OUR PURPOSE
JLEN aims to invest in a diversified portfolio of environmental infrastructure that supports more environmentally friendly approaches to economic activity whilst generating a sustainable financial return. It seeks to integrate consideration of sustainability and environmental, social and governance (“ESG”) management into its activities, which help to manage risks and identify opportunities.
AT A GLANCE at 30 September 2022
Our results for the six-month period ended 30 September 2022.
Market capitalisation(1)
FY 2022
£746.2m
+5.5%
Share price
FY 2022
112.8p
+5.5%
Half-year dividend
per share(2)
HY 2021
3.40p
+5.0%
Net Asset Value(3)
FY 2022
£762.9m
+8.7%
Net Asset Value
per share(1),(3)
FY 2022
115.3p
+8.7%
Portfolio value
FY 2022
£795.4m
+11.9%
Dividend cover(1),(4)
FY 2022
1.10x
Total shareholder
return(1)
(8.0% annualised)
FY 2022
77.4%
Renewable
energy generated
HY 2021
>560GWh
Tonnes of waste
diverted from landfill
HY 2021
>330,000
Acquisitions in the period
HY 2021
3
Diversified portfolio
FY 2022
37 assets
- The market capitalisation, Net Asset Value per share, cash dividend cover and total shareholder return are alternative performance measures (“APMs”). The APMs within the accounts are defined on page 69.
- On a declared basis.
- Post the balance sheet date, the UK government announced plans for its “Electricity Generator Levy” that reduces the NAV as at 18 November 2022 to £822.6 million and equates to a NAV per share of 124.4 pence. Further details on this post balance sheet event are provided in the Chair’s statement and on page 67.
- On a paid basis.
Total shareholder return since launch
CHAIR’S STATEMENT
JLEN has delivered strong returns during a period of extraordinary dislocation in the global economy. Our diverse portfolio of environmental assets is well placed to benefit from the continued drive for a more sustainable and secure way of living.
Ed Warner
Chair
On behalf of the Board, and for my first time as its Chair, I am pleased to present the Half-year Report of JLEN Environmental Assets Group Limited for the six months ended 30 September 2022.
Results
The Net Asset Value (“NAV”) per share at 30 September 2022 was 125.4 pence as at 18 November 2022, up from 115.3 pence at 31 March 2022. This 8.7% increase was driven primarily by further upward revisions to power price forecasts.
Post the balance sheet date, the UK government announced plans for its “Electricity Generator Levy” that reduces the NAV per share to 124.4 pence. Further details on this post balance sheet event are provided below in the Chair’s statement and on page 67 of the Half-year Report.
This performance has been delivered against a backdrop of extraordinary volatility in economies globally and in both energy and financial markets. The uncertainty this entails, while exacerbated by Russia’s war with Ukraine, was already evident before the invasion itself. As the world emerged from the worst effects of the pandemic, it became clear that it was beset by severe supply chain disruption which has caused a surge in inflation. Russia’s aggression triggered a spike in energy prices, further heightening the general inflationary pressure. Unsurprisingly, government bond yields have risen across the yield curve as monetary authorities have hiked rates and politicians have struggled to address ballooning budget deficits. In the UK, this was further amplified by market fall-out from the “mini-budget” of the short-lived Truss administration.
JLEN’s profit before tax for the six-month period to 30 September 2022 was £89.7 million (six months to 30 September 2021: £51.8 million) and earnings per share for the period were 13.6 pence (six months to 30 September 2021: 8.8 pence).
Cash received from the portfolio by way of distributions, which includes interest, loan repayments and dividends, was £43.5 million (six months to 30 September 2021: £26.7 million). Net cash inflows from the investment portfolio (after operating and finance costs) of £38.1 million (six months to 30 September 2021: £21.7 million) cover the interim dividends of £23.0 million paid in the half-year period by approximately 1.64x (six months to 30 September 2021: £20.4 million; 1.06x).
Post balance sheet event: UK government intervention
At the time of writing, the UK government has just released details of the “Electricity Generator Levy”, the means by which it intends to capture what it sees as excess profits being made in the wholesale electricity market by low carbon generators such as wind and solar. This Levy sees in-scope generators pay 45% of revenues earned on prices in excess of £75/MWh.
