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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Triple Point Energy Efficiency Infrastructure Company Plc | LSE:TEEC | London | Ordinary Share | GB00BMCBZL07 | ORD GBP0.01 |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 87.75 | 87.00 | 88.50 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
TIDMTEEC
RNS Number : 0460Q
Triple Point Energy Efficiency
24 June 2022
THIS ANNOUNCEMENT HAS BEEN DETERMINED TO CONTAIN INSIDE INFORMATION FOR THE PURPOSES OF THE UK VERSION OF THE MARKET ABUSE REGULATION (EU) NO. 596/2014.
NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, DIRECTLY OR INDIRECTLY, IN OR TO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH THE PUBLICATION, DISTRIBUTION OR RELEASE OF THIS ANNOUNCEMENT WOULD BE UNLAWFUL.
The financial information set out in these statements does not constitute the Company's statutory accounts for the year ended 31 March 2021, prepared in accordance with section 435 of the Companies Act 2006, but is derived from those accounts. Statutory accounts will be delivered to the Registrar of Companies in due course. The auditors have reported on these accounts and their report was unqualified and did not contain a statement under section 498(2) of the Companies Act 2006.
24 June 2022
Triple Point Energy Efficiency Infrastructure Company plc
("TEEC" or the "Company" or, together with its subsidiaries, the "Group")
RESULTS FOR THE YEARED 31 MARCH 2022
The Board of Triple Point Energy Efficiency Infrastructure Company plc (ticker: TEEC) is pleased to announce the Company's audited results for the year ended 31 March 2022.
31 March 2022 31 March 2021* ------------------------------------ -------------- --------------- Net Asset Value ("NAV") GBP96.1m GBP97.49m NAV per share 96.12p 97.49p Value of the portfolio GBP78.8m GBP20.88m Ongoing charges ratio (annualised) 1.38% 1.07% Dividend declared per share 5.50p 2.0p
* The results for the period 31 March 2021 were not for a full 12 months and, therefore, are not directly comparable to the results for the year ended 31 March 2022
Highlights
-- The Company made significant progress in the deployment of capital:
o Capital committed during the year ended 31 March 2022 amounted to GBP100.2 million (2021: GBP21 million)
o June 2021: GBP8.0 million fixed rate debt investment in Spark Steam Limited, a company which owns and operates a combined heat and power asset
o November 2021: GBP26.6 million acquisition of six operational, Feed in Tariff accredited, "run of the river" hydroelectric power projects in Scotland
o December 2021: GBP19.6 million acquisition of a further three operational, Feed in Tariff accredited, "run of the river" hydroelectric power projects in Scotland
o March 2022: signed contracts to provide a GBP45.6 million fixed rate debt facility to a subsidiary of Virmati Energy Ltd (trading as "Field"), for the purposes of building a 110MW portfolio of four geographically diverse Battery Energy Storage System (" BESS ") assets in the UK
-- The portfolio valuation as at 31 March 2022 was GBP78.8 million (2021: GBP20.88 million)
o Adjusting for commitments, at the year ended 31 March 2022, the portfolio valuation would amount to GBP124 million
-- In March 2022, the Company entered into a loan facility agreement for a GBP40 million Revolving Credit Facility ("RCF") from TP Leasing Limited
-- Dividends declared in respect of the year ended 31 March 2022 totalled 5.5p per share, in line with the Company's target for the year
-- Net Asset Value as at 31 March 202 2 was GBP96.1 million (2021: GBP97.49 million ) , equal to a NAV per share of 96.12 pence (2021: 97.49 pence ) , largely reflecting the impact of uncovered dividends paid as a result of slower than expected deployment offsetting the uplift in valuation
-- The Group's activities resulted in:
o Energy saved: 7,113 MWh
o CO (2) avoided: 17,074 tonnes of CO (2) avoided through lower emissions
o Renewable energy generated: 9,425 MWh
-- Post period-end, in June 2022, the Company committed GBP1 million to a lighting solutions provider to fund the installation of efficient lighting and control at a leading logistics company
-- Looking towards the future, today, the Company also announced:
o J.P. Morgan Cazenove has been appointed as the Company's sole broker with immediate effect
o The Investment Manager will be consulting key shareholders regarding proposed amendments to the Company's Investment Policy, evolving to an "energy transition" mandate to reflect better the nature of the current portfolio and the pipeline of investment opportunities
o Conditional on the amendment of the Investment Policy, a proposed change of name to "Triple Point Energy Transition plc"
o Both the proposed amended Investment Policy and the new name will be put to shareholders for approval at the Annual General Meeting due to take place in August 2022
John Roberts, the Company's Chair, commented:
" In the last 12 months the Board has been pleased with the depth and breadth of the investment opportunities that have been sourced across a range of technologies and from a variety of partners. The diversity of our portfolio of lower carbon and energy efficient projects has enabled us to achieve our objective of contributing towards the transition to a lower carbon economy and assisting in the acceleration of the UK achieving its Net Zero targets.
With the IPO proceeds fully committed, as well as the majority of the RCF, and the strong performance of our existing portfolio, we look ahead with optimism as the Company maintains its focus on delivering a dividend fully covered by cash earnings and a total NAV return target of 7-8% for investors comprising sustainable and growing income and capital growth.
We thank our shareholders for their continued support and look forward to consulting with them regarding the amendments to our existing Investment Policy which we believe better reflects the nature of our existing portfolio and the exciting pipeline of opportunities ."
For further information, please contact:
Triple Point Investment Management LLP Jonathan Hick Ben Beaton +44 (0) 20 7201 8989 J.P. Morgan Cazenove (Corporate Broker William Simmonds / Jérémie Birnbaum (Corporate Finance) James Bouverat / Liam MacDonald-Raggett (Sales) +44 (0) 20 7742 4000 Akur Limited (Financial Adviser) Tom Frost Anthony Richardson Siobhan Sergeant +44 (0) 20 7493 3631
LEI: 213800UDP142E67X9X28
Further information on the Company can be found on its website: www.tpenergyefficiency.com
NOTES:
The Company is an investment trust which aims to have a positive environmental impact by investing in assets that support the transition to a lower carbon, more efficient energy system and help the UK achieve Net Zero.
Since its IPO in October 2020, the Company has made the following investments and commitments:
-- Harvest and Glasshouse : provision of GBP21m of senior debt finance to two established combined heat and power ("CHP") assets, located on the Isle of Wight, supplying heat, electricity and carbon dioxide to the UK's largest tomato grower, APS Salads ("APS") - March 2021
-- Spark Steam : provision of GBP8m of senior debt finance to an established CHP asset in Teesside supplying APS, as well as a further power purchase agreement through a private wire arrangement with another food manufacturer - June 2021
-- Hydroelectric Portfolio (1) : acquisition of six operational, Feed in Tariff ("FiT") accredited, "run of the river" hydroelectric power projects in Scotland, with total installed capacity of 4.1MW, for an aggregate consideration of GBP26.6m (excluding costs) - November 2021
-- Hydroelectric Portfolio (2) : acquisition of a further three operational, FiT accredited, "run of the river" hydroelectric power projects in Scotland, with total installed capacity of 2.5MW, for an aggregate consideration of GBP19.6m (excluding costs) - December 2021
-- BESS Portfolio : provision of a debt facility of GBP45.6m to a subsidiary of Virmati Energy Ltd (trading as "Field"), for the purposes of building a portfolio of four geographically diverse Battery Energy Storage System ("BESS") assets in the UK with a total capacity of 110MW - March 2022
The Investment Manager is Triple Point Investment Management LLP ("Triple Point") which is authorised and regulated by the Financial Conduct Authority. Triple Point manages private, institutional, and public capital, and has a proven track record of investment in Energy Efficiency and decentralised energy projects.
The Company was admitted to trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange on 19 October 2020 and was awarded the London Stock Exchange's Green Economy Mark.
CHAIR'S STATEMENT
Dear Shareholder,
I am pleased to present the results for Triple Point Energy Efficiency Infrastructure Company plc ("TEEC" or the "Company") for the year ended 31 March 2022. The past year has been one of significant events. COP26 in November 2021 brought together global leaders to address the challenges of climate change and the move to a low carbon economy. The devastating war in Ukraine has called attention to the need for greater energy security, whilst the volatile energy markets have underlined the need for energy efficiency to assist in cutting escalating energy costs. In April 2022, the UK Government's British Energy Security Strategy laid out ambitious plans to achieve Net Zero and secure clean, green and UK-made energy. For TEEC, each of these events provides a significant opportunity to contribute to the energy transition through the deployment of capital in a diversified portfolio of assets which are targeted to generate a long-term and consistent return profile for investors.
Investment Activity
There has been significant deployment and increasing diversification for the Company over the last year. The Company has now fully committed the proceeds from its IPO, as well as most of a new GBP40 million Revolving Credit Facility ("RCF") made available to the Company's sole wholly owned subsidiary TEEC Holdings Limited ("TEEC Holdings").
We have remained focused on maintaining strong investment discipline to ensure the portfolio is robust, diverse, and provides a good risk-adjusted return for our shareholders. Commitments during the year have been made into assets that support the transition to a low carbon, more efficient energy system: an GBP8 million senior debt investment into a combined heat and power plant ("Spark Steam"); a GBP47 million equity investment into nine hydro assets (the "Hydroelectric Portfolio"); and a GBP45.6 million debt facility to a subsidiary of Virmati Energy Ltd (trading as Field), to fund a 110MW portfolio of four BESS assets (the "BESS Portfolio "). The weighted average contract length of the operational assets in the portfolio is 31.6 years.
The Hydroelectric Portfolio brings recurring revenues with 96% of them underpinned by Government supported long-term Feed in Tariffs which are index linked, and PPAs with utility-grade counterparties. This was an important investment bringing diversification to the portfolio, inflation protection, and the security of revenues underpinned by long-term Government contracts - we are pleased to have such assets in our portfolio, particularly in the volatile markets that we are currently experiencing.
The Hydroelectric Portfolio was owned by entities advised by the Investment Manager and, as a result, a potential conflict of interest existed. In accordance with the provisions set out in the IPO Prospectus, the Board were required to approve the transaction and we were given comfort by the steps taken to manage and mitigate the conflict, which included separate dedicated buy and sell side teams within the Investment Manager and third-party valuations.
At the end of the period, we made a significant investment commitment into energy storage assets, a key growth area in the energy sector which efficiently manages the generation of power from renewables. TEEC has committed to provide GBP45.6 million to Field and has obtained exclusivity over a further 390MW/470MWh of energy storage opportunities.
Portfolio Performance
The existing portfolio has performed well, notably with the profitability of the CHP Portfolio significantly exceeding budget driven by the higher-than-expected power prices. The offtaker, APS, like many other agricultural producers, experienced a challenging year but remains well positioned, it being a leading supplier of British tomatoes to major UK food retailers including Aldi, Iceland, Lidl, M&S, Morrisons, Ocado, Sainsbury's, Tesco and Waitrose.
For the Hydroelectric Portfolio, in the period from 1 October to 31 March 2022, generation was 10% ahead of budget. In the final quarter of the year ended 31 March 2022, revenues were 8% below expectations given some technical issues, which have been resolved, and the uncharacteristically dry period in March.
The Investment Manager is exploring portfolio optimisation opportunities, including for instance in the Hydroelectric Portfolio to optimise the flow from the catchment area from an initial three sites to provide a better generation profile.
Please see the Investment Manager's Report for further details.
Gearing
As announced to the market on the 30 March 2022, the Group, via TEEC Holdings, has entered into a loan facility agreement for a GBP40 million Revolving Credit Facility (RCF) with TP Leasing Limited.
TP Leasing Ltd is an established private credit and asset leasing business which is managed by the Investment Manager and, as a result, is deemed to be a related party as defined in the Listing Rules. The RCF is deemed to be a "smaller related party transaction" for the purposes of LR11.1.10R. As set out in the IPO Prospectus, the Company has adopted a related party policy pursuant to which, prior to entering into the facility agreement, (i) the RCF was approved by the Directors and (ii) the Company obtained a fair and reasonable opinion from a qualified, independent adviser. The Board was satisfied with the conflict management procedures put in place, including team segregation within the Investment Manager and obtaining independent third-party pricing validation.
The RCF has a two-year term, with the possibility to be extended. The interest rate on the RCF is 4.5%(1) based on the Sterling Overnight Index Average ("SONIA") 2-year fixed rate of 2% and a margin of 2.5%.
The Group will make use of the RCF to fund the BESS portfolio and some of its growing pipeline of high-quality investment opportunities. The Group will follow a prudent approach to gearing with a target medium-term gearing of up to 40% of Gross Asset Value ("GAV") and a maximum gearing that will not exceed 45% of GAV at the time of drawdown.
As at 31 March 2022, the RCF had not been drawn. It is expected that the RCF will be substantially utilised during the financial year ending 31 March 2023.
Notes:
(1) Excluding fees
Pipeline
Our Investment Manager has built up an attractive pipeline of circa GBP500 million of opportunities across a variety of technologies and sectors with strong counterparties.
The pipeline includes a range of technologies including energy storage, solar, combined heat and power, EV charging, lighting, heat networks and other technologies. The projects are at different development stages and are a mixture of equity and debt, as well as public and private sector opportunities.
Given the large market opportunity to invest into energy storage, and the compatibility with other technologies such as solar photovoltaic panels, we believe that energy storage presents an attractive asset class to add to the TEEC portfolio which can help unlock the true potential of renewable energy and will play a fundamental role in the move to a clean energy future.
Please see the Investment Manager's Report for further details.
Financial Results
This was the Company's first full financial year. The NAV per share was 96.12 pence per share as at 31 March 2022 (31 March 2021: 97.49 pence per share). The NAV includes an uplift in valuation as a result of the Hydroelectric Portfolio being valued upwards by GBP4.1 million, largely due to the heightened inflationary environment we are now operating within and the increased forecast power prices which have been exacerbated by the Russian invasion of Ukraine. This offsets the negative impact of the dividend payments which have, to date, largely been paid out of capital while the Company has ramped up its deployment.
The portfolio, consisting of 12 funded assets (and four unfunded but committed assets) held via the Company's subsidiary TEEC Holdings, was valued at GBP78.8 million as at 31 March 2022 (31 March 2021: GBP21.0 million) and the Company held cash of GBP17.1 million as at 31 March 2022 (31 March 2021: GBP76.6 million). The Company made a profit before tax of GBP4.8 million for the year (31 March 2021: loss of GBP0.5 million), equal to 4.76 pence per share (31 March 2021: 0.01p loss).
The Company's annualised operating cost ratio ("OCR") was 1.38% (31 March 2021: 1.07%). The increase in the OCR is predominately driven by the increase in management fees payable to the Investment Manager. In accordance with the Investment Management Agreement, upon reaching 75% deployment of the IPO proceeds, the management fee is calculated by reference to the Company's NAV. This point was reached in December 2021, whereas it was previously charged on deployed proceeds only. The Board will continue to monitor the OCR closely as we seek to grow the Company and achieve economies of scale on fixed costs, delivering value to our shareholders.
Share Price and Distributions
Our share price has experienced a volatile period, as has much of the market due to macro-economic market conditions.
In February 2022, the Investment Manager purchased 158,882 Ordinary Shares at an average price of 94.4 pence per share.
For the year ended 31 March 2022, we declared a total dividend of 5.50 pence per share, in line with our target.
The Board anticipates paying quarterly interim dividends, targeting total dividends of 5.50 pence per share for the year ending March 2023(2) . We remain focused on delivering a dividend fully covered by cash earnings as soon as practicable and to that end, notes that in the year ending 31 March 2023, the Company will benefit from a full year of income from the CHP Portfolio and Hydroelectric portfolio, as well as income from the BESS Portfolio.
Notes:
(2) The dividend and return targets stated are Pounds Sterling denominated returns targets only and not a profit forecast. There can be no assurance that these targets will be met, and they should not be taken as an indication of the Company's expected future results.
Environmental, Social and Governance ("ESG")
The Company has adopted an approach to ESG which reflects the importance of sustainability to the investment policy and to maximise the potential for our ESG integration to add value to the strategy.
A current key focus is ensuring the Investment Manager continues to refine its approach to the integration of climate change into investment decision making. Accounting for the risks and opportunities associated with our changing climate is important for protecting the Company's assets and maximising their potential. We will continue to hold the Investment Manager to account on this issue and expect continued progression in the maturity of climate analysis for TEEC. Details on the Investment Manager's approach to ESG integration, including climate analysis and the Task Force on Climate-related Financial Disclosure (TCFD), are shared in the Sustainability Report.
Proposed amendments to the Group's Investment Policy
Since the Company's IPO in October 2020, we have seen a rapid evolution in clean energy policy, the commitment to addressing the global climate emergency, concerns regarding energy security and the opportunities that exist for investments which both contribute to energy transition and deliver returns to our shareholders. Therefore, as we have announced today, the Investment Manager is undertaking a consultation with key shareholders regarding amending our existing Investment Policy to reflect better the nature of our existing portfolio and pipeline of opportunities.
The key aspects of the proposed amendments include: confirming the scope of the Company's investment mandate to reflect the wider energy transition sector; expanding our geographical reach to enable the Company to make appropriate investments in Europe, albeit the United Kingdom will remain the core focus of the Company; clarify the structures that the Company is able to invest into, including both debt and equity; and including a definition of "Adjusted Gross Asset Value" in place of "Gross Asset Value" for the purposes of applying the Investment Policy restrictions.
In conjunction with (and dependent on approval of) the proposed changes to the Investment Policy, the Company's name will change to "Triple Point Energy Transition plc" (ticker: TENT) to reflect the revised mandate.
Subject to the outcome of the consultation and Board decision, the proposals to amend the Investment Policy and name of the Company (the " Proposals") will be put to the vote of all shareholders at the Company's Annual General Meeting to be held in August 2022.
Full details of the Proposals will be notified via a further announcement to the market and set out in the circular accompanying the Notice of AGM to be sent to shareholders in due course.
Appointment of Sole Corporate Broker
Today, the Board was pleased to announce the appointment of J.P. Morgan Securities plc (which conducts its UK investment banking activities as J.P. Morgan Cazenove) ("J.P. Morgan Cazenove") as sole corporate broker to the Company with immediate effect. We look forward to working with J.P. Morgan Cazenove as the Company embarks on the next phase of its growth,
Outlook
The Board is pleased to have fully committed the IPO proceeds, as well as the majority of the RCF, in the Company's first full year of operation. The investments made to date into hydroelectric power, energy storage and onsite heat and power generation exemplify the Company's strategy of investing into lower carbon, efficient energy systems. We are also satisfied by the total NAV return of 4.9% achieved in the year and are well positioned to achieve our objective of a 7-8% total NAV return, as the Company is now fully committed.
In 2021, Jonathan Hick joined Triple Point with the intention that he would assume the position as the TEEC Fund Manager, following a comprehensive induction period. The Board are pleased that following a successful transition he will become the Company's fund manager effective immediately, replacing Jonathan Parr who will assume a new role at Triple Point focused on the Investment Manager's wider product strategy. The Board would like to thank Jonathan Parr for his management during the launch and throughout TEEC's first full financial year.
The recent record high energy prices, as well as higher expectations for power prices over the next few years, provide significant tailwinds for the Company, both with respect to its existing assets as well as its pipeline. Energy is increasingly becoming too valuable to waste, and whether that means storing it more effectively to better match demand, producing it onsite, or reducing demand, we are seeing businesses and government organisations prioritising the efficient use of energy. The Company's pipeline of circa GBP500 million, spread across a diverse range of technologies, demonstrates this increased focus.
The devastating events in Ukraine have also highlighted the importance of a low carbon, efficient energy system to energy security. This is partly achieved through reducing our exposure to fossil fuels through increased renewable generation, and through reducing energy usage, making the energy generated go further and optimising energy generation locally. TEEC's portfolio and pipeline illustrate how this can be achieved in practice.
In addition to the beneficial tailwinds from the energy pricing and the focus on energy security, a significant proportion of the Company's investments also benefit from a rising inflationary environment. This can be through the explicit contractual linkage to inflation, for example the Feed in Tariff contracts that the Hydroelectric Portfolio benefit from RPI indexation, or through the broader correlation between inflation and wholesale energy prices.
COP26 signaled the intention to transition to a new energy system, one that the Company is well positioned to take advantage of.
I would like to thank shareholders for their continued support of the Company, and I look forward to reporting on the achievement of our objectives in the year ending 31 March 2023.
John Roberts
Chair
23 June 2022
STRATEGY AND BUSINESS MODEL
The Board is responsible for the Company's Investment Objective and Investment Policy and has overall responsibility for ensuring the Company's activities are in line with such overall strategy. The Group's Investment Objective and Investment Policy are published below.
As noted in the Chair's statement, the Investment Manager is undertaking a consultation with key shareholders regarding the proposed amendment of the Company's investment policy, following which a resolution will be proposed at the upcoming AGM. The Company's existing investment policy is set out below.
