HARMONY ENERGY
INCOME TRUST PLC
Annual Report and Accounts
For the year ended 31 October 2023
HARMONY ENERGY
INCOME TRUST PLC
The Scalpel 18th Floor
52 Lime Street
London
EC3M 7AF
Harmony Energy Income Trust PLC Annual Report and Accounts for the year ended 31 October 2023
Strategic Report
1 Overview
4
Chair’s Statement
8 Investment Adviser’s Report
24 Alternative Investment Fund Manager’s Report
26 Strategic Report
32 Environmental, social and governance
58 TCFD and TNFD Report
70
Principal Risks and Uncertainties
74 Section 172 Statement
76 Viability and Going Concern Statement
Governance Report
80 Board of Directors
82 Directors’ Report
85 Corporate Governance
90 Directors’ Responsibility Statement
91 Report of the Audit and Risk Committee
94 Report of the Remuneration and Nomination Committee
98
Report of the Management Engagement Committee
100 Independent Auditor’s Report
Financial Statements
108 Statement of Comprehensive Income
109 Statement of Financial Position
110 Statement of Changes in Equity
111 Statement of Cash Flows
112 Notes to the Financial Statements
134 Company Information
135 Glossary
www.heitp.co.uk
POWERING A
SUSTAINABLE
FUTURE
6
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Overview
STRATEGIC REPORT
Operational Portfolio
70%
555 MWh / 277.5 MW
(2022: zero)
Total Portfolio
790.8 MWh /
395.4 MW
(2022: 625 MWh / 312.5 MW)
NAV per Ordinary Share
115.40p
(2022: 120.55p)
COMPANY HIGHLIGHTS
AT 31/10/2023
(as at 31/10/2022 – restated)
As at the close of business
on 26 February 2024, the
latest practicable date
prior to the publication
of this document, the
Ordinary Share price was
39.50pence and the NAV
was 115.40 pence per
Ordinary Share as at
31 October 2023.
Harmony Energy Income Trust Plc (the
“Company”) offers Shareholders the
opportunity to participate in the transition
to net zero by investing in commercial scale
battery energy storage systems (“BESS”)
and renewable energy generation projects,
with an initial focus on a diversified portfolio
of BESS assets located in Great Britain. As
at 31 October 2023, the Company had five
operational, one cold commissioned and two
“under construction” 2-hour duration BESS
projects, with a total capacity of 790.8 MWh /
395.4 MW.
2023 has seen Harmony Energy Income Trust
plc (“HEIT” or the “Company”) make huge leaps
forward with its operational portfolio, with five
projects coming online, building on the success
of the previous two years, including the Bumpers
project (the Company’s largest BESS project, and
the largest in Europe by MWh). The Company
now owns two of the three largest operational
BESS assets in Europe (by MWh), including
the multi-award winning Pillswood site that was
energised in November 2022.
Conditions in the energy storage market and
wider economy have been challenging and
the current short-term weakness in revenues
will require prudent management. However,
independent revenue forecasts still predict that
the Company can generate attractive returns,
whilst contributing to net zero and delivering
positive social and environmental impacts.
Tonnes of CO
2
e emissions
avoided
15,415 estimated
(2022: N/A)
Adjusted Net Asset Value*
£262.12m
(2022: £267.70m)
Dividend declared and paid
in relation to the Period
8p per Ordinary Share
(2022: 2p per Ordinary Share)
* See glossary for definition of Adjusted NAV.
Adjusted Net Asset Value and the Dividend per Ordinary Share are Alternative Performance Measures.
The full table of KPIs and Performance Measures is set out on page 22 of this report.
“NAV Growth” has been removed from the Highlights section of the prior year Annual Report
andAccounts.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
1
The 40 MWh / 20 MW Farnham
project was the third to be energised
in the Company’s portfolio.
A Diversified Portfolio Across Great Britain
Portfolio Composition as at the date of this report
6
7
8
1
4
2
5
3
PILLSWOOD
196 MWh / 98 MW
STATUS: OPER ATIONAL
1
WORMALD GREEN
66 MWh / 33 MW
TARGET COD: Q2 2024
STATUS: UNDER CONSTRUCTION
7
BROADDITCH
22 MWh / 11 MW
STATUS: OPER ATIONAL
2
HAWTHORN PIT
99.8 MWh / 49.9 MW
TARGET COD: Q2 2024
STATUS: UNDER CONSTRUCTION
8
FARNHAM
40 MWh / 20 MW
STATUS: OPER ATIONAL
3
RUSHOLME
70 MWh / 35 MW
TARGET COD: Q2 2024
STATUS: COLD COMMISSIONED
4
LITTLE RAITH
99 MWh / 49.5 MW
STATUS: OPER ATIONAL
6
BUMPERS
198 MWh / 99 MW
STATUS: OPER ATIONAL
5
UNDER CONSTRUCTION/COLD COMMISSIONED ASSETS
(235.8 MWh / 117.9 MW)
OPERATIONAL ASSETS (555 MWh / 277.5 MW)
“COD” COMMERCIAL OPERATIONS DATE
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
2
Project Progress
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
3
PILLSWOOD
1
FARNHAM
3
BUMPERS
5
WORMALD GREEN
7
BROADDITCH
2
RUSHOLME
4
LITTLE RAITH
6
HAWTHORN PIT
8
NORMAN CRIGHTON
CHAIR
Chair’s Statement
Welcome, on behalf of the board
of directors (the “Board”), to
the second Annual Report and
Accounts of Harmony Energy
Income Trust plc (“HEIT” or
the “Company”) for the year
ending 31 October 2023
(the “Period”).
The Period has seen both successes and challenges.
Impressive progress has been made in building out our
portfolio, with 70% now operational. The sale of the
Company’s Rye Common project in September 2023 at a
premium to carrying value demonstrated the quality of the
Company’s portfolio. Our supplier concentration risk has
been reduced with the forming of new partnerships with
suppliers of BESS equipment and revenue optimisation. Real
progress has been made with our Environmental, Social, and
Governance (“ESG”) strategy and reporting. The Company’s
operational assets are supporting the UK’s net zero ambition
and helping to secure a more resilient and affordable
domestic energy supply. The Company has declared and
paid dividends totalling 8 pence per Ordinary Share in
relation to the Period.
Whilst the portfolio has established a leading position
relative to peers, a more challenging environment for
BESS assets has emerged through 2023, limiting revenue
opportunities. This challenging environment led to a
reduction in revenue assumptions in late 2023 which was
the primary reason that the Adjusted NAV per share fell
4.5% during the Period (against the restated figure). Actual
revenues achieved have been weaker than independent
forecasts and, coupled with higher interest rates, this has
driven a reduction in the share price of the Company over
the Period. Post-Period end, the Company announced
a number of initiatives which the Board considered
appropriate given the prevailing revenue environment. These
initiatives include:
• progressing towards a fully operational portfolio and
continuing to focus on maximising income, including
ongoing engagement with National Grid Energy
System Operator (“National Grid ESO”) on its planned
process improvements through which it intends
to increase the utilisation of BESS in the Balancing
Mechanism (“BM”);
• a renegotiation of the Company’s debt facilities to
reflect the predominantly operating nature of the
portfolio, reducing cost and structuring the tenor
and covenant thresholds to secure the Company’s
long term financial health. This was completed on
21February 2024;
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
4
STRATEGIC REPORT
• a postponement of the first quarterly dividend of
the current financial year. According to independent
forecasters, the Company was expected to generate
sufficient revenue to meet its target of 8 pence per
Share (on a fully covered basis) in 2023. Due to the
historic seasonality of BESS revenues, a material
portion of the Company’s returns were expected to
be generated in autumn and winter 2023, coinciding
with the completion of the construction of two large
projects. However, the price volatility witnessed since
the start of the Ukraine conflict has resulted in periods
where revenues have been both significantly higher
and significantly lower than independent forecasts.
Unfortunately for the Company, the first period of
operating performance of the Company’s assets
has coincided with a period of lower-than-expected
revenues. Whilst the Board remains committed to
meeting our objective of providing Shareholders
with attractive and sustainable levels of returns over
the medium to long term, the Board will review the
dividend policy during H1 2024; and
• consideration of the most effective methods of
delivering value to Shareholders over the short term.
As part of this initiative, the Board has instructed the
Investment Adviser to explore the sale of one or more
assets, with the aim of demonstrating to the market
the true value of the portfolio and the continuing
disconnect with the Share price. The proceeds of
any sale would be applied, at least partly, to reduce
gearing. Depending on the level of proceeds the Board
will also consider buying back Shares if the extreme
discount to NAV at which the Ordinary Shares are
trading persists. This strategy reflects the feedback we
have received from Shareholders over recent weeks.
We will continue to engage proactively with Shareholders
and to reflect on the range of views and preferences
communicated, and will provide additional updates on
strategy and trading in due course.
GROWTH OF OPERATING PORTFOLIO
AND MULTIPLE AWARD WINS
Despite the challenges referred to above, it is important
to highlight the achievements of the Company during
thePeriod.
Having acquired nine projects, either at or since IPO, the
focus for this year was on delivery of the portfolio through
construction and ramping up of operations. In this
respect, the Board is pleased with the progress achieved,
with multiple BESS projects completing construction.
The 196 MWh / 98 MW Pillswood project was the first to
commence operations in November 2022, with a further
359 MWh / 179.5 MW (across four projects) commencing
commercial operations over the rest of the Period.
The 198 MWh / 99 MW Bumpers project (energised in
October 2023) is the Company’s largest BESS project
and the joint-largest in Europe (by MWh). As a result, the
Company has moved from 0% to 70% operational within
the 12 months since 31 October 2022. It is testament to
the Investment Adviser’s wider team, and the strength of
our relationships with suppliers and Distribution Network
Operators (“DNOs”), that these projects were delivered
either in line with or earlier than expectations, during a
challenging environment where delays in the sector have
been common. To have delivered 555 MWh / 277.5 MW
through construction by the second anniversary of the
Company’s IPO is a terrific achievement.
The Company successfully divested the 99 MW Rye
Common project in September 2023 at a 1.5% premium
to its carrying value. See further commentary on this in
the NAV section below.
The Company’s Pillswood site, which at the time of launch
in November 2022 was Europe’s largest BESS (by MWh),
has been one of the best performing BESS sites in Great
Britain during 2023. Pillswood has won multiple awards from
industry stakeholders in 2023 including the “Utility Scale
Storage Project of the Year” award at the Solar & Storage
Live Awards, and the “Grid-scale Standalone Energy Storage
Project of the Year” award at the Energy Storage Awards.
The Board is confident that, as the portfolio’s track record
continues to grow, the Company’s other assets will also
outperform our peer group benchmark.
From October 2023 onwards, the Company’s portfolio
also began to benefit from contracted Capacity Market
(“CM”) payments as Pillswood, Broadditch and Farnham
commenced delivery of their respective T-1 CM contracts.
The early energisations of Bumpers and Little Raith have
allowed the Company to procure an additional £935k of
revenue (not previously budgeted) by acquiring T-1 CM
contract capacity.
KEY PARTNERSHIPS ANNOUNCED
In line with the Company’s policy to mitigate supplier
concentration risk, 2023 saw diversification in two
key commercial areas: BESS equipment supply and
revenue optimisation. Both these initiatives relate to the
Company’s Hawthorn Pit (99.8 MWh / 49.9 MW) and
Wormald Green (66 MWh / 33 MW) projects, which are
due to complete construction in the first half of 2024.
Envision Energy International UK Limited was appointed in
February 2023 to supply and install BESS equipment for
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
5
Chair’s Statement continued
these two projects. In September 2023, we were further
delighted to announce that bp signed an agreement with
HEIT to be revenue optimiser to these two projects.
UK BESS MARKET
After the extraordinary macro-economic conditions and
geo-political events witnessed during 2021 and 2022, the
revenue environment during 2023 has fallen to levels
below those expected by independent forecasters. The
UK market for mainstream ancillary services has moved
towards saturation. In addition, sustained low gas prices
have limited wholesale power spreads and volumes
contracted via the BM have been low. Whilst revenues
during the Period were, themselves, lower than expected,
the environment deteriorated further post-Period end over
the first few months of the winter of 2023/24. Despite this
recent performance, independent market experts expect
trading conditions to improve over the course of 2024. In
particular, the continued enhancement of new systems and
processes by National Grid ESO are expected to improve
access to revenues via the BM. Indeed, positive results from
this new system are already starting to be seen, although
not yet on a consistent basis. Longer-duration 2-hour
batteries have continued to outperform shorter-duration
BESS and the Company is very well placed to benefit from
the expected increase in demand and supply on the power
network, balancing challenges, widening wholesale market
spreads, and greater BM volumes. Going forward, the key
will be to continue with a strong focus on best-in-class
equipment, highly skilled asset management and regular,
active scrutiny of revenue optimisation performance.
DIVIDENDS
The Company declared and paid dividends totalling
8 pence per Ordinary Share relating to the Period,
meaning the Company has distributed 100% of the target
distributions announced at IPO. Due to the prolonged
and unexpectedly low levels of income generated over
the year, these payments were made predominantly
from recycled capital (VAT rebates) which the Board
recognises is not what Shareholders expect over the long
term. In addition, for reasons stated above, the Board in
consultation with the Investment Adviser has deemed it
prudent to postpone the first quarterly dividend relating
to the current financial year. Future dividends will depend
on the level of revenue generated by our Projects. Given
the depressed but volatile nature of revenue currently
generated by projects, the Board will continue to monitor
the performance of the portfolio closely over the rest of
the Financial Year, with the aim of distributing available
income to Shareholders.
NAV PERFORMANCE
During the Period, Adjusted NAV per Ordinary Share
decreased 4.5% from 120.84 pence per Ordinary Share
to 115.40 pence per Ordinary Share, driven primarily by
the lower revenue environment as referred to above.
During the year the Investment Adviser became aware of
an error in calculating the NAV for July 2023, which had
also affected some previous NAVs. Although the effect
was relatively small (a reduction of 2 pence per Ordinary
Share over the Period), the Board and the Investment
Adviser immediately took steps to establish how the error
occurred, and what processes needed to be changed to
minimise the risk of such an error reoccurring. These
changes were implemented shortly after the error was
discovered.
SHARE PRICE PERFORMANCE
The Company’s Share price has been negatively affected by
a range of factors, reducing from 111.75p to 72.5p over the
Period. Rising interest rates and a reduction in risk appetite
by investors during the Period had a material effect on
the wider UK investment company sector (across multiple
asset classes). In relation to the BESS sector particularly,
the difference of appetite between the private and public
markets is especially disappointing, with examples of
private BESS asset transactions during the Period at levels
equivalent to the Company’s own valuations. The sale of
the Company’s own Rye Common project in September at
a 1.5% premium to carrying value was one such example,
and a testament to this misalignment. Since the end of the
Period, the share price has come under further pressure
as investors have reacted to continued deterioration of
revenues (as reported by third party analysts) over the
winter, coupled with uncertainty over the Company’s ability
to service its debt covenants. In relation to the latter point,
the recent announcement of the debt refinancing may
restore confidence (see below). As far as recovery of BESS
revenues is concerned, the Investment Adviser’s Report
summarises some of the reasons behind the low revenues
and also explains why there is cause for optimism over 2024
and beyond.
The level of discount to NAV that the Shares are currently
trading at is unacceptable to the Board and the measures
detailed above are intended as a first step to address
these issues.
POST-PERIOD END EVENTS: DEBT
REFINANCING AND T-1 CAPACITY MARKET
On 21 February 2024, the Company completed the
amendment and restatement of its existing debt facilities
with NatWest plc (“NatWest”) and Coöperatieve
Rabobank U.A (“Rabobank”). The changes include an
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
6
increase in tenor, lower margins and a re-sizing of debt
covenant ratios to ensure ongoing headroom in the
current revenue environment. Further details are set
out in the Investment Adviser’s Report. As mentioned
above, the proceeds of any near-term asset sales would,
at least partly, be applied to reducing gearing levels, which
would further reduce ongoing debt service obligations. In
addition, the Company enjoyed success with six projects
bidding successfully for T-1 CM contracts on 20 February
2024. This raises the amount of contracted revenue for
the 12 months from 1 October 2024 to £3.2 million, or
£8k/MW/yr. Further details are set out in the Investment
Adviser’s Report.
ENVIRONMENTAL, SOCIAL, AND
GOVERNANCE
The Company’s ESG strategy, which was strengthened
this year, powers us towards a sustainable future through
battery energy storage infrastructure that supports the
UK’s net zero ambition, while bolstering energy security
and promoting affordability.
As noted above, the Company added 555 MWh / 277.5
MW of operational BESS to the grid during the Financial
Year. This has the capacity to power around 833,000 UK
homes for two hours. Our batteries stored 30,938 MWh of
renewable energy and avoided an estimated 15,415 tonnes
of CO
2
e emissions from entering the atmosphere.
With the expansion of the Company’s portfolio, there
comes a responsibility to develop infrastructure that is
truly sustainable in every sense by considering wider
environmental and social, aspects throughout the asset
lifecycle.
The Company considers the local environmental and
social context in which it operates and strives to make
a positive impact on the communities and environment
around its sites. In 2022/23, the Company put plans
in place to deliver a biodiversity net gain (“BNG”) of
15% across all operational sites as well as launched five
community funds with a combined value of £35,000
peryear, while creating skilled jobs at the heart of the
energy transition.
The Company also launched its Supplier Code of Conduct
(“the Supplier Code”) to strengthen sustainability in its
supply chain, with 68% of key Tier 1 suppliers signing the
Supplier Code during the Period. The Company increased
collaboration with suppliers and industry associations on
key issues such as human rights and circularity.
As we make progress on our ESG ambitions, it’s important
that we enhance our disclosures to support transparency.
The Company has published its inaugural integrated
Taskforce on Climate-Related Financial Disclosures
(“TCFD”) and Taskforce on Nature-Related Financial
Disclosures (“TNFD”) report. It has also submitted its
first voluntary United Nations Principles for Responsible
Investment (“UN PRI”) report, ahead of publishing its first
Transparency Report in the 2024 reporting cycle.
OUTLOOK
The success of the build-out of the portfolio during the
Period has been tempered by low recent revenues. The
Board and its advisers are working hard to find solutions to
the challenges we currently face, with our key objectives
for the coming year being to finish construction of the
outstanding projects, implement the initiatives detailed
above to address the discount to the NAV, and maximise
income. In doing so, we will continue to prove the value
of BESS not only as an asset class, but also as an attractive
income generating investment opportunity over the
medium to long term.
Shareholders will have many questions which we will be
happy to answer at the AGM to be held in April. I look
forward to meeting as many of you as possible there. In the
meantime, if you have any questions, please do not hesitate
to contact me through our brokers Berenberg and Stifel.
Norman Crighton
Chair
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
7
8
Investment Adviser’s Report
Harmony Energy Advisors Limited
(“HEAL” or “the “Investment Adviser”),
hereby delivers its second annual
Investment Adviser’s Report in relation to
the Company.
555 MWh / 277.5 MW energised
during the Period, taking the portfolio to
70% operational
Acquired 363.8 MWh / 181.9 MW
pipeline projects
Divested the Rye Common
shovel-ready project at a 1.5%
premium to carrying value
Diversified supplier base
through contracting with Envision
and bp
Current portfolio size:
790.8 MWh / 395.4 MW
Eight
BESS projects
15,415
tonnes of CO
2
e emissions
avoided
(estimated)
HIGHLIGHTS
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
8
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
8
STRATEGIC REPORT
PAUL MASON
MANAGING DIRECTOR
MAX SLADE
COMMERCIAL DIRECTOR
PETER KAVANAGH
INVESTMENT DIRECTOR
JAMES RITCHIE-BLAND
INVESTMENT DIRECTOR
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
9
The 99 MWh / 49.5 MW Little Raith BESS is the
Company’s first operational site in Scotland.
Investment Adviser’s Report continued
INTRODUCTION
The Period saw significant delivery and achievement
of the Company’s goals and other targets set out at
IPO, particularly in relation to delivery of projects
through construction and commencing operations.
The benefits of 2-hour duration have been evident as
the portfolio has performed well relative to the wider
GB BESS fleet. However, these achievements have
been overshadowed by a lower-than-expected revenue
landscape during the Period. This has subsequently
been exacerbated by a material further deterioration
in the three months post-Period end as the expected
uplift over winter failed to materialise. The primary
cause for this weak performance is the continued
drop in wholesale gas price, narrowing the daily spread
potential for BESS trading revenues. In addition, a
change to ancillary service auction parameters by
National Grid ESO put further pressure on pricing,
whilst the much-publicised new BM software has not
yet delivered in line with expectations.
The recently announced debt re-financing, reflecting
the move from a company developing assets to a
lower risk operating one, has also addressed near-term
risks around debt service in the event that the recent
low revenue environment continues. In addition,
the Board has instructed the Investment Adviser to
explore potential asset sales in order to reduce gearing
levels which would better position the Company for
long-term stability and growth. Once any asset sale
process is concluded, the Company will also consider
(and, if applicable, disclose details of) further initiatives
to provide value to Shareholders, such as share
buybacks. The Company remains confident that the
revenue environment will return to more positive levels
for BESS. The T-1 auction result on 20th February 2024
is a positive start, providing additional contracted
income for six of the Company’s projects.
PORTFOLIO UPDATE
The completion of construction and energisation of five
BESS projects during the Period means that the Company’s
operating portfolio has jumped from zero at the start of the
Period to 555 MWh / 277.5 MW by the end of the Period.
This represents 70% of the Company’s portfolio (by MWh),
12.2% of the operational GB market share, and places the
Company as the second largest operating BESS owner in
GB (by MWh).
This represents phenomenal growth from a standing start
and has been underpinned by strong project management,
with a number of projects delivered ahead of schedule.
Where projects have been subject to minor delays, this
has been largely due to grid connection constraints, and
the company has worked hard with DNOs and suppliers
to ensure that delays have been less significant than those
experienced by many other GB BESS owners. A report by
Modo Energy in January 2024 noted that 60% of BESS
projects were delayed by more than nine months. Viewed
in this context, the Company’s delivery track record is very
strong with only the Rusholme project suffering significant
delays, representing 8.8% of the portfolio (by MWh).
As at the date of publication of this report, a further three
projects (235.8 MWh / 117.9 MW) remain either “under
construction” or “cold commissioned”. The aforementioned
delays to the Rusholme project (70 MWh / 35 MW) have
been caused by the DNO’s inability to connect the project
in line with originally planned timelines. The project has
been “cold-commissioned”, meaning all batteries are on-site
and have been tested to the extent possible. The root cause
of this delay has now been successfully resolved, with the
DNO having re-mobilised on site. The project is expected to
energise in late Q2 2024.
The other two projects still “under construction” are
Wormald Green (66 MWh / 33 MW) and Hawthorn Pit
(99.8 MWh / 49.9 MW). These projects were acquired
by the Company in December 2022, along with a third
project, Rye Common. Post-acquisition, the Investment
Adviser moved quickly to finalise key commercial
contracts in relation to Wormald Green and Hawthorn
Pit in February 2023. This speed of contracting was made
possible thanks to the Investment Adviser proactively
undertaking a comprehensive tender process in advance
of acquisition. The aim was to diversify the Company’s
supplier base, encourage competitive tension for future
tenders, and minimise the amount of time between
acquisition and the start of construction.
PORTFOLIO UPDATE
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
10
As a result of this process, the Company procured
(via relevant project SPV’s) the engagement of Envision
International Trading Limited and Envision Energy
International UK Limited (together “Envision”) to supply
and install its ENS-L7300-3300 BESS in relation to the
Wormald Green and Hawthorn Pit projects. Envision
Energy International UK Limited is also contracted under
long term maintenance and services agreements in
relation to these two projects.
Key factors which influenced the Company’s choice
included Envision’s track record in the renewables sector,
specifically its independent battery cell manufacturing
capabilities, its commitment around BESS delivery dates (in
line with the Company’s project energisation timetables),
and its strong ESG policies and initiatives.
In relation to these two projects, the Company also
appointed Keltbray Energy Limited as balance-of-plant
contractor, and bp as the revenue optimiser. The latter was
appointed in September 2023 following an extensive tender
process involving fifteen potential suppliers. The relevant
projects will be optimised utilising software developed by
Open Energi (a company acquired by bp in 2021).
Similar to Rusholme, both projects have taken delivery
of battery cell modules and are expected to become
operational in Q2 2024. Along with the energisation of
Rusholme, this will make the Company’s portfolio of eight
BESS projects 100% operational (790.8 MWh / 395.4 MW).
DISPOSAL OF RYE COMMON
The third acquisition in December 2022 alongside
Hawthorn Pit and Wormald Green was the Rye Common
project (198 MWh / 99 MW). Similar to Wormald Green
and Hawthorn Pit, this project was acquired “shovel
ready”, before relevant construction contracts were in
place. Given the challenging capital raising environment
which remained following the Government’s ‘mini-budget’
in September 2022, it was not possible for the Company
to raise the additional equity required to construct this
project. Alternative funding options were considered
including potential vendor financing and other deferred
capex structures, however it was ultimately determined
by the Board that a sale of the project should also
beexplored.
The sale process took place during summer 2023 and
attracted multiple bidders at attractive prices demonstrating
the continued high level of interest for BESS projects
and the quality of Harmony Energy Limited’s pipeline. In
aggregate, the proceeds of the sale (together with recycled
cash previously allocated to this project) represented a 1.5%
premium to its carrying value as at 30 April 2023 (as set out
in the Company’s interim results).
The successful sale of the project at this value
demonstrated the appetite for such projects from private
investors whilst also validating the Company’s carrying
values for projects.
PIPELINE
The need for substantial amounts of energy storage on the
GB network is widely understood. The ROFR (“Right of
First Refusal”) enables the Company to have an exclusive
right of first refusal over Harmony Energy Limited’s
substantial and well-developed pipeline of projects.
The Company has, as at the date of publication of this
report, so far exercised this right in relation to 494.4 MW,
leaving at least 505.6 MW still to be acquired (subject to
financing).
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
11
Hawthorn Pit – one of two HEIT sites to utilise Envision
Energy batteries - is set to be energised in 2024.
Investment Adviser’s Report continued
DEBT FACILITIES INCREASED AND DRAWN
On 10 February 2023, the Company successfully
negotiated its debt facilities with NatWest and Rabobank.
This increased the Company’s available debt facilities
to a total of £130 million comprising a term loan of
£110million and a revolving credit facility (“RCF”) of
£20million.
These debt facilities provided the Company with funding
certainty to complete construction of the Bumpers,
Wormald Green and Hawthorn Pit projects.
During the Period, £95 million was drawn across the two
facilities with the remaining £35 million drawn as at the
end of December 2023 (post-Period) in order to fund
construction milestones.
HEDGING
At the beginning of the Period, the Company had an
interest rate swap (the “Swap”) in place in relation to
its initial debt facility of £60 million. The interest rate
swap fixed the SONIA element of interest payments
on this facility at a rate of 2.478% per annum. Multiple
rises in Bank of England base rates since the Swap was
contracted increased its value significantly. In connection
with the extension of the debt facility (described above),
the Company chose to break this swap in July 2023,
crystalising the mark to market value at the time of
£6.1million. An interest rate cap of 5.25% was put in place
in relation to the variable SONIA element of the increased
facility, at a cost of £2.8 million. This interest rate cap was
valued at £1.1 million as at 31 October 2023.
Post-Period, the Company restructured its debt facilities
as described below. The Company broke its interest rate
cap at this point (receiving a payment of £0.5 million)
and replaced it with an interest rate swap for the SONIA
element of this loan. The new interest rate swap fixes the
SONIA element of the loan at a rate of 4.101% per annum.
DEBT RESTRUCTURING POST-PERIOD END
On 21 February 2024, the Company successfully
negotiated an amendment and restatement of its debt
facilities with NatWest and Rabobank. The revised
structure recognises that the Company’s portfolio is
evolving from a construction portfolio into an operating
portfolio. The term loan and RCF have been consolidated
into a single long-term facility with the following key terms:
• Facility size of £130 million (already fully drawn);
• an extension of the legal maturity date from June 2027
to February 2031;
• a reduction in margin to 275 bps over SONIA for the
first two years, rising over time to a maximum of 350
bps in the final year; and
• a re-sizing of market standard debt covenant ratios
against conservative revenue forecasts to ensure
ongoing headroom in the current revenue environment.
The structure allows for voluntary prepayments during the
term (subject to a fee) and for cash sweeps in favour of the
lenders in the event of material revenue outperformance
above pre-agreed thresholds, enabling an acceleration of
de-gearing in a cost-efficient manner whilst also reserving
operational free cash flow for shareholder distributions.
When coupled with the new interest rate swap referred
to above, the aggregate cost of debt equates to 6.85% for
the first two years.
FINANCING UPDATE
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
12
MARKET COMMENTARY
CHART 1: ELECTRICITY DEMAND IS FORECAST TO GROW, DRIVEN BY EVS, HEATING AND HYDROGEN GENERATION
0
100
200
300
400
500
600
700
Underlying Demand (TWh)
2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2051 2053 2055 2057 2059
Electric Vehicles Electric Heating Hydrogen Generation Electricity Demand (Actual) Electricity Demand (Forecast)
Source: Aurora Energy Research
CHART 2: AVERAGE NATURAL GAS AND CARBON PRICES
0
20
40
60
80
100
120
0
50
100
150
200
250
300
350
400
Jan
22
Feb
22
Mar
22
Apr
22
May
22
Jun
22
Jul
22
Aug
22
Sep
22
Oct
22
Nov
22
Dec
22
Jan
23
Feb
23
Mar
23
Apr
23
Mar
23
Jun
23
Jul
23
Aug
23
Sep
23
Oct
23
Nov
23
Dec
23
Average Carbon Price (£/tonne)
Average Gas Price (pence/therm)
Natural Gas Price Carbon Price
Source: Aurora Energy Research
OVERVIEW
In October 2021, the UK Government set a commitment
for all electricity generation to be decarbonised by 2035,
subject to security of supply. To meet this target, the
UK must replace fossil fuel-based electricity generation
with low carbon power from renewable sources such as
wind and solar. This ambition was reinforced by the UK
government in a recent pledge at COP 28, together with
other countries, to triple global renewable generation
capacity to 11 TW by 2030.
Largely as a result of this policy, traditional UK baseload
power capacity is forecast to decrease due to challenging
economics and the mandated closure of coal fired power
generation whilst the installed capacity of intermittent
renewables (i.e. wind and solar plant) is forecast to
increase from 40 GW in 2023 to 135 GW in 2060.
This growth in renewables necessitates an increase in
flexible capacity such as BESS with installed capacity
expected to increase from 3.6 GW at the end of 2023 to
at least 18 GW by 2060. It should be noted that 3.6 GW is
16% below National Grid’s assumed operating capacity for
their Winter Outlook 2023/24, showing that the amount of
installed capacity is lagging behind current National Grid
requirements.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
13
Investment Adviser’s Report continued
MARKET COMMENTARY
Alongside this supply-side shift to intermittent renewables
supported by Flexibility, are significant changes in the
expected demand profile. Electrification of heat and
transport is expected to increase total demand by 90% by
2060, with peak demand forecast to increase by 48%. This
is a reversal of recent trends in which electricity demand has
fallen as a result of improvements in energy efficiency, the
cost-of-living crisis and low global output since Covid-19.
This backdrop of increasing peak demand, coupled with
greater penetration of intermittent renewables, remains
central to the business case for BESS. Baseload power
prices will decrease as more power is generated from
renewables. However, the average spread between peak
and off-peak pricing (the “Wholesale Price Spread”) is
forecast to increase from around £75 / MWh in 2023 to
£120 / MWh in 2030 and £136 / MWh in 2060. This is
driven by off-peak prices being increasingly set close to
zero when renewable output is high, whilst peak prices
will continue to be set by reference to commodity prices
(gas and carbon) which are both forecast to increase with
carbon increasing significantly throughout the rest of this
decade.
Wholesale Price Spreads therefore mirror this projected
increase in commodity prices, and this is the fundamental
macro driver behind the BESS business case which
continues to underpin the market valuation of projects.
CHART 3: CARBON PRICE IS FORECAST TO INCREASE RAPIDLY THROUGH THE 2020s
Gas Gas forecast Carbon (RHS) Carbon forecast (RHS)
0
20
40
60
80
100
120
140
160
0
10
20
30
40
50
60
70
80
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2052 2054 2056 2058 2060
Average Carbon Price (£/tonne)
Average Gas Price (£/MWh)
Source: Aurora Energy Research
CHART 4: FORECAST WHOLESALE PRICE SPREAD
2050
0
20
40
60
80
100
120
140
160
2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049
Wholesale Price Spread (£/MWh)
Source: Aurora Energy Research
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
14
CHART 5: AVERAGE BESS REVENUES BY BATTERY DURATION (EXC. CM REVENUE)
HEIT (2 hour) 1 Hour 2 Hour
0
50
100
150
200
250
Nov-22 Dec-22 Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23 Aug-23 Sep-23 Oct-23
Average Revenue (£k/MW/yr)
Source: Modo Energy. The chart shows 2-hour BESS compared to 1-hour BESS, excluding other durations.
GB BESS REVENUES DURING 2023 AND RELATIVE COMPANY PERFORMANCE
BESS revenue in the Period was markedly lower than
revenue generated in the same period in 2022. Whilst a
reduction from the remarkable highs of 2022 was expected
and built into third party revenue forecasts, the scale
and the speed of the reduction has exceeded market
expectations. BESS revenues in November and December
2023 and January 2024 (i.e.post-Period end), deteriorated
further, contrary to expectations.
There are multiple drivers of this reduction in revenue.
The first is the saturation of ancillary services which began
towards the end of 2022 and is now a well-established
position. This saturation was largely expected and already
built into forward-looking revenue projections. The second
key driver, and the most relevant to the Company, is a
reduction in wholesale price volatility. 2021 and 2022 had
both seen high wholesale price volatility – in 2021 this was
driven by rising fuel prices and low wind output leading
to frequent scarcity events which drove high peak power
prices. In 2022 wind output increased, reducing scarcity
events. However, a marked surge in commodity prices
drove power prices higher. This combination of high
renewable output and high commodity prices contributed
to high spreads and created the ideal conditions for BESS
revenue performance.
Wholesale Price Spreads in 2023 have narrowed due to
the reduction in commodity prices (particularly gas and
carbon prices), GB importing a large volume of energy
from Europe (via interconnectors) and a material reduction
in consumer energy demand.
The chart below shows average BESS revenues generated
during the Period (as estimated by Modo Energy). The
Company’s portfolio performance (also as estimated
by Modo Energy, for like-for-like comparison) is
overlaid to demonstrate the Company’s market-leading
position against its 2-hour peers. More generally, and
notwithstanding the saturation of ancillary services and
lower average fleet performance relative to 2022, 2-hour
duration BESS continued to outperform compared to
1-hour duration projects.
The revenue mix over the period varied between 1-hour
and 2-hour duration BESS. The key revenues have been
categorised below as follows:
Capacity Market
The CM consists of two annual auctions which are
designed to provide security of supply for the following
year (based on the T-1 auction) and for four years into the
future (based on the T-4 auction). Contracted assets are
paid an availability fee to guarantee availability to respond
to stress events, which are periods of very high demand.
This revenue stream can be combined with all other
revenues and is a secure, passive part of the revenue stack.
Details of the Company’s CM contracts can be found in a
later section of this report.
Ancillary Services
The current suite of National Grid ESO ancillary services
is referred to collectively in this section as Dynamic
Frequency Response (“DFR”). These services are divided
into “high” and “low” frequency services as described
below. Auctions take place on a daily basis for delivery the
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
15
Investment Adviser’s Report continued
MARKET COMMENTARY
following day and prospective service providers bid by
communicating to National Grid ESO how much capacity
they are able to provide, and at what price.
Dynamic Frequency Response High (“DFR(H)”):
A high-frequency event is caused by energy supply
exceeding demand, which causes the frequency to be
higher than the target set by National Grid ESO. DFR(H)
services are used to correct high frequency events by
either increasing demand or decreasing supply in order to
restore balance. BESS responds to this type of event by
consuming power, i.e. charging the battery.
A key strategy for the Company’s assets over the reporting
Period was to bid into this type of service for part of the
day and then sell any power consumed on a scheduled,
bilateral basis via the wholesale market during the evening
peak period. The Company’s assets do not pay for the
power consumed whilst providing DFR(H) services, and
therefore a greater spread could be achieved. This explains
why a large proportion of the Company’s revenues during
the Period came via Dynamic Regulation – a sub-category
of DFR (see section titled Dynamic Frequency Response
Low (“DFR(L)”).
This strategy saw increased competition from both
2-hour and shorter duration BESS during 2023, despite
being less effective for shorter duration BESS due to the
limited volume which can be stored. The introduction
of the Enduring Auction Capability in November 2023
places further pricing pressure on this strategy (see
further details below). The Investment Adviser monitors
such trends closely and has regular strategy meetings
with Tesla’s Autobidder operators (engaged as revenue
optimisers in relation to the Company’s current operating
projects). TheAutobidder software makes a judgement
as to whether the DFR(H) clearing price(s) represent
better value than charging via the wholesale markets.
Until we witness a widening of peak/off-peak spreads in
the wholesale markets, it is anticipated that the Company
will continue to participate in DFR(H) for as long as such
strategy continues to demonstrate best value. Indeed,
recent analysis by Modo Energy which tracked and
compared two BESS assets (one 1-hour duration and one
2-hour duration) operating the same DFR(H) & wholesale
strategy concluded that the 2-hour duration BESS earned
more £/MW whilst also cycling less.
Dynamic Frequency Response Low (“DFR(L)”):
A low frequency event is caused by energy demand
exceeding supply, causing the frequency to be lower
than the target. DFR(L) services are used to correct
low frequency events by either increasing supply, or
reducing demand. BESS responds to this type of event by
generating power, i.e. discharging the battery.
As with DFR(H) services, the Company’s assets would not
be paid for the energy throughput (in this case, the energy
discharged from the battery) whilst participating in this service.
For DFR(L), this creates an opportunity cost – the BESS could
reasonably achieve better value discharging via the wholesale
markets – so DFR(L) services have traditionally cleared at
higher pricing levels than DFR(H) services as bidders demand
higher compensation for this opportunity cost.
Wholesale Trading
Wholesale trading refers to the buying and selling of power
via the day ahead or intra-day power exchanges. In its
basic form it refers to buying cheap power when demand
is low (and increasingly when renewable energy generation
is high), storing this power for a period of time and then
selling when the price increases, profiting from the “spread”
between peak and off-peak prices. The average spread
in the wholesale markets is expected to increase as the
growing proportion of renewable generation increasingly
displaces use of older, thermal plant during periods of
off-peak pricing (when it is not economic for the latter to
operate), leaving peak prices linked to commodity prices
such as gas and carbon.
Wholesale markets are active until one-hour prior to
delivery of power (known as “Gate Closure”).
Balancing Mechanism
The BM is National Grid ESO’s last minute tool to balance
supply and demand in real time. This is active from Gate
Closure and spreads are typically significantly wider than
seen in wholesale markets. To date BESS revenues from
BM have been limited by National Grid ESO’s systems
and ability to dispatch a large number of small assets.
In response to this issue, National Grid ESO recently
released the Open Balancing Platform, covered in more
detail below.
CHART 6: REVENUE MIX BY BESS DURATION
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1 hr 2hrs
CM DFR (H) DFR (L) WS BM Other
Source: MODO Energy
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
16
NATIONAL GRID’S OPEN BALANCING
PLATFORM (“OBP”)
The BM is National Grid ESO’s primary tool for balancing
supply and demand, as well as managing system needs
in real time. BESS can be “dispatched” to either charge
or discharge in short bursts (currently up to 15 minutes)
multiple times per day. Historically, BESS has represented
a small proportion of overall dispatch volumes within the
BM (1.7% of total dispatches in 2023), as the National
Grid ESO control room operators have favoured more
established technologies which dispatch in large volumes,
rather than cheaper and more efficient BESS capacity.
Being subject to strong incentives to keep balancing costs
down, National Grid ESO is committed to increasing BESS
dispatch rates and volumes in the BM. National Grid ESO
has published its “Balancing Programme” incorporating
multiple enhancements to be implemented on a staggered
basis between December 2023 and Summer 2025 with the
express purpose of enabling greater use of storage assets in
the BM. The plan includes new control room processes and
training, software updates, regulatory changes and launch
of new services. The three key enhancements which are of
particular interest are:
1) The OBP & “Bulk Dispatch” functionality: launched in early
January 2024 (after an initial launch in December 2023
was aborted after a few days due to a technical fault), this
new software enables National Grid ESO controllers to
dispatch multiple assets simultaneously (up to a maximum
of 300 instructions per hour), rather than via individual
instructions (average rate of 6.5 dispatches per hour);
2) Fast Dispatch: expected in Spring 2024, will enhance
Bulk Dispatch so that National Grid ESO can call
upon BESS in the BM to respond to time-sensitive
frequency-correcting actions (e.g. in response to a
sudden large outage, such as an interconnector trip);
and
3) New Storage Parameters: a change designed to
give National Grid ESO controllers confidence and
capability to dispatch BESS for longer than the current
15-minute limitation. This was due to be available
from Winter 2024, but National Grid ESO recently
announced an ambition to bring this initiative forward
to 1 March 2024.
It remains too soon to forecast the net impact of
the planned enhancements, and a frustrating level of
inconsistency by National Grid ESO has been observed
whilst OBP “teething” issues are ironed out. However,
there are positive early signs, as since OBP’s first launch in
early December, the total BESS volume dispatched via the
BM has increased. According to Modo Energy, 1.1 GWh of
BESS volume was dispatched per day in January 2024, an
80% increase on November 2023.
It is already well documented that 2-hour duration BESS
can outperform shorter duration BESS in the BM, as more
MWh creates opportunity for more transaction volume.
