LEI No: 213800AJ3TY3OJCQQC53

AQUILA ENERGY EFFICIENCY TRUST PLC

HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS TO 30 JUNE 2023

Consolidated Financial Highlights

1          These are Alternative Performance Measures ("APMs") for the period ended 30 June 2023. Definitions of these APMs and other performance measures used by the Company, together with how these measures have been calculated, can be found further below in this Half-yearly Report.

STRATEGIC REPORT

CHAIR'S STATEMENT

I am presenting my Chair's Statement for the Company's Half-yearly Financial Report (the "Half-yearly Report") which covers the six months to 30 June 2023 (the "Period"). The Company's 2022 Annual Report for the year ended 31 December 2022 was published on 2 May 2023 (the "2022 Annual Report and Accounts") and, therefore, there is some duplication in the content of the 2022 Chair's Statement and this Statement.

Investment Performance

The Company's unaudited NAV as at 30 June 2023 on a cum-income basis was 93.54 pence per ordinary share (95.23 pence as at 31 December 2022), representing a decrease of only 1.8%. The Company's share price traded at a significant discount to NAV over the period to 30 June 2023, resulting in a total return of minus 33.7%.

Contractual obligations and Deployment

As at 30 June 2023, the Company had investments of £65.7 million and contractual obligations to fund committed investments equivalent to £23.4 million. Following the failure of the February 2023 Continuation Vote on 28 February 2023, which was followed by a successful combined Continuation Managed Run-Off Resolution on 14 June 2023 (the "Continuation Votes"), the Company has been operated with the primary intention of preserving cash to be returned to shareholders. As a result, it was decided, after the Period end, not to proceed with one investment of £4.5 million which, therefore, reduces the Company's contractual obligations to fund investments to £18.9 million. The Investment Adviser expects that the majority of this amount will be deployed by the end of January 2024, leaving only £1.7 million to be invested in the subsequent months of 2024. These funding obligations and deployment are covered in full detail in the Investment Adviser's Report.

By 31 March 2024, as a result of the expected run-off of certain investments, in particular the Superbonus projects, the Investment Adviser expects the Company and its immediate investment holding entities, to have no less than £24.0 million of cash (prior to any dividend or return of capital to shareholders). It should be noted that the nature of the Company's investments in Superbonus projects is such that it is difficult to be sure when the investments will be realised. They will, however, continue to be income producing if actual redemption is later than forecast.

Continuation Managed Run-Off and next steps

As noted above, the successful vote in favour of the Continuation and Managed Run-Off Resolution in June 2023 has resulted in a fundamental change to the governance of the Company, ensuring that the shareholders' instruction to see that a return of their investment capital is effected in an orderly manner. However, as we have highlighted on a number of occasions, the 37 assets that comprised the Company's portfolio as at 30 June 2023 are complex in structure, spanning several geographies and include many investments with long maturities (some as long as 18 years). A return of capital is, therefore, a complicated process. The Board, together with its advisers, has been fully engaged in ensuring that the realisation process and maximisation of return is conducted effectively. The Board continues to review strategic options for the portfolio, which include the sale of all of the Company's assets as well as other proposals to address the Company's size and liquidity. On 16 August 2023, we provided shareholders with an update on the process to market test the portfolio sale which is being conducted by Stifel Nicolaus Europe Limited. That process is underway - albeit, it may not result in a sale - and the Board will keep shareholders updated on progress, as appropriate.

I cannot conclude this brief statement without some comment on the costs associated with the production of the Company's 2022 Annual Report and Accounts, two Continuation Votes in a six-month period and preparation for a possible complex sale process. The results for the six months ended 30 June 2023 include Investment Adviser's fees which have been based on the level of committed assets. This was agreed with the Investment Adviser in the course of the Investment Strategy Review conducted in early 2022 and resulted in relatively low Investment Adviser fees in 2022. The results for the Period also include exceptional costs relating to the two Continuation Votes conducted in the Period, and the actions initiated by the Board following those votes, as well as costs for the preparation of the 2022 Annual Report and Accounts. The latter included the increased costs resulting from the necessary assessment and implementation of a revised accounting approach for the valuation of some of the Company's investments. The Board will be further considering whether there is scope to recoup these increased costs from its service providers.

Dividends

Following the failure of the February 2023 Continuation Vote the Board announced that future dividends will only be paid from net income, and after reviewing cash flow forecasts, only in respect of six-month periods, not quarterly periods. The Board has decided that in the current circumstances, a dividend will not be paid in respect of the Period.

Outlook

We are now exploring a portfolio sale process which inevitably will take some time given the complexity of the asset portfolio and the Board's intention to carefully consider the potential options for realising value for shareholders. As such, it is not possible, at this early stage, to provide further clarity on the timescale for realisation.

Miriam Greenwood OBE DL

Chair of the Board

26 September 2023

INVESTMENT ADVISER'S REPORT

At the start of 2023, the Investment Adviser was focused on achieving full deployment of the Company's capital. However, after the failure of the Continuation Vote on 28 February 2023 and following the success of the Continuation  Managed Run-Off Resolution on 14 June 2023, the Investment Adviser has supported the managed run-off of the Company's portfolio and preparations for a potential sale of the Company's assets as announced on 16 August 2023. While pre-existing contractual commitments are being honoured, the Investment Adviser has taken opportunities to withdraw the Company from commitments of £5.4 million as at 31 December 2022 to invest into two Spanish projects. In addition, since 30 June 2023 an agreement in principle has been reached to withdraw from a partially invested Solar PV investment which was valued at £0.7 million at 30 June 2023 and had an unfunded commitment of £4.5 million (see "Investments in Spain" section below). Repayment to the Company of the initial funding and accrued interest is expected in October which would take the number of projects to 36.

During the first six months of 2023, £19.7 million was deployed taking total invested capital, before redemptions and value adjustments, to £68.0 million. £12.8 million was deployed into nine commitments which had already been made as at 31 December 2022 and the balance of £6.9 million to nine new commitments. These new investments comprised:

·         Three Spanish Solar PV investments with three new ESCOs for a total commitment of £4.8 million of which £4.2 million was deployed as at 30 June 2023;

·         Two additional rooftop Solar PV projects in Italy, with a total commitment of £1.3 million of which £0.8 million was deployed as at 30 June 2023; these projects are with Noleggio Energia and take the total number of projects with this ESCO to seven and the total committed capital to £4.2 million;

·         Three lighting investments in the UK with two new ESCOs involving total commitments of £1.8 million of which £1.6 million was deployed as at 30 June 2023; and

·         A third UK wind power project involving an additional £0.3 million investment, taking total commitments with this ESCO to £2.0 million.

As a result of the agreement to withdraw from a partially invested Solar PV investment, in principle, to sell the investment with an unfunded commitment of £4.5 million, as referred to in the Chair's Statement, the Company now forecasts a further £18.9 million will be invested into existing commitments following 30 June 2023 (including expected transaction costs). The majority of this capital is forecast to be deployed by the end of January 2024, of which £0.4 million has been deployed since the Period end, leaving only £1.7 million to be deployed through the remainder of 2024.

By 31 March 2024, as a result of the expected run-off of certain investments, in particular the Superbonus projects, the Investment Adviser expects the Company and its immediate investment holding entities to have no less than £24.0 million of cash (prior to any dividend or return of capital to shareholders).

