for
the period from 1 July 2023 to 30 September 2023 of 0.44 cents per
ordinary share. The dividend was paid on 11 December 2023 to
shareholders on the register on 17 November 2023.
On 13 December 2023, the Company announced its unaudited NAV as
at 30 September 2023 is US$88.5 million (50.4 cents per share) and
as at 30 September 2023, the Company had cash balances of US$63.6
million and held US$1.7 million in its UK subsidiary, AEIT
Holdings. As at 30 September 2023, the value of the SolarArise
portfolio increased from US$nil as at 31 December 2022 to US$11.3
million and included a negative NPV associated with completing the
RUMS project of US$14.6 million. The improvement in valuation
associated with completing the RUMS project is due to a reduction
in the price of solar panels through 2023, primarily due to China
opening up from lockdowns and therefore an increase in solar panel
supply.
Other information
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
Directors assess the Company's performance against a range of
criteria which are viewed as particularly relevant for closed-end
investment companies. The APMs presented in this report are shown
below:
NAV per share
A measure of the value of the Company attributable to each
share, at the reporting date. The calculation of NAV per share is
shown in note 16 to the Financial Statements.
NAV total return
A measure of success of the Company's investment strategy. The
NAV total return per share includes both income and capital returns
by taking into account any increase or decrease in the NAV per
share over the reporting period and assuming that dividends paid to
shareholders during the reporting period are reinvested at the NAV
per share on the ex-dividend date.
31 December 2022 NAV
------------------------------------------------ ------------------ ------
NAV per share at IPO (14 December 2021) - cents a 98.00
NAV per share at 31 December 2022 - cents b 49.28
Benefits of reinvesting dividends - cents (55) d (0.78)
Dividends paid in the year - cents c 1.32
------------------------------------------------ ------------------- ------
Total return (b+c+d)÷a)-1 -49.2%
------------------------------------------------ ------------------- ------
(55) Calculated by taking the dividend per share and assuming it
is reinvested at the prevailing NAV/share price on the dividend
payment date.
GAV, Adjusted GAV and Gearing
GAV is measure of the total size of the Company and is the total
value of the assets of the Company, being the aggregate of
aggregate of the fair value of its investment portfolio and any
cash and cash equivalents. Leverage is not employed at the Company
level but may be employed within investment portfolio. Adjusted GAV
is a measure of the total size of the Company, including, on a look
through basis, its proportionate share of any leverage within its
investment portfolio, and forms the basis on which the gearing
restriction in the Company's investment policy is calculated.
Gearing is a measure of the potential financial risk to which the
Company is exposed and is its proportionate share of any leverage
within its investment portfolio expressed as a percentage of
Adjusted GAV. This excludes the onerous contract relating to the
commitment to acquire a further 57% of SolarArise.
As at
31 December 2022
US$ million
----------------------------------------- ----------- ----------------
Value of investment portfolio a 11.5
Cash and cash equivalents of the Company b 115.8
----------------------------------------- ------------ ----------------
GAV a + b = c 127.3
----------------------------------------- ------------ ----------------
Debt in underlying SPVs (56) d 45.9
----------------------------------------- ------------ ----------------
Adjusted GAV c + d = e 173.3
----------------------------------------- ------------ ----------------
Gearing (d÷e) 27%
----------------------------------------- ------------ ----------------
(56) Debt held at SolarArise and disclosed here on a 43% basis.
Net operational asset value
The value of the Company's operational asset investments,
excluding construction projects. Provides a measure of the value of
the investment portfolio that is revenue generating and will make a
positive contribution to the Company's dividend cover.
As at
31 December
2022
US$ million
----------------------------------------------- ---- -----------
Value of investment portfolio a 11.5
Abort liabilities recognised in respect of the
RUMS project b (12.0)
----------------------------------------------- ----- -----------
Net operational asset value a-b 23.5
----------------------------------------------- ----- -----------
Market capitalisation
Market capitalisation is a measure of the value of the Company
as determined by the stock market and is the total value of all
outstanding shares at the prevailing market price.