Modo Energy predicts that the OBP and subsequent
enhancements will enable 2-hour duration BESS to enjoy
an uplift in the present value of lifetime revenues by
13-20% (central/high scenarios).
ENDURING AUCTION CAPABILITY
Post-Period end, on 2 November 2023, National Grid
upgraded its auction methodology and bidding structure in
relation to ancillary services. This is known as the Enduring
Auction Capability (“EAC”). The changes implemented
increased the linkage in pricing between services, and
also enabled participants to bid negative pricing to win
volume (i.e. pay to provide the service). This has increased
transparency for participants and reduced the cost for
National Grid ESO to procure ancillary services. It follows,
however, that service pricing has been driven down,
reducing revenues captured by BESS.
In relation to the Company, the EAC has impacted the
DFR(H) & wholesale trading strategy commonly used during
the Period (as described above). This is because the clearing
price for the DFR(H) service can now be negative, meaning
that the Company has to pay to charge (narrowing the
potential spread achievable). As described above, a 2-hour
duration BESS continues to outperform its shorter-duration
peers when utilising this strategy, and the Investment
Adviser is keeping the situation under close review.
OUTLOOK
As has been previously explained, short-duration BESS is
more reliant upon ancillary service revenues than 2-hour
duration BESS. The continuing saturation of the ancillary
services market along with EAC is, certainly, a material factor
in the recent revenue performance of the whole GB fleet.
However, the Investment Adviser anticipates that 2-hour
duration BESS will accelerate away from ancillary services
with a proportionate increase in revenue generated via the
wholesale markets and BM. This should result in increasing
divergence of asset performance, depending upon duration.
Despite the technical teething issues in National Grid ESO’s
implementation of OBP, the recent increase in dispatch rates
witnessed in the BM is an encouraging sign of this. More
widely, other factors such as the expected increase in energy
demand and the continued strong build out of intermittent
renewable generation plant, coupled with the relative shortfall
of GB BESS capacity, should support Wholesale Price Spread
growth, reversing recent trends.
Given the Company’s position as the largest portfolio
of exclusively 2-hour duration BESS in GB, we are well
positioned to continue to outperform the wider market
and maximise emerging revenue opportunities.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
17
Investment Adviser’s Report continued
The NAV per share as at 31 October 2023 was
£115.40pence per Ordinary Share, a reduction of -4.5%
from the Adjusted NAV per share of 120.84 pence per
Ordinary Share as at 31 October 2022 as restated.
The NAV total return over the Period was 1.2%. As at
31October 2023 NAV total return since IPO was 24.9%.
Material factors which influenced the NAV over the period
included:
a) lower near-term revenue assumptions based on the
latest revenue forecasts published by independent
providers. The revision to the forecasts is reflective
of the market environment during 2023 which saw
wholesale energy prices fall significantly from their
historic highs in 2022;
b) positive revaluations of the Company’s BESS projects
as they progressed through construction and
commenced operations;
c) dividend payments amounting to 8 pence per Ordinary
Share relating to the Period, which were uncovered as
the portfolio became increasingly operational;
d) a correction relating to an error in valuation
methodology in relation to short-term cash flows
which led to a misstatement being introduced at
the 31 October 2022 financial year end. It has been
ascertained that this resulted in an overstatement of
the NAV at 31October 2022 of £4,653,154.
Whilst lower revenue forecasts have had a material
impact on NAV, discount rates applied to the Company’s
“operating” and “under construction“ assets remained
stable throughout the Period. The relative stability
experienced for BESS was supported by the Company’s
sale of the Rye Common asset at a 1.5% premium to
carrying value in September 2023, and corroborated by
the Company’s Independent Valuer with reference to
other market transactions. The current discount rates
FINANCIAL PERFORMANCE
used in modelling are: 10.5% for construction projects;
and 10.0% for operational projects. These discount rates
are applied to all revenues, with no differentiation for long-
term contracted income generated through CM contracts.
As part of the biannual valuation exercise carried out
by the Independent Valuer as at 31 October 2023, the
Company introduced a new discount rate of 10.25%
which has since been applied to newly energised projects.
This withholds an element of construction risk whilst the
projects prove an absence of technical teething issues.
The below chart shows the modelled long-term revenue
and cost assumptions used for calculating the NAV of
the portfolio as at 31 October 2023. These figures are
presented in real terms with a base date of 1st January
2023. CM revenues are included, and the years are
calendar years.
REVENUE GROWTH DRIVEN BY INCREASE
IN OPERATIONAL PROJECTS
During the Period, the portfolio generated total revenue
of £6.7 million (equating to £67k / MW/Yr). £5.7million
of this came from the Pillswood project which became
operational in November 2022. The Broadditch and
Farnham projects began contributing from May and
June 2023 respectively, however they contributed less
to portfolio revenue due to their relatively small scale.
Bumpers and Little Raith were energised in October 2023,
representing 115% increase to the portfolio’s operating
capacity. This increase in capacity had limited impact
on revenue for the Period but positions the Company
well going into the next financial year. It should be noted
that the Company’s projects did not benefit from CM
contracts until October 2023. See section below for
additional information.
CHART 7: CHANGE IN NET ASSET VALUE PER SHARE FROM 1 NOVEMBER 2022 TO 31 OCTOBER 2023
Source: Harmony Energy Advisors Limited
NAV per Ordinary Share (p/share)
Published NAV
31-Oct-22
NAV
Correction
Restated NAV
31-Oct-22
Operating
Free
Cash Flow
NAV Roll
Forward
Change in
Discount
Rate
Revenue
Assumptions
Project
Timings
Other Project
Assumptions
Derivatives Debt Service Fund
Expenses
Dividends Closing NAV -
31-Oct-23
122.89
-2.05
120.84
1.76
8.68
1.89
-9.78
-0.82
-9.78
3.03 0.10
-1.43
-6.92
-1.95
115.40
100
105
110
115
120
125
130
135
140
The chart above shows the key drivers of Adjusted NAV change over the Period and is expressed on a per Ordinary
Share basis. In order to allow a consistent approach over the Period, C-Shares in issue at 31 October 2022 are deemed
included and converted to Ordinary Shares per the conversion ratio published at the point of conversion.
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
18
Source: Harmony Energy Advisors Limited
Wholesale trading and BM accounted for 42% of portfolio
revenue during the reporting Period. These revenue
streams are expected to make up a more significant
proportion of the Company’s revenue in the future as the
ancillary services markets become increasingly saturated.
Of the relevant ancillary services (Dynamic Containment,
Dynamic Moderation and Dynamic Regulation), Dynamic
Regulation was the most important ancillary service for the
portfolio over the Period. This service favours longer-duration
batteries and is increasingly being used in conjunction
with wholesale trading: by providing the service, the BESS
effectively “buys” power which can then be sold via the
wholesale markets, achieving a greater spread than would be
available by buying the same power wholesale. This strategy
has attracted increasing competition from other BESS as
other ancillary services become less attractive.
CHART 10: AROUND 40% OF
REVENUE CAME FROM TRADING &
BM DURING THE PERIOD
Trading
Balancing Mechanism
Dynamic Containment
Dynamic Moderation
Dynamic Regulation
FFR
34%
8%
14%
3%
40%
1%
Trading
Balancing Mechanism
Dynamic Containment
Dynamic Moderation
Dynamic Regulation
FFR
34%
8%
14%
3%
40%
1%
Source: Harmony Energy Advisors Limited
CHART 8: REVENUE BY PROJECT
Dec
22
Jan
23
Jan
24
Feb
23
Mar
23
Apr
23
May
23
Jun
23
Jul
23
Aug
23
Sep
23
Oct
23
Nov
23
Dec
23
Pillswood 1 Pillswood 2 Broadditch
Farnham Bumpers 1 Bumpers 2 Little Raith
-
0.2
0.4
0.6
0.8
1.0
1.2
Revenue (£m)
Capacity (Actual) MW
CHART 9: HEAL REVENUE & COST ASSUMPTIONS, 2 HOUR BATTERY
(£K/MW/YR, REAL, JANUARY 2023)
126
112
103
108
107
112
110
113
109
113
112
109
(25)
(24)
(22)
(20)
(19)
(20)
(20) (20)
(19)
(19)
(20) (19)
1
2
3
4 4
5
6
6
7
7
8
8
(20)
-
20
40
60
80
100
120
2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
£k/MW/Yr
HEAL Project Revenue Projections (Post-degradation & Availability) (Oct 23) HEAL Projected Project Opex (Oct 23)
Degradation Losses
Source: Harmony Energy Advisors Limited
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
19
Investment Adviser’s Report continued
FINANCIAL PERFORMANCE
In May and June 2023, the Company decided to focus
the Pillswood 2 project’s revenue strategy on the BM
and actively chose not to participate in ancillary service
markets. This strategy proved more profitable than
a wholesale market only, or wholesale plus Dynamic
Containment strategy (strategies being pursued by the
majority of owners in GB at the time) whilst also using
fewer cycles. Spreads were significantly higher than could
have been achieved in the wholesale market however
volume was relatively lower, limiting the amount of revenue
which could be achieved.
Whilst only operating in the BM, Pillswood 2 cycled 0.6
times per day on average. National Grid ESO is actively
working on improving the use of batteries in the BM,
and released the first iteration of their OBP in December
2023 (see the market commentary section for more
information). The Investment Adviser continues to believe
that the BM will be an important market for BESS in
GB with increased volume as a result of OBP being an
important first step.
CAPACITY MARKET
T-1 Capacity Market Contract Status
In early February 2023, the Company successfully bid for
T-1 CM contracts in respect of the Pillswood, Broadditch,
Farnham and Rusholme projects. The clearing price for
these contracts was £60 per kW/year, the second highest
clearing price ever achieved and significantly higher than
the T-1 revenue assumptions in the Investment Adviser’s
revenue projections at the time of the award. Service
delivery under these contracts commenced in October
2023, providing contracted revenues to the relevant
projects until 30 November 2024.
The Company’s Little Raith and Bumpers projects did not
participate in the T-1 auction in February 2023. This is
because bidders face financial penalties in the event that
the relevant projects do not pass various construction
milestones in line with timetable. Rather than expose the
Company to such risks, the Investment Adviser instead
focused on completing construction of both projects
ahead of expectations, which then allowed such projects
to confidently procure T-1 CM contracts via the secondary
market from third parties who are not able to fulfil their
delivery obligations. The Company successfully procured
additional T-1 CM Contracts to the aggregate value of
£935k which is accretive to modelled cashflows over the
October 2023 to September 2024 delivery year. Of this
aggregate amount, £403k was secured during the Period,
with the balance secured post-Period end.
STRATEGIC REPORT
The Company’s 22 MWh / 11 MW Broadditch project
was successfully energised in March 2023.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
20
Capacity Contract
Value (£m)
2023-
24
2024-
25
2025-
26
2026-
27
2027-
28
2028-
29
2029-
30
2030-
31
2031-
32
2032-
33
2033-
34
2034-
35
2035-
36
2036-
37
2037-
38
2038-
39
2039-
40
2040-41
Pillswood 2.2 0.8 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9
Broadditch 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Farnham 0.4 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2
Rusholme 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
Little Raith 0.4 0.4 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5
Bumpers 0.6 0.8 1.1 1.1 1.1 1.1 1.1 1.1
1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1
Wormald Green 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4
Hawthorn Pit 0.4 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6
Tot al 4.1 3.2 2.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 3.8 2.0
T-1 contract commencing October 2023
T-4 contract commencing October 2025
T-1 contract commencing October 2024 T-4 contract commencing October 2026
T-4 contract commencing October 2024
T-4 Capacity Market Contract Status
In relation to T-4 CM contracts, the Company’s Bumpers,
Wormald Green and Hawthorn Pit projects successfully
obtained 15-year duration, index linked T-4 CM contracts
at the T-4 auction held on 21 February 2023. The auction
cleared at a record high of £63 per kW/year, more than
double the previous record high price. This revenue
stream will commence from October 2026.
The above results mean that all projects in the Company’s
portfolio benefit from 15-year index linked T-4 contracts
commencing from October 2024, October 2025 or
October 2026 (depending on the project).
Recent T-1 Auction Results
On 20 February 2024, six of the Company’s projects
successfully bid for T-1 CM contracts for delivery from
1 October 2024 through to end September 2025.
Theauction cleared at £35.79/kw/yr, lower than last year
but higher than the Company’s expectations. Once De-
Rating (see glossary) is taken into account, this increases
the Company’s contracted revenue for the 12-month
period ending 30 September 2024 to £3.2million (circa
£8k/MW), of which £1.7 million has not yet been factored
into the Company’s modelled cash flows. The Company’s
Broadditch and Farnham projects did not participate
in this T-1 CM auction because their respective T-4
CM contracts will commence from 1 October 2024
(for delivery over 15years) and it is not permitted for a
project to hold two CM contracts in relation to the same
delivery period.
Overview
The table below shows the current contracted income
(on a De-Rated basis) to be received from the CM (as at
the date of publication of this report). Combined with
pre-existing CM contracts, the total contracted annualised
income for the portfolio is modelled to be £12k/MW until
30 September 2024, and £8k/MW for the subsequent
12 months ending 30 September 2025. Income in
2025/2026 will be increased by additional revenue from T-1
CM contracts awarded to relevant projects which do not
hold T-4 CM contracts for these delivery years.
TECHNICAL PERFORMANCE
During the Period, the Company’s portfolio performed in
line with expectations from a technical perspective. Across
the portfolio, availability averaged 97.8% (including grid
outages), with round-trip efficiency of 88.2%. Both of these
measures exceed those guaranteed by the manufacturer.
“Cycles” are a common measure of battery utilisation, with
one cycle being equal to the battery discharging its full
energy capacity (so one cycle for a 50 MW, 2-hour battery
is equal to 100 MWh).
The portfolio has averaged 0.94 cycles per day, which
is lower than assumed in the Company’s business plan.
Lower cycling leads to lower degradation, which in turn
increases the operational life of the project.
CHART 11: THE COMPANY’S CONTRACTED CAPACITY MARKET INCOME
Source: Harmony Energy Advisors Limited
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
21
Investment Adviser’s Report continued
As an Investment Company, HEIT does not consolidate for accounting purposes, however the Investment Adviser
believes that presenting financial performance on an unaudited consolidated basis is helpful in relation to the calculation
of dividend cover and to demonstrate the flow of revenue from project operations through to distributions to investors.
Dividend cover in the reporting Period is calculated as follows:
TABLE 1: UNAUDITED CONSOLIDATED FY 2023 FINANCIALS
Unaudited Consolidated Financials
FY2023
(£)
Revenue 6,698,540
SPV Costs (2,477,800)
HEIT/Holdco Costs (2,009,133)
Management Fee (2,163,222)
Interest Costs (3,248,173)
Tax (26,624)
Operational Free Cash Flow (3,226,411)
Dividend Paid in relation to FY 2023 18,170,264
Weighted Average Operational MW 100.5
Revenue (£/MW/Yr) 66,631
Based on the above, and despite having distributable reserves available, the Company’s dividend was not covered by
operational fee cash flow during the Period. The lack of dividend cover is predominantly due to the small number
of operating projects over the period (weighted average operational MW: 101). This was compounded by lower than
anticipated revenues (£67k/MW/Yr).
Operational free cash flow is expected to increase in future years as the portfolio becomes fully operational.
TheCompany intends to distribute operational free cash flow as dividends subject to working capital requirements.
TheInvestment Adviser and the Board intend to review the Company’s dividend policy in the coming months.
The accounting policies used to determine the figures in Table 1 are consistent with those described in Note 4 to the
financial statements.
TABLE 2: KPIs AND PERFORMANCE MEASURES
As at
31 October 2023
As at
31 October
2022
(Restated)
Key Performance Indicators
NAV (£) 262,108,092 253,156,980
NAV per Ordinary Share (p/share) 115.40 120.55
Dividends paid (£) 15,727,698 2,100,000
Dividends paid per Ordinary Share (p/share) 7p 1p
Alternative Performance Measures
Adjusted NAV (£) 262,108,092 267,699,152
Adjusted NAV Total Return (%) 1.2% 23.4%
Revenues from Operations (£) 6,698,540 n/a
Dividends per Ordinary Share declared and paid in relation to period (p/share) 8p 2p
Other Performance Measures
Operational Capacity (period end) (MWh/MW) 555 MWh / 277.5 MW n/a
Weighted Average Operational Capacity (MW) 100.5 n/a
Weighted Average Revenue per MW Operational (£/MW/Year) 66,631 n/a
CONSOLIDATED OPERATIONAL PERFORMANCE AND PERFORMANCE MEASURES
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
22
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
23
The multi-award winning Pillswood BESS uses a Tesla
two-hour Megapack system and has the capacity to store
as much as 196 MWh of electricity in one cycle.
BACKGROUND
The Alternative Investment Fund Manager’s Directive (the
“AIFMD”) came into force on 22 July 2013. The objective
of the AIFMD was to ensure a common regulatory
regime for funds marketed in or into the EU which are
not regulated under the Undertakings for the Collective
Investment in Transferable Securities regime. This was
primarily for investors’ protection and also to enable
European regulators to obtain adequate information in
relation to funds being marketed in or into the EU to
assist their monitoring and control of systemic risk issues.
JTC Global AIFM Solutions Limited (the “AIFM”) is a
non-EU Alternative Investment Fund Manager (a “Non-EU
AIFM”), the Company is a non-EU Alternative Investment
Fund (a “Non-EU AIF”) and the Company is currently
marketed only in the UK. Although the AIFM is a non-EU
AIFM, so the depositary rules in Article 21 of the AIFMD
do not apply, the transparency requirements of Articles
22 (Annual report) and 23 (Disclosure to investors) of
the AIFMD do apply to the AIFM and therefore to the
Company. In compliance with those articles, the following
information is provided to the Company’s Shareholders by
the AIFM.
1. Material Changes in the Disclosures
to Investors
During the Period, there were no material changes to the
information required to be made available to investors
under Article 23 of the AIFMD before they invest in the
Company from the information set out in the Company’s
prospectus dated 15 October, 2021, save as disclosed
below and in certain sections of the annual financial
report, those being the Integrated TCFD and the TNFD
report.
2. Risks and Risk Management Policy
The current principal risks facing the Company and the
main features of the risk management systems employed
by the AIFM and the Company to manage those risks
are set out in the section headed “Principal Risks and
Uncertainties”, the Directors’ Report, the Report of the
Audit and Risk Committee and in note 17 to the financial
statements.
3. Leverage and borrowing
The Company is entitled to employ leverage in
accordance with its investment policy as set out in the
Company’s prospectus. As at the balance sheet date, the
Company (via its subsidiary, HEIT Holdings Ltd) had £130
million of senior debt facilities, consisting of a £20 million
unhedged revolving credit facility and a £110 million term
loan facility, hedged by way of an interest rate cap (on the
SONIA element) of 5.25%. As at the balance sheet date,
the Company had drawn £95 million, including £10.6
million under the revolving credit facility. Post-balance
sheet date, the Company drew the remaining balance of
the £130 million and, on 21 February 2024, the Company’s
facilities were amended and restated. See the Investment
Adviser’s Report for more details. There were no changes
in the Company’s borrowing powers and policies.
4. Environmental, Social, and Governance Issues
Because the AIFM is a non-EU AIFM and the Company is
not marketed into the EEA, the AIFM is not required to
comply with Regulation (EU) 2019/2099 on Sustainability-
Related Disclosures in the Financial Services Sector
(the “SFDR”). However, details of the Company’s and its
advisers’ ESG objectives and actions taken are reported
in the section of this annual financial report entitled
“Environmental, Social, and Governance.”
As a member of the JTC group of Companies, the AIFM’s
ultimate beneficial owner and controlling party is JTC Plc,
a Jersey-incorporated company whose shares have been
admitted to the Official List of the UK’s Financial Conduct
Authority (“FCA”) and to trading on the London Stock
Exchange’s Main Market for Listed Securities (mnemonic
JTC LN, LEI 213800DVUG4KLF2ASK33). In the conduct
of its own affairs, the AIFM is committed to best practice
in relation to ESG matters and has therefore adopted JTC
Plc’s ESG framework (the “ESG Framework”) and a copy
of the ESG Framework can be viewed online at https://
www.jtcgroup.com/esg/.
As at the date of this report, JTC Plc is a signatory of the
U.N. PRI. The JTC group is also carbon neutral, works
to support the achievement of various U.N. Sustainable
Development Goals and reports under TCFD and the
SASB framework.
The AIFM and Harmony Energy Advisors Limited as
the Company’s alternative investment fund manager
and investment adviser respectively do consider ESG
matters in their respective capacities, as explained in the
Company’s prospectus dated 15 October, 2021, a copy of
which can be found at Harmony Energy Income Trust PLC
| JTC (jtcgroup.com).
Alternative Investment Fund Manager’s Report
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
24
Since the publication of those documents, the AIFM,
HEAL and the Company have continued to enhance
their collective approach to ESG matters and detailed
reporting on (a) enhancements made to each party’s
policies, procedures and operational practices and (b)
our collective future intentions and aspirations, which is
included in the TCFD report, the TNFD report, and the
Section 172 Statement.
The AIFM also has a comprehensive risk matrix (the
“Matrix”), which is used to identify, monitor and manage
material risks to which the Company is exposed,
including ESG and sustainability risks, the latter being an
environmental, social, or governance event or condition
that, if it occurred, could cause an actual or a potential
material negative impact on the value of an investment.
We also consider sustainability factors, those being
environmental, social and employee matters, respect for
human rights, anti-corruption and anti-bribery matters.
The AIFM is also cognisant of the announcement
published by H.M. Treasury in the UK of its intention
to make mandatory by 2025 disclosures aligned with
the recommendations of the Task Force on Climate-
Related Disclosures, with a significant proportion of
disclosures mandatory by 2023. The AIFM also notes
the roadmap and interim report of the UK’s Joint
Government-Regulator TCFD published by H.M. Treasury
on 9 November 2020. The AIFM continues to monitor
developments and intends to comply with the UK’s regime
to the extent either mandatory or desirable as a matter of
best practice.
5. Remuneration of the AIFM’s Directors and Employees
During the Period, no separate remuneration was paid by
the AIFM to two of its executive directors, Graham Taylor
and Kobus Cronje, because they were both employees of
the JTC group of companies, of which the AIFM forms
part. The third executive director, Matthew Tostevin, is
paid a fixed fee of £10,000 for acting as a director. Mr
Tostevin is paid additional remuneration on a time spent
basis for services rendered to the AIFM and its clients.
During the year under review, the AIFM paid £10,000 in
fixed fees and £39,637.50 in variable remuneration to Mr
Tostevin. The AIFM does not pay any performance-related
remuneration. Other than the directors, the AIFM has no
employees. The Company has no agreement to pay any
carried interest to the AIFM.
6. Remuneration of the AIFM Payable by the Company
The AIFM was during the Period paid a fee of 0.03%
per annum of the equity capital raised by the Company,
subject to a minimum of £30,000 per annum, such fee
being payable quarterly in arrears. Subsequent secondary
issues of shares of the Company in the primary market
are supported on a time spent basis, subject to a cap
of £10,000 per each such issue. Other significant non-
routine work may be agreed between the AIFM and the
Company from time to time and charged for on a time
spent basis. The total fees paid to the AIFM during the
Period were £67,434.00.
JTC Global AIFM Solutions Limited
Alternative Investment Fund Manager
27 February 2024
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
25
Strategic Report
INVESTMENT POLICY
The Company seeks to achieve its investment objective through investment in energy
storage and complementary renewable energy generation assets, with an initial focus on
commercial scale BESS located in diverse locations across Great Britain.
For the purposes of this policy, unless the context otherwise requires, words and
expressions defined in the Company’s Prospectus shall have the same meanings
where used in this policy.
The Company may invest in operational, under construction or “shovel ready”
projects, and may also provide development finance to pipeline projects.
STRATEGIC REPORT
INVESTMENT OBJECTIVE
The Company’s investment objective is to provide an attractive and
sustainable level of income returns, with the potential for capital
growth, by investing in commercial scale storage and renewable
energy generation projects, with an initial focus on a diversified
portfolio of BESS located in Great Britain (“Projects”).
completed lease, lease option or agreement for lease in relation to the land
upon which that project is situated;
planning permission enabling the construction of a suitable project on that land
(subject to any amendments to reflect final technical specifications);
an industry standard grid connection offer from a DNO or Transmission System
Operator (“TSO”); and
a BESS supply & installation contract with material terms agreed with a
reputable counterparty.
PROJECTS WHICH ARE “SHOVEL READY” WILL HAVE IN PLACE:
an agreed lease on satisfactory terms;
an accepted industry standard grid connection offer from a DNO or TSO,
and having made at least one milestone payment; and
a fully executed BESS supply & installation contract with a reputable counterparty.
PROJECTS WHICH ARE “UNDER CONSTRUCTION” WILL IN ADDITION,
HAVE IN PLACE:
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
26
An aerial view of the 196 MWh / 98 MW
Pillswood BESS prior to construction.
The Tesla Megapack batteries landed
at the Bumpers BESS in May 2023.
PROJECTS WHICH ARE “OPERATIONAL” WILL, IN ADDITION, HAVE IN PLACE:
completed lease on satisfactory terms in relation to the land upon which that
project is situated;
an executed grid connection agreement with a DNO; and
satisfactory completion of relevant commissioning tests.
Five projects came operational during
the reporting period, including Bumpers
(pictured).
TARGET REVENUE SOURCES
It is intended that, once operational, the main revenue
streams from the Company’s portfolio of Projects will be
from the following sources:
• Ancillary services – Projects may generate revenues
from short-term contracts procured via regular
competitive auctions through which the Company
and/or its subsidiaries will provide, on a firm basis,
dynamic or non-dynamic response services to National
Grid ESO as part of its efforts to cater for changes
in network system frequency, balancing the grid and
avoiding power outages;
• Asset optimisation – Projects may generate revenues
from importing and exporting power in the wholesale
market and the National Grid ESO-administered
Balancing Mechanism (“BM”); and
•
Capacity Markets – projects may generate revenues by
access to the benefit of contracts, or through entering
into new contracts, to provide back-up capacity power
to National Grid ESO as the Electricity Market Reform
delivery body via Capacity Market contracts of varying
terms between 1 year and 15 years in duration.
The contractual arrangements which the Company will
put in place in respect of its portfolio of projects are
expected to benefit from diversification across a number
of different income streams with various contract lengths,
counterparties and return profiles.
These revenue sources will inevitably evolve as the UK
energy and energy storage markets and National Grid ESO
policy and practice develop, and as such the Company
intends to adapt its contractual arrangements to procure
what it considers to be the most advantageous revenue
streams as the market develops.
BESS TECHNOLOGY
The Company intends to invest primarily in BESS Projects
using 2-hour lithium-ion battery technology, as such
technology is believed by the Investment Adviser to offer
the most efficient operation and return profile and has
a number of advantages over shorter duration batteries.
However, the Company remains agnostic as to which
energy storage and generation technology is used by
the projects in which it invests and will monitor projects
and may invest in projects with alternative technologies
(including different duration batteries and combinations
and co-location of such technologies), where they meet
the Company’s investment objective and policy.
Each BESS project will contain a battery system with a
number of battery modules in each stack, each of which is
independent and can be replaced separately. This reduces
the impact of failure of one or more battery modules and
therefore offers protection against the potential risk of the
operation of a project being interrupted.
INVESTMENT IN AND OWNERSHIP
OF PROJECTS
The Company intends to invest with a view to holding
assets until the end of their useful life. However, projects
may also be disposed of, or otherwise realised, where the
Investment Adviser recommends that such realisation is
in the interests of the Company. Such circumstances may
include (without limitation) disposals for the purposes of
realising or preserving value, or of realising cash resources
for reinvestment or otherwise.
The Company may also consider investing in the re-
powering of projects by replacing degraded cells in order
to extend Project cash flows, or increasing the capacity of
Projects where the grid connection is under-utilised.
The Company will typically achieve legal and operational
control of Projects through direct or indirect stakes of
100% in the relevant Project Companies, and may use
a range of investment instruments in the pursuit of its
investment objective, including but not limited to debt and
equity instruments.
In certain circumstances, the Company may participate
in joint ventures or co-investments, including (without
limitation) with other investors or entities with whom
members of the Harmony Group have developed assets,
where this approach enables the Company, within its
investment policy, to gain exposure to assets which
the Company would not otherwise be able to acquire
on a wholly-owned basis. In such circumstances the
Company will seek to secure its shareholder rights through
contractual and other arrangements to, inter alia, ensure
that the projects are operated and managed in a manner
that is consistent with the Company’s investmentpolicy.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
27
DEVELOPMENT FINANCE
The Company may provide loan finance to Pipeline
Projects prior to an anticipated acquisition (“Pre-
Acquisition Development Loans”). Such finance may be
for the commissioning of design works, pre-construction
studies (including but not limited to geotechnical studies),
acquisition of equipment or other development costs for
the furtherance of the relevant project, provided that no
more than 10% of Gross Asset Value (calculated at the
time that finance is provided based on the latest available
valuations) may be exposed in aggregate to such loans.
The Company may also provide funding via loans or equity
contributions to Project Companies which are owned by
the Company (“Post-Acquisition Development Finance”)
for the purposes of:
(a) evaluating and/or executing asset management
initiatives which the Investment Adviser reasonably
believes to be value accretive and supportive of the
Company’s overall target return, such as extension or
amendment of leases and/or renegotiation of consents
or grid connection agreements to increase import/
export capacity; or
(b) developing complementary renewable generation
infrastructure to be owned and operated by the
relevant Project Company. This funding may be used
for any reasonable development expenses such as
preliminary design work, planning applications and/or
commercial studies,
provided in all cases that no more than 10% of Gross
Asset Value (calculated at the time that finance is provided
based on the latest available valuations) may be exposed in
aggregate to such finance.
The total aggregate exposure of the Company to
Pre-Acquisition Development Loans and Post-Acquisition
Development Finance will not exceed 15% of Gross Asset
Value (calculated at the time that finance is provided
based on the latest available valuations).
COMPLEMENTARY RENEWABLE
GENERATION ASSETS
Whilst the Company’s primary focus under its investment
policy is to invest in BESS and other energy storage
projects, the Company may also invest in renewable
generation assets where it would be attractive to do so.
This may include projects with co-located BESS and
solar PV generation sharing the same grid connection
or stand-alone solar PV projects, where these would be
complementary to the Company’s other investments and
support the Company’s overall target return, subject to
the investment restrictions below.
INVESTMENT RESTRICTIONS
The Company aims to achieve diversification principally
through investing in a range of projects benefitting from
different income streams with different counterparties and
located in different regions of Great Britain. The Company
will observe the following investment restrictions when
making investments:
• following the acquisition of the Seed Projects by the
Company, the acquisition price of any single project
shall not exceed 20% of the Company’s Gross Asset
Value measured at the time of investment;
• following the acquisition of the Seed Projects, the
Company will seek to ensure that it has holding
interests in not less than five separate projects at any
one time;
• no more than 35% of Gross Asset Value, calculated
immediately following each investment, will be invested
in Projects which are not BESS projects;
• no more than 25% of Gross Asset Value, calculated
immediately following each investment, will be invested
in assets in relation to which the Company does not
hold a direct or indirect stake of 100%;
• no more than 10%, in aggregate, of the value of the
total assets of the Company at Initial Admission will be
invested in UK listed closed-ended investment funds;
• the Company will not conduct any trading activity
which is significant in the context of the Group as a
whole; and
• no investments will be made in fossil fuel assets,
including fossil fuel-powered generators.
Compliance with the above restrictions will be measured
at the time of investment and non-compliance resulting
from changes in the price or value of assets following
investment will not be considered as a breach of the
investment restrictions.
Individual projects will be held within special purpose
vehicles into which the Company will invest through
equity and/or debt instruments. It is intended that
each Project Company will hold one project but a
Project Company may own more than one project.
The investment restrictions will be applied on a
look-throughbasis.
Strategic Report continued
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
28
BORROWING POLICY
The Company may raise debt and may consider having
leverage (at the Company level and/or the Project
Company level) provided that it has sufficient assets and
to the extent funding is available on acceptable terms.
In addition, it may from time to time use borrowing for
short-term liquidity purposes which could be achieved
through a loan facility or other types of collateralised
borrowing instruments. The Company is permitted to
provide security to lenders in order to borrow money,
which may be by way of mortgages, charges or other
security interests or by way of outright transfer of title to
the Company’s assets. The Directors will restrict borrowing
to an amount not exceeding 49% of the Company’s Net
Asset Value at the time of drawdown.
In circumstances where these aforementioned limits are
exceeded as a result of gearing of one or more Project
Companies in which the Company has a non-controlling
interest, the borrowing restrictions will not be deemed to
be breached. However, in such circumstances, the matter
will be brought to the attention of the Board who will
determine the appropriate course of action.
CURRENCY, HEDGING POLICY AND
DERIVATIVES
Efficient portfolio management techniques may be
employed by the Company, and this may include (as
relevant) currency hedging, interest rate hedging and
power price hedging. Derivatives may be used for
currency, interest rate and power price hedging purposes
as set out below and for efficient portfolio management.
However, the Directors do not anticipate that extensive
use of derivatives will be necessary.
CASH MANAGEMENT
The Company may hold cash on deposit and may invest
in cash equivalent investments, which may include short-
term investments in money market type funds (“Cash and
Cash Equivalents”).
There is no restriction on the amount of Cash and Cash
Equivalents that the Company may hold and there may
be times when it is appropriate for the Company to have
a significant Cash and Cash Equivalents position. For
the avoidance of doubt, the restrictions set out above in
relation to investing in UK listed closed-ended investment
companies do not apply to money market type funds.
CHANGES TO AND COMPLIANCE WITH
THE INVESTMENT POLICY
Any material change to the Company’s investment policy
set out above will require the approval of Shareholders by
way of an ordinary resolution at a general meeting.
In the event of a breach of the investment guidelines and
the investment restrictions set out above, the AIFM shall
inform the Board upon becoming aware of the same and if
the Board considers the breach to be material, notification
will be made to a Regulatory Information Service.
For the purposes of the investment policy, “Gross
Asset Value” means the aggregate of (i) the fair value
of the Company’s underlying investments (whether or
not subsidiaries), valued on an unlevered basis, (ii) the
Company’s proportionate share of the cash balances
and cash equivalents of assets and non-subsidiary
companies in which the Company holds an interest and
(iii) other relevant assets and liabilities of the Company
(including cash) valued at fair value (other than third party
borrowings) to the extent not included in (i) or (ii) above.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
29
BUSINESS MODEL
The Company expects to invest predominantly in projects
at the “shovel ready” stage since these are likely to provide
the most attractive returns. The Company may also invest
in projects at the “operational” and “under construction”
stage where such projects are available for acquisition in
line with the Company’s investment policy.
The Company seeks to enhance further the efficacy
of its portfolio by targeting 2-hour duration storage
technologies.
The Company has the unfettered ability to purchase
qualifying assets from any seller. The Investment Adviser is
experienced in sourcing and advising on BESS transactions
and continues to evaluate potential opportunities on
the open market. However, at least over the near-term,
it is anticipated that the Company will continue to take
advantage of its exclusive arrangements described below.
The Company benefits from exclusive access to a well-
developed pipeline of BESS projects at various stages
of development in Great Britain. Each project within
this pipeline is controlled by Harmony Energy Limited
either solely or in conjunction with its joint venture
partner, Ritchie-Bland Energy (number 2) Ltd (“RBE”) (the
“Sellers”). This exclusivity is in the form of:
a) ROFR to acquire up to 1 GW of BESS projects
from the Sellers. The Company has, as at the date
of publication of this report, exercised this right in
relation to 494.4 MW, leaving at least 505.6MW still
capable of acquisition under the ROFR; and
b) a right of first offer (“ROFO”) in relation to (i) BESS
projects once the 1 GW ROFR threshold has been
reached; (ii) BESS projects co-located with solar
photovoltaics (“PV”); or (iii) stand- alone solar PV
projects.
The processes under which these rights are exercised are
set out in a pipeline agreement dated 14 October 2021
and entered into between the Company and the Sellers
(the “Pipeline Agreement”). The Sellers have an obligation
to keep the Company informed as to the development
progress of potential projects. This provides the Company
with an element of transparency which, in turn, allows the
Company a reasonable level of certainty around funding
timetable and portfolio growth planning.
The terms of the Pipeline Agreement provide that the
Sellers shall be prohibited from selling any qualifying
projects to any other party during the term of the
agreement without first offering them to the Company.
Upon any projects becoming “shovel ready”, the Sellers
shall give notice of such status to the Company. The
Company will then be entitled to either (i) if the ROFR
applies, acquire the relevant project pursuant to the terms
of the pro forma share purchase agreement (and subject
to a valuation calculated using a minimum discount rate);
or (ii) if the ROFO applies, make an offer to the Sellers
pursuant to the Pro Forma Share Purchase Agreement.
All acquisitions are subject to satisfactory external due
diligence, independent valuation and Board approval.
The Company will continue to target BESS projects
with 2-hour duration capability. As demonstrated in the
“Market Commentary” section, the Investment Adviser
believes that 2-hour duration BESS offers potential for
revenue outperformance relative to a shorter-duration
BESS across a range of market conditions.
DIVIDEND POLICY
The Board has responded to lower than anticipated
revenue performance since the end of the Period by
initiating a review of the Company’s dividend policy,
including the announced postponement of the Company’s
first quarterly dividend of 2 pence per Ordinary Share.
The review will form part of the Investment Adviser’s
consideration of the most effective methods of delivering
value to Shareholders over the short term, as described
earlier in this report. However, the Company maintains an
ambition to distribute operational free cash flow subject to
working capital requirements.
In the meantime, subject to this review, the Company’s
policy remains the targeting of an annual dividend
of 8 pence per Ordinary Share, payable in quarterly
instalments in March, June, September and December
of each year. All dividends will be in the form of interim
dividends. The Board reserves the right to retain within
a revenue reserve a proportion of the Company’s net
income in any financial year, such reserve then being
available at the Board’s absolute discretion for subsequent
distribution to Shareholders, subject to the requirements
of any applicable regulations.
The dividend policy will be subject to Shareholder vote at
the 2024 Annual General Meeting.
Strategic Report continued
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
30
Europe’s joint largest BESS (by MWh), the 198 MWh / 99MW
Bumpers Project was energised in October 2023.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
31
Environmental, social,
and governance
32
POWERING A
SUSTAINABLE
FUTURE
Located in Yorkshire, the 66 MWh / 33 MW Wormald
Green BESS is due to be energised in 2024.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
32
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
32
STRATEGIC REPORT
ESG HIGHLIGHTS
Published the
Company’s inaugural
Responsible
Investment Policy
Published the
Company’s inaugural
integrated
TCFD and TNFD
report
Submitted the
Company’s first
UN PRI report
68% of key Tier 1
suppliers signed up to
the Supplier Code of
Conduct
Biodiversity net
gain assessments
completed for all
assets, with all sites on
track to deliver a net
gain in habitat units
Launched the
Company’s first five
Community Funds,
with a combined total
value of £35,000 per
year
30,938 MWh
renewable energy
stored
Estimated
15,415 tonnes of CO
2
e
emissions avoided
Operational sites have a
combined capacity of
555 MWh / 2 7 7.5 MW
capable of powering around
833,000
UK homes for two hours
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
33
Introduction from the
ESG Committee Chair
The Company strives to generate value for
Shareholders and society by financing, building,
and operating energy infrastructure needed to
achieve a more sustainable future.
The Company’s assets support the UK’s net zero
carbon ambition, while contributing to energy
security and affordability. The Company strives
to operate responsibly and promote positive
environmental and social change.
DR SHEFALY YOGENDRA,
CHAIR OF THE ESG COMMITTEE
Energised in October 2023, the Little Raith BESS has
been designed to enable agricultural activities in the
land within the site’s red line boundary.
STRATEGIC REPORT
34
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
The path to net zero continues to be a challenging one
following the Covid-19 pandemic, Ukraine war, and
cost-of-living crisis.
The Company believes that the net zero transition is part
of the solution to many current challenges, ultimately
helping to deliver a more sustainable, healthy and
prosperous future for everyone. By enabling the adoption
of more renewable power, battery energy storage is
integral to achieving net zero. Large-scale deployment of
battery energy storage and complementary renewable
generation infrastructure throughout the UK will also help
to secure a more affordable domestic energy supply, while
contributing to the decarbonisation of the energy system.
In 2022/23, a large proportion of the Company’s initial
portfolio of assets moved from “under construction” to
“operational”, adding 555 MWh / 2 7 7. 5 MW of battery
energy storage capacity to the grid. These assets can power
around 833,000 UK homes for two hours. During the
Financial Year, the Company’s assets stored 30,938 MWh of
renewable energy and avoided an estimated 15,415 tonnes
of CO
2
e emissions from entering the atmosphere.
With the expansion of the Company’s activities comes
a responsibility to develop truly sustainable renewable
energy infrastructure by considering wider environmental
and social aspects throughout the asset lifecycle.
Combined with good governance, the Company
believes that consideration of environmental and social
factors is integral to generating and sustaining long-term
financialvalue.
The Company considers the environmental and social
context in which it operates and strives to make a
positive local impact. In 2023, the Company conducted
biodiversity net gain assessments for all assets and
implemented action plans to ensure that all sites are on
track to deliver a net increase in habitat units, as well as
having launched five community funds with a combined
value of £35,000 per year, while creating skilled jobs at the
heart of the energy transition.
The Company also launched its Supplier Code of Conduct
(the “Supplier Code”) to strengthen sustainability in its
supply chain, with 68% of key Tier 1 suppliers signing
the Code during the Period. The Company increased
collaboration with suppliers and industry associations on
key issues such as human rights and circularity.
