Registered number: NI045625
Moyle Interconnector (Financing) plc
Annual report for the year ended 31 March 2023
ContentsPages
Directors and advisers1
Strategic report2 - 22
Directors’ report23 - 25
Independent auditors’ report to the members of Moyle Interconnector (Financing) plc26 - 32
Consolidated statement of profit and loss and other comprehensive income33
Consolidated and Parent Company balance sheet34
Consolidated and Parent Company statement of changes in equity35
Consolidated and Parent Company cash flow statements36
Notes to the financial statements37 - 62
Moyle Interconnector (Financing) plc
1
Directors and advisers
Directors
Company secretary
Gerard McIlroy
Registered office
Principal place of business
First Floor
The Arena Building
85 Ormeau Road
Belfast
BT7 1SH
Solicitors
Victoria House
15-17 Gloucester Street
Belfast
BT1 4LS
Independent auditors
Grant Thornton (NI) LLP
Chartered Accountants and Statutory Auditors
12-15 Donegall Square West
Belfast
BT1 6JH
Moyle Interconnector (Financing) plc
Strategic report for the year ended 31 March 2023
2
Strategic objectives
Our strategy is made up of four key elements:
•Safe, cost efficient operation
•Return savings to consumers
•Decarbonise
•Manage market change
Each of these elements have KPIs associated with them. These are outlined in more detail over the subsequent pages.
A number of other KPIs are used at a corporate level to monitor other aspects of business performance, including corporate responsibility KPIs and employee KPIs. These are included later in this report.
Moyle Interconnector (Financing) plc3
Strategic report for the year ended 31 March 2023 (continued)
Safe, cost efficient operation
Operate assets safely and cost effectively, outsourcing where appropriate
How we deliver
We provide a safe, reliable and efficient transmission service to the electricity and gas suppliers of Northern Ireland.
Delivery is achieved through a competitive tendering process for operational activities and the development of a comprehensive contracting strategy and partnership approach with key contractors.
We operate a Health & Safety system based on the “Plan, Do, Check, Act” approach and have an Asset Management System which is accredited to the ISO 55001 standard.
Further information on asset operation can be found on pages 7-10.
How we measure success
-The quality of service to our direct customers is determined by the performance of our assets, of which the principal measure is the availability of transmission capacity (KPI 1);
-Our safety is measured by the safe operation of our staff and contractors via lost time incidents (KPI 2) and a series of detailed health & safety targets;
-We have detailed maintenance and contracting milestones which are monitored at contract meetings; and
-We use detailed monthly budgets which are monitored over a rolling five year horizon.
-As well as compliance with the financing covenants, the principal requirement of the financiers is maintenance of an Annual Debt Service Cover Ratio (ADSCR) of greater than 1.15 for Moyle (KPI 6).
Availability (KPI 1)Note that unavailability excludes upstream outages over which we have no control.Total plant capacity relates to capacity under existing connection agreements
𝑪𝒂𝒑𝒂𝒄𝒊𝒕𝒚 𝑨𝒗𝒂𝒊𝒍𝒂𝒃𝒍𝒆
×
𝑯𝒐𝒖𝒓𝒔 𝑨𝒗𝒂𝒊𝒍𝒂𝒃𝒍𝒆
𝑻𝒐𝒕𝒂𝒍 𝑷𝒍𝒂𝒏𝒕 𝑪𝒂𝒑𝒂𝒄𝒊𝒕𝒚
×
𝑯𝒐𝒖𝒓𝒔 𝒊𝒏 𝒀𝒆𝒂𝒓
Lost time incidents (KPI 2)Lost time incidents are calculated as the number of lost time incidents per 100,000 hours worked by staff and contractors.
Annual Debt Service Cover Ratio (KPI 6)The Annual Debt Service Cover Ratio is calculated in accordance with the terms of the bond. The basis of calculation is Available Cash / Debt Service in the next 12 months.In each case Available Cash = the difference between income and expenses in the period + cash in designated bank accounts, where cash in the designated bank accounts is limited to 1x Debt service.
Moyle Interconnector (Financing) plc4
Strategic report for the year ended 31 March 2023 (continued)
Return savings to consumers
Deliver savings to current and future Northern Ireland consumers over the life of the assets
How we deliver
Group strategy involves returning all savings or cash surpluses to Northern Ireland consumers over the life of the assets.
In doing so, where possible, we seek to build up reserves to smooth future cash flows and minimise energy price increases and fluctuations associated with our assets.
Where appropriate, reserves will be used to provide capital for future investments.
How we measure success
Our measures of success include:
- Savings incurred on the Group’s financing costs compared to the costs which would have been incurred if financed by a Northern Ireland energy utility comparator (KPI 3). This is a direct saving to consumers. Cost of capital of Mutual Energy versus an NI comparator can be seen on page 11.
- Cash generated (KPI 4) which will be used to avoid future charges to consumers. Cash generated can be seen in the graph on pages 11.
Cost of capital v an NI comparator (KPI 3)The Mutual Energy Group incurs financing costs in respect of debt entered into for the purpose of the business. The Mutual Energy Group’s average cost of capital is compared to the costs which would have been incurred if financed at the rates charged by a Northern Ireland energy utility comparator over this period. The KPI is the savings made as a result of the lower cost of capital than the comparator company. The savings are calculated as the cost which would have been incurred by a comparator financing the Mutual Energy Group’s debt compared to the costs actually incurred.
