New Energy Solar : 2021 Sustainability report

For personal use only

SUSTAINABILIT Y REPORT

2021

For personal use only

CONTENTS

1	Letter From The CEO...............................................	2	5	Environmental, Social & Governance
2	About New Energy Solar.........................................	4		Performance..........................................................	11
	UN SDG Contribution......................................................................	11
	Overview Of New Energy Solar........................................................	4
		•	Environmental..........................................................................	12
	Key Portfolio Metrics........................................................................	5		•	Social.........................................................................................	17
3	Sustainability Philosophy & Framework...............	6		•	Governance Framework..........................................................	19
	Initiation of EU Regime Reporting ................................................	21
	Sustainability Philosophy................................................................	6		•	EU Taxonomy Classification....................................................	21
	Sustainability Framework...............................................................	6		• Disclosure under SFDR in Prescribed Annexe One Format	22
4	Industry...................................................................	9	6	About This Report.................................................	27
	Improving Momentum for the Energy Transition..........................	9
	Sustainable Investment Demand.....................................................	9
	The Outlook For Renewables............................................................	9
	Solar PV Installation in 2021..........................................................	10

Disclaimer:

This Sustainability Report is intended to provide general information only and has been prepared by New Energy Solar Limited (NEW or the Company) without taking into account any particular person's objectives, financial situation or needs. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend investors obtain financial advice specific to their situation before making any financial investment or insurance decision. The Company, referred to as 'New Energy Solar', 'NEW' or the 'Company', does not give any warranty, make any representation as to, or accept responsibility for, its accuracy, reliability, timeliness or completeness now or in the future. While the information provided by New Energy Solar is believed to be accurate, New Energy Solar does not accept responsibility for any inaccuracy, or any actions taken in reliance on the information in this report.

Noted entities:

Noted entities: New Energy Solar Limited (ACN 609 396 983), New Energy Solar Manager Pty Limited (ACN 609 166 645, CAR No. 1237667) (Investment Manager).

1. Letter From The CEO

onlyAs the new CEO of New Energy Solar (ASX:NEW, NEW or the Company), I am pleased to present our Sustainability Report for 2021.

While we have seen significant disruption to global economies, supply chains and day-to-day interactions resulting from the pandemic, the pace of adoption of renewable energy has remained high. Importantly, investor demand for sustainable investments is also strong. According to Morningstar1, in the third quarter of 2021, global sustainable fund assets climbed to US$3.9 trillion and ESG assets are on track to exceed US$53

usetrillion globally by 2025, representing more than a third of the expected US$140.5 trillion of global assets under management2. As demand for sustainable investment opportunities continues to grow, there is an increasing awareness of the need to implement more sustainable operating practices in business and to measure the impact of those practices for the benefit of investors and stakeholders.

IMPROVING DISCLOSURE FOR

SUSTAINABILITY

personalOver the course of this year, the parent of the Investment Manager of the Company has become a signatory to the UN Principles for

Responsible Investing (UNPRI) and next year will see the mandatory adoption of new disclosure standards in the EU for financial market participants, the Sustainable Financial Disclosure Regulation (SFDR) and the implementation of the Taxonomy Regulation (the Taxonomy)3. The SFDR and the Taxonomy (together the EU Regime) will be followed by disclosure standards for EU-listed entities and the combination

is intended to enable investors to understand the extent to which businesses are conducting their operations sustainably and, in turn, to make finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development. It is also expected that there will be a significant improvement in the information available on the impact of sustainability risks and a reduction in the incidence of unsubstantiated claims pertaining to environmental credentials, known as "greenwashing".

The format of sections of this report have changed to reflect some of the Fordisclosure elements of the EU Regime. While NEW is not legally required

to comply, international investors, and particularly European investors, are seeking information from investee companies to fulfil their own ESG- related disclosure obligations. Accordingly, NEW is establishing measures that will enable it to provide the comprehensive information required by the SFDR on a regular basis with a view to achieving consistency with the EU Regime.

NEW was conceived and developed to generate electricity in a way that would eliminate greenhouse gas emissions and also reduce the impact of the power sector on the environment through the reduced use of water and lower waste. The siting of NEW's assets was chosen to have a minimal impact on their surrounds, and we seek to manage the business in a way

that upholds the values of the applicable human rights, anti-bribery, anti- corruption and anti-slavery legislation. While NEW is externally managed and accordingly, does not directly employ personnel, NEW's Investment Manager recognises the need to focus on diversity and employee wellbeing. For these reasons NEW is well-placed to benefit from the increased attention to the ESG practices of enterprises.

THE ENERGY TRANSITION IS PROGRESSING WELL IN THE UNITED STATES

This year has been one of significant change for NEW with the sale of its Australian assets and the concentration of its business in the United States. The regulatory and capital environment in the US is supportive of the energy transition and we are comfortable that the portfolio of fourteen well-positioned assets represents an important renewable energy portfolio.

Increasing acceptance of the role of renewables in power systems and the declining cost of batteries to improve the integration of renewables is driving continued strong growth in the development of solar in the US. Decarbonisation of the electricity grid by 2035 is a goal of the current federal administration and an increasing number of states, cities and utilities are committing to net-zerocarbon-emissions goals.