As the Company makes progress on its ESG ambitions,
it’s important that it enhances its disclosures to support
transparency. The Company’s inaugural integrated TCFD
and TNFD disclosure is included on pages 58-69 of this
report. The Company also submitted its first voluntary
UNPRI report, ahead of publishing its first public
Transparency Report in the 2024 reporting cycle.
The Company and the Investment Adviser put
sustainability and ESG at the heart of the business strategy,
with a new Head of Sustainability joining the Investment
Adviser team this year to accelerate the delivery of the
ESG strategy. The Investment Adviser’s dedicated and
experienced team continues to drive the Company’s
sustainability and ESG performance. I would like to
thank them for their contributions towards powering a
sustainable future.
No organisation can possibly solve the myriad sustainability
issues alone, but by working in partnership with government,
investors, industry bodies and other stakeholders, we can
make a positive contribution towards the creation of a more
sustainable future - for the Company, as well as for the
environment and communities in which it operates.
Dr Shefaly Yogendra
Chair of the ESG Committee
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
35
In its second year, the Company has strengthened its ESG strategy and
articulated its ESG ambition: ‘powering a sustainable future’. The strategy will
enable the Company to manage ESG risks effectively and generate positive
environmental and social impact. This report sets out how the Company has
begun to deliver on its ESG priorities and discloses baseline data against a
complete set of metrics to measure performance.
CLIMATE CHANGE
2023 was the warmest year on record, marked by
unprecedented heatwaves and other extreme weather
events around the world
2
.
To remain in line with the Paris Agreement, global
greenhouse gas (”GHG”) emissions are required to
decrease by at least 45% by 2030 compared to 2010
levels
3
. The UK has set one of the world’s most ambitious
net zero targets, aiming to lower GHG emissions by 78%
by 2035 compared to 1990 levels.
With energy accounting for approximately three quarters
of global GHG emissions, the energy sector has the
opportunity and the responsibility to respond to the world’s
climate challenge
4
. The shift to renewable energy will play a
crucial role in decarbonising the energy system and wider
economy. In recognition of this, in October 2021, the UK
Government set a commitment for all electricity generation
to be decarbonised by 2035, subject to security of supply
5
.
This ambition was reinforced by the UK government in a
recent pledge at COP28, together with other countries, to
triple global renewable generation capacity to 11 TW by 2030.
However, the increase in renewable energy sources
presents a challenge for electricity system operators, who
need to match varying demand with intermittent supply to
maintain the stability of the system and avoid blackouts.
BESS are the missing link in the chain that can enable energy
systems to run on increasing proportions of renewable
electricity. BESS can solve the problem of intermittency
by balancing supply and demand of electricity, and storing
energy as it is generated and exporting it to the grid during
times of peak demand. This prevents curtailment (i.e.
renewable energy assets being paid to stop generating) and
allows renewable energy sources to contribute a greater
proportion of electricity, reducing the need for fossil fuel
generation and lowering GHG emissions. Batteries also
provide critical ancillary services to support grid stability
against the backdrop of declining system inertia resulting
from the increased reliance on renewables. This allows more
electricity from renewable sources onto the system.
“As we head towards a net zero system,
electricity storage will play a vital role in
helping manage supply and demand.”
National Grid ESO
1
“Developing energy storage will further
strengthen the UK’s energy security by
helping unlock the full potential of home-
grown renewables.”
UK Government
6
ENERGY SECURITY AND AFFORDABILITY
Energy security rose up the global agenda after Russia’s
invasion of Ukraine in February 2022, which resulted in
soaring energy prices and heightened costs of living and
running a business. While energy prices decreased in
2023, concerns about energy security and affordability
remain due to the UK’s continued reliance on fossil fuel
imports.
The net zero transition presents an opportunity to shift
to clean, domestic renewable energy that bolsters energy
security and helps achieve climate targets. By enabling the
integration of more renewable electricity onto the system,
battery energy storage helps to maximise the benefits of
renewable energy and reduce reliance on polluting fossil
fuels. Batteries are therefore crucial to enabling the UK to
‘keep the lights on’ and secure its energy independence,
while advancing the net zero transition.
With renewables now the most cost-effective form of
electricity generation, batteries can store affordable
renewable power for use at peak times. This helps to
reduce overall energy costs, resulting in lower energy bills
for people and businesses.
ESG REGULATION CONTEXT
ESG regulation continues to evolve at pace, with the
introduction of the EU Sustainable Finance Disclosure
Regulation and the UK Sustainability Disclosure
Requirements (“SDR”), which aim to improve the
consistency of reporting across the market and prevent
greenwashing.
In 2023, the Company undertook a readiness review in
relation to SFDR, with an intention to align with Article 8
of the framework on a voluntary basis in future. The FCA
published the SDR after the end of the Period. In 2024, the
Company will begin a review into future alignment with the
SDR.
Climate change and energy transition context
1 https://www.nationalgrideso.com/document/273166/download
2 https://www.carbonbrief.org/state-of-the-climate-2023-smashes-records-for-surface-temperature-and-ocean-heat/
3 https://unfccc.int/news/climate-plans-remain-insufficient-more-ambitious-action-needed-now
4 https://www.iea.org/data-and-statistics/data-tools/greenhouse-gas-emissions-from-energy-data-explorer
5 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1033990/net-zero-strategy-beis.pdf
6 https://www.gov.uk/government/news/energy-storage-backed-with-over-32-million-government-funding
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
36
THE ROLE OF BESS IN MAINTAINING GRID STABILITY WHILE FACILITATING HIGHER
RENEWABLE PENETRATION
On 2 July 2023, power prices plummeted to a record
low of -£76/MWh, due to an excess of power on
the grid driven by high wind and solar generation
combined with low demand. Negative pricing events
such as this are increasingly common and usually
result in wind generation being curtailed. In this
scenario, the Company’s assets played a critical
role in maintaining grid stability, while reducing
the amount of wind which is curtailed by storing
the surplus renewable energy generated and then
discharging it back onto the grid when demand is
higher and/or the wind has lessened.
During this day, the Company’s assets stored 67.13
MWh of renewable energy and avoided 23.05 tonnes
of CO
2
e
emissions from entering the atmosphere.
This is four times the daily average that the portfolio
realised throughout the remaining days of July 2023.
At the same time, the portfolio was contracted
through various ancillary services to stand available
to either discharge or charge if called upon by
National Grid ESO. These actions help to slow or
correct deviations in frequency caused by irregular or
unplanned changes in national generation patterns.
On days such as 2 July when wind generation
accounted for up to 54.5% of national generation, the
risk of Frequency Deviations was elevated because
wind is inherently volatile and difficult to predict with
100% accuracy. In this way the Company’s assets
contribute meaningfully towards maintenance of
gridstability.
80
-80
-100
60
-60
40
-40
20
-20
0
Price (£/MWh)
00:00 01:00 02:00 03:00 04:00 05:00 06:00 07:00 08:00 09:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 23:00
-£76 / MWh
FIGURE 1: GB POWER PRICES REACHED RECORD NEGATIVE LEVELS ON 2 JULY 2023
CASE STUDY
7 https://www.gov.uk/government/news/battery-storage-boost-to-power-greener-electricity-grid
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
37
“Flexible technologies like batteries will form part of the UK’s smarter electricity grid,
supporting the integration of more low-carbon power, heat and transport technologies,
which it is estimated could save the UK energy system up to £40 billion by 2050.”
UK Government
7
ESG STRATEGY
Delivering a more environmentally, socially and financially
sustainable future will require the Company to address its key
sustainability and ESG risks and opportunities. By effectively
managing ESG, the Company can help to build a more
sustainable and resilient future – for the business, as well as
for the environment and communities in which it operates.
Materiality assessment
In 2022, the Company completed a materiality assessment
to identify the ESG and sustainability areas most relevant
to the business. Sustainability themes were scored based
on market analysis and stakeholder interviews. Two criteria
were considered to assess the materiality of sustainability
areas:
• Importance to key stakeholders: employees, investors,
customers, suppliers, partners, peers, communities; and
• Potential impact of the Company on the environment
and wider communities – positive or adverse.
This helped to evaluate the ESG context in which the
Company operates and included a review of industry
reporting standards.
The most relevant themes were climate and GHG emissions,
biodiversity and community and social vitality. The materiality
assessment is presented in a matrix that compares stakeholder
importance with potential impact, with the highest priorities
appearing in the top right corner, as shown below.
Approach to ESG
The Company finances, builds and operates renewable
energy infrastructure needed to achieve a more
sustainable future.
ENVIRONMENTAL
1
Climate & GHG emissions
H
2
Land use
M
3
Water
L
4
Pollution
L
5
Biodiversity
H
6
Waste
M
7
Use of resources
L
SOCIAL
8
Health, safety, wellbeing
M
9
Labour and human rights
M
10
Diversity and inclusion
M
11
Ethical behaviours
L
12
Employee development
L
13
Community and social vitality
L
14
Wealth creation and employment
L
Potential impact
Stakeholder importance
13
5
1
STRATEGIC
PRIORITY
SECONDARY
PRIORITY
LOW
MATERIALITY
10
9
14
8
6
2
12
11
7
3 4
FIGURE 2: MATERIALITY MATRIX
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
38
STRATEGY UPDATE
In 2023, the Company strengthened its ESG strategy and
articulated its ambition to ‘powering a sustainable future’.
The strategy will enable the Company to manage ESG risks
effectively and generate positive environmental and social
impact.
The strategy builds on the Company’s material issues as
identified through the materiality assessment and has
three strategic pillars: enabling a net zero energy system,
enhancing our natural environment and promoting positive
people impacts. The relevant United Nation Sustainable
Development Goals (“SDGs”) were allocated to each of
the focus areas.
The Company has identified actions to maximise positive
benefits and minimise adverse impacts of the business on
the priority ESG areas. This includes the direct influence
the Company can have on addressing ESG issues on BESS
sites and in the Investment Adviser’s offices, as well as the
role of the wider supply chain.
Over the next year the focus will be on integrating the
Company’s ESG strategy. The Investment Adviser has
implemented a system to collect, analyse and monitor
ESG data to measure ESG performance.
We generate value for Shareholders and society by financing, building and operating the energy infrastructure needed to achieve
a more sustainable future. Our assets play a vital role in delivering net zero, while contributing to energy security and affordability.
We strive to operate responsibly and promote positive environmental and social change. We aim to enhance biodiversity where we
operate to mitigate the twin biodiversity and climate challenges.
POWERING A SUSTAINABLE FUTURE
BEHAVING AND INVESTING RESPONSIBLY
We embed sustainability in our investment process to ensure that we use our capital to promote positive environmental
and social impact whilst delivering a superior return on investment.
FIGURE 3: ESG STRATEGY
Facilitating the increased adoption of
renewable power through net zero
infrastructure
Climate change mitigation
Greenhouse gas emissions
ENABLING A NET ZERO
ENERGY SYSTEM
The Envision Energy batteries landed
at Hawthorn Pit in November 2023.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
39
Delivering net zero infrastructure
in a way that protects and enhances
biodiversity and nature
Biodiversity
Waste, resources and pollution
ENHANCING OUR NATURAL
ENVIRONMENT
Championing a fair transition to
net zero that benefits people,
workers and communities
Community impact
Employment, human and labour rights
PROMOTING POSITIVE
PEOPLE IMPACTS
UN PRI
The Principles for Responsible Investment are a set of voluntary principles
which promote the integration of ESG considerations into investment
decision-making processes. The Company became a UN PRI signatory
in 2022 and published its first voluntary UN PRI report in 2023, with the intention to
publish the first Transparency Report in 2024.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
40
Integrating ESG throughout
the investment lifecycle
The Company seeks to achieve its investment
objective through investing in energy storage
and complementary renewable energy
generation assets. The Company believes that, in
combination with good governance, consideration
of wider social and environmental factors is
integral to its long-term financial success.
As an investor in renewable energy infrastructure, the Company’s investment
strategy has sustainability and responsibility at its heart. The Company recognises
the fundamental link between the sound performance of wider ESG matters and the
creation of long-term investment value. As such, the Company is committed to actively
managing ESG-related risks and opportunities by integrating ESG considerations into
the investment lifecycle.
In 2023, the Company introduced its first Responsible Investment Policy describing how
ESG considerations are embedded throughout the investment process, as detailed in
the diagram below.
STRATEGIC REPORT
FIGURE 4: RESPONSIBLE INVESTMENT PROCESS
In December 2023, the Bumpers BESS was showcased on BBC
News for a feature titled ‘Five reasons for optimism on climate’.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
41
INVESTMENT POLICY
AND RESTRICTIONS
The Company invests
in renewable energy
infrastructure. Investments in
fossil fuels are prohibited.
DUE DILIGENCE
Prior to recommending any
asset for acquisition, the
Investment Adviser performs
detailed ESG due diligence on
potential investments.
PROJECT INVESTMENT
REVIEW AND APPROVAL
The due diligence report
is provided to the AIFM
and the Board. The Board
incorporates ESG into
investment decision making.
END-OF-LIFE
Every effort will be made to implement
and track sustainable end-of-life practices.
MANAGEMENT, MONITORING AND
REPORTING
Post-acquisition, the Company strives to
play an active role in the management
of its assets, ensuring that ESG risks and
opportunities are managed.
SUPPLIER CODE OF CONDUCT
Suppliers are required to sign the
Supplier Code of Conduct.
INVESTMENT SCREENING
Target assets are assessed
against the Investment Policy
and investment restrictions for
suitability.
END-OF-LIFE
ONGOING MANAGEMENT
PRE-INVESTMENT
ESG governance
The Board has ultimate responsibility for and oversight of
ESG and the Board considers ESG as part of investment
decision making. Shefaly Yogendra is the Non-Executive
Director with overall responsibility of ESG as Chair of the
Company’s ESG Committee.
The Board has delegated certain aspects of ESG oversight
and operational decision-making to the ESG Committee.
The role of the Committee is to monitor and review the
Company’s ESG-related performance and activities and
to make recommendations to the Board in relation to the
Company’s ESG strategy.
Furthermore, the Board has outsourced the day-to-
day investment management and asset management
activities to the Investment Adviser. ESG is considered
as part of these activities. The Head of Sustainability, a
representative of the Investment Adviser, is responsible
for implementing the ESG strategy defined by the Board
of the Company. In addition, the Company engages
external ESG consultants where additional ESG expertise
is required.
ESG is monitored through regular interactions between
the Board and the Investment Adviser, including through
quarterly Board meetings, quarterly Board reports, ESG
Committee Meetings, Committee papers, written updates
and ad hoc meetings.
The Company’s ESG policy, which communicates its
ESG ambition and strategy, is available on its website:
www.heitp.co.uk/content/uploads/2023/09/ESG-Policy-
September-2023.pdf.
FIGURE 5: ESG GOVERNANCE STRUCTURE
HEIT BOARD
The Board has ultimate responsibility for and oversight of ESG and recognises the role of ESG in achieving long-term value. The
Board is responsible for promoting the success of the Company by setting the strategy through which shareholder value can be
generated, whilst creating a positive impact and minimising negative outcomes for the Company’s wider stakeholders. The Board has
delegated certain aspects of ESG oversight and operational decision-making matters to the Committees and the Investment Adviser.
The Head of Sustainability is responsible for integrating ESG into key business areas including Investment, Development, Engineering
and Asset Management.
BOARD COMMITTEES INVESTMENT ADVISER
HEIT ESG
Committee
Responsible for
monitoring the
Company’s ESG
performance
and making
recommendations to
the Board in relation
to the Company’s
ESG strategy.
HEIT Audit and Risk
Committee
Responsible for
ongoing robust
assessment of the
risk management
and internal controls
of the Company,
including ESG and
climate- related risks.
HEIT Management
Engagement
Committee
Responsible for
monitoring and
reviewing the
performance of key
service providers,
including monitoring
of ESG progress.
HEIT Renumeration
and Nomination
Committee
Responsible for
determining the
nomination and
remuneration of
the Directors of the
Company and the
Chairperson of the
Board to promote
the long-term
sustainable success
of the Company.
Investment
Adviser
Responsible
for investment
management and
asset management
activities. ESG is
considered as part
of these activities.
Reports to the Board
quarterly.
Head of
Sustainability
Responsible for
implementing the
ESG strategy defined
by the Board and
for engaging key
stakeholders and
business areas on
ESG. Reports to
the Board and ESG
Committee quarterly.
How ESG is embedded throughout the asset lifecycle
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
42
BESS infrastructure is integral
to the net zero transition
through its role in enabling
the adoption of a greater
proportion of renewable
power.
As an investor in BESS and
complementary renewable
energy generation assets, the
Company’s investment policy
has the net zero transition at
its core and climate-related
opportunities are inherently
considered in business,
strategic and financial
planning.
CLIMATE CHANGE MITIGATION
Approach
The Company’s BESS contribute to climate change
mitigation through enabling the integration of more
renewable energy onto the grid and displacing fossil fuel
generation, thereby reducing the carbon intensity of the
grid. On admission to the London Stock Exchange, the
Company was awarded the LSE’s Green Economy Mark,
recognising it as a significant contributor to the transition
to a net zero economy, a distinction that has been
renewed every year since.
Progress update
During the Period the Company brought its first five
BESS projects into operation with a combined capacity
of 277.5MW, capable of powering around 833,000
UK homes for two hours. The Company’s BESS assets
stored 30,938 MWh of renewable energy and avoided an
estimated 15,415 tonnes of CO
2
e emissions from entering
the atmosphere. The methodology for calculating avoided
emissions is detailed on pages 68 and 69.
Looking ahead
• Further develop the Company’s methodology for
measuring the carbon avoidance potential of its BESS.
ENABLING A NET ZERO ENERGY SYSTEM
Bumpers and Little Raith (pictured) were energised in October 2023,
representing a 115% increase to the portfolio’s operating capacity.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
43
TABLE 3: PRIOR YEAR AND CURRENT YEAR GHG EMISSIONS FIGURES
GHG EMISSIONS 2021/22 DATA 2022/23 DATA
Scope 1 GHG emissions (tCO
2
e) 0 0
Scope 2 GHG emissions (tCO
2
e) 0 1,323
Scope 3 GHG emissions (tCO
2
e) 1,879 153,607
Total Scope, 1, 2 and 3 GHG emissions (tCO
2
e) 1,879 154,930
GHG intensity relative to revenue (tCO
2
e/£m) NA – not reported 23,345
Approach
Though the Company’s assets support the
decarbonisation of the grid, it also takes responsibility
for the GHG emissions it creates. The Company is
committed to managing, reducing and reporting its GHG
emissions annually.
The Company’s analysis suggests that over the lifetime
of a BESS asset, it will avoid more carbon than it emits,
making the overall carbon impact net positive. However,
the Company recognises its responsibility to understand
and reduce its operational and supply chain emissions. The
Investment Adviser is implementing initiatives to reduce the
GHG emissions of the Company’s assets, as well as engaging
with suppliers to reduce upstream and end-of-life impacts as
detailed in the following section (“Progress update”).
Progress update
The Company’s carbon footprint increased from 1,879
tonnes of CO
2
e to 154,930 tonnes of CO
2
e between
2021/22 and 2022/23. GHG emissions increased
significantly this year due to the Company’s high level of
construction activity and the inclusion of construction
and upstream GHG emissions in reporting for the first
time. Under the methodology used, the construction
and materials emissions for a project will be recognised
only once the construction of that project is complete.
As there were no operational projects during 2021/22,
emissions reported for the prior reporting Period did not
provide a representative baseline. Further details regarding
the Company’s carbon footprint methodology can be
found on page 67.
The Investment Adviser has implemented initiatives to
reduce its environmental impact, including travel policies
to restrict the use of flights and encourage rail use,
an electric vehicle salary sacrifice scheme and flexible
working to reduce commuting. The Investment Adviser’s
London office uses energy from renewable sources for its
electricity and heating.
In 2023, the Investment Adviser engaged with its key
suppliers (including its two BESS equipment suppliers)
regarding the measurement and management of
supply chain climate impacts. During the Period, both
BESS suppliers conducted lifecycle assessments of
their batteries which were shared with the Investment
Adviser for inclusion in the Company’s carbon footprint
assessment. Both suppliers are implementing carbon
reduction initiatives such as on-site renewable electricity
generation and energy efficiency measures within their
own operations, as well as engaging with their suppliers to
reduce upstream supply chain GHG emissions relating to
mineral extraction, refining and parts manufacturing.
Looking ahead
• Assess climate target options, including a net zero
target and a science-based carbon reduction target.
• Strengthen the Company’s understanding,
management and disclosure of climate-related risks
and opportunities.
ENABLING A NET ZERO ENERGY SYSTEM
GREENHOUSE GAS EMISSIONS
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
44
CASE STUDY
EMBEDDING SUSTAINABILITY IN THE
BESS ASSET CONSTRUCTION PROCESS
The Investment Adviser engaged with a
construction sub-contractor regarding the
measurement and management of GHG
emissions through the construction process for
its Bumpers, Wormald Green and Hawthorn Pit
projects (c.45% of the portfolio by MW). The
sub-contractor provided energy, water, waste,
material and GHG emissions data, as well as
implementing low carbon initiatives on site such as
energy efficient welfare cabins powered by solar
diesel hybrid generators with a BESS pack, solar
and wind powered lighting towers and sustainable
materials such as lower carbonconcrete.
CLIMATE- AND NATURE-RELATED RISKS
AND OPPORTUNITIES
The Task Force on Climate-related Financial Disclosures is an international
initiative to assess and report climate change risks and opportunities in a financial context.
The Task Force on Nature-related Financial Disclosures builds on the model developed
by TCFD. It provides a framework for organisations to report and act on evolving nature-
related dependencies, impacts, risks and opportunities.
The Company does not currently fall within the scope of mandatory reporting requirements
for TCFD or TNFD, however it has chosen to report in line with both frameworks on a
voluntary basis. In recognition of the interrelatedness of climate and nature, the Company
has conducted an integrated climate- and nature-related risk and opportunity assessment in
line with TCFD and TNFD – see pages 58-59 for further information.
The Envision Energy batteries landed
at Wormald Green in November 2023.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
45
The Company strives to
deliver net zero infrastructure
in a way that protects and
enhances biodiversity and
nature. The Company
takes accountability for the
environmental impact of
its operations and supply
chain, including its impact on
biodiversity, waste, resources,
and pollution.
Approach
The UN Conference of Biological Diversity (COP15)
in December 2022 saw nations come to an historic
agreement to protect a third of the planet for nature by
2030, reflecting the increasing ambition to protect and
enhance biodiversity.
The Company has set a target to deliver a biodiversity net
gain at all existing sites and a minimum 10% biodiversity
net gain at newly acquired sites, ahead of the mandatory
UK Government BNG target coming into force in 2024.
To achieve this, the Company strives to ensure that the
delivery of net zero infrastructure incorporates nature
and biodiversity considerations at all stages of an asset’s
lifecycle. Delivering BNG across the portfolio is an
additional way to mitigate climate change beyond the
Company’s contribution to the net zero transition through
energy infrastructure.
Progress update
The close relationship between the Company and
Harmony Energy Limited (via the Investment Adviser)
enhances the Company’s ability to implement, manage
and monitor biodiversity initiatives across its portfolio,
embedding them throughout the asset lifecycle, from pre-
acquisition stages (site origination, planning etc.) through
construction, operations and finally to decommissioning.
The Company and the Investment Adviser work with
environmental specialists and ecologists to assess
biodiversity impacts, dependencies and enhancement
opportunities. These assessments inform asset- specific
habitat creation and maintenance action plans which
ensure that biodiversity considerations are embedded
across the asset lifecycle. Action plans are designed to
maximise biodiversity on the Company’s sites, above
and beyond the conservation measures required as part
of planning requirements, which are typically included
in a site Landscape and Environmental Management
Plan (“LEMP”). This helps to ensure the creation of a
positive biodiversity benefit following completion of the
construction phase.
During the Period, the Company engaged independent
ecologists to conduct BNG assessments in line with Defra’s
Biodiversity Net Gain Metric for all the Company’s assets.
Action plans have been put in place to ensure that all
sites will achieve a biodiversity net gain. The Company is
on track to deliver a combined total BNG of 15% across
the portfolio once asset-level landscaping plans have been
implemented.
ENHANCING OUR NATURAL ENVIRONMENT
BIODIVERSITY
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
46
The Company’s sites are designed wherever possible
to deliver multi-functional land use, such as facilitating
agricultural activities, promoting biodiversity, increasing
habitats and supporting the recovery of land after intensive
farming. For example, the Little Raith site has been
designed to enable agricultural activities in the land within
the site’s red line boundary.
Looking ahead
Key future priorities include:
• Deliver a BNG at all existing sites and a minimum 10%
BNG at newly acquired sites.
• Introduce a Biodiversity Policy covering 100% of assets.
• Conduct BNG assessments and put action plans in
place for all sites.
• Strengthen the Company’s understanding,
management and disclosure of nature-related risks,
opportunities, impacts and dependencies.
CASE STUDY
PROTECTING AND ENHANCING BIODIVERSITY WHILE
DELIVERING FOR NET ZERO AT BUMPERS
The Company uses the Defra BNG Metric to measure the biodiversity impact
its portfolio has on developed land. The metric focuses on the change in the
biodiversity value of a site, comparing the pre- and post-construction biodiversity
values to ensure a positive impact overall.
The Company plans to deliver habitat enhancement and creation initiatives
resulting in a 44% increase in habitat units and an 81% increase in hedgerow
units at its 99 MW Bumpers site. During the next planting season, the
Company will enhance 1.05 hectares of grassland habitat through the inclusion
of a species-rich and diverse seed mix and plant 0.4 kilometres of native
species-rich hedgerow, with some sections containing additional native trees.
In addition, prior to construction starting, work was carried out by
independent ecologists to trap and safely relocate great crested newts,
following identification of a pond within 100 metres of the site which may
have been a newt habitat. A total of 25 days of trapping was carried out by
an ecologist appointed by the Company and three great crested newts were
relocatedoffsite.
The Pillswood BESS is on track to deliver habitat enhancement
and creation initiatives that are resulting in a 10% increase in
habitat units and a 100% increase in hedgerow units.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
47
Approach
Batteries are integral to the Company’s sustainability
mission. All the Company’s current assets use lithium
iron phosphate (“LFP”) battery technology instead of
nickel manganese cobalt (”NMC”) technology. Use of
LFP batteries increases the lifespan of projects, since
LFP batteries deliver more charge cycles and suffer less
degradation than NMC batteries.
Although LFP batteries avoid the need to use cobalt and
nickel, they still contain raw materials including lithium,
iron, phosphate, graphite and copper. As demand for
more BESS projects grows globally, demand for raw
materials will increase. The Company is committed to
working with suppliers to drive sustainable practices in the
upstream supply chain, particularly with respect to key
issues such as water scarcity, water pollution, energy use
and air pollution as well as improving end-of-life practices.
In addition, the Company is closely monitoring
developments in alternative battery energy storage
technologies that are less reliant on critical minerals and
that have lower exposure to environmental and social risks.
The Company is also committed to working with sub-
contractors to manage and reduce waste, resources and
pollution during the construction and operational phases
of the asset lifecycle.
Progress update
During the Period, the Investment Adviser engaged with
the construction partner for the Company’s Bumpers,
Wormald Green and Hawthorn Pit sites to encourage
the measurement and management of waste, resources
and pollution during construction. Zero reportable
environmental incidents were recorded at the Company’s
sites.
While the Company’s BESS sites directly interface with the
natural environment, it also recognises the environmental
risks in the supply chain, including those relating to
the extraction, refining and processing of minerals
used in LFP batteries. The Supplier Code sets out the
Company’s expectations and requirements for suppliers
to minimise waste and pollution and conserve resources.
During the Period, the Company engaged with Tesla,
the principal supplier and contractor for the Company’s
operational projects, to understand their work on reducing
the environmental impact of materials sourcing and
processing, focusing on key issues such as water scarcity
and water quality.
ENHANCING OUR NATURAL ENVIRONMENT
While more sustainable means of raw material extraction
and processing are being developed, reducing the need
for virgin mined materials through circular practices,
such as reuse and recycling, is crucial in reducing the
sustainability impacts of BESS. These processes can be
difficult to define due to the long lifetime of renewable
technology assets, which often spans several decades,
and the uncertainty around future recycling practices as
large-scale recycling facilities have yet to be established.
However, the Company intends to make every effort to
follow best practice in line with industry standards at the
time of decommissioning.
In 2023, the Investment Adviser engaged with its two
key BESS suppliers to better understand and encourage
circular practices. Both suppliers estimate that up to
approximately 95% of the battery modules can be
recycled upon decommissioning. To facilitate end-of-life
recycling, both suppliers are developing in-house recycling
capabilities, as well as working with third-party reuse and
recycling specialists. Given that the Company’s first sites
only became operational in 2022, there were few instances
of BESS equipment replacement or removal during the
Period. However, the Investment Adviser will work with
equipment suppliers to ensure that future opportunities
for equipment reuse and recycling are maximised.
Looking ahead
Key future priorities include:
• Introduce a Waste Policy covering 100% of assets.
• Develop the Company’s approach to measuring waste.
• Continued engagement with suppliers and industry
bodies to improve transparency of recycling processes
and reporting.
WASTE, RESOURCES AND POLLUTION
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
48
bp Open Energi was appointed as revenue optimiser for both
the Hawthorn Pit (pictured) and Wormald Green projects.
“While more sustainable means of raw
material extraction and processing are
being developed, reducing the need
for virgin mined materials through
circular practices, such as reuse and
recycling, is crucial in reducing the
sustainability impacts of BESS.”
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
49
Approach
The Company considers the local communities in which
it operates throughout the project lifecycle and strives to
make a positive contribution to people that live and work
nearby. The Company is typically responsible for each
of its sites from site construction, through to operation
and end-of-life, so it is well placed to manage community
impacts throughout the asset lifecycle.
The Company and the Investment Adviser engage closely
with a wide range of stakeholders throughout the project
lifecycle. Harmony Energy Limited seeks to build strong
relationships with local communities by keeping residents
informed, consulted and empowered through the
development process. From the point of acquisition, the
Company engages meaningfully and openly, ensuring that
stakeholders can share their views, ask questions and have
issues addressed where possible. We support Harmony
Energy Limited’s promotion of public participation
in the planning process and accessibility by using a
range of engagement methods such as public drop-in
events, exhibitions, online events, surveys, focus groups,
interviews, leaflets and workshops.
The Company’s community funds support initiatives
that have a positive impact on the local community or
environment throughout the lifetime of the project. The
Company contributes £100 per MW every year from
the start of commercial operations for each project
with a minimum value of £5,000 per site per year. The
Company has partnered with BizGive, a platform which
links funders with community groups and third sector
organisations seeking funding, to administer deployment
of these funds. The Company chooses to allocate funds
to initiatives benefitting the local area around each project
and aligned with the priority SDGs identified from the
materiality assessment.
The Investment Adviser also facilitates educational
initiatives such as talks and visits, from local schools and
universities, to sites, providing opportunities for people to
learn about renewable energy and biodiversity.
The Company’s NAV at 31 October 2023 exceeded
£250 million. Therefore, in line with the commitment
in the Prospectus, an additional “ESG Fund” has been
established to support environmental and social initiatives
within the wider investment trust and BESS industries.
This fund has a budget of up to £250,000 per annum,
funded from the difference between Board fees and 0.1%
of the Company’s NAV, based on the audited accounts for
the financial year.
COMMUNITY IMPACT
PROMOTING POSITIVE PEOPLE IMPACTS
The Company champions a
fair and just transition to net
zero that benefits workers
and communities.
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
50
Progress update
Applications for community funds for our first five
operational projects were welcomed in 2023. The
Pillswood community fund, totalling £10,000 annually,
was the only fund to allocate donations in the Period.
The other funds, which came online later in the reporting
Period, will allocate funds during the next reporting Period.
These five funds will contribute £35,000 per year towards
local initiatives over the asset lifecycle.
In addition, the Company’s ESG Fund accrued £21,000
during the Period, which will be allocated in 2024.
Looking ahead
Key future priorities include:
• Develop a funding deployment strategy for the
ESG fund.
CASE STUDY
PILLSWOOD COMMUNITY FUND: GENERATING A POSITIVE
LOCAL IMPACT
The Company’s multi-award winning Pillswood project supported the local area
through its community fund during the Period.
The Company invited local community groups to apply for a share of the
£10,000 per year fund, with grants split between initiatives. Seven local
charities and organisations were supported through the fund including
Environmental and Management Solutions (EMS) Yorkshire, Bag Books and
Neighbourhood Network Hull.
EMS Yorkshire said: “The grant we have received has already helped hundreds
of residents feed their families. We have used the funds to buy a large selection
of long-life packet and tinned goods to stock the shelves of our affordable food
shop. This gives residents a good choice to pick from to complement the fresh
and chilled produce we have in stock.”
Bag Books, a charity that enhances the lives of disabled individuals through
multi-sensory books and storytelling, said: “We can’t wait to get out and spread
joy through our sensory storytelling!”
Neighbourhood Network Hull said: “This will make a huge difference to the Alf
Marshall Community Centre and the wider community.”
The Pillswood community fund supported seven
local charities and organisations in 2023.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
51
PROMOTING POSITIVE PEOPLE IMPACTS
Approach
The Company aims to promote local employment
and sustainable economic growth by encouraging
contractors to use local suppliers and to create skilled
green job opportunities for local people at the heart of
the energy transition.
Progress update
The Investment Adviser strengthened its team during
the Period, creating 11.2 new jobs because of the
Company’s activities. Jobs in the construction industry
have also been supported through the construction of
the Company’s sites, and additional jobs created in the
Company’s supply chain and at the Company’s service
providers. The Investment Adviser will endeavour to
report in more detail on indirect job creation in future
reporting periods.
The Investment Adviser regularly engages with its
27UK-based employees (as at the end of the Period),
seeking feedback through employee surveys. In its
summer 2023 survey, the Investment Adviser achieved
an employee net promoter score of 76 (on a range
WEALTH CREATION AND EMPLOYMENT
from -100 to +100), based on the likelihood employees
would recommend the organisation to others as a place to
work. Learning is promoted through internal knowledge-
share sessions and externally facilitated training sessions,
as well as employer-funded access to external training
programmes.
The Investment Adviser is committed to creating a culture
and working environment which encourages equality,
diversity and inclusion and recognises the benefits of
a diverse workforce. During the Period, an externally
facilitated training session on equality, diversity and inclusion
was delivered to all Investment Adviser employees, as well
as inclusive recruitment training for all hiring managers.
An equality, diversity and inclusion survey was sent to all
staff to better understand the profile of the workforce.
The data will help to identify any gaps or issues and enable
the Investment Adviser to work towards improving them.
At the end of the Period, 41% of the Investment Adviser’s
employees were female and 21% of employees were from
ethnic minorities. These proportions have increased since
the prior reporting Period and initiatives are planned to
ensure inclusive human resources practices continue to be
developed.
The Investment Adviser strives to create a
welcoming and supportive environment for all.
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
52
Approach
The renewable energy and storage industry has a
responsibility to uphold social standards to ensure that
the transition to a low carbon energy system is fair and
just for workers and communities. Human and labour
rights are important considerations for the Company.
As an investment trust, the Company has no offices or
employees, but it recognises the risks in the upstream
BESS supply chain areas of mineral extraction, refining and
parts manufacturing, and in relation to health and safety
on the Company’s sites.
All the Company’s current assets use LFP battery
technology instead of NMC technology. The absence of
cobalt in the LFP batteries reduces exposure to human
rights risks relating to cobalt extraction in the Democratic
Republic of Congo, where most of the world’s supply
is sourced. However, risks remain, and the Company
is committed to implementing robust due diligence
processes to address these.
Progress update
The Company promotes respect for human rights in its
supply chain through the requirements set out in the
Supplier Code. In 2023, the Company introduced a
requirement for all new and existing key Tier 1 suppliers
to sign its Supplier Code. Human rights due diligence is
conducted on potential suppliers, during the procurement
process, and the Investment Adviser continues to work
closely with key suppliers, including its two existing
LABOUR AND HUMAN RIGHTS
BESS suppliers, to better identify risks and mitigations,
particularly in respect of the mining, refining and
manufacturing stages of the BESS supply chain.
Health, safety and wellbeing is one of the Company’s
priority areas and it has introduced robust health and
safety standards and transparent reporting. Suppliers are
evaluated and scored on health and safety performance,
capabilities, policies and management as part of the
procurement processes for sites.
During the Period, the Investment Adviser has regularly
engaged with the Company’s suppliers on health and
safety matters. The type of engagement varied depending
on the topic and included formal meetings to discuss the
health and safety legal responsibilities of each supplier,
periodic site visits with the aid of health and safety
specialists and informal site visits by the Investment
Adviser’s project management team. In addition, the
Investment Adviser has introduced health and safety
initiatives for promoting effective health and safety
reporting, such as the site observations campaign offering
monthly £50 Amazon vouchers to the staff member who
submits the most effective safety observation at each site
every month.
The Company is pleased to report zero RIDDOR
reportable Health and Safety incidents during the Period
and a high level of engagement with the Company’s safety
observation campaign (443 observations submitted across
the portfolio).
Looking ahead
Key future priorities include:
• Introduce a Human Rights Policy covering 100% of
assets.
• Increase adoption of the Supplier Code across the
supplier base.
• Further develop supply chain mapping to better
understand and mitigate risks.
The Company’s flagship BESS, Pillswood,
hosted numerous tours in 2023.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
53
ETHICAL BEHAVIOUR AND GOVERNANCE
As an investment trust, the Company has no executive
management or employees. The Board seeks to deliver success
through good decision making underpinned by robust debate.
The varied professional, educational, socio-economic and
cultural backgrounds of the members of the Board ensure
there is rich diversity of knowledge, perspectives, and challenge
in such debate. Details on the Board composition and Board
diversity can be found in the Governance Report from
pages
78-105.
The Company takes a zero-tolerance approach to bribery, fraud
and corruption, and is committed to acting professionally, fairly,
transparently, ethically and with integrity in all business dealings
and relationships. The Supplier Code requires suppliers to
adhere to anti-bribery and corruption policies no less stringent
than those of the Company and the Company monitors key
service providers’ policies and approach through the annual
Management Engagement Committee service provider review
process. For suppliers to the project SPVs, the Investment
Adviser seeks to ensure service providers have appropriate
policies in place and due diligence is conducted as part of the
procurement process.
Operating responsibly
“The Company behaves responsibly in order
to ensure positive impacts for all stakeholders
including sustainable value for its investors”
The Pillswood project won three awards in 2023 including the “Utility Scale
Storage Project of the Year” award at the Solar & Storage Live Awards.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
54
STRATEGIC REPORT
PROMOTING A MORE RESPONSIBLE AND SUSTAINABLE SUPPLY CHAIN
The Company recognises the risks in its supply chain and
is working to embed responsible sourcing practices to
strengthen the sustainability of its supply chain.
The supply chain provides the greatest opportunity for
influence on ESG issues. Embedding sustainability in the
supply chain will increase the resilience of the business
and mitigate risks.
The Investment Adviser conducts ESG due diligence on
potential key suppliers during the procurement process
through an ESG assessment tool. Post-procurement,
alongside sustainability requirements embedded in the
contracts with suppliers, the Company requires key
Tier 1 suppliers to sign its Supplier Code setting out the
standards, principles and values that such suppliers are
expected to uphold. The Supplier Code was drafted by
reference to key guidance and frameworks such as the
UN Global Compact, the OECD Due Diligence Guidance
for Responsible Supply Chains of Minerals from Conflict-
Affected and High Risk Areas, the Responsible Business
Alliance Code of Conduct, the Universal Declaration on
Human Rights and the UK Government Buying Standards,
to ensure best practice supply chain requirements were
taken into account. In May 2023, the Company began
the process of engaging existing key suppliers to confirm
retrospectively their adherence to the Supplier Code. By
the end of the Period, 68% of key Tier 1 suppliers had
signed the Supplier Code.
Supplier ESG audits have been introduced to monitor
compliance with the Supplier Code, starting with an ESG
audit of a key supplier’s BESS production facility in China.
The Company will continue to enhance the supplier due
diligence approach, integrating ESG deeper into all processes
as further knowledge on the supply chain is developed.
The Investment Adviser is working with existing BESS
suppliers to better identify risks and mitigations, particularly
in respect of the mining, refining and manufacturing stages
of the BESS supply chain. In 2024, we will begin to identify
supply chain areas with the most significant risk of adverse
impact, considering factors including country risk, supplier
reputation and ownership, degree of leverage, category and
tier of supplier and nature of relationship. The Investment
Adviser will then implement processes to monitor risks,
concentrating on higher risk areas.
The Management Engagement Committee will, as
in this reporting period, assess questions of service
providers’ progress against ESG goals through the annual
questionnaires and evaluation process.
The Company recognises that no organisation can solve
supply chain sustainability challenges in isolation. The
Investment Adviser is a member of trade bodies including
Solar Energy UK and the Electricity Storage Network,
through which it contributes to the development of
industry standards in sustainability alongside peers to drive
positive change in the supply chain.