Cash generated from operations (KPI 4)Cash generated in the business post tax.
Moyle Interconnector (Financing) plc5
Strategic report for the year ended 31 March 2023 (continued)
Decarbonise
Take an active role in collaboration with key stakeholders in the acceleration of decarbonisation through interventions and investments which benefit Northern Ireland energy consumers
How we deliver
The Group’s strategy is to adapt its structure and focus of the business to rise to the challenge of facilitating the decarbonisation of the electricity networks in Northern Ireland and facilitating customers who wish to use the networks as a means of decarbonising other sectors.
We will also target the CO2 content of the electricity transported on our networks, playing our part in reducing this by facilitating the connection of both customers and producers.
Decarbonisation is discussed in more detail on pages 13-14.
How we measure success
A key factor to enable decarbonisation is the ability of system operators to balance the network and generators to respond flexibly to changes in renewable generation. Success is measured by the flexibility we will be able to supply our customers. For Moyle, this is the volume and type of services we provide to the grid (see page 7 - 10).
We also monitor the domestic connections made to the transmission network and calculate the CO2 saving (KPI 5) made by these connections over a 15 year period.
Finally, on a business operating level, the Mutual Energy Group will seek to minimise the emissions from its own operations, encompassing operational activity, transport and other activities ancillary to running the business.
The Mutual Energy Group can contribute to the reduction in CO2 across three key strategic areas:
1.Enabling access to lower carbon fuels – facilitating our consumers to move from higher CO2 emitting fossil fuel to lower emitting fossil fuels;
2.Greening the existing networks – developing options for lower or zero emission fuels to transport through the networks; and
3.Influencing policy and participating in projects which further decarbonisation – working to develop and promote the larger, secure, decarbonised energy system, new ways of working, extensive integration of electricity and gas and different technologies needed to allow decarbonisation to happen.
The total of the CO2 savings is the KPI for this activity and a graph showing the results can be found on page 13.
CO2 savings (KPI 5)Electricity interconnectorTo calculate the CO2 savings associated with the Moyle Interconnector, the calculation determines the carbon intensity of each system by weighting the carbon emissions per MW of the marginal unit by the proportion of non-renewable generation on the system in each hour time period. It then multiplies this difference in the carbon emissions per MW by the actual flow on Moyle. This gives the total carbon savings of Moyle each hour. We then sum these hourly figures across the year to give total CO2 savings resulting from Moyle.CO2 saved in Mutual Energy Group operations CO2 usage is calculated in accordance with guidance provided by the Department of Business, Energy and Industrial Strategy (‘BEIS’), for conversion of different fuel types.
Moyle Interconnector (Financing) plc6
Strategic report for the year ended 31 March 2023 (continued)
Manage market change
Manage market change and regulatory development to minimise risks to the Northern Ireland consumer
How we deliver
Our key focus is to ensure, so far as possible, that changes driven by EU, national or other bodies do not impact negatively on our business, our financing arrangements or energy consumers in Northern Ireland. We seek to achieve this by influencing discussions at stakeholder meetings, actively participating in the work of the EU and GB system operator confederations and by assisting the regulators and relevant government departments to identify and address issues particularly relevant to Northern Ireland.
The market environment is discussed in more detail on page 15.
How we measure success
Our measures of success include:
- avoidance of changes which would compromise the financing structures of the Group; and
- monitoring of individual projects against initial objectives and implementation plans with milestone dates
Moyle Interconnector (Financing) plc7
Strategic report for the year ended 31 March 2023 (continued)
Strategic objective: Operate assets safely and cost effectively, outsourcing where appropriate
Operational performance
As planned, Moyle’s availability was significantly impacted by the Control System Upgrade Project (CSUP) and therefore was 79.9% in 2022/23 (KPI 1). This was significantly reduced compared to 98.9% availability in the previous 12 months, but the vast majority of this reduction related to planned outages.
This major project saw the control and protection system completely replaced, and outages were taken throughout the summer months to allow site works. The two poles were refurbished sequentially, with only short bi-pole outages taken (an initial one day, and subsequent seven days mid-project). This allowed Moyle to continue to offer 250MW capacity for the majority of the period of the site works. Two minor trips occurred after the restoration of the first pole, quickly identified as snagging items with the project. Reliability thereafter was exceptional, with no further trips throughout the remainder of the year. Aside from the CSUP, availability remained excellent; only one trip (with a duration of less than one hour) occurred, and this was due to failure within equipment that was planned to be replaced as part of the CSUP, emphasising the need to undertake the project.
There were no lost time incidents in the year (KPI 2).
Moyle has also been very reliable through the period in delivering DS31 ancillary services to the NI system operator and ‘Balancing and Ancillary Services’ to the GB system operator. These services represent an increased source of revenue, and their reliability is an equally important measure as (capacity) availability. In 2022/23, as in the previous year, these services were provided in full compliance with the contract. These reliability figures are impacted by overall interconnector availability (KPI 1) but also the speed of response of the service when called upon, which in turn is reliant on the technology type of Moyle’s convertors. The CSUP included amendments to the functionality of the convertors to improve the reliability by improving speed of response across a wider range of operational parameters. This has improved Moyle’s system service offering.
