19 June 2023

Triple Point Energy Transition plc

("TENT" or the "Company" or, together with its subsidiaries, the "Group")

RESULTS FOR THE YEAR ENDED 31 MARCH 2023

Transformative year; our new mandate is delivering compelling opportunities; full capital commitment

9.2% NAV Total Return, full capital commitment, 1.1x cash dividend cover

The Board of Triple Point Energy Transition plc (ticker: TENT), the London listed infrastructure investment company supporting the energy transition, is pleased to announce its audited results for the year ended 31 March 2023. The Company's focus this year was on building on its new investment mandate, launched in August 2022, to seek opportunities in niche and exciting areas of the energy transition, which offer superior risk adjusted returns and diversification of revenue sources. TENT has now fully committed its existing capital, delivered a 9.2% NAV total return and full cash dividend cover.

¹ representative of total cash income, expenditure and financing costs for the Company and TENT Holdings (the Company's wholly owned subsidiary), divided by dividends paid in the financial year to 31 March 2023

 ² alternative performance measure

 ³ portfolio commitments will be largely funded by the Group's undrawn £40 million Revolving Credit Facility ("RCF") 

Financial Highlights

·    Total NAV return of 9.2% for year ended 31 March 2023 (31 March 2022: 4.9%)

·    Dividends declared in respect of the year ended 31 March 2023 total of 5.50 pence per Ordinary Share, fully covered by operating cashflow 1.1x (net of expenses and finance costs for TENT and TENT Holdings, the Company's wholly owned subsidiary)

o  Equivalent to a dividend yield of 9% on the share price at 31 March 2023

o  Future period earnings will benefit from the deployment of the outstanding commitment of £39.6m into the Battery Energy Storage Systems ("BESS") portfolio.

·    The Company's strategic focus on investing across the spectrum of the energy transition has delivered a diversified set of income streams across the portfolio, and the Company was unaffected by the Electricity Generator Levy.

·    Weighted average project life remaining of 32 years, driven by the long project life of the Hydroelectric Portfolio and debt investments providing long term contractual cashflows, with 92% of projected underlying income contractually underpinned over a 10-year period and 47% of income linked to inflation.

·    TENT announced on 14 March 2023 that it had completed, via its wholly owned subsidiary TENT Holdings Limited ("TENT Holdings") a 12-month extension of its fixed rate £40 million Revolving Credit Facility (RCF) with TP Leasing Limited, extending it to 28 March 2025.

Operational highlights

·    Fully committed capital across a diversified portfolio of opportunities in the energy transition sector including, hydroelectric, CHP, BESS and LED.

·    Excellent portfolio performance with all asset classes contributing positively to the strong financial performance.

·    New technologies added to the portfolio, increasing portfolio diversification, including:

o  BESS;

o  LED lighting; and

o  post-period end, an investment in a renewables development company, Innova Renewables.

·    The Hydroelectric Portfolio performed marginally below expectations, however there was good availability during the financial year taking full advantage of the rainfall in Scotland.

·    The deployment of the BESS portfolio has progressed well leading to the accession of two assets in the security of the loan facility:

o  The 20MW site at Oldham is now operational;

o  Gerrards Cross is under construction and is anticipated to be operational in 2023; and

o  Two further BESS assets scheduled to become operational in 2024.

·    The CHP portfolio continues to benefit from the volatile gas and electricity wholesale market, illustrating the resilience of the economic model of these assets throughout the cycle.

Pipeline Highlights

·    Strong long-term pipeline of potential investment opportunities worth £545 million including both debt and equity investments.

·    Diverse range of technologies and sectors under consideration, including solar, wind, battery storage, onsite generation, energy efficiency, and hydrogen.

·    The pipeline investments currently yield an average return of 9% and cover UK and European markets. 

Post Period Highlights

·    The Group committed a £5 million fixed rate debt investment to Innova Renewables, to help fund its development pipeline of solar, battery and energy storage systems across the UK. The facility was fully drawn on 3 April 2023.

·    In June 2023, the Group deployed a further £3.9 million into the BESS portfolio, resulting in a total deployment to date of 22%.

·    The Group successfully undertook the first drawdown under the RCF, partly funding the BESS deployment.

John Roberts, the Company's Chair, commented:

"The year was a transformative period for TENT. In focusing wholly on niche, but highly attractive, areas of the energy transition, we believe we have an investment strategy which will deliver robust shareholder returns throughout the cycle. The results we are announcing today amply bear out our confidence.

The Company's portfolio now includes 19 investments across attractive and key energy transition technologies comprising hydroelectric, battery storage, renewable power, solar and BESS development and LED lighting. This portfolio has proven its earnings power with full dividend cover attained on delivering the Company's dividend target of 5.50 pence per share (equating to a 9% yield on the share price as at 31 March 2023). This has all been achieved whilst avoiding any adverse impact from the Government's electricity generator levy. Further, the Company's long term revenue cash flows, of which 92% are contractually underpinned, provide strong visibility on the sustainability of the portfolio's earnings.

In addition, the Company's significant pipeline of attractive opportunities currently yield a high return, while further adding to the high level of diversification already apparent in the Company's portfolio.

Whilst our share price has been impacted by the same equity market turbulence that has affected all infrastructure investment companies, we do not believe that our share price discount to NAV is an accurate reflection of the clear attractions of the Company's differentiated strategy. The portfolio enjoys a high level of underlying committed revenue and we believe this comprises a highly attractive value opportunity for investors wishing to benefit from the global energy transition."

LEI: 213800UDP142E67X9X28

Further information on the Company can be found on its website: http://www.tpenergytransition.com/

NOTES:

The Company is an investment trust which aims to invest 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 £21m 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 £8m 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 £26.6m (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 £19.6m (excluding costs) - December 2021

·    BESS Portfolio: commitment to provide a debt facility of £45.6m 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

·    Energy Efficient Lighting: Funding of c.£2.2m to a lighting solutions provider to install efficient lighting and controls at a leading logistics company - March 2023

·    Innova: Provision of a £5m short term development financing facility to Innova Renewables, building out a portfolio of Solar and BESS assets across the UK - March 2023

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.

Following its IPO on 19 October 2020, the Company was admitted to trading on the Premium Segment of the Main Market of the London Stock Exchange on 28 October 2022. The Company was also awarded the London Stock Exchange's Green Economy Mark.

You may view the Annual Report in due course on the Company's website. http://www.tpenergytransition.com/

Please note that page numbers in this announcement are in reference to the Annual Report.

Strategic Report

Chair's Statement

Dear Shareholder,

I am pleased to present the results for Triple Point Energy Transition plc ("TENT" or the "Company") for the year ended 31 March 2023. This is our first set of annual results reported under our new mandate and name, announced in August 2022, which consolidated the Company's focus on investing across the energy sector to support the transition to Net Zero.

Our investment mandate covers three thematic areas:

·    distributed energy generation

·    energy storage and distribution

·    onsite energy generation and lower carbon consumption

This strategy reflects our conviction that a holistic, system-wide approach to reducing emissions across every part of the energy sector is vital to supporting the transition to Net Zero and to delivering attractive returns for our investors. We also believe that this approach gives us a highly differentiated position in our sector, offering shareholders exposure to a diversified portfolio of attractive investments in sectors and investment classes which are not typically targeted by many other investment trusts.