As at
31 December
2022
US$ million
------------------------------ ---- -----------
Share price (US$ per share) a 1.18
Shares in issue at period end b 175,685
------------------------------ ----- -----------
Market capitalisation a+b 207.3
------------------------------ ----- -----------
Ongoing charges ratio
The ongoing charges ratio is a measure of the recurring annual
costs of running the Company based on historical data. It is
calculated using the AIC methodology and is the Company's recurring
operating expenses for the last 12 months expressed as a percentage
of the average published net assets for that period. Recurring
operating expenses exclude the costs of buying and selling
investments, any non-recurring costs and the costs of issuing
shares.
Period ended 31 December 2022 US$ million
---------------------------------- ----------------------- -----------
Reported NAV
Q1 2022 a 106.2
Q2 2022 b 115.2
Q3 2022 c 142.5
Q4 2022 d 86.6
---------------------------------- ------------------------ -----------
Average NAV (a+b+c+d)/4 = e 112.7
---------------------------------- ------------------------ -----------
Total expenses f 3.3
less transaction costs g (0.3)
less non-audit related services h (0.2)
less other non-recurring expenses i (1.5)
add realised FX gains j 1.7
---------------------------------- ------------------------ -----------
Annualised expenses (f+g+h+i+j)/12.5*12 =k 2.9
---------------------------------- ------------------------ -----------
Ongoing charges ratio (k÷e) 2.50%
---------------------------------- ------------------------ -----------
% of sustainable investments including cash
The proportion of the Company's sustainability-related
investments after classifying the Company's cash as
'unsustainable'. This is disclosed in the SFDR periodic
disclosures.
As at
31 December 2022
US$ million
----------------------------------------------------- ------------- ----------------
Fair value of investments a 11.5
----------------------------------------------------- -------------- ----------------
Net assets of the Company b 86.6
Onerous contract provision c 38.5
----------------------------------------------------- -------------- ----------------
Adjusted net assets of the Company b+c =d 125.1
----------------------------------------------------- -------------- ----------------
% of sustainable investments (a÷d) 9.2%
----------------------------------------------------- -------------- ----------------
Committed for 57% of SolarArise e 38.5
Committed for 99.8% of VSS f 3.1
----------------------------------------------------- -------------- ----------------
Total commitments e+f =g 41.6
----------------------------------------------------- -------------- ----------------
% of sustainable investments (including commitments) (a+g)÷d 42.4%
----------------------------------------------------- -------------- ----------------
Excluding cash, 100% of the Company's investments are
sustainable.
SFDR Principle Adverse Impacts Statement (Unaudited)
SFDR Principle Adverse Impacts Statement for financial products
(Article 7 of SFDR)
Financial market participant: Asian Energy Impact Trust plc
Summary
Asian Energy Impact Trust plc (AEIT) LEI 254900V23329JCBR9G82
through its Investment Manager during the period, ThomasLloyd
Global Asset Management (Americas) LLC, considered principal
adverse impacts of its investment decisions on sustainability
factors. The present statement is the consolidated statement on
principal adverse impacts on sustainability factors of AEIT.
This statement on principal adverse impacts on sustainability
factors covers the reference period from 1 January 2022 to 31
December 2022. The indicators presented are based on data directly
provided by investee companies and reviewed by the Investment
Manager. This statement considers the operational assets within the
SolarArise and excludes the RUMS project. Including the RUMS
project results in the SolarArise being valued at zero due to
material negative value of that project. Without this exclusion,
all data pertaining to SolarArise, would not have been considered
due to the mathematical calculations. Excluding the RUMS project
ensures that SolarArise reflects a non zero value and PAIs are more
reflective of the assets. To complete a comprehensive assessment of
Scope 2 and 3 assessments, software solutions that apply emissions
factors to financial expenditures were used. On climate and
environment related indicators: the GHG emissions associated with
the AEIT portfolio are a small fraction of the avoided emissions
associated with the clean energy generation it has financed, even
when all three scopes are accounted for. AEIT will continue to work
with investee companies to explore opportunities to further reduce
this footprint, in order to improve carbon footprint, carbon
intensity, and reduce non-renewable energy consumption PAIs
wherever possible. Portfolio emissions or intensity targets are not
yet proposed. No investments had negative impacts on biodiversity
sensitive areas, and emissions to water and hazardous waste were
small across the portfolio. On social and employee issues, respect
for human rights, anti-corruption and anti-bribery matters, no
major issues related to the UN Global Compact or OECD Guidelines
for Multinational Enterprises were reported, and grievance
mechanisms were in place. Further engagement with investee
companies will strengthen the practical implementation of existing
policies and effectiveness of grievance mechanisms. The data
presented in this first PAI statement for AEIT has been reviewed by
the Board.