Investment Objective
The Company's Investment Objective is to generate a total return for investors comprising sustainable and growing income and capital growth. The Company intends to achieve its Investment Objective by investing in a diversified portfolio of energy efficiency investments in the United Kingdom.
Investment Policy
The Company intends to achieve its Investment Objective by investing in a diversified portfolio of energy efficiency investments in the United Kingdom. The term energy efficiency refers to assets or processes which reduce primary energy input for a given output, thereby reducing or eliminating energy waste. Energy efficiency is one of the cornerstones of the global drive to addressing the climate emergency. The cleanest or greenest energy is the energy that is never used - the projects and assets which deliver such savings are the focus of the Company.
The Group will invest in a range of assets which will contribute or are already contributing to energy efficiency in sub-sectors including electricity and heat generation, distribution and end user consumption, and which meet the following criteria:
-- contribute towards demonstrable energy (and financial) savings over a "business as usual" scenario;
-- are established technologies (the Group will not invest in unproven technologies);
-- provide long-term contracts based predominantly on availability, government subsidy or savings-based contracts with high quality industrial, governmental, and corporate Counterparties, including Counterparties which represent multiple end-users; and
-- entitle the Company to receive stable, predictable Sterling cash flows over the medium to long-term.
The Group's returns will typically take the form of contractual payments by Counterparties in respect of equipment, usually installed at their premises (and which may provide index-linked, rental payments), as well as payments under off-take agreements in respect of energy generated and, where available, the Group will capitalise on government incentive programmes.
Contractual payments by Counterparties are expected to be predominantly availability, government subsidy or savings based. Availability payments will be receivable on the basis that the equipment is available and in suitable working order to deliver the applicable outputs; savings-based payments work by setting an agreed baseline for savings in kWhs up-front and are then ascribed a monetary value by applying the prevailing energy cost, with annual increases based on an agreed energy price index insulating the Company from any changes in the cost of energy.
The Group will invest predominantly in operational energy efficiency projects. It will invest in either single assets or portfolios of multiple assets, via debt and/or equity structures. The Group may, under certain circumstances, invest in energy efficiency projects that are in the Development Phase, the Construction Phase or the Stabilisation Phase, either directly or through funding of a third-party developer, where such investments will deliver an attractive risk adjusted return. In addition, the Group may invest in or acquire minority interests in companies with a strategy that aligns with the Company's overarching Investment Objective, such as developers, operators or managers of energy efficiency projects, subject to the restrictions set out below.
In respect of each type of investment, the Group will seek to diversify its commercial exposure by contracting, where practicable, with a range of different equipment manufacturers, project developers and other service providers, as well as off-takers.
Investments may be acquired from a single or a range of vendors and the Group may also enter into joint venture arrangements alongside one or more co-investors, where the Group retains control or has strong minority protections.
Investment Restrictions
The Company will invest and manage its assets with the objective of spreading risk and, in doing so, will maintain the following investment restrictions:
-- no single Energy Efficiency Project investment by the Group will represent more than 20% of Gross Asset Value;
-- the aggregate maximum exposure to any Counterparty will not exceed 20% of Gross Asset Value (and where an energy efficiency project derives revenues from more than one source, the relevant Counterparty exposure in each case shall be calculated by reference to the proportion of revenues derived from payments received from the Counterparty, rather than any other source);
-- the aggregate maximum exposure to energy efficiency projects in the development phase and the construction phase will not exceed, in aggregate, 25% of Gross Asset Value, provided that, the aggregate maximum exposure to projects in the development phase will not exceed 5% of Gross Asset Value, and the aggregate exposure to any one developer will not exceed 10% of Gross Asset Value;
-- the Group will not invest more than 5% of Gross Asset Value, in aggregate, in the acquisition of minority stakes in other related companies, and at all times such investments will only be made with appropriate minority protections in place;
-- neither the Company nor any of its subsidiaries will invest in any UK listed closed-ended investment companies; and
-- the Company will not conduct any trading activities which are significant in the context of the Group as a whole.
The investment limits set out above apply following full investment of the Net Proceeds and following the Group becoming substantially geared (meaning for this purpose borrowings by way of long-term structural debt of 20% of Gross Asset Value being put in place).
Compliance with the above investment limits will be measured at the time of investment and non-compliance resulting from changes in the price or value of assets following investment will not be considered as a breach of the investment limits.
Gearing
The Directors intend to use gearing to enhance the potential for income returns and long-term capital growth, and to provide capital flexibility. However, the Company will always follow a prudent approach for the asset class with regards to gearing, and the Group will maintain a conservative level of aggregate borrowings.
Gearing will be employed at the level of the Company, at the level of any intermediate wholly owned subsidiary of the Company or at the level of the relevant Project SPV, and any limits shall apply on a look-through basis. The Company's target medium term gearing for the Group will be up to 40% of Gross Asset Value, calculated at the time of drawdown.
The Group may enter into borrowing facilities at a higher level of gearing at the intermediate subsidiary level or at the Project SPV level, provided that the aggregate borrowing of the Group shall not exceed a maximum of 45% of Gross Asset Value, calculated at the time of drawdown.
Debt may be secured with or without a charge over some or all the Group's assets, depending on the optimal structure for the Group and having consideration to key metrics including lender diversity, cost of debt, debt type and maturity profiles. Intra-group debt between the Company and subsidiaries will not be included in the definition of borrowings for these purposes.
Use of Derivatives
The Group may use Derivatives for efficient portfolio management. The Group will only enter into hedging contracts (in particular, in respect of inflation, interest rate, electricity price and commodity price hedging) and other derivative contracts when they are available in a timely manner and on acceptable terms. The Company reserves the right to terminate any hedging arrangement in its absolute discretion. Any such hedging transactions will not be undertaken for speculative purposes. The Company will not employ derivatives for investment purposes.
Cash Management
Whilst it is the intention of the Company to be fully or near fully invested in normal market conditions, the Company may hold cash on deposit and may invest in cash equivalent investments, which may include government issued treasury bills, money market collective investment schemes, other money market instruments and short-term investments in money market type funds ("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 a significant Cash and Cash Equivalent position instead of being fully or near fully invested.
Changes to and compliance with the Investment Policy
Any material changes to the Company's Investment Policy set out above will require the approval of Shareholders by way of an ordinary resolution at a general meeting.
In the event of a breach of the investment guidelines and/or the investment restrictions set out above, the Investment Manager shall inform the Board as soon as practicable upon becoming aware of any breach. If the Board considers the breach to be material, notification will be made through an announcement via a Regulatory Information Service.
Business Model
TEEC sources opportunities to deploy investors' capital into energy efficiency and distributed energy projects that support the transition to a sustainable energy future. We interact with a wide variety of energy market participants, from individual project developers with a single-technology solution, to large corporations with multi-technology opportunities. The energy transition to a more sustainable future is a huge challenge and at the same time it is a great opportunity. It is dependent on multiple parties working together to design, finance, install and maintain energy infrastructure to more efficiently generate, store, distribute and use energy with equipment that does so as efficiently as possible. This will reduce the amount of wastage of energy and other resources and help to protect the environment from further damage.
TEEC is well positioned to make a significant contribution to the energy transition as it is focused on investing into onsite energy generation and efficient consumption, distributed energy generation and energy storage and distribution. It is the deployment of capital to fund technological solutions such as energy storage, hydroelectric power, CHP plants, lighting, building management systems, solar, wind or other energy efficient technologies, that enables the transition to a sustainable energy future.
TEEC focuses on investment opportunities that contribute to our total NAV return for investors of between 7-8%. The investments made by the Group fund technologies which provide solutions for counterparties who contract through TEEC investee companies to pay for these solutions. The payments are, for instance, through interest and principal debt repayments from a counterparty that is borrowing money from the Group, or through returns from an equity investment that is providing a solution for a counterparty, or for example through generating energy supplied to the grid. Contractual structures include power purchase agreements, energy services agreements or other such structures, which in some cases may provide index-linked payments. The cash flows generated from the contracts with the counterparties pay for the investment made by the Group and enable TEEC to pay dividends to its shareholders.
To reduce risks involved with the investments made by the Group, we seek strong counterparties and diversify the portfolio by counterparty, technology, location, type of investment as well as other measures dependent on the specificities of each investment. In addition, we carry out due diligence as required for each investment to properly understand the risks and opportunities of the project. We particularly focus on the ESG aspects of the investment opportunity and go through a risk and opportunities assessment from an ESG perspective. The due diligence process, dependent on the requirements of each investment, can involve ESG, legal, technological, financial, accounting, tax, or other types of due diligence, involving both internal Triple Point employees as well as third party specialist firms.
The combination of the need to transition to sustainable energy generation and usage, along with TEEC's ability to fund this transition, make for a great opportunity to be optimised.
KEY PERFORMANCE INDICATORS
The Company sets out below its KPIs which it uses to track the performance of the Company over time against the objectives , as described in the Strategic Report.
The Board believes that the KPIs detailed below provide shareholders with sufficient information to assess how effectively the Company is meeting its objectives. The Board monitors these KPIs on an ongoing basis .
KPI AND DEFINITION RELEVANCE TO STRATEGY PERFORMANCE EXPLANATION Dividends per share (3) -------------------------------------------------------------------------------------------------------------------- Dividends paid to The dividend reflects the The Company is paying a The Company's target was shareholders and declared Company's ability to 5.50 pence per share to pay a dividend of 5.50 in relation to the year. deliver a low -risk income dividend in respect of the pence per share in respect stream from the year ended 31 March of the year portfolio 2022 (2.00 pence per share to 31 March 2022, which it for the period to 31 March achieved. 2021 ). --------------------------- ---------------------------- --------------------------- Total NAV return (4) --------------------------------------------------------- ---------------------------- --------------------------- NAV growth and dividends The total NAV return 4.9% (Negative 2.5% for Dividends paid in the year paid per share in the year. measure highlights the the year to 31 March 2021) contributed 6.3% to total
gross return to investors NAV return which was including dividends partially offset paid. by a 1.4% reduction in NAV. The target total NAV return is 7% - 8% per annum. Underperformance was attributable to dividends paid in the year, being substantially uncovered. During the year, the proceeds from the IPO and a majority of the RCF have been committed, which on an annualised basis will be accretive to NAV. --------------------------- ---------------------------- --------------------------- NAV per share NAV divided by number of The NAV per share shows 96.12 pence per share. GBP96.1 million/ 96.12 shares outstanding as at our ability to grow the (97.49 pence per share for pence per share as at 31 the period end. portfolio and to add value the year to 31 March 2021) March 2022 to it throughout the life cycle of our assets Cash dividend cover (3) (4) -------------------------------------------------------------------------------------------------------------------- Operational cash flow Reflects the Company's 0.14x.The Company will The Company maintained its divided by dividends paid ability to cover its monitor dividend cover as dividend target, despite to shareholders during the dividends from the income the Company continues to slower than originally year. received from its deploy funds. (N/A anticipated commitment portfolio. for the year to 31 March of IPO proceeds. Now the 2021) Company is substantially committed on a levered basis, cash dividend cover is forecast to improve significantly. The Company will be fully dividend covered by cash flows generated in the underlying investments as soon as practicable and to that end, note that in the year ending 31 March 2023, the Company will benefit from a full year of income from the CHP Portfolio and Hydroelectric portfolio, as well as income from the BESS Portfolio. --------------------------- ---------------------------- --------------------------- Weighted average project life ("WAL") (4) --------------------------------------------------------- ---------------------------- --------------------------- Weighted average number of The weighted average 31.6 years (10.0 years for The Portfolio WAL is years assumed to be project life is a key the year to 31 March 2021) driven by the long project remaining in project measure of the quality of life of the Hydroelectric contracts. our portfolio. Long lease Portfolio and debt or loan terms help investments providing long underpin the security of term cash flows. Growth in our income stream. the WAL has been largely delivered through deployment into the Hydroelectric portfolio which have attractive long term cash flows. --------------------------- ---------------------------- --------------------------- Ongoing Charges Ratio ("OCR") (4) --------------------------------------------------------- ---------------------------- --------------------------- Annualised ongoing charges Ongoing charges shows the 1.38% annualised (1.07% for Company level budgets are (i.e., excluding effect of the operational the year to 31 March 2021) approved annually by the acquisition costs and other expenses incurred by the Board and actual spend is non-recurring items) Company. reviewed quarterly. divided by the average This is a key measure of published undiluted NAV in our operational the period, calculated in performance. Keeping costs accordance with low supports our ability Association of Investment to pay dividends. The Companies guidelines. increase in OCR has been driven by the management fee being measured in reference to NAV, as IPO proceeds were substantially deployed in the year, prior to this they were charged in reference to deployment. --------------------------- ---------------------------- --------------------------- Avoided emissions (4) --------------------------------------------------------- ---------------------------- --------------------------- The carbon emissions A measure of our success 17,074 tonnes CO (2) The t CO (2) avoided has avoided by the Company's in investing in projects avoided in the year ended increased compared to end investments. that have a positive 31 March 2022 (0 tonnes CO of year 2021 as expected, environmental impact (2) avoided for given the Company's through a decrease in CO the year to 31 March 2021) continued deployment. (2) emissions compared to
an equivalent asset. --------------------------- ---------------------------- --------------------------- Gross loan to value ("LTV") (4) ---------------------------------------------------------------------------------------------------------------------- The proportion of our GAV The LTV measures the 0% (0% for the year to 31 The Group will follow a that is funded by prudence of our financing March 2021) prudent approach to borrowings. strategy, balancing the gearing with a target potential amplification medium-term gearing of of returns and portfolio up to 40% of GAV and a diversification that come maximum gearing that will with using debt against the not exceed 45% of GAV at need to the time of drawdown. successfully manage risk. On full drawdown of the RCF Gross LTV is expected to be around 30% based on prevailing NAV and future funding of the BESS Portfolio. ---------------------------- ---------------------------- ----------------------------
Notes:
(3) Investors should note that references to "dividends" and "distributions" are intended to cover both dividend income and income which is designated as an interest distribution for UK tax purposes and therefore subject to the interest streaming regime applicable to investment trusts.
(4) Alternative Performance Measure.
INVESTMENT MANAGER'S REPORT
Review of the Period
Late last year, COP26 in Glasgow closed with a renewed commitment to limiting global warming to 1.5 degrees above pre-industrial levels. The UK has committed to Net Zero emissions by 2050. That is an ambitious target that will require a "historic surge" in clean energy investment. The adoption of renewable energy will be key to our Net Zero ambitions, but for any push to Net Zero it is crucial we make better use of the energy we produce. We need to be more energy efficient. The government has a large part to play, of course, by committing to long-term policies that encourage investment in clean energy infrastructure, but private capital is also a key component to driving decarbonisation and supporting the Net Zero mission.
We have now fully committed the IPO proceeds, in addition to the majority of the proceeds from the RCF that were put in place at the end of the year. Proceeds have been committed while maintaining strong investment discipline to ensure the portfolio construct is robust, diverse and provides a good risk adjusted return for our shareholders. As a result of being committed on a levered basis, the portfolio is well positioned to deliver financial returns on an annualised basis. Harvest & Glasshouse and Spark Steam have shown their ability to perform and deliver strong returns despite high gas prices, as a result of the even higher electricity prices and benefitting from the spark spread. The Hydroelectric Portfolio has demonstrated the attractiveness of stable long-term revenues from government supported Feed in Tariffs. The BESS Portfolio will be able to store energy and supply it when needed rather than energy and revenues being wasted when there is a surplus of production.
The war in the Ukraine and the embargo on Russian oil and gas have raised the importance of energy security. Energy prices have significantly increased, due to geopolitical risk, as well as the strong demand for natural gas. Gas supply is limited and there is strong demand from many countries given low existing stocks as well as a strong internal demand. TEEC's portfolio contributes to strengthening the UK's energy infrastructure through efficient energy generation and energy storage, providing greater energy security.
From a technology perspective, we are seeing a number of technologies where prices have been increasing as a result of supply and demand imbalances and the shortage of semiconductors. An example is solar photovoltaic prices, which have seen price increases in solar panel costs from China. Where we are investing in such projects, TEEC will sign fixed price contracts to ensure it is protected from further price volatility at the point of investment. From a longer-term perspective, however, we have seen price decreases as efficiencies in production and economies of scale have worked to reduce costs.
What is clearly not in debate is the need to deploy energy efficiency measures on a massive scale in order to be able to transition to a sustainable energy infrastructure and to improve energy security. TEEC is well positioned to assist in that transition and we have an attractive pipeline of opportunities in which to invest.
Investments
Spark Steam
In May 2021, and building on the previous year's debt investments in Harvest and Glasshouse, TEEC invested GBP8 million of senior debt finance into Spark Steam, a CHP providing heat, power and carbon dioxide to APS which is the UK's leading supplier of British tomatoes and has over 65 years of operational experience. APS owns and operates over six million sq. ft. of glasshouses and distributes to all major UK food retailers including Aldi, Iceland, Lidl, M&S, Morrisons, Ocado, Sainsbury's, Tesco and Waitrose. CHPs ensure an efficient use of energy to provide on-site power generation with use of heat and carbon dioxide to enhance crop yields rather than being vented into the atmosphere.
In addition, there is a Power Purchase Agreement ("PPA") with a well-known, large food manufacturer through a private wire arrangement. This arrangement benefits the food manufacturer by providing it with savings against its electricity costs, whilst enabling Spark Steam to benefit from a greater level of contractual cash flows at more attractive rates. Based on National Grid Electricity Transmission data avoidance of the electricity transmission system (or grid) is likely to result in approximately 2.25% efficiency increase. Reducing transmission traffic also helps to bring marginal benefits of reduced congestion on the grid which increases its energy efficiency.
Hydroelectric Portfolio
In November 2021, TEEC invested GBP27 million in the purchase of six operational hydroelectric assets. This was followed in December 2021 with a second investment into a further three operational hydroelectric assets for GBP20 million. The Hydroelectric Portfolio brings recurring revenues with 96% of them underpinned by Government supported long-term Feed in Tariffs which are index linked, and PPAs with utility counterparties. This was an important investment bringing diversification to the portfolio from an attractive asset class.
The Hydroelectric Portfolio consists of run-of-the-river hydroelectric schemes located across the Scottish Highlands. The schemes were developed by Green Highland Renewables, who continue to provide operations and maintenance services. The schemes were commissioned during 2015 and 2016 and range from 0.4MW to 1.35MW output. The performance of a hydroelectric scheme is primarily driven by the availability of a scheme and the flow of water available.
BESS Portfolio
In March 2022, TEEC committed GBP45.6 million to fund a portfolio of four geographically diverse BESS assets in the UK. The portfolio has a total capacity of 110MW. The first BESS asset, which is a one-hour duration battery, is expected to become operational in Q2 of the financial year ending 31 March 2023. It is located in the North of England and has a total capacity of 20MW. The other three BESS assets are located in Scotland (two-hour duration battery; total capacity 50MW), Wales (two-hour duration battery; total capacity 20MW), and the South-East of England (one-hour duration battery; total capacity 20MW). These are expected to become operational during 2023.
Portfolio Overview
Credit Counterparty
As at 31 March 2022
Non-Investment Grade - Unrated 29.3% Investment Grade - Rated 52.8% ------ Cash 17.9% ------
Investment Type
As at 31 March 2022
Debt 29.3% Equity 52.8% ------ Cash 17.9% ------
Lifecycle Stage
As at 31 March 2022
Operating 81.4% Construction 0.7% ------ Cash 17.9% ------
Technology Exposure
As at 31 March 2022
CHP 28.6% Hydro 52.8% ------ BESS 0.7% ------ Cash 17.9% ------
Asset Exposure
As at 31 March 2022
Harvest 10.7% Glasshouse 10.1% ------ Spark Steam 7.8% ------ Green Highland Allt Choire A Bhalachain (255) Limited 4.2% ------ Elementary Energy Limited 3.0% ------ Green Highland Allt Ladaidh (1148) Limited 7.8% ------ Green Highland Allt Luaidhe (228) Limited 4.5% ------ Green Highland Allt Phocachain (1015) Limited 9.1% ------ Achnacarry Hydro Limited 24.2% ------ BESS 0.7% ------ Cash 17.9% ------
Portfolio performance
Harvest and Glasshouse
Harvest and Glasshouse revenues and EBITDA significantly exceeded budget driven by the higher-than-expected power prices . The primary off-taker is APS which is the UK's leading supplier of British tomatoes and, like other businesses in the agricultural and food production sectors, it has experienced a challenging year, citing labour shortages and lower than expected crop yields. It is, however, well-positioned for future growth, producing approximately one third of the UK's tomato production with distribution to the major UK food retailers.
Spark Steam
Spark Steam revenue and EBITDA exceeded budget driven by the higher-than-expected power prices . The off-takers include APS, the leading supplier of British tomatoes and a well-known large food manufacturer. Both companies are well-positioned as suppliers of food items to leading UK supermarkets. This year Spark Steam has avoided 1,891 t CO (2) carbon emissions.
