Greencoat UK Wind : Annual Report 2021

G R E E N C O A T

U K W I N D

Greencoat UK Wind PLC

Annual Report

For the year ended 31 December 2021

	G R E E N C O A T
Contents	U K W I N D
Summary	01
Chairman's Statement	02
Investment Manager's Report	05
Strategic Report	21
Board of Directors	34
Report of the Directors	37
Directors' Remuneration Report	40
Statement of Directors' Responsibilities	44
Corporate Governance Report	45
Audit Committee Report	50
Independent Auditor's Report	54
Financial Statements	61
Notes to the Financial Statements	67
Company Information	96
Supplementary Information	97
Defined Terms	98
Alternative Performance Measures	101
Cautionary Statement	102

All capitalised terms are defined in the list of defined terms on pages 98 to 100 unless separately defined.

G R E E N C O A T

U K W I N D

Summary

Greencoat UK Wind PLC is the leading listed renewable infrastructure fund, invested in UK wind farms. The Company's aim is to provide investors with an annual dividend that increases in line with RPI inflation while preserving the capital value of its investment portfolio in the long term on a real basis through reinvestment of excess cash flow.

The Company provides investors with the opportunity to participate directly in the ownership of UK wind farms, so increasing the resources and capital dedicated to the deployment of renewable energy and the reduction of greenhouse gas emissions.

Highlights

• The Group's investments generated 2,933GWh of renewable energy.
• Net cash generation (Group and wind farm SPVs) was £256.8 million.
• Acquisition of the remaining 50 per cent interest in Braes of Doune, investments in Andershaw, Burbo Bank Extension, Windy Rig and Glen Kyllachy, and the commissioning of Douglas West increased the portfolio to 43 operating wind farm investments and net generating capacity to 1,422MW as at 31 December 2021.
• Issuance of further shares raising £648 million.
• The Company declared total dividends of 7.18 pence per share with respect to the year and is targeting a dividend of 7.72 pence per share for 2022 (increased in line with December 2021 RPI).
• £950 million outstanding borrowings as at 31 December 2021, equivalent to 23 per cent of GAV.

Key Metrics

	As at	As at
	31 December 2021	31 December 2020
Market capitalisation	£3,257.8 million	£2,448.0 million
Share price	140.6 pence	134.2 pence
Dividends with respect to the year	£148.0 million	£118.7 million
Dividends with respect to the year per share	7.18 pence	7.10 pence
GAV	£4,043.7 million	£3,329.9 million
NAV	£3,093.7 million	£2,229.9 million
NAV per share	133.5 pence	122.2 pence
NAV movement per share (adjusting for dividends)	11.3 pence	0.7 pence
Total return (NAV)	15.4 per cent	6.5 per cent
TSR	10.7 per cent	(6.2) per cent
CO2 emissions reduced per annum	1.7 million tonnes	1.5 million tonnes
Homes powered per annum	1.5 million homes	1.2 million homes
Funds invested in community projects in the year	£3.0 million	£3.8 million

Alternative Performance Measures are defined on page 101.

Defining Characteristics

Greencoat UK Wind PLC was designed for investors from first principles to be simple, transparent and low risk.

• The Group is invested solely in UK wind farms.
• Wind is the most mature and largest scale renewable technology.
• The UK has a long established regulatory regime, high wind resource and £80 billion worth of wind farms in operation.
• The Group is wholly independent and thus avoids conflicts of interests in its investment decisions.
• The independent Board is actively involved in key investment decisions and in monitoring the efficient operation of the assets, and works in conjunction with the most experienced investment management team in the sector.
• Low gearing is important to ensure a high level of cash flow stability and higher tolerance to downside sensitivities.
• The Group invests in sterling assets and thus does not incur material currency risk.

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Greencoat UK Wind PLC Annual Report for the year ended 31 December 2021

Chairman's Statement

I am pleased to present the Annual Report of Greencoat UK Wind PLC for the year ended 31 December 2021.

Performance

2021 was another significant year of growth for the Company with £570 million invested and £648 million of new equity raised.

During the year, portfolio generation was low, 20 per cent below budget, at 2,933GWh. Power prices were significantly above budget, primarily reflecting high gas prices in the second half of the year. Net cash generated by the Group and wind farm SPVs was £256.8 million, providing cover of 1.9x on £138.8 million of dividends paid in the year.

By the end of 2021, the portfolio was generating sufficient electricity to power 1.5 million homes and avoiding carbon dioxide emissions of approximately

1.7 million tonnes per annum through the displacement of thermal generation.

Dividends and Returns

Declared dividends for the year total 7.18 pence per share, with the fourth and final quarterly dividend of 1.795 pence per share to be paid on 25 February 2022. With our continuing strong cash flow and robust dividend cover we can confidently target a dividend of

7.72 pence per share with respect to 2022, increased in line with December's RPI of 7.5 per cent.

NAV per share increased from 120.4 pence per share (ex dividend) on 31 December 2020 to 131.7 pence per share (ex dividend) on 31 December 2021, an increase of 11.3 pence (9.4 per cent) during the year, primarily reflecting high short term power prices. Since listing, NAV has increased by more than RPI, as can be seen on the chart on page 16.

The Total Shareholder Return for the year was 10.7 per cent.