Indicators applicable to investments in investee companies (AEIT investment
portfolio including commitment to SolarArise)
----------------------------------------------------------------------------------------------------------------------
Impact 2022
Actions taken,
and actions planned
and targets set
Adverse sustainability (First year for the next reference
indicator Metric of reporting) Explanation period
--------------------------------- ------------------ ------------------- ------------------ ----------------------
Climate and other environment-related indicators
----------------------------------------------------------------------------------------------------------------------
Greenhouse 1. GHG emissions Scope 1 GHG 23.0 tCO (2) The Investment The current portfolio
gas (GHG) Emissions e Manager used an footprint is
emissions external advisor, relatively
a CDP certified small. 2022 is
software to the first year
support of operation for
GHG accounting, AEIT. Next steps
and to complete include engagement
its GHG footprint. with investee
The figures companies
presented to identify and
represent a best implement measures
first effort to to further reduce
capture the scope GHG emissions.
3 emissions of At this stage,
investee companies GHG emission reduction
more completely targets are not
by applying being set.
emissions
factors to
financial
expenditures.
Through
the process a
number
of areas were
identified
where more work
is needed to
collect
more granular data
on critical scope
3 emissions, in
addition to
priorities
for GHG
management.
Nevertheless, the
emissions
associated
with the AEIT
portfolio
are substantially
smaller than the
emissions avoided
associated with
the clean energy
generation it has
financed.
------------ ------------------- ------------------ ------------------- ------------------ ----------------------
Scope 2 GHG 68.2 tCO (2)
Emissions e
------------ ------------------- ------------------ ------------------- ------------------ ----------------------
Scope 3 GHG 598.7 tCO
Emissions (2) e
------------------ -------------------
Total GHG 689.9 tCO
Emissions (2) e
------------------- ------------------ -------------------
2. Carbon Carbon footprint 22,2tCO (2)
footprint e/EUR m
------------------- ------------------ -------------------
3. GHG intensity GHG intensity 213.6 tCO
of investee of investee (2) e/EUR
companies companies m revenue
------------------- ------------------ ------------------- ------------------ ----------------------
4. Exposure Share of 0 The Investment
to companies investments Manager's ESG policies
active in in companies excluded investment
the fossil active in in coal or nuclear
fuel sector the fossil fired power, and
fuel sector oil and gas projects.
------------------- ------------------ ------------------- ------------------ ----------------------
5. Share Share of a) 100% (all The investment The Investment
of non-renewable non-renewable consumption portfolio is Manager will continue
energy energy consumption from non-renewable focused to work with companies
and non-renewable sources) on renewable to explore
energy production b) 0% (all energy opportunities
of investee production production. to reduce their
companies from renewable However, consumption of
from non-renewable sources) some non-renewable non-renewable energy
energy sources energy is used and improve energy
compared through diesel efficiency.
to renewable generator sets
energy sources, for backup power
expressed and purchasing
as a percentage electricity from
of total the grid to
energy sources support
overnight
functions
for the solar
portfolio.
Taking a
conservative
approach, energy
purchased from
the grid has been
treated as
non-renewable
for the purposes
of these metrics.