Hydroelectric Portfolio
TEEC completed the acquisition of the Hydroelectric Portfolio at the end of 2021, but with economic ownership effective from 1 October 2021. In the period from 1 October to 31 March 2022, generation was 10% ahead of budget. In the final quarter of the year ended 31 March 2022, revenues were 8% below expectations given some technical issues, which have been resolved, and the uncharacteristically dry period in March. Prior to acquisition, we commissioned new hydrology studies to give confidence in the long-term generation capability. The operations and maintenance team remain confident that variance in rainfall over a long period (e.g., 10 years) is generally low and therefore the 40-year average rainfall is expected to be achieved. Extreme weather with exceptionally high rainfall can result in not all the water being utilised, which provides improvement opportunities.
In the coming year, attention will be focused on how to boost performance through asset management and working with the operations and maintenance team at Green Highland Renewables. Work has commenced to establish the cost/benefit of enhancing the performance of the Hydroelectric Portfolio further, which includes the reinstatement of peatland, that has associated environmental benefits.
96% of revenues for the Hydroelectric Portfolio are underpinned by Government supported Feed in Tariffs with a remaining period of c.14 years.
All Feed in Tariff revenues enjoy annual indexation to UK RPI. With the current high level of UK RPI, this has resulted in Feed in Tariff rates being adjusted upwards by RPI of 7.5%, effective from 1 April 2022, which has given an uplift to revenues and underpins the highly defensive and attractive nature of this portfolio.
Portfolio Valuation
The Investment Manager is responsible for carrying out the fair market valuation of the Group's investments. The Company engages Mazars as an external, independent, and qualified valuer to assess the validity of the discount rates used by the Investment Manager in determination of fair value. Portfolio valuations are carried out on a semi-annual basis as at 31 March and 30 September each year.
For non-market traded investments (being all the investments in the current portfolio), the valuation is based on a discounted cash flow methodology and adjusted in accordance with the International Private Equity Valuation Guidelines where appropriate to comply with IFRS 13 and IFRS 10, given the special nature of portfolio investments.
The valuation for each investment in the portfolio is derived from the application of an appropriate discount rate to reflect the perceived risk to the investment's future cash flows to give the present value of those cash flows. The Investment Manager exercises its judgement in assessing the expected future cash flows from each investment based on the project's expected life and the financial model produced by each project entity. In determining the appropriate discount rate to apply to a given investment the Investment Manager takes into account the relative risks associated with the revenues. For the year ending 31 March 2022, the discount rates range from 5% to 8% (31 March 2021: 8%).
The valuation of the portfolio by the Investment Manager and reviewed and supported by the Directors as at 31 March 2022 was GBP78.8 million (31 March 2021: GBP21.0 million).
Valuation movements
The CHP Portfolio has been held at par, while there is scope for a discount rate that are lower than the interest rates on the CHP Portfolio which derive a par valuation, this is offset by relatively limited prepayment protections supporting a par valuation. The small initial loan to the BESS Portfolio has been valued at par as the initial drawdown took place on 31 March 2022 with fair value being equal to the upfront costs. As a result of the loan investments, being valued at par, the fair value movements in the year are attributable, in its entirety, to revised cash flows in relation to the Hydroelectric portfolio. The discount rate on the Hydroelectric Portfolio has remained equal to the discount rate at acquisition.
The breakdown of the movement in the Directors' valuation can be found in the Annual Report.
The opening valuation as at 31 March 2021 was GBP21.0 million. Allowing for, in year cash investments comprising a debt investment in Spark Steam of GBP8.0 million, GBP46.5 million into the Hydroelectric Portfolio, GBP0.7 million into the BESS Portfolio and GBP1.6 million of principal repayments from the CHP Portfolio, the rebased valuation at 31 March 2022 was GBP74.7 million.
Each movement between the rebased valuation of GBP74.7 million and the 31 March 2022 valuation of GBP78.8 million is considered in turn below:
Inflation
Over 2021, as the initial impacts of the pandemic fall out of the inflation figures, and supply constraints take hold, inflation has increased markedly. Feed in Tariff rates, for example, were adjusted upwards by RPI of 7.5%, effective from 1 April 2022. In February 2022, the Russian invasion of Ukraine, in addition to the multiple primary impacts felt in Ukraine itself, has placed significant upward pressure on inflation, in part due to the sharply higher cost of energy and some commodities.
Given the quantum of the increase, consensus amongst the forecasters and broad increases across prices in multiple sectors, portfolio inflation assumptions have been updated. Our assumption for long-term RPI has moved to 3.00% for 2023, through to 2030, before falling to 2.40%. Our assumption for CPI has moved to 2.25%, for 2023 and stays flat thereafter. We also model a power curve indexation assumption, as wholesale power prices are not intrinsically linked to consumers' prices, of 2.75% for 2023 staying flat thereafter. The updated inflation assumptions have been accretive to the valuation of the Hydroelectric Portfolio by GBP5.1 million.
Power Prices
The valuation as at 31 March 2022 applies long-term, forward looking power prices from a leading third -party consultant. A blend of the last three quarters central case forecasts is taken. Where fixed price arrangements are in place, the financial model will reflect this price for the relevant time and subsequently revert to the power price using the methodology described. The updated power price forecast has been accretive to the valuation of the Hydroelectric Portfolio by GBP0.3 million.
Energy Yields
For the Hydroelectric Portfolio, the energy yield assumption is predicated on a P50 level of electricity output based on reports prepared by technical advisers prior to acquisition. Since acquisition, TEEC has made a prudent adjustment (5%) to that energy yield, primarily to enable it to obtain further comfort as to the appropriate ongoing assumption with respect to curtailment across the portfolio. The P50 output is the estimated annual amount of electricity generation that has a 50% probability of being exceeded and a 50% probability of being underachieved over the life of the asset .
Balance of Portfolio Return
This refers to the balance of valuation movements in the year ending 31 March 2022 (excluding the above) which has been accretive to valuations of GBP2.0 million. The balance of portfolio return is calculated as the expected return, reflecting the net present value of future cash flows brought forward to the valuation date at the prevailing discount rate.
The main drivers of the portfolio return have been updated cost forecasts reflecting agreements entered into in relation to the Hydroelectric Portfolio post acquisition and the impact of an optimised capital structure which includes shareholder loans.
Investment Obligations
At 31 March 2022, the Company had outstanding investment commitments , in relation to the BESS Portfolio which has a total capacity of 110 MW.
BESS asset Battery hour Location Size in MW Expected duration operational date 1(st) BESS One hour North of England 20 MW Q2 FY2023 asset ------------- ----------------- ----------- ------------- 2(nd) BESS Two hours Scotland 50 MW 2023 asset ------------- ----------------- ----------- ------------- 3(rd) BESS Two hours Wales 20 MW 2023 asset ------------- ----------------- ----------- ------------- 4(th) BESS One hour South-East 20 MW 2023 asset England ------------- ----------------- ----------- -------------
The investment into the BESS Portfolio amounts to GBP45.6 million via a fixed rate debt facility.
Key terms of the debt facility include:
-- funding will only occur once key Engineering, Procurement and Construction ("EPC") milestones have been approved . It is expected that draw down will take place substantially over the financial year ending 31 March 2023;
-- committed amortising term of 18.25 years following an initial 1-year period;
-- increased yield in the event of inflation (consumer price index) exceeding base case expectations, subject to a cap;
-- security including, amongst other rights, charges over the assets of the Borrower;
-- TEEC Holdings will receive an arrangement fee, annual monitoring fees, and a non-utilisation fee on undrawn amounts of the facility; and
-- Field benefits from an ESG margin ratchet which delivers a potential reduction in the rate payable if ambitious avoided carbon targets are met during trading.
Fully Invested Portfolio Valuation
The valuation of the portfolio on a fully invested basis can be derived by adding the valuation at 31 March 2022 and the expected outstanding commitments are as follows:
GBP'000 Portfolio valuation as at 31 March 2022 78,787 Future investment commitments at cost 44,941 Portfolio valuation once fully invested 123,728 ------------------------------------------ -------
Key Sensitivities
The following table illustrates the sensitivity of the Company's NAV per share to changes in key input assumptions (with labels indicating the impact on the NAV in pence per share of the sensitivities):
Discount rate +0.5% -0.5% NAV sensitivity (3.0p) 3.3p ------- ------ Energy Yields +10% -10% NAV sensitivity 3.1p (3.2p) ----- ------- Power prices +10% -10% NAV sensitivity 2.6p (2.2p) ----- ------- Inflation +0.5% -0.5% NAV sensitivity 2.5p (2.3p) ------ -------
For each of the sensitivities, it is assumed that potential changes occur independently of each other with no effect on any other base case assumption, and that the number of investments in the portfolio remains static throughout the modelled life.
Financial Review
The Company applies IFRS 10 and qualifies as an investment entity. IFRS 10 requires that investment entities measure investments, including subsidiaries that are themselves investment entities, at fair value except for subsidiaries that provide investment services which are required to be consolidated.
The Company's single, direct subsidiary, TEEC Holdings, is the ultimate holding company for all the Company's investments.
It is, itself, an investment entity and is therefore measured at fair value.
NAV
The Company's NAV as well as the valuation of the investment portfolio are calculated semi-annually on 30 September and 31 March each year. Valuations are provided by the Investment Manager and are subject to review by Mazars with the other assets and liabilities of the Company calculated by the Administrator. The NAV is reviewed and approved by the Board. All variables relating to the performance of the underlying assets are reviewed and incorporated in the process of identifying relevant drivers of the discounted cash flow valuation.
NAV Bridge for the year ended 31 March 2022
The NAV bridge can be found in the Annual Report.
The movement in NAV was driven by the following factors:
Investment income of GBP2.5 million representing interest income to TEEC , via TEEC Holdings, from the interest on the CHP Portfolio and the shareholder loans to the Hydroelectric Portfolio.
Fund expenses of GBP1.3 million and dividends paid in the year of GBP6.1 million.
The net impact of investment income, fund expenses and dividends paid led to a reduction in NAV of GBP4.9 million. This was partially offset by upward revaluation of GBP3.6 million of the Company's, sole, wholly owned subsidiary TEEC Holdings, the entity through which investments are purchased and measured at fair value.
The Company's NAV also benefitted from a relatively immaterial GBP13,000 uplift through the issuance of new shares to the Investment Manager in accordance with the Investment Management Agreement under which 20% of the management fee is applied to the purchase of shares in the Company. During periods where the Company's shares trade at a premium to NAV, the Company issues new shares at the prevailing NAV. During periods where the Company's trade at a discount to NAV, the Investment Manager purchases shares in the secondary market.
Operating Results
The Company was incorporated on 23 June 2020. The comparative figures cover the period from 23 June 2020 to 31 March 2021, therefore are not comparable with the amounts presented for the full year ended 31 March 2022.
Profit before tax was GBP4.8 million (31 March 2021: GBP0.5 million loss), with earnings per share of 4.76 pence (31 March 2021: 0.01 pence loss).
Operating Expense and Ongoing Charges
The operating expenses for the year ended 31 March 2022 amounted to GBP1.3 million (31 March 2021: GBP0.5m). The Company's ongoing charges ratio ("OCR") is 1.38% (31 March 2021: 1.07%) and reflects a full year's operating expenses. With the exception of the management fee, fund operating expenses are predominantly fixed and known, accordingly via scale the OCR will decline. Absent of further fundraising, the OCR is expected to increase, on a constant NAV basis, in the year ending 31 Mach 2023 as the management fee on the IPO proceeds is now charged on full NAV.
Cash Dividend Cover
31 March 2022 GBP'000 Cash income 2,165 Total expenses as per Statement of Comprehensive Income (1,324) Dividends paid per Statement of Changes in Equity 6,125 Cash dividend cover 0.14x ---------------
The Company's dividends paid in the year of GBP6.1 million (6.125 pence per share) have been predominately paid from capital.
During the financial year ending 31 March 2022, deployment of GBP55.3 million has been achieved, on which the Company will benefit from an annualised return going forward, along with contribution from a further deployment on the GBP44.9 million of commitments at 31 March 2022. The Company remains focused on being fully dividend covered by cash flows generated in the underlying investments, as soon as practicable and to that end, note that in the year ending 31 March 2023, the Company will benefit from a full year of income from the CHP Portfolio and Hydroelectric portfolio, as well as income from the BESS Portfolio.
Gearing and Liquidity
At the year ending 31 March 2022, the Group had cash balances of GBP17.4 million (31 March 2021: GBP76.6 million).
As announced on the 30 March 2022, the Group, via TEEC Holdings, has entered into a loan facility agreement for a GBP40 million Revolving Credit Facility ("RCF") with TP Leasing Limited.
The RCF has a two-year term, with the possibility to be extended. The interest rate on the RCF is 4.5%(5) based on the Sterling Overnight Index Average ("SONIA") 2-year fixed rate of 2% and a margin of 2.5%.
The Group will make use of the RCF to fund the BESS Portfolio and some of its growing pipeline of high-quality investment opportunities. The Group will follow a prudent approach to gearing with a target medium-term gearing of up to 40% of GAV and a maximum gearing that will not exceed 45% of GAV at time of drawdown.
As at the end of March 2022, the RCF had not been drawn. It is expected that the RCF will be substantially utilised during the financial year ending 31 March 2023.
Notes:
(5) Excluding fees
Pipeline
We have continued to build our pipeline and have established a variety of investment opportunities across different technologies, counterparties, structures and locations to create an attractive diversified portfolio of opportunities. The Company has circa GBP500 million of pipeline of opportunities across a variety of technologies including energy storage, solar lighting, EV charging, district heating, energy from waste, hydrogen production, and CHP.
These investment opportunities are from a variety of sources including from off-market and competitive processes as well as through the Triple Point Group network of contacts. Several opportunities include further deal flow that will follow as a result of longer-term relations.
The distributed energy segment has experienced a significant increase in both the volume and average deal size per opportunity. Solar photovoltaic projects, as well as biomass and energy from waste projects are notable components of the opportunity set. Through working with its developer, corporate and construction partners, TEEC is well placed to achieve attractive rates of returns in these sectors.
The onsite consumption and demand segment pipeline has seen notable recent growth as energy prices have increased in recent months. Businesses are looking both to reduce the amount of energy they consume, and to generate more of it on site, materially reducing the bill they pay for that energy through avoided levies and transmission costs. As well as enhancing energy security and reducing costs for businesses, these opportunities both drive decarbonisation and improve energy efficiency.
The energy storage segment has also grown significantly, with the maturing of the storage business case and attractive returns driving new developments and investments in this space. The electrification of transportation is creating new investment opportunities while also adding pressure to grow renewable generation and use the energy generated more efficiently. The rise in the adoption of EV, is creating the opportunity to fund EV charging networks. There is also greater usage of heating, ventilation and air conditioning ("HVAC"), which companies have sought to improve in part to protect against the spread of Covid-19 through better ventilation. Other technologies are also being highlighted for future growth such as heat pumps. These technologies present opportunities for TEEC to finance the installation of new energy efficient equipment which could use the increasing supply of renewable energy thus reducing the carbon footprint and improving the environment.
Environmental, Social and Governance
Triple Point is committed to promoting ESG when assessing investment opportunities and has been a signatory to the United Nations' Principles for Responsible Investing ("PRI") since 2019.
In addition, Triple Point has applied to become a B Corp which formalises Triple Point's consideration of social and environmental impact.
In addition, TEEC is considering the climate change strategy of its portfolio including a review of its climate risks and opportunities. The initial TCFD report is set out in the Sustainability Report of the Annual Report.
A disclosure for TEEC in line with the European Union's Sustainable Financial Disclosure Regulation ("SFDR") requirements for Article 6 and Article 8, is publicly available on our website https://www.tpenergyefficiency.com/. Although not required to do so, we think it is important to provide transparency on our sustainability approach wherever possible. Data points for TEEC, aligned with the SFDR, are also provided in the Sustainability Report.
We have continued to focus on our ESG impact through the TEEC portfolio and in 2021 we enhanced the portfolio from an ESG perspective through the acquisition of the Hydroelectric Portfolio which has 6.6 MW of hydroelectric power generation from nine operational run of river generators in Scotland. We are exploring further ESG improvements such as using peat restoration to improve income through optimisation of the flow rate at an initial three sites whilst acting as a carbon-sink - a natural capital solution for a better environment and financial performance.
The overall TEEC portfolio generated 9,425 MWh of renewable energy and avoided 17,074 tonnes of CO (2) in the year ended 31 March 2022.
We continue to develop our ESG processes to ensure we select the highest quality and sustainable energy efficient assets.
Outlook
We are pleased with the progress that the Company has achieved and we look forward to the further deployment of capital in the pipeline that has been built up. The depth and breadth of the investment opportunities that have been sourced from a variety of partners and for different technologies ensures confidence in the ability to build on and diversify the existing TEEC portfolio of lower carbon and efficient energy projects.
The UK Government has committed to getting to Net Zero by 2050 and many companies have made more aggressive deadlines. There are a vast number of green initiatives and a greater demand for reporting on ESG. This all helps to focus minds on implementing sustainability projects.
TEEC can make a significant contribution to the energy transition as it is focused on investing into onsite energy generation and consumption, distributed energy generation and energy storage and distribution. We are well positioned to execute on these types of opportunities and to drive the implementation of energy efficiency which will help reduce costs, save carbon and to make our infrastructure more resilient and provide better energy security.
Jonathan Hick
TEEC Fund Manager
Jonathan Parr
Partner
23 June 2022
SUSTAINABILITY REPORT
A Committed Investment Manager
Triple Point's mission statement is: "Through our people, and the partnerships we build, Triple Point unlocks investment opportunities that have purpose, while generating profits for investors".
In line with this business mission and the commitment to responsible investment, the Investment Manager has applied to become a B Corporation (status pending) and became a signatory to the Principles for Responsible Investing ("PRI") in 2019, to demonstrate best practice in investor ESG integration and guide continued improvement.
Sustainability Table 1: Triple Point's adoption of the six Principles for Responsible Investment
Signatory of PRI: PRI Principle How Triple Point adopts Principles for Responsible the principles for Investment TEEC PRI is recognised 1 We will incorporate ESG analysis is considered as the leading global ESG issues into investment by the investment team network for investors analysis and decision-making and shared in Investment who are committed processes. Committee papers to to integrating ESG inform the final investment considerations into decision. their investment practices and ownership policies. The principles demonstrate best practice in ESG integration, guide signatories in improvements and promote closer alignment between the objectives of institutional investors and those of society at large. Triple Point became a member of PRI in 2019. The first Assessment Report period of 2020-2021 was a fallow reporting year for PRI to accommodate the launch of a new reporting and scoring system. Triple Point's first assessment report will be published in 2023. ----------------------------------------- ------------------------------- 2 We will be active Tripe Point acts as owners and incorporate asset manager on behalf ESG issues into our of the Company and ownership policies uses initial ESG analysis and practices. to understand how operational control of the asset can be improved to enhance ESG behaviours and/or outcomes. ----------------------------------------- ------------------------------- 3 We will seek appropriate ESG topics are investigated disclosure on ESG in all due diligence issues by the entities of acquisitions/investments. in which we invest. ESG topics are monitored through Board meetings and the ESG engagement programme and reported on annually. ----------------------------------------- ------------------------------- 4 We will promote acceptance The value of the principles and implementation and importance of the of the principles role of ESG factors within the investment in good decision making community are proactively promoted. ----------------------------------------- ------------------------------- 5 We will work together TEEC uses the best to enhance the effectiveness practice promoted by
in implementing the the principles to inform principles. asset optimisation recommendations. ----------------------------------------- ------------------------------- 6 We will each report The Company has committed on our activities to reporting annually towards implementing on ESG activities. the principles. The Investment Manager reports on responsible investments activities annually through the PRI assessment process. The next and first published assessment report for Triple Point will be in 2023. ----------------------------------------- -------------------------------
The importance of sustainability to TEEC
The level of commitment the Investment Manager has to sustainability extends to each of the strategies it manages. As a result, the Investment Manager has implemented a robust approach to the integration of sustainability for the Company, which is based on the following four pillars:
1. Energy Efficiency and a sustainable energy transition 2. ESG research, analysis and integration 3. Asset optimisation and sustainable outcomes 4. Transparency and Governance
1. Energy Efficiency and a sustainable energy transition
Energy Efficiency, the bigger picture
The Company seeks to provide financial backing to projects and technologies which deliver reductions in generated emissions.
Succeeding in carbon reduction targets requires midterm solutions which reduce carbon consumption through more efficient energy usage, and the application of energy utilising technologies which minimise carbon emissions. This transition pathway to Net Zero recognises that carbon intensive industries require immediate solutions to reduce their footprint through energy use, whilst renewable energy generation and resource recycling technologies scales. The Company takes a holistic approach to energy transition and how energy efficiency solutions can contribute to the UK energy system. Assets offering solutions across the chain are sought, from distributed energy generation, and energy storage to onsite generation and consumption.
By investing in all aspects of the transition pathway, we seek to contribute to the longer-term commitment for a UK economy which can half its carbon emissions by 2030, compared to pre-industrial levels, and reduce them to Net Zero by 2050.