Acquisitions

2021 has been an active investment year for us. In February, we acquired the remaining 50 per cent shareholding in Braes of Doune wind farm for £48 million. In September, we acquired Andershaw wind farm for £121 million and commissioned Douglas West wind farm (investing a further £25 million during the year). In November, we invested £250 million in Burbo Bank Extension wind farm and in December we acquired Windy Rig and Glen Kyllachy wind farms once commissioning had been completed for £55 million and £59 million respectively. During the year, we have also provided £11 million of construction finance to Kype Muir Extension wind farm (target commissioning in Q4 2022).

Douglas West, Windy Rig and Glen Kyllachy are the Company's first 3 subsidy free projects and sit alongside Burbo Bank Extension and Tom nan Clach, the Company's 2 CFD projects. The remaining 38 wind farms are all accredited under the ROC regime. The Group's offshore fleet accounts for 33 per cent of assets by value.

Equity Issuance

In order to finance our continuing growth and pursue value creating opportunities, we issued 151 million new shares on 19 February 2021 at a price of 131 pence per share, raising gross proceeds of £198 million. On 29 November 2021 we issued a further 341 million new shares at a price of 132 pence per share, raising gross proceeds of £450 million. Both equity raises were oversubscribed and priced at a premium to NAV per share.

Gearing

In November, the Company's revolving credit facility was increased to £600 million. £150 million term debt maturing in 2022 was also refinanced with longer dated term debt with existing lenders. In December, we entered into a new £200 million term debt facility with AXA, which was utilised on 31 January 2022 to reduce borrowings under the revolving credit facility to £50 million (£250 million as at 31 December 2021). Longer term borrowing, now totalling £900 million, consists of various maturities to 31 January 2030, thus reducing financing risk. The Group's gearing of £950 million as at 31 December 2021 equates to 23 per cent of GAV and the weighted average cost of borrowing is 2.6 per cent.

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Chairman's Statement continued

Gearing continued

The Group will generally avoid using non-recourse debt at wind farm level and aims to keep overall Group level borrowings at a prudent level (the maximum is 40 per cent of GAV). Over the medium term we would expect gearing to be between 20 and 30 per cent of GAV.

Strategy and Outlook

Wind continues to be the most mature and widely deployed renewable energy technology in the UK. In November 2021, the UK hosted the COP26 conference in Glasgow, with the Prime Minister playing a clear role in encouraging the delivery of 2050 net zero emissions targets. A key part of that plan for the UK is a 40GW offshore wind target for 2030.

Our Investment Objective has remained unchanged over the last 9 years since listing: to provide shareholders with an annual dividend that increases in line with RPI inflation while preserving the capital value of the investment portfolio in real terms. This is achieved through a focused strategy of investing only in wind farms and only in the UK and maintaining a balanced exposure to power prices. Our intention remains to adhere strictly to this core strategy.

Growth by acquisition brings benefits to shareholders as:

• a larger scale brings economies and enables better terms to be obtained from suppliers;
• equity raisings following acquisitions provide additional opportunity for shareholders to increase their investment in the Company;
• these equity raisings are priced at a premium to NAV per share thus enhancing overall NAV per share for existing shareholders; and
• equity raisings increase the liquidity of shares in the market (during 2021 on average 14.1 million of the Company's shares were traded weekly on the London Stock Exchange).

Significantly, during 2021 we made £570 million of investments, of which 30 per cent were in ROC accredited wind farms, 44 per cent in CFD projects and 26 per cent in subsidy free projects. We expect to continue to see attractive CFD and subsidy free assets within our significant acquisition pipeline alongside wind farms accredited under the ROC regime.

The executive management continues to maintain a disciplined acquisition strategy: if a potential investment

is not in line with the Company's investment objectives, or is otherwise not in the interests of shareholders, then we will not invest.

Through strong cash flow and robust dividend cover, coupled with our disciplined approach, we are confident in our ability to continue to meet the objectives of dividend growth in line with RPI and capital preservation in real terms.

Health, Safety and the Environment

As a responsible investor in operating wind farms, the Company takes its Health and Safety responsibilities very seriously. We work with our Investment Manager to promote the highest standard of health, safety and environmental management practices in managing our portfolio of investments. Detailed key performance indicators and the results of audits are regularly reviewed by the Board and action taken where necessary. We continue to monitor the standards maintained by the operators of our wind farm investments to ensure that these are at least in line with the wider industry, while seeking continuous improvement.

Climate Change

As a Company investing in wind farms, our strategy and activities naturally make a positive contribution toward the worldwide goal of achieving a net zero carbon emissions economy and limiting global warming to 1.5°C. We welcome the opportunity to make appropriate climate related financial disclosures as recommended by the Task Force on Climate- Related Financial Disclosures (TCFD) in this year's Annual Report, which may be developed further in future reports. Detailed disclosures can be found in the Strategic Report on pages 31 to 33.

The Board and Governance

At the AGM, Willy Rickett will retire from the Board and I, on behalf of the whole Board, would like to thank him for the fine job he has done as the Company's Senior Independent Director since its listing in 2013. Given his experience, Willy has been a great source of wisdom and we have valued his contribution enormously. We were delighted that Nick Winser joined the board on 1 January 2022, bringing the experience he has in the regulated electricity sector.

The annual internal evaluation of the Board raised no significant issues.

The Group's governance is further described in the Corporate Governance Report on pages 45 to 49.

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