The past year has been marked by unprecedented challenges and opportunities in the global energy sector. The devastating war in Ukraine, which has now entered its second year, and the resulting energy crisis have exposed the vulnerabilities and risks of relying on fossil fuels, especially imported gas, for meeting our energy needs. This has also led to a cost-of-living crisis and inflation increases, putting pressure on consumers and businesses. At the same time, the events have triggered a wave of policy and market developments which are designed to accelerate the energy transition. The EU's REPowerEU plan, the US Inflation Reduction Act, China's 14th Five-Year Plan, and other initiatives by major economies have created a huge investment potential for clean energy technologies globally, through a strong regulatory framework and incentives for deployment. Moreover, global investment in clean energy technologies matched that of fossil fuels for the first time in 2022, signalling a shift in investor preferences and expectations.

These global developments have a direct impact on the UK and EU markets, which are the focus of our mandate. The UK and the EU are both committed to achieving Net Zero emissions by 2050 and have set ambitious targets and policies to accelerate the decarbonisation of their energy systems. The UK's Powering Up Britain, the EU's Green Deal, and the Glasgow Climate Pact are some of the key initiatives that demonstrate this commitment and provide a clear direction for our investment strategy. The UK and the EU are also facing increasing energy security concerns and rising energy costs, which create an urgent need for more domestic, diversified, and reliable sources of energy. This is where our investment portfolio can provide solutions and value for our shareholders and society.

By investing holistically across the energy sector, in assets that generate, distribute or conserve electricity or heat, we are able to capture the opportunities and mitigate the risks arising from these developments. Our three thematic areas of focus are complementary and synergistic, as they enable a lower-carbon, more resilient, and more flexible energy system. They also generate stable and predictable income for our investors, from long-term contracts with high-quality counterparties or from wholesale or merchant markets.

Investment Activity

I am delighted to report that the Company's remaining capital has been fully committed to a portfolio of broadly diversified opportunities across the energy transition sector. This achievement reflects our ability to discern and execute attractive deals in a competitive market. We have strategically utilised the funds to invest in multiple asset classes and capital structures, providing a solid defence against risks and challenges. Importantly we balance both debt and equity investments to ensure a consistent income stream, capital preservation, and capital growth.

The Group has continued to advance funds under the £45.6 million debt facility to a subsidiary of Virmati Energy Ltd, to fund a 110MW portfolio of four BESS assets (the "BESS Portfolio"). During the period, £6.2 million of the facility was utilised, with commitment fees being received in respect of the undrawn balance. Post the balance sheet date, a further £3.9 million was drawn.

The Group has also invested in new asset classes - LED lighting and solar project development - through debt financing. This further enhances our diversification, resilience to negative trends, and participation in innovative technologies.

The Group's £2.2 million investment in the installation of new Light Emitting Diodes ("LEDs") in several warehouses of an investment-grade global logistics company, has led to a c.58% reduction in the warehouses' energy consumption.

These investments not only showcase our commitment to advancing this important energy transition industry but also enable us to leverage the stability of debt financing to support projects which reduce energy waste and drive sustainability.

Portfolio Performance

The portfolio continued to deliver a strong performance with all asset classes contributing positively to the financial performance of the Company.

The Hydroelectric Portfolio performed marginally below expectations. The annual generation performance was c.5% lower than forecast, due to a local grid curtailment of some of the schemes in March 2023. One scheme has commenced development of water storage capacity and is progressing to the next stage. This provides the opportunity to increase the annual generation capacity by 1,250 MWh and allows the scheme to target periods of peak load generation through a controlled release of the flow.

The deployment of the BESS Portfolio has progressed during the year, with the asset located in Oldham now operational and the asset located in Gerrards Cross under construction and expected to reach commercial operations in late 2023. The third and fourth projects are expected to be operational during 2024. Once fully deployed, the BESS assets will contribute to reduce grid constraints and allow the inclusion of more renewable energy generators to the energy mix.

The CHP Portfolio continues to benefit from the volatile gas and electricity wholesale market which illustrates the resilience of the economic model of these assets, as they benefit from dual revenue sources (wholesale market and private offtake of heat and power).

Financing

The Group, via its wholly owned subsidiary, TENT Holdings Limited ("TENT Holdings"), has a £40 million Revolving Credit Facility ("RCF") with TP Leasing Limited, and in March 2023, we completed a 12-month extension of the RCF to 28 March 2025. The interest rate charged is a fixed rate coupon of 6% pa on drawn amounts.

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 extension to the RCF was deemed to be a "smaller related party transaction" for the purposes of LR11.1.10R and, therefore, was undertaken in accordance with the relevant requirements of the Listing Rules.

The Group will make use of the RCF to fund its committed portfolio. 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, in line with the Company's borrowing policy.

As at 31 March 2023, the RCF had not been drawn, however it is expected that the RCF will be fully utilised during 2024.

Financial Results

During the year, TENT achieved a total profit and comprehensive income of £8.8 million (31 March 2022: £4.8 million), which is reflective of the growing investment portfolio that has increased in value by 14% in the financial year. Further information on profitability and financial performance can be found on pages 128 to 153.

The Company generated a total NAV return for shareholders of 9.2%, in excess of the Company's target. The NAV per share is 99.44 pence per share as at 31 March 2023 (31 March 2022: 96.12 pence per share), an annual growth rate of 3.5%, which was made possible through a combination of robust contractual revenues and the revaluation of the investment portfolio.

TENT has delivered a dividend of 5.5 pence per share for the year, which was cash covered 1.1x (31 March 2022: 0.14x). The enhancement in coverage reflects the full deployment of the IPO proceeds in the financial year. As a result, cash income generation has increased approximately 300% to £9.0 million (31 March 2022: £2.2 million).

Share Price

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 considerations to add value to the portfolio. 

Throughout the year there has been a focus on developing relationships with asset owners (where we have debt investments) and O&M contractors (where we own the asset) to improve data collection and identify where discussion may lead to improved action and ESG management of our portfolio. Climate and Net Zero analysis are also a key priority with significant time allocated to the evolution of these activities, which have been captured in our voluntary reporting against the TCFD framework. The Board continues to engage fully to support and seek progress on these fast evolving and important areas. The Sustainability Report contains full details on the approach including reporting aligned with a range of relevant industry frameworks and best practice.

Summary & Outlook

The energy market is undergoing a seismic transformation, driven by the urgent need for decarbonisation and a growing emphasis on energy security and independence. The Company's broader investment mandate positions it for success in this rapidly evolving landscape by diversifying its portfolio across three thematic areas: distributed energy generation, onsite energy generation and lower carbon consumption, and energy storage and distribution. This approach not only mitigates risk and enhances resilience but also supports the Net Zero pathway, presenting a favourable outlook for the Company's investment prospects.