The carbon crisis is a complex challenge, which requires immediate attention across the economy. Latest analysis from the Intergovernmental Panel on Climate Change ("IPCC") indicates remaining within the 1.5(o) C target is increasingly challenging. To hold within 1.6(o) C and even 2(o) C degrees will require significant efforts, and Part III of the IPCC's 6(th) Assessment Report refers to the important role of low emission energy sources, energy efficiency solutions and electrification.
There is a clear and current geopolitical threat to continued emission reductions with pricing pressure bringing into question the pace of the energy transition in the face of energy shortages and rising prices. The strength of policy and change and technology implemented will determine how successful we will be at remaining within the 1.5(o) C target, but all scenarios demonstrate a need for rapid emissions reduction.
The pressure for energy security has never been more pressing. Public and political support for energy solutions which offer competitive pricing, sound environmental solutions and energy security will increasingly be favoured.
Energy Efficiency Alignment
A key aspect of TEEC's ESG Analysis, irrespective of the investment type, is if the asset saves Carbon Dioxide equivalents (" CO (2) e") emissions against the appropriate counterfactual.
CO (2) e savings (also known as CO (2) e avoidance), are a crucial part of our strategy, offering a useful metric to show how TEEC has helped counterparties to avoid emitting greenhouse gases.
TEEC measures these in accordance with the GHG Protocol and Partnership for Carbon Accounting Financials ("PCAF"), which provide an industry-standard approach to accounting for financed emissions, ensuring a robust, transparent, and comparable approach. PCAF stress this is crucial because measuring financed emissions is an important step to assess climate-related risks and opportunities, set targets in line with the Paris Agreement, and develop effective strategies to support the decarbonisation of society.
The Investment Manager is aware that for certain asset types, such as hydroelectric schemes or solar power, the majority of CO (2) e emissions that can be associated with that investment might be generated, and locked up in the materials used, during the construction phase. When investing into the construction and ongoing life of an asset, TEEC will endeavour to capture the emissions associated with this phase where possible and will work with the chosen technical adviser to achieve the most in depth analysis that is practically possible. How the Company approaches accounting for construction emissions will continue to be reviewed and improved.
TEEC's approach to carbon is to reduce absolute emissions through its selection of investments and to collect and report on the required data to demonstrate this, but that we do not currently intend to offset any outstanding carbon emissions, in line with industry expectation. If possible and appropriate TEEC may seek to offset at the project level, but not the fund level.
Energy Efficiency Evidence
To demonstrate the energy efficiency of assets, the Company has committed to tracking and reporting on a selection of energy data points.
Sustainability Table 4: TEEC investments operating energy efficiency performance from point of investment to the reporting year end 31 March 2022.
Asset type CO (2) Avoided Renewable Energy Energy Saved (t CO (2) ) Generated (MWh) (MWh) Hydroelectric 3,578 9,425 - --------------- ----------------- ------------- CHP 13,496 - 7,113 --------------- ----------------- ------------- Energy Storage * - - --------------- ----------------- ------------- TOTAL 17,074 9,425 7,113 --------------- ----------------- -------------
* this is currently an investment commitment and no assets are yet operational
Based on average annual UK household electricity consumption, the combined MWh of renewable energy generated and MWh of energy saved would be enough to power 5,335 homes.
Based on the average UK petrol car travelling the average annual mileage the avoided carbon dioxide is the equivalent to taking 8,951 cars off the road for a year.
For more detail on the avoided emission and energy calculations please refer to the Methodology Principles provided in Annex 1 of the Annual Report.
Contributing to a Sustainable Energy Transition
The provision of energy efficiency solutions contributes to the energy transition, a critical contributor in tackling climate change and providing cleaner, safer and more secure sustainable sources of energy for use throughout society and the economy. Such benefits, if realised, also align with a number of the UN Sustainable Development Goals ("SDGs").
In 2015, world leaders gathered at the UN to adopt 17 SDGs to achieve several objectives by 2030 including to: end poverty, promote prosperity and well-being for all, and protect the planet. The UN SDGs have been adapted by 193 countries. TEEC's asset selection helps to address SDGs 7, 9, 11, 12 and 13. The below table details how TEEC assets can contribute.
Sustainability Table 2: TEEC asset's SDG alignment opportunity
UN SDG UN SDG UN SDG UN SDG Target How TEEC contributes TEEC assets that Target to this Goal and can align Target Investing in renewable energy assets which feed into the electricity grid contributes to the renewable energy mix. Investing in energy storage technology provides greater
Affordable supply consistency, & Clean Energy: By 2030, increase acts as an enabler Ensure access substantially to grid decarbonisation to affordable, the share and can contribute reliable, sustainable of renewable to reduced wasted and modern energy in renewable electricity Hydroelectric energy for the global in the event of Portfolio 7 all 7.2 energy mix overproduction. BESS Portfolio ----------------------- -------- --------------------- ------------------------ ------------------------- 7.3 By 2030, double Our combined Heat CHP Portfolio the global and Power plants rate of improvement provide a route in energy for the efficient efficiency use of the fuel burnt, to provide usable heating solutions alongside the electricity production ----------------------- -------- --------------------- ------------------------ ------------------------- 7.a By 2030, enhance The investment All assets international strategy of TEEC cooperation has been conceived to facilitate with the express access to purpose of contributing clean energy to energy efficiency research and and transition technology, solutions. including renewable energy, energy efficiency and advanced and cleaner fossil-fuel technology, and promote investment in energy infrastructure and clean energy technology ----------------------- -------- --------------------- ------------------------ ------------------------- By 2030, upgrade infrastructure and retrofit industries to make them sustainable, with increased resource-use The investment efficiency strategy of TEEC and greater has been conceived adoption of with the express clean and purpose of contributing environmentally to energy efficiency sound technologies and transition and industrial solutions, which Build resilient processes, can be applied infrastructure, with all countries to existing industry promote inclusive taking action and infrastructure and sustainable in accordance to reduce their industrialization with their reliance and use and foster respective of carbon-based 9 innovation 9.4 capabilities fuels. All assets ----------------------- -------- --------------------- ------------------------ ------------------------- Clean energy solutions such as the Company's hydroelectric assets, reduce the need for more polluting energy sources. Energy efficiency solutions such By 2030, reduce as our CHPs, reduce the adverse the amount of energy per capita used for industrial environmental processes reducing impact of pollution created Sustainable cities, including energy storage Cities & Communities: by paying contributes to Make cities special attention the efficiency and human settlements to air quality of a decarbonised inclusive, and municipal grid and creates safe, resilient and other resiliency in the 11 and sustainable 11.6 waste management energy system All assets ----------------------- -------- --------------------- ------------------------ ------------------------- Investing in responsibly managed and sustainable assets that enable other manufacturers to improve their production efficiency contributes to a reduction in Responsible natural resource Consumption By 2030, achieve use. & Production: the sustainable Seeking best practice Ensure sustainable management in circular economy consumption and efficient production and and production use of natural end of life in 12 patterns 12.2 resources our assets. All assets ----------------------- -------- --------------------- ------------------------ ------------------------- Investing in assets which support national ambitions to reduce GHGs in economic activity Take urgent contributes action to combat Integrate climate change measures to action climate change into national policies, strategies on climate All
13 and its impacts 13.2 and planning change assets ----------------------- -------- ----------------------------------------------- --------------- --------
2. ESG integration and the investment process
ESG integration delivers value during the initial investment decision-making process and on an ongoing basis.
The Investment Manager's approach to ESG integration is to ensure it is embedded at each stage of the investment process. Each step of the investment process represents an opportunity to consider how ESG factors may influence the short and long-term success of a project.
Topics of assessment
While the approach to ESG must take into account the individual nature of the target asset, for example, its size and type, region, operational environment and stage of project cycle, there are common measures that can be systematically applied to calculate the longevity of an infrastructure asset's value. For responsible infrastructure investments, the following areas are considered relevant:
Environmental
We consider use, generation type, and intensity of energy, along with water use and its pollution. We also look at levels of waste generated, avoided and disposed of approach to raw material sourcing and supply chain sustainability, and build in impacts on biodiversity and habitat by understanding management and protection measures. Carbon analysis is also carried out to ensure the asset will save emissions compared to an appropriate counterfactual.
Social
We consider the asset quality and fit with a more sustainable economy, including relevance/appropriateness to the locality. We seek reassurance of good customer and stakeholder relations, including management of land rights, accessibility, and social inclusion of access to the asset. We expect strong management and reporting of health and safety (during and after build) as well as good labour management. This includes staff wellbeing, good diversity and inclusion practices, appropriate training, and presence of fair pay, including reassurance of the absence of modern slavery.
Governance
We scrutinise management's approach to responsibility and ability to promote a corporate governance structure that is accountable and responsive to stakeholders by addressing issues such as Boards & Trustees, pay structure, ownership and accounting practices. Examination of governance also reveals important information on a company's business ethics, and we look for evidence of best practice in approaches to tax policy, management of bribery and corruption, conflicts of interest and appropriate senior level ownership of ESG issues.
Climate analysis
Within initial deal scanning and on-going pre acquisition due diligence, the Investment Manager considers the implications of climate change on the long-term value of the company.
Possible impacts of climate change on the strategy's assets are accounted for through scenario analysis, which combines the investment team's carbon analysis work with the ESG integration work to test the resilience of a project based on potential changes to the physical and regulatory environment they operate within. This process looks to quantify how future climate change could impact an assets performance over the short, medium and long term.
Details on our approach to date in the management of climate risk and opportunity are captured in our Task Force on Climate-related Financial Disclosure ("TCFD") report in the Annual Report.
3. Asset Optimisation and Sustainability Outcomes
Continued improvements in the sustainability credentials of the Company's assets are an important aspect of portfolio management undertaken by the Investment Manager. Any improvement in assets is driven through the Operations and Management ("O&M") provider, as the assets commonly have no employees.
Asset optimisation requires long-term commitments and outcomes are not typically quick. The assets within the portfolio are currently undergoing a review to establish where we can implement optimisation. To date, opportunities have emerged within our BESS Portfolio and Hydroelectric Portfolio; we have detailed this potential and how the action would create further alignment to the SDGs.
Optimisation potential
Integrating sustainable behaviours in the BESS Portfolio.
Energy Storage plays a crucial role in enabling the decarbonisation of the electricity grid. The supply of renewable energy is intermittent and weather dependent and as traditional synchronous generation sources go offline, the resiliency of the grid to changes in frequency is reduced.
Batteries can respond to these challenges by storing energy generated when supply is high and demand is low - on nights experiencing high volumes of wind, for example. The carbon saving credentials of an energy storage system, however, are dependent on the way the system is run. To encourage the most sustainable behaviours in the borrower and set clear expectations on carbon saving requirements, in the BESS Portfolio, the Investment Manager negotiated a carbon-ratchet mechanism in the debt facility. This financially incentivises carbon avoidance through responsible use of the assets. We believe this to be a market-first.
The borrower will only receive interest rate reductions if they perform well on the carbon arbitrage metric - a maximum reduction of up to 25bps can be achieved. Maximum reductions are only awarded, for example, if the average Field trade is within 17% of the maximum available carbon arbitrage.
Optimisation potential
Peat Restoration at three sites in the Hydroelectric Portfolio: Cheanna Mhuir, Ladaidh and Choire a Bhalachain
Sustainability outcomes linked to SDG 13 (Climate action: take urgent action to combat climate change and its impacts) and SDG 15 (Life on Land: Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss). Following the acquisition of the hydro sites we are exploring the potential to optimise the flow from the catchment area through the implementation of natural capital solutions to provide a better generation profile for the assets. A particular solution being explored for viability being the re-instatement of peatland which has associated environmental benefits related to biodiversity and carbon sequestration.
5. Transparency and Governance
There is a strong approach to information sharing and oversight for sustainability across Triple Point and TEEC.
The Investment Manager as AIFM has determined that TEEC is subject to Article 8 of the EU Sustainable Finance Disclosure Regulation. Article 8 applies where a financial product promotes, among other characteristics, environmental or social characteristics, or a combination of those characteristics, provided that the companies in which the investments are made follow good governance practices. We continue to monitor the portfolio and the emerging details of this regulation to determine if we will amend our disclosure to Article 9. Our full disclosure is on our website: https://www.tpenergyefficiency.com/ .
Responsibility for the ESG integration strategy across Triple Point sits with the Head of Sustainability, Lindsay Smart, who leads the Triple Point Sustainability Team. There are a number of oversight functions in place to ensure the effective implementation of ESG by Investment Teams with the support of the Sustainability Team.
Triple Point operates a Sustainability Group which consists of senior partners and managers from across the Investment Manager. This Group meets monthly to discuss Sustainability initiatives and concerns from across the company. The Group is chaired by Triple Point's Co-Managing Partner; and both Managing Partners sit on the Group. The Sustainable Investment Subgroup reports to this Group. The subgroup consists of senior investment team members from across Triple Point's investment strategies. This Group meets every eight weeks to share best practice, latest industry activity and ESG ideas from across the business. This Group can also be called to review a deal which has received a critical level of ESG flag at the due diligence stage, or to act as a sounding board for critical debate should a deal present a complex sustainability profile.
The Sustainability Team conducts an annual ESG monitoring programme to assess the effectiveness of ESG integration across each of Triple Point's strategies, including TEEC. Each strategy is subject to a review of their adherence to their strategy's ESG integration policy, and opportunity for development and evolution. The findings of this audit are presented to the Sustainability Group for discussion and further action if appropriate.
The Sustainability Team are also subject to quarterly risk reviews by the risk team, and any identified sustainability risks are recorded on the Triple Point Group risk register, which is reviewed quarterly by the Group's Risk Committee.
The Head of Sustainability also sits on the Risk Committee to ensure that the Group outlook for risk appropriately considers sustainability issues.
The Board are also kept informed of sustainability risks and opportunities facing portfolio companies through updates provided by the investment team and Triple Point's Head of Sustainability, including deep dives into sustainability integration, engagement, target setting and performance.
For further details on Governance please refer to the Corporate Governance Report in the Annual Report.
The transparency of TEEC's sustainability activities is an important aspect of the Investment Manager's commitment. The data provided reflects energy efficiency commitments and the disclosure expectations the Investment Manager responds to in relation to EU Taxonomy requirements and those associated with being subject to Article 8 of the EU Sustainable Finance Disclosure Regulation (SFDR). The SFDR has set out a series of KPIs which it expects aligning entities to disclose against. The list of KPIs is set and to conform with the disclosure we present the list in the exact way the disclosure prescribes.
Sustainability Table 3. SFDR-aligned KPIs. Where investments were made during the reporting year, data presented is for TEEC assets from the point of investment to 31 March 2022. Where investments were made during previous reporting years, data presented is for the full reporting year. All energy use and emissions occur within the UK.
Climate and other environment-related indicators Greenhouse Avoided emissions t CO gas emissions (6) 17,074 (2) ---------------- ----------------------------------- ------------------------------ ----------------- ----------- Total Energy Consumption 206,634 MWh ---------------- ----------------------------------- ------------------------------ ----------------- ----------- GHG emissions t CO (7) Scope 1 GHG 37,855 (2) e ----------------------------------- ------------------------------ ----------------- ----------- t CO Scope 2 GHG (location-based) 79 (2) e ----------------------------------- ------------------------------ ----------------- ----------- t CO Scope 2 GHG (market-based) 117 (2) ------------------------------ ----------------- ----------- t CO Total GHG 37,933 (2) e ------------------------------ ----------------- ----------- g CO (2) e/kWh Emissions intensity 215 generated ----------------------------------- ------------------------------ ----------------- ----------- Exposure to Share of investments companies active in companies active in the fossil in the fossil fuel fuel sector sector 0% ----------------------------------- ----------------------------------------------- ----------------- ----------- Share of non-renewable energy consumption and production(8) 96% ------------------------------------------------------------------- --------------- ----------------- ----------- Activities negatively affecting biodiversity-sensitive Biodiversity areas 0%(9) ---------------- ------------------------------------------------------------------- ----------------- ----------- Emissions to Water water 0% ---------------- ------------------------------------------------------------------- ----------------- ----------- Waste Hazardous Waste 0% ---------------- ------------------------------------------------------------------- ----------------- -----------
(6) Avoided emissions for this reporting period are as a result of the operating activities of the Hydroelectric Portfolio and CHP Portfolio
(7) GHG emissions for this reporting period are as a result of 3.34 tonnes of scope 2 (location-based) emissions from the imported energy for the Hydroelectric Portfolio, and the remainder from the CHP Portfolio. As the BESS Portfolio that we have committed to fund is not yet operational, no emissions are currently tracked.
(8) The Hydroelectric Portfolio is located within or close to a number of biodiversity sensitive areas, notably: Easter Ness Forest SSSI, West Inverness-shire Lochs SPA and Drimnin to Kilundine Woods SSSI. Strict protections from the Scottish Environmental Protection Agency (SEPA) ensure that the activities of these sites do not negatively affect the local ecology.
(9) Percentage of total energy production and consumption that is from non-renewable sources. Energy consumption is defined as the energy in the natural gas burned by the CHP assets, and the electricity drawn from the grid as parasitic load by the CHP and hydroelectric assets. Both of these sources are assumed to be 100% non-renewable. Energy production is defined as the energy produced by hydroelectric generation and exported to the grid, which is 100% renewable. Heat and electrical energy generated by the CHPs are excluded to avoid double-counting.
For further details on assumptions associated with the reporting of these indicators please refer to Reporting Principles and Methodologies detail in Annex 1 of the Annual Report.
In accordance with the TCFD we also collate and report our approach to climate risk management. Our TCFD disclosure is contained within the Annual Report.
SECTION 172(1) STATEMENT
The Board is committed to promoting the long-term success of the Company whilst conducting business in a fair, ethical, and transparent manner.
The Board makes every effort to understand the views of the Company's key stakeholders and to take into
consideration these views as part of its decision -making process .
As an investment company, the Company does not have any employees and conducts its core activities through third-party service providers. The Board seeks to ensure each service provider has an established track record and, through regulatory oversight is required to have in place suitable policies and procedures to ensure they maintain high standards of business conduct, treat shareholders fairly, and employ corporate governance best practice.
The following disclosure describes how the Directors have had regard to the matters set out in section 172(1) (a) to (f) when performing their duty under s172 and forms the Directors' statement required under section 414CZA of the Act.