A possible emerging trend through 2022/23 is that whilst the ancillary service supporting the NI grid was ‘armed’ by the NI System Operator and available for the entire year, the number of times it activated was significantly less than the previous year.
The GB Operator only ‘armed’ the ancillary service for a couple of very short periods. Nonetheless, CSUP amendments have us better equipped to offer what the system operators might require by way of ancillary service going forward.
Asset Management
The CSUP has been a major focus for Moyle since 2018, the control and protection hardware was obsolete, with support becoming ever more challenging. Reliability was also at risk, as failure modes began to emerge within the aging equipment.
The refurbishment project, which was delivered on time and within budget (project and outage costs), provided enhanced redundancy (and hence reliability), more resilience against fast-changing transmission networks, and more sophisticated ancillary services. Further information on the project is included in the CSUP feature on page 8.
Aside from CSUP, work is ongoing to ensure that reliability is maintained across all Moyle’s sub-components. During the year, new chillers were installed; these maintain constant temperature in the control rooms, providing the ideal environment for electronic equipment to operate reliably. The new chillers also bring a significant energy saving.
1 DS3 Delivering a Secure, Sustainable System - the SONI/EirGrid programme to enable high penetration of renewables on the electricity transmission system.
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Moyle Interconnector (Financing) plc8
Strategic report for the year ended 31 March 2023 (continued)
Asset Management (continued)
Moyle’s metering systems were also upgraded; these provide critical operational data to the System Operators in Northern Ireland and Great Britain. The year ahead will see another obsolescence issue addressed, with the replacement of the original fire detection and control systems.
A submarine inspection of the underwater lengths of Moyle cable systems was carried out. This external inspection uses cameras and acoustic technology to ensure the cables remain buried to the targeted depth of burial in the seabed to minimise the risk of damage by fishing or anchoring activities. The burial was confirmed as effective across the entire length of the cable corridors.
Financial performance
The electricity business has two types of revenue sources: i) commercial revenues from contracts with electricity market participants and operators; and ii) revenues from the tariff mechanism (charged by SONI, the System Operator for Northern Ireland, to electricity suppliers and passed through to Moyle Interconnector Limited).
Commercial revenues
Market arrangements are typically in an ongoing state of flux and the business is required to adapt to the changes resulting from system operator and regulatory initiatives, refinement of market rules, and latterly, the arrangements driven by Brexit. The Integrated Single Electricity Market (‘I-SEM’) arrangements were only introduced in September 2018 and already these have changed significantly with the removal of day-ahead market trading (and as a result of this, the cessation of selling Financial Transmission Rights) between GB and the SEM upon Brexit.
These are likely to change again, with new arrangements provided for the Trade and Cooperation Agreement between the UK and EU and the reintroduction of long-term transmission rights also currently under consideration.
Control System Upgrade Project (CSUP)
The Mutual Energy Group has completed a state-of-the-art refurbishment of the Moyle Interconnector’s control system, ensuring the high voltage direct current (HVDC) electricity link between Scotland and Northern Ireland is well equipped for the future, improving security of supply for Northern Ireland energy users.
The upgrade will help ensure the Moyle Interconnector continues to deliver safe, reliable and secure operation for years to come. Newly improved controls have been installed, as well as new communications and operator interfaces, all with advanced cyber protection.
Work started on the project over four years ago, with two years of design and manufacturing followed by a year of testing of the new equipment during 2021 in the test laboratory in Germany, with thousands of test cases being carried out, all underpinned by many thousands more desktop studies, which informed the tuning of the controls. Equipment was moved to site early in 2022, with outages starting in May, and final commissioning taking place in mid-September 2022.
The project, which was delivered on time and within budget (project and outage costs), delivered enhanced redundancy (and hence reliability), more resilience against fast-changing transmission networks, and more sophisticated ancillary services.
A further key deliverable was the implementation of a replica control system at The National HVDC Centre in Scotland. This Ofgem-backed facility allows high fidelity simulation of the electricity grids and will ensure that cyber security enhancements or software improvements can be tested before application on the operational control system. This replica means we can avoid the need to take the interconnector out of service for longer than is absolutely required and minimises the risk of changes having unintended consequences and impacting performance.
This upgrade enhances the operation and functionality of Moyle, ensuring the interconnector remains fully equipped to deliver electricity between Scotland and Northern Ireland and provide valuable services to help the electricity system operators in NI and GB manage the electricity network effectively.
Moyle Interconnector (Financing) plc9
Strategic report for the year ended 31 March 2023 (continued)
Commercial revenues (continued)
Within commercial revenues there are three distinct streams:
•Auction revenue/market difference revenue: Electricity is scheduled to flow automatically from the lower priced system to the higher priced system, and Moyle generates revenue related to this price difference. Prior to Brexit, for the majority of capacity, Moyle sold on to market participants the right to this market difference revenue via forward auctions.
From 1 January 2021 all of these auctions ceased and Moyle retains the value of the price difference between the two markets for the volume of energy flowed. Pre-Brexit these flows were mostly in the day ahead market, but from 1 January 2021 the SEM interconnectors no longer participate in the day ahead market, operating exclusively in the intra-day market instead.