------------------- ------------------ ------------------- ------------------ ----------------------
6. Energy Energy consumption 0.075GWh/ Renewable energy
consumption in GWh per EURm generation is
intensity million EUR allocated
per high of revenue to the NACE sector
impact climate of investee "electricity, gas,
sector companies, steam and air
per high conditioning
impact climate supply" (NACE code
sector D/35) classified
in total as high
impact climate
sector. For the
purposes of this
PAI indicator
regulation
2022/1288 does
not differentiate
between renewable
energy generation
and other forms
of energy
generation
which have a high
climate impact.
------------ ------------------- ------------------ ------------------- ------------------ ----------------------
Biodiversity 7. Activities Share of 0% None. To ensure no
negatively investments significant
affecting in investee harm to biodiversity
biodiversity companies and ecosystems,
- sensitive with environmental
areas sites/operations screening
located in is conducted for
or near to all investments.
biodiversity-
sensitive
areas where
activities
of those
investee
companies
negatively
affect those
areas
------------ ------------------- ------------------ ------------------- ------------------ ----------------------
Water 8. Emissions Tonnes of 0.002 tonnes As the current The Investment
to Water emissions portfolio Manager will continue
to water comprises to monitor this
generated entirely of solar critical issue.
by investee plants, these
companies emissions
per million are not associated
EUR invested, with their
expressed operations.
as a weighted
average
------------ ------------------- ------------------ ------------------- ------------------ ----------------------
Waste 9. Hazardous Tonnes of 0.04 tonnes The Investment The Investment
waste and hazardous Manager understood Manager will continue
radioactive waste and that the small to explore
waste ratio radioactive quantity of opportunities
waste generated hazardous to reduce the
by investee waste reported production
companies were in relation of hazardous waste
per million to solar panels and promote circular
EUR invested, that were replaced economy approaches.
expressed at one investee
as a weighted company site.
average These
solar panels were
safely disposed
of through a
designated
waste disposal
agent authorised
by government
authorities.
------------ ------------------- ------------------ ------------------- ------------------ ----------------------
Indicators for Social and Employee, Respect for Human Rights, Anti-Corruption
and Anti-Bribery Matters
----------------------------------------------------------------------------------------------------------------------
Social and 10. Violations Share of 0% No violations have Further engagement
employee of UN Global investments been reported. with investee
matters Compact principles in investee companies
and Organisation companies will strengthen
for Economic that have their implementation
Cooperation been involved of the OECD Guidelines
and Development in violations for Multinational
(OECD) Guidelines of the UNGC Enterprises and
for Multinational principles the effectiveness
Enterprises or OECD Guidelines of grievance
for Multinational mechanisms.
Enterprises
------------ ------------------- ------------------ ------------------- ------------------ ----------------------
11. Lack Share of 0% All investee The Investment
of processes investments companies Manager will continue
and compliance in investee have grievance to work closely
mechanisms companies mechanisms in with the investee
to monitor without policies place companies to identify
compliance to monitor through which any and action areas
with UN Global compliance stakeholder can where implementation
Compact principles with the raise concerns of these frameworks
and OECD UNGC principles about their can be further
Guidelines or OECD Guidelines project enhanced, make
for Multinational for Multinational implementation information about
Enterprises Enterprises frameworks, and the functioning
or grievance complaints lodged of these mechanisms
/complaints through these more readily
handling mechanisms available,
mechanisms are reported to and establish
to address the Investment appropriate
violations Manager. policies to promote
of the UNGC respect for human
principles rights in all
or OECD Guidelines activities,
for Multinational including with
Enterprises their suppliers.
------------ ------------------- ------------------ ------------------- ------------------ ----------------------
12. Unadjusted Average unadjusted 37% Gender pay-gap The Investment
gender pay gender pay analysis was not Manager will continue
gap gap of investee possible in most to monitor and
companies cases given no encourage investee
female employees companies to consider
at the investee diversity and equality
company. A in their operating
substantial priorities, local
gender pay gap culture and needs.
was reported at
one of AEIT's
investee
companies, with
the average daily
gross pay for men
being 51% higher
as women.
