Plutus PowerGen PLC Final Results (6929Q)

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Plutus Powergen Plc	LSE:PPG	London	Ordinary Share	GB00B1GDWB47	ORD 0.01P

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RNS Number : 6929Q

Plutus PowerGen PLC

14 September 2017

Plutus PowerGen Plc / Ticker: PPG / Index: AIM

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ('MAR'). Upon the publication of this announcement via a Regulatory Information Service ('RIS'), this inside information is now considered to be in the public domain.

14 September 2017

Plutus PowerGen plc ('PPG' or 'the Company')

Final Results

Plutus PowerGen plc, the AIM listed power company focused on the development, construction and operation of flexible power generation facilities in the UK, announces its final results for the year ended 30 April 2017.

Highlights

-- Milestone year, with the commissioning of first site and generation of revenue in excess of GBP1.35 million

   --      Maiden profit before development site write-offs

-- Commissioning and successful operation of first 20MW facility at Plymouth, with construction proceeding at five further facilities to be connected by year end

-- Including post year end, all Rockpool co-owned sites are either operating, in or about to commence construction, amounting to a total of 180MW

   --      Strategic shift to the development of higher margin gas operations - 80MW in planning 
   --      Post year end joint venture agreed to develop battery storage sites

-- Positive outlook post Ofgem review, and favourable energy dynamic due to energy supply deficit and imbalances - UK power prices peaked above GBP1,500 per MW hour

-- Strong pipeline of future gas and battery sites expected to significantly increase revenue and profitability

Charles Tatnall, Executive Chairman of the Company, said: "We are delighted with the progress we have made as we look to build on our early successes in the FlexGen arena and expand our business model into gas powered generation and power storage. We are now at an inflection point with one site in operation and all nine of the Rockpool sites in, or about to commence, construction. With the development of higher margin gas sites, of which 80MW is already in planning, and further expansion into the energy storage arena, I am truly excited about the future. We remain extremely positive about the future for Plutus with the changes in UK power generation energy mix creating imbalances in supply and therefore market opportunities for our operations in FlexGen, Gas powered generation and power storage. We have a proven business model and are executing our strategy with further exciting opportunities in the pipeline."

Chairman's Statement

In a year that saw our first site become operational, I am pleased to report our maiden trading profits, indicating the viability of our business model and our confidence in our pipeline.

Key areas of focus

With the commissioning of our inaugural project in Plymouth in November 2016, I am delighted to report that we generated a maiden profit at the half year and a trading profit at the year end, before write offs with regard to irrecoverable disbursements for sites that are not going ahead for various reasons. Such reasons include planning permission not being achieved, overly expensive or impractical connections for a variety of reasons such as location expense or likely construction difficulties. Nevertheless, at the time of writing we now have all nine sites with Rockpool in various stages of development; one of which is operating, a further five are currently being built and should be operating by the New Year, with the balance to be built out in 2018. Our primary operational focus has therefore been on the continued execution and delivery of the nine sites equity funded by Rockpool Investments LLP of which we have a 44.5% interest in each.

As a complement to our green diesel projects, the group is now diversifying into gas fuelled power generation and battery powered energy storage projects, which may also be used in conjunction with SolarFlex and gas-powered generation sites. The management team has been working to develop and progress a pipeline of gas powered sites in which we intend to hold majority stakes of typically 80% but may also be joint ventures. We retain complete flexibility in financing projects going forward but aim to ensure that all future gas sites operated via new companies, typically holding 20MW each as before, are able to be consolidated in our accounts. With this in mind, we recently launched a GBP50 million bond advised by Bedford Row Capital, to be listed in Frankfurt, that is about to be marketed to investors. The bond is to fund the 'equity' portion of each site; each site has a typical capacity of 20MW, is held in a special purpose vehicle, and will normally have 20-40% of equity, with the balance funded with asset or project finance.

Market context

There has been some uncertainty in the market on account of regulatory reviews from DEFRA and Ofgem (read more in the Market Overview below). In light of these reviews and the proposed phasing out of Triad payments over the next three years, we have remodelled the existing businesses and future gas operated sites. We are still able to achieve a reasonable IRR for FlexGen projects and a very good IRR (well in excess of 20%) for all gas projects, which will likely operate for a longer number of hours per annum.

The underlying drivers of overall supply and demand for power have not changed, however, and we believe that the markets for STOR and FFR, for example, will firm over the coming years. The power supply mix to the National Grid will also mean that there will be many opportunities to trade electrons in future, due to the peaks and troughs in the market. Over winter 2016/17, Attune Energy Ltd (our site in Plymouth) could have earned c.GBP1.5-GBP1.8m by taking advantage of market prices when these spiked. Because of commitments to FFR, Triad and STOR, we have not always been able to take advantage of such fluctuations, but expect to be in a better position to do so with gas powered sites. Attune Energy operated very successfully during last winter with an above budget operating profit.