•System services: Moyle has historically provided a level of basic system services to the Irish and GB electricity systems, but as the need to accommodate more non dispatchable renewable energy has increased, so too have the requirements of those systems for more complex services. This has led to greater revenue flows for these enhanced services. Competition from new technologies in system services markets is likely to result in a reduction in this revenue in future, and we have seen this in GB already, but this may be balanced if the interconnector can expand the range of services it offers and if more system services markets become open to interconnector participation.
•Capacity market revenue: This revenue stream recognises Moyle’s contribution to security of supply on both islands with payments from both GB and SEM markets. Moyle receives significant additional revenue from these markets, but penalties are potentially very high in the SEM where there is non-performance at a time of system stress. The UK government is also considering proposals to strengthen the GB capacity market’s penalty regime.
Moyle has seen a significant variation in the commercial revenue flows in recent years, with more income originating from services provided to the system operators and capacity market revenue. More recently, high gas prices and energy market volatility have resulted in market difference revenue being the primary revenue stream. In the short term, we have seen this revenue return to more typical levels as gas prices recede and longer-term, we expect capacity market revenue to become more important as low marginal cost generation becomes more abundant.
The following charts show the evolution of the commercial revenue streams over the last four years:
We are currently in dispute with SONI over compensation for periods where they restrict use of the Moyle Interconnector. These restrictions occur on most days and adversely impact the ability of the interconnector to earn revenue. To resolve the dispute we have initiated an arbitration process and compensation under this claim has been recognised within auction and related revenue. Included within auction and related revenue for 2023 is an amount of €11,422,000 (£9,817,000 Sterling equivalent) (2022: €12,062,000 (£10,239,000 Sterling equivalent)) which remains due from SONI in relation to capacity constraints imposed by SONI against Moyle Interconnector Limited during the period from September 2021 to March 2023. Further information on the judgements in respect of this revenue can be found within critical accounting estimates and judgements on pages 45 and 46.
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Moyle Interconnector (Financing) plc10
Strategic report for the year ended 31 March 2023 (continued)
Tariff mechanism revenue
The charges through the tariff mechanism are known as the Collection Agency Income Requirement (CAIRt). No CAIRt charge was made for the 2022/23 electricity year, being 12 months to 30 September 2023 (year to 30 September 2022: £Nil). Pages 11 and 12 provide more explanation of our historic use of reserves to waive CAIRt calls in order to deliver savings to consumers over the life of the asset and on our utilisation of cash reserves to assist energy customers via an adjustment to the tariff.
Compliance with key debt covenants remains core to maintaining investor confidence and the Annual Debt Service Cover Ratio (ADSCR) for the business remained strong.
Moyle Interconnector’s ADSCR for the year was 4.78 due to continued strong revenues under the new market arrangements.
Future Development
High levels of interconnection are widely accepted as a key enabler of the energy transition, allowing networks to facilitate more intermittent renewable energy, which is exported when Northern Ireland has a surplus. During the year Moyle exports totalled 1.0TWh, mostly when there were high wind conditions, which was equivalent to c36.8% of the total wind generation in Northern Ireland.
Work is underway to maximise Moyle’s capacity through a number of workstreams. We are liaising with SONI on both near-term and longer term plans to make the full 500MW capability of Moyle available to SONI. In the near-term, this will involve SONI actively managing network constraints in Northern Ireland; in the longer term, SONI plan to revise our connection arrangement in Northern Ireland by laying two short sections of underground cable to link Moyle to the grid. These will provide ‘carefree’ 500MW capacity in both import and export directions (up from the current 450MW import and 400MW export) and are anticipated to be commissioned in 2026/27.
The possibility of accessing capacity beyond 500MW is also being considered. Work is underway with our cable and converter station suppliers to understand what additional capacity may be available within the existing assets, and how this could be made available to the System Operators.
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KPI 6: Moyle ADSCR
Moyle Interconnector (Financing) plc11
Strategic report for the year ended 31 March 2023 (continued)
Strategic objective: Deliver savings to current and future consumers over the life of the assets
Strategy on the use of cash reserves
The Mutual Energy Group’s overall strategy on the use of cash reserves is to:
(i) ensure the businesses have sufficient cash to run, and sufficient liquidity to deal with any cost shocks;
(ii) invest in assets which provide benefit to the Northern Ireland consumer; and
(iii) return cash to customers in a predictable manner, having reviewed forecasts for near term future business performance;
The UK and world energy markets have endured extreme volatility since late 2021. This upheaval has driven harsh price increases and has had a significant impact on many businesses and families. As Moyle has performed well during this period, the business was in a position to implement a sustained annual contribution to customers to try and alleviate some of the strain on consumers.
The company is implementing a five year plan and our ambition is threefold:
1)consistent contributions to general tariff reductions;
2)consistent direct help to the hardest hit customers; and
3)investment in energy transition costs to avoid these being placed on tariffs.
Whilst the quantum will be reviewed annually in light of business conditions to allow full consideration of our required cash reserves, the objective is to target savings to customers which are sustainable over a five year period. Following consultation with NIAUR and the Department for Communities we were pleased to enable a £3m reduction to general tariffs and a £3m contribution targeting vulnerable consumers through an emergency electricity relief scheme (see page 12). We continue to work with NIAUR to ensure these initiatives are continued in a predictable manner.