Analysis undertaken by energy consultants ScottMadden4 found that although the electricity sector was historically the largest source of carbon emissions in the US, emissions peaked in 2007 and have been trending downwards since. The reduction in emissions is the result of fossil fuel switching (switching from coal to natural gas) and the introduction of carbon-free generation. Currently, nuclear and hydro generation are the largest sources of carbon-free generation in the United States, but their input is relatively unchanged since 2005, whereas wind and solar are the two most significant sources of the growth in carbon-free generation. No significant coal capacity has been constructed since 2013.

Recent data from energy consultancy, Wood Mackenzie5, indicates that installations of solar in the US in the second quarter of 2021 totalled 3.7 GW, the largest second quarter on record and despite high commodity prices and supply chain uncertainties. Their forecast for installed capacity for 2021 is 19.9 GW, a significant increase over the 14 GW installed in 2020 in the US.

While the US has 72.6 GW of installed utility-scale solar, 40% of this operating capacity is concentrated in California and Texas. However, a number of US states have over 2 GW of operating utility-scale solar including Virginia, North Carolina, Georgia, Florida, Arizona, Nevada and the District of Columbia. Of the capacity installed in the second quarter of 2021, Texas and Florida installed the largest shares and these two states, together with California, account for almost 40% of the development pipeline of new solar projects6.

1.  Morningstar Direct.

2.  ESG assets may hit $53 trillion by 2025, a third of global AUM. Bloomberg Intelligence, February 23, 2021.

3.  Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020.

4.  Power Decarbonisation: Past and Future, ScottMadden's Energy Practice, October 2021.

5.  US utility-scale solar market update: Q3 2021, Wood Mackenzie, Sylvia Leyva Martinez, Senior Analyst and Matthew Sahd, Research Associate.

6.   Ibid.

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The market remains robust with voluntary procurement being the largest driver of demand. Utility scale solar is, and is likely to remain, the most economically competitive electricity source in most US states. Corporate procurement, as a result of the adoption of ESG goals, is also an important driver and similarly, state and utility clean energy and emissions reduction goals. Currently, 28 states and the District of Columbia have active renewable or clean energy requirements and 248 utilities have announced clean energy or emissions reduction targets.7

The energy transition momentum appears to be solid in the United States, with 72% of the 114 GW of expected generation capacity retirements between 2021 and 2026 comprising coal-fired generation.8 The current policy environment for additional federal government clean energy legislation is complex but most commentators believe that Congress will pass some form of energy policy that is likely to be favourable for carbon-free forms of generation.

NEW ENERGY SOLAR LOOKS AHEAD

In October, NEW bought back almost 10% of its shares through an off-marketbuy-back. Shortly after, NEW commenced an on-market buyback. We are also working with our financing partners in the US to further optimise the long-term debt in the portfolio through a large refinancing. These measures will improve dividend coverage and the ability of the business to capitalise on the energy transition. I look forward with great confidence and thank you for your support of the role of solar power in hastening the energy transition to a low-carbon future.

Yours faithfully,

LIAM THOMAS

Chief Executive Officer

7.   Ibid.

8.   Ibid.

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2.	About New Energy Solar
only
	OVERVIEW OF NEW ENERGY SOLAR
	KEY FEATURES	SUMMARY
	New Energy Solar	New Energy Solar is a sustainable investment business focused on investing in utility-
use			scale solar power plants and associated assets that generate emissions-free power.
		The Company currently focuses on assets with contracted cash flows in the US.
Revenue generated by NEW	NEW generates revenue through directly or indirectly acquiring and operating
			utility-scale solar power plants. The solar power plants generate revenue by selling
			the electricity generated by the plants under long term (10+ years) PPAs with
			creditworthy electricity buyers (Offtakers). The Company may acquire, directly
			or indirectly, project companies which own power plants through different entity
			structures, including subsidiary companies, sub-trusts and US or other offshore
			partnerships or companies, or alongside investment partners.
	Investment objective	NEW's objective is to acquire utility-scale solar power plants and associated assets,
			which have contracted cash flows from creditworthy Offtakers, and to help investors
			generate positive financial returns and social impacts. Financially, these assets are
			expected to produce stable long-term cash flows, while from a social perspective,
			an investment in solar assets results in a significant reduction in emissions (relative
			to fossil fuel power). The Company's mandate allows investments in other types of
			renewable energy and related assets; however the current focus is on acquiring solar
			and associated assets.
	Investment strategy	NEW seeks to acquire assets which, over their technical life, are expected to support
personal		gross portfolio returns of 7% to 10% p.a. (before taxes, management expenses,
	administration costs, and external corporate borrowing costs)9. It is important to note
	that NEW's distributions may be less than the actual or target returns of its assets.
	While NEW is currently focused on US opportunities, the investment mandate is
	global and investments will be considered in geographies with: supportive regulatory
	and legal arrangements; well understood solar resource; creditworthy Offtakers; and
For			supportive foreign investment arrangements.

9.  The Business may target assets outside this range where market conditions and other circumstances suggest it may be beneficial.

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