------------------- ------------------ ------------------- ------------------ ----------------------
13. Board Average ratio 74% SolarArise board The Investment
gender diversity of female diversity had Manager will look
to male board 50/50 to advocate for
members in representation. gender equality
investee However, NISPI across investee
companies, did not have a company governance.
expressed board in place
as a percentage during the period
of all board and so the
members calculation
assumes 100% male
representation
for NISPI.
------------------- ------------------ ------------------- ------------------ ----------------------
14. Exposure Share of 0% Not applicable Not applicable.
to controversial investments due to exclusion. These sectors are
weapons (anti- in investee excluded.
personnel companies
mines, cluster involved
munitions, in the manufacture
chemical or selling
weapons and of controversial
biological weapons
weapons)
------------ ------------------- ------------------ ------------------- ------------------ ----------------------
Additional climate and other environment-related Indicators
----------------------------------------------------------------------------------------------------------------------
6. Water (a) Average (a) 751.7 Water consumption Efforts to improve
usage amount of m3/ EUR m at investee water consumption
water consumed (b) 0% companies efficiency reflecting
by the investee fluctuated over the level of water
companies the course of scarcity at site
(in cubic 2022, level are needed
meters) per with less at all sites. The
million EUR consumption Investment Manager
of revenue during rainy will continue to
of investee periods, engage with investee
companies and substantially companies to explore
(b) percentage higher consumption site appropriate
of water during periods responses. The
recycled of high pollution Investment Manager
and reused that result in will encourage
by investee a greater need the measurement
companies for solar panel of water recycling
cleaning. and reuse.
Water recycling
and reuse was not
measured during
the period and
so the Investment
Manager assumed
0%.
------------ ------------------- ------------------ ------------------- ------------------ ----------------------
Additional social and employee, respect for human rights, anti-corruption
and anti-bribery matters indicator
----------------------------------------------------------------------------------------------------------------------
3. Number Number of 0 Investee companies Continued vigilance
of days lost workdays reported no in monitoring
to injuries, lost to injuries, workdays incidents
accidents, accidents, lost to health at managed sites
fatalities fatalities and safety related is needed, and
or illness or illness issues. sustained efforts
of investee to maintain high
companies health and safety
expressed standards are
as a weighted required.
average
------------ ------------------- ------------------ ------------------- ------------------ ----------------------
SFDR Periodic Disclosure
Template periodic disclosure for the financial products referred
to in Article 9, paragraphs 1 to 4a, of Regulation (EU) 2019/2088
and Article 5, first paragraph, of Regulation (EU) 2020/852
Product name: Asian Energy Investment Trust plc
Legal entity identifier: 254900V23329JCBR9G82
Sustainable investment means an investment in an economic
activity that contributes to an environmental or social objective,
provided that the investment does not significantly harm any
environmental or social objective and that the investee companies
follow good governance practices.
The EU Taxonomy is a classification system laid down in
Regulation (EU) 2020/852 establishing a list of environmentally
sustainable economic activities. That Regulation does not include a
list of socially sustainable economic activities. Sustainable
investments with an environmental objective might be aligned with
the Taxonomy or not.
Sustainable investment objective
Does this financial product have a sustainable investment objective?
---- Q Yes ---- GBP No
Q It made sustainable investments GBP It promoted Environmental/Social
with an environmental objective: 100% (E/S) characteristics and while it
Q in economic activities that qualify did not have as its objective a sustainable
as environmentally sustainable under investment, it had a proportion of
the EU Taxonomy 0 % of sustainable investments
GBP in economic activities that do GBP with an environmental objective
not qualify as environmentally sustainable in economic activities that qualify
under the EU Taxonomy as environmentally sustainable under
the EU Taxonomy
GBP with an environmental objective
in economic activities that do not
qualify as environmentally sustainable
under the EU Taxonomy
GBP with a social objective
GBP It made sustainable investments GBP It promoted E/S characteristics,
with a social objective: 0 % but did not make any sustainable investments
To what extent was the sustainable investment objective of this
financial product met?