PORTFOLIO OVERVIEW

As at 30 June 2023, the Company's portfolio of 37 energy efficiency investments was diversified across geographies (Italy, Spain, Germany and the United Kingdom), technologies, counterparties and ESCO partnerships. The Company's portfolio is characterised by projects with (i) a low technology risk through the use of proven technologies; (ii) medium to long term contracts providing for predictable cash flows; and (iii) counterparties with good creditworthiness.

Approximately 77% of the Company's forecast project cash flows are investment grade, as assessed using either the Investment Adviser's credit analysis or external agencies. For projects which are non-investment grade, there are typically additional protections. These protections include the ability to export power to the grid, and to extend the maturity of a contract with the ESCO and the underlying counterparty to recover missed payments. The latter is possible because the Company's financing agreements are of a shorter duration than the useful life of equipment installed and, in many cases, of a shorter duration than the contract between the ESCO and the counterparty. The credit quality and performance of the Company's portfolio is discussed further below in respect of valuations and expected credit loss provisions.

The Company's portfolio also benefits from a combination of fixed and variable return cash flows. While approximately 83% of the total investment value provides a fixed rate of return from contractual cash flows, approximately 17% by investment value has variable cash flows linked to power production and power prices, or inflation indexation. In many cases, these variable return investments have significant fixed income elements, for example, feed in tariffs or fixed power prices in power purchase agreements. In addition, certain investments have downside protections, for example, minimum contractual returns in order to reduce the risk of lower than forecast cash flows. The Company's portfolio of investments is expected to achieve an unleveraged, average yield of 8% per annum, in line with the figure reported in the Audited Annual Report and Accounts for the year ended 31 December 2022.

Investments in Italy (£37.4m committed; £32.7m deployed at Period end)

In the six months to 30 June 2023, the Company committed £1.3 million to two new rooftop Solar PV projects developed by Noleggio Energia, with whom the Company has now made seven investments. During the Period, £11.7 million was deployed to both these new investments and other existing commitments in Italy, the majority of which was deployed into Superbonus projects.

As at 30 June 2023, total cash deployed into investments in Italy was £32.7 million with £4.7 million of outstanding commitments across a total of 13 investments. The Investment Adviser forecasts that only £1.5 million of these outstanding commitments will be deployed, primarily to two rooftop Solar PV investments because it expects that only a further £0.2 million (instead of £3.4 million) will be deployed to Superbonus projects due to the expected timings of cash inflows versus cash outflows on individual projects. The full commitment of £4.7 million may be required if the timings of cash receipts from completing projects are later than expected.

Investments in Italian "Superbonus" projects (£32.5m committed; £29.0m deployed at Period end)

The Company had committed £32.5 million to five clusters of Superbonus projects, as at 30 June 2023, a small increase in base currency terms compared with the position as at 31 December 2022 of £33.0 million. The net cash deployed increased from £18.1 million as at 31 December 2022 to £29.0 million as at 30 June 2023. Significant progress has been made on the 109 individual projects within the five clusters such that construction has been completed on 84 of these projects to date. 40 of these 84 projects have secured their final tax credit accreditation and 9 projects have been fully completed, with payments totalling £0.9 million for those tax credits received. However, the ESCOs are experiencing delays in receiving certification that the projects qualify for tax credits and the buyers of the tax credits are taking time to make the payments due. As a result of this, the projects now have a longer maturity than originally forecast. This results in additional interest, currently at the rate of 10% per annum, being earned by the Company on the capital committed and deployed. As a result of the delays, the ESCOs are expecting the majority of the capital deployed to be redeemed by the end of the second quarter of 2024 with final payments expected in September 2024. This compares with their earlier expectation of the majority of capital deployed being redeemed by the end of January 2024.

"Superbonus" is an incentive measure introduced by the Italian government through Decree "Rilancio Nr. 34" on 19 May 2020, which aims to make residential buildings (condominiums and single houses) more energy efficient through improvements to thermal insulation and heating systems. When qualifying measures are completed, ESCOs delivering the measures are awarded a tax credit equal to 110% of the cost of the measures. These tax credits can then be sold to banks, insurance companies and other corporations and, thus, projects can be financed without the need for a financial contribution from landlords.

The projects which the Company committed to finance are being managed by three ESCOs: Enerstreet, Enerqos Energy Solutions and Sol Lucet. The projects involve a range of energy efficiency measures including insulation, the replacement of heating systems with more efficient solutions and energy efficient windows.

Solar PV Investments for self-consumption in Italy (£4.9m committed; £3.7m deployed)

As at 30 June 2023, the Company had committed £4.9 million to eight rooftop Solar PV projects with an aggregate capacity of 5.1MWp. As at 30 June 2023, £3.7 million had been deployed into seven operational projects with one project under construction. The balance of the commitments is expected to be deployed by the end of September 2023. These projects enable companies to reduce their energy expenses and CO2 emissions and avoid grid losses through the self-consumption of the electricity produced.

Projects with Noleggio Energia

Of these eight projects which the Company has committed to finance, seven projects have been developed by the ESCO Noleggio Energia, which was established in 2017 and is an Italian company that specialises in providing operating leases for energy efficiency and renewable energy projects for commercial and industrial clients in Italy. These projects are all structured as the purchase of receivables from operating leases with maturities of seven or ten years, with a weighted average maturity of eight and a half years outstanding, and all use very similar documentation. Noleggio Energia has transferred to the SPV the monthly receivables from these operating lease agreements, which provide for fixed rates of return with a weighted average return of 7.9% p.a.

The projects with Noleggio Energia are summarised below at Period end:

Project with CO-VER Power Technologies

In January 2022, the Company refinanced the acquisition of an existing rooftop Solar PV plant in Ascoli Piceno (Central Italy) with a generating capacity of 902 kWp. The investment is based on the purchase of receivables generated by an energy service contract between the leading Italian engineering firm CO-VER Power Technologies ("CO-VER") and its subsidiary Futura APV S.r.l. ("Futura"). The contract governs the management of an operating roof-mounted solar PV plant through until April 2028. Thereafter, the investment is based on a feed-in tariff for an additional six years, aggregating to a 12-year tenor. The investment is forecast to generate a return of 7.2% p.a.. CO‑VER has a successful 20-year history in developing industrial projects in the areas of energy storage systems, co/tri-generation plants and renewable energies. Futura is the owner of the PV plant which benefits from feed in tariffs payable by Gestore dei Servizi Energetici ("GSE"). GSE is a joint stock company managed by the Italian government which is responsible for promoting and developing the growth of renewable assets in Italy. GSE has a credit rating of BBB+ from the Italian government.

Investments in Spain (£28.7m committed; £10.8m deployed)

In the six months to 30 June 2023, the Company committed £4.5 million to a further three Solar PV projects in Spain with three new project developers, including a £3.4 million project at the site of a Spanish agricultural company and two smaller commitments of £0.7 million and £0.6 million to finance groups of projects across Spain.

During the Period, £6.1 million was deployed to these investments and existing commitments.

As at 30 June 2023, the Company had made total commitments of £28.7 million to 11 investments in Spain. Ten of these investments, with total commitments of £24.5 million, are Solar PV investments for self-consumption and a £4.2 million commitment to a building energy efficiency investment.