The Company is well-positioned to capitalise on the immense potential arising from the ambitious renewable energy targets and various legislative initiatives in the UK and EU markets, such as Powering Up Britain and REPowerEU. These programmes aim to unlock a vast amount of investments and create a favourable environment for the growth of clean energy technologies, opening up a market worth $5.3 trillion across Europe². By investing in innovative solutions for the decarbonisation of buildings and transport and leveraging its expertise in cutting-edge sectors such as battery storage, green hydrogen, and LED lighting, the Company aims to drive transformative change and contribute to the global shift towards a low-carbon economy. The Company also intends to pursue market-driven unsubsidised projects that can offer higher returns with lower risks, as they are less exposed to policy changes and provide increased flexibility. These projects further diversify the Group's portfolio compared to other peers in the space and differentiate the risk profile.

On behalf of the Board, I remain confident in the Company's ability to continue generating sustainable income and capital growth for our shareholders. We would like to extend the Board's thanks to shareholders for their ongoing support and belief in our differentiated investment case.

Notes:
² Europe's Path to Clean Energy: A $5.3 Trillion Investment Opportunity | BloombergNEF (bnef.com)

John Roberts

Chair

16 June 2023

Strategy and Business Model

The Company's purpose is to invest into infrastructure assets that contribute to the energy transition and generate a stable and growing long-term income stream for investors.

Changes to the Company's Investment Policy

Following approval at the Company's AGM on 25 August 2022, the Company revised its Investment Policy, shifting focus from solely Energy Efficiency investments in the United Kingdom towards a broader spectrum of Energy Transition Assets in both the UK and Europe. This revision to the Investment Policy reflects a strategic adaptation to the evolving energy market and global trends. By focusing on Energy Transition Assets and expanding its geographical scope, the Company is positioning itself to capitalise on the growing demand for sustainable and renewable energy solutions. This is in line with global efforts to combat climate change and transition towards a low-carbon economy. It allows the Group to invest in innovative businesses that are contributing to the energy transition, thereby potentially enhancing the Company's portfolio and returns.

Investment Objective

The Company's Investment Objective is to generate a total return for investors comprising sustainable and growing income and capital growth.

Investment Policy

The Company intends to achieve its investment objective by investing in a diversified portfolio of Energy Transition Assets typically via the acquisition of equity in, or the provision of debt financing to, the relevant Investee Company. The Company may invest in opportunities in the United Kingdom (and the Crown Dependencies) and Europe.

The Group will invest in a range of Energy Transition Assets which meet the following criteria:

·    contribute towards the energy transition to lower, or zero, carbon emissions

·    are established technologies

·    contribute to the generation of stable and predictable income across the Company's portfolio, as a whole, arising from:

o  long-term revenues based on availability, usage, consumption or energy savings-based contracts with good quality industrial, governmental, and corporate Counterparties or off-takers (as assessed by the Investment Manager's due diligence processes), including Counterparties which represent multiple end-users; or

o  assets with income from wholesale or merchant sources (including, but not limited to, battery energy storage, pumped storage or other power storage and discharge systems and renewable power assets), typically where the Investee Company benefits from an option to put in place a long term fixed contractual price if it deems it necessary to do so and where operated by a reputable operator; and

·    entitle the Company to receive cash flows over the medium to long-term in Developed Country Currencies. The Company may, but does not intend to, enter into any currency hedging arrangements.

The Group's portfolio of Energy Transition Assets will predominantly comprise operational Energy Transition Assets. It will invest in either single assets or portfolios of multiple assets.

Subject to the investment restrictions set out below, the Group may, also invest in assets that are in the Development Phase or the Construction Phase, either directly or through funding of a third-party developer, where such investments will deliver an attractive risk adjusted return.

In addition, the Company 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 Transition Assets ("Other Related Companies").

The Group will seek to diversify its commercial exposure through contractual relationships, directly or indirectly (through the Investee Company), with a range of different Counterparties and off-takers, as appropriate to the relevant investment.

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. Recognising the different risk profiles and business models of the various technologies, the Group can invest across both debt and equity investments. Debt investments will include market standard downside protections including, but not limited to, cash reserve accounts, security and have robust contractual and covenant 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 debt commitment or debt investment to fund, via an Investee Company, one or more Energy Transition Asset(s) will represent more than 20 per cent. of Adjusted Gross Asset Value. No single equity investment into an Energy Transition Asset directly or via an Investee Company, will represent more than 20 per cent. of Adjusted Gross Asset Value except, where the Group has control over an Investee Company which holds multiple Energy Transition Assets and such assets are standalone economic operations, between which risk can be apportioned separately, this restriction shall apply to each individual Energy Transition Asset;

·    the aggregate maximum exposure to any Counterparty will not exceed 20 per cent. of Adjusted Gross Asset Value (and where an Energy Transition Asset 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). This restriction does not apply to circumstances where all, or substantially all, of the revenue generated by an Energy Transition Asset is derived through connection to the wholesale electricity market, for example, transmission or distribution networks, where there are multiple potential off-takers;

·    the aggregate maximum exposure to assets in the Development Phase and the Construction Phase will not exceed, 25 per cent. of Adjusted Gross Asset Value, provided that, within this limit, the aggregate maximum exposure to assets in the Development Phase will not exceed 5 per cent. of Adjusted Gross Asset Value, and the aggregate exposure to any one Developer will not exceed 10 per cent. of Adjusted Gross Asset Value. The restriction on Construction Phase assets will not apply to assets where on-site commissioning is expected to be completed within a period of three months and any equipment on order is sufficiently insurance wrapped;

·    at least 70 per cent. of the value of the Group's portfolio of Energy Transition Assets will comprise United Kingdom based investment;

·    the Group will not invest more than 5 per cent. of Adjusted 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 Group nor any of the Investee Companies 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.

Compliance with the above investment limits will be measured at the time of investment or in the case of commitment at the time of commitment, and noncompliance resulting from changes in the price or value of assets following investment will not be considered as a breach of the investment limits.

For the purposes of the foregoing, the term "Adjusted Gross Asset Value" shall mean the aggregate value of the total assets of the Company as determined using the accounting principles adopted by the Company from time to time as adjusted to include any third-party debt funding drawn by, or available to, any unconsolidated Holding Entity.

Borrowing Policy

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 either at the level of the Company, at the level of any Holding Entity or at the level of the relevant Investee Company and any limits set out in this document shall apply on a look-through basis. The Company's target medium term gearing for the Wider Group will be up to 40 per cent. 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 Investee Company or Holding Entity, provided that the aggregate borrowing of the Wider Group shall not exceed a maximum of 45 per cent. of Gross Asset Value, calculated at the time of drawdown.

Debt may be secured with or without a charge over some or all of the Wider 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 (i) Holding Entities and/or (ii) Investee Companies subsidiaries will not be included in the definition of borrowings for these purposes.

Hedging and Derivatives

The Company will not employ derivatives for investment purposes. Derivatives may however be used for efficient portfolio management.

The Wider Group will only enter into hedging contracts (in particular, in respect of inflation, interest rate, currency, 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 can, but does not intend to, enter into any currency hedging.

Cash management

The Company may hold cash on deposit for working capital purposes and awaiting investment and, as well as cash deposits, 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 Equivalents position.

Key Performance Indicators ("KPIs")

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 on pages 14 to 85.

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.

Notes:

³Investors 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.

⁴Alternative Performance Measure.