• Pollution (chemical &
mineral)
• Resources (mineral &
water)
• Land use change
• GHG emissions
• GHG emissions
(chemical reactions and
energy use)
• Pollution
• GHG emissions
(manufacturing
processes)
• Water use
• Pollution (in case of
system failure)
• GHG emissions
(electricity storage)
• Land use change
• Pollution (leakage)
• GHG emissions (energy
use for recycling)
• Modern slavery
• Labour conditions
• Communities
(community
displacement & health
impacts of pollution)
• Corruption
• Forced labour
• Health (health impacts
of pollution & hazardous
substances)
• Labour conditions,
decent wages
• Corruption
• Health and safety
• Decent salary and
employment security
• Workplace incidents
• Communities
• Health (landfill of waste
in developing countries)
ENVIRONMENTAL RISKS
SOCIAL RISKS
FIGURE 6: ENVIRONMENTAL AND SOCIAL RISKS IN THE BESS SUPPLY CHAIN
IN THE BESS VALUE CHAIN, KEY RISKS ARE CONCENTRATED UPSTREAM
REFINING & PARTS
MANUFACTURING
EXTRACTION BESS ASSEMBLY IN-LIFE END-OF-LIFE
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
55
Metrics
TABLE 4: METRICS
ESG PRIORITIES AND ASSOCIATED METRICS 2021/22 2022/23
ENABLING A NET ZERO ENERGY SYSTEM
Climate change
mitigation
Storage capacity (MW) 0 2 7 7. 5
Storage capacity (MWh) 0 555
Total renewable energy stored (MWh) 0 30,938
Estimated annual GHG emissions avoided through BESS projects
HEIT invests in (tCO
2
e)
NA – not reported 15,415
Greenhouse gas
emissions
Scope 1 GHG emissions (tCO
2
e) 0 0
Scope 2 GHG emissions (tCO
2
e) 0 1,323
Scope 3 GHG emissions (tCO
2
e) 1,879 153,607
Total Scope, 1, 2 and 3 GHG emissions (tCO
2
e) 1,879 154,930
GHG intensity relative to revenue (tCO
2
e/£m) NA – not reported 23,345
ENHANCING OUR NATURAL ENVIRONMENT
Biodiversity
Biodiversity net gain (% habitat loss/gain) NA – not reported +15
Waste, resources
and pollution
Number of reportable environmental incidents (#) 0 0
Maximum share of BESS that is recyclable (% by weight) NA – not reported Approximately 95
PROMOTING POSITIVE PEOPLE IMPACTS
Communities
Investment in community projects (GBP) 0 10,000
Employment
Number of direct jobs created (#) 12.5 11.2
Number of hours of training provided to Investment Adviser employees (#) 88 129
Diversity and
inclusion
Representation on the Company’s Board (gender) (%) 40 40
Representation on the Company’s Board (ethnicity) (%) 20 20
Representation within the Investment Adviser (gender) (%) 30 41
Representation within the Investment Adviser (ethnicity) (%) NA – not reported 21
Labour and
human rights
Key suppliers committed to the Supplier Code (%) NA – not reported 68
Health, safety
and wellbeing
Total RIDDOR reportable incidents (#) 0 0
Site safety audits (#) 22 77
Investment Adviser employee net promoter score (#) 88 76
In line with our commitment to transparency on ESG performance, we have developed methodologies and data
collection processes for a set of ESG metrics aligned with the strategic priorities identified in the materiality assessment.
The below table contains the Company’s ESG data for the prior period (1 October 2021 – 31 October 2022) and the
current Period (1 November 2022 – 31 October 2023).
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The customer switchroom at each BESS site contains
the switchgear necessary to act as the interface point
between the site’s systems and the DNO substation.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
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TCFD and TNFD Report
Climate change and the natural environment are
intrinsically linked - both to each other, and to the
Company’s core purpose and mission. The world’s
economies depend on nature and the services it provides,
the loss of which also compromises the ability of societies
to mitigate and adapt to climate change. As a battery
energy storage investor, the Company’s business model
both supports and relies on a successful net zero transition.
Enabling a net zero energy system is its primary strategic
priority – climate-related opportunities are at the heart
of its investment strategy, and it seeks to mitigate climate
change by investing in renewable infrastructure. Nature has
been identified as the Company’s second strategic ESG
priority, and the Company is committed to developing net
zero infrastructure in a way that mitigates biodiversity loss.
The Company must also consider its exposure to climate
and nature risks to safeguard its strategy.
The TCFD and TNFD are international initiatives to assess
and disclose climate and nature issues in a financial
context. The aim of these frameworks is ultimately to
shift global financial flows away from negative climate and
nature outcomes toward positive outcomes, by providing
decision-makers with accurate and timely information to
improve strategic planning, risk management, and capital
allocation.
Acknowledging the interconnectedness of climate and
nature, the Company is pleased to present its first
combined TCFD and TNFD report. This includes a risk
and opportunity assessment related to climate and nature,
aligned with best practice guidance as set out within one
integrated disclosure. The Company does not currently
fall within the scope of the FCA’s mandatory reporting
requirement but has chosen to voluntarily report in line
with both frameworks.
GOVERNANCE
Board oversight of climate- and nature-related issues
Due to the nature of the Company’s activities, climate and
the natural environment are central to its key strategic,
investment, and operational decisions. It is therefore
critical that the Company has robust decision-making
processes and oversight of these topics.
The Board has ultimate responsibility for and oversight
of climate- and nature-related risks, opportunities,
dependencies, and impacts. Many of the Board members
are competent on these issues, though the Board also
uses external experts to support its deliberations. The
Board has delegated certain ESG-related responsibilities
to its Committees and the Investment Adviser. For more
information on the Company’s ESG governance structure,
including an organogram, please refer to page 42 of this
report.
Management’s role in assessing and managing climate-
and nature-related issues
The Investment Adviser is responsible for the
implementation of the ESG strategy, as part of which
climate change, GHG emissions, nature, and biodiversity
are key focus areas (a materiality matrix and outline of the
Company’s strategy are included on pages 38 and 39 of
thisreport).
Consideration of climate- and nature-related issues is
part of the Company’s investment process, from the
initial screening and due diligence phases, including
supplier vetting, through to the management, reporting,
and decommissioning stages, guided by the Company’s
Responsible Investment Policy. More information is
available on pages 40 and 41 of this report.
There is a close working relationship between the
Company, the Investment Adviser, and the AIFM
who manage the risk register. The AIFM provides risk
management services to the Company and ensures
compliance with applicable regulations. Representatives
of the AIFM meet with the Investment Adviser at least
quarterly, as well as on an ad hoc basis when required, to
review the Company’s risk register. More information on
this process and the AIFM’s involvement, is detailed in the
Risk & Impact Management section on pages 64 and 65 of
this disclosure.
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Assessing and responding to nature-related issues, human
rights policies, stakeholder engagement activities, and
oversight of these by the Board and management
As an investment trust, the Company has no offices
or employees, but recognises the risks associated with
nature and all affected stakeholders across both its sites
and BESS supply chain, particularly in the upstream areas
of mineral extraction, refining, and manufacturing. To
support the delivery of the Company’s commitments to
climate and nature across the supply chain, including to
any Indigenous or Local Communities (as there are no
Indigenous groups near Company sites), the Company
requests that key suppliers sign the Supplier Code. The
Investment Adviser monitors compliance with the Supplier
Code and engages with key suppliers on an ongoing basis
to ensure risks are being adequately managed. More
information on this is available on page 55 of this report.
The Investment Adviser engages with a wide group of
stakeholders on behalf of the Company throughout
each project’s lifecycle. Key stakeholders include the
local community, landowners, National Grid ESO,
investors, and suppliers. The Company promotes public
participation in the planning and development processes
through a range of ongoing engagement methods, such as
public drop-in events, exhibitions, virtual events, surveys,
focus groups, interviews, leaflets, and workshops. The
Company also funds local initiatives through its project-
level Community Funds and it is in the process of setting
up an ESG Fund to support strategic ESG initiatives.
Further details on the Company’s approach to managing
local community impact and human rights can be found
on pages 50, 51 and 53 of this report, respectively.
Managing Director, Paul Mason, hosted numerous
investor presentations at our sites in 2023.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
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STRATEGY
Identified climate- and nature-related risks, opportunities, dependencies, and impacts
The Company’s strategy is centred around the opportunity
presented by the net zero transition. However, it is
prudent to recognise that the pace and scale with which
the opportunity is realised may be subject to some risks
and constraints.
In order to understand where such risks and constraints
lie, or conversely, where accelerators relating to the
climate opportunity may lie, a screening exercise has
been undertaken, jointly for climate and nature. This
identified a long-list of 32 climate- and nature-related
risks and opportunities that may impact the Company,
or create a dependency or impact on nature, shown in
Table 5 and Chart 12 (below). Each risk or opportunity
was categorised as physical, transitional, or systemic.
A description of the impact, dependency, or effect –
business model and financial impact – was included, with
the financial areas aligned to TCFD and TNFD guidance.
The term ‘business model impact’ is used by the
Company as a reference to specific activities or functions
within the value chain. Each risk and opportunity was
assigned a preliminary ‘higher’, ‘medium’, or ‘lower’ rating
based on stakeholder consultations, a review of peer
organisations, and qualitative scoring of impact to the
Company’s business model and finances.
TABLE 5: SUMMARY OF LONG-LIST OF CLIMATE- AND NATURE-RELATED RISKS AND OPPORTUNITIES BEFORE
SCORING PRODUCED THE SHORT LIST. SOME OPPORTUNITIES WERE JOINT CLIMATE AND NATURE, SO
HAVE NOT BEEN SEPARATED.
HIGHER
SCORE
MEDIUM
SCORE
LOWER
SCORE TOTAL
Climate physical risks 3 1 3 7
Climate transition risks 2 4 2 8
Nature physical risks 0 1 2 3
Nature transition risks 2 3 1 6
Nature systemic risks 0 0 0 0
Opportunities (combined) 1 2 5 8
Tot al 8 11 13 32
CHART 12: SUMMARY OF THE 32 CLIMATE- AND NATURE-RELATED RISKS AND OPPORTUNITIES BEFORE
SCORING PRODUCED THE SHORT LIST. SOME OPPORTUNITIES WERE JOINT CLIMATE AND NATURE SO HAVE
NOT BEEN SEPARATED.
0
1
2
3
4
5
6
7
8
9
Climate
Physical Risk Transition Risk Systemic Risk Opportunities
Nature Climate Nature Nature Combined
Number of Responses
Higher Risk Medium Risk Lower Risk Lower Opp Medium Opp Higher Opp
TCFD and TNFD Report continued
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Potential impacts and effects on the Company’s business
model, value chain, strategy, and financial planning
The risks and opportunities assigned higher scores are
detailed in Table 6. The Company has described any
current mitigation actions against the collective risks and
opportunities in Table 6 on pages 62 and 63. For each
of the most material risks and opportunities, the impact
to the most relevant business model stage is detailed in
accordance with the stages set out in the Risk & Impact
Management section on pages 64 and 65. Prior to
prioritising the most material risks, the long list showed
that each stage of the business model is impacted by
climate and nature, or the Company is impacting nature.
The Company recognises that even though some risks and
opportunities fall outside the direct ownership and control
of their business model, such as project development
owned by Harmony Energy Limited, the Company can still
indirectly influence action.
Following its voluntary disclosure against the TCFD and
TNFD recommendations this year, the Company may
consider time horizons as part of next year’s scenario
analysis. Time horizons are not specifically defined in the
Company risk register and instead implied through the
scoring for likelihood and severity, i.e., higher likelihood
scores implying nearer term. The Company is aiming to
develop the necessary frameworks and methodologies to
undertake scenario analysis in future, in recognition of its
importance in informing more effective strategy setting
and financial planning.
The Company will consider implementing the TNFD’s
Locate, Evaluate, Assess and Prepare (“LEAP“) guidance as
a means of further identifying and assessing nature-related
issues to improve its nature-related disclosures. Aninitial
analysis of material impacts and dependencies has been
carried out in a screening assessment with specialist
third-party consultants. In the risk registry, a comparatively
lower number of nature risks were rated as a high priority,
relative to climate.
Impact on nature
The most important factor for a deep-dive in line with
the TNFD-LEAP approach is to move from a company
perspective to location-specific context. The TNFD
recommendations urge organisations to disclose their
priority and sensitive locations, as defined by the TNFD
definition (see textbox below).
Ecological surveys and biodiversity net gain assessments
have been conducted at all sites. In the future, the
Company intends to conduct site level analysis in line with
the TNFD-LEAP methodology to gain a more detailed
understanding of the impacts and dependencies relevant
to each location.
For the supply chain, the Company’s material dependencies
and risks are linked to the extraction and processing of
lithium. In future, the Company intends to conduct further
analysis of the supply chain to identify more detailed
location-specific information regarding where impacts,
dependencies, risk and opportunities occur.
Sensitive locations are locations where the assets
and/or activities in an organisation’s direct operations
– and, where possible, upstream, and downstream
value chain(s) – interface with nature in:
• Areas important for biodiversity; and/or
• Areas of high ecosystem integrity; and/or
• Areas of rapid decline in ecosystem integrity; and/or
• Areas of high physical water risks; and/or
• Areas of importance for ecosystem service
provision, including benefits to Indigenous
Peoples, Local Communities and affected
stakeholders.
Recommendations of the Taskforce on Nature-
related Financial Disclosures, September 2023
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
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TABLE 6: CLIMATE- AND NATURE-RELATED RISKS AND OPPORTUNITIES, DEFINED AS PHYSICAL OR
TRANSITIONAL AND WITH THEIR BUSINESS MODEL AND FINANCIAL IMPACT DETAILED.
RISK CAUSE RISK EVENT RISK EFFECT
BUSINESS
MODEL IMPACT
FINANCIAL
IMPACT
CLIMATE RISKS: PHYSICAL
CHRONIC
Extreme
heat
Batteries and cooling fans operating outside
designed temperature parameters, working
harder to maintain optimised temperatures
and wearing components faster.
Hot batteries are less efficient and fans may
shutdown if they overheat, both resulting in
increased maintenance costs. Noise from
fans leads to noise complaints, damaging
reputation and incurring potential legal costs.
Operations P&L Cost
Mitigating action: The Company’s battery assets are designed to withstand operating temperatures of -30°C to 45°C.
All Company assets are in the UK, so there is a lower risk of breaching the upper or lower limit of the temperature range.
Warranties for equipment performance and degradation are in place if equipment was to degrade due to operating in higher
temperatures. Noise complaints are addressed individually and BESS suppliers fed back to with the aim of collaboratively
reducing noise levels.
ACUTE
High winds Grid network power lines may fail. Impedance to battery charge/discharge
resulting in reduced energy storage/supply
to the off-taker, and reduced revenue.
Operations Revenue
Mitigating action: Harmony Energy Limited (“HEL”), who operates assets on behalf of the Company, works closely with
DNOs to schedule outages to times that least affect revenues. In the event of an unplanned outage on the grid network,
the Company is exposed to the first 30 days of lost revenue. Thereafter, the Company can lodge a Business Interruption
claim with its insurance underwriter. On a more macro level, the Company’s portfolio is better hedged against this risk by
having a larger number of 50MW or lower sized sites that are geographically spread, rather than a few 100MW+ sites.
Flash flood Difficulty dispersing excess water on site
can lead to damaged equipment/halted
operations and injured workforce.
Both or either costs to replace or fix
equipment and impact on legal/insurance
fees and delays in on-site work. The relative
financial impact will vary with employee
numbers and type of insurance cover.
Operations P&L Cost
Mitigating action: Pre-acquisition due diligence on potential target assets considers flood risk and mitigation measures to
ensure adequate protection is in place. Flood risk assessments are completed as part of the site selection process by HEL.
Mitigation measures are also incorporated into site design, for example, all sites have appropriate drainage and equipment
is elevated on platforms at certain sites to alleviate flood risk.
CLIMATE RISKS: TRANSITIONAL
POLICY & LEGAL
UK
net-zero
ambition
There is a gap between the UK’s ambitious
net-zero target and the current policies
needed to achieve it.
There could be a reduction in UK specific
renewables investment, and thus BESS,
reducing potential revenue.
Project
Development
Revenue
Mitigating action: Subscriptions to market intelligence services increase the Investment Adviser’s awareness of any
policy and market developments. The Investment Adviser and Board regularly engage with industry stakeholders and
policymakers around the importance of net zero-aligned policies that support renewable infrastructure. This is achieved
through different quarterly meetings, reports, papers, and written updates. These two factors allow the Company both
to monitor the political landscape as well as to engage in consultations and contribute to policy making. Any changes to
the market outlook are factored into revenue forecasts and investment proposals. Additional financial provision has been
added to the financial model to account for slow ramp-up of new projects to full operational capability.
TCFD and TNFD Report continued
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62
RISK CAUSE RISK EVENT RISK EFFECT
BUSINESS
MODEL IMPACT
FINANCIAL
IMPACT
NATURE RISKS: PHYSICAL
CHRONIC* (NATURE & CLIMATE)
Water
scarcity,
drought
A dependency on lithium places pressure
on water sources needed by lithium mines
and local communities.
Increase cost of lithium for battery
suppliers and therefore HEIT (and possibly
other raw materials).
Contracting Capital Cost
Mitigating action: Capex has been, and continues to be, volatile, driven by underlying commodity costs (specifically
lithium). However, the Investment Adviser ensures that capex is fully contracted prior to the Company making investment
decisions. HEAL reviews sub-contractors’ pricing prior to approval and has successfully reduced quoted prices on several
signed projects. The contracting SPV owned by the Company aims to sign Engineering, Procurement and Construction
(EPC) contracts with robust obligations regarding price. Contingency has been included to cover unexpected cost
increases, approved by our supplier RINA as part of the debt due diligence process. Subscriptions to market intelligence
services also increase the Investment Adviser’s awareness of commodity cost changes. Additionally, the Company monitors
developments in emerging BESS technologies for example, sodium-ion batteries, which are less reliant on the critical
minerals facing supply deficits, such as lithium.
NATURE RISKS: TRANSITIONAL
REPUTATION
Mining The Company’s BESS are dependent on
lithium for the production processes.
Mining lithium often negatively impacts
local communities, water quality, forests and
biodiversity, air pollution and energy use.
Damage to reputational image and costs to
rectify if company linked with these activities.
Contracting P&L Cost
Mitigating action: Pre-acquisition, the Investment Adviser conducts ESG due diligence on potential acquisitions and suppliers,
including relating to environmental and social risks to help ensure supply chain risks are being managed. The due diligence
process will be reviewed and updated where relevant to incorporate lithium mining as a result of this reporting exercise. Post
acquisition, the Company requires suppliers to sign its Supplier Code setting out the standards, principles, and values that
suppliers are expected to uphold, including a specific commitment to protect the environment. The Investment Adviser
monitors compliance with the Supplier Code and engages with suppliers to drive performance improvements.
OPPORTUNITIES
MARKET
EU & UK
net-zero
targets
UK net zero target requires accelerated
growth of renewable energy.
Demand for BESS increases to match
growth and revenue potential increases.
Demand stems from increased demand for
grid frequency and balancing services.
Project
Development
Revenue
Enabling action: BESS infrastructure is integral to the net zero transition by providing grid stability services that enable the
adoption of more renewable power. The UK’s legally binding target of Net Zero by 2050 acts as an enabler, as this provides
investor confidence that future investment in grid stability is needed as we transition away from fossil fuel generation
sources. This includes BESS and renewable power, clearly aligning with the Company’s business model. As an investor in
battery energy storage systems and complementary renewable energy generation assets, the net zero transition is at the
core of the Company’s investment policy and climate-related opportunities are inherently considered in business, strategic,
and financial planning.
Increased
renewables
An increase in intermittent renewable
energy sources supplying the grid can lead
to supply- demand imbalances, contributing
to electricity price volatility.
Greater wholesale market spreads create
revenue opportunities for BESS. Volatility
furthered by extreme weather effects
negatively impacting renewables.
Operations Revenue
Enabling action: Battery energy storage provides the infrastructure needed to integrate more renewable energy into power
systems. The Company will expand its activities to match the increasing proportion of renewables on the grid over time,
allowing it to maximise the benefits of increased revenues due to greater wholesale market spreads.
Battery
recycling
technology
Tesla and Envision are developing lithium
battery recycling technology.
Recycling lithium in production reduces
end of life battery disposal cost and future
carbon taxes.
End-of-Life Revenue
Enabling action: The Company actively engages with key BESS suppliers and industry bodies to try and accelerate
developments in end-of-life recycling processes.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
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RISK & IMPACT MANAGEMENT
Identifying, assessing, and prioritising
During the Period, the Company conducted a screening
assessment with specialist third-party consultants to
identify material climate- and nature-related risks,
opportunities, dependencies, and impacts across both
direct operations and upstream and downstream value
chain activities. The Company’s value chain can be
described using the various stages of its business model:
Stage 1: Project Development; Stage 2: Contracting;
Stage 3: Construction; Stage 4: Operations; and Stage5:
End-of-Life. The Company only acquires “shovel ready”
projects, with Harmony Energy Limited performing the
initial Project Development stage.
Project Development and End-of-Life disposal activities are
outside of the Company’s ‘direct’ ownership and control.
However, these activities could still present climate- and
nature-related commercial risks to the Company and
have therefore been included within the scope of the risk
screening process. The Company has a level of ‘indirect’
influence over these activities and would look to apply
this influence in the management of any climate- and
nature
-related risks and opportunities, should it be relevant
todo so.
The process for determining the significance of climate
and nature risks varied from the regular corporate and
site risk assessment processes due to increased, focused
stakeholder consultation. Additionally, the time horizons
considered for climate and nature risks and opportunities
include grouping the long, medium, and short terms; as
opposed to just the short and medium terms, which have
historically been more in focus for the corporate and site
assessments.
However, once scenario analysis has been performed
and risks are better understood and quantified, these two
processes may become better integrated, and updated on
a regular, periodic basis, reducing the need for additional,
focused stakeholder engagement on climate and nature.
A multi-functional stakeholder group from across the
Company participated in a workshop, including members
of the Board and the Investment Adviser to produce a
long list to support the preparation of this disclosure.
The long list included a variety of sub-categories of
risks—physical (acute and chronic), transitional (policy
and legal, including emerging regulations, technology,
market, reputation, liability), and systemic (ecosystem
stability, financial stability)—and opportunities—transitional
(resource efficiency, energy source, products and services,
markets, resilience) and systemic (ecosystem restoration)
in alignment with TCFD and TNFD guidance.
As the Company operates only in the UK, any issues were
considered nationally. The specific timescales or locations
of impact were not considered at this stage. These would
be explored as part of any future scenario analysis using
data to quantify both climate- and nature-related issues.
For each identified risk and opportunity, an impact pathway
assessment was undertaken to define the impact to the
relevant stage of the Company’s business model, compare
against industry peers, and weight the relative financial
impact. This was used to generate a qualitative score to
allow for prioritisation—a higher score is associated with a
given risk or opportunity impacting multiple areas of the
supply chain, a qualitative assessment concluding high
relative financial impact, and more frequent prioritisation
across the peer group. The initial long list was ranked
according to this scoring system; the prioritised short list is
presented above under the Strategy subsection.
In line with the Company’s previous ESG materiality
assessment, a “material” area is one that has the potential
to impact the long-term viability of the company and is of
concern to stakeholders.
Risks are categorised and assessed to determine likelihood
(the chance, or frequency of occurrence) and impact
(the magnitude of damage). Ratings are applied to the
risks before any mitigating action and again following
consideration of the adequacy of mitigating actions.
More information on this process can be found in the
Governance section above, describing management’s role
in assessing and managing climate- and nature-related
risks, opportunities, impacts, and dependencies.
Monitoring and managing
The Board recognises the importance of effective risk
management in enabling the Company to deliver its
strategic objectives. Mitigation measures and action plans
are put in place to manage identified risks. The Investment
Adviser oversees implementation of any of these measures,
such as biodiversity and land management, and community
engagement. Identified risks are assigned owners within the
Investment Adviser to ensure accountability; day-to-day
ownership sits with these named individuals who monitor
both current and emerging risks. These risks and mitigations
are recorded in site-level risk registers and reflected in the
Company-level risk registers, which is reviewed quarterly by
the Board to advise on the implementation of additional risk
management actions if deemed necessary.
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Current descriptions of agreed mitigation measures for
managing the material risks identified as part of the climate
and nature screening are included in Table 6 above under
the Strategy heading of this disclosure. Future management
actions for newly identified risks would take a similar format.
Integrating into overall risk management
The identified risk owners within the Investment Adviser
are responsible for formal quarterly reporting of all
current and emerging risks and issues. A formal quarterly
review of the risk register is carried out by the Investment
Adviser and any recommendations for updates are made
to the AIFM. The proposed updates to the Company’s
risk register are further reviewed and approved by the
AIFM’s internal Risk Committee in advance of circulation
to the Board for its approval. Mitigating actions are also
summarised in the risk register and are subject to review
and monitoring.
The Company has worked closely with the AIFM to
integrate the risks identified as part of the recent
screening into the risk register. The AIFM conducted a
gap assessment against the existing risks in the risk register
to ensure that any new climate and nature risks were
integrated.
The launch event for the 196 MWh / 98 MW
Pillswood BESS took place in March 2023.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
65
METRICS AND TARGETS
For information about the Company’s approach and progress towards monitoring climate change mitigation, GHG
emissions, and nature and biodiversity metrics, including priority targets for the upcoming year, see pages 43-48 of this
report. The full list of ESG metrics identified through a materiality assessment process is listed on page 56 of this annual
report.
The following table is a summary of indicators associated with the TNFD, including all the core metrics, and a description
of its relevancy to the Company on a comply or explain basis. The climate change indicators are relevant to both the
TCFD and TNFD frameworks.
TABLE 7: TNFD CORE GLOBAL DISCLOSURE INDICATORS AND STATUS OF METRICS FOR NATURE-RELATED
DEPENDENCIES AND IMPACTS, AS APPLICABLE TO THE COMPANY
CATEGORY INDICATOR STATUS
Climate change GHG Emissions The Company measures scope 1, 2, and 3 emissions in line with the GHG
Protocol. See p. 56 and the description below this table for details.
Carbon Avoidance 15,415 tCO
2
e
Renewable Energy Stored 30,938 MWh
Weighted average carbon
intensity (WACI)
23,345 tCO
2
e/£m
Land/freshwater/
ocean- use change
Total spatial footprint Nature-related data is nascent, and the Company does not yet capture this
information.
Extent of land/freshwater/
ocean-use change
Pollution/pollution
removal
Pollutants released to soil split
by type
Nature-related data is nascent, and the Company does not yet capture this
information
Wastewater discharged
Waste generation and disposal Nature-related data is nascent, and the Company does not yet capture this
information
Plastic pollution
Non-GHG air pollutants Nature-related data is nascent, and the Company does not yet capture this
information
Resource use/
replenishment
Water withdrawal and
consumption from areas of
water scarcity
Nature-related data is nascent, and the Company does not yet capture this
information.
Quantity of high-risk natural
commodities sourced from
land/ocean/freshwater
Nature-related data is nascent, and the Company does not yet capture this
information.
Invasive alien
species and other
Measures against unintentional
introduction of invasive alien
species (IAS)
Nature-related data is nascent, and the Company does not yet capture this
information.
State of nature Ecosystem condition Nature-related data is nascent, and the Company does not yet capture this
information.
Species extinction risk
TCFD and TNFD Report continued
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TABLE 8: METRICS RELATING TO THE FINANCIAL IMPACT (MONETARY VALUE) OF IDENTIFIED MATERIAL
RISKS AND OPPORTUNITIES.
CATEGORY INDICATOR STATUS
Risk TNFD requires reporting on a metric depicting
value of assets, liabilities, revenue, and expenses
that are assessed as vulnerable to nature-related
transition and physical risks (total and proportion
of total).
Future quantitative scenario analysis and the LEAP-
approach will be combined with the Company’s asset
value and revenue to understand financial exposure
and proportion of the Company’s portfolio exposed to
physical and transitional climate- and nature-related risks.
This can include legal and policy risks if deemed material.
Opportunity TNFD requires reporting on a metric depicting
an amount of capital expenditure, financing or
investment deployed towards nature-related
opportunities, by type of opportunity, with
reference to a government or regulator green
investment taxonomy or third-party industry or
NGO taxonomy, where relevant.
Further work such as quantitative scenario analysis and
the LEAP- approach will be required to enable disclosure
of these metrics.
Increase and proportion of revenue from products
and services producing demonstrable positive
impacts on nature with a description of impacts.
Scope 1, 2, and 3 GHG emissions
The Company has calculated its carbon footprint for the
previous two years, covering the reporting periods of
2021/2022 and 2022/2023, in line with the World Resource
Institute’s (WRI) internationally recognised reporting
standard the GHG Protocol.
The Company defines its organisational boundaries using
the equity share approach as per the GHG Protocol
Corporate Standard, whereby a company accounts for
GHG emissions from operations according to its share of
equity in the operation. This approach focuses on including
GHG emissions from activities that are under the financial
control of the reporting company, presenting a more
accurate picture of the Company’s environmental impact
by including GHG emissions from entities it has a significant
influence over. Under the equity share approach, all Special
Purpose Vehicles (“SPVs”) are within the Company’s
organisational boundary, as they are fully owned subsidiaries.
Under the methodology used, the construction and
materials’ GHG emissions for a project will be recognised
only once the construction of that project is complete.
With no employees or physical offices during the Period,
the Company had zero Scope 1 GHG emissions.
Emissions relating to electricity consumed and lost on
operational BESS sites are accounted for under the
Company’s Scope 2 emissions. Electricity consumption
and losses figures are calculated based on the difference
between half-hourly energy import and export data. To
calculate Scope 2 emissions relating to the operation of
the batteries, UK National grid carbon intensity values are
applied to electricity consumption and losses data.
When calculating Scope 3 GHG emissions, the relevant
categories for the Company include:
• Category 1: Purchased goods and services –
professional services purchased by the Company; and
• Category 6: Business travel – Non-executive Board
business travel.
Scope 3 GHG emissions for the Company that derive
from SPV-level activities include:
• Category 1: Purchased goods and services – goods and
services purchased by SPVs;
• Category 2: Capital goods – cradle-to-supplier gate
emissions of capital goods (e.g. battery packs and
transformers) purchased or acquired by SPVs;
• Category 3: Fuel and energy related activities – well-to-
tank (“WTT”) and transmission & distribution (“T&D”)
emissions of electricity consumed or lost on SPV sites;
• Category 5: Waste generated in operations – waste
generated on-site, and disposal of equipment (e.g.
battery packs) at the end of its life; and
• Category 11: Use of sold products – upstream
emissions of the electricity exported to the grid (i.e. not
consumed or lost on site).
A range of methodologies are used to calculate the GHG
emissions for different activities and entities. Various levels
of data quality are available across the different GHG
emission categories, therefore different methodologies
must be applied.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
67
For the next periods, the Company aims to increase the quality of data where possible and the coverage of reporting. For
example, collecting activity data over spend-based data will be a priority for business travel, as well as waste and water use
data to ensure more granular detail of future inventories. Additionally, the Company intends to consider setting a GHG
emissions reduction target in 2024.
TABLE 9: PRIOR YEAR AND CURRENT YEAR GHG EMISSIONS FIGURES
SCOPE AND CATEGORY 2021/22 DATA (TCO
2
E) 2022/23 DATA (TCO
2
E)
GHG Emissions
Scope 1 0 0
Scope 2 0 1,323
Scope 3 1,879 153,607
Total Scope 1, 2, and 3 1,879 154,930
Renewable energy stored
The Company calculates the total renewable energy stored for all operational sites that the Company invests in. This
metric allows the Company to measure the role of BESS in facilitating the increased adoption of renewable power.
Renewable energy for this metric includes wind, solar, biomass, geothermal, and hydroelectric generation, and excludes
coal, gas, nuclear, imported or ‘other’ energy sources categorised by the National Grid’s API. Half-hourly asset-specific
energy data combined with energy generation mix data from the National Grid was used to calculate the amount of
energy from renewable sources that was consumed by the BESS sites relative to energy from non-renewable sources.
For 2022/2023, a total of 30,938 MWh imported by the operational portfolio was derived from renewable sources,
constituting 36% of the total electricity imported.
Carbon avoidance
The Company calculates the GHG emissions avoidance impact of its BESS assets. The Company’s BESS provide critical
grid services and can be used for different modes of operation such as energy arbitrage actions, balancing mechanism
actions, or ancillary services actions; the metric calculates carbon avoided for these three uses. Each of these battery
energy actions has a subsequent carbon impact due to the resulting change in the net load system the action produces.
TABLE 10: CARBON IMPACT OF BATTERY ACTIONS
MODES OF
OPERATION ENERGY ARBITRAGE BALANCING MECHANISM ANCILLARY SERVICES
Description of
activity
The Company’s BESS are optimised
to charge at off-peak times when
the carbon intensity of the grid is
more likely to be low and discharge
at high peak times when the carbon
intensity of the grid is more likely to
be high.
The Company’s BESS responds to
dispatches from National Grid ESO
to balance supply and demand.
The Company’s BESS provide
frequency response services to
system operators such as National
Grid ESO.
The carbon
impact
Energy arbitrage actions support
carbon emissions avoidance
by enabling the integration of
additional low-carbon renewable
power within the grid’s energy
mix and, in doing so, displacing
more carbon-intensive fossil-based
power generation whilst lowering
the overall carbon intensity of the
electricity on the grid.
BESS responding to dispatches from
the National Grid ESO to balance
supply and demand contributes to
grid stability. The subsequent carbon
impact is tied to the ability of the BESS
to quickly respond to fluctuations in
energy demand and supply.
Efficient response helps avoid
the need for ramping up or down
traditional power plants, particularly
those using fossil fuels. This can
reduce the carbon emissions
associated with the quick adjustments
required to maintain grid balance.
Providing frequency response with
the BESS involves rapid and precise
adjustments to maintain the stability
of the grid. The subsequent carbon
impact is primarily seen in the
reduction of reliance on fossil CCGT
plants. By offering quick frequency
support, the BESS helps avoid the
need to deploy CCGT plants, which
are often less efficient and have
higher emissions. Similar to balancing
mechanism actions, the carbon
impact in ancillary services operation
is also associated with the BESS’s role
in balancing supply and demand.
TCFD and TNFD Report continued
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
68
MODES OF
OPERATION ENERGY ARBITRAGE BALANCING MECHANISM ANCILLARY SERVICES
Calculation
methodologies
The GHG emissions avoidance of a BESS project during energy arbitrage
and balancing mechanism actions are calculated as the difference in the
emissions between the actual scenario where the BESS is in use and a
hypothetical, ‘business as usual’ scenario when the BESS is not in use. In
the first scenario, the supply of electricity to the grid is provided by the
BESS assets; in the second, business as usual scenario, it is provided by
a gas peaker plant. Emissions associated with system efficiency losses are
incorporated into the calculations.
GHG avoidance = (emissions of the hypothetical peaking plant scenario)
– (emissions of the BESS (arbitrage and balancing mechanism) scenario)
The GHG emission avoidance of a
BESS project during ancillary service
use is calculated as the difference
in the emissions between the actual
scenario where the BESS is in use
and a hypothetical business as usual
scenario where ancillary services are
provided by running a CCGT plant.
It is assumed the CCGT would
be running at a reduced efficiency
of 45% as the usual case in this
scenario.
GHG avoidance = (emissions of
the hypothetical CCGT scenario)
– (emissions of the BESS (ancillary
services) scenario)
Whilst the Company’s methodology aligns to the EU methodology and GHG Protocol for assessing avoided GHG
emissions, further improvements can be made. For example, this methodology solely incorporates the overall carbon
avoidance for the UK grid and does not capture the impact the storage systems have on the marginal carbon intensity
from daily import and export services. Future developments in this regard will be closely monitored to ensure the
methodology is aligned with current best practice guidance to provide the most accurate assessment of the carbon
avoidance potential of BESS.
Climate- and Nature-related Targets
The Company has recently begun tracking against a set of relevant metrics (see page 56 of this report) and, as such,
has not yet set any specific climate-related targets regarding GHG emissions, avoided emissions, water usage, or energy
usage in line with anticipated regulatory requirements, market constraints, or other ambitions.
The Company’s only target at this stage is in relation to biodiversity, targeting a biodiversity net gain of 10% or more
across the portfolio, ahead of the UK government mandated BNG target coming into effect in 2024. This reporting year
of 2022/23 is the baseline for this target, given that it marks first year of site operation for the Company.
The Company is considering further analysis of the identified risks and opportunities in 2024, potentially to include
scenario analysis and/or the LEAP approach, which will enable a more thorough assessment of the material financial
impacts of climate and nature issues. The outcomes of this screening and any further analysis will be used to set the most
appropriate targets going forward to manage its climate- and nature-related risks and opportunities.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
69
Principal Risks and Uncertainties
The Board recognises the importance of effective risk
management in enabling the Company to deliver its
strategic objectives. The Investment Policy, as set out in
the Prospectus and as amended from time to time, details
the limits on risk that the Board will take.
WHAT WE MONITOR
The Company’s risk register was prepared based on the
risks stated in the Prospectus, and is regularly reviewed
by the Investment Adviser, the AIFM and the Board
and updated to reflect any emerging risks or changes
to the identified risks. Day-to-day ownership of risk sits
with named individuals at the Investment Adviser, who
monitor and assess both current and emerging risks. Risks
are categorised and assessed to determine likelihood
and impact. Ratings are applied to the risks before any
mitigating action and again following consideration of
the adequacy of mitigating actions. Mitigating actions are
summarised in the risk register and are subject to review
and monitoring.
HOW WE MONITOR RISK
The Board retains ultimate responsibility for the
Company’s activities and Board meetings are held at
least four times a year, at which the risk register of the
Company is reviewed, and updates are reported by the
AIFM on any changes to the risks or their ratings.
The Audit and Risk Committee meets at least three times
each year. The Committee reviews the adequacy and
effectiveness of the Company’s internal controls and risk
management systems and every six months it carries out a
reassessment of the principal risks facing the Company.
The AIFM provides risk management services to the
Company, including implementation of risk management
policies to identify, measure, manage and monitor the
risks that the Company is or might be exposed to and
ensuring that the Company’s risk management policy
and implementation comply with applicable regulations.
Representatives of the AIFM meet with Investment Adviser
representatives at least quarterly to review the risk register
and discuss any changes proposed. The proposed updates
to the Company’s risk register are further reviewed and
approved by the AIFM’s internal Risk Committee in
advance of circulation to the Board.
The identified risk owners within the Investment Adviser
are responsible for formal quarterly reporting of current
and emerging risks and issues to the Investment Adviser’s
leadership. A formal quarterly review of the risk register
is carried out by the Investment Adviser and any
recommendations for updates are made to the AIFM. Any
major emerging risks and issues are escalated outside of
the quarterly review framework.
TABLE OF PRINCIPAL RISKS AND
UNCERTAINTIES
The Board considers the following to be the principal
risks and uncertainties facing the Company as at the date
of approval of the accounts. The risks are presented in
order of significance based on net residual risk, following
mitigations.
Due to the nature of Company’s activities, climate and
the natural environment are central to its key strategic,
investment, and operational decisions. During the Period,
the Company conducted a screening assessment with
specialist third-party consultants to identify material
climate- and nature-related financial risks, opportunities,
dependencies and impacts. HEAL has worked closely with
the AIFM to integrate the risks identified as part of the
recent screening into the risk register. Following careful
consideration of these risks by the Board, none of the
risks identified was considered to be sufficiently material
to qualify as a principal risk. For further information about
the climate- and nature-related risk assessment, see
Table 6 on page 62.
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
70
EXISTING RISKS
RISK DESCRIPTION POSSIBLE CONSEQUENCES MITIGATING ACTIONS
MERCHANT NATURE OF BESS REVENUES
Lower-than-expected market price of
ancillary services, revenues generated
from wholesale trading and/or the
Balancing Mechanism. National Grid
ESO is responsible for the structure
and operation of both the Balancing
Mechanism and the ancillary service
markets, and wholesale trading prices
are influenced by factors outside of the
Company’s control.
• Reduced revenue.
• Reduced NAV.
• Inability to declare future
dividends.
• Inability to pay debts as
they become due.
• Subscriptions to Modo, Aurora and Baringa for long-
term revenue forecasts, regular market intelligence and
understanding of macro-drivers.
• Engagement with industry stakeholders and policymakers,
including National Grid ESO.
• Scrutiny of revenue optimiser performance to maintain high
standards.
• Close monitoring of cash flow levels and scenario modelling
to ensure mitigating actions can be implemented in a timely
manner to improve cash position if necessary.
HEIT’S NAV AT END OF 2024
HEIT’s NAV is lower than £250m by the
end of the 2024.
• Such event will trigger a
continuation vote, which
could result in Company
executing a managed wind
down.
• All parties will continue to monitor the situation at each
Board meeting.
PROJECT SUPPLIER RISK
Adverse changes to estimated costs and
delivery timetable from key suppliers;
battery installation delays.
• Increased costs.
• Delay to income
generation.
• Reduced NAV.
• Tender processes for future contracts are conducted with
suppliers with a strong track record.
• EPC (or BESS supply) contracts contain robust obligations
regarding price and delivery timetables.
• Contingency is included in project budgets for unexpected
price increases.
GENERAL RISKS AFFECTING THE SHARES
The value of shares in the secondary
market may fluctuate due to factors
outside the control of the Company.
It may be difficult for Shareholders to
realise their shares at close to NAV and
there may not be a liquid market. The
market price of the shares may not
reflect their underlying net asset value.
Share buy backs may not adequately
influence the discount in the secondary
market.
• Inability to raise additional
equity capital.
• Inability to purchase
additional projects.
• The Joint Brokers and Investment Adviser monitor the share
price daily in the secondary market and report to the Board
regularly and where necessary. The Board actively considers
a range of options to address the discount. These include,
inter-alia: share buy backs, asset sales, gearing reduction,
increased marketing.
• The Board will discuss share buy backs at every quarterly
Board meeting whilst shares are trading at a significant
discount to NAV.
• Stifel has been appointed as joint broker and there is an
increased focus on marketing HEIT to new investors. The
Board, the Joint Brokers and the Investment Adviser monitor
the market on a regular basis with a view to taking actions if
and when it is necessary.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
71
RISK DESCRIPTION POSSIBLE CONSEQUENCES MITIGATING ACTIONS
VALUATION RISK
HEIT invests in unquoted assets and
valuations will involve the Investment
Adviser, AIFM and Board.