As at 30 June 2023, cash deployed into these investments was £10.8 million with £17.9 million of commitments outstanding. The Investment Adviser expects that the majority of these commitments will be deployed by the end of January 2024, primarily to complete Solar PV projects, leaving £1.7 million to be invested in the subsequent months of 2024 to complete the building energy efficiency investment programme. The reduction in forecast deployment is primarily due to the decision to not proceed with one Solar PV project due to the project not satisfying the conditions precedent contractually agreed for the release of the subsequent tranche. This is expected to result in the repayment of the initial tranche and accrued interest by the project developer.

Solar PV investments in Spain (£24.6m committed; £9.3m deployed)

The Company has committed capital to finance the development of ten solar PV installation projects throughout Spain with nine project developers. Two of the projects have been structured to provide fixed rates of return while the remaining eight projects have been structured under Power Purchase Agreements ("PPAs") with maturities of up to 18 years and have variable revenues, often subject to a combination of production fluctuations, power price changes and inflation. In addition, excess production beyond the on-site demand may be injected into the grid. These variable revenue risks are mitigated by conducting technical due diligence prior to making commitments and by contracted prices within the PPAs.

Six of these investments are now operating while four projects remain to be constructed and/or financed, including a single large project of £8.7 million, which requires certain conditions precedent to be fulfilled.

Buildings Energy Efficiency investments in Spain (£4.2m committed; £1.5m deployed)

The Spanish Government has established incentive schemes to promote buildings energy efficiency measures, including the "Programa de Rehabilitacion Energetica de Edificios" ("PREE"). PREE is a €402.5 million incentive scheme in Spain which is designed to promote and reward energy efficiency improvements for condominiums and buildings, improving their energy rating by at least one energy class. Under this scheme, the Company has committed £4.2 million to fund the refurbishment of condominiums, which is being managed by a leading ESCO specialised in designing and implementing energy efficiency and renewable energy projects in Spain. The investment cash flows are based on the purchase of receivables generated by the underlying energy saving contracts between the ESCO and the "Comunidad de Proprietarios"; the legal entities which represent each of the owners of the apartments in a residential building. The receivables have been rated at the S&P equivalent of A+/A. £1.5 million has been deployed as at 30 June 2023 and the balance is forecast to be deployed in full by the end of 2024.

Investments in Germany (£22.7m committed; £19.1m deployed)

In the Period, no further investments were made in Germany. The Company has four investments in Germany, across four distinct technologies including smart metering technologies, water management solutions, heat pumps and Bio-LNG, with total commitments of £22.7 million, of which £19.1 million has been deployed. £3.7 million of the outstanding commitments of £3.8 million is expected to be deployed in the fourth quarter of 2023 or in the first quarter of 2024, following receipt of all necessary permits, to finance the installation of liquefaction equipment at a biogas plant in Northern Germany.

Three of the investments in Germany provide for fixed rates of return while the other, a biogas investment, has a variable return above a fixed rate of 5% p.a., which is equivalent to 8% of revenue generated by the asset company, capped at £1.1 million across eight years. This arrangement results in an overall forecast return from this project of 9.0% p.a.

Investments in the United Kingdom (£6.2m committed; £5.3m deployed)

In the Period, the Company committed £2.1 million to four new investments taking total commitments to investments in the UK to £6.2 million across ten investments with seven ESCOs. The four new investments, developed by two new and one existing ESCO relationship, comprised:

·         Two groups of lighting investments for an industrial company and schools, totalling £1.3 million of which £0.2 million remains to be deployed;

·         Another group of 17 lighting investments for a range of schools and industrial companies, totalling £0.5 million, which has been fully deployed; and

·         An investment of £0.3 million into a fifth operating wind power project.

As at 30 June 2023, total cash deployed to investments in the UK was £5.3 million with £0.7 million of commitments outstanding including £0.2 million for lighting investments to be deployed in Q4 2023. The remaining outstanding commitment of £0.5 million is to a CHP investment, for a food producer, Vale of Mowbray, to which £0.9 million has been previously deployed. As previously reported, this project remains on hold because Vale of Mowbray has been placed into administration. Discussions continue between Ega Energy, the developer of the original project, and the new owner of the site, a cold store logistics business. However, the new owner of the site has been focused on repurposing the site to cold store operations and has not yet decided whether or how to proceed with the CHP investment. Ega Energy remains confident that it will be able to deploy the CHP equipment either at this site or at the sites of other potential clients in the UK. Nevertheless, the Company has made an ECL provision of £0.24 million against this investment and the Company is forecasting that no further capital will be deployed to this investment.

The UK investments in the wind power projects are variable return investments due to the variability of export tariffs, which are renewed each year, although a significant percentage of revenues are based on feed in tariffs which benefit from annual inflation adjustments. The other investments in CHP and lighting projects are all fixed return investments although the lighting projects with Lumenstream have annual inflation adjustments.

Valuations and Expected Credit Loss Provisions as at 30 June 2023

As at 30 June 2023, the Company's investments had a book value of £65.7 million with investments held at amortised cost valued at £54.1 million and investments held at fair value through profit or loss valued at £11.6 million (see Note 3 of the Interim Accounts).

The investments held at amortised cost are net of expected credit loss provisions of £0.36 million, which increased by £0.22 million from £0.14 million as at 31 December 2022. The principal reason for the increase is the provision made against the Ega Energy Vale of Mowbray investment, referred to above, for which the provision increased to £0.24 million. Apart from this project, the Company has not experienced significant payment issues on the receivables due to be paid to it in the Period.

The half year valuation of the investments held at fair value through profit or loss resulted in a loss of £1.7 million, a change of minus 7.3%.

While there were relatively minor upwards adjustments to the Company's investments held at fair value in Germany and the UK, there was an overall downwards valuation adjustment in the Period, mainly due to the Spanish Solar PV investments. This downwards adjustment in Spanish Solar is due mainly to a reduction in forecast power prices, after CPI inflation adjustments. Further downward adjustments have resulted from foreign exchange effects and an increase in discount rates of c. 20bps compared with those used at 31 December 2022. The discount rate increase is attributable to interest rate rises.

The downwards valuation adjustment to the Spanish Solar PV investments seen in this Period is greater than the positive valuation adjustment reported for the year ended 31 December 2022. This means that these investments held at fair value are currently valued at £4.4 million, which is lower than cost of £5.8 million. A significant part of this negative valuation, compared with cost, is expected to be recovered in October when one of the investments, as referred to in the Chair's Statement, is expected to be realised. This investment will be realised at cost, plus a holding interest rate of 8.5% p.a., in accordance with the agreement in principle, which has been reached with the relevant ESCO.

Summary of Investments as at 30 June 2023

ENVIRONMENTAL, SOCIAL AND GOVERNANCE

Investment Approach and ESG Approach

Prior to the New Investment Policy (as adopted consequent to the passage of the Continuation Managed Run-Off Resolution), the Company's goal was to generate attractive returns for investors by reducing Primary Energy Consumption ("PEC"). AEET's investments positively contribute to the environment by reducing carbon dioxide emissions, by decreasing PEC and by increasing the amount of renewable energy used. The synergies generated by the reduction of PEC and simultaneously using renewable energy sources to further support global energy decarbonization¹. This is reflected across the investment philosophy and approach, including the Company's Investment Adviser, which has a strong focus on the energy transition.

Over the Period, the portfolio performed as follows²:

·         7,883.1 tonnes of avoided CO2 emissions; and

·         24,544.9 MWh of energy saved,

·         For total emission savings equivalent to 3,449 passenger flights around the world³.