Strategy

In addition to our planned focus on installing gas engine capacity and the bond to finance this, we are looking at the use of power storage, i.e. batteries or capacitor technologies, in conjunction with our gas sites, which will open up FFR markets and other fast response tariffs to gas. Our strategy with respect to the green diesel sites is - alongside Rockpool - to either sell these after the end of the EIS qualification period or to make an offer for the 55.5% we do not already own. Our relationship with a leading Big Six multinational utility company to fund up to 20% of any 20MW renewable fuel or gas powered flexible energy projects going forward fits ideally with the Company's strategy to deliver projects in which it holds an 80% interest, and this relationship is envisaged to provide sufficient equity to allow PPG to develop majority owned assets while maintaining its policy of limiting dilution to shareholders as far as possible. It also gives us additional flexibility in funding our various project types going forward including Gas, SolarFlex and Battery Power Storage.

Dividend

We do not propose to pay a dividend as we plan to reinvest all internally generated funds for the foreseeable future.

Outlook

At the end of a busy and productive year, I wish to thank the staff and Directors for their valued contributions, as well as our partners and advisors, who provide invaluable support in developing our operations. In February 2017, we appointed Cantor Fitzgerald Europe as Nominated Advisor and Broker to the Company with whom we also look forward to a long and fruitful relationship.

We have a robust pipeline, with 240MW in the active pipeline (building, planned and expected planning) and a total pipeline of all types of generation and storage of around 700MW. In light of the foregoing, we view the year ahead with confidence, and look forward to securing planning permission on our pipeline of gas and battery sites and building out that portfolio over the coming years.

Charles Tatnall

Executive Chairman

13 September 2017

CHIEF EXECUTIVE'S REVIEW

We continue to roll out our model, which is designed to address fundamental market drivers and to be resilient in the face of current regulatory uncertainty.

Highlights

The last year saw the achievement of two related milestones for Plutus Powergen. Our first site - Attune Energy in Plymouth - came online in November 2016 and, as a result of meeting the three Triad periods, the site was profitable over the small number of hours it generated. Secondly, as a result of securing access to planning for the Rockpool sites, the Company was pleased to be able to report achieving our maiden trading profit before development site write offs at the year end.

We have made good progress with the installation of power generation projects, and will have 6 operational facilities representing 120MW of capacity by the end of 2017. We have the remaining three Rockpool sites with planning and anticipate having these built in time for next winter.

Further sites will be based on gas powered engines (see Strategy, below). We have submitted planning applications for 80MW of gas capacity, and have a total pipeline of gas, (mains and LNG), and battery sites of 700MW.

In last December's capacity auction, we were awarded Capacity Mechanism contracts for three 20MW sites and have entered a further eight sites for the next auction in February 2018.

Market context

There remains regulatory uncertainty in the market. In March 2017, Ofgem published a 'minded to' decision, which it confirmed recently. From the winter of 2020/21, this would reduce the embedded benefits received by distribution connected generators such as PPG to the residual charge. While this change settles down, there is concern among industry participants that price volatility will increase, which in turn will lead to higher energy prices. Additionally, third party analysis indicates that generators generating for the Triad market have acted to depress volatility over the winter - or peak demand - months. The effect of increased volatility over the winter months, when demand is high, increases the risk that energy prices will spike. While there is a price cap of GBP1,500/MWh, there are plans in place for this to be raised to GBP3,000 initially and then to GBP6,000 per MWh. This cost must either be absorbed by suppliers or passed on to the consumer, but we may be able to benefit from such spikes.

Despite Ofgem's decision, our returns are still anticipated to be at or above our base case projections. Any loss of Triad income is expected to be offset by firmer prices in the balancing markets as National Grid seeks to physically balance the grid and the market for flexible power as suppliers seek to balance their retail power books and mitigate energy price volatility.

The outcome of DEFRA's consultation on lower emissions limits was delayed by the general election until just recently, but we are confident of being able to comply with the proposed new rules without any material impact on investor returns. The proposed outcomes in relation to the transposition into UK law of the Medium Combustion Plant Directive (MCPD) will require us to fit selective catalytic reduction (SCR) or other measures to reduce the NOx from our green fuel fleet, but the cost of this is manageable. We continue to monitor and be involved in the consultation process.

National Grid launched a review in June of all markets which seeks to make the balancing markets in which we compete more dynamic and closer to real-time. Over the next 18 months National Grid plans to rationalise the number of markets they operate for balancing, and also be more transparent with the data and the way that they balance. They also want to make the markets more real time: a day ahead FFR market and STOR, and an in-day trading market around frequency response. They are consulting about shifting the market away from auctions to a traded market, to trade capacity in the same way as the market trades electrons. These changes will cement the role of local, reliable, flexible generation in the UK energy mix.

Notwithstanding this uncertainty and likely changes to the way that value will be distributed in the market, the fundamental drivers remain the same. Insufficient base load power generation capacity is being installed. No large gas power stations are being built, and still no nuclear, yet demand for energy is increasing and becoming more reliant on renewable sources to meet it. The proposed withdrawal of new petrol and diesel cars from the roads by 2040 will further increase demand for power for charging electric vehicles.