Investment Manager's Report

Review of the Period

The past year has been significant for the Company, marked by fully committing all of the Group's remaining capital, broadening of the Company's investment mandate with the change in Company name to reflect this, as well as the migration of the Company's shares to trading on the Premium Segment of the Main Market of the London Stock Exchange. These events reflect our strategic vision and ambition to drive sustainable growth and positive impacts in today's challenging energy market.

A diversified mandate provides numerous advantages, such as greater flexibility to invest in a wide array of opportunities and the ability to adapt to market changes. This diversification mitigates risk and allows us to stay competitive in the face of emerging technologies and regulatory shifts. 

The Group's strategic investments are unaffected by the Electricity Generator Levy. Our successful transactions to date have demonstrated the Investment Manager's expertise, showcasing our experience in managing a range of asset classes and capital structures, whilst building a compelling pipeline. In the deals closed to date, 92% of the Group's revenues are contracted for the next ten years, with 47% of the Group's revenues being linked to inflation, providing a high level of visibility and security over the Group's income stream.

As we continue to expand our portfolio, during the financial year we have ventured into new asset classes and capital structures, for example receivables financing of LED lighting and solar and BESS project development through a debt structure. These investments not only underscore our commitment to advancing innovative technologies but also allow us to leverage the stability of debt financing to support projects that drive energy transition and sustainability, whilst generating ongoing contractual returns for the Group at an attractive risk adjusted rate.

The investment trust market as a whole has had a challenging year, and this compounded with the scale and illiquidity of the Company's shares has driven its discount to NAV. We do not believe that the Company's discount to NAV is reflective of the quality of the Group's portfolio.

Investments

LED

During the period, the Group's lighting service partner completed multiple projects installing LED lighting at logistics warehouses, totalling c.£2.2 million. Starting in September 2022, the Group has received monthly repayments for its fixed rate receivables financing, with "hell or high water"⁵ income contracted over the next five years.

Solar Development Financing

In March 2023 the Group committed to providing a £5 million development debt facility to Innova Renewables Limited, ("Innova"), part of the Innova group, one of the UK's leading solar and BESS developers and operators. The facility will be used to develop ground-mounted solar and BESS assets across the UK. The facility has a 12-month term and delivers fixed rate contractual returns to investors that are materially higher than the Group's target return of 7-8% pa, reflecting the flexibility of the Group's investment strategy. The facility was fully drawn on 3 April 2023.

BESS Portfolio

In March 2022, the Group committed £45.6 million fixed rate debt facility to fund a portfolio of four geographically diverse BESS assets in the UK. The debt facility is provided to a subsidiary of Virmati Energy Ltd and £6.3 million was drawn at 31 March 2023, with a further drawdown subsequent to the balance sheet date of £3.9 million, resulting in 78% of the facility remaining undrawn. It is expected that the facility will be fully drawn in 2024.  

Portfolio Overview

Notes:

5 With an absolute payment obligation.

⁶ Weighted on the sum of underlying portfolio held at fair value and commitments waiting deployment held at cost.

Portfolio performance

CHP Portfolio

In 2021 the Group made fixed rate debt investments into a portfolio of three Combined Heat and Power ("CHP") Energy Service Centre Companies ("ESCos) which deliver heat and power to glasshouses leased by a large-scale tomato grower. These ESCos have continued to perform above the budget in the financial year.  This demonstrates the benefits of the economic model underlying these projects, which generate revenues from both the wholesale electricity market and/or direct offtake of heat and power by the glasshouse occupiers.

The benefit of the CHP assets' business model is that it has two countercyclical sources of revenue, thereby providing a stable income which, in turn, underpins the loan repayments to the Group, as highlighted this year. Under ordinary conditions, where energy prices are lower than they are currently, the revenues generated by the CHP projects are predominantly from the demand from the tomato producers which purchase the heat and power produced by the CHP assets to operate their glasshouses. However, during times of higher energy prices, the electricity produced by the CHP assets during peak load periods is able to be exported and provides the projects with significant revenues from the wholesale electricity market instead. 

In December 2022, following a difficult trading period, the company leasing the glasshouses underwent a change of ownership resulting in a stronger counterparty for the Group. The recapitalised tomato grower has boosted the management team to support and reposition the business. This provided an opportunity for the Group to renegotiate some of the terms of the facility agreement and introduce more reporting requirements.

The duality of the model also underpins the dual purpose of the assets in supporting the grid by providing electricity during the peak demand periods and supporting the UK local food supply at a time when both sectors were challenged by their respective constraints.

This year, the CHP Portfolio avoided 18,098 tCO₂ equivalent emissions⁷.

Hydroelectric Portfolio

The financial year ended 31 March 2023 marked the first full year of ownership of the Hydroelectric Portfolio. During the period, the nine hydroelectric schemes performed below expectation. The annual generation performance of the portfolio was closely aligned to the long-term energy yield forecast, with a variance of less than 5%. The marginal variance was due to a temporary period of curtailment imposed on certain schemes by the local grid operator in March 2023.

Portfolio performance since the commissioning of the nine assets has been reliable and closely corroborates with the power generation forecasts based on historical rainfall data. Accordingly, the average annual generation performance over the last six years is within 1% of the P50 estimate.

With the current high level of technical availability and reliable forecasting at our disposal, it has become imperative for us to focus on pursuing optimisation to maximise the scheme's potential. Loch Blair is the largest generator of the Hydroelectric Portfolio in MWh per year and we have focused on optimising this scheme. The optimisation will involve construction of a small dam upstream of the intake. The reservoir created will attenuate peak rainfall which combined with a control of the release of the flow feeding the existing plant will increase the annual generation. This will enable the scheme to target the peak load period of the tariff in the PPA, increasing revenues from the power wholesale.

All Feed-in-Tariff revenues enjoy annual indexation to UK RPI. This has resulted in Feed in Tariff rates being adjusted upwards by RPI of 13.40% in 2023. 3.00% is forecast from 2024 to 2031 and 2.40% is forecast thereafter, which has given an uplift to revenues and underpins the highly defensive and attractive nature of this portfolio.

Considering the robustness of our projected revenues, which are safeguarded by a dependable generation forecast and the Feed-in Tariff, our management team is actively evaluating prospects to enhance profitability related to the sale of electricity in the wholesale market, with various options available.

The portfolio generated 18,965 MWh of renewable energy and avoided 8,866 tCO₂ equivalent emissions. Please see page 51 of the Sustainability Report for further detail.

The total generation of the portfolio remains under the threshold of the Electricity Generation Levy and therefore the Group will not be subject to the increased tax rate in the coming years.

BESS Portfolio

The BESS Portfolio has a total capacity of 110MW. The first BESS asset, located in Oldham, a one-hour duration battery project, reached its Commercial Operation Debut ("COD") on 1 December 2022. It is located in the North of England and has a total capacity of 20MW.

The second asset, at Gerrards Cross, located at the border of Greater London, is also a one hour duration 20MW project and is under construction with the COD expected in late 2023. The remaining two BESS assets are located in Scotland (two-hour duration battery; total capacity 50MW) and Wales (two-hour duration battery; total capacity 20MW) and are expected to commence construction in summer 2023 and to be operational in 2024.