The Company has adopted Aquila Capital's ESG policy, ensuring that environmental, social and governance criteria which are incorporated into day-to-day investment decisions as well as generating a positive contribution for society. AEET's investment approach is focused on investments in energy efficiency projects located primarily in Europe. These investments are predominantly into proven technologies that deliver energy savings for commercial, industrial, and public sector buildings. Prior to the New Investment Policy, the Company sought to invest in projects for the long term with a focus on optimising and improving the assets' PEC (and, of course, the Company's investments continue to meet this initial objective). Technologies typically include:

·         LED Lighting System;

·         LED Street Lighting System;

·         Solar PV;

·         Biomass Boilers;

·         HVAC/Buildings;

·         Smart Metering/Submetering; and

·         Electrification of transportation vehicles (batteries).

Environmental Contribution

The Company's investment approach is focused on reducing PEC, which should lead to significant reductions in carbon dioxide emissions. In addition, local production of energy (CHP, Biomass Boilers, Solar PV) reduces transportation energy losses and grid over-utilisation. Smart Meters and other control technologies enable a better visibility and management of energy and therefore represent a basis for energy savings.

Aquila Capital ensures all required regulations and corresponding approvals are completed prior to the acquisition of the assets, for example, planning permissions.

1         International Renewable Energy Agency (Irena), "Synergies between renewable energy and energy efficiency" (2017), available at: https://www.irena.org/publications/2017/ Aug/Synergies-between-renewable-energy-and-energy-efficiency#:~:text=Renewables%20would%20account%20for%20about,country%2C%20sector%20and%20 technology%20levels

2         The energy (in kWh) and avoided emission (in t CO2e) are reported to Aquila Capital by third parties, including the development companies, ESCO, and other third parties. These reports are supported by asset-level documentation of individual methodologies. Aquila Capital has reviewed the individual methodologies for technical consistency and reconciles the reported values for plausibility. Only energy savings and avoided emissions for operational projects are considered on a pro-rata basis for the time of operation during the reporting period. Avoided CO2e emissions are estimated in gross terms and derived from energy savings in kWh using a conversion factor (except CHP) which measures the grid's emission intensity. Emissions incurred during the life cycle of the light bulbs such as materials sourcing, manufacturing, installation, maintenance etc. are not available. The reported metrics are estimations based on assumptions. For technical reasons, it is not possible or feasible to observe or measure actual energy or emission avoidance in real-time.

3         Passenger flights around the world: This number is derived from passenger flight emissions data retrieved on April 4th 2023 from the International Civil Aviation Organization; https://applications.icao.int/icec/Home/Index. The total emissions associated with a passenger flight around the world based on a standard itinerary from New York to Dubai, Bangkok, Sydney, Los Angeles and back to New York in the economy class is 2,285.80 kg CO2.

Social Contribution

Energy efficiency measures not only reduce PEC, but typically also have a positive impact on health and quality of life for different stakeholders, such as employees and users of public facilities. This is largely achieved through the installation of advanced solutions for lighting, heating, cooling, ventilation and the associated control units. All project developers are required to adhere to local, regional, and national health and safety laws, to train and educate employees accordingly in order to make sure casualties and injuries are avoided. Aquila Capital's ESG policy, as adopted by the Company, excludes suppliers and manufacturers that do not meet Aquila Capital's criteria (exclusion of certain sectors/ subsectors, or companies that, for example, use unfavourable labour conditions). For all counterparties a rating is performed (in collaboration with a third-party rating agency) assessing the creditworthiness of the relevant counterparty as well as a 'Know Your Client' check for the relevant parties involved to increase transparency of the counterparties' activities.

Governmental Contribution

The Company's business partners are required to adhere to the requirements of the relevant social security and tax authorities. The Company's partners are required to provide evidence that they adhere to anti-bribery and corruption laws.

Due Diligence

The Investment Advisor performs detailed ESG due diligence for each asset prior to investment. The investment management team follows a structured screening, due diligence and investment process which is designed to ensure that investments are reviewed and compared on a consistent basis. Execution of this process is facilitated by the team's deep experience in energy efficiency project investing. As part of this process, the Investment Adviser, as relevant for each investment, considers:

·         Total PEC reduction, and implied CO2 emissions reduced and/or avoided; and/or

·         Total energy production from renewable and non-renewable sources.

Governance Framework

AEET has an independent Board of Directors, with FundRock Management Company (Guernsey) Limited (formerly Sanne Fund Management (Guernsey) Limited) as the Alternative Investment Fund Manager ("AIFM"). The Board of Directors supervise the AIFM, which is responsible for making recommendations in relation to any investment proposals put forward by the Investment Adviser. The Investment Adviser is fully regulated and supervised by BaFin in Germany. The Company maintains a comprehensive risk register which is regularly updated and reviewed by the AIFM and the Board of Directors to inform the implementation of appropriate controls and processes. The Company has established procedures to deal with any potential conflicts of interest in circumstances where Aquila Capital (or any affiliate) is advising both the AIFM (for the Company) and other Aquila Capital managed funds. In the context of an investment decision, these procedures may include a fairness opinion in relation to the valuation of an investment, which is obtained from an independent expert.

Monitoring of ESG:

The Company's commitment to and compliance with the Company's established ESG approach is monitored on a continuous basis throughout the lifecycle of investments, as they become operational. This includes:

·         Ongoing monitoring of the PEC based on the energy consumption and deriving from that the CO2 savings, where appropriate, monitoring additional environment and ESG relevant developments both at the portfolio and asset level;

·         Annual reporting, including ESG aspects, to relevant stakeholders including ad-hoc reporting of any material and urgent issues identified in the monitoring process; and

·         A semi-annual ESG risk report to the Board will be implemented later in 2023.

AEET has been awarded the Green Economy Mark from the London Stock Exchange. The Green Economy Mark identifies London-listed companies and funds that generate between 50% and 100% of total annual revenues from products and services that contribute to the global green economy.

Aquila Capital Investmentgesellschaft mbH

26 September 2023

INTERIM MANAGEMENT REPORT

The Directors are required to provide an Interim Management Report in accordance with the Financial Conduct Authority's ("FCA") Disclosure Guidance and Transparency Rules ("DTR"). The Directors consider that the Chair's Statement and the Investment Adviser's Report in this Half-yearly Report, provide details of the important events which have occurred during the six months ended 30 June 2023 (the "Period") and their impact on the financial statements. The statement on related party transactions and the Directors' Statement of Responsibility (below), the Chair's Statement and the Investment Adviser's Report together constitute the Interim Management Report of the Company for the Period. The outlook for the Company for the remaining six months of the year ending 31 December 2023 is discussed in the Chair's Statement and the Investment Adviser's Report.

Principal Risks and Uncertainties

The principal risks and uncertainties facing the Company are summarised below:

(i)      The consequences of the shareholder vote not to continue the Company

(ii)     Service provider risk

(iii)    Counterparty / credit risk

(iv)    Inappropriate investment advice

(v)     Portfolio valuation

(vi)    Interest rate / inflation

(vii)   Liquidity / discount risk

(viii)   Political risk

(ix)    Investment performance

(x)     IT security

(xi)    Act of war / sanctions

(xii)   ESG

(xiii)   Exchange rates

Since the end of the financial year ended 31 December 2022, the decision by shareholders on 28 February 2023 not to continue the Company and the subsequent approval at the Annual General Meeting on 14 June 2023 of the Continuation and Managed Run-Off Resolution, the Board has paid and continues to pay particular attention to the first two risks in the above list and is reviewing on a regular basis the performance of its service providers, in particular in terms of level of resource deployed in delivering services to the Company and the standard of performance of those services.

