Methodology

Power Curve Assumptions

30 June 2023:

For the UK portfolio, the Company uses multiple sources for UK power price forecasts. Where power has been sold at a fixed price under a Power Purchase Agreement (a hedge), these known prices are used. For periods where no PPA hedge is in place, short-term market forward prices are used. After two years, the Company integrates a rolling blended average of three leading independent energy market consultants’ long-term central case projections. This approach allows mitigation of any delay in response from the three independent market forecasters (“Consultants”) used by the Company in publishing quarterly or ad hoc updates following any significant market development.

For the Italian portfolio, Power Purchase Agreements (hedges) are used in the forecast where these have been secured. In the absence of hedges, a leading independent energy market consultant’s long-term projections are used to derive the power curve adopted in the valuation.

The power price forecasts used also include a ‘solar capture’ discount which reflects the difference between the prices available in the market in the daylight hours of operation of a solar asset versus the baseload prices included in the power price estimates. This solar capture discount is provided by the Consultants on the basis of a typical load profile of a solar asset and is reviewed as frequently as the baseload power price forecasts. The application of such a discount is prudent as it results in a lower long-term price being assumed for the energy generated by NESF’s portfolio.

 

Power Sales Strategy

To manage the sale of power into the electricity market, the Company utilises its investment adviser’s in-house power sales desk.  This team actively manages the Company’s power price contracting strategy and activities.  In the current environment, the power sales desk has enabled the Company to mitigate market price volatility whilst incrementally growing weighted average prices through forward hedging above forecast prices.  Aggregating the amount of revenue derived from subsidies and the power hedges, the Company has a high degree of comfort around forward revenue projections.

 

In addition to NESF’s budgeted revenues from ROCs and FITs (c.50%), the Company’s hedging positions (covering its 716MW UK portfolio) as at 30 June 2023 were:

Financial Year	UK budgeted generation hedged	Average fix price
2023/24	89%	£79MWh
2024/25	44%	£91MWh
2025/26	13%	£147MWh

 

Electricity Generator Levy

The UK Government announced its initial publication of the Electricity Generator Levy (“EGL”) on 17 November 2022, in the run up to the Company’s interim results announcement on 21 November 2022.   The Company has fully priced in the impact of the EGL into the 31 December 2022 NAV calculation.  As a result of this, the Company has removed the temporary discounts it applied to the unhedged portion of the portfolio power prices in the 30 September 2022 NAV calculation.  As the Company has now captured the impact of the EGL, which was in line with expectations, the Company expects there to be no further impact on future NAV calculations.