A key indicator of the importance of flexible generation is that energy suppliers are finding ever more inventive ways to access that capacity. These solutions range from innovative procurement arrangements, through to co-investment. Additionally, some suppliers are starting to develop innovative solutions, such as using existing energy market contracts to hypothecate or match up demand and supply, so consumers can be more certain of the price in a highly volatile market. This is a good thing for big power consumers or local communities that are a little off grid or can organise to capitalise on such opportunities, but the net effect is that the remaining market may become even more volatile, resulting in further separation between the energy rich and energy poor.

Objectives and strategy

Our original objective was to have 200MW of generating capacity within three years. By the end of this calendar year we will have 120MW installed and operational, and the remaining three renewable diesel sites operational in time for next winter. This means we will have achieved 180MW of renewable diesel sites - or 90% of our target - after four years, through some very challenging times from a regulatory and financing perspective.

Our most significant strategic shift is our decision to diversify into gas powered engines. We started this process in the new year, and now have 80MW of projects in planning and a further 120MW in the pre-planning stage. This means that we are aiming for around 200MW of gas-fired generation over the next two to three years, and we continue develop our overall pipeline of 700MW further.

There are several factors that favour gas for use in flexible generation:

   --      More hours of running 
   --      Lower levels of pollution, in terms of NOx, CO2 and CO, and SOx; 
   --      Negligible soot and particulate emissions, and no smoke or odour in exhaust gases; 
   --      Similar levels of efficiency as green fuel engines;

-- Greater reliability, allowing higher maintenance intervals and thus reducing costs as well as waste oil;

   --      Reduced noise and vibration;

-- The ability to operate on a wide range of gaseous fuels, from mains gas and LNG through to digester gas derived from the anaerobic digestion of sewage and other organic wastes.

Each gas-powered site, which will take approximately eight months to construct, is anticipated to generate an EBITDA of up to GBP3m per year when Capacity Mechanism payments commence.

With gas engines, the economics are such that they are able to run merchant to take advantage of peak prices as well as assist suppliers in managing volatility in their retail power books. Looking back over history, peak energy prices suggest these facilities would need to run in the range of 1200-1400 hours per year. Since volatility drives peak energy prices, these numbers may well increase.

We are beginning to look at hybrid technologies whereby both the gas and green fuel sites would be fitted with a storage (or exhaustible) capability, such as batteries. Combining firm and exhaustible generation on the same site allows us to compete in more real-time markets, which is the strategic direction in which National Grid is consulting to implement these markets. We will be piloting these technologies on our sites once we have established the economic and technical cases.

SolarFlex, which seeks to co-locate firm generation and intermittent generation sources, and investigate installing exhaustible generation to build 'real-world' operational data sets, remains part of our strategy however has been slower to come to fruition as prospective partners have not yet decided their preferred approach. We continue to explore this approach and remain confident we can demonstrate the value to solar operators as our hybrid sites establish themselves.

Outlook

We have a healthy pipeline, and will continue to progress with our strategy to develop, build, own and operate flexible generation capacity. The renewable green diesel sites for Rockpool are secured, with five to be connected by the end of the year and the remaining three by the end of next. We are beginning our gas journey with 80MW in planning with the aim to meet our initial target of 200MW. Although we are closing the chapter on renewable diesel fuel, we will seek to make those assets more valuable by retrofitting appropriate storage technology as it becomes economic.

Despite some regulatory question marks, we remain confident that our FlexGen model is a key part of the solution to the challenges ahead as a result of the structural changes to the UK's energy mix.

Phil Stephens

Chief Executive Officer

13 September 2017

SUSTAINABILITY

Our flexible, standby sites facilitate the UK's increasing reliance on renewable energy.

By plugging intermittency gaps from renewable energy power generation in a cost-effective manner, our sites will assist in enabling further decarbonisation of the UK energy sector.

Our FlexGen facilities are anticipated to run for no more than 150 hours per year in 60-minute blocks of time during peak demand, and may not exceed 300 hours as a result of the commitments made in the planning permission process. Despite providing valuable standby generating capacity, each facility is expected to be switched off for more than 97% of the time, ensuring that annualised emissions are minimal. Our facilities will conform to all UK and EU air quality standards.

Our Rockpool co-investment power generation sites are fired with green renewable fuel from HVO (hydrogenated vegetable oil), which reduces the environmental impact and also stimulates the development of such fuels by providing a proven market. Relative to conventional diesel, this fuel eliminates sulphur oxides (SOx), reduces nitrogen oxides (NOx) by c.30% and reduces particulates.

We also continually evaluate other types of green fuel and look at technology to add to our generators to comply with the more stringent requirements associated with the incoming Medium Combustion Plant Directive.

OUR MARKET

Despite a considerable degree of regulatory uncertainty, the fundamental drivers of demand for flexible electricity generation remain, on account of structural changes to the UK's power generation mix.