The Company's Annual Report for the period ended 31 December 2022 contains more detail on the Company's principal risks and uncertainties, including the Board's ongoing process to identify, and where possible mitigate, the risks. The Annual Report can be found on the Company's website.

Related Party Transactions

Details of the investment advisory arrangements were provided in the Annual Report. There have been no changes to the related party transactions described in the Annual Report that could have a material effect on the financial position or performance of the Company. Amounts payable to the Investment Adviser in the Period are detailed in the unaudited Statement of Profit or Loss and Comprehensive Income.

Going Concern

The Directors have adopted the going concern basis in preparing the financial statements. The following is a summary of the Directors' assessment of the going concern status of the Group and Company.

The Group and Company continue to meet day-to-day liquidity needs through their cash resources. The Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for at least twelve months from the date of this document.

In reaching this conclusion, the Directors have considered the Group's investment commitments, cash position, income and expense flows. As at 31 August 2023, the latest practicable date before publication of this report, the total commitments were £94.6 million and income generating capital deployed since IPO was £68.1 million. As at 31 August 2023, the Group had cash of £28.56 million (including the £2.5 million held as collateral for FX hedging). The Directors are also satisfied that the Group and Company would continue to remain viable under downside scenarios. Total expenses for the Period were £1.65 million (excluding impairment losses) (from the period from incorporation to 30 June 2022: £1.4 million annualised), which, when annualised, represented approximately 3.5% of average net assets during the Period (period from incorporation to 30 June 2022: 1.44%). At the date of approval of this document, based on the aggregate of investments and cash held, the Group and Company has substantial operating expenses cover.

At the Annual General Meeting of the Company (the "AGM") held on 14 June 2023, Shareholders voted in favour of the Company's change of investment policy (the "New Investment Policy"). Following the AGM, and in accordance with the New Investment Policy, the Company entered a continuation and managed run-off of its portfolio, meaning that it is not making any new investments (save for the limited circumstances as set out in the New Investment Policy) and its investing activity is solely in respect of funding legal commitments to existing investments (the "Continuation Managed Run-Off").

The Continuation and Managed Run-Off Resolution was put forward as a resolution to Shareholders in response to the outcome of the Company's continuation vote held in February 2023, which did not pass.

The Board continues to review the strategic options for the portfolio, including a sale of all of the Company's assets, and other proposals that address the Company's size and liquidity. Accordingly, the process to market test the portfolio sale commenced on 16 August 2023 and is being conducted by Stifel Nicolaus Europe Limited on behalf of the Company.

The Directors recognise that these conditions indicate the existence of material uncertainty which may cast significant doubt about the Group and Company's ability to continue as a going concern.

However, based on the assessment and considerations above, the Directors have concluded that the financial statements of the Group and the Company should be prepared on a going concern basis. The financial statements do not include the adjustments that would result if the Group and the Company were unable to continue on a going concern basis.

Directors' Statement of Responsibility

The Directors confirm to the best of their knowledge that:

·         the condensed set of financial statements contained within the Interim Financial Report has been prepared in accordance with IAS 34 Interim Financial Reporting and gives a true and fair view of the assets, liabilities, financial position and return of the Company;

·         the Interim Management Report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.7R; and

·                  the Interim Financial Report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.8R.

Miriam Greenwood OBE DL

Chair of the Board of Directors

26 September 2023

David Fletcher

Chair of the Audit & Risk Committee

26 September 2023

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME

FOR THE SIX MONTHS TO 30 JUNE 2023

The total column of the Consolidated Statement of Profit or Loss and Comprehensive Income is the profit and loss account of the Group.

All revenue and capital items in the above consolidated statement derive from continuing operations. The acquisition of Attika Holdings Limited and SPV Project 2013 S.r.l. effective 1 January 2022 has been reflected in the above statement for the Period. No operations were discontinued during the Period.

Profit/(loss) on ordinary activities after taxation is also the "Total comprehensive income/(expense) for the Period".

The accompanying notes form part of these financial statements.

COMPANY STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME

FOR THE SIX MONTHS TO 30 JUNE 2023

The total column of the Company Statement of Profit or Loss and Comprehensive Income is the profit and loss account of the Company.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the Period.

(Loss)/profit on ordinary activities after taxation is also the "Total comprehensive (expense)/income for the Period".

The accompanying notes form part of these financial statements.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2023

Approved by the Board of directors and authorised for issue on 26 September 2023.

Signed on behalf of the Board of Directors

Miriam Greenwood OBE DL

Chair of the Board of Directors

David Fletcher

Chair of the Audit & Risk Committee

Aquila Energy Efficiency Trust Plc is incorporated in England and Wales with Company number 13324616.

The accompanying notes form part of these financial statements.

COMPANY STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2023

The prior period comparison figures for the period from 1 January 2022 to 30 June 2022 consolidated financial statements have been restated as a result of the acquisition of AHL and the Italian SPV on 1 January 2022.

Approved by the Board of directors and authorised for issue on 26 September 2023.

Signed on behalf of the Board of Directors

Miriam Greenwood OBE DL
Chair of the Board of Directors

David Fletcher
Chair of the Audit & Risk Committee

Aquila Energy Efficiency Trust Plc is incorporated in England and Wales with Company number 13324616.

The accompanying notes form part of these financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS TO 30 JUNE 2023

The prior period comparison figures for the period from 1 January 2022 to 30 June 2022 consolidated financial statements have been restated as a result of the acquisition of AHL and the Italian SPV on 1 January 2022.

The accompanying notes form part of these financial statements.

COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS TO 30 JUNE 2023

The accompanying notes form part of these financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS TO 30 JUNE 2023

The prior period comparison figures for the period from 1 January 2022 to 30 June 2022 consolidated financial statements have been restated as a result of the acquisition of AHL and the Italian SPV on 1 January 2022.

The accompanying notes form part of these financial statements.

COMPANY STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS TO 30 JUNE 2023

The accompanying notes form part of these financial statements.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE SIX MONTHS TO 30 JUNE 2023

1. GENERAL INFORMATION

Aquila Energy Efficiency Trust Plc (the "Company") is a public Company limited by shares incorporated in England and Wales on 9 April 2021 with registered number 13324616. The Company is domiciled in England and Wales. The Company is a closed-ended investment company with an indefinite life. The Company commenced its operations on 2 June 2021 when the Company's Ordinary Shares were admitted to trading on the London Stock Exchange. The Directors intend, at all times, to conduct the affairs of the Company so as to enable it to qualify as an investment trust for the purposes of section 1158 of the Corporation Tax Act 2010, as amended.

The Company owns 100% of its subsidiary, Attika Holdings Limited (the "HoldCo" or ''AHL'') and 100% of the notes issued by one compartment of SPV Project 2013 S.r.l. (the ''SPV'' or ''Italian SPV'') issued to the Company, which entitles the Company to a 100% economic interest in the receivables purchased through the proceeds of these notes, together the ''Group''.

The registered office address of the Company is 6th Floor, 125 London Wall, London, EC2Y 5AS.

The Company's New Investment Policy Objective is to realise all the remaining assets in the Portfolio in a prudent manner consistent with the principles of good investment management with a view to returning cash to Shareholders in an orderly manner.