Section 172(1) Description a. The likely consequences of any decision The aim of the Board and of the Investment Manager is in the long term to ensure the long-term sustainable success of the Company. As a result, the likely long-term consequences are also a key consideration in decision making. -------------------------------------------------------------- b. The interests of the Company's employees As a closed-ended investment company, the Company does not have any employees and so this matter is not applicable. -------------------------------------------------------------- c. the need to foster the company's The Company's primary suppliers are our service providers, business relationships with suppliers, principally the Investment Manager and Administrator. customers and others The Board engaged regularly with both, including at its Board meetings. Further detail on the Board's approach is described under 'Stakeholder Engagement' below. -------------------------------------------------------------- d. The impact of the company's operations Having a positive environmental impact is central to on the community and the environment the Company's operations, given that it its strategy is to invest in assets support the transition to a lower carbon economy and help the UK achieve Net Zero. Please refer to the Sustainability Report for further information. -------------------------------------------------------------- e. the desirability of the company maintaining The Directors have a duty to promote the success of the
a reputation for high standards of business Company for the benefit of shareholders. As such they conduct are dedicated to ensuring the maintenance of high standards of business conduct and corporate governance. -------------------------------------------------------------- f. the need to act fairly as between During the period, the Investment Manager conducted a members of the company roadshow offering to meet with investors. Further detail on the Board's approach is described under 'Stakeholder Engagement' below. --------------------------------------------------------------
Stakeholder Engagement
Stakeholder Shareholders Why is it important to engage? Shareholders and their continued support is critical to the continuing existence of the business and delivery of our long-term strategy. ----------------------------------------------------------------------- How have the Investment The way in which we engage with our shareholders is set out on in Manager/Directors engaged? the Corporate Governance Report of the Annual Report. ----------------------------------------------------------------------- What were the key topics During the year, the Investment Manager met with the majority of of engagement? existing shareholders as well as prospective investors to discuss Company's investment thesis and forward looking strategy. ----------------------------------------------------------------------- What was the feedback obtained During those meetings, discussions were held to establish whether and the outcome of the engagement? there was appetite for TEEC investing in BESS assets. The feedback was positive. Subsequently, the Group completed its first investment into BESS assets in March 2022. ----------------------------------------------------------------------- Stakeholder Investment Manager Why is it important to engage? The Investment Manager is responsible for executing the Investment Objective within the Investment Policy of the Company. ----------------------------------------------------------------------------- How have the Investment The Board maintains regular and open dialogue with the Investment Manager/Directors engaged? Manager at Board meetings and has regular contact on operational and investment matters outside of meetings. ----------------------------------------------------------------------------- What were the key topics During the year there were a number of additional meetings held of engagement? to consider various matters, including Spark Steam, the Hydroelectric Portfolio and the RCF which were all transactions where other parts of the Triple Point Group were involved. As a result, the Board considered the conflict management procedures and approved the transactions to ensure the fairness and reasonableness to TEEC shareholders. ----------------------------------------------------------------------------- What was the feedback obtained Following feedback from the Board, various pieces of work were undertaken and the outcome of the engagement? by third-party advisers to provide additional assurances that the transactions were priced fairly and ultimately in the best interests of TEEC shareholders. ----------------------------------------------------------------------------- Stakeholder Service Providers Why is it important to engage? As an externally managed Company, we are reliant on our service providers to conduct our core activities. We believe that fostering constructive and collaborative relationships with our service providers will assist in the promotion of the success of the Company. ------------------------------------------------------------------------- How have the Investment The Board maintains regular contact with its service providers, Manager/Directors engaged? both through Board and Committee meetings, as well as outside the regular meeting cycle. The Management Engagement Committee is responsible for conducting periodic reviews of service providers. ------------------------------------------------------------------------- What were the key topics The Board and Investment Manager engaged with the Company's brokers of engagement? and financial advisers in respect of the Company's share price discount to NAV and proposed strategies to increase the share price. ------------------------------------------------------------------------- What was the feedback obtained Following advice from the brokers and financial advisers, the Investment and the outcome of the engagement? Manager met with the majority of existing shareholders as well as prospective investors to discuss Company's investment thesis and forward looking strategy. ------------------------------------------------------------------------- Stakeholder Asset-level counterparties Why is it important to engage? Asset-level counterparties are an essential stakeholder group and engagement with them is important to ensure assets are operating safely and effectively. ------------------------------------------------------------------------ How have the Investment The Investment Manager has developed strong working relationships Manager/Directors engaged? with the asset-level counterparties and has regular communication with them to ensure the assets are being managed appropriately. ------------------------------------------------------------------------ What were the key topics A 100-day asset management integration plan has been implemented of engagement? for the Hydroelectric Portfolio which will seek to make improvements based on recommendations from the due diligence process. ------------------------------------------------------------------------ What was the feedback obtained The 100-day asset management integration plan has raised the need and the outcome of the engagement? to carry out further investigation into the potential to optimise the flow from the catchment area through the natural capital solutions to provide a better generation profile for the assets. A particular solution being explored for viability being the re-instatement of peatland which has associated environmental benefits related to biodiversity and carbon sequestration. ------------------------------------------------------------------------ Stakeholder Investee Companies/Borrowers Why is it important to engage? Investee companies and borrowers are companies in which TEEC Holdings has invested either by debt or equity. They are an essential stakeholder and engagement with them, particularly the individuals responsible for their operations, is important to ensure the maintenance and performance of each investee company. -------------------------------------------------------------------------- How have the Investment The Investment Manager holds a Board observer position on Harvest Manager/Directors engaged? and Glasshouse and holds Board positions on the Hydroelectric Portfolio. Each investee company and borrower has certain reporting obligations to the Group. --------------------------------------------------------------------------
What were the key topics The Investment Manager engaged with the boards and management of of engagement? the investee companies to discuss the relationship going forward, including frequency of reporting. -------------------------------------------------------------------------- What was the feedback obtained During the year the Board have provided feedback on what portfolio and the outcome of the engagement? reporting they expected to see and the investee companies have worked to fulfil those expectations. -------------------------------------------------------------------------- Principal Decisions
Principal decisions have been defined as those that have a material impact to the Group and its key stakeholders. In taking these decisions, the Directors considered their duties under section 172 of the Act.
Conflicted transactions
During the year the Group acquired Spark Steam and the Hydroelectric Portfolio. In both circumstances the transactions involved other Triple Point managed entities and as such the Board had to consider the conflict of interest that existed and whether the measures put in place by the Investment Manager were sufficient to mitigate the conflict of interest.
The Group entered into a loan facility agreement for a GBP40 million RCF with TP Leasing Limited. The RCF was deemed to be a "smaller related party transaction" for the purposes of LR11.1.10R of the Listing Rules. The Company obtained a fair and reasonable opinion from a qualified, independent adviser and the Board satisfied itself that the conflict management procedures in place were effective.
The engagement from the Board on these matters (supported by third party advice as appropriate) provided assurance that the Investment Manager acted appropriately and that the transactions terms were fair and reasonable and were in the best interests of shareholders.
Investment into BESS Portfolio
As has been discussed throughout the Report, there is significant opportunity to invest in energy storage assets and this was something the Company were keen to embrace. The Board and Investment Manager held extensive discussions as to whether energy storage was an appropriate investment for TEEC as it was not a sector specifically referenced within the Company's Investment Policy. The Investment Manager held investor meetings, during which shareholder appetite for the Company investing into BESS assets was discussed. The feedback was positive and in March 2022 the Group committed GBP45.6 million to four projects.
RISK MANAGEMENT
Risk is described as the potential for events to occur that may result in damage, liability or loss. Should these events occur, the Company may well be adversely impacted, potentially leading to the disruption of the Company's business model, as well as potential damage to the reputation or financial
standing of the Company.
The benefit of a risk management framework is that it allows for potential risks to be identified in advance and may enable these risks to either be mitigated or possibly even converted into opportunities. The Directors have identified below what they consider to be the current top risks to the Company and the mitigations in place.
As an externally managed Investment Company the Company delegates portfolio management and risk monitoring activities to the Investment Manager and Administrator, therefore the Company places reliance on the controls of service providers. In the normal course of business, each individual investment will have developed a rigorous risk management framework including a comprehensive risk register
that is reviewed and updated regularly and approved by the investee company board. Risk appetite
The Board is responsible for setting the Company's risk appetite supplementing on the Investment Policy and investment restrictions . During the period, the Board focused on clarifying its views on technology risk. An initial articulation of broader risk appetite was then discussed and agreed at the Board meeting in May 2021. It sets the amount of risk the Company is willing to take, and the upper and lower limits which the Board determines that the Investment Manager must operate within.
Identification, assessment and management of risk are integral aspects of the Investment Manager's and the Administrator's work in both managing the existing portfolio on a day-to-day basis and pursuing new investment opportunities. The Board approved risk appetite, together with the Investment Policy and restrictions provides the framework for the Company and how the Investment Manager deploys the available funds in order to meet the Company's Investment Objectives. Adherence to the risk limits is
reported regularly to the Board through the quarterly AIFM risk management report.
As a full scope UK AIFM, the Investment Manager has established a Risk and Valuation Committee that meets on a quarterly basis to discuss, amongst other matters, the risk framework of the Group and investee companies including processes for identifying, assessing and managing risks.
Principal Risks and Uncertainties
It is not possible to eliminate all risks that may be faced by the Company. The objective of the Company's 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 any of the
risks materialise.
The Board regularly reviews the Company's risk register, with a focus on ensuring appropriate controls are in place to mitigate each risk. Taking considered risk is the essence of all business and investment activity. The Board is ultimately responsible for setting the risk appetite and for the oversight of the Company's system of internal control and for reviewing the effectiveness of the Company's system of internal control in the light of the risks identified.
Procedures to identify principal or emerging risks:
In order for the Company to capture new and emerging risks and their potential implications the Administrator, Company Secretary and Investment Manager consider risk as a matter of good practice; and report these to the Board at the quarterly Board meetings. The AIFM has responsibility for identifying potential risks at an early stage, escalating risks or changes to risks and any other relevant considerations to the Board for recording in the Company's risk register. Where relevant the financial model will be stress tested against the likelihood of occurrence and graded suitably. The Board regularly reviews the risk register to ensure grading and mitigations remain appropriate and it reflects all relevant risks.
The AIFM undertakes risk management functions for the Company as defined under the AIFM Directive, including but not limited to the provision of the following risk management services to the Company:
-- implementing adequate risk management systems to identify, measure, manage and monitor risks relevant to
the Company's investment strategy and to which the Company may be exposed;
-- reviewing the performance of the portfolio management function and reporting to the Board of the Company
in respect of the performance;
-- ensuring that the risks of each investment of the Company and its effect on the portfolio can be identified, measured, managed and monitored on an on-going basis, including the appropriate stress test modelling;
-- implementing an appropriate, documented and routinely updated due diligence policy and procedure which is followed by all relevant parties in the making of investment decisions relating to or on behalf of the
Company according to the investment strategy, the objectives and risk profile of the Company;
-- regularly monitoring the compliance by the portfolio management function with the Investment Objective and limitations and restrictions and the Board approved risk appetite and reporting any instances of
non-compliance promptly to the Board;
-- identifying and proposing qualitative risk limits for the Company appropriate for all relevant risks and subject to Board approval, establishing and implementing such limits; and
-- periodically reviewing the risk management systems described above to ensure that any modifications necessary are implemented.
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.
Risk Identified Risk Description Risk Impact Mitigation Post Mitigation Exposure to The Group makes investments Changes in market demand for The majority of the Impact power prices in projects and concessions electricity, including Company's Moderate and risk to with revenue exposure to changes in consumer demand investments should hedging power power prices. patterns, could benefit from fixed Likelihood prices The market price of have a material adverse price arrangements. Moderate electricity is volatile and effect on the Company's is affected by a variety of profitability, the Net Asset In addition, the Change in factors, Value, the Company's Group believe that year including market demand for earnings and returns to the transition to a Stable
electricity, the generation shareholders. low carbon economy, mix of power plants, increased usage government support To the extent that the Group of smart grids and for various forms of power enters into contracts to fix residential generation, as well as the price that it receives on participation in fluctuations in the market the renewable energy prices of commodities electricity generated or generation should and enters into derivatives with all positively foreign exchange. a view to hedging against impact demand fluctuations levels and patterns in power prices, the Group for electricity. will be exposed to risk related to delivering an The Group aims to amount of electricity spread credit risk over a specific period. If by putting in place there are periods of PPAs with a range non-production the Group may of counterparties. need to pay the difference between the price it has sold the power at and the market price at that time. ------------------------------ ------------------------------ -------------------- -------------- Ability to Ability to raise additional Without sufficient funding, The Board keeps Impact raise finance, either debt or the Group will be unable to liquidity under Moderate additional equity, may limit the Group's pursue suitable investments constant review to finance ability in line ensure that we have Likelihood to grow and achieve a fully with its Investment Policy. a level of Moderate to covered dividend. This would significantly protection High impair the Group's ability to in the event of pay dividends adverse fundraising Change in to shareholders. conditions and year dividend cover is Increase also closely monitored. When raising debt finance, the Group adopted a flexible approach involving speaking to multiple funders offering various rates, structures and tenors. This allowed the Group to maintain maximum competitive tension between funders and obtain the best debt possible. ------------------------------ ------------------------------ -------------------- -------------- Reliance on the The Group relies on the The performance of the Group Unless there is a Impact Investment Investment Manager's services depends, in part, on the default, either High Manager and its reputation in the ability of the Investment party may terminate energy and Manager to the Investment Likelihood infrastructure market. As a provide competent and Management Moderate result, the Group's efficient services to the Agreement performance will, to a large Group. by giving not less Change in extent, depend than 12 months' year on the Investment Manager's The departure of any of the written notice, Stable abilities in the energy key personnel of the such notice not efficiency market. Investment Manager without being served before adequate replacement the may also have a material fourth anniversary adverse effect on the Group's of the date of performance. In addition, if Admission (which any such was October 2020). personnel were to do anything or were alleged to have done The Board regularly something that may be the reviews and subject monitors the of public criticism or other Investment negative publicity or may Manager's lead performance. In to investigation, litigation addition, or sanction, this may have an the Board meets adverse impact on the Group regularly with the and Investment Manager its reputation by to ensure that we association. maintain a positive working Termination of the Investment relationship. Management Agreement would severely affect the Group's The key personnel ability of the Investment to effectively manage its Manager are subject operations and may have a to a six -month negative impact on the share notice period which price of would provide the Company. sufficient time for the Investment Manager to find a suitable replacement with relevant industry experience. ------------------------------ ------------------------------ -------------------- -------------- Introduction A technological or regulatory The future legislative As part of the Impact
of, or change could occur which prohibition or tax of Group's acquisition Moderate amendment to could have the effect of particular fuels (such as process, the laws, rendering natural gas) or as Investment Manager Likelihood regulations, or an investment in which the a result of technological conducts a thorough Moderate to technology Group has invested obsolete innovation or otherwise by due High (especially in or materially change the way changes to law and regulation diligence process relation in that renders on all projects Change in to climate which a service or product is an investment obsolete could that takes account Year change) delivered or alter the return threaten the profitability of of the technology, Stable profile of an investment. such an investment, in regulatory particular environment, In addition, environmental due to the financing potential future regulators may seek to impose projections that are regulatory changes injunctions or other dependent on an extended and the robustness sanctions on an investment's project life. If such a of any Government operation change were to occur, these subsidy. In due to changes in laws or assets would have very few particular, regulations that may have a alternative uses should they the Group considers material adverse effect on become how to manage the its financial obsolete. risk of carbon condition. Carbon pricing is pricing through a particular risk. using carbon price forecasts and offsetting carbon cost risk to off-takers where possible. The Group monitors government guidance and is looking to build the portfolio in line with this guidance. The Group's Investment Strategy focuses on a diverse range of assets across various energy efficiency sub-sectors, which reduces the impact on the Group should any such changes impact any one sector. ------------------------------ ------------------------------ -------------------- -------------- Counterparties' The Group's revenue derives The failure by a counterparty The Investment Impact ability to make from the investments in the to pay the contractual Manager will look Moderate contractual portfolio, and the Group is payments due, or the early to payments exposed termination build in suitable Likelihood to the financial strength of of mechanisms to Moderate the counterparties to such an investment due to protect the Group's projects and their ability to insolvency, may materially income stream from Change in meet affect the value of the the relevant year their contractual payment portfolio and could investment, Stable obligations. have a material adverse which may include effect on the performance of parent guarantees the Group, the Net Asset and liquidated Value, the Group's damages payments on earnings and returns to s termination. hareholders. The Group's exposure to defaults may be further mitigated by contracting with counterparties who are public sector or quasi-public sector bodies or who are able to draw upon government subsidies to partly fund contractual payments. As part of the Group's acquisition process, the Investment Manager conducts a thorough due diligence process on all projects that includes a credit check on counterparties. Following asset acquisitions, the Investment Manager puts in place, and follows, an ongoing management plan tailored to the specific asset. ------------------------------ ------------------------------ -------------------- -------------- Geopolitical Geopolitical changes - Rising energy costs and High gas prices Impact
changes causing including the war in Ukraine inflation could result in the have been Moderate economic - could affect economies deterioration of the credit accompanied by disruption worldwide, including quality high electricity Likelihood the UK economy, by, for of the Group's counterparties prices, resulting Moderate example, pushing up energy through increasing their in some of the prices and causing inflation. input prices, which increases Group's assets Change in the risk trading ahead of year of underperformance or the budget. In New financial difficulty of the addition, the Group's counterparties. Ukraine war is putting greater focus on the need for energy cost reduction and energy security which has raised the need for implementation of energy efficiency and distributed energy solutions. ------------------------------ ------------------------------ -------------------- -------------- Investments are The Group's performance may Different technologies are at The Group's Impact concentrated in be negatively impacted if its risk of poor operational and portfolio is being Moderate a particular portfolio is overly financial performance in the built up in phases technology concentrated event with technology Likelihood in any one technology type. of a change in legislation or exposure being Moderate regulation, or mechanical monitored breakdown, or obsolescence and a variety of Change in caused technologies in its year by disruptive technologies. investment New This would affect their pipeline. ability to perform as well as expected, causing detriment to the revenues and Net Asset Value of the Group. ------------------------------ ------------------------------ -------------------- -------------- Significant The Group may spend If the Group expends time and All due diligence Impact abortive costs significant time and money on money on assets which are not expenditure must be Moderate in terms of assets that are ultimately acquired, this affects the approved by the financial cost not acquired. Group's Investment Likelihood and time returns to investors as well Committee. The risk Moderate as distracting the Group from of aborts acquiring other assets. is monitored as Change in part of transaction year sourcing and the New due diligence process. Internal due diligence is completed before external advisers are paid to conduct due diligence. ------------------------------ ------------------------------ -------------------- -------------- Target returns The Group's targeted returns Paying returns which are There are regular Impact are not met are targets only, based on lower than the targeted reviews of the Moderate estimates and assumptions returns will reduce the investment which are income due to investors, environment, Likelihood subject to significant and could affect the share competition, the Moderate uncertainties, including price of the Company, which pipeline, the competitive market pricing would affect its ability to portfolio, Change in being lower than raise further and future cash year targeted returns, and actual finance. flow focused on New returns may be materially enabling the Group lower than targeted returns. to meet its targeted returns. The Group has the flexibility to structure investments to be as competitive as possible through the overall terms of a funding solution rather than just on price. In addition, the Group's Revolving Credit Facility has given the Group access to funding with a cheaper cost of capital which will help the Group achieve its target returns. ------------------------------ ------------------------------ -------------------- -------------- The valuation The valuation of assets is Changes in values attributed The Investment Impact of investments inherently subjective to investments during each Manager is Moderate is subject to leading to uncertainty about six-month period may result responsible for uncertainties how projects in volatility carrying out the Likelihood are valued from period to in the Net Asset Values that fair market Moderate
period. These uncertainties the Group reports from valuation of the arise from project valuation period to period. Group's Change in assumptions investments, but year and as well as the Group engages New macro-economic factors, such external as inflation and interest independent rates, which feed into valuers to assess operating assumptions and the validity of discount rates, with higher these valuations, discount rates leading to with six-monthly lower Net reviews and annual Asset Values. audits. Valuations are prepared using external market benchmarks and externally-sourced power market curves from reputable providers or a blend from more than one. The fair valuation of investments is calculated in accordance with IPEV (International Private Equity and Venture Capital) valuation guidelines. ------------------------------ ------------------------------ -------------------- --------------
Since the last Annual Report, the following risks have been removed from the Principal Risks table:
-- Portfolio of new assets acquired which may include risks not fully identified in due diligence process;
-- Risks relating to installing, operating, and decommissioning energy efficiency equipment; -- Lack of availability of suitable investments; and -- Cyber and other security risks.
Each of these risks are still being actively managed through our risk management process.
Emerging risks
Emerging risks are characterised by a degree of uncertainty and the Investment Manager and the Board consider new and emerging risks every six months, the risk register is then updated to include these considerations.
Physical effects of climate change
While efforts to mitigate climate change continue to progress, the physical impacts are emerging in the form of changing weather patterns. Extreme weather events can result in flooding, drought, fires and storm damage, which may potentially impair the operations of borrowers and future portfolio companies at a certain
location or impacting locations of companies within their supply chain.
Growth of green hydrogen and the potential impact on business cases
Once green hydrogen reaches a substantial supply level, it could displace other green energy sources that are intermittent and so reduce the demand for them. The emergence of this technology will be monitored with the portfolio adapted as necessary.
Changes to energy market regulation and policies
As part the of transition to Net Zero, government policy is likely to evolve to accelerate the transition whilst mitigating costs to consumers. A number of potential options are under discussion including regional or nodal pricing, windfall taxes and the current approach to price setting in the market through marginal pricing. Many of these potential changes are at very initial stages of policy development and the Group will monitor how these evolve, as well as position the Group to adapt to these risks.
For example, if regional or nodal grid pricing is introduced, it will impact power prices for generation assets depending on the geographic location of those assets. This could increase or decrease income. The Group will continue to invest in a geographically diversified portfolio to mitigate this risk and put in place appropriate offtake agreements.
GOING CONCERN AND VIABILITY STATEMENT
Going Concern
The Directors have adopted the going concern basis in preparing the Annual report. In reaching this conclusion, the Directors have considered the liquidity of the Company's portfolio of investments as well as its cash position, income and expense flows.
The Group's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Investment Manager's Report. The Group faces a number of risks and uncertainties, as set out in the Strategic Report. The financial risk management objectives and policies of the Group, including exposure to credit risk, price risk and market risk are disclosed in note 17 to the financial statements.
The Group continues to meet day to day liquidity needs through its cash resources.
As at 31 March 2022, the Company had net assets of GBP96.1 million including cash balances of GBP17.1 million. The Company's sole, wholly owned, subsidiary TEEC Holdings has a GBP40 million RCF which is undrawn and a GBP0.3 million cash balance which, on a Group basis, are sufficient to meet current obligations, including the GBP44.9 million investment commitments, as they fall due. The covenants on the RCF are limited to gearing and interest cover and the Group is expecting to comply with these covenants on drawdown and in future periods.
The Groups investments comprise fixed rate debt investments with contractual maturities between 2031 and 2035, together with a portfolio of hydroelectric assets which are fully operational and have remaining economic lives well in excess of thirty years. As a result, the Group benefits from long-term cash flows and a set of risks that can be identified and assessed. The loan investments contribute a fixed return, and the Hydroelectric Portfolio benefits from an upward only RPI linked revenue flow under a UK government subsidy. The Hydroelectric Portfolio also benefits from fixed price PPAs, with institutional counterparties, for the next two years. Forecast revenues thereafter are subject to wholesale power prices which are based upon qualified independent forecasts.