Asian Energy Infrastructure Trust Plc (AEIT) is a renewable
energy investment trust providing direct access to sustainable
energy infrastructure in fast-growing and emerging economies in
Asia. In line with AEIT's triple return objectives, which aim to
provide financial, environmental and social returns, the
investments support the environmental objective of climate change
mitigation as set out in Article 9 of the EU Taxonomy by
generating, transmitting, storing, distributing or using renewable
energy. AEIT's investments in sustainable energy target countries
where greenhouse gas (GHG) emissions are growing rapidly. The
investments address the climate change mitigation priorities set
out in those countries' Nationally Determined Contributions under
the Paris Agreement on Climate Change, as well as their efforts to
achieve the Sustainable Development Goals (SDGs), by avoiding GHG
emissions and having a positive effect on the communities in which
they work. In the period ended 31 December 2022, investments were
made in 80 MW of operating solar capacity on Negros Province in the
Philippines and 233 MW of operating solar capacity in India. AEIT's
share of the operational capacity was 32 MW and 100 MW
respectively.
Sustainability indicators measure how the sustainable objectives
of this financial product are attained.
How did the sustainability indicators perform?
AEIT ' s investments substantially contributed to climate change
mitigation as reflected in the technical screening criteria listed
in section 4 Annex 1 regulation 2021/2139. The construction and
operation of new renewable energy infrastructure in Asia helped
improve energy access and security, create jobs, and avoid GHG
emissions. These positive impacts were measured using the following
key performance indicators, which align with SDG 7 (Affordable and
Clean Energy) and SDG 13 (Climate Action):
Installed renewable capacity -
MW 132
--------------------------------- ------
Renewable energy generated - MWh 85,199
--------------------------------- ------
CO (2) emissions avoided - tCO
(2) e 62,770
--------------------------------- ------
Note: Figures are based on AEIT s proportional share of the
investment portfolio as at 31 December 2022. The Portfolio
therefore comprised a 40% interest in NISPI and a 43% interest in
SolarArise.
... and compared to previous periods?
Not applicable: this was the first complete year of AEIT
operation, with the first investment made in December 2021.
How did the sustainable investments not cause significant harm
to any sustainable investment objective?
Environmental, social and governance (ESG) considerations are
integral to AEIT s investment objective, and AEIT s investment
manager during the period (the 'Investment Manager') had
environmental and social policies that drew on the International
Finance Corporation s environmental and social performance
standards. These policies provide a framework that help identify
and manage potential significant harm to any environmental or
social objectives, including water; biodiversity and ecosystems;
circular economy; pollution prevention.
How were the indicators for adverse impacts on sustainability
factors taken into account?
Data related to the mandatory indicators for Principle Adverse
Impacts listed under Table 1 Annex 1 of regulation 2022/1288 have
been collected. These indicators are also monitored continuously
over the life of an investment. AEIT s 2022 Annual Report includes
its Annual PAI Statement completed using Annex I of regulation
2022/1288.
Were sustainable investments aligned with the OECD Guidelines
for Multinational Enterprises and the UN Guiding Principles on
Business and Human Rights?
No major controversies or violations were reported during the
period. The Investment Manager will continue to engage with
investee companies to strengthen implementation frameworks, and
enhance the practical effectiveness of established grievance
mechanisms.
Principal adverse impacts are the most significant negative
impacts of investment decisions on sustainability factors relating
to environmental, social and employee matters, respect for human
rights, anti -- corruption and anti -- bribery matters.
How did this financial product consider principal adverse
impacts on sustainability factors?
The issues addressed by the PAIs were expressly covered by the
Investment Manager s Sustainability Policies and management
frameworks, and social and environmental issues were considered
during due diligence phases of the investment process and KPIs were
monitored post-acquisition. Specifically, in 2022 the Investment
Manager worked with the investee companies to carry out greenhouse
gas accounting including to capture Scope 3 emissions. AEIT s 2022
Annual Report includes its Annual PAI Statement containing
information on the mandatory PAI indicators in Table 1 Annex 1
regulation 2022/1288 for the AEIT investments collected using best
efforts.