The Company will pursue its investment objective by effecting an orderly realisation of its assets in a manner that seeks to achieve the best balance for Shareholders between maximising the value received from those assets and making timely returns of capital to Shareholders. This process might include sales of individual assets, mainly structured as loans/receivables, or groups of assets, or running off the Portfolio in accordance with the existing terms of the assets, or a combination.

FundRock Management Company (Guernsey) Limited acts as the Company's Alternative Investment Fund Manager (the "AIFM") for the purposes of Directive 2011/61/EU on alternative investment fund managers ("AIFMD").

The Group's Investment Adviser is Aquila Capital Investmentgesellschaft mbH authorised and regulated by the German Federal Financial Supervisory Authority.

Apex Listed Companies Services (UK) Limited (the "Administrator") provides administrative and company secretarial services to the Group under the terms of an administration agreement between the Company and the Administrator. The Italian SPV is administered by Zenith Service S.p.A.

2. BASIS OF PREPARATION

Group Financial Statements

The consolidated financial statements included in this Interim Report have been prepared in accordance with IAS 34 "Interim Financial Reporting". The accounting policies, critical accounting judgements, estimates and assumptions are consistent with those used in the latest audited consolidated financial statements to 31 December 2022 and should be read in conjunction with the Group's annual audited consolidated financial statements for the year ended 31 December 2022. The consolidated financial statements are prepared on the historical cost basis, except for the revaluation of certain financial instruments at fair value through profit or loss. The consolidated financial statements for the year ended 31 December 2022 have been prepared in accordance with the UK adopted international accounting standards in conformity with the requirements of the Companies Act 2006.

The interim consolidated financial statements have also been prepared as far as is relevant and applicable to the Group in accordance with the Statement of Recommended Practice ("SORP") issued by the Association of Investment Companies ("AIC") issued in July 2022.

These consolidated financial statements do not include all information and disclosures required in the annual consolidated financial statements and should be read in conjunction with the Group's annual consolidated financial statements as of 31 December 2022. The audited consolidated annual accounts for the year ended 31 December 2022 have been delivered to Companies House. The audit report thereon was unmodified.

The financial statements are presented in Sterling rounded to the nearest thousand.

Company Financial Statements

The financial statements included in this Interim Report have been prepared in accordance with IAS 34 "Interim Financial Reporting". The accounting policies, critical accounting judgements, estimates and assumptions are consistent with those used in the latest audited financial statements to 31 December 2022 and should be read in conjunction with the Company's annual audited financial statements for the year ended 31 December 2022. The financial statements are prepared on the historical cost basis, except for the revaluation of certain financial instruments at fair value through profit or loss. The financial statements for the year ended 31 December 2022 have been prepared in accordance with the UK adopted international accounting standards in conformity with the requirements of the Companies Act 2006.

The interim financial statements have also been prepared as far as is relevant and applicable to the Company in accordance with the SORP issued by the AIC in July 2022.

These financial statements do not include all information and disclosures required in the annual financial statements and should be read in conjunction with the Company's annual financial statements as of 31 December 2022. The audited annual accounts for the year ended 31 December 2022 have been delivered to the Companies House. The audit report thereon was unmodified.

The functional currency of the Company is Sterling. The capital of the Company was raised in Sterling and the majority of its expenses are in Sterling. The liquidity of the Company is managed in Sterling as the Company's performance is evaluated in that currency. Accordingly, the financial statements are presented in Sterling rounded to the nearest thousand.

Basis of consolidation

The Group's financial statements consolidate those of the Company and of its subsidiaries at 30 June 2023. AHL's functional currency is Sterling. The Italian SPV's functional currency is Euro. However, to align with the Group's functional currency, the balances of the Italian SPV have been converted to Sterling at a Period-end rate for the Statement of Financial Position accounts and at an average rate during the Period for the Statement of Profit or Loss and Comprehensive Income accounts.

All transactions and balances between Group companies are eliminated on consolidation. The accounting policies adopted by the Group are consistent with those adopted by the Company and the subsidiaries.

Restatement of six-month period ended 30 June 2022 comparatives

During the year 2022, as a result of the development of the portfolio of investments, the actual investments made and the structure of those investments, many of which were receivables purchase investments with fixed rates of return, the Directors determined that this required judgement and re-assessment of the Company's investment entity status in the year 2022. As a result of this re-assessment, which identified that fixed rate of return investments constituted a substantial proportion of the pipeline of investments and resultant actual investments, the Directors determined that as from 1 January 2022 the Company does not meet the characteristic of an investment entity for the following reasons:

I.       The Company is in full control of its subsidiary AHL and the notes in the Italian SPV;

II.      The majority of the investments held and added to during the year for the Italian SPV are valued at amortised cost rather than on a fair value basis; and

III.      The majority of the investments held and purchased during the year in AHL are valued at amortised cost rather than on a fair value basis.

For the Period, the financial statements are presented on a consolidated basis of the Company, AHL and the Italian SPV. The prior period comparative figures for the period from 1 January 2022 to 30 June 2022 consolidated financial statements have been restated as a result of the acquisition of AHL and the Italian SPV on 1 January 2022. The net impact on the consolidated NAV as at 30 June 2022 in comparison to the Company's NAV as at 30 June 2022 is to reduce the NAV by £181,000, mainly due to the valuation of the Italian SPV compared to consolidating the Italian SPV within the Group. At the Company level, the NAV of the Company as at 30 June 2022 remained the same. The comparative figures as at 31 December 2022 are as stated in the audited Annual Report and reflect the acquisition of AHL and Italian SPV.

Acquisition of AHL

The Net Assets acquired by the Company from AHL on 1 January 2022 amounted to £153,000. The amount of assets and liabilities as at 1 January 2022 of AHL have been consolidated by the Company at the acquisition date. The opening assets, liabilities, equity and reserves of the Company remained the same due to the acquisition of the subsidiary.

The cost of acquisition of AHL is the deemed valuation at 1 January 2022 which was £153,000. No additional consideration was paid and since the acquisition of the subsidiary is not considered to constitute a business under IFRS 3, no goodwill arises.

Acquisition of the Italian SPV

The amount of assets and liabilities as at 1 January 2022 of the Italian SPV have been consolidated by the Company at the acquisition date. The opening assets, liabilities, equity and reserves of the Company remained the same due to the acquisition of this wholly owned compartment.

The cost of acquisition of the Italian SPV is the deemed valuation at 1 January 2022 which was (£170,000). No additional consideration was paid and since the acquisition of the subsidiary is not considered to constitute a business under IFRS 3, no goodwill arises.

Accounting for wholly owned entities

AHL

The Company owns 100% of its subsidiary, AHL. The registered office address of AHL is Leaf B, 20th Floor, Tower 42, Old Broad Street, London, England, EC2N 1HQ. The Company has acquired Energy Efficiency Investments through its investment in the subsidiary. The Company finances its subsidiary, AHL, under the terms of an intercompany loan agreement effective as of 1 January 2023 and AHL finances Energy Efficiency Investments through a mix of equity and debt instruments. The Company consolidates the subsidiary.