This direct contribution is in addition to the interconnector business continuing not to require use of system charges. In its operation to date Moyle has avoided collecting over £412m (2022: £335m) in use of system revenue it was otherwise entitled to collect. Whilst all initial modelling and expectations forecast commercial revenue to be minimal, the changing market conditions and active management of the auction and system services opportunities resulted in this being a major source of income, to the extent that it was possible to provide the considerable benefits of the interconnector to the Northern Ireland market for some time free of any use of system charge. No use of system charges have been applied to customers in the 2022/23 tariff year, or are proposed for the 2023/24 year.
There is also a further inherent saving provided to customers. The Mutual Energy Group requires a lower use of system charge in the first place because it has a low cost of capital. A way of measuring the benefit which will flow to consumers is to calculate the cost of capital savings for the Group compared to a Northern Ireland energy utility comparator (KPI 3). The chart below shows the annual savings in March 2023 prices over the last 5 years. Cumulative savings to 31 March 2023 have exceeded £190m (2022: £160m in March 2022 prices).
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Moyle Interconnector (Financing) plc12
Strategic report for the year ended 31 March 2023 (continued)
Mutual Energy Group’s contribution to an emergency electricity relief scheme
The surplus revenue generated in 2021/22 as a result of the top-class availability of the Moyle electricity interconnector enabled Mutual Energy to contribute £6m to help reduce Northern Ireland consumers’ energy costs and ease the burden caused by rising bills over the winter period. £3m was used to enable a general tariff reduction for all customers and £3m contributed to a support scheme for those living in fuel poverty, administered by the Bryson Charitable Group.
The contribution provided by Mutual Energy was directed in two ways. Firstly, it provided emergency electricity cost relief for low income households, enabling them to avert immediate crisis. In this aspect the scheme exceeded its targets, providing an
average of £200 per household emergency electricity relief to over 26,600 vulnerable customers in Northern Ireland against a target of 26,250.
The second target was to provide a range of longer-term interventions to tackle the root causes of fuel poverty in localities experiencing multiple deprivation. This part of the scheme supported approximately 4,000 people against a targeted 3,750. Interventions included support with energy efficiency measures, financial advice, essential skills and employment.
Bryson commissioned two independent researchers to undertake an interim evaluation of each of the two elements of the scheme, and its internal auditors to review controls:
•Emergency Electricity Relief was evaluated by Social Market Research, the same organisation used by the Consumer Council to evaluate the Department for Communities £2m Emergency Fuel Payment Scheme winter 2021-22. They reported that the scheme was highly effective in targeting and supporting vulnerable electricity consumers impacted by rising prices.
•The Longer-term Interventions were evaluated by Outcome Imps, led by Dr Helga Sneddon, an organisation used by Queen’s University Belfast, the Public Health Agency, Health and Social Care Trusts in Northern Ireland, and the Irish Government. Again, this review provided a positive report on the efficacy of the interventions.
We hope to be able to support these type of initiatives in a sustainable manner, so getting the most benefit from the money applied.
Moyle Interconnector (Financing) plc13
Strategic report for the year ended 31 March 2023 (continued)
Strategic objective: Take an active role in collaboration with key stakeholders in the acceleration of decarbonisation through interventions and investments which benefit Northern Ireland energy consumers
Given the nature of our business, a significant quantity of carbon emissions associated with the fuel we transport are recorded downstream of our operations when the fuel is ultimately used, therefore the facilitation of CO2 savings by others is the key contribution the Group can make to achieving net zero. Further information on our strategy, operations and governance arrangements with respect to climate related issues, as well as carbon emissions reporting, is included within Mutual Energy’s annual report.
The Group intends to specifically set targets to align with government policy. The 2021 Energy Strategy published by the NI Department for the Economy sets the framework for a series of action plans were due in 2022 and 2023. We aim to align with these plans once they are developed.
The business activities allow users of our assets to reduce their CO2 and measure the CO2 savings as outlined in the graph below (KPI 5). The facilitation of CO2 savings by others is the key contribution the Group can make to achieving net zero.
The direction of our efforts to facilitating replacement of higher CO2 emitting fuels with lower CO2 emitting fuels and transporting lower carbon energy, as measured by this KPI, will provide a benefit of many multiples the savings we can make in our own operational energy use.
Strategic performance on greenhouse gas reduction
A key factor to enable decarbonisation is the ability of system operators to balance the network and generators to respond flexibly to changes in renewable generation. Success is measured by the flexibility we will be able to supply our customers. In electricity this is the volume and type of services we provide to the grid (pages 7 -10).
Greening the existing networks
Whilst the action plans are still being developed, the core problem was neatly summarised by the Climate Change Committee advice report on Northern Ireland published in March 2023:
“Deployment of new renewable electricity generation is required at scale in Northern Ireland, with access to appropriate energy storage and decarbonised back-up solutions (e.g. gas turbines burning hydrogen manufactured from low-carbon sources) is needed to allow the carbon intensity of electricity generation to reduce significantly while ensuring that demand is met sufficiently reliably.”