Increasing volatility

As high carbon sources of energy continue to be retired, renewable power generation has come to account for close to 30% of the UK's energy supply. With the Government's commitment to closing all coal-fired power stations by 2025, and with new gas or nuclear power stations at least 10 to 15 years away from coming online, reliance on diverse and intermittent sources of energy embedded within the distribution network (notably wind and solar) is set to increase. The lower proportion of energy generated from reliable 'baseload' sources has led to increasing challenges in the balancing of supply and demand. As the energy mix changes, there is reduced availability of flexibility in the Balancing Mechanism, and/or this is becoming more costly to access.

Continuing tight capacity margins

Capacity margins - the difference between peak electricity demand and the capacity available to meet this - have become tighter in recent years. For winter 2016/17, National Grid continue to warn of tight margins and the volume procured in the Capacity Market remains sizeable. The scheduled closure of coal power stations, coupled with uncertainty and delays in respect of nuclear and gas sites, are likely only to exacerbate these issues.

Changing need for balancing services

As system operator, National Grid is responsible for ensuring that the UK electricity system has sufficient supply to match demand, and operates balancing services to continuously match supply to demand to avoid frequency distortions, brownouts or blackouts.

The current markets are complex, unclear and not future-proof, and not accessible to all potential providers. The changing energy mix and the increasing need for cost-effective flexibility means a review of the current markets is required.

As outlined in its System Needs and Product Strategy (SNAPS) proposal in June 2017, National Grid aims to have in place, by 2021, a smart, flexible system that harnesses all available energy sources - a simple, transparent marketplace for new and established providers and technology types. By simplifying balancing services and improving the sharing of information, the objective is to remove barriers to allow better use to be made of distributed energy sources.

National Grid also recently introduced an Enhanced Frequency Response market, for very rapid response such as could be provided by battery storage units. Battery storage remains markedly higher cost than other short-term generation solutions and has technological limitations. As a result, this new market is likely to complement, rather than remove demand from existing frequency response markets.

MARKET DRIVERS FAVOUR FLEXIBLE POWER GENERATION

In the context of the structural changes to the UK energy sector outlined above and the resulting challenges, flexible power generation plays a vital role in supporting the pillars of the UK's energy strategy, as summarised in the table below.

 
 Keeping the lights on   Network support 
                          -- Improve operational 
                          capability by lowering 
                          demands on the network 
                          -- Support the distribution 
                          system and provide an 
                          important tool to accommodate 
                          intermittency of renewable 
                          sources 
                          Frequency control 
                          -- Maintain system frequency 
                          within operating parameters 
                          by generating very quickly, 
                          supporting local balancing 
                          System inertia improvement 
                          -- Lower the risk of 
                          failure by increasing 
                          the inertia on the system 
                          Short run back up capacity 
                          -- Add small scale capacity 
                          that can run when larger 
                          assets fail 
----------------------  ------------------------------- 
 Affordable              Best value to the consumer 
                          -- Derive all revenue 
                          through market-delivered 
                          processes 
                          -- Provide opportunity 
                          for reduced connection 
                          costs by sharing Grid 
                          connections with solar 
----------------------  ------------------------------- 
 Low carbon              A system that allows 
                          the wider decarbonisation 
                          of energy 
                          -- Provide operational 
                          'cover' for renewables 
                          -- Give network operators 
                          fine tuning capability 
                          rather than large scale 
                          capacity 
----------------------  -------------------------------

Unlike large power stations, which connect to the high voltage transmission grid, most flexible generating assets connect directly to local distribution networks. This is known as embedded generation, and confers several advantages that result in lower consumer bills, as well as generators earning a premium over wholesale electricity prices:

-- Reduced charges: Although embedded generation providers are subject to local distribution network fees, they avoid charges relating to transmission use, distribution system use and system balancing. Embedded generation also reduces the need for investment in the transmission and distribution networks, and saves costs associated with operating and maintaining existing infrastructure.

   --      Reduced thermal losses;

-- Reduced regulation: embedded generation is not subject to regulatory burdens such as the Carbon Price Floor and Climate Change Levy.

Embedded generation also generally reduces the volume from balancing energy and hence can reduce the cost of balancing the system on a half hourly basis. Controllable plants such as generators also facilitate management of intermittency at a local level, allowing greater deployment of renewable generation assets than would otherwise be viable.

The operational benefits and cost efficiencies in the form of avoided charges are typically shared between suppliers and the local producers they contract with, and ultimately benefit consumers through reduced energy bills.

OUR BUSINESS MODEL

Our multi-revenue stream model is founded upon the development of 20MW flexible generation facilities, funded through a combination of equity and asset finance via dedicated investments and subsidiaries.

WHAT WE DO

We are applying our management expertise to the establishment of a group of subsidiaries and investments active in the development, construction and operation of stand-by flexible electricity generation sites in the UK.

We sell power to energy suppliers and the National Grid via several mechanisms, and our sites are expected to operate during periods of peak electricity demand or grid instability.