The Company is relying on the
judgement of the Investment Adviser.
Errors in valuations could lead to
shareholder complaints or suits for
losses and regulatory censure.
• The possible sale of
assets for less than
market value.
• Errors in NAV
calculations and
announcements.
• The Investment Adviser has subscribed to services from
Modo, Aurora and Baringa to provide support for quarterly
NAV valuations.
• Semi-annual valuations are provided by an Independent
Valuer. The Independent Valuer regularly updates its
valuation of each Project based upon, among other things,
recent market comparables and the relative liquidity of
the assets. The sale of Rye Common in September, 2023
validated the 30 April 2023 project valuations.
• The NAV methodology was reviewed and enhanced to ensure
it remains fit for purpose.
DELAYS TO GRID CONNECTION TIMETABLES
Delays to grid connection timetables
in relation to pipeline projects and
portfolio projects which are not yet
connected.
• The increased pressure
on DNOs and TSOs
to facilitate new grid
connections raises the risk
of DNOs failing to meet
pre-agreed timetables.
• New pipeline projects
may be allocated long-
dated connection times,
thus delaying the overall
deployment of low carbon
generation and progress
towards net zero.
• The Investment Adviser engages in a continuous dialogue
with its relationship contacts at relevant DNOs and works
with them to proactively manage the connection timetable,
identifying and managing potential connection issues as early
as possible and thus minimising the risk of delays.
• The Investment Adviser also seeks to make prompt payment
to the DNOs of relevant milestone amounts which enables
the DNOs to order requisite equipment within appropriate
timescales. In relation to future Pipeline Projects, the
Investment Adviser also engages with DNOs early in the
development process (prior to acquisition by the Company)
to filter out those projects most at risk of delay caused by
requisite network infrastructure upgrade works.
EMERGING RISKS
RISK DESCRIPTION POSSIBLE CONSEQUENCES MITIGATING ACTIONS
PERFORMANCE OF REVENUE OPTIMISERS
Revenue optimisers may
not perform as effectively as
expected, leading to reduced
revenue receipts.
In a challenging revenue
environment, revenue-
optimisation capability
becomes increasingly
important.
• Reduced revenue.
• Inability to declare future
dividends.
• Reduced cash availability.
• Each revenue optimiser regularly reports to the Investment
Adviser who uses its skills and experience to input into strategy
evolution on a regular basis.
• Regular comparison with publicly reported BESS industry
performance data.
• The revenue optimisers are engaged on rolling short-term
contracts so can be replaced in the event of prolonged poor
performance.
• Each revenue optimiser’s fee is structured as a percentage of
project revenues so there is an incentive to outperform.
RELATED-PARTY TRANSACTIONS
During the Period, the Company acquired three projects
from Harmony Energy Limited at fair value, in accordance
with the Company’s Related Party policy. The Independent
Valuer provided a fair value opinion on all purchases at
the time of acquisition and the consideration paid was
considered by the Independent Valuer to be within a
reasonable market range on both a discount rate and
multiple basis.
Detailed information on related-party transactions can be
found on page 132 of this report.
Principal Risks and Uncertainties continued
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
72
The Envision Energy batteries - seen here landing at
Hawthorn Pit - have diversified the Company’s supply chain.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
73
Section 172 Statement
Under s172 of the Companies Act 2006, the Directors
have a duty to promote the success of the Company for
the benefit of its members as a whole, and in doing so to
have regard to a number of matters including:
• the likely consequences of any decision in the long
term;
• the interests of the Company’s employees;
• the need to foster the Company’s business
relationships with suppliers, customers and others;
• the impact of the Company’s operations on the
community and the environment;
• the desirability of the Company maintaining a
reputation for high standards of business conduct; and
• the need to act fairly as between members of the
Company.
As an externally managed investment company with no
employees, the Board considers its key stakeholders to
be its Shareholders, the Investment Adviser, other service
providers and the wider environment in which it operates.
The Company’s s172 statement summarises how the
directors have engaged with the Company’s primary and
secondary stakeholders and how the interests of those
stakeholders were considered in key decisions made
during the year.
SHAREHOLDERS
Engagement with Shareholders and potential investors is
key to the success of the Company. Regular communication
is made with Shareholders through interim and annual
financial statements, RIS announcements, quarterly
factsheets and publication of the Company’s NAV.
Information is also provided on the Company’s website.
The Company’s corporate brokers attend the scheduled
quarterly board meetings and provide regular updates to
the Board on dialogue with investors and potential investors.
The Investment Adviser has held regular meetings with
current and potential investors, providing updates on the
status of the portfolio as well as the BESS market more
generally. The Investment Adviser has held analyst calls
following key announcements and spoken on relevant
panels hosted by brokers and analysts. In addition to direct
investor engagement the Investment Adviser seeks to raise
the profile of HEIT and reach a wider investor base, by
actively creating strong relationships with analysts.
THE INVESTMENT ADVISER
The Investment Adviser attends all Board meetings,
provides regular detailed reporting on the Company’s
portfolio to the Board and regularly interacts with the
Directors, both individually and collectively. During the
Period, the Investment Adviser organised and led a
Strategy Day with the Board and the Joint Brokers to
discuss, among other things, trends in the BESS and
capital markets and opportunities for the Company.
The Chair also has regular contact with the Investment
Adviser and the Joint Brokers.
The Board regularly reviews the Company’s performance
against its investment objectives, and the relationship
with the Investment Adviser is a key business relationship.
The Management Engagement Committee reviews the
performance of the Investment Adviser annually.
THE COMMUNITY AND THE
ENVIRONMENT
The Company considers the environment and
communities in which it operates throughout project
lifecycle and strives to make a positive local contribution.
Harmony Energy Limited engages with the community
before projects are acquired. Post-acquisition, the
Company, through the Investment Adviser, continues
this engagement throughout the lifecycle of projects.
The ESG Report on pages 34 to 57 provides further
details on engagement with local communities and the
actions taken in respect of environmental matters. The
Board receives quarterly updates on ESG-related matters
from the Investment Adviser, including community and
environmental initiatives and issues.
OTHER SERVICE PROVIDERS
The Company recognises the important role played by
its suppliers in running its business. The Board, directly,
through its committees or the Investment Adviser, engages
with HEIT’s services providers and discusses their work on
an ongoing basis.
The Management Engagement Committee is responsible
for the annual review of the performance of service
providers and reports on its findings to the Board.
STRATEGIC REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
74
CONTRACTORS, SUBCONTRACTORS
AND SUPPLIERS
The Investment Adviser, on behalf of the Company,
engages regularly with HEIT’s contractors and
subcontractors. Engagement occurs by way of supplier
audits and assessments and involves a number of matters,
such as Health & Safety and sustainability. The frequency
of engagement with the suppliers is dependent on their
significance and risk profile, and ranges from weekly to
ad-hoc meetings. The Investment Adviser reports on
these matters to the Board of Directors at each quarterly
boardmeeting.
Extensive engagement with suppliers on ESG matters takes
place regularly. For details on this type of engagement
please refer to the ESG Report.
REGULATORS AND GRID OPERATORS,
INCLUDING NATIONAL GRID ESO
During the Period, the Investment Adviser continued
its collaborative approach with DNOs and National
Grid ESO. The collaborations took the form of regular
project meetings that were specifically designed to ensure
alignment among different stakeholders, resulting in
projects being constructed in an efficient and safe manner.
The Investment Adviser actively participates in industry-
wide consultations and working groups to provide the
Company’s views on the challenges and opportunities
facing its industry. These events also provide opportunities
to discuss market structures with National Grid ESO,
and regulatory matters with representatives of the main
regulators, such as Ofgem and the Department for Energy
Security and Net Zero.
KEY DECISIONS AND ACTIONS TAKEN DURING THE PERIOD
Key decisions and actions during the year which have required the Directors to have regard to
applicable s172 factors include:
DECISIONS AND ACTIONS STAKEHOLDER CONSIDERATIONS
Assessment and subsequent disclosure of
climate- and nature-related financial risks
and opportunities
By providing insights into the financial risks associated with the climate and the
impact on nature, these disclosures offer Shareholders, both current and potential, an
enhanced understanding to make informed investment decisions.
Launch of 5 community funds for Pillswood,
Broadditch, Farnham, Bumpers and Little
Raith sites
In addition to generating tax revenues, the Company is committed to providing
additional support to local communities close to its sites. The Company provides
donations to support initiatives that have a positive impact on the local community or
environment.
Acquisition of the Wormald Green,
Hawthorn Pit and Rye Common projects
(Q4 2022)
The acquisitions mark a significant expansion of the Company's portfolio. Both
Hawthorn Pit and Wormald Green are poised to play a critical role in driving revenue
and creating value for the Company’s Shareholders.
Sale of the Rye Common project (Q3 2023) The sale of the Rye Common project at a premium to its carrying value, demonstrated
the exceptional quality of the Company’s portfolio and the sustained high level of
interest in BESS projects.
Extension of the Company’s debt facilities to
£130m in aggregate (Q1 2023)
This enabled the financing of the construction of, inter alia, the Hawthorn Pit and
Wormald Green projects, thereby enabling the expansion of the Company’s operating
portfolio.
Appointment of bp as revenue optimiser
for the Hawthorn Pit and Wormald Green
projects (Q3 2023)
The appointment of bp as the Company’s revenue optimiser enhances revenue
growth in the long term, thereby supporting the future of the Company’s dividend
commitments and capital growth. This appointment also provides diversification in this
key area.
Appointment of Envision as a supplier of
batteries for the Hawthorn Pit and Wormald
Green projects
The appointment of Envision, a world- leading green technology company and battery
supplier, has diversified the Company’s supply chain, which in turn, reduces the risk of
potential disruptions and increases asset security.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
75
Viability and Going Concern Statement
GOING CONCERN
As at 31 October 2023, the Company and its subsidiaries
had net current assets and net cash balances of
£26million along with undrawn debt facilities of
£35million. The combination of net current assets and
undrawn debt facility was sufficient to meet commitments
made under construction contracts signed by subsidiaries.
The Company, through its wholly owned subsidiary HEIT
Holdings Ltd, had access to a £130 million (including a
£20 million RCF) debt facility with NatWest (in syndication
with Rabobank). £84.4 million had been drawn under the
main facility, with £10.6 million drawn under the RCF. Both
facilities were fully drawn in December 2023.
These facilities were successfully amended and restated
in February 2024, providing the Company with reduced
interest costs and significant head-room in relation to debt
covenant tests which, if failed, would lead to a lock-up of
cash or an event of default.
The Company is a guarantor to its wholly owned subsidiary
HEIT Holdings Ltd in respect of the debt facilities and
also provides parent company guarantees to subsidiaries
in relation to certain construction and/or battery supply
contracts. As at the date of publication the aggregate
outstanding value of such guarantees is £29 million.
The Company’s prospectus at the time of IPO commits
the Directors to put forward a continuation vote at the
subsequent annual general meeting of the Company if
NAV of the Company is below £250 million at the end of
2024. This possibility, and the probability of such a vote
passing have been taken into account by the Directors in
making their assessment. Whilst it is acknowledged that
there is a risk of this threshold being triggered during the
Going Concern Period (as defined below), any such vote
would take place outside of the Going Concern Period.
The Directors are aware and understand that the
Company’s revenues can be volatile and therefore have
reviewed the results of financial models analysing the
expected position of the Company under a prudent
scenario as well as a reasonable worst-case scenario. Both
scenarios take into account the availability of cash reserves
and receivables whilst assuming that all projects are
brought into operations during the Going Concern Period.
The prudent scenario assumes revenue performance of
the Company’s operating projects remains broadly in line
with recent operating performance.
In addition, the Directors have considered a reasonable
worst-case scenario which assumes non-contracted
revenue earned by underlying investee companies is
c.35% lower than in the prudent scenario.
Under both scenarios the financial model shows that
sufficient cash is expected to be available to meet the
Company’s obligations and commitments (including but
not limited to construction contracts, working capital
requirements and debt service). The Directors have
considered the outcomes of a reverse stress test whereby
non-contracted revenue falls below the level assumed
in the reasonable worst-case scenario. The Directors
have concluded that the revenue levels generated by this
reverse stress test are not plausible.
The Directors note that the Company is not reliant
on revenues from operating projects in order to meet
its commitments in relation to the funding of project
construction costs. Having considered the results of the
modelled scenarios, the Directors have a reasonable
expectation that the Company is able to manage cash
flow and meet its working capital and debt service
commitments via a combination of operating revenues,
and/or contracted revenue products over the Going
Concern Period, and are working with the Investment
Adviser to assess the optimal combination of such options
so as to ensure that the Company can maximise returns to
Shareholders whilst managing solvency risk. The Company
also has the option of selling an asset(s) if it wishes to do
so. The Directors are confident that key risks have been
considered in this assessment.
The Directors have adopted the going concern basis in
preparing the Annual Report and Financial Statements
and have concluded that the Company’s available funding
and expected income are sufficient for the Company to
continue its operations for at least 12 months from the
date of signing these financial statements (the “Going
Concern Period”).
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HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
76
The Little Raith community fund was
launched in November 2023.
VIABILITY STATEMENT
The Directors have considered the period to February
2026 for the purposes of assessing the Company’s viability
(the “Viability Period”). The same prudent and reasonable
worst-case scenarios described above have been reviewed
over the Viability Period.
The Directors have considered the potential impact
of a continuation vote which could take place during
the Viability Period as described above. The Directors
understand that the impact of such a vote may result in
a managed sell-down of assets, but that this sell-down of
assets could take a significant period of time to complete
in order to maximise shareholder value. The Directors
have received no indication that such a continuation vote,
if necessary, would not pass.
The Directors have further analysed projected headroom
in relation to debt covenants which could impact the
Company’s viability if triggered.
Having considered the above, the Directors have
concluded that there are no significant doubts that the
Company remains viable under a reasonable worst-case
scenario.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
77
Governance Report
In this section
80 Board of Directors
82
Directors’ Report
85 Corporate Governance
90 Directors’ Responsibility Statement
91 Report of the Audit and Risk Committee
94 Report of the Remuneration and Nomination Committee
98 Report of the Management Engagement Committee
100 Independent Auditor’s Report
Envision Energy International UK Limited was appointed in February 2023 to supply
and install BESS equipment for the Hawthorn Pit (pictured) and Wormald Green sites.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
78
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
79
Date of Appointment:
12 October 2021
Norman is an experienced public company
Chair with extensive fund experience.
He is non-executive Chairman at RM
Infrastructure Income plc, AVI Japan
Opportunity Trust plc and is also a
director of Universal Umvelt Ltd.
Date of Appointment:
12 October 2021
Janine is a qualified Chartered
Accountant, qualifying at Deloitte &
Touche, and an experienced senior
energy industry executive with over
20years’ experience in the sector, 16 of
which were spent at National Grid plc.
She is an independent non-executive
director of Aquila Energy Efficiency Trust
plc and a member of their Audit and
Risk, Nomination, Remuneration and
Management Engagement Committees;
and a director of Zoop Energy Limited
and Attika Holdings Limited.
Board of Directors
JANINE FREEMAN
Chair of the Audit and Risk Committee and
Independent Non-Executive Director
NORMAN CRIGHTON
Chair and Independent
Non-Executive Director
GOVERNANCE REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
80
Date of Appointment:
12 October 2021
Hugh has extensive industry experience
in the renewable energy sector and is a
non-executive director of Proserv UK.
He was the CEO of Renewable UK from
2016-2021; Chief Executive for the Office
for Renewable Energy Deployment at
DECC from 2010-2014; and non-executive
director of the Offshore Renewable
Energy Catapult from 2016 until end of
December2023.
Date of Appointment:
12 October 2021
Willy is an experienced industry
professional and Chairman of Cambridge
Economic Policy Associates Ltd. He was
previously a civil servant working at board
level in various government departments,
including energy, transport and the
Cabinet Office, finishing as Director
General, Energy from 2006 to 2009. Since
then, he has worked as a non-executive
director on the boards of a number of
companies, including Greencoat UK Wind
plc, Eggborough Power Ltd, Helius Energy
plc and Impax Environmental Markets plc.
Date of Appointment:
12 October 2021
Shefaly is an experienced risk and
decision-making specialist with a career
working in the technology industry
including startups and investors. She is
an independent non-executive director at
Witan Investment Trust plc; JP Morgan
US Smaller Companies Trust plc, where
she chairs the Remuneration Committee;
and Temple Bar Investment Trust plc
where she chairs the Nomination and
Management Engagement Committees.
She is also a director of Witan Investment
Services Limited.
DR HUGH MCNEAL
Chair of the Management Engagement
Committee and Independent
Non-Executive Director
DR SHEFALY YOGENDRA
Chair of the ESG Committee and
Independent Non-Executive Director
WILLIAM RICKETT, CB
Chair of the Remuneration andNomination
Committee and Independent
Non-Executive Director
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
81
Directors’ Report
The Directors are pleased to present their Annual Report
including the Company’s audited financial statements for the
period ended 31 October 2023.
The Corporate Governance Report on pages 85-89 forms
part of this Directors’ Report.
PRINCIPAL ACTIVITY AND STATUS
The Company is a public limited company registered and
incorporated in England and Wales under the Companies
Act 2006 (the “Act”) on 1 October 2021 with registered
number company no. 13656587. The Company is registered
as an investment company under section 833 of the Act.
The Company’s principal activity is to invest in commercial scale
battery energy storage and renewable energy generation projects,
with an initial focus on a portfolio of utility scale BESS, located in
diverse locations across Great Britain.
DIRECTORS
The Company has a Board comprising of five independent
non-executive Directors. The Directors of the Company
during the Period and at the date of this report are Norman
Crighton (Chair), Janine Freeman, Hugh McNeal, William
Rickett and Shefaly Yogendra, all of whom were appointed on
12 October 2021.
Biographical details of the current Directors are given on
pages 80 and 81. The Company has no employees.
The Board of Directors manages the Company’s business
and may exercise all of the Company’s powers, subject to the
Articles of Association, the Companies Act and any directions
given by special resolution. Amendments to the Company’s
Articles of Association require a special resolution to be
passed by Shareholders.
DIRECTORS’ INSURANCE AND INDEMNITY
Directors’ and Officers’ Liability Insurance cover is held by
the Company in respect of the Directors. The Company has
also granted indemnities to each of its Directors to the extent
permitted by law in respect of costs of defending claims
against them and third-party liabilities.
SUBSTANTIAL SHAREHOLDINGS
As of 31 October 2023, the Company is aware of the
following substantial Shareholders who were directly or
indirectly interested in 3% or more of the total votes in the
Company’s issued capital:
At 31 October 2023
Shareholder
Number of Ordinary
Shares held
Percentage of Issued
Share Capital
Schroders plc 32,487,231 14.30
Harmony Energy Limited 28,383,695 12.50
Close Asset Management Limited 20,418,370 8.99
Handelsbanken Wealth and Asset Management Limited 14,018,988 6.17
EQ Investors Limited 11,823,917 5.21
Premier Miton Group plc 8,798,251 3.87
Walker Crips Group 8,613,148 3.79
Waverton Investment Management Limited 6,904,893 3.04
At the date of this report the Company has been notified of the following changes in holding of voting rights in the Company:
• Schroders plc changed to 40,564,329 Ordinary Shares (17.85%)
• Close Asset Management Limited changed to 19,069,480 Ordinary Shares (8.40%)
• EQ Investors Limited changed to 12,222,728 Ordinary Shares (5.38%)
• Premier Miton Group plc changed to 11,463,857 Ordinary Shares (5.05%)
• Handelsbanken Wealth & Asset Management Limited changed to 9,964,783 Ordinary Shares (4.39%)
• Walker Crips Group changed to 8,228,470 Ordinary Shares (3.62%)
• Waverton Investment Management Limited changed to 7,531,114 Ordinary Shares (3.32%)
SHARE CAPITAL
On 31 October 2023, the Company’s issued share capital
comprised 227,128,295 Ordinary Shares with a nominal value
of £0.01 each representing 100% of the total issued share
capital. Each Ordinary Share entitles the holder to one vote
and there are no restrictions on those voting rights. Details of
the movement in the Company’s share capital can be found
in Note 19 on page 130.
On 14 October 2021, the Company entered into a Lock-up
and Orderly Market Deed with Joh. Berenberg, Gossler &
Co. KG, London Branch, as broker, and certain Shareholders,
whereby each shareholder that is party to the Deed has
agreed, with exceptions, that:
1. they will not dispose of their shareholding in the
Company for a period of 5 years commencing on the
date of Initial Admission; and
GOVERNANCE REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
82
2. for a period of 12 months after the end of the five-year
period they will not dispose of any interest in their
shareholding other than through the Company’s broker.
As at the end of the period 26,083,680 Ordinary Shares
were subject to the terms of the Lock-up and Orderly Market
Deed. There are no other restrictions on the transfer of
Shares other than as set out in the Articles of Association.
PURCHASE OF OWN SHARES
The Company was granted authority at the 2023 AGM to
make market purchases of its own Ordinary Shares. This
authority will expire at the conclusion of the 2024 AGM at
which a resolution will be proposed to seek further authority.
No Ordinary Shares were purchased under this authority
during the year to 31 October 2023.
DIVIDENDS
All Ordinary Shares are entitled to receive dividends and
interim dividends have been paid by the Company as shown
in the table below. No final dividend has been or will be
declared, but the Company’s dividend policy of paying four
interim dividends will be tabled for approval at each AGM.
In line with the Company’s dividend policy stated at the time
of the Company’s IPO, the Company has met its target to pay
a dividend of 8 pence per Ordinary Share for the financial year
ended 31 October 2023, per the below table. All dividends
declared and paid by the Company are interim dividends,
payable quarterly in March, June, September and December.
Amount paid per
Ordinary Share
17 March 2023 2p
16 June 2023 2p
29 September 2023 2p
22 December 2023 2p
RELATED PARTY TRANSACTIONS
Any related party transactions during the Period can be found
in Note 23 to the Accounts on page 132.
FINANCIAL INSTRUMENTS
The Company’s financial instruments and principal risks
aredisclosed in Notes 16 and 17 to the Accounts on
pages124-127.
INVESTMENT OBJECTIVE AND
INVESTMENT POLICY
The Company’s investment objective and investment policy is
detailed in the Strategic Report on pages 26-30.
Subsidiary Companies
The Company has the following direct and indirect
subsidiaries, all of which are held 100%. Details on the
subsidiaries can be found in Note 10 on page 120.
• HEIT PW Limited
• HEIT PW2 Limited
• HEIT BD Limited
• HEIT FM Limited
• HEIT RH Limited
• HEIT LR Limited
• HEIT Holdings Ltd
• HEIT BF Limited
• HEIT WG Limited
• HEIT HP Limited
FUTURE DEVELOPMENTS
Consideration of future developments are detailed in the
Chair’s Statement on p a g e s 4 - 7.
POST BALANCE SHEET EVENTS
Post balance sheet events are disclosed in Note 25 of the
financial statements on page 133.
ENVIRONMENTAL, SOCIAL, AND
GOVERNANCE CONSIDERATIONS
The Board seeks to maintain high standards of conduct with
respect to environmental, social, and governance issues and to
conduct the Company’s affairs responsibly. The Company does
not have any employees and so the Board does not maintain
specific policies regarding employee issues but has adopted
an ESG Policy and ESG strategy, further details of which are
set out in the ESG Report. The Company also expects the
Investment Adviser and its service providers to consider these
issues when fulfilling their roles and supplier performance
in this area is monitored by the Management Engagement
Committee.
The Company has calculated and reported on its Scopes 1,
2 and 3 GHG emissions are in line with the GHG Protocol
as part of our ESG metric reporting. Details of the approach
used, and the carbon footprint are set out in the ESG Report
on page 32.
CHANGE OF CONTROL
There are no significant agreements that the Company is a
party to that might be affected by a change of control of the
Company following a takeover bid.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
83
ANNUAL GENERAL MEETING
The Annual General Meeting (“AGM”) of the Company
will be held on Thursday 18 April 2024 at 10.00 a.m. and
the AGM Notice and Form of Proxy will be circulated to all
Shareholders in advance of the meeting.
INDEPENDENT AUDITOR
The Company’s auditors, Ernst & Young LLP, has expressed
its willingness to continue as auditor for the financial year
ended 31 October 2024 and a resolution proposing their
re-appointment will be submitted at the 2024 AGM.
Signed on behalf of the Board by
Norman Crighton
Chair
Directors’ Report continued
GOVERNANCE REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
84
Corporate Governance
The Board of the Company has considered the Principles
and Provisions of the AIC Code of Corporate Governance
(“AIC Code”). The AIC Code addresses the Principles and
Provisions set out in the UK Corporate Governance Code
(the “UK Code”), as well as setting out additional Provisions
on issues that are of specific relevance to the Company.
The Board considers that reporting against the Principles
and Provisions of the AIC Code, which has been endorsed
by the Financial Reporting Council, provides more relevant
information to Shareholders.
The AIC Code is available on the AIC website
(www.theaic.co.uk). It includes an explanation of how the
AICCode adapts the Principles and Provisions set out in the
UK Code to make them relevant for investment companies.
The Board believes that the Company has complied with the
Principles and Provisions of the AIC Code with the exception
of the items outlined below:
1. The Company does not have a senior independent director.
After considering the Company’s particular characteristics,
objectives and Board structure, the Board has determined
that the appointment of a senior independent director is
not necessary or desirable to promote the open, equal and
shareholder-facing board dynamic that the Board believes it
can achieve as a wholly non-executive Board.
2. The Company does not have a Chief Executive Officer.
Given the nature and circumstances of the Company as an
investment company managed by the Investment Adviser,
the Company does not consider it necessary to have a Chief
Executive Officer.
BOARD LEADERSHIP, CULTURE AND PURPOSE
The Chair, Norman Crighton, is responsible for leadership
of the Board and leads the Board in the determination of its
strategy and in the achievement of its objectives. The Board
views its purpose as being to set and execute its investment
objective by working in partnership with the Investment
Adviser to invest in energy storage and complementary
renewable energy generation assets with an initial focus on
a diversified portfolio of utility scale BESS located in diverse
locations across Great Britain.
The Chair has responsibility for the organisation of the
business of the Board, ensuring its effectiveness and setting
its agenda. The Company’s investment objectives are detailed
in the Strategic Report on page 26.
The Board encourages a culture of openness, independence,
engagement and mutual respect of each member’s
experience and professionalism. The Board continually
monitors its own culture, practices and behaviour and
the Chair encourages each Board member to question,
debate and challenge recommendations not only from
the Company’s key service providers (including the
Investment Adviser) but also from each other. Issues raised
are considered by the Board and any actions required are
monitored.
DIVISION OF RESPONSIBILITIES
Matters reserved for the Board
The Directors have adopted a formal schedule of matters
reserved for the Board which sets out the responsibilities of
the Board. These matters include:
• Overall leadership of the Company and setting of its
purpose, values, and standards;
• Investment/business strategy, including the ongoing
review of the Company’s investment objective and
investment policy. Approving all changes to the
Company’s investment objective and investment policy
and recommending to Shareholders the approval of any
material alterations thereto;
• Approval of risk management policies covering, among
other things, insurance, hedging, borrowing limits and
corporate security (following recommendation from the
Audit and Risk Committee, as appropriate);
• Ensuring the maintenance of a system of internal controls
and risk management, reviewing at appropriate intervals
the Company’s overall internal control arrangements
(following review and recommendation by the
Audit and Risk Committee);
• Receipt and review of regular reports on internal controls
processes and management from the Audit and Risk
Committee;
• Annual assessment of significant risks and effectiveness of
internal controls;
• Each instance of delegation of any portfolio management
function or risk management functions;
• Approval of the raising of new capital and major financing
facilities;
• Appointment or removal as required of the Company’s
principal advisers, including the Company’s AIFM, the
investment adviser, reporting accountants, auditor
(following appropriate recommendation by the Audit and
Risk Committee), tax advisers, the company secretary/
administrator, the registrar, valuer, the brokers, PR firm and/
or legal counsel (following appropriate recommendation by
the Management Engagement Committee); and
• Approval of acquisitions and disposals.
The provision of administration and governance services
has been delegated to JTC (UK) Limited. The Board has
delegated responsibility for day-to-day operational decisions
relating to the Company’s projects to the Investment Adviser.
RELATIONSHIP WITH THE AIFM
The AIFM provides certain services in relation to the Company
and its portfolio, which include risk management and investment
advice, based on recommendations from the Investment
Adviser, in accordance with the Company’s investment policy.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
85
The AIFM’s duties under the AIFM Agreement dated 14 October
2021 include complying with the Company’s investment policy
and analysing the performance of the Company’s investments.
The AIFM is required to provide all risk management services
to the Company as required by the EU AIFM Directive and
the UK AIFM Regime including (i) the implementation of
adequate risk management systems to identify, measure,
manage and monitor appropriately all risks relevant to the
Company’s investment strategy and to which the Company
is or may be exposed, (ii) ensuring that the risks associated
with each investment position of the Company and their
overall effect upon the Company’s portfolio can be properly
identified, measured, managed and monitored on an ongoing
basis, including through the use of appropriate stress testing
procedures, (iii) advising the Board on the establishment
and adjustment of quantitative and qualitative risk limits
for the Company, taking into account all relevant risks and
(iv)reviewing the risk management systems at least annually
and adapting them where necessary. The AIFM also provides
guidance to the Company on its compliance with the
requirements of the EU AIFM Directive and the UK AIFM
Regime that apply in respect of marketing of the Shares of the
Company in the UK and the EEA, as applicable.
For the Period the Management Engagement Committee
evaluated the performance of the AIFM. The Board accepted
the Management Engagement Committee’s recommendation
that the continuing appointment of the AIFM was in the best
interests of the Company and its Shareholders.
RELATIONSHIP WITH THE INVESTMENT
ADVISER
The Investment Adviser provides investment advisory services
to the AIFM and certain other services to the Company
which are unrelated to investment advice and acts within
the strategic guidelines set out in the Company’s investment
policy. These services are defined in more detail below. The
Investment Adviser reports to the AIFM and the Company.
There is a clear division of responsibilities between the Board
and the Investment Adviser and the AIFM.
The Investment Advisory Agreement dated 14 October 2021
between (1) the Investment Adviser, (2) the Company and
(3)the AIFM details the responsibilities of the Investment
Adviser which include, providing certain investment advisory
services to the AIFM copied to the Company, and certain
other services to the Company which are unrelated to
investment advice, including development and day-to-day
operation of the Company’s projects.
The Investment Adviser must: (a) advise the AIFM on
the Company’s investments in accordance with the
Company’s investment objective, investment policy and
investment restrictions and ESG policy, including making
recommendations based on its expert opinion to the AIFM
in respect of the purchase, sale or disposal of the Company’s
investments and arranging the purchase and sale of such
investments in accordance with the AIFM’s directions;
(b)assist in the preparation of periodic NAV calculations as
provided for in the Prospectus; and (c) prepare quarterly
reports to be provided to the AIFM and the Board, including
pursuant to the Company’s ESG policy and any applicable
KPIs pursuant to the Company’s ESG policy from time to
time and assisting the AIFM in respect of quarterly reporting
to the Company’s Board.
Investment Advisory services provided by the Investment
Adviser also include: (a) making recommendations regarding
the manner in which monies should be retained or realised
and advise on the use of borrowing in accordance with the
investment policy; (b) monitoring the performance of the
revenue optimiser(s) appointed in respect of the Company’s
assets and the revenue performance of the same and
advising the Company and/or the AIFM in respect of revenue
optimisation strategy; (c) providing assistance in respect of
the Company’s marketing endeavours, including attending
investor and other marketing meetings and assisting with
production of marketing materials for distribution to investors
and prospective investors; (d) assisting with implementation
of appropriate risk measurement and management standards
and procedures; (e) providing material for inclusion in annual
and other reports of the Company; and (f) monitoring
investment limits and restrictions and giving instructions for
the operation of bank accounts.
Regarding the other services, the Investment Adviser will:
(a) advise and facilitate the engagement by one or more
project companies of independent third-party suppliers
and contractors to provide services to the construction,
commissioning, and ongoing management of the Company’s
projects; (b) provide certain project management and
supervision services; (c) provide certain community and
stakeholder services; (d) provide certain services regarding
permits, approvals, and compliance; (e) provide certain
occupational health and safety and ESG services; and
(f)provide certain other technical and monitoring services.
Details of the management fee payable, in accordance with
the terms of the Investment Advisory Agreement, to the
Investment Adviser for the year ended 31 October 2023
are included in Note 23 of the Financial Statements. The
Investment Advisory Agreement is terminable on six months’
notice by the Company or the AIFM and twelve months’
notice by the Investment Adviser (or on immediate notice
in certain customary circumstances). On termination of
the Agreement the Investment Adviser shall be entitled to
recover all costs and expenses incurred in accordance with
the Agreement, but not yet submitted for reimbursement.
For the Period the Management Engagement Committee
evaluated the performance, and recommended the continued
appointment, of the Investment Adviser. Further details are
included in the Management Engagement Committee Report
on pages 98 and 99. The Board accepted the Management
Engagement Committee’s recommendation that the
continuing appointment of the Investment Adviser was in the
best interests of the Company and its Shareholders.
Corporate Governance continued
GOVERNANCE REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
86
RELATIONSHIP WITH THE ADMINISTRATOR
JTC (UK) Limited is the appointed Company Secretary and
Administrator to the Company, providing company secretarial,
fund accounting and administration services. During the
year ended 31 October 2023, as Administrator, JTC (UK)
Limited, on behalf of the Directors, was responsible for the
maintenance of the books and records, the management of
financial records, all cash movements of the Company and
the calculation, in conjunction with the Investment Adviser, of
the Net Asset Value of the Company. As Company Secretary,
JTC (UK) Limited is responsible for regulatory compliance and
providing support to the Board’s corporate governance process
and its continuing obligations as well as general secretarial
functions required by the Companies Act 2006.
BOARD COMMITTEES
The Company has four committees: the Audit and
Risk Committee, the Nomination Committee, the ESG
Committee and the Management Engagement Committee
and further details on the operation of these committees
can be found on pages 91-9 9. Details on the ESG Committee
can be found in the ESG Report. The terms of references
of these committees are available on the Company’s
website. During the Period all the Directors served on all the
committees as independent non-executive Directors.
BOARD AND COMMITTEE MEETINGS
The Board has a schedule of quarterly meetings with
additional meetings as required. The table below sets out the
number of scheduled Board and Committee meetings held
during the year and the number of meetings attended by
each Director.
Quarterly Board
Meetings
Audit and Risk
Committee
ESG
Committee
Remuneration
and Nomination
Committee
Management
Engagement
Committee
No. of Meetings Held 4 3 1 1 1
Norman Crighton 4 3 1 1 1
Janine Freeman 4 3 1 1 1
Hugh McNeal 4 3 1 1 1
William Rickett 4 3 1 1 1
Shefaly Yogendra 4 3 1 1 1
The Board also held a number of ad-hoc Board meetings
outside of the scheduled meeting cycle. Matters discussed
included fundraising, refinancing and acquisitions and
meetings were normally attended by all Board members.
The primary focus at Board meetings has been on delivering
the strategy, monitoring performance against strategic
objectives, investor relations, asset allocation, monitoring
regular revenue and cash forecasts, the calculation of the NAV
and monitoring progress of project construction. This included:
• approving the deployment of capital raised and progress
of construction of the portfolio;
• acquiring three ‘shovel-ready’ projects known as Wormald
Green, Hawthorn Pit and Rye Common in December 2022;
• agreeing an extension to the debt facility of £60million to
£130million (including a £20million revolving credit facility)
from NatWest (in syndication with Rabobank) to support the
acquisition and construction of the above projects;
• processing a C Share conversion, converting 21,771,364
C Shares into Ordinary Shares with respective NAVs of
98.61 pence and 124.92 pence;
• appointing Stifel Nicolaus Europe Limited as a joint
corporate broker in June 2023, to work alongside
Berenberg;
• reviewing updates from the Investment Adviser, which
included portfolio updates, health and safety, risk
management and ESG;
• reviewing updates from other key stakeholders including
the broker, Company Secretary, and AIFM; and
• consideration of strategies to drive a reduction in the
discount to NAV of the share price. This has included,
inter-alia, asset sales, gearing levels, dividend policy,
marketing strategy.
The Company maintains a register of Directors’ conflicts of
interest which is considered at all Board meetings, and no
significant conflicts of interests were identified during the
Period. The Board is required to disclose changes or potential
new conflicts. The Company Secretary attends all Board
meetings and ensures that the Directors have access to all
relevant information. In line with the Board’s commitment to
reducing adverse environmental impacts from its business,
wherever possible it makes efficient use of technology.
Todate all the ad-hoc meetings were held virtually, and all
Board papers are distributed electronically.
COMPOSITION, SUCCESSION AND
EVALUATION
The Board comprises five Directors. Their biographies, on
pages80 and 81, demonstrate the wide range of complementary
skills and experience they each bring to the Board. All the
Directors are non- executive and, for the purpose of provision 12
of the AIC Code, all are considered to be independent with the
Chair being independent on appointment.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
87
The Remuneration and Nomination Committee is responsible
for leading the process on appointments, ensuring there
are plans in place for orderly succession to the Board and
overseeing any other related matters as they arise. This
includes ensuring that any appointments and succession
plans are based on merit and objective criteria, and within
this context, promote diversity of gender, social and ethnic
backgrounds, and cognitive and personal strengths. Given
that the Company was incorporated in 2021, the Board did
not consider any changes to the composition of the Board
were necessary during the Period.
The Remuneration and Nomination Committee carried out
an evaluation of the Board and Committees for the Period
which concluded that the Board has the right mix of skills
and that the Chair and the Directors are suitability qualified
to undertake their responsibilities and perform their duties in
respect of managing the Company. As this is the Company’s
second year of operation, it was agreed that an externally
facilitated Board evaluation would be considered next year.
BOARD DIVERSITY
The Board comprises five independent non-executive directors
of whom 40% are female. The Board is committed to
diversity, which includes diversity of experience, background
and perspective, and meeting the recommendations of the
Hampton Alexander Review of female representation and
gender imbalance on FTSE 350 boards (now called the FTSE
Women Leaders Review) and the Parker Review into the
ethnic diversity of UK boards. In line with the objectives of the
Diversity Policy adopted by the Board, the Board will always
appoint the best person for the job. It will not discriminate
on the grounds of gender, race, ethnicity, religion, sexual
orientation, age or physical ability. The Board considers the real
value of diversity comes from ensuring inclusion of different
views arising from lived experiences and skills.
At 31 October 2023 (and the date of this report) the Company
has met the diversity targets set out in the FCA Listing Rules
that:
• at least 40% of the individuals on the Board are women;
• at least one director is of an ethnic minority background;
and
• *at least one of the senior position is held by a woman.
At 31 October 2023 (and at the date of this report) the
Company met all the FCA diversity targets as shown in the
table below:
Gender Diversity
No. of Board
Members % of the Board
No. of Senior
Positions on
the Board
Men 3 60 1
Women 2 40 1*
The gender and ethnicity data was collated from the responses received from all Board members to the following two questions:
“Please confirm whether you are male or female or would prefer not to say”; and “Please confirm whether you are White British
or other White (including minority white groups)/ Mixed/Multiple Ethnic Groups Asian/Asian British Black/African/Caribbean/Black
British Other ethnic group, including Arab/Not specified/OR prefer not to say”.
The table below shows how the Company met the FCA diversity targets:
Ethnic Diversity
No. of Board
Members % of the Board
No. of Senior
Positions on
the Board
White British or other White (including minority White groups) 4 80 2
Asian/Asian British 1 20 0
* The Company only has one of the senior roles specified by the Listing Rules, that is the position of chair, and this role is
occupied by a man. However, the Board considers that the role of Chair of its Audit and Risk Committee is a senior position,
and that role is held by a woman. As an externally managed investment company with solely non-executive Directors, there are
no disclosures about executive management positions to be included.
INTERNAL CONTROL AND RISK
MANAGEMENT
The Board acknowledges that it is responsible for establishing
and maintaining the Company’s system of risk management
and internal controls, which is reviewed fully for effectiveness
on an annual basis. This has been delegated to the Audit
and Risk Committee. The Board has identified and assessed
the principal and emerging risks faced by the Company
and how they are being mitigated. These are set out in the
Principal Risks and Uncertainties section on pages70-72.
The Investment Adviser and the AIFM regularly report
to the Board on risk. During the Period, the Audit and
Risk Committee reviewed and provided feedback to the
Investment Adviser and the AIFM on the full risk register.
The Board has delegated certain of its day-to-day activities to
the AIFM, the Investment Adviser and the Administrator, and
has clearly defined their roles, responsibilities and authorities.
The actions of these service providers are monitored at quarterly
and ad-hoc Board meetings and their performance reviewed
annually by the Management Engagement Committee.
Corporate Governance continued
GOVERNANCE REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
88
At each scheduled quarterly meeting, the Board receives
reports from the AIFM, the Administrator, the Company
Secretary and the Investment Adviser to provide it with
assurance that appropriate oversight is in place. The Board
is satisfied with the controls and risk management systems
currently in place for assessing, managing and monitoring
risks applicable to such service providers, including policies
covering whistleblowing and helping to prevent bribery,
corruption and fraud. The Board has also received reports
to provide it with assurance that appropriate and reasonable
oversight of controls is in place at its key third party providers
to manage risks.
VIABILITY STATEMENT
The Viability Statement, under which the Directors assess the
prospects of the Group over a longer period, is contained on
page 77.
RELATIONS WITH SHAREHOLDERS
The Board values interactions with Shareholders
and welcomes their views. Shareholders may
contact the Board through the Company’s brokers
at: Berenberg_Harmony@berenberg.com and
‘SNELHarmonyEnergy@stifel.com’ or the Company
Secretary at HarmonyEnergyIncomeTrustplc@jtcgroup.com.