While these projects are greenfield projects, the construction risk is mitigated through the modular nature of the design where high value components (the batteries) are manufactured off-site and delivered ready to install. This reduces the risk of interface issues and construction delay. The bespoke elements of the projects, mainly the power step-up and export to the grid, are similar to other renewable energy and conventional generation projects. Given the relatively conservative loan to cost ratio the construction risks are substantially borne by the equity investors.

Notes:

⁷ details of calculation can be found in Annex 1 - Reporting Principles and Methodologies

Portfolio Valuation

The Investment Manager is responsible for conducting the fair market valuation of the Group's investments. The Company engages Mazars LLP as an external, independent, and qualified valuer to assess the validity of the discount rates used by the Investment Manager in the determination of fair value. During the financial year the Company transitioned to reporting quarterly financial updates and portfolio valuations, reporting for the periods 30 September, 31 December and 31 March in 2022/23.

For non-market traded investments (being all the investments in the current portfolio), the valuation is based on a discounted cash flow ("DCF") methodology and adjusted in accordance with the International Private Equity Valuation Guidelines where appropriate to comply with IFRS 13, given the special nature of portfolio investments.

The valuation of each investment within the portfolio is determined through the application of a suitable discount rate, which accounts for the perceived risk to the investment's future cash flows and by applying this discount rate, the present value of the investment's expected cash flows is derived. 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, the Investment Manager considers the relative risks associated with the revenues. For the year ending 31 March 2023, the discount rates range from 5.6% to 8.3% pa. (31 March 2022: range from 5% to 8%).

The valuation of the portfolio by the Investment Manager and reviewed and supported by the Directors as at 31 March 2023 was £90.1 million (31 March 2022: £78.8 million).

Valuation movements

Although UK gilt rates have increased over the past 12 months, the CHP Portfolio has been held at par during the financial year. This is supported by the underlying trading performance of the portfolio, exceeding budget for the second year in a row at a revenue and profit level, which flowed through to higher debt servicing cover ratios. Furthermore, during the financial year, the borrowers' on-site customer was acquired and benefited from a cash injection and balance sheet restructure. This reduction in counterparty risk broadly offset increased movements in the risk-free rate and the Company believes the discount rate applied is consistent with market pricing for investments of this nature.

During the financial year, the Group deployed 13.7% of the committed debt proceeds into the BESS portfolio and it is expected that during 2023 and 2024 the remaining commitment will be drawn.

The valuation of the debt financing for the receivables from the energy-efficient lighting portfolio has largely stayed consistent throughout the financial year, with only a negligible change. This stability reflects the high quality of the counterparties involved and the associated risk-return ratio.

Due to the debt investments being valued at or close to par, the fair value movements observed during the financial year primarily stem from the equity investment into the Hydroelectric Portfolio. A breakdown of the movement in the Directors' portfolio valuation is detailed and explained below.

Valuation Movement in the year to 31 March 2023 (£millions)

The opening valuation as at 31 March 2022 was £79.0 million. When considering the in year cash investments through the Company's wholly owned subsidiary, the rebased valuation was £86.5 million. Each movement between the valuation at the start of the financial year and the rebased valuation is considered in turn below:

Inflation

The war in Ukraine, in addition to the multiple primary impacts felt in Ukraine itself, has driven an increase in energy and commodity prices. This, along with supply chain bottlenecks has continued to place significant upward pressure on inflation.

During the financial period, inflation forecasts for 2022 and 2023 have increased significantly and as a result have caused a valuation uplift of £4.6 million. The methodology adopted in relation to inflation, for both RPI and CPI, follows the latest available (March 2023) Office for Budget Responsibility forecast for the 12 months from the 31 March 2023 valuation date. Thereafter, a long-term 3.00% assumption is made in relation to RPI, dropping to 2.40% in 2031 to reflect the 0.60% reduction as RPI is phased out and replaced with CPI.

The Company's long-term assumption for CPI remains at 2.25%. We also model a power curve indexation assumption, as wholesale power prices are not intrinsically linked to consumer prices, of 3.00%.

Power Prices

The valuation as at 31 March 2023 applies long-term, forward looking power prices from a leading third-party consultant. A blend of the two most recent quarters' central case forecasts are taken and applied, consistent with the approach applied in previous periods. The Company adopts this approach due to the unpredictability and fluctuations in power price forecasts. Where fixed price arrangements are in place, the valuation model reflects this price for the relevant time period and subsequently reverts to the power price forecast using the methodology described. The updated power price forecast has been accretive to the valuation of the Hydroelectric Portfolio by £2.0 million in the year ended 31 March 2023. The Company notes that the outlook for power prices is expected to decline over the course of FY24, however the power price forecast for the Hydroelectric Portfolio are underpinned by the Feed-in-Tariff export rate.

Discount Rates

A range of discount rates are used when calculating the fair value of the portfolio valuations and are representative of the view of the Investment Manager and Board, who benefit from Company's independent valuer's guidance. The discount rates are indicative of the rate of return in the market for assets with similar characteristics and risk profiles. The weighted average discount rate of the investments made as at 31 March 2023 is 6.6%, an increase of 46 basis points since 31 March 2022. The weighted average discount rate of the deployed and committed portfolio as at 31 March 2023 is 7.2%.

During the financial year, the discount rate increase has caused a reduction in the valuation in the Hydroelectric Portfolio of £3.0 million. The discount rate movement is reflective of the significant increase in gilt yields since the prior financial year, and although the yields fell between the peak in September 2022 and the year end, they remain higher than they were at the start of the financial year.

Investment Obligations

At 31 March 2023, the Group had two outstanding investment commitments totalling £44.4 million, one in relation to the BESS Portfolio which has a total capacity of 110MW and a second with a leading solar, battery and energy storage systems developer for a 12-month development finance facility.

The committed investment into the BESS Portfolio totals £45.6 million, via a fixed rate debt facility, of which £6.2 million has been drawn and £39.4 million remains committed at the financial year end, with a further £3.9 million being deployed in June 2023.

The solar PV development finance fixed rate debt facility with Innova is for £5.0 million and was fully drawn on 3 April 2023.

Fully invested portfolio valuation

The valuation of the portfolio on a fully invested basis can be derived by adding the valuation at 31 March 2023 and the expected outstanding commitments are as follows:

Key Sensitivities

The following chart 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). The total portfolio is affected by changes in the discount rate, whereas the other sensitivities pertain only to the Hydroelectric Portfolio.

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, wholly owned subsidiary, TENT 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 and investment portfolio valuations are now calculated on a quarterly basis on 30 June, 30 September, 31 December and 31 March each year. Valuations are prepared by the Investment Manager and reviewed by Mazars LLP. The other assets and liabilities of the Company are 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 DCF valuation.

NAV Bridge for the year ended 31 March 2023 (£millions)

The movement in NAV was driven by investment income of £7.3 million representing the interest and dividend income to TENT, via TENT Holdings, the Company's sole wholly owned subsidiary through which investments are purchased and measured at fair value. Income was offset by investment management fees and other expenses, as well as dividends paid to investors. The Investment portfolio benefited from an increase in valuation, resulting in an unrealised fair value gain of £4.0 million. The NAV at 31 March 2023 has increased by £3.3 million.