What were the top investments of this financial product?
Largest investments Sector % Assets Country
------------------- ------ -------- -----------
SolarArise Energy 100% India
NISPI Energy 0% Philippines
Note: Figures are based on AEIT s investment portfolio at 31
December 2022.
The list includes the investments constituting the greatest
proportion of investments of the financial product during the
reference period which is: Jan 1 - December 31 2022.
Asset allocation describes the share of investments in specific
assets.
What was the proportion of sustainability-related
investments?
100%
AEIT invests in sustainable energy solutions and infrastructure
assets that align with the EU Green Taxonomy environmental
objective of climate change mitigation. In 2022, 100% of AEIT
investments were used to meet its sustainable investment objective,
in accordance with the binding elements of the investment strategy.
This calculation excludes cash held that is committed and is
awaiting deployment.
Given AEIT held a significant proportion of cash during the
period, AEIT decided to also disclose the proportion of
sustainability-related investments including and classifying AEIT's
cash as 'unsustainable'. This is calculated to be only 9.2% (57)
.
(57) Refer to the APM for detailed calculations.
Considering the undeployed cash which was committed but not yet
invested to the SolarArise Portfolio and VSS Portfolio as
sustainable investments, this percentage increases to 42.4%. The
remaining cash was being held for future investments, that are
expected to also meet the sustainable investment criteria as per
the Investment Strategy's mandate.
What was the asset allocation?
100% of the sustainable investments were held indirectly through
Special Purpose Vehicles and intermediate entities.
Investments Taxonomy-aligned
#1 Sustainable 100% Environmental 100%
#2 Not sustainable
#1 Sustainable covers sustainable investments with environmental
or social objectives.
#2 Not sustainable includes investments which do not qualify as
sustainable investments.
In which economic sectors were the investments made?
Energy - Electricity generation using solar photovoltaic
technology
To comply with the EU Taxonomy, the criteria for fossil gas
include limitations on emissions and switching to fully renewable
power or low-carbon fuels by the end of 2035. For nuclear energy ,
the criteria include comprehensive safety and waste management
rules.
Enabling activities directly enable other activities to make a
substantial contribution to an environmental objective
Transitional activities are economic activities for which
low-carbon alternatives are not yet available and that have
greenhouse gas emission levels corresponding to the best
performance.
Taxonomy-aligned activities are expressed as a share of:
-- turnover reflecting the share of revenue from green activities of investee companies
-- capital expenditure (Capex) showing the green investments
made by investee companies, e.g. for a transition to a green
economy.
-- operational expenditure (OpEx) reflecting green operational
activities of investee companies.
To what extent were sustainable investments with an
environmental objective aligned with the EU Taxonomy?
100%
All investments made by AEIT in 2022 were in companies that
exclusively generate solar photovoltaic electricity, thereby
meeting the substantial contribution criteria of the technical
screening criteria of the EU Taxonomy in section 4.1 Annex 1 of
regulation 2021/2139 (electricity generation using solar
photovoltaic technology). The MWh produced have been reported above
and detailed in AEIT's Annual Report. To ensure no significant harm
to biodiversity and ecosystems, environmental screening was
conducted for all investments prior to acquisition, reflecting the
Investment Manager's ESG policies and national law. New physical
climate risk and vulnerability assessments were completed for all
existing investments in collaboration using a leading third --
party sustainability advisory. Investee companies have sought to
use durable equipment. Where panel or critical equipment
replacement was required, as was the case at one of our investee
companies, the process was prudently managed to minimise the number
of components that had to be disposed of, and managed through
authorised specialist service providers through a process regulated
by the relevant national government.
The alignment of existing investments with EU Taxonomy was not
subject to an assurance provided by an auditor. Such alignment was
substantiated by in-house experts, on the basis of inputs from
third-party technical advisors, publicly available information,
information provided directly by investee companies, as well as
third -- party data sources.