The major cash outflows of the Group, aside from non-discretionary operating expenses, are the payment of dividends and costs relating to the acquisition of new assets, both of which are entirely discretionary.
The Directors do not consider that the effects of Covid-19 have created a material uncertainty over the assessment of the Company as a going concern.
In late February 2022, Russia began an invasion of Ukraine with devastating consequences for the country's citizens and major implications for wider humanity, the global economy and capital markets. The Company does not have any direct exposure to Russia, however, the Company is monitoring the potential wider macroeconomic consequences on the Company and its investment portfolio closely, including energy price volatility and further sanctions. Please refer to the Investment Manager's review, which illustrates the wider effects of the Russia Ukraine conflict on the Company and its investments. The Directors do not consider that the effects of the conflict have created a material uncertainty over the assessment of the Company as a going concern.
On the basis of this review, and after making due enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for at least 12 months from the date of approval of this report. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.
Viability Statement
The Directors have assessed the viability of the Group over a five-year period to March 2027.
In making this statement the Directors have considered the resilience of the Group, taking account of its current position, the principal risks facing the business (especially the level of future energy prices and our counterparties' ability to make contractual payments), in severe but plausible downside scenarios and the effectiveness of any mitigating actions.
The Directors have determined that the five-year period to March 2027 is an appropriate period over which to provide this viability statement as this period accords with the Group's business planning exercises and is appropriate for the investments owned by the Group. The Group's risk management processes, described in the Risk Management section, consider the key risks during this five-year period and beyond. These include sustainability-related risks that take into account ESG considerations, including the physical and transition risks of climate change (in line with the recommendations of the Task Force on Climate-related Financial Disclosures ("TCFD")).
The viability analysis has been prepared on the assumption that the revolving credit facility, available to TEEC Holdings, which has a contractual maturity of March 2024, is refinanced for the remainder of the forecast period at the same rate. Supporting the assumption are the Groups investments comprising fixed rate debt investments and a portfolio of hydroelectric assets which are fully operational with economic lives well in excess of the period being considered. As a result, the Group benefits from long-term cash flows and a set of risks that can be identified and assessed. Over the next five years, the loan investments contribute a fixed return, and the Hydroelectric Portfolio contributes returns based on its upward only RPI linked revenue flow under a UK government subsidy. The Hydroelectric Portfolio also benefits from fixed price PPAs, with institutional counterparties, for the next two years. Forecast revenues thereafter are subject to wholesale power prices which are based upon qualified independent forecasts. The projects are each supported by detailed financial models. The Directors believe that portfolio diversification with fixed rate debt in different energy efficiency technologies and equity investments in hydroelectric assets helps to withstand and mitigate risks it is most likely to meet.
The Investment Manager prepares and considers, and the Board reviews, summary cash flow projections each year as part of management reporting, business planning and dividend approval processes. The projections consider cash balances, key covenants and limits, dividend cover, investment policy compliance and other key financial indicators over the five-year period. Sensitivity analysis considers the potential impact of the Group's principal risks occurring. These projections are based on the Investment Manager's expectations of future asset performance, income and costs, and are consistent with the methodology applied to produce the valuation of the investments.
The Directors consider the risk to the value of the Company's investments, its ability to operate its projects and generate revenue, presented by the Covid-19 pandemic, there has been minor disruption to the business to date and the risk-mitigating activities have served to reduce the impact.
The Directors continue to encourage the Investment Manager to ensure that the portfolio of investments is able to operate as effectively as possible. The Investment Manager has performed downside risk scenario planning encompassing a range of potential outcomes and these demonstrate that whilst profitability may be adversely affected, the Company and its investments are expected to remain viable.
Based on this review, the Directors confirm that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five-year period to March 2027.
Board Approval of the Strategic Report
The Strategic Report has been approved by the Board of Directors and signed on its behalf by the Chair.
John Roberts
Chair
23 June 2022
FINANCIAL STATEMENTS
INCOME STATEMENT
For the period ended 31 March 2022
Year Ended Year Ended 31 March 2022 31 March 2021 Note Revenue Capital Total Revenue Capital Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ----------------------------------------------- ----- ------------ -------- -------- -------- -------- -------- Investment income 5 2,451 - 2,451 57 - 57 Profit/(Loss) arising on the revaluation of investments at the period end 12 - 3,634 3,634 - (113) (113) ------------ -------- -------- -------- -------- -------- Investment return 2,451 3,634 6,085 57 (113) (56) ------------ -------- -------- -------- -------- -------- Investment management fees 4 327 109 436 5 1 6 Other expenses 6 867 21 888 388 71 459 ------------ -------- -------- -------- -------- -------- 1,194 130 1,324 393 72 465 Profit/(Loss) before taxation 1,257 3,504 4,761 (336) (185) (521) ------------ -------- -------- -------- -------- -------- Taxation 8 - - - - - - Profit/(Loss) Loss after taxation 1,257 3,504 4,761 (336) (185) (521) ------------ -------- -------- -------- -------- -------- Other comprehensive income - - - - - - Total comprehensive income/(loss) 1,257 3,504 4,761 (336) (185) (521) ------------ -------- -------- ======== ======== ======== Basic & diluted earnings per share (pence) 9 1.26p 3.50p 4.76p (0.58p) (0.32p) (0.90p)
The total column of this statement is the Income Statement of the Company prepared in accordance with the requirements of the Act and in accordance with the UK adopted international accounting standards. The supplementary revenue return and capital columns have been prepared in accordance with the Association of
Investment Companies Statement of Recommended Practice (AIC SORP).
All revenue and capital items in the above statement derive from continuing operations.
This Income Statement includes all recognised gains and losses.
The accompanying Notes are an integral part of this statement.
BALANCE SHEET
At 31 March 2022
Company Number: 12693305
31 March 2022 31 March 2021 Note GBP'000 GBP'000 -------------------------------------------------- ----- -------------- -------------- Non-current assets Investments at fair value through profit or loss 12 78,952 20,883 -------------- -------------- Current assets Trade and other receivables 13 453 201 Cash and cash equivalents 17,144 76,553 -------------- -------------- 17,597 76,754 -------------- Total assets 96,549 97,637 ============== ============== Current liabilities Trade and other payables 14 (412) (149) (412) (149) Net assets 96,137 97,488 ============== ============== Equity attributable to equity holders Share capital 15 1,000 1,000 Share premium 13 - Special distributable reserve 91,444 97,009 Capital reserve 3,319 (185) Revenue reserve 361 (336) -------------- -------------- Total Equity 96,137 97,488 ============== ============== Shareholders' funds Net asset value per Ordinary Share 11 96.12p 97.49p
The statements were approved by the Directors and authorised for issue on 23 June 2022 and are signed on behalf of the Board by:
Dr John Roberts
Chair
23 June 2022
The accompanying Notes are an integral part of this statement.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended 31 March 2022
Special Issued Share distributable Capital Revenue capital premium reserve reserve reserve Total Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ------------------------ ----- --------- --------- --------------- --------- --------- -------- For year ended 31 March 2022 Opening balance 1,000 97,009 (185) (336) 97,488 --------- --------- --------------- --------- --------- -------- Issue of share capital 15 - 13 - - - 13 Total comprehensive income/(loss) for the period - - - 3,504 1,257 4,761 Dividends Paid 10 - - (5,565) - (560) (6,125) --------- --------- --------------- --------- --------- -------- Balance at 31 March 2022 1,000 13 91,444 3,319 361 96,137 ========= ========= =============== ========= ========= ======== Special Issued Share distributable Capital Revenue capital premium reserve reserve reserve Total Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ------------------------ ----- --------- --------- --------------- --------- --------- -------- For period ended 31 March 2021 Opening balance - - - - - - --------- --------- --------------- --------- --------- -------- Issue of share capital 15 1,000 99,000 - - - 100,000 Cost of issue of shares - (1,991) - - - (1,991) Transfer to special distributable reserve - (97,009) 97,009 - - - Total comprehensive income/(loss) for the period - - - (185) (336) (521) --------- --------- --------------- --------- --------- -------- Balance at 31 March 2021 1,000 - 97,009 (185) (336) 97,488 ========= ========= =============== ========= ========= ========
The capital reserve represents the proportion of Investment Management fees and other expenses, where applicable, charged against capital and realised/unrealised gains or losses on the disposal/revaluation of investments. The unrealised element of the capital reserve is not distributable. The special distributable reserve was created on court cancellation of the share premium account. The revenue, special distributable and realised capital reserves are distributable by way of dividend and total GBP91,603,000 (31 March 21: GBP96,601,000).
The accompanying Notes are an integral part of this statement.
STATEMENT OF CASH FLOWS
For the year ended 31 March 2022
Year ended Period ended 31 March 31 March 2022 2021 Note GBP'000 GBP'000 -------------------------------------------- ----- ----------- ------------- Cash flows from operating activities Profit/(Loss) before taxation 4,761 (521) Profit/(Loss) arising on the revaluation of investments at the period end 12 (3,634) 113 ----------- ------------- Cash flow generated by/(used in) operations 1,127 (408) Interest income 5 (2,451) (57) Interest received 1,646 4 Decrease/(Increase) in receivables 13 34 (148) Increase in payables 14 263 149 Net cash flow from/(used in) operating activities 619 (460) ----------- ------------- Cash flows from investing activities Purchase of financial assets at fair value through profit or loss 12 (56,019) (20,996) Loan principal repaid 12 2,103 - Net cash flow used in investing activities (53,916) (20,996) ----------- ------------- Cash flows from financing activities Issue of shares 15 13 100,000 Costs of share issue (1,991) Dividends paid (6,125) - Net cash flow generated from financing activities (6,112) 98,009 ----------- ------------- Net (decrease)/increase in cash and cash equivalents (59,409) 76,553 =========== ============= Reconciliation of net cash flow to movements in cash and cash equivalents Cash and cash equivalents at beginning of year/period 76,553 - Net (decrease)/increase in cash and cash equivalents (59,409) 76,553 ----------- ------------- Cash and cash equivalents at end of period 17,144 76,553 =========== =============
The accompanying Notes are an integral part of this statement.
NOTES TO THE FINANCIAL STATEMENTS
1. CORPORATE INFORMATION
The Company is incorporated and domiciled in the United Kingdom and registered in England and Wales under number 12693305 pursuant to the Act. The address of its registered office, which is also its principal place of business, is 1 King William Street, London EC4N 7AF.
The Company's ordinary shares were first admitted to the premium segment of the UK Listing Authority's Official List and to trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange under the ticker TEEC on 19 October 2020.
The financial statements comprise only the results of the Company, as its investment in TEEC Holdings is included at fair value through profit or loss as detailed in the key accounting policies below.
The Company has appointed Triple Point Investment Management LLP as its Investment Manager (the "Investment Manager") pursuant to the Investment Management Agreement dated 25 August 2020. The Investment Manager is registered in England and Wales under number OC321250 pursuant to the Act. The Investment Manager is regulated by the FCA, number 456597.
The Company intends to achieve its Investment Objective by investing in a diversified portfolio of energy efficiency investments in the United Kingdom. The Company, through TEEC Holdings, will invest in a range of energy efficiency assets which will contribute, or are already contributing, to energy efficiency in sub-sectors including electricity and heat generation, distribution, and end user consumption.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation
2.
The financial statements, which aim to give a true and fair view, have been prepared in accordance with UK-adopted international accounting standards and the applicable legal requirements of the Companies Act 2006.
On 31 December 2020, IFRS as adopted by the European Union as adopted at that date was brought into UK law and became UK-adopted International Accounting Standards in its Company Financial Statements on 1 January 2021. The change constitutes a change in accounting framework. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framework.
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 April 2021 by the Association of Investment Companies ("AIC").
The financial statements are prepared on the historical cost basis, except for revaluation of certain financial investments at fair value through profit or loss. The principal accounting policies adopted are set out below and consistently applied, subject to changes in accordance with any amendments in IFRS.
The Company was incorporated on 23 June 2020. The comparative amounts, presented in the financial statements and the related note disclosures, cover the period from 23 June 2020 to 31 March 2021, therefore are not comparable with the amounts presented for the year ended 31 March 2022.
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 future period affected. The significant estimates, judgement or assumptions for the period are set out below.
Basis of Consolidation
The sole objective of the Company, through its subsidiary TEEC Holdings, is to make investments, via individual corporate entities. The Company typically will subscribe for equity in or issue loans to TEEC Holdings in order for it to finance its investments.
The Directors have concluded that in accordance with IFRS 10, the Company meets the definition of an investment entity having evaluated the criteria that needs to be met (see below). Under IFRS 10, investment entities are required to hold subsidiaries at fair value through the Income Statement rather than consolidate them on a line-by-line basis, meaning TEEC Holdings' cash, debt and working capital balances are included in the fair value of the investment rather than in the Company's assets and liabilities. However, in substance, TEEC Holdings is investing the funds of the investors of the Company on its behalf and is effectively performing investment management services on behalf of many unrelated beneficiary investors.
Characteristics of an investment entity
There are three key conditions to be met by the Company for it to meet the definition of an investment entity. For each reporting period, the Directors will continue to assess whether the Company continues to meet these conditions:
1. It obtains funds from one or more investors for the purpose of providing these investors with professional investment management services;
2. It commits to its investors that its business purpose is to invest its funds solely for returns (including having an exit strategy for investments) from capital appreciation, investment income or both; and
3. It measures and evaluates the performance of substantially all its investments on a fair value basis.
In satisfying the second criteria, the notion of an investment time frame is critical. An investment entity should not hold its investments indefinitely but should have an exit strategy for their realisation. The Company intends to hold these for the remainder of their useful life to preserve the capital value of the portfolio. However, as the energy efficiency assets are expected to have no residual value after their life, the Directors consider that this demonstrates a clear exit strategy from these investments.
Subsidiaries are therefore measured at fair value through profit or loss, in accordance with IFRS 13 "Fair Value Measurement", IFRS 10 "Consolidated Financial Statements" and IFRS 9 "Financial Instruments".
The Directors believe the treatment outlined above provides the most relevant information to investors.
Going Concern
The Directors have adopted the going concern basis in preparing the Annual report. In reaching this conclusion, the Directors have considered the liquidity of the Company's portfolio of investments as well as its cash position, income and expense flows.
The Group's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Investment Manager's Report. The Group faces a number of risks and uncertainties, as set out in the Strategic Report. The financial risk management objectives and policies of the Group, including exposure to credit risk, price risk and market risk are disclosed in note 17 to the financial statements.
The Group continues to meet day to day liquidity needs through its cash resources.
As at 31 March 2022, the Company had net assets of GBP96.1 million including cash balances of GBP17.1. The Company's sole, wholly owned, subsidiary TEEC Holdings has a GBP40 million RCF which is undrawn and a GBP0.3 million cash balance which, on a Group basis, are sufficient to meet current obligations, including the GBP44.9 million investment commitments, as they fall due. The covenants on the RCF are limited to gearing and interest cover and the Group is expecting to comply with these covenants on drawdown and in future periods.
The Group's investments comprise fixed rate debt investments with contractual maturities between 2031 and 2035, together with a portfolio of hydroelectric assets which are fully operational and have remaining economic lives well in excess of thirty years. As a result, the Group benefits from long-term cash flows and a set of risks that can be identified and assessed. The loan investments contribute a fixed return, and the Hydroelectric Portfolio benefits from upward only RPI linked revenue flow under a UK government subsidy. The Hydroelectric Portfolio also benefits from fixed price PPAs, with institutional counterparties, for the next two years. Forecast revenues thereafter are subject to wholesale power prices which are based upon qualified independent forecasts.
The major cash outflows of the Group are the payment of dividends and costs relating to the acquisition of new assets, both of which are entirely discretionary.
The Directors do not consider that the effects of Covid-19 have created a material uncertainty over the assessment of the Company as a going concern.
In late February 2022, Russia began an invasion of Ukraine with devastating consequences for the country's citizens and major implications for wider humanity, the global economy and capital markets. The Company does not have any direct exposure to Russia, however, the Company is monitoring the potential wider macroeconomic consequences on the Company and its investment portfolio closely, including energy price volatility and further sanctions. Please refer to the Investment Manager's review, which illustrates the wider effects of the Russia Ukraine conflict on the Company and its investments. The Directors do not consider that the effects of the conflict have created a material uncertainty over the assessment of the Company as a going concern.
On the basis of this review, and after making due enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for at least 12 months from the date of approval of this report. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.
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 to be de-recognised when the contractual rights to the cash flows from the instrument expire or the asset is transferred, and the transfer qualifies for de-recognition in accordance with IFRS 9 Financial Instruments.
Financial assets
The Company classifies its financial assets as either investments at fair value through profit or loss or financial assets at amortised cost. The classification depends on the purpose for which the financial assets are acquired. Management determines the classification of its financial assets at initial recognition.
Investments at fair value through profit or loss
At initial recognition, the Company measures its investments, through its investment in TEEC Holdings, at fair value through profit or loss and any transaction costs are expensed to profit or loss. The Company will subsequently, through its investment in TEEC Holdings, continue to measure all investments at fair value and any changes in the fair value are to be recognized as gains or losses on investments at fair value through profit or loss within investment income.
Investments at fair value through profit or loss are recognized upon initial recognition as financial assets at fair value through profit or loss in accordance with IFRS 9. Investments held at fair value through profit or loss consist of the Company's subsidiary, TEEC Holdings.
The Company's investment in TEEC Holdings comprises both equity and loan notes. The Company measures its investment as a single class of financial asset at fair value in accordance with IFRS 13 Fair Value Measurement.
In determining the fair value, the Board will consider any observable market transactions and will measure fair value using assumptions that market participants would use when pricing the asset, including any assumptions regarding risk surrounding the transaction.
Financial assets at amortised cost
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". Trade receivables, loans and other receivables are measured at amortised cost using the effective interest method, less any impairment. They are included in current assets, except where maturities are greater than 12 months after the reporting date, in which case they are to be classified as non-current assets. The Company's financial assets held at amortised cost comprise "trade and other receivables" and "cash and cash equivalents" in the statement of financial position.
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.
Financial liabilities
Financial liabilities are classified as other financial liabilities, comprising:
-- other non-derivative financial instruments, including trade and other payables, which are to be measured at amortised cost using the effective interest method.
Effective interest method
The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to the relevant asset's carrying amount.
Fair value estimation for investments at fair value
The Group's investments are not typically traded in active markets. Fair value is calculated by discounting at an appropriate discount rate future cash flows expected to be received, by TEEC Holdings, from the investment portfolio. The underlying cash flows are from investments in both equity (dividends and equity redemptions), shareholder, inter-company and third-party loans (interest and repayments). The valuations are based on the expected future cash flows, using reasonable assumptions and forecasts for revenues, operating costs, macro-level factors and an appropriate discount rate.
The discount rates used in the valuation exercise represent the Investment Manager's best assessment of the rate of return in the market for assets with similar characteristics and risk profile. The discount rates are reviewed on a regular basis and updated, where appropriate, to reflect changes in the market and in the project risk characteristics.
Investments, which are entered into by TEEC Holdings, are designated upon initial recognition as held at fair value through profit or loss. Gains or losses resulting from the movement in fair value of the investments are reflected in the valuation of TEEC Holdings and recognised in the Statement of Comprehensive Income at each semi-annual valuation point.
The Company's loan and equity investment in TEEC Holdings is held at fair value through profit or loss which is measured by reference to the net asset value of TEEC Holdings. Gains or losses resulting from the movement in fair value are recognised in the Company's Statement of Comprehensive Income at each semi-annual valuation point.
For the year end and half-year accounts the Company engages external, independent and qualified valuers to assess the validity of the forecast cash flow assumptions and discount rates used by the Investment Manager in determination of fair value. The Board reviews and approves the valuations following appropriate challenge and examination
Revenue Recognition
Gains and losses on fair value of investments in the income statement represent gains or losses that arise from the movement in the fair value of the Company's investment in TEEC Holdings.
Dividends from TEEC Holdings are recognised when the Company's right to receive payment has been established.
Investment income comprises interest income and dividend income received from the Company's subsidiary. Interest income is recognised in the Income Statement using the effective interest method.
Share capital and share premium
The Company's Ordinary Shares are classified as equity and are not redeemable. Costs associated or directly attributable to the issue of new equity shares are recognised as a deduction in equity and are charged from the share premium account.
The costs incurred in relation to the Company's IPO were charged to the share premium account.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, deposits held on call with banks and other short-term highly liquid deposits with original maturities of three months or less. At 31 March 2022, the Company's cash balances were held in the Company's bank current account.
There are no expected credit losses as the bank institutions have high credit ratings assigned by international credit rating agencies.
Foreign currencies
Items included in the financial statements are presented in Pounds Sterling because that is the currency of the primary economic environment in which the Company operates and is the Company's functional currency.
Transactions and balances
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the Income Statement.