The Investment Adviser regularly engages with principal
Shareholders and key sector analysts and is available to meet
with Shareholders if requested. The Chair has met with any
shareholder who requested a meeting during the year and
will continue to do so.
The Board receives comprehensive shareholder reports quarterly
from the Company’s adviser and regularly monitors the views of
Shareholders and the shareholder profile of the Company.
The annual general meeting of the Company will be held
on Thursday 18 April 2024 at 10.00 a.m. and Shareholders
will have the opportunity to engage with the Board. In
addition to the formal business of the AGM, representatives
of the Investment Adviser will also be available to answer
any questions raised by Shareholders. IfShareholders are
not able to attend the AGM in person, they will be given
the opportunity to ask questions in advance of the AGM,
with answers to any questions received published on the
Company’s website on Friday 19 April 2024.
Separate resolutions are proposed at the AGM on each
substantially separate issue. All voting at the AGM will be on
a poll with the results being announced as soon as practical
following the AGM via RIS announcement.
RELATIONS WITH OTHER STAKEHOLDERS
Examples of stakeholder engagement and the effect on
stakeholders of principal decisions taken by the Company
during the year can be found in the s172 Statement on
pages74 and 75.
ADDITIONAL DISCLOSURES
Additional disclosures required by Schedule 7 of the Large
and Medium sized Companies and Groups (Accounts and
Reports) Regulations 2008 (as amended) are contained in the
Directors’ Report on pages 82 and 83.
GOING CONCERN
Under the AIC Code, the Board is required to consider
whether it is appropriate to adopt the going concern basis
of accounting in preparing these Financial Statements. The
Board continues to adopt the going concern basis and the
detailed consideration is contained on page 76.
Approved on behalf of the Board by:
Norman Crighton
Chair
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
89
Directors’ Responsibility Statement
The Directors are responsible for preparing the Annual
Report and Financial Statements in accordance with
applicable law and regulations.
As a company traded on the London Stock Exchange, the
Company is subject to the FCA’s Listing Rules and Disclosure
Guidance and Transparency Rules, as well as to all applicable
laws and regulations in England and Wales where it is
registered.
The Annual Report and Financial Statements have been
prepared in accordance with UK adopted international
accounting standards. Under company law, the Directors
must not approve the Financial Statements unless they
are satisfied that they give a true and fair view of the state
of affairs of the Company and of the profit or loss for the
Period. In preparing these Financial Statements, the Directors
should:
• select suitable accounting policies in accordance with
IAS 8 and then apply them consistently;
• make judgements and estimates that are reasonable and
prudent;
• specify which generally accepted accounting principles
have been adopted in their preparation;
• prepare the Financial Statements on the going concern
basis, unless it is inappropriate to presume that the
Company will continue in business; and
• prepare a directors’ report, a strategic report and
directors’ remuneration report which comply with the
requirements of the Companies Act 2006.
The Directors are responsible for keeping proper accounting
records which are sufficient to show and explain the
Company’s transactions and disclose, with reasonable
accuracy at any time, the financial position of the Company
and enable them to ensure that the Financial Statements
comply with the requirements of the Companies Act 2006.
They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for ensuring that the annual
report and accounts, taken as a whole, are fair, balanced,
and understandable, and provide the information necessary
for Shareholders to assess the Company’s position and
performance, business model and strategy.
WEBSITE PUBLICATION
The Directors are responsible for ensuring the Annual
Report and the Financial Statements are made available on
the Company’s website. Financial statements are published
on the Company’s website in accordance with legislation
in the UK governing the preparation and dissemination of
financial statements, which may vary from legislation in other
jurisdictions. The maintenance and integrity of the Company’s
website is the responsibility of the Directors. The Directors’
responsibility also extends to the ongoing integrity of the
financial statements contained therein.
DIRECTORS’ RESPONSIBILITY STATEMENT
PURSUANT TO DISCLOSURE GUIDANCE
AND TRANSPARENCY RULES 4
The Directors confirm to the best of their knowledge that:
• the financial statements have been prepared in
accordance with UK adopted international accounting
standards and give a true and fair view of the assets,
liabilities, financial position and profit and loss of the
Company; and
• the annual report includes a fair review of the
development and performance of the business and
the financial position of the Company, together with a
description of the principal risks and uncertainties that
itfaces.
DISCLOSURE OF INFORMATION TO THE
AUDITOR
The Directors confirm that:
• so far as each Director is aware, there is no relevant audit
information of which the Company’s auditor is unaware;
and
• the Directors have taken all the steps that they ought
to have taken as Directors in order to make themselves
aware of any relevant audit information and to establish
that the Company’s auditor is aware of that information.
Signed by order of the Board,
Norman Crighton
Chair
27 February 2024
GOVERNANCE REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
90
Report of the Audit and Risk Committee
1. ROLE OF THE AUDIT AND RISK
COMMITTEE
The AIC Code recommends that the Board should establish
an Audit and Risk Committee (the “ARC” / “Committee”)
comprising at least three, or in the case of smaller companies,
two independent non- executive Directors. The ARC comprises
all the independent non-executive Directors. Norman Crighton,
as Chair of the Board, is eligible to serve on the Committee as
on appointment, he was, and remains, independent.
The ARC examines the effectiveness of the Company’s risk
management and internal control systems. It reviews the
Company’s Interim Report and the Annual Report and Accounts
and receives reports and recommendations from the AIFM and
reports from the Investment Adviser. It also reviews the scope,
results, cost effectiveness, independence and objectivity of the
external auditor. The ARC reports formally to the Board after
any meeting held. The Committee reviews its terms of reference
once a year and any changes are approved by the Board. The
terms of reference are available on the Company’s website at:
https://www.heitp.co.uk/investors/shareholder-documents/.
2. MEMBERSHIP
The Chair of the ARC, Janine Freeman, is a Chartered
Accountant, qualifying at Deloitte & Touche. She is an
experienced senior energy industry executive and non-executive
director. The Board is satisfied that Janine has recent and
relevant financial experience as required under the AIC Code.
The other members of the ARC are Norman Crighton, Hugh
McNeal, William Rickett and Shefaly Yogendra, all of whom
have extensive recent and relevant competence in the sector
in which the Company operates. The Board considers that
the appointment of Norman Crighton as a member of the
ARC, notwithstanding his appointment as Chair of the Board,
is appropriate, given that he was independent on his initial
appointment and has continued to be throughout his tenure.
The biographies of the Committee members are outlined on
pages 80 and 81 of this Annual Report.
As part of the annual Board evaluation the ARC and its Chair
respectively were reviewed and found to be effective.
3. MEETINGS
The ARC met three times during the Period and meetings were
attended by all its members, as well as representatives of the
Investment Adviser, the AIFM and the Company Secretary. The
Auditor (as defined below) had also attended meetings relating
to the annual report and accounts and held separate meetings
with the ARC Chair. Additional meetings are convened by
the Company Secretary atthe request of the ARC Chair as
necessary.
4. EXTERNAL AUDITOR
Ernst & Young (“EY” / “Auditor”) were appointed as the
Company’s auditor on 27 June 2022. Mike Gaylor has been the
lead audit partner since the appointment date. The appointment
of the Auditor is reviewed annually by the ARC and the Board
and is subject to approval by Shareholders. In accordance with
the Financial Reporting Council’s (“FRC”) guidance, the audit will
be put out to tender within ten years of the initial appointment.
Additionally, the audit partner must be rotated every five years,
meaning that Mike Gaylor is required to rotate after completing
the audit of the 31 October 2026 financial statements.
The audit plan was presented to the ARC at its September
2023 meeting, ahead of the commencement of the
Company’s period end audit. The audit plan sets out the audit
process, materiality scope and significant risks. Inrespect
of the Period, the ARC considered the appointment,
performance and remuneration of EY.
During the Period, the ARC met with key members of the audit
team, before the Annual Report and Accounts were prepared,
to discuss the audit scope and review and ensure its robustness.
Meetings were held with the Auditor to discuss the details of the
external audit and to consider and evaluate any findings in depth.
As part of the annual reporting process, EY have formally
confirmed their independence. The ARC discussed the
effectiveness of the Auditor and is of the opinion that the audit
team assigned by EY to the Company has a good understanding
of the Company’s business. The ARC has recommended to
the Board that a resolution to reappoint EY is proposed to
Shareholders at the forthcoming Annual General Meeting.
5. NON-AUDIT WORK
The ARC has implemented a policy for the supply of non-audit
services provided by the Auditor, which is consistent with the
FRC Revised Ethical Standards, published in 2019, to ensure
there are no circumstances where a service provided could
constitute a conflict or potential conflict of interest that would
impair the objectivity and independence of the Auditor. The
policy sets out the specific activities that may be provided by the
Auditor which are closely related to the audit and/or required by
law or regulation, with all other activities being disallowed. During
the Period the policy was reviewed by the Committee.
During the Period the Auditor was not engaged to carry out
any non-audit work for the Company.
6. FINANCIAL REPORTING AND
SIGNIFICANT ACCOUNTING MATTERS
The ARC is responsible for reviewing financial reporting
and advising the Board on whether the Annual Report and
Accounts are fair, balanced, and understandable, as required
by the AIC Code. It introduced a formal annual report
governance process which includes bi-weekly meetings
attended by the Investment Adviser, Administrator and
the Auditor. At these meetings, updates were given on
the process in place to produce the annual report, which
included thorough assessment by all parties. Comprehensive
and transparent discussions were held on the contents of the
Annual Report and Account, and drafts were reviewed.
Separately, the ARC Chair held meetings with the Board on
progress as well as with individual stakeholders.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
91
The ARC also met with the Investment Adviser, the Administrator,
and the Auditor to talk through the audit process and query their
findings. All parties confirmed they were not aware of any material
misstatements to the Annual Report and Accounts.
Additionally, the ARC assesses the significant financial reporting
issues and judgments made when preparing the Annual
Report and Accounts and evaluates the appropriateness of the
accounting policies adopted. Due to the materiality of related
party transactions, the Board considers them to be a significant
accounting matter and has carefully considered the adequacy
of their disclosure in the Annual Report.
As disclosed via an RNS on 1 September 2023, during the
preparation of the 31 July NAV, the Investment Adviser
discovered an error in the NAV methodology for valuing short
term cash flows. Whilst this error had no impact on the cash
flow generated by the Company’s operations nor its dividend
outlook, it caused an overstatement of the NAV per Ordinary
Share, which was subsequently rectified in the 31 July 2023 NAV.
The ARC promptly held a number of meetings with the
Company’s main advisers, including the Investment Adviser, the
Independent Valuer and the AIFM, to ascertain the root causes
of the error. These meetings resulted in a full review of the
valuation model by the Company’s Auditor and agreement of
an enhanced process for the calculation of future NAVs, which
was subject to rigorous deliberation before being approved by
the Committee in September 2023. This enhanced process was
applied to calculate the 31 October 2023 NAV.
As a result of the comprehensive reviews, feedback and
recommendation from the ARC, the Board has concluded
that the Annual Report and Accounts for the financial year
ended 31 October 2023, taken as a whole is fair, balanced and
understandable and provides the information necessary for
Shareholders to assess the Company’s position, performance,
business model and strategy.
7. KEY ACCOUNTING JUDGEMENTS AND
ESTIMATES
Entities that meet the definition of an investment entity within
IFRS 10 are required to measure their subsidiaries at fair value
through profit or loss rather than consolidate them unless their
main purpose and activities are providing services related to the
Company’s investment activities. The Committee has evaluated
whether the Company is an investment entity and has made the
judgement that it meets the definition set out in IFRS 10.
Investments are designated at fair value in accordance
with the Company’s accounting policy. As a result, the
ARC examined the procedures and application of valuation
policies. The valuation of these investments is the most
significant area of estimate in the Annual Report and
Accounts. The income projections, the discount rates
used, the rate of inflation, and the project costs make up
the main estimates and assumptions. The ARC specifically
questioned the appropriateness of the discount rate used
and carefully considered the impact of macroeconomic and
industry-related factors on income recognition and associated
assumptions in relation to the valuation of the assets that
have been included in the 31 October 2023 valuation.
In the Company’s Annual Report and Accounts, the uncertainty
associated in determining the fair value of investment valuations
represents a significant risk. The Investment Adviser’s fee is
calculated based on the NAV andthis could present a conflict of
interest whereby the Investment Adviser is motivated to report
a high NAV. This risk is mitigated by the involvement of both the
Administrator and the Independent Valuer.
The Investment Adviser, with assistance from the
Administrator, is responsible for calculating the NAV prior to
approval by the Board. On a quarterly basis, the Investment
Adviser provides a detailed NAV analysis highlighting
any movements and assumption alterations to the prior
quarter NAV. This is supported by an independent valuation
performed by the Independent Valuer every six months.
The ARC considers and challenges the NAV prior to a
recommendation for approval being made to the Board.
At Period end, the Independent Valuer was engaged to
support the ARC in forming a view on the reasonableness of
the valuations. The ARC is satisfied that the key estimates and
assumptions used within the valuation model are appropriate
and that the investments have been fairly valued.
8. INTERNAL AUDIT
The Committee has considered the need for an internal audit
function and considers that this is not appropriate given the
nature and circumstances of the Company as an investment
company with external service providers. The internal controls
framework for the Company has been developed and is
delivered primarily through the risk management process.
This process is described in detail in the Principal Risks and
Uncertainties section on pages 70 to72 and ensures that
appropriate measures, controls, checks and balances are
implemented to manage and monitor all risks, including
internal and financial controls. In addition, the external
period end audit has a strong focus on financial controls and
recommendations following any testing carried out by the
Auditors are followed up by the ARC. Finally, reports on the
internal controls of the Company’s key service providers are
reviewed by the Board at each Board meeting.
9. WHISTLEBLOWING
The ARC has systems in place by which staff of the
Investment Adviser and Administrator and other service
providers may, in confidence, raise concerns about adherence
to relevant laws and regulations, or something they consider
unethical or potentially harmful.
The ARC is satisfied that these arrangements allow for
proportionate and independent investigations of such
matters, and for appropriate follow up action. These
measures are embedded into the Investment Adviser and
Administrator’s internal policies. There were no instances of
whistleblowing during the Period.
Janine Freeman
Chair of the Audit and Risk Committee.
27 February 2024
Report of the Audit and Risk Committee continued
GOVERNANCE REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
92
All of the Company’s operational BESS, including
Little Raith (pictured), are operated through Autobidder,
Tesla’s algorithmic trading platform.
93
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
Report of the Remuneration and
Nomination Committee
The Company’s Remuneration and Nomination Committee
is chaired by William Rickett and, given the size of the
Board, consists of all the Directors. Norman Crighton, as
Chair of the Board, is eligible to serve on the Committee
as on appointment, he was, and remains, independent. The
Remuneration and Nomination Committee meets at least once
a year and more often when required.
The Remuneration and Nomination Committee’s main
functions include:
• agreeing the policy for the remuneration of the Directors,
reviewing any proposed changes to the policy, and making
recommendations to the Board on directors’ fees;
• considering and, if necessary, appointing independent
professional remuneration advice;
• making recommendations to the Board on Board tenure
and succession planning, taking into account the existing
balance of skills, knowledge and experience on the Board
and the advantages of diversity; and
• agreeing the arrangements for evaluating the performance
of the Board, its Committees, and the Directors.
During the Period, the Committee met once, and all members
were present. The Committee discussed Board composition,
tenure and succession, its approach to promoting diversity,
the policy to be adopted on remuneration and the level
of Directors’ fees. The Committee also considered the
arrangements for evaluating Board performance, including the
option of an externally facilitated evaluation, but concluded
that an internal evaluation would be appropriate given the early
stage of the Company. The Committee agreed that the option
of an external evaluation should be kept under review.
As part of the overall Board evaluation, it was concluded that
there was a good balance of skills between the Directors
on the Remuneration Committee. The Committee reports
formally to the Board after any meeting held. TheCommittee
reviews its terms of reference at every meeting and
any changes are approved by the Board. Theterms of
reference are available on the Company’s website at:
https://www.heitp.co.uk/investors/shareholder-documents/.
ANNUAL STATEMENT
This report sets out the Company’s remuneration
policy and explains how it has been implemented by the
Board. It also provides Shareholders with details of the
Directors’ remuneration. During the year, the Directors’
remunerationhad increased by a rate below the level of
inflation. Anincrease of 5% was agreed for the financial
yearending 31 October 2024.
The Board has applied, and continues to apply, Principle9.1 of
the AIC Code 2019 when considering Directors’ remuneration.
This requires the Board to set a formal and transparent
procedure for developing its remuneration policy with no
director being involved in deciding their own remuneration
outcome; to design remuneration policies and practices
that support the Company’s strategy and promote its long-
term sustainable success; and to ensure Directors exercise
independent judgement and discretion when authorising
remuneration outcomes, taking account of Company and
individual performance, and wider circumstances. For the
purposes of recruitment, the same remuneration policy will be
applied.
DIRECTORS’ REMUNERATION POLICY
The Company’s policy is to set Directors’ fees at a level which
will enable the Board to recruit and retain the skills required
to run the Company in the best interests of its Shareholders.
In judging the level of fees required to achieve this, the
Company will take account of the time commitment required
of Directors and the need to be competitive with the fees paid
to non-executive directors of similar companies. The Company
may periodically choose to benchmark Directors’ fees with an
independent review, to ensure they remain fair and reasonable.
The aggregate remuneration of the Directors for their services
shall not exceed £400,000 per annum or such higher figure
as the Company may by ordinary resolution determine and
such remuneration shall be divided amongst the Directors
as they shall agree, or in default of agreement, equally. Such
remuneration shall be deemed to accrue from day to day. In
exceptional circumstances, the Directors may also be paid by
way of additional remuneration such further sums as the Board
may from time to time determine and any such additional
remuneration shall be divided among the Directors as they
shall agree or, in default of agreement, equally.
The Directors are entitled only to their annual fee and
their reasonable expenses. No element of the Directors’
remuneration is performance-related, nor does any Director
have any entitlement to pensions, share options or any
long-term incentive plans from the Company.
The Directors hold their office in accordance with the Articles
of Association and their appointment letters. No Director has a
service contract with the Company, nor are any such contracts
proposed. The Directors’ appointments can be terminated in
accordance with the Articles and without compensation.
Under the Company’s Articles of Association, all Directors are
entitled to remuneration determined from time to time by the
Board.
DIRECTORS’ REMUNERATION (AUDITED)
During the year, each Director was entitled to an annual
fee of £42,000 per annum. The Chair and Audit and Risk
Committee Chair were paid an additional sum of £10,500
and £5,250 respectively for the additional responsibility
attached to their respective roles. In the light of current
inflation rates, the Board has agreed, on the recommendation
of the Remuneration and Nomination Committee, that
Directors’ fees should be increased by 5% for the year
starting 1 November 2023. From that date each Director will
receive an annual fee of £44,100 with the Chair receiving
an additional £11,025 and the Audit and Risk Committee Chair
receiving an additional £5,512.50. In determining the Directors’
GOVERNANCE REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
94
remuneration, neither the Company nor the Remuneration
and Nomination Committee has oversight of the remuneration
arrangements of its subsidiaries.
The total emoluments of each person who served as a Director
during the year are set out in the table below. Thereare no
performance-related elements to Directors’ fees and the
Company does not operate any type of incentive, share scheme,
award or hold options to acquire shares in the Company. There
were no other remuneration fees or taxable benefits paid to
any Director during the Period. Thetable also shows the fees
expected for the Period ending 31October2024.
For the period ended 31 October 2023 For the period ended 31 October 2022*
Expected
Fees for the
year ended
October 2024
£
Fees
£
Expenses
paid
£
Tot al
£
Fees
£
Expenses
paid
£
Tot al
£
Norman Crighton (Chair) 52,500 – 52,500 52,692 – 52,692 55,125
Janine Freeman 47,250 610.73** 4 7,8 61 4 7,4 2 3 – 4 7, 4 2 3 49,613
Hugh McNeal 42,000 – 42,000 42,154 – 42,154 44,100
William Rickett 42,000 – 42,000 42,154 – 42,154 44,100
Shefaly Yogendra 42,000 – 42,000 42,154 – 42,154 44,100
Tot al 225,750 610.73 226,361 226,577 – 226,577 237,038
* From 1 October 2021 to 31 October 2022
** Reimbursement of travel and accommodation expenses to attend board meetings
RELATIVE IMPORTANCE OF SPEND ONPAY
The table below shows the difference in actual spend between 31 October 2022 and 31 October 2023 on Directors’
remuneration in comparison to distributions by way of dividends and management fee and expenses.
Payments made during
the period ended
31October 2023
£
Payments made during
the period ended
31October 2022
£
Directors’ Remuneration 226,361 226,577
Dividends paid 15,727,698 2,100,000
Buyback of Ordinary Shares – –
Management fee and expenses 2,163,222 1,848,845
DIRECTORS’ SHAREHOLDINGS (AUDITED)
The Directors’ beneficial interests (including those of connected persons) at the period end and at the date of this report in the issued
share capital of the Company are outlined below. There is no minimum holding requirement that the Directors need to adhere to.
As at 31 October 2022 As at 31 October 2023 As at date of this report
Director
Ordinary
Shares C Shares*
Percentage
of issued
share
capital
Ordinary
Shares
Percentage
of issued
share
capital
Ordinary
Shares
Percentage
of issued
share
capital
Norman Crighton 10,000 5,000 0.00% 16,528 0.01% 16,528 0.01%
Janine Freeman** 10,043 5,000 0.00% 17,607 0.01% 18,048 0.01%
Hugh McNeal 10,000 5,000 0.00% 16,633 0.01% 16,633 0.01%
William Rickett 10,000 5,000 0.00% 16,633 0.01% 16,633 0.01%
Shefaly Yogendra 5,000 5,000 0.00% 11,618 0.00 11,618 0.00%
* On 31 January 2023 the C Shares were converted into new Ordinary Shares on a conversion ratio of 0.786735 new Ordinary
Shares for every 1 C Share held and subsequently cancelled.
** The Ordinary Shares held by Janine Freeman as at 31 October 2022 has been restated from 10,000 to 10,043.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
95
DIRECTORS’ SERVICE CONTRACTS
None of the Directors has a service contract with the
Company. Each of the Directors is engaged under a letter of
appointment with the Company.
Those terms also provide that a Director may be removed
without notice and that compensation will not be due on
leaving office. Each Director is also subject to the rotation of
Directors provisions set out in the Articles which provide that
a Director appointed by the Board during the year is required
to retire and seek election by Shareholders at the next AGM
following their appointment.
At the Company’s AGM on 18 April 2024, the Directors
shall be submitting themselves for election. Thereafter,
in accordance with the provision of the AIC Code, the
Directors intend to offer themselves for re-election annually,
notwithstanding that under the Articles they are only required
to submit themselves for re-election at least once every three
years. The Board believes, following a formal performance
and Board evaluation, as detailed on page 87, that all the
Directors continue to be effective, providing considerable
experience and demonstrating commitment to their roles.
TOTAL SHAREHOLDER RETURN
In setting the Directors’ remuneration, consideration is given
to the size and performance of the Company. The graph
below shows the total shareholder return of the Company’s
Ordinary Shares since IPO against the FTSE All Share index,
which the Board has deemed to be the most appropriate
comparator for the Company’s performance, since it includes
smaller companies.
November 2021 February 2023
Total Shareholder Return (%)
February 2022
August 2022 August 2023May 2022 May 2023
November 2022
HEIT.LFTSE All Share
Relative growth of stock prices for 09 November 2021 - 31 October 2023
-30%
-20%
-10%
0%
10%
20%
30%
CONSIDERATION OF SHAREHOLDER
VIEWS
The AGM to be held on 18 April 2024 will give Shareholders
an opportunity to vote on remuneration.
COMMITTEE MEMBERSHIP
The membership, activities and role of the Committee are
discussed in the Remuneration and Nomination Committee
Report on pages 94-97.
Report of the Remuneration and Nomination Committee continued
GOVERNANCE REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
96
STATEMENT OF VOTING AT GENERAL MEETING
At the Company’s AGM held in 2023 shareholder votes were received as follows:
Votes For %
Votes
Against %
Total votes
validly cast
Votes
Withheld
Resolution to approve Directors’
RemunerationPolicy
112,919,717 99.99% 14,000 0.01% 112,933,717 0
Under s439 of the Companies Act 2006, companies
are required to ask Shareholders to approve the annual
remuneration paid to Directors every year and to formally
approve the Directors’ Remuneration Policy on an annual
or on a three yearly basis. Shareholders had approved
the Directors’ Remuneration Policy at the AGM held on
22 March 2023. As the Board has agreed to propose this
resolution on a three yearly basis, the next proposal will be
atthe AGM in 2026.
At the AGM to be held on 18 April 2024, an ordinary
resolution will be put to Shareholders to receive and adopt
the Directors’ Remuneration Report.
Signed on behalf of the Board
William Rickett
Chair of the Remuneration and Nomination Committee
27 February 2024
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
97
The Company’s Management Engagement Committee
consists of all of the Directors and is chaired by
DrHughMcNeal. The Management Engagement Committee
meets at least once a year and more often when required.
The three principal duties of the Management Engagement
Committee are to:
• Consider the terms of appointment of the AIFM,
theInvestment Adviser and other service providers;
• Annually review those appointments and the terms of
engagement, including ensuring fees paid are sufficient to
attract and retain staff; and
• Monitor, evaluate and hold to account the performance
of the AIFM, the Investment Adviser, the other service
providers and their key personnel against set criteria.
During the Period, Management Engagement Committee
met once and all members were present. Representatives of
the Company Secretary were also present. The Management
Engagement Committee reports formally to the Board after
any meeting held.
During the Period, the Company adopted the Supplier
Code. As part of the MEC evaluation process, all key service
providers were asked to confirm their agreement to the
code or equivalent standards. The Management Engagement
Committee also reviewed the responses from key service
providers on a wider set of ESG related questions.
The Management Engagement Committee reviews its terms
of reference once a year and any changes are approved
by the Board. The terms of reference are available on the
Company’s website at: https://www.heitp.co.uk/investors/
shareholder-documents/.
THE INVESTMENT ADVISER
Harmony Energy Advisors Limited has been appointed
as Investment Adviser under the terms of an Investment
Advisory Agreement with the Company. The Investment
Adviser is a wholly owned subsidiary of Harmony Energy
Limited, a leading UK battery energy storage project
developer with an established track record in developing,
funding and supervising the construction of such projects
and other renewable generation projects in Great Britain.
The management team of the Investment Adviser have been
exclusively focused on the energy storage sector (across
multiple projects) in Great Britain for over seven years,
both from the point of view of asset owner/developer and
in a third-party advisory capacity. The management team
has relevant experience in revenue optimisation software
development specific to battery energy storage in Great
Britain. This allows the Investment Adviser a high degree of
understanding of relevant revenues available to battery energy
storage, how a battery energy storage project can maximise
its revenues, including through revenue optimisation services,
as well as knowledge of the most effective providers of those
services available in the market in Great Britain.
A summary of the services provided by the Investment
Adviser to the Company and fees paid are set out in the
Corporate Governance statement on pages 85-89.
EVALUATION OF THE INVESTMENT
ADVISER
The Management Engagement Committee evaluated the
performance of the Investment Adviser during the year.
Thisincluded reviewing the skills matrix of the Investment
Adviser’s key personnel and the Investment Adviser’s internal
control financial framework.
The Management Engagement Committee also reviewed the
Investment Adviser’s investment performance, its compliance
with the Investment Advisory Agreement as well as value for
money.
Following completion of the review the Management
Engagement Committee was satisfied with the service
provided, that the remuneration paid was reasonable and
recommended to the Board that the continued engagement
of the Investment Adviser was in the best interests of
Shareholders.
EVALUATION OF THE ALTERNATIVE
INVESTMENT FUND MANAGER
In accordance with the terms of a Management Agreement,
JTC Global AIFM Solutions Limited has been appointed
to act as alternative investment fund manager, providing
risk management and portfolio services to the Company.
TheAIFM is licensed and regulated by the Guernsey Financial
Services Commission. The Management Engagement
Committee reviewed the performance of the AIFM during
the year, which included reviewing value for money and the
quality of service provided. The Management Engagement
Committee was satisfied with the service provided, that the
AIFM had complied with the relevant laws and regulations
and the level of remuneration paid, and recommended to the
Board that the AIFM’s continued appointment was in the best
interests of Shareholders.
Report of the Management Engagement
Committee
GOVERNANCE REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
98
EVALUATION OF KEY SERVICE PROVIDERS
JTC (UK) Limited is appointed as Company Secretary and
Administrator and attends all Management Engagement
Committee meetings but is not present in discussions
regarding its own performance. The Management
Engagement Committee reviewed the performance of the
Administrator and Company Secretary and concluded it was
satisfactory. The Board is responsible for the appointment
or removal of the Company Secretary. The Management
Engagement Committee carried out an evaluation of the
Company’s wider service providers, including the registrars,
broker, legal firms and consultants providing specialist advice
and support on ESG and sustainability issues. The evaluation
included value for money, governance, cyber security and
data protection, all legal requirements, operating and internal
controls as well as ESG policies and achievement of policy
goals. There are no issues to report. The MEC agreed to
continue to keep all service providers under review.
SELF-EVALUATION
The Management Engagement Committee carried out
a self-evaluation and was satisfied that it was operating
effectively.
Dr Hugh McNeal
Chair of the Management Engagement Committee
27 February 2024
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
99
INDEPENDENT AUDITOR’S REPORT TO
THE MEMBERS OF HARMONY ENERGY
INCOME TRUST PLC
Opinion
We have audited the financial statements of Harmony
Energy Income Trust Plc (the ‘Company’) for the year
ended 31 October 2023 which comprise the Statement of
Comprehensive Income, the Statement of Financial Position, the
Statement of Changes in Equity, the Statement of Cash Flows,
and the related notes 1 to 25, including a summary of significant
accounting policies. The financial reporting framework that
has been applied in their preparation is applicable law and UK
adopted international accounting standards.
In our opinion, the financial statements:
• give a true and fair view of the Company’s affairs as at 31
October 2023 and of its profit for the year then ended;
• have been properly prepared in accordance with UK
adopted international accounting standards; and
• have been prepared in accordance with the requirements
of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (‘ISAs (UK)’) and applicable
law. Our responsibilities under those standards are further
described in the Auditor’s responsibilities for the audit
of the financial statements section of our report. We are
independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as
applied to listed public interest entities, and we have fulfilled
our other ethical responsibilities in accordance with these
requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that
the directors’ use of the going concern basis of accounting
in the preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the Company’s
ability to continue to adopt the going concern basis of
accounting included:
• Confirmation of our understanding of the Company’s
going concern assessment process and engagement with
the directors and the Company Secretary to determine
if all key factors were considered in their assessment. We
considered whether the items included in the directors’
assessment addressed those matters which we considered
important, including but not limited to the debt facilities
in place at the subsidiary company to which the Company
acts as guarantor, and the requirement to hold a
continuation vote if the NAV is below a certain threshold.
• Inspection of the directors’ assessment of going concern,
including the cash flow forecast, for the period to
28February 2025 which is at least twelve months from
the date these financial statements were authorised
for issue. In preparing the forecast, the Company has
concluded that it is able to continue to meet its ongoing
costs as they fall due.
• Review of the factors and assumptions, including the
impact of the current economic environment and other
significant events that could give rise to market volatility,
as applied to the cash flow forecast. We considered the
appropriateness of the methods used to calculate the
cash flow forecast and determined, through testing of the
methodology and calculations, that the methods, inputs
and assumptions utilised were appropriate to be able to
make an assessment for the Company. We also reviewed
the Company’s assessment of the investment portfolio
under stressed market conditions and determined the
impact of sensitivities in net asset value from the reverse
stress testing performed.
• Consideration of the mitigating factors included in the
cash flow forecast that are within the control of the
Company. We reviewed the Company’s assessment of the
liquidity of investments held and evaluated the Company’s
ability to sell those investments in order to cover working
capital requirements should revenue decline significantly.
• Consideration of the commitments that have been made,
including the refinanced loan facility and the possible
continuation vote, and assessed whether these have been
appropriately taken account of when preparing the cash
flow forecast.
• Review of the Company’s going concern disclosures
included in the Annual Report in order to assess whether
the disclosures were appropriate and in conformity with
the reporting standard.
Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions
that, individually or collectively, may cast significant doubt
on the Company’s ability to continue as a going concern
for a period assessed by the directors, being the period to
28February 2025, which is at least 12 months from when the
financial statements are authorised for issue.
Our responsibilities, and the responsibilities of the directors,
with respect to going concern are described in the relevant
sections of this report. However, because not all future events or
conditions can be predicted, this statement is not a guarantee as
to the Company’s ability to continue as a going concern.
Overview of our audit approach
Key audit
matters
• Risk of inaccurate valuation of investments
and the resulting impact on the unrealised
gains/(losses) in the Statement of
Comprehensive Income
• Risk of inaccurate revenue recognition,
including service fee income
Materiality • Overall materiality of £2.62m which
represents 1% of net asset value as at
31October 2023
Independent Auditor’s Report
GOVERNANCE REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
100
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit
scope for the Company. This enables us to form an opinion
on the financial statements. We take into account size, risk
profile, the organisation of the Company and effectiveness of
controls, the potential impact of climate and changes in the
business environment when assessing the level of work to be
performed. All audit work was performed directly by the audit
engagement team.
Climate change
There has been increasing interest from stakeholders as to
how climate change will impact companies. The Company
has assessed the impact climate change could have on
its operations and investments. This is explained in the
ESG section on page 36, which forms part of the ‘Other
information’, rather than the audited financial statements.
We have not performed audit procedures on the metrics
disclosed by the Company in the ESG section of the Annual
Report and Accounts. Our procedures on the climate change
disclosures therefore consisted solely of considering whether
they are materially inconsistent with the financial statements
or our knowledge obtained in the course of the audit or
otherwise appear to be materially misstated.
Our audit effort in considering climate change was focused
on the adequacy of the Company’s disclosures in the financial
statements as set out in note 2 and conclusion that climate
risk does not materially impact the estimates and assumptions
used in determining the fair value of the investments. We also
challenged the directors’ considerations of climate change in
their assessment of going concern and viability and associated
disclosures.
Based on our work, we have not identified the impact of
climate change on the financial statements to be a key audit
matter or to impact a key audit matter.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
financial statements of the current period and include the
most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified. These
matters included those which had the greatest effect on: the
overall audit strategy, the allocation of resources in the audit;
and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the
financial statements as a whole, and in our opinion thereon,
and we do not provide a separate opinion on these matters.
Risk Our response to the risk
Key observations communicated
to the Audit and Risk Committee
Risk of inaccurate valuation of
investments and the resulting impact
on the unrealised gains/(losses) in the
Statement of Comprehensive Income
Refer to the Audit and Risk Committee
Report (page 91); Accounting policies
(page 115); and Note 10 of the Financial
Statements (page120)
The valuation of the investment portfolio
as at 31 October 2023 was £240.03million
(2022: £141.03 million as restated)
consisting of the Company’s investments in
BESS assets through its subsidiaries.
The accurate valuation of investments is
fundamental to the Company’s financial
performance. The return generated by
the investment portfolio is a key driver
of the Company’s performance. Due to
the nature of the investment portfolio,
being unlisted investments with no directly
comparable listed investments, the
underlying assumptions that drive the value
of each asset are subjective. As a result,
the valuation of the portfolio is susceptible
to misstatement.
We performed the following procedures:
•
Gained an understanding of the Investment
Adviser, Independent Valuer and the directors’
processes and controls surrounding investment
valuations and the recognition of realised and
unrealised gains/(losses) on investments, by
performing a walkthrough to evaluate the design
and implementation of controls;
•
Obtained and reviewed the valuation models to
validate that the valuation methodology adopted
is consistent with the requirements of IFRS and
IVSC guidelines. We corroborated key revenue
streams and other valuation model inputs
to supporting contracts and external pricing
forecasts, as applicable;
•
Held discussions with the Investment Adviser
to understand the key drivers of the cash flow
projections included in the valuation models and
assessed their appropriateness based on the
nature of the asset and our understanding of the
relevant markets;
•
Recalculated the unrealised gains/losses on
unquoted investments as at the year-end using
the book-cost reconciliation and reviewed the
level 3 fair value hierarchy disclosure;
Our audit procedures did
not identify any material
misstatements regarding the
risk of inaccurate valuation of
investments and the resulting
impact on the unrealised gains/
(losses) in the Statement of
Comprehensive Income.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
101
Risk Our response to the risk
Key observations communicated
to the Audit and Risk Committee
Unrealised gains or losses are calculated
as the difference between the fair value
of the investment and the book cost
and contribute to a significant portion of
the capital returns in the statement of
comprehensive income. There is a risk that
the unrealised gain/loss is miscalculated.
The valuation principles used are based
on IFRS 13 Fair value and the International
Valuation Standards Council (‘IVSC’)
valuation guidelines, using a discounted
cash flow (‘DCF’) methodology. In the
current year more of the sites have
become operational and as such the
incorporation of actuals into the valuations,
including in respect of back testing, is a
more material consideration.
The model used by the Investment Adviser
and valuation agent to calculate the fair
value of the investments is complex and
proprietary. We note that the Investment
Adviser and valuation agent have identified
historic model errors which resulted in
the Board issuing restated NAV results
on 1 September 2023. The complexity
of the model means the risk of error
remains high and could result in the
material misstatement of the valuation of
investments.
•
Recalculated the realised gain/loss in the
financial statements based on changes in
investment values, purchases and realisations;
•
For all investments, engaged EY valuation
specialists to assist in challenging the
appropriateness of the discount rate used and
to assess the impact of macro-economic and
industry related factors in calculating the net
present value of the future cash flows; and
•
Performed incremental model reviews to assess
the appropriateness of the model given the
intended valuation methodology, the clerical
accuracy including the incorporation of
actuals into the model and the validity of the
assumptions made within the model.
Risk of inaccurate revenue recognition,
including service fee income
Refer to the Audit and Risk Committee
Report (page 91); Accounting policies
(page 115); and Note 6 of the Financial
Statements (page117)
As at 31 October 2023, the total revenue
was £13.77 million (2022: £3.93 million)
comprising of service fee income amounting
to £1.84 million (2022: £1.85million)
and investment income amounting to
£11.93million (2022: £2.08 million).
Service fee income represents fees charged
by the Company to its subsidiaries in relation
to project related matters. This is calculated
as a percentage of the total operating
expenditure based on the proportion of time
spent on such matters. Investment income
is calculated by multiplying the interest rates
with the loan investments.
Due to the judgement involved in
assessing the proportion of the Company ’s
resources spent on project matters, we
consider these fees to be susceptible to
misstatement.
We performed the following procedures:
•
Obtained an understanding of how service fee
income and investment income is recognised
by performing walkthrough procedures to
evaluate the design and implementation of
controls;
•
Obtained the Company’s assessment of the
proportion of the Companies resources spent
on project related matters;
•
Reviewed the reasonability of inputs and
assumptions in calculating the service fee
income;
•
Recalculated the service fee income based on
the intercompany services agreement;
•
Obtained the support of Board’s review and
approval of the rate and forecasted expenditure
used as basis for service fee calculation;
• Recalculated the investment income relating to
loan interest attributable to the Company from
the SPVs, with reference to the contractual
agreements;
• Traced the investment income receivable to
the investments balance schedule as no cash is
paid and instead is capitalised; and
• Assessed whether investment income is being
recognised in accordance with UK adopted
international accounting standards.
Our audit procedures did
not identify any material
misstatements regarding the risk
of inaccurate revenue recognition,
including service fee income.
Independent Auditor’s Report continued
GOVERNANCE REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
102
Our application of materiality
We apply the concept of materiality in planning and
performing the audit, in evaluating the effect of identified
misstatements on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that,
individually or in the aggregate, could reasonably be
expected to influence the economic decisions of the users
of the financial statements. Materiality provides a basis for
determining the nature and extent of our audit procedures.
We determined materiality for the Company to be
£2.62million (2022: £2.72 million), which is 1% of net asset
value (2022: 1% of net asset value adjusted for the C Class
Shares). We believe that net asset value provides us with
materiality aligned to the key measure of the Company’s
performance.
Performance materiality
The application of materiality at the individual account
or balance level. It is set at an amount to reduce to an
appropriately low level the probability that the aggregate
of uncorrected and undetected misstatements exceeds
materiality.
On the basis of our risk assessments, together with our
assessment of the Company’s overall control environment,
our judgement was that performance materiality was 50%
(2022: 50%) of our planning materiality, namely £1.31 million
(2022: £1.36 million). We have set performance materiality at
this percentage due to our past experiences of the audit that
indicates there is a higher risk of misstatement.
Reporting threshold
An amount below which identified misstatements are
considered as being clearly trivial.
We agreed with the Audit and Risk Committee that we would
report to them all uncorrected audit differences in excess
of £0.13 million (2022: £0.14 million), which is set at 5% of
planning materiality, as well as differences below that threshold
that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in
light of other relevant qualitative considerations in forming
our opinion.
Other information
The other information comprises the information included
in the Annual Report and Accounts other than the financial
statements and our auditor’s report thereon. The directors
are responsible for the other information within the Annual
Report and Accounts.
Our opinion on the financial statements does not cover
the other information and, except to the extent otherwise
explicitly stated in this report, we do not express any form of
assurance conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the course of the audit or otherwise appears
to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are
required to determine whether this gives rise to a material
misstatement in the financial statements themselves. If, based
on the work we have performed, we conclude that there is
a material misstatement of the other information, we are
required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the
Companies Act 2006
In our opinion the part of the Directors’ Remuneration
Report to be audited has been properly prepared in
accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course
of the audit:
• the information given in the Strategic Report and the
Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the
financial statements; and
• the Strategic Report and Directors’ Report have
been prepared in accordance with applicable legal
requirements.