Operating Results

The profit before tax of the Company has increased by 85% during the financial year to £8.8 million (31 March 2022: £4.8 million), with earnings per share of 8.81 pence (31 March 2022: 4.76 pence).

Operating Expenses and Ongoing Charges

The operating expenses for the year ended 31 March 2023 amounted to £2.5 million (31 March 2022: £1.3 million). During the financial year the Company incurred one-off expenditure of £0.6 million in relation to the application to trading on the Premium Segment of the Main Market of the London Stock Exchange.

During the financial year the management fee was calculated based on NAV and in the prior financial year the management fee was partly calculated in reference to deployed funds. In accordance with the terms of the Investment Management Agreement once 75% of the net IPO proceeds were deployed (achieved in December 2021), the annual fee is calculated based on the Net Asset Value of the Company.

The Company's OCR is 1.94% (31 March 2022: 1.38%). The primary factor contributing to the increase is the management fee charge, as described above. The ongoing charge ratio has been calculated as an annualised ongoing charge (excluding non-recurring items), divided by the average Net Asset Value in the period. With the exception of the management fee, the operating expenses of the Company are predominantly fixed and predetermined. As a result, as the scale of the fund increases, the Operating Cost Ratio (OCR) is expected to decline.

Cash Dividend Cover

The Company measures dividend cover on a look through basis, by consolidating the income and operating expenses of its sole wholly owned subsidiary, TENT Holdings. The below table summarises the cash income, cash expenses and finance costs incurred by the Company and TENT Holdings in the financial year ended 31 March 2023. The cash flow statement for the Company alone does not capture the total income and expenses of the Group as the interest income, financing costs and further expenses are received and paid for by TENT Holdings.

In the year, the Company has delivered a cash dividend cover of 1.1x (2022: 0.14x). However, it is important to note that this calculation includes one-off expenditure associated with the migration to trading to the Premium Segment of the Main Market of the London Stock Exchange and excluding the impact of this exceptional one-off expenditure, the dividend cover increases to 1.2x.

The below table outlines the cash income and expenditure of the Company and its wholly owned subsidiary TENT Holdings:

Gearing and Liquidity

At the year ending 31 March 2023, the Group had cash balances of £11.2 million (31 March 2022: £17.4 million).

The Group has a committed £40 million RCF in place and intends utilise the facility to fund the commitments to the BESS Portfolio.

Environmental, Social and Governance

The Investment Manager 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, the Investment Manager is a certified B Corp which formalises its consideration of social and environmental impact.

We have continued to focus on our ESG impact through the TENT portfolio and during the year we enhanced the portfolio from an ESG perspective through, for example, health and safety audits conducted across the assets.

The overall TENT portfolio generated 18,965 MWh of renewable energy and avoided 27,122 tonnes of CO₂ in the year ended 31 March 2023.

The Group targets a wide range of assets that contribute to energy transition and the Investment Manager and Board believe that TENT's investments are well-aligned to the energy transition through the resulting avoided carbon. The Company also recognises the importance of continuing to reduce the emissions intensity of assets and will continue to track a pathway to Net Zero and will report on reduction in emissions intensity of the assets each year, along with continued reporting of avoided emissions. The Investment Manager, with the oversight of the Board, has also conducted extensive analysis to determine its ability to set an overarching Net Zero target, to reduce its emissions intensity in line with the accepted scientific consensus on reducing global temperature rises to 1.5°c. At this time there is currently no established methodology, or combination of methodologies, available to show the Net Zero alignment of the diversified asset base that the Company holds. The Investment Manager will continue to actively monitor this position for future reporting.

Pipeline

The current pipeline comprises opportunities that would deliver an average yield of 8.8%, indicating a high potential to further support the dividend cover and deliver a progressive dividend return to shareholders. The pipeline includes both debt and equity opportunities, covering a range of technologies and sectors in the Company's three thematic areas. Potential investments include BESS, onsite generation, low-carbon energy consumption, and green hydrogen.

The pipeline also includes early-stage development, mid-stage development, pre-construction projects, and operational assets. This means that the Company can use the pipeline to select a balanced set of investments to deliver attractive risk-adjusted returns to investors while also considering risk-return profiles and time horizons. By investing a small part of the portfolio in early-stage development, the Company can create value by taking projects from concept to consent, capturing a larger proportion of the project margin.

The pipeline includes several joint venture opportunities, outright project purchases, and alternative debt funding structures, including senior and mezzanine. This enhances the benefit of diversifying capital deployment, allowing the Company to strike the right balance of risk and return. The pipeline offers multiple types of investment opportunities, which have different implications on capital allocation and portfolio composition. By engaging in JV opportunities, the Company can share risks and rewards with other partners, while leveraging their expertise and resources. By pursuing outright project purchases, the Company can gain full ownership and control over the assets, as well as optimise their design and operation. By providing alternative debt funding structures, the Company can generate attractive returns with lower risks than equity investments.

Outlook

Energy System Transformation

The transition towards Net Zero emissions by 2050, propelled by the ambitious targets and robust policies of the UK and EU, is precipitating a profound transformation in the energy system. This shift, from centralised fossil fuel-based sources to decentralised, renewable, and flexible energy systems, creates substantial opportunities for investors well-positioned to navigate these changes.

The intermittency of renewable energy sources and increased electrification of assets presents a complex dynamic of challenges and opportunities. Balancing grid stability against the unpredictability of energy supply and demand necessitates innovative solutions. The Company's diversified mandate provides a robust framework to navigate these uncertainties, mitigate risk, and tap into alternative sources of income, enhancing resilience.

Decarbonisation of buildings and transport, sectors with significant contributions to greenhouse gas emissions and energy consumption, represents a key component of this transition. Strategic investment decisions today in these sectors will shape the emissions trajectory for the coming decades.

Company Strategy

In addition to optimising the existing portfolio and maximising its value for shareholders, the long-term strategy of the Company is designed to capitalise on the opportunities presented by the energy transition as soon as additional capital is available. The unique mandate allows for investments across three thematic areas aligned with the key drivers of energy system transformation, offering potential for significant value creation.

The Company will strengthen its focus on distributed energy generation, specifically on renewable and lower-carbon assets. Emerging technologies such as green hydrogen and carbon capture are recognised for their potential, and the Company will actively assess the viability of investing in these areas.

Energy storage and its distribution form critical parts of the Company's strategy. By investing in assets like battery storage systems, the Company aims to support the increased integration of renewable energy sources into the grid, which is becoming increasingly important in the context of volatility in energy supply and demand.

The Company's commitment to onsite energy generation and lower carbon consumption underscores its dedication to driving energy transition and reducing emissions. By investing in solutions such as rooftop solar and demand reduction measures, the aim is to decrease dependence on grid connections, mitigating risks associated with grid availability and volatile power prices.

In a market environment characterised by falling power prices, the Company's diversified mandate offers a significant advantage. This approach provides insulation from single-technology risks and enables income generation from a wide range of sources. The Company is confident that its strategic focus will continue to drive shareholder value and contribute positively to the global transition to a low-carbon economy.

Jonathan Hick

TENT Fund Manager

16 June 2023

Sustainability Report

Introduction

This report provides a summary of the Group's sustainability outcomes, approach and ambition (as implemented by the Investment Manager). The report includes Environmental, Social and Governance performance, with a particular focus on how the Group's investments align with its energy transition theme. It also provides detail on the Investment Manager's credentials and resources to implement this process.  