Dividends
Dividends to the Company's shareholders are recognised when they become legally payable. In the case of interim dividends, this is when they are paid. In the case of final dividends, this is when they are approved by the shareholders at the Annual General Meeting.
Fund Expenses
Expenses are accounted for on an accruals basis. Share issue expenses of the Company directly attributable to the issue and listing of shares are charged to the share premium account. The Company's investment management fee, administration fees and all other expenses are charged through the Income Statement.
Investment Management Fees
As per the Company's Investment Objective, it is expected that income returns will make up the majority of the Company's long-term return. Therefore, based on the estimated split of future returns (which cannot be guaranteed), 25% of the investment management fee is charged as a capital item within the Income Statement .
Taxation
Under the current system of taxation in the UK, the Company is liable to taxation on its operations in the UK. Current tax is the expected tax payable on the taxable income for the period, using tax rates that have been enacted or substantively enacted at the date of the Statement of Financial Position.
Deferred tax is the tax expected to be payable or recoverable on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax assets and liabilities are not recognised if the temporary differences arise from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit or the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments, except where the Company is able to control the timing of the reversal of the difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset is realised. Deferred tax is charged or credited to the Income Statement except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off tax assets against tax liabilities and when they relate to income taxes levied by the same taxation authority and the
Company intends to settle its current tax assets and liabilities on a net basis.
Deferred tax assets and liabilities are not discounted.
New, revised and amended standards applicable to future reporting periods
There were no new standards or interpretations effective for the first time in the year that have had a significant impact on the Company's financial statements. Furthermore, none of the amendments to the standards summarised below have had a significant effect on the financial statements.
New and revised standards not applied
At the date of authorisation of these financial statements, the following amendments had been published and will be mandatory for future accounting periods beginning on or after 1 January 2022:
-- A number of narrow-scope amendments to IFRS 3 "Business Combinations", IAS 16 "Property, plant and equipment", IAS 37 Provisions, contingent liabilities and contingent assets" and annual improvements on IFRS 1 "First-time Adoption of IFRS", IFRS 9 "Financial instruments, IAS 41 "Agriculture" and illustrative examples accompanying IFRS 16 "Leases".
Effective for accounting periods beginning on or after 1 January 2023:
-- Narrow-scope amendments to IAS 1 "Presentation of Financial Statements", practise statement 2 and IAS 8 "Accounting Policies, Changes in Accounting Estimates and Errors".
-- Amendments to IAS 12 "Income Taxes" - deferred tax related to assets and liabilities arising from a single transaction.
-- Amendments to IFRS 17, "Insurance contracts" - this standard replaced IFRS 4, which currently permits a wide variety of practices in accounting for insurance contracts.
Effective for accounting periods beginning on or after 1 January 2024:
-- Amendments to IAS 1 on classification of liabilities clarify that liabilities are classified as either current or non-current, depending on the rights that exist at the end of the reporting period.
The impact of these standards is not expected to be material to the reported results of the Company.
Segmental Reporting
The Chief Operating Decision Maker (the "CODM") being the Board of Directors, is of the opinion that the Company is engaged in a single segment of business, being investment. All the investments are based in the UK.
The Company has no single major customer. The internal financial information to be used by the CODM on a quarterly basis to allocate resources, assess performance and manage the Company will present the business as a single segment comprising the portfolio of investments in energy efficiency assets.
3. CRITICAL ACCOUNTING ESTIMATES, JUDGEMENTS AND ASSUMPTIONS
In the application of the Company's accounting policies, which are described in Note 2, the Directors are required to make judgements, estimates and assumptions about the fair value of assets and liabilities that
affect reported amounts. It is possible that actual results may differ from these estimates.
The preparation of the financial statements requires the Board to make judgements, estimates and assumptions that affect the application of the accounting policies and the reported amount of assets, liabilities, income and expenses. Estimates, by their nature, are based on judgement and available information, hence actual results may differ from these judgements, estimates and assumptions.
The key estimates that have a significant impact on the carrying values of underlying investments that are valued by reference to the discounted value of future cash flows are the useful life of the assets, the discount rates, the rate of inflation, the price at which the power and associated benefits can be sold and the amount of electricity the assets are expected to produce. The sensitivity analysis of these key assumptions is outlined in note 12 to the financial statements.
For equity investments, entered into by TEEC Holdings, useful lives are based on the Investment Manger's estimates of the period over which the assets will generate revenue which are periodically reviewed for continued appropriateness. Where land is leased from an external landlord, the operational life assumed for the purposed of the asset valuations is valued at lease expiry or end of contractual extension options. For the loan investments the future cash flows are as per contractual maturity of the facility.
The discount rates are subjective and therefore it is feasible that a reasonable alternative assumption may be used resulting in a different value. The discount rates applied to cash flows are reviewed regularly by the Investment Manager to ensure they are at an appropriate level. The Investment Manager will take into consideration market transactions, of similar nature, when considering changes to the discount rates used. For the year end and half-year accounts the Company engages external, independent and qualified valuers to assess the validity of the discount rates used by the Investment Manager in determination of fair value.
For equity investments, by TEEC Holdings, the revenues and expenditure of the investee companies are frequently or wholly subject to indexation and an assumption is made as to near term and long-term rates. For debt investments, by TEEC Holdings, the cash flows are determined by reference to contractual arrangements.
The price at which the output from the generating equity assets is sold is a factor of both wholesale electricity prices and the revenue received from the Government support regimes such as the Feed in Tariffs. Future power prices are estimated using external third-party forecasts which take the form of special consultancy reports, which reflect various factors including gas prices, carbon prices and renewables deployment.
TEEC Holdings' investments in unquoted investments are valued by reference to valuation techniques approved by the Directors and in accordance with the International Private Equity and Venture Capital ("IPEV") Guidelines.
As noted above, the Board has concluded that the Company meets the definition of an investment entity as defined in IFRS 10. This conclusion involved a degree of judgement and assessment as to whether the Company meets the criteria outlined in the accounting standards.
4. INVESTMENT MANAGEMENT FEES
The Company and the Investment Manager entered into an Investment Management Agreement on 25 August 2020.
Following the IPO of the Company, no Annual Management Fee was accrued or charged on the undeployed cash funds arising from the IPO until such time as 75 % or more of the net proceeds were deployed. The 75% threshold was reached on 10 December 2021, following completion of the GBP19.6 million acquisition of the final three hydro assets acquired in the year.
Under the terms of the agreement, the Investment Manager must use 20 % of the management fee received to acquire shares in the Company. On a semi-annual basis, following the announcement of the Net Asset Value for the semi-annual periods ending 31 March and 30 September in each year, the Investment Manager shall procure that the Wider Triple Point Group shall apply an amount, in aggregate, equal to 20 % of the Annual Management
Fee for the relevant six-month period as follows:
(a) where the Ordinary Shares are trading at, or at a premium to, the latest published Net Asset Value per Ordinary Share; the Investment Manager shall procure that the Wider Triple Point Group shall use the relevant amount to subscribe for new Ordinary Shares issued at the latest published Net Asset Value per Ordinary Share applicable at the date of issuance; or
(b) where the Ordinary Shares are trading at a discount to the latest published Net Asset Value per Ordinary Share; the Investment Manager shall procure that the Wider Triple Point Group shall, as soon as reasonably practicable use the relevant amount to make market purchases of Ordinary Shares within four months of the
relevant Net Asset Value publication date;
Even though the Annual Management Fee is payable on a monthly basis, Ordinary Shares are only acquired by the Wider Triple Point Group on a half-yearly basis. In addition, any such Ordinary Shares acquired by the Wider Triple Point Group are subject to a minimum lock-in period of 12 months.
Investment management fees paid or accrued during the year were as follows:
For the year ended For the period ended 31 March 2022 31 March 2021 ------------------------- ------------------------- Revenue Capital Total Revenue Capital Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ------- ------- ------- ------- ------- ------- Cash element 317 106 423 5 1 6 Equity element 10 3 13 - - - 327 109 436 5 1 6 ------- ------- ------- ------- ------- ------- 5. INVESTMENT INCOME For the year ended For the period ended 31 March 2022 31 March 2021 ------------------------- ------------------------- Revenue Capital Total Revenue Capital Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ------- ------- ------- ------- ------- ------- Interest on cash deposits 5 - 5 4 - 4 Interest income from investments 2,446 - 2,446 53 - 53 2,451 - 2,451 57 - 57 ------- ------- ------- ------- ------- ------- 6. OPERATING EXPENSES For the year ended For the period ended 31 March 2022 31 March 2021 ------------------------- ------------------------- Revenue Capital Total Revenue Capital Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Investment Management fees 327 109 436 5 1 6 Directors' fees* 200 - 200 91 - 91 Company's audit fees: * In respect of audit services 70 - 70 60 - 60 * In respect of non-audit services 25 - 25 - - - Other operating expenses 549 21 570 225 71 296 Irrecoverable VAT on Administration & Management fees 23 - 23 12 - 12 1,194 130 1,324 393 72 465 ------- ------- ------- ------- ------- -------
*Directors' fees exclude employer's national insurance contributions and travel expenses which are included as appropriate in other operating expenses. Travel expenses for the year ended 31 March 2022 totaled GBP643 (31 March 2021: nil).
7. EMPLOYEES
The Company had no employees during the period.
Full detail on Directors' fees is provided in Note 19. The Directors' fees exclude employer's national insurance contribution which is included as appropriate in other operating expenses. There were no other emoluments during the period.
8. TAXATION
Analysis of charge in the period.
For the year ended For the period ended 31 March 2022 31 March 2021 ------------------------- ------------------------- Revenue Capital Total Revenue Capital Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Corporation tax - - - - - - ------- ------- ------- ------- ------- ---------
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:
For the year ended For the period ended 31 March 2022 31 March 2021 ------------------------- ------------------------- Revenue Capital Total Revenue Capital Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Profit/(Loss) before taxation 1,257 3,504 4,761 (336) (185) (521) ------- ------- ------- ------- ------- ------- Corporation tax at 19% 239 666 905 (64) (35) (99) Effect of: Capital (gain)/loss not deductible - (690) (690) - 22 22 Interest deductions (239) - (239) - - - Disallowed expenditure - 12 12 Surrendering of Tax losses to unconsolidated subsidiaries - 24 24 64 1 65 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 has in the financial year utilised the interest streaming election which allows the Company to designate dividends 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 the Company's intermediate holding company, as TEEC Holdings is held at fair value. TEEC Holdings is subject to taxation in the United Kingdom at the current main rate of 19%.
9. EARNINGS PER SHARE For the year ended For the period ended 31 March 2022 31 March 2021 ------------------------- ------------------------- Revenue Capital Total Revenue Capital Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Profit / (Loss) attributable to the equity holders of the Company (GBP'000) 1,257 3,504 4,761 (336) (185) (521) Weighted average number of Ordinary Shares in issue (000) 100,004 100,004 100,004 58,156 58,156 58,156 Profit / (Loss) per Ordinary share (pence) - basic and diluted 1.26p 3.50p 4.76p (0.58p) (0.32p) (0.90p)
Dilution of the earnings per share as a result of the equity element of the investment management fee as disclosed in Note 4, is not expected to have a material impact on the basic earnings per share.
There is no difference between the weighted average Ordinary and diluted number of Shares.
10. DIVIDS AND INTEREST DISTRIBUTIONS
Dividend per Interest distribution Interim dividends paid during share per share Total dividend year ended 31 March 2022 pence pence GBP'000 Interim dividend for the period ended 31 March 2021 2.00 - 2,000 First quarter interim dividend for year ended 31 March 2022 1.375 - 1,375 Second quarter interim dividend for year ended 31 March 2022 1.375 - 1,375 Third quarter interim dividend for year ended 31 March 2022 0.815 0.560 1,375 5.565 0.560 6,125 ------------ --------------------- -------------- Interim dividends declared Dividend per Interest distribution after 31 March 2022 and not share per share Total dividend accrued in the year pence pence GBP'000 Fourth quarter interim dividend for the year ended 31 March 2022 0.678 0.697 1,375 0.678 0.697 1,375 ------------ --------------------- --------------
On 14 June 2022, the Board declared a fourth quarter interim dividend of 1.375 pence per share with respect to the period ended 31 March 2022. The dividend is expected to be paid on or around 8 July 2022 to shareholders on the register on 24 June 2022. The ex-dividend date is 23 June 2022. The Company has chosen to designate part of this interim dividend as an interest distribution. 0.697 pence per share will be paid as an interest payment and 0.678 as an ordinary dividend.
Shareholders in receipt of an interest distribution will be treated for UK tax purposed as though they received a payment of interest. This will result in a reduction in the corporation tax payable by the Company.
11. NET ASSETS PER ORDINARY SHARE
31 March 2022 31 March 2021 ------------- ------------- GBP'000 GBP'000 Total shareholders' equity (GBP'000) 96,137 97,488 Number of Ordinary Shares in issue ('000) 100,014 100,000 Net asset value per Ordinary Share (pence) 96.12p 97.49p ------------- -------------
12. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
As set out in Note 2, the Company designates its interest in its wholly owned direct subsidiary as an investment at fair value through profit or loss.
Summary of the Company's valuation is below:
31 March 2022 31 March 2021 ------------- ------------- GBP'000 GBP'000 Fair value at the start of the period 20,883 - Loans advanced to TEEC Holdings Limited 32,704 20,996 Shareholding in TEEC Holdings Limited 23,315 - Capitalised interest 519 - Loan principal repaid (2,103) - Movement in fair value of investments 3,634 (113) Total investments as at end of the period 78,952 20,883 ------------- -------------
Reconciliation of movement in fair value
31 March 2022 31 March 2021 ------------- ------------- GBP'000 GBP'000 Fair value at start of the period 20,883 - Loan advanced to TEEC Holdings Limited 32,704 20,996 Shareholding in TEEC Holdings Limited 23,315 - Capitalised interest 519 - Loan principal repaid (2,103) - ------------- ------------- Fair value of portfolio at end of the period 75,318 20,996 Cash held in intermediate holding company 293 80 Fair value of other net assets in intermediate holding company 3,341 (193) Fair Value of Company's investments as at end of the period 78,952 20,883 ------------- -------------
Loans advanced to TEEC Holdings in the year totalled GBP32,704,000, GBP200,000 was advanced as a working capital loan at a 0% interest rate. GBP8,032,000, was advanced at an interest rate of 7.375% to enable TEEC Holdings to complete the loan investment in Spark Steam Limited on commensurate terms. GBP24,473,000 was advanced to enable TEEC Holdings to advance shareholder loans into the Hydroelectric portfolio of GBP24,473,000, on which TEEC Holdings charges interest of 5.00% and the Company charges interest of 4.75%.
The Company owns three shares in TEEC Holdings Limited, representing 100% of issued share capital, allotted for a consideration of GBP23,315,000. The fair value of the Company's equity in TEEC Holdings Limited on 31 March 2022 is GBP26,836,000 (31 March 21: minus GBP113,000) and the fair value of the Company's debt interest in TEEC Holdings Limited at 31 March 2022 is GBP52,116,000 (31 March 21: GBP20,996,000),
Capitalised interest represents interest recognised in the income statement but not paid. This is instead added to the loan balance on which interest for future periods is computed. The loan from the Company to TEEC Holdings, which enabled TEEC Holdings to complete investments into Harvest, Glasshouse and Spark Steam, carry commensurate terms and repayment profiles. All payments from the borrower and capitalised interest are in accordance and in line with the contractual repayments with the respective underlying facility agreements with Harvest, Glasshouse and Spark Steam as agreed at inception
Reconciliation of Portfolio Valuation
31 March 2022 31 March 2021 ------------- ----------------------------- GBP'000 GBP'000 Portfolio Valuation 78,787 20,996 Intermediate holding company cash 293 80 Intermediate holding company debt* 454 - Intermediate holding company net working capital (582) (193) Fair Value of Company's investments as at end of the period 78,952 20,883 ------------- -----------------------------
*Debt arrangement costs of GBP454,000 (31 March 2021: nil) which are capitalised and expensed to profit or loss under amortised cost. At 31 March 2022 nil debt was drawn (31 March 2022: nil).
Fair Value measurements
As set out in Note 2, the Company accounts for its interest in its wholly owned direct subsidiary, TEEC Holdings,
as an investment at fair value through profit or loss.
IFRS 13 requires disclosure of fair value measurement by level. The level of fair value hierarchy within the financial assets or financial liabilities is determined on the basis of the lowest level input that is significant to the fair value measurement. Financial assets and financial liabilities are classified in their
entirety into only one of the following 3 levels:
-- level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
-- level 2 - inputs other than quoted prices included within Level 1 that are observable for the assets or
liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
-- level 3 - inputs for assets or liabilities that are not based on observable market data (unobservable inputs).
The determination of what constitutes 'observable' requires significant judgement by the Company. Observable data is considered to be market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The financial instruments held at fair value are the instruments held by the Group in the SPVs, which are fair valued at each reporting date. The investments have been classified within level 3 as the investments are not traded and contain certain unobservable inputs. The Company's investments in TEEC Holdings are also considered to be level 3 assets.
As the fair value of the Company's equity and loan investments in TEEC Holdings is ultimately determined by the underlying fair values of the equity and loan investments, made by TEEC Holdings, the Company's sensitivity analysis of reasonably possible alternative input assumptions is the same as for those investments.
There have been no transfers between levels during the period.
Valuations are derived using a discounted cash flow methodology in line with IPEV Valuation Guidelines and consider, inter alia, the following:
i. due diligence findings where relevant; ii. the terms of any material contracts including PPAs; iii. asset performance iv. power pirce forecasts from leading consultants; and v. the economic, taxation or regulatory environment
The DCF valuation of the Group's investments represents the largest component of GAV and the key sensitivities are considered to be the discount rate used in the DCF valuation and assumptions relating to inflation, energy yield and power prices.
The shareholder loan and equity investments, in TEEC Holdings, are valued as a single asset class at fair value in accordance with IFRS 13 Fair Value Measurement.
Sensitivity
Sensitivity analysis is produced to show the impact of changes in key assumptions adopted to arrive at the valuation. For each of the sensitivities, it is assumed that potential changes occur independently of each other with no effect on any other base case assumption, and that the number of investments in the portfolio remains static throughout the modelled life.
The analysis below shows the sensitivity of the portfolio value (and its impact on NAV) to changes in key assumptions as follows:
Discount rate
The weighted average valuation discount rate applied to calculate the portfolio valuation is 6.11% (31 March 21: 7.98%).
An increase or decrease in this rate by 0.5% points has the following effect on valuation
Total NAV per -0.5% portfolio +0.5% NAV per Discount Rate share impact change value change share impact pence GBP'000 GBP'000 GBP'000 pence Valuation - March 2022 3.33 3,330 78,952 (3,042) (3.04)
Energy yield
The table below shows the sensitivity of the Hydroelectric Portfolio valuation to a sustained decrease or increase of energy generation by minus or plus 5% on the valuation, with all other variables held constant. The fair value of the Hydroelectric Portfolio is assessed on a "P50" level of electricity generation, representing the expected level of generation over the long term.
A change in the forecast energy yield assumptions by plus or minus 5% has the following effect.
Total NAV per -5% portfolio NAV per Energy Yield share impact change value +5% change share impact pence GBP'000 GBP'000 GBP'000 pence Valuation - March 2022 (3.16) (3,164) 78,952 3,150 3.15
Power Prices
The sensitivity considers a flat 10% movement in power prices for all years, i.e. the effect of adjusting the forecast electricity price assumptions applicable to the Hydroelectric Portfolio down by 10% and up by 10% from the base case assumptions for each year throughout the operating life of the Hydroelectric Portfolio.
A change in the forecast electricity price assumptions by plus or minus 10% has the following effect.
Total NAV per portfolio NAV per Power Prices share impact -10% change value +10% change share impact pence GBP'000 GBP'000 GBP'000 pence Valuation - March 2022 (2.16) (2,157) 78,952 2,638 2.64
Inflation
The Hydroelectric Portfolio's income streams are principally subsidy based, which is amended each year with inflation and power prices, which the sensitivity assumes will move with inflation. Operating expenses relating to the Hydroelectric Portfolio, typically move with inflation, but debt payments on the shareholder loans are fixed. This results in the portfolio returns and valuations being positively correlated to inflation. The average long-term inflation assumption across the portfolio are 3.00% for RPI from 2023 to 2030 and 2.40% thereafter, 2.25% for CPI from 2023. The Company also models a Power Curve Indexation set at 2.75% from 2023, as wholesale power prices are not intrinsically linked to consumer prices, unlike costs of sales and labour.
The sensitivity illustrates the effect of a 0.5% decrease and a 0.5% increase from he assumed annual inflation rates in the financial model throughout the operating life of the portfolio.