Italian SPV

The Italian SPV is a Company established under the laws of Italy to hold securitised receivables. The Company does not hold any equity in the SPV. However, it does own 100% of the notes issued by one compartment of the SPV which entitles the Company to a 100% economic interest in the receivables purchased through the proceeds of the notes. The Company does not have an economic interest in any of the other securities receivables issuances by other compartments of the Italian SPV. The notes subscribed by the Company, issued by the Italian SPV, and the receivables purchased from the proceeds of these notes, together with all associated assets and liabilities and income and costs, are ring-fenced from other assets and liabilities of the Italian SPV and thus the Company's holdings have been deemed a silo under IFRS 10 paragraph b 77. The Company consolidates the results of the Italian SPV in respect of the performance of the receivables in the silo.

Going concern

The Directors have adopted the going concern basis in preparing the financial statements. The Group and Company continue to meet day-to-day liquidity needs through their cash resources. The Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for at least twelve months from the date of this document.

Critical accounting judgements, estimates and assumptions

The preparation of the consolidated financial statements requires the application of estimates and assumptions which may affect the results reported in the consolidated financial statements. Estimates, by their nature, are based on judgement and available information.

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying value of assets and liabilities are those used to determine the fair value of the investments and expected credit loss as disclosed in Note 3 to the consolidated financial statements for the Period.

Investment fair value

The key assumptions that have a significant impact on the value of the Group's investments are discount rates, energy yield, power prices and capital expenditure factors, the price at which the power and associated benefits can be sold and the energy yield are expected to produce. The impact of risks associated with climate change is assessed on an investment by investment basis and factored into the underlying cash flows where relevant.

The discount factors are subjective and therefore it is feasible that a reasonable alternative assumption may be used resulting in a different value. The discount factors applied to the cashflows are reviewed semi-annually by the Investment Adviser to ensure they are at the appropriate level. The Investment Adviser will take into consideration market transactions, where they are of similar nature, when considering changes to the discount factors used.

The operating costs of the operating companies are frequently partly or wholly subject to indexation and an assumption is made that inflation will increase at a long-term rate.

The values of energy efficiency investments are not significantly sensitive to fluctuations in future revenues if a fixed indexation clause is applied to its cash flow schedule.

Expected Credit Loss (''ECL'') allowance for financial assets measured at amortised cost

The calculation of the Group's ECL allowances and provisions against receivable purchase agreements under IFRS 9 is complex and involves the use of significant judgement and estimation. Fixed interest investment provisions represent an estimate of the losses incurred in the loan portfolios at the balance sheet date. Individual impairment losses are determined as the difference between the carrying value and the present value of estimated future cash flows, discounted at the loans' original effective interest rate. The calculation involves the formulation and incorporation of multiple conditions into ECL to meet the measurement objective of IFRS 9. Refer to Note 3 to the consolidated financial statements for the Period for more details.

3. INVESTMENTS

Investments at fair value through profit and loss

Fair value measurements

IFRS 13 requires disclosure of fair value measurement by level. The level of fair value hierarchy within the financial assets or financial liabilities is determined on the basis of the lowest level input that is significant to the fair value measurement. Financial assets and financial liabilities are classified in their entirety into only one of the following 3 levels:

Level 1

The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

Level 2

Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.

Level 3

Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.

The classification of the Group's investments held is detailed in the table below:

There are no transfers between investment levels for the Group during the Period/year.

The classification of the Company's investments held is detailed in the table below:

There were no transfers between investment levels for the Company during the Period/year.

The movement on the Level 3 unquoted investments of the Group during the Period/year is shown below:

The movement on the Level 3 unquoted investments of the Company during the Period/year is shown below:

*        On 27 July 2023, Aquila Energy Efficiency Trust Plc (the 'Lender') and Attika Holdings Limited (the 'Borrower') entered and signed a Shareholder loan agreement effective 1 January 2023. By way of a non-interest intercompany transaction, the Lender has provided to the Borrower an amount of £32,966,000 of which a portion of £23,076,000 as the advanced amount was transformed into a loan under the facility. The Lender and the Borrower verbally agreed in January 2023 that the Lender would provide a loan facility to the Borrower in the amount of up to £70,000,000 to be made available to the Borrower by the Lender in whole or in partial amounts. Interest rate on the loan outstanding is at 7.9%. As of 30 June 2023, the outstanding balance of the loan from the Lender to the Borrower is £27,514,000.

Assets and liabilities not carried at fair value but for which fair value is disclosed

The following table presents the fair value of the Group's assets and liabilities not measured at fair value through profit and loss at 30 June 2023 but for which fair value is disclosed:

For all other assets and liabilities not carried at fair value, the carrying value is a reasonable approximation of fair value.

Valuation Methodology

Debt instruments at fair value through profit or loss

The Group through its subsidiary (AHL) and its notes in the Italian SPV has continued to acquire debt instruments at fair value through profit or loss. The Investment Adviser has determined the fair value of debt investments as at 30 June 2023. The Directors have satisfied themselves as to the fair value of the debt instrument investments as at 30 June 2023.

Valuation Assumptions

The Investment Adviser has carried out fair market valuations on some of the debt instruments held by the subsidiaries as at 30 June 2023 and the Directors have satisfied themselves as to the methodology used, the discount rates and key assumptions applied, and the valuation. Investments that are valued at fair value through profit or loss are valued using the IFRS 13 framework for fair value measurement. The following economic assumptions were used in the valuation of the investments.

Valuation Assumptions

Valuation Sensitivities

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 remains static throughout the modelled life.

The Net Asset Value impacts from each sensitivity is shown below.

Discount rate:

The weighted average valuation discount rate applied to calculate the investment valuation is 8.2% as at 30 June 2023 (31 December 2022: 8.3%).

Power price:

Energy yield:

Inflation rates

As most payments are fixed and not linked to the inflation rate, a sensitivity of the inflation rate has only a negligible impact on the NAV.

Capital expenditure

The Company has contractual protections if capex is delayed (i.e. reduce the capex or increase receivables due) and the Company is not obliged to fund the overrun costs. Therefore, capex sensitivities are not appropriate for the Company's type of investments.

Investments at Amortised Cost

a) Investments at amortised cost

The disclosure below presents the gross carrying value of financial instruments to which the impairment requirements in IFRS 9 are applied and the associated allowance for ECL.

The following table analyses loans by Stages for the Group as at 30 June 2023:

b) Expected Credit Loss allowance for IFRS 9

Impairment provisions are driven by changes in the credit risk of instruments, with a provision for lifetime expected credit losses recognised where the risk of default of an instrument has increased significantly since initial recognition.

The following table analyses Group ECL by Stage.

Measurement uncertainty and sensitivity analysis of ECL

The recognition and measurement of ECL is complex and involves the use of judgement and estimation. This includes the formulation and incorporation of multiple forward-looking economic conditions into ECL to meet the measurement objective of IFRS 9.

The ECL recognised in the financial statements reflect the effect on expected credit losses of a range of two possible outcomes, calculated on a probability-weighted basis, based on the economic scenarios described in Note 2 of the 2022 annual financial statements, including management overlays where required. The probability-weighted amount is typically a higher number than would result from using only the Base (most likely) economic scenario. ECLs typically have a non-linear relationship to the many factors which influence credit losses, such that more favourable macroeconomic factors do not reduce defaults as much as less favourable macroeconomic factors increase defaults. The ECL calculated for each of the scenarios represents two outcomes that have been evaluated to estimate the ECL. As a result, the ECL calculated for the upside and downside scenarios should not be taken to represent the upper and lower limits of possible actual ECL outcomes. There is a high degree of estimation uncertainty in numbers representing tail risk scenarios when assigned a 100% weight. A wider range of possible ECL outcomes reflects uncertainty about the distribution of economic conditions and does not necessarily mean that credit risk on the associated loans is higher than for loans where the distribution of possible future economic conditions is narrower.