HOW WE OPERATE

Proven, modular generation technology

We use established, reliable technology based on containerised generators, fired with renewable green fuel and - going forward - gas, and possibly in conjunction with battery storage or independent battery storage projects. Treated as embedded generation, our unmanned gensets supply the local low voltage distribution network and are switched on remotely, reaching full output, depending on generation power type, within 10-150 seconds. Each plant generally has a maximum generating capacity of 20MW. This is optimal for two reasons:

-- The planning thresholds - and therefore construction timescales - are reduced; and

-- The emissions fall below a European threshold, thereby reducing compliance costs and risk.

Non-dilutive finance model

By setting up a dedicated entity for each site, we have limited medium-term dilution to existing holding company shareholders. The first nine sites have been financed with equity from clients of Rockpool in each of the nine investment entities established for this purpose, and have advance assurance from Her Majesty's Revenue and Customs to benefit from EIS-related tax benefits. PPG has a 44.5% stake in each of these entities, and currently derives revenue from a management contract with each site. From November 2015, EIS was closed off to new standby power generation projects. Future projects will be held in separate subsidiary companies, in which PPG will seek to obtain an interest of 80%, however PPG may enter into joint ventures or other flexible financing options, the principle generally being that the accounts of each vehicle will be capable of consolidation into the group accounts.

KEY RELATIONSHIPS AND STAKEHOLDERS IN OUR BUSINESS

The keys to success are land, asset funding and grid connection, and we enjoy constructive relationships with partners in each of these core aspects.

Land and Planning

Property developers: we work with developers to identify suitable sites across the UK.

Land owners: we are able to secure attractive sites through our relationships with land owners such as London & Devonshire Trust, with whom we also have a battery storage Joint Venture, and Associated British Ports.

Reliance Energy: we have an established relationship with Reliance Energy, who is working with us to secure sites for gas engines and SolarFlex.

Funding

Debt markets: there are emerging opportunities to provide development capital for management contracts.

Banks: we have strong relationships with a number of banks and other financial institutions to provide debt financing, including JCB.

Third party investors: we continue to work with other potential and credible investors, including a 'Big 6' utility group with whom we agreed an indicative partnership to fund 20% of future projects.

Investors: PPG was readmitted to AIM in August 2014 to capitalise on the opportunity in flexible power generation and intends to raise further funding from a GBP50m bond issue to enable us to develop further sites.

Connections and Contracts

National Grid: we will secure STOR and FFR contracts with National Grid for our facilities, and we have secured Capacity Market contracts for five sites and are applying for a further eight sites in the Capacity Market Auction in February 2018. We are also entering T-1 CM auction for the 6 facilities that will be operational by 1st October 2018.

Energy suppliers: we have negotiated Power Purchase Agreements (PPAs) with two national suppliers.

Connection business: we have relationships with a number of connection businesses with regard to connections on our sites and the contestable and non-contestable connection costs.

HOW WE CREATE VALUE

Our model is based upon multiple revenue streams. The current mechanisms for generating revenue from power sales are outlined in the table below. Although the precise mechanisms are subject to review as part of National Grid's consultation into Systems Needs and Product Strategy, the strategic importance of flexible generation means that the outcome is thought unlikely to be unfavourable to embedded power generators. The consultation is scheduled for completion by the end of 2018.

Aside from earning revenue from the supply energy, we have a management contract with each Rockpool investor-funded site, which generates revenue of GBP150,000 per site per year. Under the terms of these contracts, we manage the asset, from identifying the site, obtaining planning permission, to managing the connection, construction and operation of the plant.

Sources of revenue from energy supply:

 
 Mechanism        Overview                                    Counterparty 
 STOR             The Short-Term Operating Reserve            National 
                   is a mechanism used by National             Grid 
                   Grid to balance the UK's power 
                   supply at short notice. The 
                   STOR allows required electricity 
                   supply to be decreased (by incentivising 
                   major consumers to reduce demand) 
                   or increased, by calling on 
                   a pool of stand-by power generators. 
                   Under the terms of two-year 
                   contracts, National Grid pays 
                   STOR providers for making their 
                   capacity available, as well 
                   as for delivery of electricity. 
 Firm Frequency   FFR is a service procured by                National 
  Response         National Grid to manage system              Grid 
  (FFR)            frequency, the system-wide signal 
                   that indicates whether energy 
                   supply exceeds demand or vice 
                   versa. FFR allows a provider 
                   to supply a service to reduce 
                   demand or increase generation, 
                   when instructed by National 
                   Grid. 
                   FFR is procured via monthly 
                   tender. To take part, generators 
                   must be able to deliver a minimum 
                   of 10MW, and be capable of responding 
                   within 30 seconds and for sufficient 
                   duration. Similar to STOR, providers 
                   are paid for availability as 
                   well as for utilisation. PPG 
                   will compete in the static market, 
                   whereby energy change occurs 
                   at a pre-set frequency and remains 
                   at a set level. 
                   The addition of exhaustible 
                   (battery) power to PPG's generators 
                   would allow access to the dynamic 
                   FFR market, where energy changes 
                   in line with system frequency. 
 Triad            Triad is the scheme under which             Energy 
                   the National Grid charges energy            Suppliers 
                   suppliers' significant sums 
                   according to their use of the 
                   high voltage transmission network 
                   during Triad periods - the three 
                   half-hour periods of highest 
                   demand in a year, identified 
                   after the winter. The principal 
                   means for National Grid to cover 
                   its costs, Triad also serves 
                   to incentivise users to limit 
                   consumption during peak periods, 
                   thereby easing the need for 
                   investment in the transmission 
                   system. Through the PPA, energy 
                   supply companies pay flexible 
                   generators of electricity to 
                   supply power to local distribution 
                   networks during anticipated 
                   peak periods (both for the power 
                   generated and for Triad avoidance), 
                   as their generation reduces 
                   demand on the transmission network. 
                   Generators must operate during 
                   each of the Triad periods to 
                   be eligible for payments. 
                   Ofgem's 'minded to' decision 
                   of June 2017 will see Triad 
                   benefits earned by small embedded 
                   generators such as PPG reduced 
                   to close to zero by the winter 
                   of 2020/21, effectively reducing 
                   over four years as to 100%, 
                   66%, 33% and zero. There are 
                   likely, however, to be residual 
                   payments which could amount 
                   to up to 20% of the original 
                   Triad which will still make 
                   it a worthwhile income stream. 
                   This is not budgeted for in 
                   our remodelled projections post 
                   the 'minded to' decision 
 Power Purchase   This is simply sales of generated           Energy 
  Agreements       power; when operating with an               Suppliers 
  (PPA)            objective of Triad avoidance, 
                   power is sold under a PPA, typically 
                   to a large UK energy supplier. 
                   PPAs are typically of a 5+ year 
                   duration. 
 Capacity         To ensure long-term security                UK Government 
  Market           of supply, the Capacity Market              (via National 
                   provides financial incentives               Grid) 
                   to bring forward new investment 
                   while maximising existing generation 
                   capabilities. The structure 
                   of CM ensures technology neutrality, 
                   meaning that the lowest cost 
                   technologies that will guarantee 
                   capacity will be awarded 1, 
                   3 and 15-year contracts, depending 
                   on the level of capex incurred. 
                   These capacity contracts are 
                   procured through a reverse auction, 
                   run by National Grid. Generators 
                   who are successful in the auction 
                   will benefit from a regular, 
                   predictable and index-linked 
                   revenue stream for every hour 
                   they are available. The capacity 
                   obligation means providers must 
                   be available to deliver energy 
                   when needed or face penalties.

Investment Case

We have addressed the financing and costs of FlexGen sites before and below demonstrates the projected costs and illustrative returns that may be achieved from a typical gas site:

   Component/activity                                        Approx % of total costs 
   Planning and site assembly                              5-10% 
   Electrical equipment and storage                    25-30% 
   Gas connection/supply                                     5-10% 
   Civil engineering/construction                        25-30% 
   Generators                                                            25-30%

Financial Information

Standard Projected Financials for a single 20MW Gas site:

 
 Full Year (GBP'000)        1       2       3       4       5 
---------------------  ------  ------  ------  ------  ------ 
 Turnover               2,454   4,489   4,754   5,285   6,192 
 EBITDA                 1,192   2,311   2,508   2,973   3,826 
 Cash flow              1,192   2,312   2,306   2,754   3,605

There are significant and detailed assumptions behind these projections which have been reviewed and modelled by banks and financial institutions willing to lend to our projects. These projections have satisfied their own internal tests with regard to their sensitivity modelling and provide third party validation of our detailed model.

Financial projections for 10 new gas sites funded from GBP50m bond or other funding (100% owned):

 
 Full Year   No of Sites           EBITDA 
----------  ------------  --------------- 
 1           3               GBP3,576,689 
 2           6              GBP10,511,445 
 3           9              GBP18,034,178 
 4           10             GBP24,567.293

The potential for the group to generate excellent returns and cash flow is clearly demonstrated above.

OUR STRATEGY

We have continued to make progress against our strategic priorities. We will achieve 90% of our goal to reach 200MW of flexible generation by the end of 2017, a significant achievement given the fast-evolving market in which we operate and the evolution of our business model towards gas power generation and battery storage.