TENT's approach to sustainability is predicated on the belief that a low carbon economy and a Net Zero future can only be achieved through the adoption of transition technologies: technologies which offer decarbonised energy, support decarbonisation, or enable existing economic activity to continue whilst reducing carbon footprint, until more radical carbon-free solutions become available. As a result, ensuring carbon avoided against an appropriate counterfactual is essential to the selection of every investment.

To implement a meaningful energy transition strategy, it is also essential that assets are considered for possible unintended negative social and environmental impacts, which may undermine their energy transition benefits. Or where possible, that the opportunity to improve the ESG performance of an asset is implemented. ESG analysis is used throughout the investment process to manage this consideration, and to improve outcomes where possible.

Selecting assets for avoided carbon and energy transition alignment

For an asset to qualify as a TENT investment, it must be possible to demonstrate that its operation results in avoided carbon, relative to the expected status quo or other sensible or relevant counterfactual. There is no current industry methodology for quantifying avoided carbon. TENT approaches this challenge by ensuring transparency in our assessment and a willingness to continue to critically reflect on how these calculations are made, can be justified, and can be improved. Details of the counterfactual approach are provided in the Methodology and Principles section, Annex 1.

Data is collected during the due diligence stage of a deal to determine an estimate of avoided carbon over the lifetime of the asset, accounting where necessary for shifting counterfactuals such as a decarbonising grid. This estimate is refined throughout the deal process, and then tracked and refined further as necessary during exposure to the asset. Agreement is sought early on from the O&M or other asset manager to ensure the relevant carbon data is provided.  The alignment of the asset to a recognised energy transition pathway is also assessed. In the UK, the alignment of assets to the Balanced Pathway from the Climate Change Committee's 6^th Budget is assessed.

The table details how each of the operational assets contributes to the theme of energy transition, through avoided carbon or renewable energy generation.

Data is for the year ended 31 March 2023, or from the point of acquisition, if the investment was made during the course of the year.

Managing wider ESG risk and opportunity

The Company recognises it is important to balance supporting assets which will result in avoided carbon with the potential wider impacts on environment and society. Failure to take due care could result in unintended negative impacts as a result of the investment decisions taken by the Company. ESG integration helps to manage this risk and also identify where improved practice can be implemented to drive positive outcomes for people and planet. 

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.

Notes:

⁸ Avoided carbon for the reporting period is based on estimated energy savings from the point of investment. 

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 carbon 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 avoid 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, at the level where it is most material to the success of the asset, to promote accountability and responsiveness to stakeholders by addressing issues such as Boards and senior management, pay structure, ownership and accounting practices. We also look for evidence of best practice in approaches to tax policy, management of bribery and corruption and conflicts of interest.  

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. Details on the approach to date in the management of climate change are captured in our voluntary reporting under the Task Force on Climate related Financial Disclosure (TCFD) framework.

Operational ESG outcomes:

The following information provides high-level outcomes of the ESG credentials within TENT's investments.

Operational ESG outcomes for each of the Group's investments. Reporting at the asset level unless stated otherwise.

Notes:

⁹ Audit reviews conducted internally unless stated otherwise

¹⁰ On-going long-term contract

¹¹Number reported in full time equivalent positions - the TENT O&M contracts represent circa 20% time equivalent of a 25 person workforce and 2 apprentices at the O&M level

¹² Non Riddor incidents: Incorrect site discharging; fire alarm reset without incident, site lost communication briefly; attempted site break in

¹³Refers to pay levels within the O&M

¹⁴Broken fluorescent tube

¹⁵Non Riddor incidents: Broken tube fragments falling to floor; computer monitor accidentally damaged

¹⁶No maintenance in contract

The portfolio is regularly reviewed for opportunities to improve these ESG credentials and look for other opportunities to create additional social or environmental opportunities or risk management. The details below provide further insight on some specific outcomes linked to particular environmental and social themes, or particular assets. 

TENT is committed to the health and safety of employees, contractors and the public. Over the period, the Investment Manager has conducted a two-tiered audit process to assess the Hydroelectric Portfolio. The first step consisted of a site visit by the technical adviser whereby some observations and recommendations were highlighted. The second step involved a desktop review by a specialised health and safety consultancy who confirmed that the observations had been recognised by the O&M service and were already progressing with improvements. The consultancy concluded from the audit that there were no major concerns regarding the current O&M service and that significant assurance can be taken that there is no significant or ongoing health and safety risks. TENT will continue to arrange periodic health and safety audits and continue to monitor the progress of corrective actions. The BESS, CHP and LED portfolios continue to report on health and safety requirements as per the reporting agreements. The owners carried out internal H&S audits in the period.

Recognising the need for a responsible supply chain in BESS

BESS assets have an important role to providing much-needed resiliency to an ever more renewable grid. Despite this positive impact, there are potential ESG risks, in particular, within the supply chain of BESS assets, that the Investment Manager has aimed to mitigate: human rights issues may exist within mineral supply chains, embodied emissions are significant, and circular end-of-life options for the assets are not well established. To minimise the risk of human rights issues in the supply chain, agreements are in place at the Gerrards Cross site to ensure that the EPC contractor conducts appropriate supply chain due diligence to establish supply chain transparency compliance with the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals. Additionally, all battery cells in use avoid the use of the riskiest mineral, cobalt. This transparency, combined with waste and emissions data collection for the construction phase of the assets, will be used to refine a lifecycle carbon assessment of the assets, to identify emissions hotspots and reduce embodied emissions for future projects. The Facility Agreement with the borrower further includes an interest rate reduction in the period where cells are disposed of, to fund responsible recycling.

Widening the value of the Hydroelectric Portfolio to benefit local communities

The Hydroelectric Portfolio contributes to local communities with payments averaging around £42,000 per year. These funds are used to support community projects including teaching Gaelic in primary schools, community woodlands preservation, heritage societies, village upkeep such as updating fire alarms systems and roof repairs. One particular community has used the contribution to provide grants to students attending tertiary education who would otherwise struggle with considerable travel costs from living in a remote location.

Investment Manager's credentials and approach

The Investment Manager is a purpose-led investor, committed to responsible investment and aligning the funds it manages to sustainability themes.

TPIM became signatories to the PRI in 2019 and will receive their first public star rating in November 2023. The Investment Manager is also B Corp certified since December 2022 with a score of 97.6. 

Responsibility for the ESG integration strategy sits with the Head of Sustainability. 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.

The Investment Manager operates a Sustainability Group which consists of senior partners and managers from across the Investment Manager. This group meets monthly to discuss sustainability initiatives. The Sustainability Group is chaired by TPIM's Co-Managing Partner; and both Managing Partners sit on the group. The Sustainable Investment Subgroup (SISG) reports to the Sustainability Group. The SISG consists of senior investment team members from across the Investment Manager. This SISG meets every eight weeks to share best practice, latest industry activity and ESG ideas from across the business. It can also be called to review an investment opportunity for critical debate should it present a complex sustainability profile.