This constitutes a non-adjusting post-balance sheet event (“PBSE”) as the Levy was not known at the balance sheet date. However, an expectation that some form of government intervention would be introduced was present, as was a recognition that high near-term power prices may not be captured in practice by generators. In the face of such uncertainty, the Directors used their judgement to reduce price forecast curves used in the valuation by 50% across the portfolio for the next 12 months, with this percentage stepping down by 10% per annum to zero over the next five years. This was applied to all UK generating assets including Renewables Obligation Certificate and Feed-in Tariff supported generators and gas assets supported under the Renewable Heat Incentive. Using this approach, the Directors valued the portfolio at £890.2 million as at the 30 September 2022, which results in a NAV per share of 125.4 pence.
The Directors have now assessed the impact of the Electricity Generator Levy and have also considered the latest available price forecast curves and actual inflation at the time of writing, as well as removing the discounts that were applied to forecast curves for the valuation at the balance sheet date.
The Directors’ best estimate of the impact on NAV is shown here:
| Net Asset Values | £m | Pence/share |
| NAV at 30 September 2022 | £829.6m | 125.4p |
| Add back short-term price discounts | £84.6m | 12.8p |
| Application of Electricity Generator Levy | (£79.0m) | (11.9p) |
| PBSE NAV at 30 September 2022 | £835.2m | 126.3p |
| Latest power prices and actual inflation | (£12.6m) | (1.9p) |
| NAV at 18 November 2022 | £822.6m | 124.4p |
Dividends
In line with the total target for the year ending 31 March 2023 of 7.14 pence per share set out in our 2022 Annual Report, a quarterly dividend of 1.78 pence per share was paid in September 2022 for the quarter to 30 June 2022.
The Board has declared an interim dividend of 1.79 pence per share for the quarter to 30 September 2022, payable on 30 December 2022, to shareholders on the register as at 9 December 2022. The ex-dividend date will be 8 December 2022.
The Company is confident that the dividend of 7.14 pence per share for the year ending 31 March 2023 will be well covered.
Portfolio performance
Acquisitions
During the six-month period under review, the Company announced investments in four new projects:
- a 50% stake in Clayfords Energy Storage Limited, a 49.9MW construction stage battery storage project located in the UK;
- a minority equity investment into a construction stage controlled environment aquaculture project located in Norway;
- provision of £26.7 million of senior funding for construction of a glasshouse project co-located with an existing JLEN AD facility; and
- a 50% stake in Gigabox No 4, a 49.9MW construction stage battery storage project located in the UK.
The new acquisitions bring further diversification to the portfolio both by technology type and geography.
Valuation
The Net Asset Value at 30 September 2022 was £829.6 million, comprising £890.2 million portfolio valuation, £10.5 million of cash held by the Group, less outstanding revolving credit debt of £71.4 million plus a positive working capital balance of £0.3 million. The portfolio comprised 41 investments.
Details on the valuation movements can be found in the investment portfolio and valuation section on pages 16 to 27.
Risks and uncertainties
A summary of the principal risks and uncertainties facing the Company is included on pages 41 to 48 of the Annual Report 2022 and developments in relation to these principal risks which could potentially have an impact during the period to 31 March 2023 are outlined on pages 14 and 15.
Sustainability and ESG
Sustainability and ESG remain a strong focus for the Fund, with the overall ESG strategy being driven by the ESG Committee of the Board and implemented by the Investment Manager. Progress has been made in the period in relation to the Company’s approach to the Task Force on Climate-related Financial Disclosures (“TCFD”) and tracking the Company’s ESG performance against its ESG KPIs. The Company’s full set of ESG KPIs and its TCFD report can be found in the Annual Report 2022 and on page 35 where the ESG performance for the current half year is summarised along with the awards that the Company has won for its ESG reporting.
Outlook
The uncertainties prevailing in economies and energy markets are adding to the difficulties in assessing the prospects for and valuation of environmental infrastructure projects. With quality of judgement so critical at this time, it is reassuring to be able to rely on the expertise of Foresight Group as JLEN’s Investment Manager. With uncertainty comes opportunity and the Board is encouraged by the range of possible investments that Foresight continues to source and evaluate on behalf of the Company. Each evaluation contains a set of sensitivity analyses so that we can be sure that investments are founded on an understanding of the full range of possible outcomes under widely varying scenarios – essential we believe in the current climate.
These scenarios necessarily include different possible political interventions as governments seek ways to mitigate the punitive effects of soaring energy prices for individual and business consumers. This desire is likely to continue to underpin the search for renewable sources of energy. As national grids become increasingly more complex, so security of supply and system resilience will be paramount.