Total NAV per -0.5% portfolio +0.5% NAV per Inflation share impact change value change share impact pence GBP'000 GBP'000 GBP'000 pence Valuation - March 2022 (2.31) (2,309) 78,952 2,549 2.55
13. TRADE AND OTHER RECEIVABLES
For the year ended For the period ended 31 March 2022 31 March 2021 ------------------ -------------------- GBP'000 GBP'000 Prepayments 114 148 Other receivables 339 53 453 201 ------------------ --------------------
14. TRADE AND OTHER PAYABLES
For the year ended For the period ended 31 March 2022 31 March 2021 ------------------ -------------------- GBP'000 GBP'000 Accrued expenses 125 72 Other payables 287 77 412 149 ------------------ --------------------
15. SHARE CAPITAL AND RESERVES
For the year ended 31 March 2022 ----------------------------------- ---------------- ---------------- Nominal value Allotted, issued and fully paid: Number of shares of shares (GBP) ----------------------------------- ---------------- ---------------- Opening balance as at 1 April 2021 100,000,000 1,000,000.00 Ordinary Shares of 1p each 14,079 140.79 Closing balance of Ordinary Shares at 31 March 2022 100,014,079 1,000,140.79 ----------------------------------- ---------------- ---------------- For the period ended 31 March 2021 ----------------------------------- ---------------- ---------------- Nominal value Allotted, issued and fully paid: Number of shares of shares (GBP) ----------------------------------- ---------------- ---------------- Opening balance as at 23 June 2020 - - Allotted upon incorporation Ordinary Shares of 1p each 1 0.01 Management shares 50,000 50,000.00 Allotted/redeemed following admission to Specialist Fund Segment of the LSE Ordinary Shares of 1p each 99,999,999 999,999.99 Management shares (50,000) (50,000.00) Closing balance of Ordinary Shares at 31 March 2021 100,000,000 1,000,000.00 ----------------------------------- ---------------- ----------------
The initial placing of 100,000,000 ordinary shares of GBP0.01, took place on 19 October 2020, raising gross proceeds of GBP100,000,000.
The Company issued 14,079 shares of GBP0.01 each to the Investment Manager in year ending March 2022 raising proceeds of GBP13,325 creating share premium of GBP13,184 (see note 19).
Shareholders are entitled to all dividends paid by the Company and, on a winding up, provided the Company has satisfied all its liabilities, the shareholders are entitled to all of the residual assets of the Company.
16. SPECIAL DISTRIBUTABLE RESERVE
Following admission of the Company's Ordinary Shares to trading on the Specialist Fund Segment of the London Stock Exchange, the Directors applied to the Court and obtained a judgement on 12 January 2021 to cancel
the amount standing to the credit of the share premium account of the Company.
As stated by the Institute of Chartered Accountants in England and Wales ("ICAEW") and the Institute of Chartered Accountants in Scotland ("ICAS") in the technical release TECH 02/17BL, The Companies (Reduction of Share Capital) Order 2008 SI 2008/1915 ("the Order") specifies the cases in which a reserve arising from a reduction in a company's capital (i.e., share capital, share premium account, capital redemption reserve or redenomination reserve) is to be treated as a realised profit as a matter of law.
The Order also disapplies the general prohibition in section 654 on the distribution of a reserve arising from a reduction of capital. The Order provides that if a limited company having a share capital reduces its capital and the reduction is confirmed by order of court, the reserve arising from the reduction is
treated as a realised profit unless the court orders otherwise.
The amount of the share premium account cancelled and credited to the Company's Special reserve was GBP97 .0 million which can be utilised to fund distributions by way of dividends to the Company's shareholders. As at year ending 31 March 2022, the special distributable reserve balance is GBP91.4m.
17. FINANCIAL RISK MANAGEMENT
The Company's investment activities expose it to a variety of financial risks; including, interest rate risk, power price risk, credit risk and liquidity risk. The Board of Directors has overall responsibility for overseeing the management of financial risks, however the review and management of financial risks are delegated to the AIFM.
Each risk and its management are summarised below.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments. The Company is exposed to interest rate risk on its cash balances held with counterparties, bank deposits, advances to counterparties through loans to its subsidiaries. The Company may be exposed to changes in variable market rates of interest of interest as this could impact the discount rate and therefore the valuation of the investments as well as the fair value of the loan receivable. The Company is not considered to be materially exposed to interest rate risk so no sensitivity has been performed. Sensitivity analysis is disclosed in note 12 to show the impact of changes in key assumptions adopted to arrive at the valuation of investments.
The Company's interest and non-interest-bearing assets and liabilities are summarised below:
Interest Non-interest bearing bearing Total value GBP'000 GBP'000 GBP'000 For the year ended 31 March 2022 Assets: Investments at fair value through profit or loss 52,116 26,836 78,952 Other receivables 339 339 Cash and cash equivalents 17,144 - 17,144 Total Assets 69,260 27,175 96,435 --------- ------------- ------------ Liabilities: Trade and other payables - 412 412 Total Liabilities - 412 412 --------- ------------- ------------ Interest Non-interest bearing bearing Total value GBP'000 GBP'000 GBP'000 For the period ended 31 March 2021 Assets: Investments at fair value through profit or loss 20,883 - 20,883 Other receivables - 201 201 Cash and cash equivalents 76,553 - 76,553 Total Assets 97,436 201 97,637 --------- ------------- ------------ Liabilities: Trade and other payables - 149 149 Total Liabilities - 149 149 --------- ------------- ------------
Liquidity risk
Liquidity risk is the risk that the Company may not be able to meet its financial obligations as they fall due. The AIFM and the Board continuously monitor forecast and actual cash flows from operating, financing, and investing activities to consider payment of dividends, repayment of trade and other payables or funding further investing activities.
The Company ensures it maintains adequate reserves and has through TEEC Holdings put in place a revolving credit facility. The Company will continuously monitor forecast and actual cash flows to seek to match the maturity profiles of financial assets and liabilities.
At the period end, the Company's investments, through TEEC Holdings, were in equity and secured loan investments in private companies, in which there is no listed market and therefore such investments would take time to realise, and there is no assurance that the valuations placed on the investments would be achieved from any such sale process. The Company's direct subsidiary TEEC Holdings, is the entity through which the Company holds its investments, the liquidity of TEEC Holdings is reflective of the investments which it holds.
Financial assets and liabilities by maturity at the period end are shown below:
Less than More than For year ended March 2022 1 year 1-5 years 5 years Total GBP'000 GBP'000 GBP'000 GBP'000 Assets: Investments at fair value through profit or loss - - 78,952 78,952 Receivables 339 - - 339 Cash and cash equivalents 17,144 - - 17,144 Liabilities: Trade and other Payables (412) - - (412) --------- --------- --------- ------- 17,071 - 78,952 96,023 --------- --------- --------- ------- Less than More than For period ended March 2021 1 year 1-5 years 5 years Total GBP'000 GBP'000 GBP'000 GBP'000 Assets: Investments at fair value through profit or loss - - 20,883 20,883 Receivables 201 - - 201 Cash and cash equivalents 76,553 - - 76,553 Liabilities: Trade and other Payables ( 149 ) - - ( 149 ) --------- --------- --------- -------
76,605 - 20,883 97,488 --------- --------- --------- -------
Credit Risk
Credit risk is the risk that a counterparty of the Group will be unable or unwilling to meet a commitment that it has entered into with the Group. It is a key part of the pre-investment due diligence. The credit standing of the companies which the Group intends to lend to or invest in is reviewed, and the risk of default estimated for each significant counterparty position. Monitoring is on-going, and period end positions are reported to the Board on a quarterly basis.
Credit risk also arises from cash and cash equivalents, derivative financial instruments, loan investments held through TEEC Holdings and deposits with banks and financial institutions. The Company and its subsidiaries may mitigate their risk on cash investments and derivative transactions by only transacting with major international financial institutions with high credit ratings assigned by international credit rating agencies.
The Company had no derivatives during the period and the Company's cash balances were held in the Company's current account.
The carrying value of the investments, trade and other receivables and cash represent the Company's maximum exposure to credit risk.
Price Risk
Price risk is defined as the risk that the fair value of a financial instrument held by the Group will fluctuate. Investments are measured at fair value through profit and loss. As at the 31 March 2022, the Company held nine indirect investments through its intermediary holding company, TEEC Holdings. The value of the investments held by TEEC Holdings will vary according to a number of factors including: discount rate used, asset performance and forecast power prices. Sensitivity analysis is disclosed in note 12.
Capital Risk Management
The capital structure of the Company at the year-end consists of equity attributable to equity holders of the Company, comprising issued capital and reserves. 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.
Market Risk
Returns from the Company's indirect investments are affected by the price at which the investments are acquired. The value of these investments will be a function of the discounted value of their expected future cash flows, and as such will vary with, inter-alia, movements in interest rates, market prices and competition for such assets. The Investment Manager carries out a full valuation semi-annually and this valuation exercise takes into account such changes.
18. SUBSIDIARIES
The following table shows subsidiaries of the Group. As the Company is regarded as an Investment Entity as referred to in Note 2, the subsidiaries have not been consolidated in the preparation of the financial statements.
Place Ownership interest Investment of Business as at 31 March 2022 TEEC Holdings * UK 100.00% Achnacarry Hydro Limited** UK 100.00% Elementary Energy Limited** UK 99.32% Green Highland ALLT Choire A Bhalachain (255) Limited** UK 100.00% Green Highland ALLT Ladaidh (1148) Limited** UK 100.00% Green Highland ALLT Luaidhe (228) Limited** UK 100.00% Green Highland ALLT Phocachain (1015) Limited** UK 100.00% Place Ownership interest Investment of Business as at 31 March 2021 TEEC Holdings* UK 100.00%
*Direct shareholding in a financial services investment holding company.
** Indirect shareholding in an electricity production company.
19. RELATED PARTY TRANSACTIONS
Directors Fees
The amounts incurred in respect of Directors fees during the period to 31 March 2022 was GBP200,000 (31 March 2021: GBP91,026). These amounts have been fully paid at 31 March 2022. The amounts paid to individual directors during the period were as follows:
For the year For the period ended 31 March ended 31 March 2022 2021 Dr John Roberts (Chair) GBP75,000 GBP34,135 Rosemary Boot GBP45,000 GBP20,481 Sonia McCorquodale GBP40,000 GBP18,205 Dr Anthony White GBP40,000 GBP18,205
Directors Expenses
The expenses claimed by the Directors during the period to 31 March 2022 was GBP643 (31 March 2021: nil). These amounts have been fully paid at 31 March 2022. The amounts paid to individual directors during the period were as follows:
For the year For the period ended 31 March ended 31 March 2022 2021 Dr John Roberts (Chair) GBP551 - Rosemary Boot GBP51 - Sonia McCorquodale - - Dr Anthony White GBP41 -
Directors' interests
Details of the direct and indirect interest of the Directors and their close families in the ordinary share of one pence each in the Company at 31 March 2022 were as follows:
% of Issued Number of Shares share Capital Dr John Roberts (Chair) 40,000 0.04% Rosemary Boot 40,000 0.04% Sonia McCorquodale 10,000 0.01% Dr Anthony White 40,000 0.04%
The AIFM and Investment Manager
The Company and Triple Point Investment Management LLP have entered into the Investment Management Agreement pursuant to which the Investment Manager has been given responsibility, subject to the overall supervision of the Board, for active discretionary investment management of the Company's Portfolio in accordance with the Company's Investment Objective and Policy.
As the entity appointed to be responsible for risk management and portfolio management, the Investment Manager is the Company's AIFM. The Investment Manager has full discretion under the Investment Management Agreement to make investments in accordance with the Company's Investment Policy from time to time.
This discretion is, however, subject to: (i) the Board's ability to give instructions to the Investment Manager from time to time; and (ii) the requirement of the Board to approve certain investments where the Investment Manager has a conflict of interest in accordance with the terms of the Investment Management Agreement.
Under the terms of the Investment Management Agreement, the Investment Manager is entitled to a fee calculated at the rate of:
-- 0.9% per annum of the adjusted NAV in respect of the Net Asset Value of up to, and including, GBP650 million; and
-- 0.8% per annum of the adjusted NAV in respect of the Net Asset Value in excess of GBP650 million.
The management fee is calculated and accrues quarterly and is invoiced quarterly in arrears. During the period ended 31 March 2022, management fees of GBP436,478 (31 March 2021: GBP6,213) were incurred of which GBP207,765 (31 March 2021: GBP6,213) was payable at the period end.
No annual management fee can accrue or be charged on any undeployed cash funds until such time as 75% or more of the IPO proceeds have been deployed. For these purposes, "Deployed" shall mean invested in the acquisition or development of assets. From 10 December 2021, following completion of the GBP19.6 million acquisition of the final three hydro assets acquired in the year, the Management fee has been charged by reference to the Company NAV.
In June 2021, the Company completed a GBP8.0 million senior debt investment in Spark Steam Limited, a company that owns and operates a CHP asset which was part of the pipeline identified at IPO. The transaction followed on from similar investments made in March 2021 in Harvest Generation Services Limited and Glasshouse Generation Limited. The transaction refinanced debt previously provided in part by investees of other funds under the management of the Investment Manager and was approved by the Board in line with the Company's conflict of interest procedures.
In November 2021 and December 2021, the Company acquired a portfolio of operational, Feed in Tariff accredited, hydroelectric power project for a total consideration of GBP46.5 million. The acquisition included the purchase of the entire equity interest from Triple Point 2011 VCT plc and Triple Point Income VCT plc who are managed by Triple Point Investment Management. The transaction followed a full conflicts process, with two separate teams within the Investment Manager dealing with the sale and purchase, The two teams were segregated, with distinct independent reporting lines and separate access to the electronic files relevant to the transaction. The transaction was approved by the Board in line with the Company's conflict of interest procedures.
Investment Managers Interest in shares of the Company
On the 18 June 2021, the Company issued 675 Ordinary Shares to the Investment Manager in accordance with the terms of the Investment Management Agreement pursuant to which 20%. Of the management fee paid is used to acquire new ordinary shares of GBP0.01 each in the capital of the Company. The issue price per Investment Management Ordinary Share was GBP0.9749 (being the prevailing Net Asset Value per share), in accordance with the terms of the Investment Management Agreement.
On the 16 December 2021, the Company issued 13,404 Ordinary Shares to the Investment Manager in accordance with the terms of the Investment Management Agreement pursuant to which 20%. Of the management fee paid is used to acquire new ordinary shares of GBP0.01 each in the capital of the Company. The issue price per Investment Management Ordinary Share was GBP0.9450 (being the prevailing Net Asset Value per share), in accordance with the terms of the Investment Management Agreement.
On the 7 February 2022, the Investment Manager purchased, on the secondary market, 158,882 ordinary shares of GBP0.01 each in the capital of the Company at an average price of GBP0.9440 pence per share.
Details of the interests of the Investment Manager, held by an entity within the Wider Triple Point Group, in the ordinary shares of one pence each in the Company as at 31 March 2022 were as follows:
% of Issued share Number of Shares Capital Perihelion One Limited 672,962 0.67%
Perihelion One Limited is a company within the Wider Triple Point Group.
Guarantees and other commitments
The Company is the guarantor of the GBP40 million RCF between its sole wholly owned subsidiary TEEC Holdings Limited and TP Leasing Limited. The RCF was entered into on the 29 March 2022 and is undrawn.
TP Leasing Limited is an established private credit and asset leasing business which is managed by the Investment Manager and, as a result, is deemed to be a related party as defined in the Listing Rules. The RCF is deemed to be a "smaller related party transaction" for the purposes of LR11.1.10R. As set out in the IPO Prospectus, the Company has adopted a related party policy pursuant to which, prior to entering into the Facility Agreement, (i) the RCF was approved by the Directors and (ii) the Company obtained a fair and reasonable opinion from a qualified, independent adviser. The Board was satisfied with the conflict management procedures put in place, including team segregation within the Investment Manager and obtaining independent third-party pricing validation.
On the 31 March 2022, TEEC Holdings entered into a GBP45.6 million investment commitment, to fund the b uild of a portfolio of four geographically diverse BESS assets in the UK. GBP44.9 million of the commitment is outstanding and due to be deployed during the year ending 31 March 2023. The commitment is expected to be funded via the undrawn GBP40 million RCF available to TEEC Holdings and cash reserves of the Company.
20. EVENTS AFTER THE REPORTING PERIOD
On 9 June 2022, the Company's sole wholly owned subsidiary, TEEC Holdings Limited, entered into an agreement to fund its first energy efficient lighting opportunity. The Company has committed to fund GBP1 million to a lighting solutions provider who will install efficient lighting and controls at a logistics company.
Dividend
On 14 June 2022, the Board declared a fourth quarter interim dividend of 1.375 pence per share with respect to the period ended 31 March 2022. The dividend is expected to be paid on or around 8 July 2022 to shareholders on the register on 24 June 2022. The ex-dividend date is 23 June 2022. The Company has chosen to designate part of this interim dividend as an interest distribution. 0.697 pence per share will be paid as an interest payment and 0.678 as an ordinary dividend.
21. ULTIMATE CONTROLLING PARTY
In the opinion of the Board, on the basis of the shareholdings advised to them, the Company has no ultimate controlling party.
GLOSSARY AND DEFINITIONS
The Act Companies Act 2006 AIC Code The AIC Code of Corporate Governance produced by the Association of Investment Companies ------------------------------------------------------ AIFM The alternative investment fund manager of the Company, Triple Point Investment Management LLP ------------------------------------------------------ AIFMD The EU Alternative Investment Fund Managers Directive 2011/61/EU ------------------------------------------------------ BESS Battery Energy Storage Systems ------------------------------------------------------ BESS Portfolio GBP45.6 million debt facility to a subsidiary of Virmati Energy Ltd (trading as Field), to fund a portfolio of four Battery Energy Storage Systems assets ------------------------------------------------------ CCC Climate Change Committee ------------------------------------------------------ CHP Combined heat and power ------------------------------------------------------ CHP Portfolio A total debt investment of GBP29 million into Harvest and Glasshouse and Spark Steam ------------------------------------------------------ The Company Triple Point Energy Efficiency Infrastructure Company plc (company number 12693305). ------------------------------------------------------ DCF Discounted Cash Flow ------------------------------------------------------ ESG Environmental, Social and Governance ------------------------------------------------------ EU European Union ------------------------------------------------------ EV Electric Vehicle ------------------------------------------------------ FCA Financial Conduct Authority ------------------------------------------------------ FRC Financial Reporting Council ------------------------------------------------------ GAV Gross Asset Value ------------------------------------------------------ GHG Green House Gas ------------------------------------------------------ Group The Company and any subsidiary undertakings from time to time ------------------------------------------------------ Harvest and Glasshouse Harvest Generation Services Limited and Glasshouse Generation Limited ------------------------------------------------------ HVAC Heating, Ventilation and Air Conditioning ------------------------------------------------------ Hydroelectric Portfolio Elementary Energy Limited Green Highland Allt Ladaidh (1148) Limited Green Highland Allt Choire A Bhalachain (255) Limited Green Highland Allt Phocachain (1015) Limited Green Highland Allt Luaidhe (228) Limited Achnacarry Hydro Limited ------------------------------------------------------ ITC Investment Trust Company ------------------------------------------------------ Investment Manager Triple Point Investment Management LLP ------------------------------------------------------ IPO The admission by the Company of 100 million Ordinary Shares to trading on the Specialist Fund Segment of the Main Market, which were the subject of the Company's initial public offering on 19 October 2020 ------------------------------------------------------ IPO Prospectus The Company's Prospectus for its initial public offering, published on 25 August 2020. ------------------------------------------------------ kWh Kilowatt-hour ------------------------------------------------------ LED Light-emitting Diode ------------------------------------------------------ Listing Rules Financial Conduct Authority Listing Rules ------------------------------------------------------ MW Megawatt ------------------------------------------------------ MWh Megawatt-hour ------------------------------------------------------ NAV The net asset value, as at any date, of the assets of the Company after deduction of all liabilities determined in accordance with the accounting policies adopted by the Company from time-to-time. ------------------------------------------------------ Net Zero A target of completely negating the amount
of greenhouse gases produced by human activity, to be achieved by reducing emissions and implementing methods of absorbing carbon dioxide from the atmosphere ------------------------------------------------------ OCR Ongoing charges ratio. ------------------------------------------------------ PPA Power Purchase Agreement. ------------------------------------------------------ PRI Principals for Responsible Investing ------------------------------------------------------ Project SPV Special Purpose Vehicle in which energy efficiency assets are held. ------------------------------------------------------ RES Renewable Energy Systems ------------------------------------------------------ SDG Sustainable Development Goals. ------------------------------------------------------ SFDR Sustainable Finance Disclosure Regulation ------------------------------------------------------ SONIA Sterling Overnight Index Average ------------------------------------------------------ SORP Statement of Recommended Practise. ------------------------------------------------------ Spark Steam Spark Steam Limited ------------------------------------------------------ TCFD Task Force on Climate-related Financial Disclosures. ------------------------------------------------------ TEEC Holdings The wholly owned subsidiary of the Company: TEEC Holdings Limited (company number 12695849). ------------------------------------------------------ Wider Triple Point Triple Point LLP (company number OC310549) Group and any subsidiary undertakings from time to time. ------------------------------------------------------
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June 24, 2022 02:00 ET (06:00 GMT)
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