During the reporting period, one investment opportunity was presented to the SISG to discuss more complex sustainability and responsible investment themes associated with the opportunity. Based on this review process, the deal was supported and ultimately progressed to funding.

The Sustainability Team conducts an annual ESG monitoring programme to assess the effectiveness of ESG integration for TENT. The ESG integration policy is reviewed, including opportunities for development and evolution. The findings of this audit are presented to the Sustainability Group for discussion and further action if appropriate and is also reported to the TENT Board.

The Sustainability Team are also subject to quarterly risk reviews by the risk team, and any identified sustainability risks are recorded on the TPIM risk register and on TENT's risk register where relevant, which are both reviewed quarterly by the Investment Manager's Risk Committee. The Head of Sustainability also sits on the Risk Committee to ensure that the Investment Manager's outlook for risk appropriately considers sustainability issues.

The Board is actively engaged in discussion in relation to sustainability risks and opportunities facing portfolio companies and assets, through information provided by the investment team and sustainability team, including deep dives into sustainability integration, engagement, target setting and performance.

For further details on Investment Manager Governance processes please refer to page 63 of the Annual Report.

The transparency of TENT's sustainability activities is an important aspect of the Investment Manager's commitment. The data provided reflects avoided carbon and alignment to the energy transition theme and disclosures in line with a number of external frameworks and regulations. TENT is not currently required to report against any of these frameworks, however the Investment Manager and Board recognise the importance of structured and comparable sustainability information for the Group and as such follows a range of reporting frameworks. These frameworks have their limitations and challenges in interpretation and the Investment Manager looks to implement a value-adding approach to TENT which is not driven solely by frameworks.

Framework based reporting

Respecting latest reporting requirements and to demonstrate clearly how the Company and the Investment Manager align with relevant frameworks, the Annual Report provides reporting according to the following:

I.     Intended approach to Sustainable Disclosure Regulation (SDR)

II.    Principles for Responsible Investments (PRI)

III.   UN Sustainable Development Goals (SDGs)

IV.  Sustainable Financial Disclosure Regulation (SFDR)

V.    Task Force on Climate-related Financial Disclosure (TCFD)

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. Our key stakeholders are our shareholders, the Investment Manager, our service providers, the asset-level service counterparties, the investee companies/borrowers and our lenders. Information on our stakeholder engagement, including how the Board keeps itself informed about stakeholder's views and how we take their views into account in decision-making, can be found on pages 74 to 75 of the Annual Report.

The majority of the key stakeholder groups interface with the Company primarily through the Investment Manager. The Investment Manager is responsible for communicating stakeholder concerns to the Board, such that they can input on actions as required.

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 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. 

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. Below we provide describe some of the principal decisions made by the Board in the year and demonstrate how the Board took account of stakeholders' interest in making those decisions.  

Migration to the Premium Segment of the Main Market of the London Stock Exchange

With effect from 28 October 2022, the Company migrated the trading of its shares to the Premium Segment of the Main Market of the London Stock Exchange and listed on the FCA's Official List. In its decision making process, the Board considered the associated costs of the migration and the expected benefits. The Company's shareholders, were the key stakeholder impacted by this decision and the Board gave due consideration to their interests, concluding that it was in the best interests of the Company and its shareholders, as it would provide the opportunity to increase the diversity of the shareholder base and improve liquidity of the Company's shares.

Net Zero planning

During the year the Board had multiple discussions regarding sustainability and has held workshops with the Investment Manager and the Carbon Trust to discuss the approach to Net Zero planning and setting targets. In considering Net Zero planning, the Board considered the interests of shareholders and also the Investee Companies and Borrowers in which the Group has invested. The decisions made by the Board in respect to Net Zero planning will directly impact the Investee Companies and Borrowers. The Investment Manager has been continuously engaged with those key stakeholders to support them in providing data and reporting required by the Company. Further the Board recognises the ever growing importance of sustainability to its shareholders and therefore considers tracking progress towards Net Zero to be aligned with shareholder interests.

Risk appetite

The Board has an established risk appetite, which was updated during the year, to reflect the updated Investment Policy and to better align the categories with those in the risk register. In updating the risk appetite, the Board considered the interests of the shareholders, the Investment Manager and the lenders. The intention of the risk appetite is to provide guidance to the Investment Manager on what level of risk the Board are comfortable taking, in the pursuit of achieving the Company's Investment Objective. The risk appetite provides an effective way for the Board to monitor the Investment Manager's activity and ensures that the interests of the shareholders are appropriately protected.

Stakeholder Engagement

Risk Management 

The Board and the Investment Manager recognise that risk is inherent in the operation of the Company and are committed to effective risk management to ensure that shareholder value is protected and maximised.

As an externally managed investment company, the Company outsources key services to the Investment Manager and other service providers and relies on their systems and controls. The Board has ultimate responsibility for oversight of risk management and internal controls within the Company. The Board sets the risk appetite for the Company, and reviewed and updated it in the year. The Investment Manager presents the Company's top risks, changes since the previous quarter, risks outside of appetite and emerging risks to the Board on a quarterly basis for their review. The Board assesses and challenges the effectiveness of the Investment Manager's risk management against the risk appetite and controls to manage risks within that appetite, particularly those which would threaten its business model, future performance, solvency, valuation, liquidity or reputation. Further details of the Board's activities relating to risk can be found on pages 76 to 82.

The Investment Manager has responsibility for identifying potential risks at an early stage, escalating risks or changes to risk, and relevant considerations and implementing appropriate mitigations which are recorded in the Group's risk register. Where relevant the financial model is stress tested to assess the potential impact of certain risks against the likelihood of occurrence. In assessing risks, both internal controls and external factors that could mitigate the risk are considered. A post mitigation risk score is then determined for each principal risk. The Group's detailed risk register identifying risks and controls to mitigate their potential impact and/or likelihood is maintained by the Investment Manager, and subject to an annual review by the Board.

Risk appetite 

Managing risk is fundamental to the delivery of the Company's strategy, and this is achieved by defining risk appetite and managing risks within that appetite. Risk appetite is the level of risk the Company is willing to take to achieve its strategic objectives. The Board has defined its risk appetite using a category of risks inherent to the environment in which the Company operates. This enables the actual risks which are identified by the Investment Manager to be compared to the defined appetite, to identify where any additional mitigation activity is required. The Company manages its risks within the tolerance set. Any risks outside of appetite are subject to additional oversight and action planning.

The Board has reviewed the Company's appetite for each of the principal risks set out below. The Company seeks to take risk in executing its strategy and in line with its Investment Policy. The Company's risk management framework is designed to manage rather than eliminate the risk of failure to achieve objectives and breaches of risk appetite. 

The Board reviews and monitors the Company's risk appetite on, at least, an annual basis to ensure that it remains appropriate and consistent with the Investment Policy. 

Principal Risks and Uncertainties 

The table below sets out what we believe to be the principal risks and uncertainties facing the Group. The table does not cover all of the risks that the Group may face. The Board defines the Group's risk appetite, enabling the Group, in both quantitative and qualitative terms, to judge the level of risk it is prepared to take in achieving its overall objectives. Additional risks and uncertainties not presently known to management or deemed to be less material at the date of this report may also have an adverse effect on the Group.

A risk heat map is included on page 77 of the Annual Report.