JLEN is well placed to capitalise on the search to secure solutions to the challenge of ensuring low carbon energy provision, as well as sustainable ways of living more broadly. Crucially, our portfolio is well diversified, so ensuring that no one set of risks predominates and hence long-term investment returns are likely to prove less volatile than if the Company’s focus was on a single form of asset. For example, JLEN has invested in battery projects that provide flexibility of the kind that will be valuable for the electricity grid of the future and controlled environment projects that provide sustainable solutions for food production.
Board matters
Richard Morse left the Board in July, as previously announced. He served JLEN with distinction as its Chair since the inception of the Company and, on behalf of all stakeholders, I’d like to thank him for his eight years of valuable service. I would also like to express my gratitude to our Senior Independent Director, Richard Ramsay, who assumed the role of Interim Chair in the short period before my appointment on 2 August 2022. Richard is himself scheduled to step down from the Board before the next AGM and a process to identify a new Director is currently underway.
The Board notes the requirements of the UK Corporate Governance Code to put the external audit out to tender at least every 10 years. This is the ninth year of Deloitte’s appointment as the Company’s auditor and the Company has commenced a competitive tender process for the role of external auditor. The Board will report the results of this exercise in due course, but it is expected that this process will be completed before the end of the current financial year.
THE INVESTMENT MANAGER
JLEN is managed by Foresight Group LLP, an alternative listed investment fund manager with over £12 billion of assets under management and over 350 infrastructure assets.
About Foresight Group
Foresight Group was founded in 1984 and is a leading listed infrastructure and private equity investment manager. With a long-established focus on ESG and sustainability-led strategies, it aims to provide attractive returns to its institutional and private investors from hard-to-access private markets. Foresight manages over 350 infrastructure assets with a focus on solar and onshore wind assets, bioenergy and waste, as well as renewable energy enabling projects, energy efficiency management solutions, social and core infrastructure projects and sustainable forestry assets. Its private equity team manages 10 regionally focused investment funds across the UK and an SME impact fund supporting Irish SMEs.
This team reviews over 2,500 business plans each year and currently supports more than 250 investments in SMEs. Foresight Capital Management manages four strategies across six investment vehicles with AUM of over £1.5 billion.
Foresight operates across seven countries in Europe and Australia with AUM of over 12 billion. Foresight Group Holdings Limited listed on the Main Market of the London Stock Exchange in February 2021.
www.fsg-investors.com
MARKETS AND OPPORTUNITIES
The continuation of the global energy crisis has exacerbated the need for countries to find alternative sources of supply to provide energy security and has further drawn into sharp focus the importance of demand management and energy efficiency.
It is now clear that the energy markets face a prolonged and fundamental challenge in balancing demand from economies seeking to grow with restricted and expensive sources of supply.
Pressures on governments to move away from, albeit for a brief period of time, their pathways to decarbonise energy systems have grown in recent months.
This places a risk that renewable sources are provided less support over their fossil fuel counterparts. Yet the benefits that the wind, solar, biogas and biomass sectors, to name a few, can bring, remain compelling. The energy trilemma of security, affordability and sustainability has never been more challenging, yet governments cannot ignore the importance of all three elements.
Shortly before publication of this report, the government announced the mechanism by which it intends to capture a share of revenues earned by renewables generators currently benefiting from high electricity prices. The “Electricity Generator Levy” (the “Levy”) requires in-scope generators to pay 45% of revenues generated from a price in excess of £75/MWh. This Levy will impact some of JLEN’s generating assets but will allow investors to price opportunities, taking this into account. Further analysis on the impact of the Levy to the Company is undertaken later in this report.
Despite these headwinds, the market remains buoyant with investment opportunities in both operational, construction stage and development stage assets across a wide range of sectors.
Recently, JLEN has demonstrated through its investments into controlled environment infrastructure that, whilst energy infrastructure remains highly important, the impact that agriculture has on greenhouse gas emissions and the influence it has over meeting net-zero pledges remains significant. These investments are less impacted by the turmoil in the energy markets, instead recognising that building sustainable, energy efficient and low carbon solutions to provide affordable food to a growing population provides compelling investment opportunities for diversified environmental infrastructure funds such as JLEN.
Investment policy
The Company invests in environmental infrastructure such as infrastructure assets, projects and asset-backed businesses that utilise natural or waste resources or support more environmentally friendly approaches to economic activity, support the transition to a low carbon economy or which mitigate the effects of climate change.
Generation of renewable energy
Sustainable solutions
Low carbon and energy efficiency
Supply and treatment of water and processing of waste
Geographic spread of investments
Market developments
Factors including increasing global population, rising living standards, increasing urbanisation and greater scientific, public and political focus on the effects of climate change have all served to increase the importance and scale of the environmental infrastructure market globally.
