SIMEC Atlantis Energy : Annual report 2021

ANNUAL REPORT

2021

CONTENTS

	PAGE
Chairman's Statement	3
Chief Executive Officer's Statement	6
Board of Directors	8
Directors' Report	10
Corporate Governance Report	12
Audit Committee Report	19
Directors' Remuneration Report	22
Directors' Responsibility Statement	26
Independent Auditor's Report	27
Consolidated Statement of Comprehensive Income	29
Statements of Financial Position	30
Statements of Changes in Equity	31
Consolidated Statement of Cash Flows	32
Notes to the Financial Statements	33
Company Information	74

Uskmouth power station

Cable laying - Loch Etive

Powerhouse - Glenkinglass

Safety Briefing - Shop 1 Nigg Energy Park

AR500 System Testing - Shop 1 Nigg Energy Park

AR500 - Goto Islands

Chairman's Statement

Introduction

The last 12 months have been a very challenging period for the Group in which we have had to make a number of very difficult decisions, however, it has also been a period in which we have been successful in identifying and securing a number of new and exciting opportunities. I believe that we end the period with a clear path forward for the Group, a significantly streamlined business, and a number of exciting projects under development that will deliver value to shareholders.

The backdrop for the Group, as for many other companies, has remained difficult over the last 12 months. A combination of the recovery from COVID, the COP26 meetings in Glasgow, and the war in Ukraine, have provided an increased focus on, and resulting acceleration of, the pressing need for decarbonisation, but also on the imperative for energy security. New challenges have emerged in the UK and in a number of other countries around the world as a result of a significantly increased reliance on weather dependent renewables, which coupled with a decrease in thermal power generation, have brought into focus the need for both predictable power generation as well as the need for increased energy storage solutions.

Uskmouth

As we announced in April 2022, we made the very difficult decision to halt the development of the Uskmouth Power Station conversion from coal to waste-derived fuel pellets. Whilst we still believe that the rationale for the project is compelling and we had been making excellent progress in engineering design, procurement, fuel testing and securing fuel supply, it was clear that we were not going to be able to secure the permit and planning consents that the project required.

The Company spent a huge amount of time and money on developing this project, so I will not pretend that this was not a major setback for us. However, despite the cancellation of the conversion project, we still retain the Uskmouth Power Station site, for which we are identifying other development opportunities, and we have the benefit of a huge amount of learnings from the development of the Uskmouth conversion that we can apply to other coal power station conversion projects elsewhere.

For the Uskmouth Power Station site, we are planning to redevelop the site into a sustainable energy park. The site has a number of valuable features, including a significant and upgradeable connection to the UK National Grid, a significant amount of land, rail and port access, proximity to major commercial and industrial power users, and a nearby gas pipeline. We are developing a comprehensive plan for the redevelopment of the Uskmouth site, and we were delighted to announce in May 2022 the first step in this plan, the development of 230 MW battery energy storage project at the site.

New conversion opportunities

Whilst the Uskmouth Power Station conversion project is not proceeding, much of the engineering design, procurement, fuel testing and fuel supply designs, contractual structures and expertise that we developed for Uskmouth are directly applicable to other coal power station conversion projects internationally.

The management team has undertaken a detailed global mapping to identify potential coal conversion projects, targeting countries with a high reliance on coal-fired power stations and where we can secure the required waste feedstocks on attractive terms. In these countries, simply closing coal-fired power stations is not an option without the lights going out, so conversions of existing coal-fired power plant to waste derived fuel pellets that bring down carbon emissions significantly, akin to those of a new gas-fired power station, and which in addition address the huge issue of plastic waste, are compelling.

We are focusing our development efforts in eastern Europe for these reasons, with the attractiveness of this proposition being significantly boosted by the current increased price of, and security of supply issues for, gas, which have brought into focus the need for alternative sources of low carbon emission, predictable power generation. We are already working with our partners on a number of early-stage opportunities and look forward to bringing these projects forward through development and into construction.