We continue our work in advance of the government guidance. The use of electrolytic hydrogen is expected to be a key part of the solution to the fundamental problem of producing electricity when the wind production is low. During the year we completed our work for BEIS to explore the concept of the renewable energy → hydrogen conversion → hydrogen store → electricity from hydrogen cycle, along with our partners B9 Energy, Islandmagee Energy Storage and the Net Zero Technology Centre.
The work concluded that the project was technically sound, but key commercial and regulatory frameworks were missing to make it happen. There are no incentives for dispatchable electrical plant to be low carbon. We will continue working with industry
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KPI 5: CO2 savings
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Moyle Interconnector (Financing) plc14
Strategic report for the year ended 31 March 2023 (continued)
partners to develop the first part of this virtuous cycle, the creation of hydrogen from renewables. These practical examples will pinpoint the policy gaps and give evidence to allow the net zero plan for Northern Ireland to be developed.
In parallel to our initiatives to explore key options for dispatchable low carbon generation and storage, our electricity interconnector provides a core tool in managing the electrical system to accommodate intermittent generation such as wind and solar. In times of high wind in Ireland the wholesale electricity price tends to fall and the interconnectors tend to export to GB. When intermittent generation produces low levels of output, the wholesale price generally rises and the interconnectors tend to import power from GB, often essential to keeping the system operating.
This process consistently results in saving CO2 emissions. We use an outside party2 to provide data on the marginal emissions of the plant on the electrical systems in GB and in Ireland at any point in time, from which we can determine on an hour-by-hour basis the CO2 content and the effect the interconnector has.
Key highlights during the financial year include:
•120,000 tonnes of CO2 emissions avoided in the year due to the use of Moyle Interconnector to allow connected Transmission System Operators (‘TSOs’) to access cleaner generation in the neighbouring market
•36.8% of Northern Ireland’s electricity from wind generation exported by Moyle Interconnector (1.0TWh) allowing more wind energy to be produced and displacing higher carbon alternatives in GB
The Mutual Energy Limited annual report includes consolidated energy usage and emissions disclosures for the Mutual Energy Group as required under the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013 and Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018.
2 electricityMap, © tmrow.com
Moyle Interconnector (Financing) plc15
Strategic report for the year ended 31 March 2023 (continued)
Strategic objective: Manage market changes and regulatory developments to minimise risks to the Northern Ireland consumer
The most significant market development in the year has been the unprecedented high gas prices in Europe, primarily driven by the war in Ukraine and Europe’s drive to stop using Russian gas, and the knock-on effect on wholesale electricity prices. Moyle’s capacity has continued to be solely made available and implicitly allocated in intraday auctions which are held later in the day and see lower levels of participation than the day ahead auctions. These are fallback arrangements required as a result of Brexit. Despite being a fallback, these interconnector trading arrangements have functioned well again this year, aided by often large market spreads between the high electricity prices in the SEM and GB. This has led to Moyle generating very high levels of revenue from capacity allocation in the year. A continuing challenge has been that both GB and the SEM have experienced periods of tight generation margins leading to further upward pressure on prices. In the SEM that has led to Eirgrid/SONI often preventing Moyle from flowing power from Northern Ireland to GB. We are working to both reduce these restrictions and ensure they are properly compensated. On 15th March 2023 the SEM regulators began a consultation process with a view of providing regulatory direction on compensation arrangements going forward.
The EU-UK Trade and Cooperation Agreement optimistically envisaged alternative day ahead interconnector trading arrangements with GB being developed by April 2022 but this work stalled and is still ongoing. We continue to work with our fellow UK and EU TSOs to assess the options for improved day ahead trading arrangements with GB. In 2022/23 financial year the SEM regulators consulted on potential interim improvements to the current SEM-GB interconnector trading arrangements and have asked the SEM-GB interconnector owners to carry out an assessment for the implementation of Physical Transmission Rights on SEM-GB interconnectors. That assessment is underway but we expect any subsequent implementation to be a multi-year project.
The UK, Ireland and Northern Ireland, have set testing targets for levels of renewable energy as part of a drive towards achieving net zero carbon emissions. For this to happen the system operators require a suite of tools to manage the increasingly volatile balance of electricity generation and demand. In recent years on the SEM side Moyle is a major provider of system support services to Eirgrid/SONI as part of their DS3 system services initiative. The services required continue to develop, and we will work to ensure that the detailed design of any future arrangements provide for interconnector participation in order to deliver efficient outcomes for consumers. On the GB side, Moyle provides services through bespoke bilateral contracts with National Grid Electricity System Operator (ESO) which are being phased out in favour of a more competitive procurement process for standardised products. The current design for many of those products does not yet facilitate interconnector participation and we are liaising with National Grid ESO to try and remove the current barriers to interconnector participation, whilst simultaneously aiming to identify new products that we would be able to provide.
The coming years will see a number of new interconnector projects coming online between GB, SEM and continental Europe. As such, interconnectors will play an increasingly significant role in the SEM and GB markets. Whilst additional interconnectors could be seen as competition, they will lead to increasing price convergence which is good for consumers (although negative for interconnector revenues) and incentivise TSOs to ensure that their system services markets benefit from the presence of interconnector participation.