Generation of renewable energy
Costs of renewable electricity fell by up to 90% in the last decade and was more cost effective in over 90% of the world compared to fossil-fuelled power. However, global CO2 emissions from heat and electricity production increased in 2021 to an all-time high of more than 14Gt. The EU recently announced at COP27 an updated and more ambitious plan to cut emissions by 57% by 2030 compared with 1990 levels.
Sustainable solutions
The contribution renewable energy generation makes to decarbonisation and the pathway to net zero is clear. However, there are additional contributing factors such as food security, biodiversity and new green technologies such as hydrogen electrolysers that can all play an important role in developing sustainable solutions for our economies.
Low carbon and energy efficiency
The global energy crisis has brought into sharp focus the need to embrace energy efficiency as a mitigation measure. As part of the REPowerEU plan in May of this year, an energy efficiency target has been set of 13% by 2030 compared to 2020 levels. Industry is also expected to contribute to a low carbon economy through electrification, energy efficiency and use of renewables.
Supply and treatment of water and processing of waste
In response to the need to decarbonise, many industries are turning to technology to accelerate this transition. In the waste industry, the use of carbon capture, utilisation and storage (“CCUS”) installations can be seen as essential to this effort. In the International Energy Agency’s defined pathway to the Paris Agreement outcomes, it sets out that 15% of global emission reductions should come from CCUS. In 2021, 27 CCUS projects were in operation and five under construction, yet the installed capacity needs to increase 100 times by 2050.
Geographic spread of investments
The challenge of addressing climate change is a truly global one. The commitment to invest into environmental infrastructure as a means to decarbonising economies is demonstrated by those countries providing sustained and additional regulatory and financial support to this sector.
Investment outlook
Generation of renewable energy
The outlook to build out further renewable energy generation assets remains positive. The inclusion of biomass as a contributor to the EU renewable energy mix has also been supported, although at a level not exceeding the average recorded between 2017 and 2022.
Sustainable solutions
The role that building sustainable, energy efficient and low carbon solutions to provide affordable food to a growing population through controlled environment infrastructure presents clear investment opportunities. A sector is rapidly growing to support hydrogen solutions to decarbonise industry and transport, particularly where direct government is provided.
Low carbon and energy efficiency
Greater levels of flexibility in the form of battery storage, electric vehicles, pumped hydropower and hydrogen all play an important role alongside improved system coordination and low carbon transport infrastructure such as biofuels. Around 30% of EU primary steel production is expected to switch to green hydrogen by 2030, supporting the development of the hydrogen sector.
Supply and treatment of water and processing of waste
Across Europe, both new and established energy-from-waste facilities could provide investment opportunities for CCUS. In the UK from 2023, local authorities will be required by law to separately collect food waste from households. This measure to reduce biodegradable waste being landfilled and reducing greenhouse gas emissions will create investment activity for new plants and owners of existing ones with expansion potential.
Geographic spread of investments
JLEN’s mandate supports geographic diversification, reducing its exposure to the UK power market, regulatory framework and weather systems. The Investment Manager can take advantage of its in-country presence across Europe and Australia to generate investment opportunities outside the UK.
Acquisitions in the period
1. Clayfords Energy Storage Limited
49.9MW construction stage battery storage project located in Scotland
Ownership interest: 50%
2. Rjukan controlled environment aquaculture
A minority equity investment into a construction stage, controlled environment aquaculture project located in Norway
Ownership interest: minority stake
Rjukan CEAq facility. This video has been provided by the developers and operators of the Rjukan CEAq facility and does not form part of the HY22 report.
3. Co-located glasshouse
Provision of senior funding for construction of a glasshouse project co-located with an existing JLEN AD facility, located in the UK
Ownership interest: minority stake
4. Lunanhead (Gigabox No 4) battery storage
49.9MW construction stage battery storage project located in Scotland
Ownership interest: 50%
SUSTAINABILITY AND ESG
At a glance(1)
ESG performance 2022/23: half-year results
(1) These statistics exclude FEIP.
Awards
Winner:
Better Society Network,
National Sustainability Awards 2022
Best Renewable Company of the Year
AIC Communication Awards 2022
Best ESG Communication
Shortlisted:
Investment Week,
Investment Company of the Year Awards 2022
Environmental and Renewables
Investment Week,
Sustainable Investment Awards 2022
Best Sustainable Specialist Fund
IR Society
Best Practice Awards 2022
Best Annual Report