Annual Report and Accounts 2021 3

Chairman's Statement

continued

MeyGen phase 1A

The tidal business also had a challenging last 12 months, with three out of the four tidal turbines at MeyGen out of the water for much of that period as a result of technical issues coupled with a delay in securing funding to redeploy to these turbines. The Atlantis AR1500 turbine was successfully redeployed in March 2022 after a number of upgrades to the turbine and an extensive testing programme. The AR1500 has since operated successfully and dispatched power into the UK grid, together with one of the Andritz turbines which has operated almost continuously since its deployment in 2018.

In April 2022, we were very grateful to Scottish Enterprise for providing MeyGen with a further £2.5 million loan. This funding will be used to fund the redeployment of the two remaining Andritz tidal turbines and support the stabilisation of operations. We expect to complete the redeployment of these two turbines within the next 9 months.

Whilst the first phase of the MeyGen project has suffered from operational challenges, the learnings from this first phase of MeyGen have been enormous and these learnings are already being applied to future phases of MeyGen and tidal power projects elsewhere. We continue to believe that tidal power has a crucial role to play within modern renewable energy dominated electricity grids in providing a predictable and sustainable source of electricity generation, and the first phase of MeyGen has demonstrated the viability of tidal power as a commercial source of sustainable, predictable power generation.

MeyGen phase 2

We were delighted, therefore, with the UK Government's announcement in November 2021 of "ring fenced" funding support for tidal power and a commitment for ongoing support for the development of the tidal power sector. We are optimistic that we will be able to secure revenue support for future phases of the MeyGen project through this mechanism to allow us to progressively build out at least the remaining consented 86 MW at MeyGen and ultimately to the site's full 398 MW capacity.

Development of the MeyGen project remains a key priority for us, and we will continue to explore ways to further develop the site and generate value for shareholders.

Strategy

We are a developer of innovative sustainable alternative energy solutions. We are not seeking to compete with large utilities and oil companies in delivering "commoditised" renewable energy projects such as wind and solar, but rather seek to identify innovative solutions to help aid the energy transition. In particular, we recognise the challenges posed by the growing dominance of weather dependent renewable generation and that the transition to renewables and net zero cannot be immediate. Our coal project conversions business, for example, provides a predictable, diversified source of sustainable power generation, provides for a larger reduction in carbon emissions than the same capacity of weather-dependent renewables, and delivers the added benefit of addressing the plastic pollution problem.

Our priorities in the near term are focused on the development of the Uskmouth sustainable energy park, stabilisation of existing operations at, and expansion of, the MeyGen tidal project, and securing future coal conversion projects.

4 Simec Atlantis Energy Limited and its subsidiaries

Chairman's Statement

continued

Financial

You will see from our accounts this year that we made a very significant loss for the year as a result of having to make asset write downs, principally associated with our decision not to proceed with the Uskmouth Power Station conversion project. We are optimistic about the value that we can deliver from the Uskmouth Sustainable Energy Park, but given that we are still in the relatively early stages of developing our strategy for the Uskmouth site, these developments are not yet sufficiently advanced to demonstrate a tangible valuation to our auditors. You can be assured that we are very focused on delivering full value to shareholders from the Uskmouth site as well as to capitalise on the extensive learnings from the Uskmouth conversion project which we are seeking to apply elsewhere.

Thank you

As a Group we are passionate about what we do and feel privileged to be in a position to make a tangible contribution to the transition to net zero. We look forward to the next 12 months and to keeping you apprised of our progress.

I would like to sincerely thank all the members of our fantastic management team for their hard work throughout the last 12 months and all of our stakeholders - shareholders, local communities, governments, and business partners - for their ongoing support to the Group and our projects.

Annual general meeting

Notice of the Annual General Meeting will be provided in due course. Details of the resolutions to be proposed will be set out in a separate Notice of Annual General Meeting, which accompanies this report for shareholders receiving hard copy documents, and which will be available at www.simecatlantis.com for those who have elected to receive documents electronically.

Duncan Black

Chairman

28 June 2022

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