In the short term, we expect the Greenlink interconnector between SEM and GB to come online in late 2024 and have engaged in facilitating the new interconnector in the current market arrangements. In the longer term, we are starting to see the early-stage development of multi-purpose interconnectors (“MPIs”) which connect multiple markets to offshore wind farms and expect that facilitation of MPIs will come to play a significant part in the development of future interconnector trading arrangements.
The turbulence in energy markets during the year, and subsequent pressure on consumers bills, brought widespread scrutiny to electricity market arrangements and potential changes that could be made to protect consumers. The EU ran a fast-tracked consultation on a range of market reforms but the consultation concluded with a proposal to make a range of minor changes aiming to boost renewables, better protect consumers and enhance industrial competitiveness.
In July 2022 the UK government launched a consultation on its Review of Electricity Market Arrangements (“REMA”) which considers wholesale changes to the entire GB electricity market design. A key proposal contained therein is the option of locational marginal pricing, which would replace the single GB wholesale electricity price of today with a large number of locational prices. This is a hugely complex and consequential ongoing piece of work that we continue to monitor and engage with.
Moyle Interconnector (Financing) plc16
Strategic report for the year ended 31 March 2023 (continued)
Stakeholders, relationships and resources
The interests of Mutual Energy’s stakeholders are considered through interactions with shippers at shipper forums and through face-to-face meetings. Formalised reporting to and regular calls and meetings with financiers and rating agencies are carried out. Regular engagement is carried out with key contractors in line with each contract management plan. Meetings are held with the NI Consumer Council to ensure consumer interests are taken into consideration. More information on our stakeholders is set out below.
Customers, partners and contractors
Rather than individual end consumers, all Mutual Energy businesses supply to either the large gas shippers or electricity system operators and wholesale market participants in the energy markets. The System Operator for Northern Ireland (SONI) continues to oversee the operation and administration of the Moyle Interconnector, with Siemens plc undertaking the long-term maintenance of the electricity convertor stations.
Regulators and government departments
The Mutual Energy Group works closely with NIAUR and the Department for the Economy (DfE), where appropriate, to ensure that the interests of Northern Ireland’s energy consumers are protected. Following the publication of DfE’s Energy Strategy in December 2021 the Group continues to work with the Department to determine how Mutual Energy can assist with this move towards a low carbon environment.
Bondholders and financiers
The Directors are very conscious of their obligations to the bondholders and noteholders in the finance documents. In addition to complying with their other reporting obligations, they make available to financiers copies of the Annual Report. Our key financiers for Moyle are Assured Guaranty UK Limited as controlling creditor and the Bank of New York Mellon as trustee.
Staff
The Mutual Energy Group is committed to maintaining a high quality and committed workforce. Our vision is to have an innovative corporate culture and employees who will look to constantly improve all aspects of the business to achieve the corporate strategy.
The Mutual Energy Group employs a personal performance evaluation system with assessment of targets and training needs to encourage performance. Succession planning is periodically reviewed by the Board. Remuneration is linked to performance throughout the organisation.
Employee diversity
The Mutual Energy Group recognises the importance of diversity amongst its employees and is committed to ensuring that employees are selected and promoted on the basis of merit and ability, regardless of age, gender, race, religion, sexual orientation or disability.
The Mutual Energy Group have recently engaged with Diversity Mark and established a Diversity Mark Charter showing a commitment to advancing diversity and inclusion in the workplace. The accreditation process will begin during the 2023/24 financial year.
The gender split across the Mutual Energy Group and the Moyle Interconnector Group as at 31 March is illustrated in the table below:
Mutual Energy
Moyle Interconnector
2023
2022
2023
2022
Male
Female
Male
Female
Male
Female
Male
Female
Board
6
1
7
1
2
-
2
-
Senior Management
8
1
8
1
3
-
3
-
All employees & Board
30
11
29
10
11
-
10
-
Moyle Interconnector (Financing) plc17
Strategic report for the year ended 31 March 2023 (continued)
Stakeholders, relationships and resources (continued)
Social, community and human rights issues
The Mutual Energy Group has a fundamental community focus through its purpose: to own and operate energy infrastructure in the long-term interest of energy consumers in Northern Ireland. This is also reflected through all of our strategic objectives which include cost effective operation to deliver savings and minimise risks of market change to Northern Ireland consumers. More information on how the Group delivers these objectives can be found on pages 2 to 15.
The Mutual Energy Group also continues to consider its impact on the environment and remains committed to reducing our energy consumption and related emissions where possible, as well as reducing our wider impacts such as resource use and waste to landfill. The Mutual Energy Group ensures robust Health & Safety systems are in place as discussed on page 21, for the benefit of employees, contractors and the wider public.
We comply with the Employments Rights Act, Modern Slavery Act and all other applicable UK law as an absolute minimum and recognise the importance of treating all of our employees fairly.
We are committed to conducting business in an honest and ethical manner and act according to our Code of Ethics, which is integral to our business and sets out a range of principles we adhere to. We do not tolerate bribery or corruption of any kind and are committed to acting professionally, fairly and with integrity in all our business dealings and relationships.
The Mutual Energy Group is a member of Business in the Community and continues to explore options for positive improvements to our environment, community and workforce.