 
 Strategic Priority            Progress 
 Bring online standalone       Green Fuel 
  FlexGen sites                 The facility in Plymouth 
  - Nine Rockpool-funded        came online in November 
  investee company green        2016. By the end of 2017 
  diesel sites                  we will have 120MW of operational 
                                capacity, and the remaining 
                                three sites already have 
                                secured planning permission. 
                                Rockpool has indicated 
                                that they will realise 
                                their investment in the 
                                nine flexgen sites when 
                                the EIS qualification period 
                                expires. This will give 
                                us the opportunity to make 
                                an offer for the shares 
                                we do not own or sell our 
                                shares in each site alongside 
                                Rockpool 
 - Majority-owned (non-EIS)    80MW of gas powered sites 
  gas powered sites             are at the planning stage, 
                                and we have a further 160MW 
                                in the pipeline. 
                                Our goal is to develop 
                                at least four sites per 
                                year. 
 Derive revenue from           As well as from the secured 
  multiple sources              management contracts for 
                                each Rockpool site, we 
                                generate income in our 
                                investments from different 
                                markets for flexible power, 
                                although the precise nature 
                                of these may be subject 
                                to regulatory change. 
                                Triad: Our Plymouth site 
                                earned attractive returns 
                                by hitting three Triad 
                                periods since becoming 
                                operational in November 
                                2016. If Ofgem's 'minded 
                                to' decision is implemented, 
                                this would reduce the Triad 
                                benefit received by small 
                                embedded generators such 
                                as PPG to close to zero 
                                from the winter of 2020/21. 
                                Capacity Market: PPG has 
                                been awarded a total of 
                                five Capacity market contracts 
                                for 15 years and one annual 
                                contract to date. This 
                                year the Company is applying 
                                for eight 15-year contracts 
                                (four FlexGen and four 
                                Gas) and six one-year contracts 
                                Power Purchase Agreement: 
                                We have Power Purchase 
                                Agreements (PPAs) with 
                                two national suppliers 
                                and are in detailed negotiations 
                                with a third. 
                                FFR: Via our subsidiaries 
                                and investee companies, 
                                we intend to build power 
                                generation units which 
                                reach full response within 
                                30 seconds and can sustain 
                                supply for 30 minutes, 
                                allowing us to compete 
                                in the static FFR market. 
                                STOR and FFR are mutually 
                                exclusive, although PPG 
                                may bid for both types 
                                and run FFR outside STOR 
                                hours. 
                                Management contracts: PPG 
                                has been granted nine management 
                                contracts by the entities 
                                financed with equity from 
                                clients of Rockpool Investments. 
                                Under these agreements, 
                                PPG receives monthly payments 
                                equivalent to GBP150,000 
                                per annum for each investee 
                                company. 
                                STOR: We intend to secure 
                                STOR contracts with National 
                                Grid for our facilities. 
 Continue to pursue            We intend to own majority 
  our limited dilution          stakes (typically 80%) 
  investment model, holding     in individual entities 
  majority stakes in            for future development 
  non-EIS funded, standalone    sites. With that objective, 
  flexible generation           we are in the process of 
  sites with outside            raising GBP50 million gross 
  investors where attractive    through the issue of a 
                                7% five-year bond issue 
                                to be listed in Frankfurt. 
                                The net proceeds of this 
                                will - in conjunction with 
                                our existing cash resources 
                                and asset finance - be 
                                used to assist in the development 
                                of ten 20MW gas powered 
                                flexible generation sites. 
 Explore viability of          Over the medium to longer-term, 
  battery, capacitor            our strategy is to explore 
  or inertial energy            commercialisation of storage 
  storage                       technologies on our green 
                                fuel, SolarFlex and gas 
                                sites, to compete in more 
                                real-time markets and allow 
                                us to access potentially 
                                more attractive returns. 
 Progress SolarFlex            We have held promising 
  sites (co-located solar       talks with several solar 
  and                           farm operators to establish 
  FlexGen facilities)           SolarFlex sites (with shared 
                                connections for solar and 
                                non-intermittent generators) 
                                and are awaiting their 
                                response.

FINANCIAL REVIEW

The Group has achieved considerable growth in fees received during the year, contributing materially to substantially reduced losses and attributable losses per share.

The year ended 30 April 2017 is our second full year of operations in the business of the development and operation of flexible energy generation projects, which play a crucial role in the changing UK energy mix as renewable generation replaces carbon intensive generation. 2017 has been a year of continued progress for the Group in the execution of its business plan. Throughout the year we had nine management contracts in place with Rockpool investee companies, each generating GBP150,000 per annum of fee income which represented an annualised fee income of GBP1,350,000 for the year ended 30 April 2017.

In addition to the nine Rockpool companies, we continue to make progress towards the Company's plan to add further capacity in the form of gas powered generation sites, with 80MW in planning, a further 120-150MW of viable gas sites in the pipeline for next year and circa 80MW of battery storage schemes in conjunction with LDT. Each site will be a subsidiary of the Company and will ordinarily hold up to 20MW of generating capacity. The Company will also seek to introduce outside investors so as to maintain its anti-dilution funding model in the Holding Company and will normally seek to maintain a shareholding of at least 80%. Our relationship with a leading Big Six multinational utility company to fund up to 20% of any 20MW renewable fuel or gas powered flexible energy projects going forward fits ideally with the Company's strategy to deliver projects and will provide us with extra financing flexibility. Such sites will have the ability to be fully consolidated in the Group's accounts, which will see a strengthening of the Group's balance sheet and the earnings of each subsidiary will be consolidated into the profit and loss account of the Group.

The Company has recently launched a GBP50 million (gross) five-year 7% bond, listed in Frankfurt, to give maximum flexibility to the suite of funding options available to it. The bond, once fully funded, will enable the Company to build up to a further ten new majority owned sites, which together with the Big Six multinational utility company, assists in maximising our financing capability and flexibility. We will be in a good financial position to develop the majority owned portfolio of gas powered, solarflex and battery storage sites.