In the base case scenario, the ECL at Period end is £254,413. Under the downside scenario the ECL increases to £677,647. Giving the base case a 75% weighting and the downside scenario a 25% weighting, this results in an ECL provision in the accounts of £360,222.

Furthermore, if the Investment Adviser assumes that in the downside scenario loss given default ("LGD") increased to 100%, this would increase the provision to £1,171,578. Finally, using an LGD of 100% even in the base case scenario, the maximum ECL would total £2,514,358.

4. INVESTMENT INCOME

5. INVESTMENT ADVISORY FEES

Under the Investment Advisory Agreement, the following fee is payable to the Investment Adviser:

(i)      0.95 per cent. per annum of Committed Capital of the Company up to and including £500 million; and

(ii)     0.75 per cent. per annum of Committed Capital of the Company above £500 million.

6. TAXATION

Investment companies which have been approved by HM Revenue & Customs under section 1158 of the Corporation Tax Act 2010 are exempt from tax on capital gains. Due to the Company's status as an investment trust, and the intention to continue meeting the conditions required to maintain such approval for the foreseeable future, the Company has not provided for deferred tax on any capital gains or losses arising on the revaluation of investments.

7. RETURN PER ORDINARY SHARE

Group

Return per share is based on the consolidated loss for the Period of £438,000 attributable to the weighted average number of Ordinary Shares in issue of 100,000,000 in the Period (30 June 2022: profit of £488,000; weighted average number of Ordinary Shares in issue 100,000,000). Consolidated revenue profit and capital loss are £711,000 (30 June 2022: revenue loss of £169,000) and £1,149,000 (30 June 2022: capital gain of £657,000) respectively.

Company

Return per share is based on the loss for the Period of £667,000 attributable to the weighted average number of Ordinary Shares in issue of 100,000,000 in the Period (30 June 2022: profit of £628,000; weighted average number of Ordinary Shares in issue of 100,000,000). Company revenue profit and capital loss are £682,000 (30 June 2022: Company revenue loss of £492,000) and £1,349,000 (2021: Company capital gain of £1,007,000) respectively.

8. SHARE CAPITAL

On incorporation, the issued share capital of the Company was 1 ordinary share of nominal value £0.01 and £50,000 represented by 50,000 Management Shares of nominal value £1.00 each, which were subscribed for by the Investment Adviser. Following admission, the Management Shares were redeemed by the holder.

On admission of the Ordinary Shares to trading on the London Stock Exchange on 2 June 2021, 99,999,999 Ordinary Shares were allotted and issued to Shareholders as part of the placing and offer for subscription in accordance with the Company's prospectus dated 10 May 2021.

9. SPECIAL RESERVE

As indicated in the Company's prospectus dated 10 May 2021, following admission of the Company's Ordinary Shares to trading on the London Stock Exchange, the Directors applied to the Court and obtained a judgement on 12 August 2021 to cancel the amount standing to the credit of the share premium account of the Company. The amount of the share premium account cancelled and credited to a special reserve was £97,000,000. As at 30 June 2023 the total special reserves were £93,500,000 (31 December 2022: £94,750,000).

10. NET ASSETS PER ORDINARY SHARE

The Group's net assets per ordinary share as at 30 June 2023 is based on £93,539,000 (31 December 2022: £95,227,000) of net assets of the Group attributable to the 100,000,000 Ordinary Shares in issue as at 30 June 2023 (31 December 2022: 100,000,000).

The Company's net assets per ordinary share as at 30 June 2023 is based on £93,966,000 (31 December 2022: £95,883,000) of net assets of the Company attributable to the 100,000,000 Ordinary Shares in issue as at 30 June 2023 (31 December 2022: 100,000,000).

11. DIVIDEND

The Company has paid the following interim dividends in respect of the periods under review:

12. RELATED PARTY TRANSACTIONS

Fees payable to the Investment Adviser are shown in the Consolidated Statement of Profit or Loss and Comprehensive Income. As at 30 June 2023, the fee outstanding to the Investment Adviser was £447,000 (30 June 2022: £112,000; 31 December 2022: £463,000).

The Company owns 100% of AHL and 100% of the notes issued by one compartment of Italian SPV, as disclosed in note 1. All intercompany transactions between the subsidiaries and the Company are eliminated at the consolidation level.

Fees payable to the Directors during the Period were based on an annual rate of £60,170 to the Chair, £45,948 to the Chair of the Audit & Risk Committee, £45,948 to the Chair of the Management Engagement Committee and £40,478 to the remaining Director. As set out in the 2022 Annual Report the decision by Shareholders to vote against continuation of the Company at the end of February 2023 means that the duties of the Directors going forward will be beyond those normally expected as part of their appointment. Therefore, in accordance with the AIC Code, additional fees of £10,000 and £7,600 have been paid in the period from 1 March 2023 to 30 June 2023 to the Chair of the Board and the Chair of Audit and Risk respectively and £4,600 and £4,040 in the same period to the Chair of the Management Engagement Committee and the other Director. These additional fees are paid on a monthly basis and subject to regular review.

Directors' holdings

At 30 June 2023 and at the date of this report the Directors had the following holdings in the Company. There is no requirement for Directors to hold shares in the Company. All holdings were beneficially owned.

The following table shows the subsidiaries of the Company. Please refer to note 2; these subsidiaries have been consolidated in the preparation of the financial statements.

13. DISTRIBUTABLE RESERVES

The Company's distributable reserves consist of the special reserve and revenue reserve. Capital reserve represents unrealised gains and losses on investments and as such is not distributable.

The revenue reserve is distributable. The amount of the revenue reserve that is distributable is not necessarily the full amount of the reserve as disclosed within these financial statements. As at 30 June 2023, the Company has no distributable revenue reserves as the Company is in an accumulated loss position of £1,184,000 (31 December 2022: Loss of £1,866,000).

The Company's special reserve, which is also distributable, was £93,500,000 as at 30 June 2023 (31 December 2022: £94,750,000).

14. SUBSEQUENT EVENTS

On 16 August 2023, the Company announced the commencement of the process to market test the sale of all of the Company's assets. This process is being conducted by Stifel Nicolaus Europe Limited on behalf of the Company.

OTHER INFORMATION

ALTERNATIVE PERFORMANCE MEASURES OF THE GROUP

In reporting financial information, the Company presents alternative performance measures, "APMs", which are not defined or specified under the requirements of IFRS. The Company believes that these APMs, which are not considered to be a substitute for or superior to IFRS measures, provide stakeholders with additional helpful information on the performance of the Company. The APMs presented in this report are shown below:

Discount

The amount, expressed as a percentage, by which the share price is more than the Net Asset Value per Ordinary Share.

Ongoing charges

A measure, expressed as a percentage of average net assets, of the regular, recurring annual costs of running an investment company.

Total return

A measure of performance that includes both income and capital returns. This takes into account capital distributions of dividends paid out by the Company to the Ordinary Shares of the Company on the ex-dividend date.

1         The dividend adjustment factor is calculated on the assumption that the dividends paid out by the Company are reinvested into the shares of the Company at share price and NAV per share, respectively.