Did the financial product invest in fossil gas and/or nuclear
energy related activities complying with the EU Taxonomy (58) ?
(58) Fossil gas and/or nuclear related activities will only
comply with the EU Taxonomy where they contribute to limiting
climate change ('climate change mitigation') and do no significant
harm to any EU Taxonomy objective - see explanatory note in the
left-hand margin. The full criteria for fossil gas and nuclear
energy economic activities that comply with the EU Taxonomy are
laid down in Commission Delegated Regulation (EU) 2022/1214.
GBP Yes
GBP In fossil gas
GBP In nuclear energy
Q No
The graphs below show in green the percentage of investments
that were aligned with the EU Taxonomy. As there is no appropriate
methodology to determine the taxonomy-alignment of sovereign
bonds*, the first graph shows the Taxonomy alignment in relation to
all the investments of the financial product including sovereign
bonds, while the second graph shows the Taxonomy alignment only in
relation to the investments of the financial product other than
sovereign bonds.
1. Taxonomy-alignment of investments including sovereign bonds
*
Climate change mitigation
2. Taxonomy-alignment of investments excluding sovereign
bonds*
Climate change mitigation
Note: AEIT does not make any investments in Fossil gas or
Nuclear.
* For the purpose of these graphs, 'sovereign bonds' consist of all sovereign exposures.
are sustainable investments with an environmental objective that
do not take into account the criteria for environmentally
sustainable economic activities under the EU Taxonomy.
What was the share of investments made in transitional and
enabling activities?
0%
How did the percentage of investments aligned with the EU
Taxonomy compare with previous reference periods?
Not Applicable.
What was the share of sustainable investments with an
environmental objective that were not aligned with the EU
Taxonomy?
0%
What was the share of socially sustainable investments?
Not applicable for Article 9 SFDR classification purposes. All
AEIT investments aim to have a positive effect on the communities
in which they work and support social development. In 2022, AEIT
investments directly supported 148 full time equivalent jobs,
including 5 full time salaried employee positions.
What investments were included under 'not sustainable', what was
their purpose and were there any minimum environmental or social
safeguards?
No investments were included under not sustainable.
What actions have been taken to attain the sustainable
investment objective during the reference period?
The sustainability objectives achieved are the direct result of
implementation of the binding elements of our investment strategy.
AEIT invests in a diversified portfolio of sustainable energy
infrastructure assets in fast-growing and emerging economies in
Asia. The investments meet the AEIT's aim of building a diversified
portfolio of assets in the areas of renewable energy generation.
The 2022 portfolio consists entirely of solar photovoltaic
electricity generation. The Investment Manager has worked with the
investee companies to monitor progress towards attainment of these
sustainability objectives using the key performance indicators
specified above, which align with SDG 7 (Affordable and Clean
Energy) and SDG 13 (Climate Action). Avoided emissions were
calculated using the standards of the International Financial
Institutions Joint Standards for GHG Accounting for Grid Connected
Renewable Energy Projects. The avoided emissions attributable to
the AEIT portfolio on this basis substantially exceeded the Scope
1, 2 and 3 emissions associated with operating these assets as
reported in AEIT's Annual PAI Statement which is annexed to its
2022 Annual Report. The sustainability indicators presented in this
disclosure and in the Annual Report have been reviewed by the
Board.
Reference benchmarks are indexes to measure whether the
financial product attains the sustainable objective.
How did this financial product perform compared to the reference
sustainable benchmark?
Not Applicable.
How did the reference benchmark differ from a broad market
index?
Not Applicable as AEIT does not use any reference
benchmarks.
How did this financial product perform with regard to the
sustainability indicators to determine the alignment of the
reference benchmark with the sustainable investment objective?
Not Applicable.
How did this financial product perform compared with the
reference benchmark?
Not Applicable.
How did this financial product perform compared with the broad
market index?
Not Applicable.
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END
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