During the year under review the Group increased its revenue to GBP1,350,000 (2016: GBP887,500), a rise of 52%, from the award of management contracts from the Rockpool investee companies. These fees are expected to continue under current management contracts at an annualised rate of GBP1.35 million in future periods. Plutus Energy Limited, our 100% owned operating subsidiary, will earn management fees from all future sites, in addition to our existing portfolio. Administrative expenses have increased marginally to GBP1,292,700 (2016: GBP1,187,998). There are other operating expenses of GBP236,164 (2016: GBP79,590) in the year under review. These relate to write offs of expenses disbursed for sites not going forward for various reasons. There will be no further write offs with regard to Rockpool co-investee companies as all nine sites are now allocated and are in various stages of construction and development. Sites may continue to be pursued which do not go forward for various reasons but we expect to be able to minimise such write offs in the future. Because of these write offs the Group has made a loss after taxation of GBP201,501 (2016: GBP407,776) and consequently the basic and diluted loss per share from continuing operations was 0.03p (2016: 0.07p). However, if we discount the other non-recurring operating expenses attributable to site construction not proceeding, the Group would have made a maiden profit for the year ended 30 April 2017 of GBP34,663 (2016: Loss of GBP328,186), a positive turnaround in pro forma net profits of GBP362,849.

After the year end, James Longley and Charles Tatnall each exercised 10,000,000 warrants in the Company with a net cash benefit of GBP180,000. In addition, a new Group share option scheme was implemented after the financial year end. The 2017 Share Option Scheme is designed to incentivise the Directors as Plutus changes direction towards gas, solarflex and battery powered flexgen projects, of which the Company has an overall 700MW pipeline. This is the first share option scheme to be implemented since the reverse acquisition of Plutus Energy Limited in August 2014. Since then, minimal shareholder dilution has been incurred as a result of external equity financing as the Company has ensured that the ongoing development of the Rockpool funded portfolio of 180MW of FlexGen sites have been financed entirely through external equity and debt thus far.

Post year end, the Company granted an aggregate of 60,000,000 share options with an exercise price of 1.485p pursuant to the 2017 Share Option Scheme, all vesting in three equal annual instalments. 15,000,000 Options were granted to each of Paul Lazarevic, James Longley, Phil Stephens and Charles Tatnall on 18 May 2017. Charles Tatnall and James Longley also each hold 4,770,000 existing share options, which were awarded prior to the reverse acquisition of Plutus Energy. All of the Directors have indicated that they will not sell any shares that they hold for at least the next eighteen months. Following the issue of options and exercise of warrants, there are a total of 69,540,000 options in the Company outstanding, representing approximately 9.8% of the Company's issued share capital.

Cash was GBP71,609 at the year-end (2016: GBP22,608). Trade and other payables increased to GBP229,635 (2016: GBP166,288), due largely to the increased level of activity, particularly with regard to the site planning, lease and connection processes. Our ongoing overheads will be covered by management fees. In addition to which we will have the proceeds from the bond raise coming in to fund new sites and generate further management fees together with the consolidated operations. Overall, the Company is in a good situation financially and will continue to manage cash flow, accounts receivable and accounts payable in a fair and reasonable manner within the Group resources.

Group net assets at the year-end were GBP995,864 (2016: GBP1,166,089), a decrease of GBP170,225 (14.6%) due to net losses in the year generated from other operating costs from site costs written off.

Key Performance Indicators

The key performance indicators are set out below:

 
                                                      Change 
                                    2017        2016       % 
--------------------------  ------------  ----------  ------ 
Turnover                    GBP1,350,000  GBP887,500    +52% 
Cash and cash equivalents      GBP71,609   GBP22,608   +217% 
Closing share price                1.23p      0.925p    +33% 
Earnings per share               (0.03)p     (0.07)p    +57% 
--------------------------  ------------  ----------  ------

Principal risks and uncertainties

The Board regularly reviews the risks facing the Company and seeks to exploit, avoid or mitigate those risks as appropriate.

Financial risk management objectives and policies

Financial risk management objectives and policies of the Company are set out in note 24 to the financial statements.

Going concern

In determining the appropriate basis of preparation of the financial statements, the Directors are required to consider whether the Company can continue in operational existence for the foreseeable future. The Group had cash and cash equivalents of GBP71,609 and net current liabilities of GBP89,288 as at 30 April 2017, and incurred a loss of GBP201,501 for the year then ended.

The Directors have based their opinions on a cash flow forecast, which assumes that sufficient revenue will be generated for working capital purposes and that operating costs will be kept to a minimum until adequate revenue streams are secured. In addition future plans for the Group will be funded externally through a mix of debt and equity financing. So the Directors continue to adopt the going concern basis in preparing the financial statements. The financial statements do not include the adjustments that would result if the Company was unable to continue as a going concern.

James Longley

Director

13 September 2016

Group Statement of Comprehensive Income