Matters on which we are required to report by
exception
In the light of the knowledge and understanding of the
Company and its environment obtained in the course of the
audit, we have not identified material misstatements in the
Strategic Report or Directors’ Report.
We have nothing to report in respect of the following matters
in relation to which the Companies Act 2006 requires us to
report to you if, in our opinion:
• adequate accounting records have not been kept, or
returns adequate for our audit have not been received
from branches not visited by us; or
• the financial statements and the part of the Directors’
Remuneration Report to be audited are not in agreement
with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by
law are not made; or
• we have not received all the information and explanations
we require for our audit.
Corporate Governance Statement
We have reviewed the directors’ statement in relation to going
concern, longer-term viability and that part of the Corporate
Governance Statement relating to the Company’s compliance
with the provisions of the UK Corporate Governance Code
specified for our review by the Listing Rules.
Based on the work undertaken as part of our audit, we
have concluded that each of the following elements of the
Corporate Governance Statement is materially consistent
with the financial statements or our knowledge obtained
during the audit:
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
103
• Directors’ statement with regards to the appropriateness
of adopting the going concern basis of accounting and
any material uncertainties identified set out on page 76;
• Directors’ explanation as to its assessment of the
Company’s prospects, the period this assessment covers
and why the period is appropriate set out on page 76;
• Director’s statement on whether it has a reasonable
expectation that the group will be able to continue in
operation and meets its liabilities set out on page 76;
• Directors’ statement on fair, balanced and understandable
set out on page 90;
• Board’s confirmation that it has carried out a robust
assessment of the emerging and principal risks set out on
page 70;
• The section of the annual report that describes the review
of effectiveness of risk management and internal control
systems set out on page 70; and;
• The section describing the work of the Audit and Risk
Committee set out on page 91.
Responsibilities of directors
As explained more fully in the directors’ responsibilities
statement set out on page 90, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to
enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Company’s ability to continue
as a going concern, disclosing, as applicable, matters related
to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate
the Company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not
a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial
statements.
Explanation as to what extent the audit was considered
capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-
compliance with laws and regulations. We design procedures
in line with our responsibilities, outlined above, to detect
irregularities, including fraud. The risk of not detecting a
material misstatement due to fraud is higher than the risk of
not detecting one resulting from error, as fraud may involve
deliberate concealment by, for example, forgery or intentional
misrepresentations, or through collusion. The extent to
which our procedures are capable of detecting irregularities,
including fraud is detailed below.
However, the primary responsibility for the prevention
and detection of fraud rests with both those charged with
governance of the Company and management.
• We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Company and
determined that the most significant are those that relate
to the reporting framework (UK adopted international
accounting standards, the Companies Act 2006, UK
Corporate Governance Code, AIC Code of Corporate
Governance and The Companies (Miscellaneous
Reporting) Regulations 2018) and Section 1158 of the
Corporation Tax Act 2010. In addition, we concluded
that there are certain significant laws and regulations
which may influence the determination of the amounts
and disclosures in the financial statements including the
Listing Rules of the UK Listing Authority.
• We understood how the Company is complying with
those frameworks by making enquiries of the Investment
Adviser, Company Secretary, and also the directors
including the Chair of the Audit and Risk Committee.
We corroborated our understanding through our review
of board minutes, papers provided to the Audit and Risk
Committee and correspondence received from regulatory
bodies.
• We assessed the susceptibility of the Company’s financial
statements to material misstatement, including how fraud
might occur by considering the key risks impacting the
financial statements. We identified fraud and management
override risks in relation to estimation uncertainty relating
to the valuation of investments and service fee income.
Our audit procedures stated above in the ‘Key audit
matters section’ of this Auditor’s report were performed
to address the fraud risk. We also performed journal
entry testing by specific risk criteria, with a focus on
manual journals and journals indicating large or unusual
transactions based on our understanding of the business.
• Based on this understanding we designed our audit
procedures to identify non-compliance with such laws
and regulations. Our procedures involved review of the
Company Secretary’s reporting to the directors with
respect to the application of the documented policies
and procedures and review of the financial statements to
ensure compliance with the reporting requirements of the
Company.
A further description of our responsibilities for the audit
of the financial statements is located on the Financial
Reporting Council’s website at https://www.frc.org.uk/
auditorsresponsibilities. This description forms part of our
auditor’s report.
Independent Auditor’s Report continued
GOVERNANCE REPORT
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
104
Other matters we are required to address
• Following the recommendation from the Audit and
Risk Committee, we were appointed by the Company
on 27June 2022 to audit the financial statements for
the period ended 31 October 2022 and subsequent
financialperiods.
• The period of total uninterrupted engagement including
previous renewals and reappointments is 2 years, covering
the periods ending 31 October 2022 to 31 October 2023.
• The audit opinion is consistent with the additional report
to the Audit and Risk Committee.
Use of our report
This report is made solely to the Company’s members,
as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken
so that we might state to the Company’s members those
matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s
members as a body, for our audit work, for this report, or for
the opinions we have formed.
Mike Gaylor (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
27 February 2024
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
105
Financial Statements
In this section
108 Statement of Comprehensive Income
109 Statement of Financial Position
110 Statement of Changes in Equity
111 Statement of Cash Flows
112 Notes to the Financial Statements
134 Company Information
135 Glossary
The first six projects (625 MWh / 312.5 MW) contracted
by the Company utilise Tesla’s Megapack technology.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
106
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
107
Statement of Comprehensive Income
Notes
Revenue
£
Capital
£
1 November
2022 to
31 October
2023
Tota l
£
Revenue
£
Capital
£
1 October
2021 to
31 October
2022
Tota l
(Restated*)
£
Income
Net (loss)/gain on investment at
fair value through profit and loss 10 – (7,161,610) (7,161,610) – 48,426,937 48,426,937
Service fee income 6 1,837,458 – 1,837,458 1,853,151 – 1,853,151
Investment income 6 11,936,674 – 11,936,674 2,083,035 – 2,083,035
13,774,132 (7,161,610) 6,612,522 3,936,186 48,426,937 52,363,123
Expenses
Administrative and other
expenses 7 (3,475,884) – (3,475,884) (3,999,189) – (3,999,189)
Profit/(loss) before taxation 10,298,248 (7,161,610) 3,136,638 (63,003) 48,426,937 48,363,934
Taxation 8 – – – – – –
Profit/(loss) after tax and Total
Comprehensive income for the
year/Period 10,298,248 (7,161,610) 3,136,638 (63,003) 48,426,937 48,363,934
Earnings per share (basic and
diluted): Ordinary Share 9 0.01 0.23
All Revenue and Capital items in the above statement are derived from continuing operations.
The Total column of this statement represents the Company’s Statement of Comprehensive Income prepared in accordance
with UK adopted international accounting standards (“IAS”). The return on ordinary activities after taxation is the total
comprehensive income and therefore no additional statement of other comprehensive income is presented.
The supplementary revenue and capital columns are presented for information purposes in accordance with the Statement of
Recommended Practice issue by the Association of Investment Companies (“AIC”).
The notes on pages 112 to 133 form an integral part of these Financial Statements.
* Refer to Note 2 Basis of preparation for disclosures on the restatement
FINANCIAL STATEMENTS
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
108
Statement of Financial Position
Note
31 October 2023
£
31 October 2022
(Restated*)
£
Non-current assets
Investments held at fair value 10 240,025,781 141,032,691
240,025,781 141,032,691
Current assets
Trade and other receivables 11 4,452,273 1,381,693
Loan to shareholder 12 – 1,443,506
Cash and cash equivalents 13 18,093,379 124,571,626
22,545,652 127,396,825
Total assets 262,571,433 268,429,516
Current liabilities
Trade and other payables 14 463,341 730,364
Financial liability at fair value 15 – 14,542,172
463,341 15,272,536
Net current assets 22,082,311 112,124,289
Total net assets 262,108,092 253,156,980
Shareholders’ equity
Share capital 19 2,271,283 2,100,000
Share premium 19 21,370,889 –
Capital reduction reserve 19 194,094,197 202,693,046
Revenue reserve 20 3,106,396 (63,003)
Capital reserve 20 41,265,327 48,426,937
Total Shareholders’ equity 262,108,092 253,156,980
Net asset value per Ordinary Share (pence) 21 115.4 120.55
The Financial Statements of Harmony Energy Income Trust Plc (registered number 13656587) were approved by the Board of
Directors and authorised for issue on 27 February 2024. They were signed on its behalf by:
Norman Crighton
Chairman
27 February 2024
The notes on pages 112 to 133 form an integral part of these Financial Statements.
* Refer to Note 2 Basis of preparation for disclosures on the restatement
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
109
Statement of Changes in Equity
Notes
Ordinary
Share capital
£
Share
premium:
Ordinary
Shares
£
Capital
reduction
reserve
£
Revenue
reserve
£
Capital
reserve
£
Total
Shareholders’
equity
£
Balance at 1 October 2021
– – – – – –
Transactions with owners:
Issue of share capital 19 2,100,000 207,900,000 – – – 210,000,000
Equity issue costs 19 – (3,106,954) – – – (3,106,954)
Transfer to capital reduction
reserve 19 – (204,793,046) 204,793,046 – – –
Dividends paid 19 – – (2,100,000) – – (2,100,000)
Total comprehensive income for
the Period:
Profit/(loss) for the Period
(Restated*) – – – (63,003) 48,426,937 48,363,934
Balance at 31 October 2022
(Restated*) 2,100,000 – 202,693,046 (63,003) 48,426,937 253,156,980
Transactions with owners:
Conversion of C shares to
Ordinary Shares
19 171,283 21,370,889 – – – 21,542,172
Dividends paid 19 – – (8,598,849) (7,128,849) – (15,727,698)
Total comprehensive income for
the year:
Profit/(loss) for the year – – – 10,298,248 (7,161,610) 3,136,638
Balance at 31 October 2023 2,271,283 21,370,889 194,094,197 3,106,396 41,265,327 262,108,092
The notes on pages 112 to 133 form an integral part of these Financial Statements.
* Refer to Note 2 Basis of preparation for disclosures on the restatement
FINANCIAL STATEMENTS
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
110
Statement of Cash Flows
Notes
1 November 2022 to
31 October 2023
£
1 October 2021 to
31 October 2022
(Restated*)
£
Cash flows from operating activities
Profit for the year/Period 3,136,638 48,363,934
Adjustments for non-cash items:
Net loss/(gain) on investment at fair value through profit and loss 10 7,161,610 (48,426,937)
Investment income 6 (11,582,996) (2,083,035)
Service fee income 6 (1,837,458) (1,853,151)
Operating cash flows before movements in working capital (3,122,206) (3,999,189)
Increase in trade and other receivables (1,233,122) (1,381,693)
(Decrease)/increase in trade and other payables 14 (267,023) 730,364
Net cash outflow from operating activities (4,622,351) (4,650,518)
Cash flows used in investing activities
Loan to shareholder discharged/(granted) 12 1,443,506 (1,443,506)
Purchases of investments (101,223,411) (65,185,873)
Proceeds from sale of investments 10 13,651,707 –
Net cash outflow from investing activities (86,128,198) (66,629,379)
Cash flows used in financing activities
Proceeds from issue of Ordinary Shares – 186,516,305
Proceeds from borrowings – 14,542,172
Share issue costs – (3,106,954)
Dividends paid 22 (15,727,698) (2,100,000)
Net cash (outflow)/inflow (used in)/from financing activities (15,727,698) 195,851,523
Net (decrease)/increase in cash and cash equivalents for the year/Period
(106,478,247) 124,571,626
Cash and cash equivalents at the beginning of the year/Period 124,571,626 –
Cash and cash equivalents at the end of the year/Period 13 18,093,379 124,571,626
The notes on pages 112 to 133 form an integral part of these Financial Statements.
* Refer to Note 2 Basis of preparation for disclosures on the restatement
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
111
Notes to the Financial Statements
For the year from 1 November 2022 to 31 October 2023
1. GENERAL INFORMATION
The Company was incorporated as a Public Company, limited by shares, in England and Wales on 1 October 2021 with
registered number 13656587. The registered office of the Company is The Scalpel 18th Floor, 52 Lime Street, London, England
EC3M 7AF. The Company’s principal activity is to invest in commercial scale battery energy storage and renewable energy
generation projects, with an initial focus on a portfolio of utility scale BESS, located in diverse locations across Great Britain.
REORGANISATION
The Company is able to raise debt finance at either the Company or Special Purpose Vehicle (“SPV”) level. In order to facilitate
this, HEIT Holdings Ltd was incorporated on 4 February 2022, with the Company being its sole shareholder.
Prior to the issue of debt by HEIT Holdings Ltd, it was necessary to carry out a reorganisation of the Company. This
reorganisation occurred over two periods. On 9 March 2023 and 4 May 2023 respectively, the Directors of the Company
resolved to approve:
• the proposed disposal by the Company of the entire issued share capital of all of its other subsidiaries to the HEIT Holdings
Ltd in exchange for shares issued in HEIT Holdings Ltd equalling the fair value of the investment at the date of transfer;
• the proposed novation of the Company’s obligations under all loan agreements with all its other subsidiaries to HEIT
Holdings Ltd and the entering into of a new loan agreement with HEIT Holdings Ltd;
• the proposed novation of the Company’s obligations under certain share purchase agreements to HEIT Holdings Ltd; and
• a loan agreement to be entered into between (1) the Company and (2) HEIT Holdings Ltd.
Further details on the reorganisation and transfer of investments to HEIT Holdings Ltd are disclosed on note 10.
2. BASIS OF PREPARATION
The audited Annual Report and Financial Statements have been prepared in accordance with the International Financial
Reporting Standards as adopted by the UK (“IFRS”) and in conformity with the requirements of the Act and also considers the
Statement of Recommended Practice (“SORP”) “Financial Statements of Investment Trust Companies and Venture Capital
Trusts”, updated by the AIC in July 2022. The Financial Statements are prepared on a historical cost basis, except where
balances are recognised at fair value. The principal accounting policies are set out in Note 4.
In terms of the AIC SORP, the Company presents a Statement of Comprehensive Income, which shows amounts split
between balances which are revenue and capital in nature. The determination of the revenue or capital nature of a transaction
is determined by giving consideration to the underlying elements of the transaction. Capital transactions are considered to
be those arising as a result of the appreciation or depreciation in the value of assets due to the fair value movements on
investments held at fair value through profit and loss as well as any gains or losses occurred on the sale of investments. Revenue
transactions are all transactions, other than those which have been identified as capital in nature.
The Company is an investment entity in accordance with IFRS 10 ‘Consolidated Financial Statements’ which holds all its
subsidiaries at fair value and therefore only prepares separate accounts. The Financial Statements are also prepared on the
assumption that approval as an investment trust will continue to be granted.
The Directors considered the impact of climate change on the investments included in Company’s Financial Statements
and have assessed that it does not materially impact the estimates and assumptions used in determining the fair value of the
investments.
FUNCTIONAL AND PRESENTATION CURRENCY
The currency of the primary economic environment in which the Company operates (the functional currency) is British Pounds
Sterling which is also the presentation currency.
GOING CONCERN
A fundamental principle of the preparation of financial statements in accordance with IFRS is the judgement that an entity will
continue in existence as a going concern for a period of at least 12 months from signing of The Annual Report, which contemplates
continuity of operations and the realisation of assets and settlement of liabilities occurring in the ordinary course of business.
In reaching its conclusion, the Board has considered the risks that could impact the Company’s liquidity over the period from
28February 2024 to 28 February 2025 (the “Going Concern Period”). Bearing in mind the nature of the Company’s business
and assets, the Directors consider the Company to have adequate resources to continue in operational existence.
The Investment Adviser and the Directors have assessed the cash flow forecasts and debt servicing commitments in light of
recent trading performance. Through this scenario analysis the Board has determined that the Company has sufficient ability to
generate cash to ensure that the Company can continue to operate as a going concern for at least 12 months from the signing
of these Financial Statements (the “Going Concern Period”).
FINANCIAL STATEMENTS
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
112
As at 31 October 2023, the Company and its subsidiaries had net current assets and net cash balances of £26 million along with
undrawn debt facilities of £35 million. The combination of net current assets and undrawn debt facility was sufficient to meet
commitments made under construction contracts signed by subsidiaries.
The Company, through its wholly owned subsidiary HEIT Holdings Ltd, had access to a £130 million (including a £20 million
RCF) debt facility with NatWest, in syndication with Rabobank. £84.4 million had been drawn under the main facility, with
£10.6million drawn under the RCF. Both facilities were fully drawn in December 2023.
These facilities were successfully amended and restated in February 2024, providing the Company with reduced interest costs
and significant head-room in relation to debt covenant tests which, if failed, would lead to a lock-up of cash or an event of
default.
The Company is a guarantor to its wholly owned subsidiary HEIT Holdings Ltd in respect of the debt facilities and also provides
parent company guarantees to subsidiaries in relation to certain construction and/or battery supply contracts. As at the date of
publication the aggregate outstanding value of such guarantees is £29 million.
The Company’s prospectus at the time of IPO commits the Directors to put forward a continuation vote at the subsequent
annual general meeting of the Company if NAV is below £250 million at the end of 2024. This possibility, and the probability
of such a vote passing has been taken into account by the Directors in making their assessment. Whilst it is acknowledged that
there is a risk of this threshold being triggered during the Going Concern Period, any such vote would take place outside of the
Going Concern Period.
The Directors are aware and understand that the Company’s revenues can be volatile and therefore have reviewed the results of
financial models analysing the expected position of the Company under a prudent scenario as well as a reasonable
worst-case scenario. Both scenarios take into account the availability of cash reserves and receivables whilst assuming that all
projects are brought into operations during the Going Concern Period.
The prudent scenario assumes revenue performance of the Company’s operating projects remains broadly in line with recent
operating performance.
In addition, the Directors have considered a reasonable worst-case scenario which assumes non-contracted revenue earned by
underlying investee companies is c.35% lower than in the prudent scenario.
Under both scenarios the financial model shows that sufficient cash is expected to be available to meet the Company’s
obligations and commitments (including but not limited to construction contracts, working capital requirements and debt
service). The Directors have considered the outcomes of a reverse stress test whereby non-contracted revenue falls below the
level assumed in the reasonable worst-case scenario. The Directors have concluded that the revenue levels generated by this
reverse stress test are not plausible.
The Directors note that the Company is not reliant on revenues from operating projects in order to meet its commitments in
relation to the funding of project construction costs. Having considered the results of the modelled scenarios, the Directors
have a reasonable expectation that the Company is able to manage cash flow and meet its working capital and debt service
commitments via a combination of operating revenues and/or contracted revenue products over the Going Concern Period,
and are working with the Investment Adviser to assess the optimal combination of such options so as to ensure that the
Company can maximise returns to Shareholders whilst managing solvency risk. The Company also has the option of selling an
asset(s) if it wishes to do so. The Directors are confident that key risks have been considered in this assessment.
The Directors have adopted the going concern basis in preparing the Annual Report and Financial Statements and have
concluded that the Company’s available funding and expected income are sufficient for the Company to continue its operations
for at least 12 months from the date of signing these financial statements.
The Company has no direct exposure to either Ukraine or Russia or to Palestine and Israel and therefore does not consider
either of these conflicts to have an impact on the going concern operations of the Company.
The Directors acknowledge their responsibilities in relation to the Financial Statements for the year ended 31 October 2023 and
the preparation of the Financial Statements on a going concern basis remains appropriate. The Company expects to meet its
obligations as and when they fall due for at least the next twelve months after the date of approval of the Financial Statements.
As such, the Directors have adopted the going concern basis in preparing the Annual Report and Financial Statements.
PRIOR YEAR ERROR AND RESTATEMENT
During the preparation of the 31 July 2023 NAV, the Investment Adviser discovered an error in the NAV methodology for
valuing short term cash flows, which was introduced at the 31 October 2022 financial year end. It has been ascertained that this
resulted in an overstatement of the NAV at 31 October 2022 of £4,653,154.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
113
The comparatives for 31 October 2022 disclosed in this annual report have been restated with the updated valuation figures
as a result of the above error. The restatement impacts the Statement of Financial Position, the Statement of Comprehensive
Income, the Statement of Changes in Equity, the Statement of Cash Flows and related notes to the Financial Statements as at
31October 2022. A detailed breakdown of the impact of the valuation error per project has been disclosed in note 10.
Impact on Statement of Comprehensive Income
31 October 2022*
£
Error adjustment
£
31 October 2022
(Restated)
£
Net (loss)/gain on investment at fair value through profit
and loss 53,080,091 (4,653,154) 48,426,937
Earnings per share (basic and diluted): Ordinary Share 0.25 (0.02) 0.23
Impact on Statement of Financial Position
31 October 2022*
£
Error adjustment
£
31 October 2022
(Restated)
£
Non-current assets
Investments held at fair value 145,685,845 (4,653,154) 141,032,691
Shareholders’ equity
Capital reserve 53,080,091 (4,653,154) 48,426,937
Net asset value per Ordinary Share (pence) 122.77 (2.22) 120.55
* 31 October 2022 results as published before the restatement
3. NEW AND REVISED STANDARDS AND INTERPRETATIONS
NEW AND REVISED STANDARDS AND INTERPRETATIONS
The accounting policies used in the preparation of the Financial Statements have been consistently applied during the year
ended 31 October 2023.
There have been no new standards, amendments to current standards, or new interpretations which the Directors consider to
have an impact on these Financial Statements.
NEW AND REVISED IFRS IN ISSUE BUT NOT YET EFFECTIVE
The following standards have been issued but are not effective for this accounting year and have not been adopted early:
• IAS 1 (amended) – Amendment to IAS 1 – Non-current liabilities with covenants– effective from 1 January 2024.
• IAS 8 (amended) – Amendment to IAS 7 and IFRS 7 - Supplier finance – effective from 1 January 2024.
Adoption of the new and revised standards and relevant interpretations in future periods is not expected to have a material
impact on the Financial Statements of the Company.
Notes to the Financial Statements continued
FINANCIAL STATEMENTS
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
114
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies used in the preparation of the Financial Statements have been consistently applied during the year
ended 31 October 2023.
The principal accounting policies applied in the preparation of the Financial Statements are set out below:
SEGMENTAL INFORMATION
The Board is of the opinion that the Group is engaged in a single segment business, being the investment in energy storage and
complementary renewable energy generation assets, with an initial focus in a diversified portfolio of utility scale BESS assets,
located in diverse locations across Great Britain.
INCOME
Income comprises Investment income and Service fee income. Investment income arising from fair value gains pertaining to
interest on the portfolio assets loan investments is recognised in the Revenue account of the Statement of Comprehensive
Income. The remaining fair value gains and losses are disclosed in net gain on investments at fair value through profit and loss
and recorded in the Capital account. Service fee income is recognised on an accruals basis from fees charged to each portfolio
company regarding the Company’s resources used for project related matters. The Service fee income is recognised in the
Revenue account of the Statement of Comprehensive Income.
EXPENSES
Operating expenses are the Company’s costs incurred in connection with the ongoing management of the Company’s
investments and administrative costs. Operating expenses are accounted for on an accruals basis and charged to the Statement
of Comprehensive Income. Expenses are charged through the Revenue account except those which are capital in nature, these
include those which are incidental to the acquisition, disposal or enhancement of an investment, which are accounted for
through the Capital account. In terms of the AIC SORP the Company applies the general accounting basis and charges the full
Investment Adviser fees to revenue (“the non-allocation approach”). Costs directly relating to the issue of Ordinary Shares are
charged to share premium.
TAXATION
The Company is approved as an Investment Trust Company (“ITC”) under sections 1158 and 1159 of the Corporation Taxes Act
2010 and Part 2 Chapter 1 of Statutory Instrument 2011/2999 for accounting periods commencing on or after 25 May 2018.
The approval is subject to the Company continuing to meet the eligibility conditions of the Corporations Tax Act 2010 and the
Statutory Instrument 2011/29 99. The Company intends to ensure that it complies with the ITC regulations on an ongoing basis
and regularly monitors the conditions required to maintain ITC status.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash at bank and call deposits held with the bank on a 32 day notice which can be readily
converted to cash. The fixed deposit account held with the bank is used for cash management purposes.
TRADE AND OTHER RECEIVABLES
Trade and other receivables are recognised initially at fair value and subsequently stated at amortised cost less loss allowance
which is determined using the simplified approach to measuring expected credit losses, the effect of which is considered
immaterial.
TRADE AND OTHER PAYABLES
Trade and other payables are recognised initially at fair value and subsequently stated at amortised cost.
EQUITY
Equity instruments issued by the Company are recorded as the amount of the proceeds received, net of directly attributable
issue costs. Costs not directly attributable to the issue are immediately expensed in the Statement of Comprehensive Income.
FINANCIAL INSTRUMENTS
In accordance with IFRS 9, the Company classifies its financial assets and financial liabilities at initial recognition into the
categories of amortised cost or fair value through profit or loss. Derivative instruments are measured at fair value through profit
and loss.
FINANCIAL ASSETS
The Company’s financial assets, other than cash and cash equivalents and trade and other receivables, are measured at fair
value through profit or loss as they are held in the business model whose performance is evaluated and assessed on a fair value
basis.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
115
FINANCIAL LIABILITIES MEASURED AT AMORTISED COST
The Company classifies all financial liabilities as financial liabilities at amortised cost except the C Share Liability which was
measured at fair value through profit or loss.
RECOGNITION AND DERECOGNITION
Financial assets are recognised on trade date, the date on which the Company commits to purchase or sell an asset. A financial
asset is derecognised where the rights to receive cash flows from the asset have expired, or the Company has transferred its
rights to receive cash flows from the asset. The Company derecognises a financial liability when the obligation under the liability
is discharged, cancelled or expired.
IMPAIRMENT OF FINANCIAL ASSETS
The Company holds trade receivables with no financing component and which have maturities of less than 12 months at
amortised cost and, as such has chosen to apply the simplified approach to measuring expected credit losses, as permitted by
IFRS 9, which uses a lifetime expected loss allowance for all trade receivables.
DIVIDENDS PAYABLE
Dividends are recognised when they become legally payable, as a reduction in equity in the Financial Statements. Interim equity
dividends are recognised when paid. Dividends on the shares are paid quarterly, all in the form of interim dividends.
5. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the Financial Statements requires management to make judgements, estimates and assumptions that affect
the application of accounting policies and the reported amount of assets, liabilities, income and expenses. Estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions to the accounting estimates are recognised in the year in
which the estimates are revised and in any future periods affected.
During the year the Directors considered the following significant judgements, estimates and assumptions:
SIGNIFICANT JUDGEMENT
Assessment as an Investment Entity
Entities that meet the definition of an investment entity within IFRS 10 are required to measure their subsidiaries at fair value
through profit or loss rather than consolidate them unless their main purpose and activities are providing services related to the
Company’s investment activities. To determine that the Company continues to meet the definition of an investment entity, the
Company is required to satisfy the following three criteria:
a) the Company obtains funds from one or more investors for the purpose of providing those investors with investment
management services;
b) the Company commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation,
investment income, or both; and
Notes to the Financial Statements continued
FINANCIAL STATEMENTS
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
116
c) the Company measures and evaluates the performance of substantially all of its investments on a fair value basis.
TheCompany meets the criteria as follows:
• the Company’s investment objective is to provide investors with an attractive and sustainable level of income returns, with
the potential for capital growth, by investing in commercial scale energy storage and renewable energy generation projects,
with an initial focus on a diversified portfolio of BESS located in Great Britain (“Projects”);
• the Company provides investment management services and has several investors who pool their funds to gain access to
infrastructure related investment opportunities that they might not have had access to individually; and
• the Company has elected to measure and evaluate the performance of all of its investments on a fair value basis. The fair
value method is used to represent the Company’s performance in its communication to the market, including investor
presentations. In addition, the Company reports fair value information internally to Directors, who use fair value as the
primary measurement attribute to evaluate performance.
In respect of the second criterion, Projects may also be disposed of, or otherwise realised, where the AIFM recommends (acting
upon advice given by the Investment Adviser) that such realisation is in the interests of the Company. Such circumstances
may include (without limitation) disposals for the purposes of realising or preserving value, or of realising cash resources for
reinvestment or otherwise. The Directors are responsible for the determination of the Company’s investment policy and strategy
and has overall responsibility for the Company’s activities including the review of investment activity and performance. The
Board will also make the decision to acquire or dispose of Projects, based on recommendations made by the AIFM acting upon
advice given by the Investment Adviser.
A further indicator of whether a Company is an investment entity is the expectation they hold more than one asset. During the
year the Company transferred all of its subsidiaries to HEIT Holdings Ltd, details of these transactions are disclosed in note 10.
Following the transfer of those subsidiaries and the sale of Harmony RC Limited in the year, the Company holds one investment
directly but several indirectly, as there is a portfolio of assets within HEIT Holdings Ltd.
The Directors have evaluated whether the Company is an investment entity and concluded that it meets the definition set out
in IFRS 10. Therefore, its subsidiaries are measured at fair value through profit or loss, in accordance with IFRS 9 ‘Financial
Instruments’.
ASSESSMENT OF HEIT HOLDINGS LTD AS AN INVESTMENT ENTITY
HEIT Holdings Ltd is not consolidated as the company is also considered to be an investment entity (see Note 10). The board
of directors of HEIT Holdings Ltd has considered the requirements of IFRS 10 as shown above and confirmed that HEIT
HoldingsLtd meets these criteria.
SIGNIFICANT ESTIMATION UNCERTAINTY
Valuation of Investments
Significant estimates in the Company’s Financial Statements include the amounts recorded for the fair value of the investments
in the subsidiary of the Company, HEIT Holdings Ltd. These estimates and assumptions are subject to measurement uncertainty
by their nature. The impact on the Company’s Financial Statements of changes in the next financial year may be significant.
These estimates and sensitivities are further discussed in note 18.
6. INCOME
31 October 2023
£
31 October 2022
£
Service fee income 1,837,458 1,853,151
Investment income 11,582,996 1,614,060
Bank interest income 340,939 453,973
Interest income on loan to shareholder 12,739 15,002
13,774,132 3,936,186
Refer to note 10 for further detail on interest on loans to subsidiaries recognised in Investment income.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
117
7. ADMINISTRATIVE AND OTHER EXPENSES
31 October 2023
£
31 October 2022
£
Administrative fees 57,300 48,000
AIFM fees 67,424 61,573
Director and officer insurance 40,725 44,917
Directors’ fees 225,750 226,577
Fees payable to the auditor for the audit of the Company’s Financial Statements 184,000 140,000
Fees payable to the auditor for the audit of the Company’s initial accounts – 100,000
Legal and professional fees 519,464 791,052
Listing fees expensed – 377,035
Investment adviser fees 2,163,222 1,848,845
Secretarial fees 82,097 45,000
Sundry expenses 135,902 316,190
3,475,884 3,999,189
The Company has no employees and therefore no employee-related costs have been incurred.
During the year the year the audit fees relating to the statutory audits of HEIT Holdings Ltd and its subsidiaries totalled £64,675
(2022: £53,500).
ADMINISTRATIVE AND SECRETARIAL FEES
JTC (UK) Limited has been appointed to act as administrator and secretary for the Company through the Administration and
Company Secretarial Agreement with effect from 14 October 2021. JTC (UK) Limited is entitled to a minimum fee of £48,000
per annum for accounting and administration services to the Company as well as a minimum fee of £45,000 per annum for the
provision of Governance and Company Secretarial services.
During the year, fees incurred with JTC (UK) Limited amounted to £139,397 (2022: £123,000) and £28,000 (2022: £93,000)
remained payable as at 31 October 2023.
AIFM
JTC Global AIFM Solutions Limited has been appointed to act as the AIFM for the Company through the AIFM Agreement with
effect from 14 October 2021. The AIFM is entitled to charge an annual rate of 0.03% of the Company’s equity raised subject to
a minimum annual fee of £30,000.
During the year, fees incurred with the AIFM amounted to £72,222 (2022: £61,573) and £5,620 (2022: £21,000) remained
payable as at 31 October 2023.
INVESTMENT ADVISER
Investment Adviser fees are payable monthly in arrears. Details on how the fees are charged are disclosed in note 23.
Notes to the Financial Statements continued
FINANCIAL STATEMENTS
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
118
8. TAXATION
The Company is recognised as an ITC for accounting periods beginning on or after 1 October 2021 and is taxed at the main rate
of 19% until 31 March 2023 and then at 25% until 31 October 2023. An ITC may claim a tax deduction for the distribution of
income that arises from interest receipts on the loan notes. Therefore, no corporation tax charge has been recognised for the
Company for the Period to 31 October 2023.
Revenue
£
Capital
£
31 October
2023
£
Revenue
£
Capital
(Restated)
£
31 October
2022
(Restated)
£
a) Tax charge in profit and loss UK
Corporation tax
– – –
b) Reconciliation of the tax charged for
the year
Profit before tax 10,298,248 (7,161,610) 3,136,638 (63,003) 48,426,937 48,363,934
Tax at UK main rate of 25% (2022:19%) 2,318,940 (1,612,638) 706,302 (11,970) 9,201,118 9,189,14 8
Tax effect of:
Non-taxable investment gains on
investments
– 1,612,638 1,612,638 – (9,201,118) (9,201,118)
Non-deductible expenses 56,343 – 56,343 71,637 – 71,637
Tax deductible interest distributions (2,476,959) – (2,476,959) (59,667) – (59,667)
Deferred tax not recognised 101,676 – 101,676 – – –
Tax charge for the year – – – – – –
(C) FACTORS THAT AFFECT FUTURE TAX CHARGES
ITCs which have been approved by HM Revenue & Customs are exempt from UK corporation tax on their capital gains. Due to the
Company’s status as an approved ITC, and the intention to continue meeting the conditions required to maintain that approval for
the foreseeable future, the Company has not provided for deferred tax in respect of any gains or losses arising on the revaluation
of its investments. Taxes are based on the UK Corporate tax rates which was 25% as at 31 October 2023 while a blended rate of
22.5% had been used for the year. The main rate of corporation tax change from 19% to 25% from 1 April 2023 for companies
with profits over £250,000.
As at 31 October 2023 the Company had not provided deferred tax assets or liabilities. At that date, based on current estimates
and including the accumulation of net allowable losses, the Company had unrelieved losses of £452,504.
9. BASIC AND DILUTED EARNINGS PER SHARE
Earnings per share (“EPS”) amounts are calculated by dividing the profit or loss for the year attributable to ordinary equity
holders of the Company by the weighted average number of Ordinary Shares in issue during the year. As there are no dilutive
instruments outstanding, basic and diluted earnings per share are identical.
Weighted
average number
of Ordinary
Shares
Net profi
attributable to
Shareholders
£
EPS
31 October 2023
£
Ordinary Shares 223,045,660 3,136,638 0.01
Weighted
average number
of Ordinary
Shares
Net profit
attributable to
Shareholders
(Restated)
£
EPS
31 October 2022
(Restated)
£
Ordinary Shares 210,000,000 48,363,934 0.23
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
119
10. INVESTMENTS HELD AT FAIR VALUE
Place of business
Percentage
ownership Equity Loan
Closing
balance:
equity
and loans Equity Loan
Closing
balance:
equity and
loans
31 October
2023
£
31 October
2023
£
31 October
2023
£
31 October
2022
(Restated)
£
31 October
2022
£
31 October
2022
(Restated)
£
HEIT Holdings Ltd Bond End, Knaresborough 100% 84,185,808 155,839,973 240,025,781 2,399,841 1,412,105 3,811,946
HEIT PW Limited Bond End, Knaresborough 100% – – – 19,286,787 4,250,070 23,536,857
HEIT PW 2 Limited Bond End, Knaresborough 100% – – – 19,754,327 1,682,509 21,436,836
HEIT BD Limited Bond End, Knaresborough 100% – – – 3,400,762 2,608,865 6,009,627
HEIT FM Limited Bond End, Knaresborough 100% – – – 5,091,619 6,028,478 11,120,097
HEIT RH Limited Bond End, Knaresborough 100% – – – 4,822,367 8,457,458 13,279,825
HEIT LR Limited Bond End, Knaresborough 100% – – – 7,331,176 10,866,742 18,197,918
HEIT BF Limited Bond End, Knaresborough 100% – – – 19,862,817 23,776,768 43,639,585
84,185,808 155,839,973 240,025,781 81,949,696 59,082,995 141,032,691
On 15 December 2022 the Company announced the acquisition of three “shovel ready” pipeline projects totalling 181.9 MW /
363.8 MWh, increasing the Company’s portfolio to nine BESS projects with a total capacity of c.500 MW / 1 GWh.
The Company has acquired the projects pursuant to a Pipeline Agreement entered into on IPO which granted the Company a
right of first refusal of up to 1GW of BESS projects, from Harmony Energy Limited and Ritchie Bland Energy No.2 Limited. The
total consideration for the three projects were c. £21.9 million (supported by the independent valuation performed by Mazars)
being satisfied through the payment of c.14.5 million in cash (being the net proceeds of the C Share issue by the Company as
announced on 12 October 2022) in conjunction with the issue of 7 million new C Shares to the Developers and a further cash
payment of £0.4 million for initial project costs.
The three projects, HEIT
WG Limited, HEIT HP Limited and Harmony RC Limited, known as Wormald Green, Hawthorn Pit and
Rye Common (Phases I and II), were expected to be energised in Q2 2024, Q3 2024 and Q4 2024 financial year respectively,
with grid offers secured.
As described in note 1, on 9 March 2023, the Company sold its investments in HEIT PW Limited, HEIT PW 2 Limited, HEIT BD
Limited, HEIT FM Limited, HEIT RH Limited, HEIT LR Limited, and HEIT BF Limited to its subsidiary HEIT Holdings Ltd for a
total consideration of £91,105,212, which was the fair value of the projects at the date of transfer. HEIT Holdings Ltd satisfied this
transfer by issuing and allotting 91,105,212 Ordinary Shares of £1 each to the Company.
On 4 May 2023, the Company sold 2 further investments in HEIT HP Limited and HEIT WG Limited to its subsidiary HEIT
Holdings Ltd for a total consideration of £8,893,079, which was the fair value of the projects at the date of transfer. HEIT
Holdings Ltd satisfied this transfer by issuing and allotting a further 8,893,079 Ordinary Shares of £1 each to the Company.
On 4 September 2023 the Company announced the sale of its Rye Common Project, Harmony RC Limited, to Pulse Clean
Energy Limited at a premium to its carrying value.
The table below summarises the movement of investments held at fair value for the year ended 31 October 2023:
31 October 2023
£
31 October 2022
(Restated)
£
Opening balance (restated) 141,032,691 –
Investments purchased during the year 21,936,818 33.522,759
Investment in equity of HEIT Holdings Ltd 99,998,291 –
Loans advanced during the year 86,286,593 57,468,935
Interest on loans 11,582,996 1,614,060
Sale of equity of subsidiaries to HEIT Holdings Ltd (99,998,291) –
Sale of Harmony RC Limited (13,651,707) –
Net loss on investments held at fair value through profit or loss (7,161,610) 48,426,937
Closing balance 240,025,781 141,032,691
Notes to the Financial Statements continued
FINANCIAL STATEMENTS
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
120
INVESTMENT HELD IN HEIT HOLDINGS LTD
The Company owns 100% of the Ordinary Shares in HEIT Holdings Ltd. The Company has a number of indirectly held subsidiaries
held by HEIT Holdings Ltd. The investment totalling £240,025,781 in HEIT Holdings Ltd comprises of the underlying investments in
the following subsidiaries (2022: Nil Investments held through HEIT Holdings Ltd). The Fair value measurements and sensitivities used
to measure these investments are disclosed in note 18.
Subsidiaries Project Place of business Percentage ownership Fair value £
HEIT PW Limited (previously
Harmony (PW) Limited)
Pillswood 1 Bond End, Knaresborough 100% 48,918,397
HEIT PW 2 Limited (previously
Harmony (PW) 2 Limited)
Pillswood 2 Bond End, Knaresborough 100% 49,012,689
HEIT BD Limited (previously
Harmony BD Limited)
Broadditch Bond End, Knaresborough 100% 11,516,954
HEIT FM Limited (previously
Harmony FM Limited)
Farnham Bond End, Knaresborough 100% 20,578,103
HEIT RH Limited (previously
Harmony RH Limited)
Rusholme Bond End, Knaresborough 100% 27,130,822
HEIT LR Limited (previously
Daisy No. 2 Limited)
Little Raith/Daisy No. 2 Bond End, Knaresborough 100% 42,789,696
HEIT BF Limited (previously
Harmony BF Limited)
Bumpers Bond End, Knaresborough 100% 87,028,196
HEIT HP Limited (previously
Harmony HP (JV) Limited)
Hawthorn Pit Bond End, Knaresborough 100% 27,508,395
HEIT WG Limited (previously
Harmony WG (JV) Limited)
Wormald Green Bond End, Knaresborough 100% 17,402,843
Total fair value of projects 331,886,095
Working capital 3,196,508
Senior loan facility (95,056,822)
Total investment 240,025,781
As at 31 October 2023 (“Valuation Date”), the Company’s subsidiary HEIT Holdings Ltd had live investments in the following
nine BESS projects in the UK – Pillswood 1, Pillswood 2, Broadditch, Farnham, Rusholme, LittleRaith, Bumpers, Wormald Green
and Hawthorn Pit. These projects, taken together, have a combined rated power capacity of 395.4 MW and an energy storage
capacity of c.790.8 MWh.
The Company’s final seed portfolio project, Rusholme (70 MWh / 35 MW), has completed construction and has been cold
commissioned. This project is currently awaiting confirmation of the energisation date from the relevant DNO which is now
expected to be in Q1 2024.
All other seeds projects are operational. Hawthorn Pit and Wormald Green are due to complete construction in the first half
of2024.
The projects attract four different streams of revenues: trading revenue (wholesale, Balancing Mechanism and churn), Ancillary
Services (Frequency Response Revenue, Dynamic Containment and Dynamic Regulation), CM revenue and embedded benefits
(via the Embedded Export Tariff). Given the difficulty in accurately forecasting revenues over the long -term, the Company
purchases independent forecasts from three providers. By blending the three forecasts, the Company is able to take account of
differing views of long-term drivers of value.
Two of these providers focus on long-term fundamental-based forecasts whereas one is focused on shorter-term battery specific
performance.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
121
Subsidiaries
Opening balance:
equity and loans
£
Equity
acquisitions
during the
period
£
Loans:
principal
advanced/
(repaid)
£
Loans: interest
charged
£
Cost at
31 October
2022
£
Net Fair value
movement
(Restated)
£
Closing
balance: equity
and loans
(Restated)
£
HEIT PW Limited – 8,224,633 4,075,047 175,023 12,474,703 11,062,154 23,536,857
HEIT PW 2 Limited – 8,931,692 1,631,222 51,287 10,614,201 10,822,635 21,436,836
HEIT BD Limited – 592,489 2,451,079 157,786 3,201,354 2,808,273 6,009,627
HEIT FM Limited – 2,821,324 5,777,562 250,916 8,849,802 2,270,295 11,120,097
HEIT RH Limited – 5,039,989 8,144,129 313,329 13,497,447 (217,622) 13,279,825
HEIT LR Limited – 7,912,631 10,565,352 301,390 18,779,373 (581,455) 18,197,918
HEIT Holdings Ltd – 1 1,379,402 32,703 1,412,106 2,399,840 3,811,946
HEIT BF Limited – – 23,445,142 331,626 23,776,768 19,862,817 43,639,585
TOTAL – 33,522,759 57,468,935 1,614,060 92,605,754 48,426,937 141,032,691
PRIOR PERIOD ERROR AND RESTATEMENT
As disclosed in note 2 during the preparation of the 31 July 2023 NAV, the Investment Adviser discovered an error in the NAV
methodology for valuing short term cash flows, which was introduced at the 31 October 2022 financial year end. It has been
ascertained that this resulted in an overstatement of the NAV at 31 October 2022 of £4,653,154.
Impact of correction of error on Investments held at fair value as at 31 October 2022
Subsidiaries
As previously
reported
£
As restated
£
Value of error
£
HEIT PW Limited 24,532,949 23,536,857 (996,092)
HEIT PW 2 Limited 22,338,183 21,436,836 (901,347)
HEIT BD Limited 6,158,235 6,009,627 (148,608)
HEIT FM Limited 12,381,065 11,120,097 (1,260,968)
HEIT RH Limited 13,114,108 13,279,825 165,717
HEIT LR Limited 18,515,385 18,197,918 (317,467)
HEIT Holdings Ltd 3,811,946 3,811,946 –
HEIT BF Limited 44,833,974 43,639,585 (1,194,389)
TOTAL 145,685,845 141,032,691 (4,653,154)
11. TRADE AND OTHER RECEIVABLES
31 October 2023
£
31 October 2022
£
Prepayments 48,486 35,172
VAT receivable 1,367,690 482,555
Intercompany loans receivable 748,668 482,925
Amounts due from related parties 2,247,402 381,041
Other receivables 40,027 –
4,452,273 1,381,693
Notes to the Financial Statements continued
FINANCIAL STATEMENTS
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
122
12. LOAN TO SHAREHOLDER
31 October 2023
£
31 October 2022
£
Drawings under Credit Facility granted to Shareholder:
Opening balance 1,443,506 –
Drawdowns during the year/Period 350,913 1,443,506
Loan discharged (1,794,419)
Closing balance – 1,443,506
On 1 July 2022, the Company granted a £5,000,000 revolving credit facility to a shareholder Harmony Energy Limited
(“the Facility”). Interest was charged on the Facility at a margin rate of 3% plus 1 year SONIA (sterling overnight index average).
The Facility was discharged on 14 December 2022 as part of the sale agreement for the three projects purchased during the
year as disclosed in note 10.
13. CASH AND CASH EQUIVALENTS
31 October 2023
£
31 October 2022
£
Cash at bank 18,093,379 105,471,626
Fixed Deposit account – 19,100,000
18,093,379 124,571,626
14. TRADE AND OTHER PAYABLES
31 October 2023
£
31 October 2022
£
Trade creditors and operating accruals 101,599 301,013
Administrator fees 28,000 48,000
AIFM fees 5,621 21,000
Audit fees 184,000 140,000
Investment adviser fee accrual 144,121 220,351
463,341 730,364
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
123
15. FINANCIAL LIABILITY AT FAIR VALUE
31 October 2023
£
31 October 2022
£
Opening Balance 14,542,172 –
Issuance of C Shares 7,000,000 14,771,364
Less equity costs – (229,192)
C Shares converted into Ordinary Shares (21,542,172) –
– 14,542,172
On 12 October 2022, the Company issued 14,771,364 C Shares of £0.10 each at a price of £1.00 per C Share. The C Shares
issued had equal voting rights with Ordinary Shares. As described in note 10 a further 7,000,000 C Shares were issued during
the year as part consideration for the purchase of the three new projects resulting in a total of 21,771,364 C Shares being in
issue.
On 26 January 2023, the Company announced the conversion of all of its C Shares to Ordinary Shares at a ratio of 1: 0.786735
resulting in the 21,771,364 C shares being converted into 17,128,295 Ordinary Shares.
The Conversion Ratio is the ratio of the net asset value per C Share to the net asset value per Ordinary Share as at the
Conversion Calculation Date. On conversion, the new Ordinary Shares issued as a result of the conversion of C Shares ranked
pari passu with the existing Ordinary Shares in issue on the date of conversion.
16. CATEGORIES OF FINANCIAL INSTRUMENTS
31 October 2023
£
31 October 2022
(Restated)
£
Financial Assets –
Financial Assets at fair value through profit and loss –
Investments held at fair value 240,025,781 141,032,691
Financial assets at amortised cost –
Trade and other receivables 4,452,273 1,381,693
Loan to Shareholder – 1,443,506
Cash and Cash Equivalents 18,093,379 124,571,626
Total financial assets 262,571,433 268,429 ,516
Financial liabilities
Financial liabilities at fair value through profit and loss
Financial liability at fair value – 14,542,172
Financial liabilities at amortised cost
Trade and other payables 463,341 730,364
Total financial liabilities 463,341 15,272,536
At the balance sheet date, all financial assets and liabilities were measured at amortised cost except for the investments held
at fair value which are measured at fair value as further explained in note 15 and 18 respectively. The carrying amount for the
financial assets and liabilities measured at amortised costs approximates fair value.
Notes to the Financial Statements continued
FINANCIAL STATEMENTS
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
124
17. FINANCIAL RISK MANAGEMENT
The Company is exposed to certain risks through the ordinary course of business and the Company’s financial risk management
objective is to minimise the effect of these risks. The management of risks is performed by the Directors of the Company and
the exposure to each financial risk considered potentially material to the Company, how it arises and the policy for managing it
issummarised below:
CREDIT RISK
The Company is exposed to third-party credit risk in several instances and the possibility that counterparties with which the
Company and its subsidiaries, together the “Group”, contracts may fail to perform their obligations in the manner anticipated
bythe Group.
Counterparty credit risk exposure limits are determined based on the credit rating of the counterparty. Counterparties are
assessed and monitored on the basis of their ratings from Standard & Poor’s and/or Moody’s. No financial transactions are
permitted with counterparties with a credit rating of less than BBB- from Standard & Poor’s or Baa3 from Moody’s unless
specifically approved by the Board. Cash and bank deposits are held with major international financial institutions who each hold
a Moody’s credit rating of A2 or higher.
Cash and other assets that are required to be held in custody will be held at a bank. In the event of the insolvency of the bank,
the Company will rank as a general creditor in relation thereto and may not be able to recover such cash in full, or at all.
In addition, credit risk relating to receivables at subsidiary level is managed by diversifying exposures among a portfolio of
counterparties and through the setting and montitoring of credit limits.
CURRENCY RISK
The Company is not exposed to currency risk as all its assets, liabilities and transactions during the current year were
denominated in British Pound Sterling.
LIQUIDITY RISK
The objective of liquidity management is to ensure that all commitments which are required to be funded can be met out
of readily available and secure sources of funding. The Company’s only financial liabilities are trade and other payables.
TheCompany intends to hold sufficient cash across the Company and subsidiaries’ operating accounts to meet the working
capital needs.
As at 31 October 2023, the Company held cash at bank of £18,093,379 (2022: £124,571,626) and had trade and other payables
totalling £463,341 (2022: £730,364). The following table reflects the maturity analysis of financial assets and liabilities.
Although the Company has no direct external debt, it has indirect external debt through its subsidiary as described in note
2 under Going Concern and in the interest rate risk note. The Board and Investment Adviser review the projected cash flow
for the group on a regular basis to ensure that there is sufficient cash flow to cover the debt and interest repayments of the
external debt as they fall due.
As at 31 October 2023
<1 year
£
1 to 2 years
£
2 to 5 years
£
>5 years
£
Tota l
£
Financial assets
Financial assets at fair value through profit and loss:
Loan investment to subsidiaries* – – – 155,839,973 155,839,973
Financial assets at amortised cost:
Cash at bank 18,093,379 – – – 18,093,379
Total financial assets 18,093,379 – – 155,839,973 173,933,352
As at 31 October 2023
<1 year
£
1 to 2 years
£
2 to 5 years
£
>5 years
£
Tota l
£
Financial liabilities
Financial liabilities at fair value through profit and loss:
Financial liabilities at amortised cost:
Trade and other payables 463,341 – – – 463,341
Total financial liabilities 463,341 – – – 463,341
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
125
As at 31 October 2022
<1 year
£
1 to 2 years
£
2 to 5 years
£
>5 years
£
Tota l
£
Financial assets
Financial assets at fair value through profit and loss:
Loan investment to subsidiaries* – – – 59,082,995 59,082,995
Financial assets at amortised cost:
Cash at bank 124,571,626 – – – 124,571,626
Total financial assets 124,571,626 – – 59,082,995 183,654,621
As at 31 October 2022
<1 year
£
1 to 2 years
£
2 to 5 years
£
>5 years
£
Tota l
£
Financial liabilities
Financial liabilities at fair value through profit and loss:
Financial liability at fair value 14,542,172 – – – 14,542,172
Financial liabilities at amortised cost:
Trade and other payables 730,364 – – – 730,364
Total financial liabilities 15,272,536 – – – 15,272,536
* Includes the interest on loans advanced and excludes the equity portion of the investment.
MARKET RISK
Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in market prices.
Market risk reflects: (i) other price risks, and (ii) interest rate risk. The objective is to minimise market risk through managing and
controlling these risks to acceptable parameters, while optimising returns. The Company uses financial instruments in the ordinary
course of business in order to manage market risks. Further commentary on financial and market risks is provided in the Principal
Risks and Uncertainties section, including inflation.
(i) PRICE RISK
The Company’s investments are susceptible to market price risk arising from uncertainties about future values its portfolio assets.
The Company’s Investment Adviser provides the Company with investment recommendations. The Company relies on market
knowledge of the Investment Adviser, the valuation expertise of the third-party valuer and the use of third-party market forecast
information to provide comfort with regard to fair market values of investments reflected in the Financial Statements.
Price risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in market prices. At
31October 2023, if the valuation of investments had been 10% higher with all other variables held constant, the increase in net
assets attributable to Shareholders for the year would have been £24,002,578 (2022: £14,103,269, restated) higher, arising due to
the increase in the fair value of financial instruments. A 10% decrease would have the equal and opposite effect.
The impact of changes in unobservable inputs to the underlying investments is considered in note 18.
(ii) INTEREST RATE RISK
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial
instruments.
The Company is exposed to interest rate risk on its cash balances held with counterparties, and through loans to related parties.
As at 31 October 2023 the Company held no fixed bank deposits. The loan to its subsidiary is carried at a fixed rate of interest.
Therefore, the Company is not exposed to changes in variable market rates of interest and has therefore not considered any
sensitivity to interest rates.
The Company does not have any borrowings as at 31 October 2023 however the Company has access to a £20 million RCF loan
as well as a £110,000,000 long term facility through its subsidiary HEIT Holdings Ltd. As at 31 October 2023 HEIT Holdings had
drawn down £10,629,073 on its RCF and £84,427,749 on its long-term facility. It is a five-year facility with an initial margin of 300bps
over SONIA, rising over time to a maximum of 375bps by year 5.
HEIT Holdings Ltd uses interest rate swaps to mitigate the interest rate risk on its external borrowings. At the beginning of the Year,
the Company had an interest rate swap (the “Swap”) in place in relation to its initial debt facility of £60 million. The interest rate swap
fixed the SONIA element of interest payments on this facility at a rate of 2.478% p.a. Multiple rises in Bank of England base rates since
the Swap was contracted increased its value significantly. In connection with the extension of the debt facility during the year, the
Company chose to break this swap in July 2023, crystallising the mark to market value at the time of £6.1 million. An interest rate cap
of 5.25% was put in place in relation to the variable SONIA element of the increased facility, at a cost of £2.8 million.
Notes to the Financial Statements continued
FINANCIAL STATEMENTS
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
126
As at 31 October 2023 the interest rate cap in place in HEIT Holdings Ltd was fair valued at £1,110,781 (2022: £nil). The Swap
previously held by HEIT Holding Ltd as at 31 October 2022 was fair valued at £4,090,988.
As described in the Going Concern note, the Company is guarantor to its wholly owned subsidiary, HEIT Holdings Ltd in respect of
the long-term facility of £110m and ancillary revolving credit facility of up to £20 million.
Where not a requirement of the underlying loan facilities, the Company will consider the costs and benefits of hedging on a
case
-by-case basis.
At 31 October 2023, the Company is indirectly exposed to interest rate risk through its investment in the subsidiary. The Company
may be exposed to changes in variable market rates of interest and this could impact the discount rate and therefore the valuation
of the projects that underpin the value of its investment in subsidiary. The sensitivity of the valuation of the investment projects due
to discount rates is disclosed in note 18.
CAPITAL RISK MANAGEMENT
The capital structure of the Company at year end consists of equity attributable to equity holders of the Company of £262,108,092
(2022: £253,156,980, Restated), comprising issued capital and reserves. The Board continues to monitor the balance of the overall
capital structure so as to maintain investor and market confidence. The Company is not subject to any external capital requirements.
18. FAIR VALUE MEASUREMENT
FAIR VALUE MEASUREMENT AND HIERARCHY
Fair value is the price that would be received on the sale of an asset, or paid to transfer a liability, in an orderly transaction between
market participants at the measurement date. If a fair value measurement uses observable inputs that require significant adjustment
based on unobservable inputs or any other significant unobservable inputs, that measurement is a Level 3 measurement.
The following table analyses within the fair value hierarchy the Company’s assets measured at fair value at 31 October 2023:
Level 1
£
Level 2
£
Level 3
£
Investment in subsidiary – – 240,025,781
The following table analyses within the fair value hierarchy the Company’s assets measured at fair value at 31 October 2022 (restated):
Level 1
£
Level 2
£
Level 3
£
Investment in subsidiaries – – 141,032,691
The Company only invests in assets at fair value through profit or loss that are Level 3 in the fair value hierarchy and the reconciliation in
the movement of this Level 3 investment is presented below. No transfers between levels took place during theyear.
31 October 2023
£
31 October 2022
(Restated)
£
Opening balance (restated) 141,032,691 –
Investments purchased during the year 21,936,818 33.522,759
Investment in equity of HEIT Holdings Ltd 99,998,291 –
Loans advanced during the year 86,286,593 57,468,935
Interest on loans 11,582,996 1,614,060
Sale of equity of subsidiaries sold to HEIT Holdings Ltd (99,998,291) –
Sale of Harmony RC Limited (13,651,707) –
Unrealised (loss)/gain on investments held at fair value through profit or loss (8,668,181) 48,426,937
Realised gains on sale of investments 1,506,571 –
Closing balance 240,025,781 141,032,691
The Company’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as of the date of the event or
change in circumstances that caused the transfer.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
127
VALUATION METHODOLOGY
The fair value of the investment in HEIT Holdings Ltd represents its net assets as determined by the Company’s administrator
(reviewed by the Investment Adviser) and further presented by the Investment Adviser and reviewed by the Company’s Board of
Directors.
The Investment Adviser’s assessment of fair value of investments in the underlying projects in HEIT Holdings Ltd is determined
in accordance with the International Private Equity and Venture Capital 2018 (“IPEVC”) Valuation Guidelines, using levered and
unlevered discounted cash flow principles.
The valuation of all the Company’s subsidiaries’ investments is based primarily on a discounted cash flow methodology (“DCF”),
“Income Approach”, which indicates value based on the sum of the economic income that an asset, or group of assets, is anticipated
to produce in the future. Free cash flow to total invested capital is typically the appropriate measure of economic income. The
method discounts free cash flows using an estimated discount rate Weighted Average Cost of Capital (“WACC”). The selected
discount rate is supported by the benchmarking of discount rates for assets in the same, or analogous sectors as the portfolio.
VALUATION PROCESS
Valuations are the responsibility of the Board of Directors. The Investment Adviser is responsible for submitting fair market
valuations of the Company’s assets to the Directors. The Directors review and approve these valuations following appropriate
challenge and examination. Valuations are carried out quarterly, with Mazars acting as independent valuer providing a valuation
report semi-annually. The current portfolio consists of non-market traded investments and valuations are based on a DCF
methodology.
The Board, supported by the Audit and Risk Committee, reviews the operating and financial assumptions, including the discount
rates, used in the valuation of the Company’s underlying portfolio and approves them based on the recommendation of the
Investment Adviser.
The AIFM acts as an oversight function in order to ascertain whether the valuation risk is being appropriately managed.
As at 31 October 2023, the fair values of all the investments held within the portfolio of the Company’s subsidiary HEIT Holdings
Ltd, have been determined by Mazars LLP (reviewed by the Investment Adviser) and further presented by the Investment
Adviser and reviewed by the Company’s Board of Directors.
SENSITIVITY ANALYSIS
The following tables reflect the range of sensitivities in respect of the fair value movements of the underlying projects held by
HEIT Holdings Ltd. The individual project valuations are disclosed in note 10.
The Directors consider the changes in inputs to be within a reasonable expected range based on their understanding of market
transactions. This is not intended to imply that the likelihood of change or that possible changes in value would be restricted to
this range.
Notes to the Financial Statements continued
FINANCIAL STATEMENTS
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
128
The Directors consider the following to be the most significant key unobservable inputs to the discounted cash flows (“DCF”) calculation.
Subsidiary Project Significant input Base valuation
Valuation
technique Sensitivity
Estimated effect
on fair value
31October
2023
£
Estimated effect
on fair value
31 October
2022
(Restated)
£
HEIT PW Limited Pillswood 1 Discount rate 48,918,397 DCF +0.5% (1,962,728) (1,422,863)
-0.5% 2,116,324 1,521,936
Revenue +10% 5,061,300 5,166,096
-10% (5,090,193) (5,218,459)
HEIT PW 2 Limited Pillswood 2 Discount rate 49,012,689 DCF +0.5% (1,918,210) (1,422,118)
-0.5% 2,067,967 1,521,177
Revenue +10% 5,052,974 5,166,553
-10% (5,096,376) (5,219,204)
HEIT BD Limited Broadditch Discount rate 11,516,954 DCF +0.5% (454,100) (324,307)
-0.5% 488,989 347,013
Revenue +10% 1,135,280 1,140,544
-10% (1,138,960) (1,147,759)
HEIT FM Limited Farnham Discount rate 20,578,103 DCF +0.5% (880,030) (642,185)
-0.5% 947,875 687,815
Revenue +10% 2,136,741 2,057,807
-10% (2,157,962) (2,079,858)
HEIT RH Limited Rusholme Discount rate 27,130,822 DCF +0.5% (1,356,277) (1,001,684)
-0.5% 1,461,224 1,073,703
Revenue +10% 3,450,997 3,226,431
-10% (3,503,648) (3,243,602)
HEIT LR Limited
Little Raith/Daisy
No. 2
Discount rate 42,789,696 DCF +0.5% (1,819,262) (1,302,349)
-0.5% 1,957,919 1,399,499
Revenue +10% 4,941,061 4,190,210
-10% (5,053,689) (4,186,939)
HEIT BF Limited Bumpers Discount rate 87,028,196 DCF +0.5%
(4,010,981) (2,990,498)
-0.5% 4,318,710 3,212,404
Revenue +10% 9,685,739 8,679,227
-10% (9,930,227) (8,674,979)
HEIT WG Limited Wormald Green Discount rate 17,402,843 DCF +0.5% (1,154,003) –
-0.5% 1,246,378 –
Revenue +10% 3,170,805 –
-10% (3,354,679) –
HEIT HP Limited Hawthorn Pit Discount rate 27,508,395 DCF +0.5% (1,733,055) –
-0.5% 1,870,705 –
Revenue +10% 4,708,722 –
-10% (4,804,294) –
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
129
PORTFOLIO SENSITIVITY
The table below reflects a range of sensitivities which the Directors consider to have a significant impact on the portfolio of
investments held by the Company:
Unobservable input Sensitivity
Estimated effect
on fair value
31October
2023
£
Estimated effect
on fair value
31October
2022
(Restated)
£
Inflation +0.5% 18,522,081 13,322,583
-0.5% (18,269,983) (12,444,295)
Construction costs +10% (9,880,088) (25,583,573)
-10% 11,205,647 25,295,180
Operating costs +15% (9,251,227) (7,803,622)
-15% 9,031,841 7,789,333
Cell replacement costs +15% (2,769,237) (1,290,494)
-15% 2,786,110 1,327,324
19. SHARE CAPITAL
Number of
ordinary shares
Share capital
£
Share premium
£
Capital
reduction
reserve
£
Tota l
£
As at 31 October 2022 210,000,000 2,100,000 – 202,693,046 204,793,046
Conversion of C shares to Ordinary Shares 17,128,295 171,283 21,370,889 – 21,542,172
Dividends paid – – – (8,598,849) (8,598,849)
As at 31 October 2023As at 31 October 2023 227,128,295227,128,295 2,271,2832,271,283 21,370,88921,370,889 194,094,197194,094,197 217,736,369217,736,369
Number of
ordinary shares
Share capital
£
Share premium
£
Capital
reduction
reserve
£
Tota l
£
As at 1 October 2021 – – – – –
Issue of fully paid Ordinary Shares at £1 210,000,000 2,100,000 207,900,000 – 210,000,000
Ordinary Shares Equity issue costs – – (3,106,954) – (3,106,954)
Transfer to capital reduction reserve – – (204,793,046) 204,793,046 –
Dividends paid – – – (2,100,000) (2,100,000)
As at 31 October 2022 210,000,000 2,100,000 – 202,693,046 204,793,046
SHARE CAPITAL, SHARE PREMIUM ACCOUNT AND CAPITAL REDUCTION RESERVE
On 12 October 2021, the Board approved the proposed placing and offer for subscription of Ordinary Shares of £0.01 nominal
value each in the capital of the Company at a price of £1.00 per Ordinary Share.
Following a successful application to the High Court and lodgement of the Company’s statement of capital with the Registrar
of Companies, the Company was permitted to cancel its share premium account. This was effected on 15 December 2021 by a
transfer of the balance of £204,793,046 from the share premium reserve to the capital reduction reserve. The capital reduction
reserve is classed as a distributable reserve and dividends to be paid by the Company can be offset against this reserve.
On 26 January 2023, the Company announced the conversion of its C Shares. The total number of C shares that was
converted into new Ordinary Shares with voting rights was 17,128,295. Immediately following admission, the total number of the
Ordinary Shares in issue was 227,128,295 (Refer to note 15).
Notes to the Financial Statements continued
FINANCIAL STATEMENTS
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
130
20. RESERVES
The nature and purpose of each of the reserves included within equity at 31 October 2023 are as follows:
• Share premium reserve: represents the surplus of the gross proceeds of share issues over the nominal value of the shares,
net of the direct costs of equity issues and net of conversion amount;
• Capital reduction reserve: represents a distributable reserve created following a Court approved reduction in capital. This
reserve is distributable and may be used, where the Board considers it appropriate, by the Company for the purpose of
paying dividends to Shareholders;
• Revenue reserve: represents a distributable reserve of cumulative net gains and losses recognised in the Revenue account of
the Statement of Comprehensive Income; and
• Capital reserve: represents a non-distributable reserve of cumulative net capital gains and losses recognised in the
Statement of Comprehensive Income.
The only movements in these reserves during the year are disclosed in the Statement of Changes in Equity.
21. NET ASSET VALUE PER SHARE
Basic NAV per share is calculated by dividing the Company’s net assets as shown in the statement of financial position that are
attributable to the ordinary equity holders of the Company by the number of Ordinary Shares outstanding at the end of the
year. As there are no dilutive instruments outstanding, basic and diluted NAV per share are identical.
31 October 2023
Shares in Assets Liabilities Profit Pence per
Net Asset Value
£
Ordinary Shares 227,128,295 262,571,433 463,341 3,136,638 115.40 262,108,092
31 October 2022 (Restated)
Shares in Assets Liabilities Profit Pence per
Net Asset Value
£
Ordinary Shares 210,000,000 268,429,516 15,272,536 48,426,937 120.55 253,156,980
22. DIVIDENDS
Dividend per Share is a measure to show the distributions made to Shareholders during the Period.
Dividend per share
Tota l
£
For the 6 month period ended 31 October 2022 (paid: December 2022) 1 pence 2,100,000
For the 3 month period 31 January 2023 (paid: March 2023) 2 pence 4,542,566
For the 3 month period ended 30 April 2023 (paid: June 2023) 2 pence 4,542,566
For the 3 month period ended 31 July 2023 (paid: September 2023) 2 pence 4,542,566
The distributions paid during the Year were paid out of the capital reduction reserve and revenue reserve.
On 30 November 2023, the Company declared a distribution of 2 pence per Ordinary Share £4,542,566 in relation to the
period 1 August 2023 to 31 October 2023 which was paid on or around 22 December 2023 to Shareholders on the register as at
the close of business on 7 December 2023.
The table below sets out the final interim dividend, together with the interim dividends paid, in respect of the financial year,
which is the basis on which the requirements of Section 1158 of the Corporation Tax Act 2010 are considered.
31 October 2023
£
31 October 2022
£
Interim dividends paid 2023 – 6 pence (2022:1 pence) 13,627,698 2,100,000
Final interim dividend for 2023 – 2 pence (2022: 1 pence) 4,542,566 2,100,000
18,170,264 4,200,000
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
131
23. TRANSACTIONS WITH RELATED PARTIES
The Company and the Directors are not aware of any person who, directly or indirectly, jointly or severally, exercises or could
exercise control over the Company. The Company does not have an ultimate controlling party.
Details of related parties are set out below:
NON-EXECUTIVE DIRECTORS
Details of the fees paid to Directors in the year are set out in the Directors’ Report.
Total Directors’ fees of £225,750 (2022: £226,577) were incurred in respect of the year with none being outstanding and
payable at the end of the year. Director and officer insurance for the year were £40,725 (2022: £44,917).
SUBSIDIARIES
Included in note 11 are amounts receivable from HEIT Holdings Ltd and its subsidiaries. These amounts are interest free and
repayable on demand.
On 15 December 2022, the Company announced the acquisition of the Wormald Green, Hawthorn Pit and Rye Common
projects from Harmony Energy Limited and Ritchie Bland Energy No 2 Limited at fair value, in accordance with the Company’s
Related Party policy. The total consideration paid was c. £21.9 million (£21.5 million as consideration for the projects and
£0.4million to repay initial project costs incurred by the Developers on behalf of the Company). This was satisfied partly in cash
and partly through the issue of 7million new C Shares to the Developers. See note 10 for relevant details. The independent
valuer provided a fair market opinion on all purchases at the time of acquisition and consideration paid was considered by the
independent valuer to be within a fair market range.
On 9 March 2023, the Company sold its investments in HEIT PW Limited, HEIT PW 2 Limited, HEIT BD Limited, HEIT FM
Limited, HEIT RH Limited, HEIT LR Limited, and HEIT BF Limited to its subsidiary HEIT Holdings Ltd for a total consideration of
£91,105,212, which HEIT Holdings Ltd satisfied by issuing and allotting 91,105,212 Ordinary Shares of £1 each to the Company.
On 4 May 2023, the Company sold two further investments in HEIT HP Limited and HEIT WG Limited to its subsidiary
HEITHoldings Ltd for a total consideration of £8,893,079, which HEIT Holdings Ltd satisfied by issuing and allotting 8,893,079
Ordinary Shares of £1 each to the Company.
As described in the going concern note in note 2, the Company was a guarantor to its wholly owned subsidiary, HEIT Holdings
Ltd in respect of the £110 million debt facility and the £20 million RCF. The Company also provides parent company guarantees
to subsidiaries in relation to certain construction and/or battery supply contracts. As at 31 October 2023, total committed
funding to subsidiaries was £55.2 million.
INVESTMENT ADVISER
The Investment Adviser, Harmony Energy Advisors Limited is entitled to advisory fees under the terms of an investment advisory
agreement dated 14 October 2021. The Company shall pay to the Investment Adviser an annual fee (exclusive of value added
tax, which shall be added where applicable) payable monthly in arrears calculated at the rate of:
a.
one twelfth of 0.9% per calendar month of the lesser of the (i) NAV or (ii) Average Market Capitalisation of the Company up
to the threshold of £250,000,000; and
b.
one twelfth of 0.8% per calendar month of the lesser of the (i) NAV or (ii) Average Market Capitalisation of the Company in
excess of £250,000,000
An advisory fee of £2,163,222 (2022: £1,848,845) was incurred during the year and £144,121 (2022: £220,351) remained payable
as at 31 October 2023.
Harmony Energy Limited is the parent of the Investment Adviser and therefore an entity with significant control over the
Investment Adviser. Harmony Energy Limited is also a significant shareholder of the Company. See transactions with subsidiaries
for further details.
OTHER RELATED PARTIES
James Ritchie-Bland is a director of Harmony Energy Limited as well as an indirect shareholder of Harmony Energy Limited through
Ritchie-Bland Energy (Number 1) Limited. He is also a director of the Investment Adviser and a shareholder in the Company.
Ritchie-Bland Energy (Number 2) Limited, of which James Ritchie-Bland is also a director and an indirect shareholder (through
Renewable Environmental Investments Limited) is party to a joint venture agreement with Harmony Energy Limited in regard to
the three projects purchased by the Company during the year as disclosed in note 10.
Notes to the Financial Statements continued
FINANCIAL STATEMENTS
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
132
24. CAPITAL COMMITMENTS
As described in the going concern note in note 2, the Company was a guarantor to its wholly owned subsidiary, HEIT Holdings Ltd
in respect of the £110 million debt facility and the £20 million RCF.
The Company also provides parent company guarantees to subsidiaries in relation to certain construction and/or battery supply
contracts. These guarantees are expected to be in place until the end of June 2024. As at 31 October 2023, total committed
funding to subsidiaries was £55.2 million.
Other than as reported above, the Company had no contingencies and no significant capital commitments at the reporting date.
25. POST BALANCE SHEET EVENTS
On 30 November 2023, the Company declared a distribution of 2 pence per Ordinary Share £4,542,566 in relation to the
period 1 August 2023 to 31 October 2023 which was paid on or around 22 December 2023 to Shareholders on the register as at
the close of business on 7 December 2023.
On 21 February 2024, the Company successfully negotiated an amendment and restatement of its debt facilities of £130 million
with NatWest (together with Rabobank).
There were no other events after the reporting date which require disclosure.
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
133
DIRECTORS
Appointed: 12 October 2021
Norman Crighton
Janine Freeman
Hugh McNeal
William Rickett CB
Shefaly Yogendra
REGISTERED OFFICE
The Scalpel 18
th
Floor
52 Lime Street
London
EC3M 7AF
INVESTMENT ADVISER
Harmony Energy Advisors Limited
Conyngham Hall, Bond End
Knaresborough
North Yorkshire
HG5 9AY
Harmony Energy Advisors Limited is an appointed
representative of Laven Advisors LLP, which is authorised and
regulated by the Financial Conduct Authority.
INDEPENDENT AUDITOR
Ernst & Young LLP
25 Churchill Place
Canary Wharf
London
E14 5EY
REGISTRAR
Computershare Investor Services PLC
The Pavilions,
Bridgwater Road,
Bristol
BS99 6ZY
TAX ADVISERS
Grant Thornton
30 Finsbury Square,
London
EC2A 1AG
ADMINISTRATOR AND SECRETARY
JTC (UK) Limited
The Scalpel 18
th
Floor
52 Lime Street
London
EC3M 7AF
JOINT CORPORATE BROKERS
Joh. Berenberg, Gossler & Co. KG,
London Branch
60 Threadneedle Street,
London
EC2R 8HP
Stifel Nicolaus Europe Limited
150 Cheapside,
London
EC2V 6ET
ALTERNATIVE INVESTMENT FUND
MANAGER
JTC Global AIFM Solutions Limited
Ground Floor, Dorey Court
Admiral Park
St Peter Port
Guernsey
GY1 2HT
INDEPENDENT VALUER
Mazars LLP
5th Floor 3 Wellington Place,
Leeds
LS1 4AP
LEGAL ADVISERS
Fasken Martineau LLP
6th Floor
100 Liverpool Street
London
EC2M 2AT
Gowling WLG (UK) LLP
4 More London
Riverside
London
SE1 2AU
Company Information
FINANCIAL STATEMENTS
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
134
Set out below is an explanation of some of the industry-specific and other terms used in this report:
2-hour duration “duration” in this context refers to the maximum length of time it is possible to fully discharge
(or charge) a battery at nameplate power capacity. The average duration of current operating
BESS projects in GB is c.1.3 hours. The Investment Adviser expects a 2-hour BESS project to
outperform a 1-hour BESS project in wholesale markets / Balancing Mechanism activity, whilst
also providing downside protection against the risk of Ancillary Service market saturation over the
longer term;
Adjusted NAV under IAS 32 the proceeds raised from the C Share issue (as announced on 12 October 2022)
are classified as liabilities rather than equity until converted. The Adjusted NAV shows the Net
Asset Value of the Company with these proceeds shown as equity rather than as a liability in the
financial statements. The Adjusted NAV reported in the 31 October 2022 Annual Report and
Accounts was £272.4 million. Following the NAV correction and subsequent restatement in this
report, the Adjusted NAV for 31 October 2022 was £267.7 million. For the avoidance of doubt,
following the conversion of the C Shares in January 2023 Adjusted NAV is equal to NAV;
Adjusted NAV Total Return the change in Adjusted NAV plus dividends paid over the Period;
Arbitrage wholesale trading and/or Balancing Mechanism;
Ancillary Services contracts and tools that National Grid ESO procures and uses to manage Frequency Deviation,
balance supply and demand (and otherwise maintain the stability of) the GB transmission network
– sometimes referred to as “balancing services”;
Balance-of-plant or BOP refers to those supporting or auxiliary technical, electronic and other components needed to
complete the project, other than the BESS itself. This would include transformers, inverters and
switchgear. The term is also used to encompass civil engineering works such as foundations and
work required to create trenches and lay cables;
Balancing Mechanism or BM the ESO’s primary tool to balance supply and demand on Great Britain’s network. The Balancing
Mechanism is used to buy and procure the right amount of electricity required to balance the
system;
Capacity Market or CM a market introduced by the government’s Electricity Market Reform package, designed to ensure
security of electricity supply by providing capacity providers with a steady, predictable revenue
stream on which they can base their future investments. In return for such revenue, providers
must deliver energy (for up to 8 hours) upon notice at times of system stress or face penalties;
C Shares the C shares of £0.10 each in the capital of the Company (converted to Ordinary Shares in
January 2023);
De-Rated or De-Rating in relation to Capacity Market contracts, technologies which have less than 8-hours duration are
paid less per MW, according to a “de-rating” scale (i.e. the longer the duration, the higher net
proportion of the £/kw clearing price). Over the past few years, the de-rating factor for BESS
has been increasing, reducing the potential net revenue for BESS despite high headline clearing
prices. For the 2024/25 T-1 Auction, a 2-hour duration BESS is de-rated to 22.67%, whilst a 1-hour
BESS is de-rated to 11%;
Distribution Network Operator
or DNO
Distribution Network Operators are the owners of low voltage networks in Great Britain,
providing the local wires which take the electricity from the grid and move it through their own
network of power lines and underground cables, taking it to homes and businesses;
Dynamic Containment or DC one of National Grid ESO’s Ancillary Services, designed to operate post-fault, i.e., for deployment
after a significant network Frequency Deviation in order to slow the rate of change of frequency
of the network;
Dynamic Moderation or DM one of National Grid ESO’s Ancillary Services which operates similar to DC but for which
the minimum response times are longer, meaning less demanding technical requirements for
participants;
Dynamic Regulation or DR one of National Grid ESO’s Ancillary Services, designed to operate pre- fault to correct
continuous but small deviations in network frequency;
Flexibility the capability of a power system to adjust supply and demand to achieve balance;
Glossary
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
135
Frequency Deviation the electricity network in Great Britain operates at a frequency of 50Hz and one of National Grid
ESO’s roles is to manage and maintain the frequency of the network within one % (0.5Hz) of the
50Hz level. The system frequency is linked to the supply/demand balance of the network.
When energy demand rises/supply decreases, National Grid ESO can instruct its contracted
Ancillary Service providers to ramp up their energy production to prevent the frequency
dropping. For a BESS project, this would involve an instruction to export its stored energy. When
demand is low/supply is high, National Grid ESO may instruct providers to reduce generation
in order to prevent frequency from spiking too high. For a BESS project, this would be an
instruction to import energy from the network;
Gate Closure the time at which participants in the wholesale electricity market submit their final bids and
offers, being one hour prior to the time of delivery;
National Grid ESO the Electricity System Operator for Great Britain;
Ordinary Shares the ordinary shares of £0.01 each in the capital of the Company;
Revenue from Operations revenue generated by the Company’s BESS projects. This includes sale of electricity and revenue
received in relation to Ancillary Service and CM contracts. The metric is net of electricity
purchased for the purposes of charging the battery;
Revenue Optimiser a third-party company which provides revenue optimisation services to BESS projects (or other
technologies), including:
(i) market access;
(ii) optimisation of market selection;
(iii) submission of bid and offer pricing into a range of markets; and
(iv) the physical dispatch of the projects;
ROFR the exclusive right of first refusal which the Company enjoys over Harmony Energy Limited’s
pipeline of projects, as described in detail in the Company’s prospectus. The Company has, as at
the date of publication of this report, so far exercised this right in relation to 494.4 MW, leaving
at least 505.6 MW still to be acquired (subject to financing and compliance with the Company’s
Investment Policy);
shovel ready a BESS project which has in place:
(i) a completed lease, lease option or agreement for lease in relation to the land upon which
that project is situated;
(ii) planning permission enabling the construction of a suitable project on that land (subject to
any amendments to reflect final technical specifications);
(iii) an industry standard grid connection offer from a DNO (or TSO); and
(iv) a BESS supply and installation contract with material terms in agreed form with a reputable
counterparty;
T-1 Auction a CM auction held in the year immediately prior to each delivery year to top up capacity for
the delivery year. Usually procures a much lower amount of capacity that a T-4 auction. It is
not possible for a project to hold both a T-1 CM contract and a T-4 CM contract in relation to
the same delivery year. However, it is possible for projects to bid for, and deliver under, T-1 CM
contracts during the years prior to commencement of delivery for their T-4 CM contract;
T-4 Auction this is the main CM auction at which National Grid ESO buys most of the capacity needed for
delivery in four years’ time. This auction provides long-term returns and is designed to promote
new investments;
TCFD Task Force on Climate-related Financial Disclosures;
TNFD Task Force on Nature-related Financial Disclosures;
TSO Transmission System Operator, being National Grid ESO;
under construction a BESS project which has in place:
(i) an agreed lease on satisfactory terms in relation to the land upon which that project is
situated;
(ii) an accepted industry standard grid connection offer from a DNO/TSO, and having made at
least one milestone payment; and
(iii) a fully executed BESS supply and installation contract with a reputable counterparty;
Wholesale Price Spread the average spread between peak and off-peak pricing in the GB wholesale energy markets.
Glossary continued
FINANCIAL STATEMENTS
HARMONY ENERGY INCOME TRUST PLC ANNUAL REPORT 2023
136
Strategic Report
1 Overview
4
Chair’s Statement
8 Investment Adviser’s Report
24 Alternative Investment Fund Manager’s Report
26 Strategic Report
32 Environmental, social and governance
58 TCFD and TNFD Report
70
Principal Risks and Uncertainties
74 Section 172 Statement
76 Viability and Going Concern Statement
Governance Report
80 Board of Directors
82 Directors’ Report
85 Corporate Governance
90 Directors’ Responsibility Statement
91 Report of the Audit and Risk Committee
94 Report of the Remuneration and Nomination Committee
98
Report of the Management Engagement Committee
100 Independent Auditor’s Report
Financial Statements
108 Statement of Comprehensive Income
109 Statement of Financial Position
110 Statement of Changes in Equity
111 Statement of Cash Flows
112 Notes to the Financial Statements
134 Company Information
135 Glossary
www.heitp.co.uk
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HARMONY ENERGY
INCOME TRUST PLC
Annual Report and Accounts
For the year ended 31 October 2023
HARMONY ENERGY
INCOME TRUST PLC
The Scalpel 18th Floor
52 Lime Street
London
EC3M 7AF
Harmony Energy Income Trust PLC Annual Report and Accounts for the year ended 31 October 2023