Business in the Community initiatives – Sustainable September and Children’s Book Drive
Throughout the year the Mutual Energy Group participated in a number of programmes organised by Business in the Community. As part of ‘Sustainable September’ employees donated items no longer used or needed and these were collected and distributed to four local charity shops. It was a campaign that highlighted the benefits of reducing waste whilst supporting local charities.
Additionally, as part of World Book Week in February, we gathered and donated new and previously owned books for children. These were then donated to local primary schools, providing new reading resources.
Moyle Interconnector (Financing) plc18
Strategic report for the year ended 31 March 2023 (continued)
Risk management
Risk management is overseen by Mutual Energy on behalf of the whole Mutual Energy Group, with Moyle staff involved in the process. The Mutual Energy Group’s risk process was revised during 2021/22 to ensure that risk appetite is more clearly defined and that risk assessment is fully embedded throughout all areas and levels of the business, ensuring effective risk management. The revised process is now well established and has improved risk management across the business.
Risk management structure
The Mutual Energy Board approves the overall risk management process and the Audit and Risk committee approves all the policies covered by the framework. The new process ensures that people at all levels of the Group feed into the risk assessment process. Staff from each business function meet quarterly to identify and assess the risks faced and the functional risk registers produced at these meetings are then shared with senior management. Senior management also meet quarterly to identify strategic risks, taking into consideration the functional risks reported.
Strategic risks are reported to the Asset Oversight Committee and Audit and Risk Committee at least twice yearly, with an annual review of these also being carried out by the Board.
Responsibility for ensuring compliance with the policies is delegated to the Audit and Risk Committee who delegate asset-related risks (including Health & Safety) to the Asset Oversight Committee. The Moyle Control System Upgrade Subcommittee was responsible for managing the risks of the Control System upgrade until substantive project completion. The Asset Oversight Committee reports to the Audit and Risk Committee after each meeting. The Moyle Control System Upgrade Subcommittee reported to the Board as appropriate.
Assessment of risk was carried out, throughout the year ended 31 March 2023 and up to the date of approval of the annual report and financial statements, in line with the risk process in effect at that time.
Control is maintained through a management structure with clearly defined responsibilities, authority levels and lines of reporting; the appointment of suitably qualified staff in specialised business areas; a comprehensive financial planning and accounting framework and a formal reporting structure. These methods of control are subject to periodic review as to their continued suitability.
Mutual Energy’s Board, Audit and Risk Committee, and Asset Oversight Committee review the risk registers regularly and consider the approach to risk recording, management, and mitigation and how this remains appropriate in the current market environment. The Board, during its annual review of the effectiveness of the Group’s internal control and risk management systems, did not identify, nor was advised of, any failings or weaknesses which it has determined to be significant.
The Mutual Energy Group’s system of internal control is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable, and not absolute, assurance against material misstatement or loss. The principal risks of the Mutual Energy Group are set out on the next page.
Moyle Interconnector (Financing) plc19
Strategic report for the year ended 31 March 2023 (continued)
Risk management (continued)
Operational risk
The risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. The risk encompasses internal failures, such as poor processes or insufficient or untrained staff, and external actions such as cyber threats, or 3rd party accidental or malicious actions which restrict the ability of our assets to operate, either physically or commercially.
Risk description and potential impact
Mitigations and actions taken
Risk trend
Ineffective processes, procedures or management of third party activities enable ignorant or negligent third parties to cause catastrophic failure of the cables onshore or offshore leading to unavailability of Moyle, costly and lengthy repairs and reputational damage.
Experienced qualified maintenance subcontractors are used and are managed through the contractual process, frequent performance monitoring, and maintaining a high standard of eligibility for tendered work. As part of this process, we require the contractors to work under a set of processes and procedures which enable us to manage the associated risks of the networks.
Reliance on 3rd Parties to supply business critical services can result in counterparty risk. Exposure to a limited number of counterparties interested in providing services could lead to uncompetitive pricing.
Contract management plans are in place which identify key deliverables and ensure regular reporting and meetings with contractors. Due diligence is performed where required to ensure financial stability. Termination rights and exit planning are in place where appropriate.
Health & safety risk: Failure to maintain robust and effective health and safety practices, or failure to identify and manage wellbeing in the workforce may lead to injury to staff, contractor or public or have an adverse impact on the organisation’s operations.
A Health & Safety policy, management system, and plans are in place which are reviewed annually. Risk assessments, method statements, audits, inspections and training are regularly performed. This risk reduced during the year due to the completion of a number of major projects.
People and HR risk: The failure to effectively manage talent, ensure appropriate training and resourcing, retain and motivate competent staff and plan for leadership succession could impede the realisation of strategic objectives.
The business operates a performance-based culture with competitive pay and conditions benchmarked against the market, engaging closely with staff and utilising performance management and development programmes and succession planning. Human Resources policies are in place, the operation of which mitigate risks in this area.
Business continuity risk: One-off events or public health emergencies, epidemics or pandemics, have the potential to significantly impact the Group's operations through a fall in demand for the Group's products/services, a reduction in staff availability and business interruption.
Risks associated with long term weather, or ground condition, flooding etc associated with climate change are included in this risk.
A business continuity plan is in place, with key tasks identified and more than one individual trained in each. This system has been thoroughly tested and is proven to work well.
IT and cyber risk: The Group is dependent on information and operational technology systems to support its business activities. Any significant operational event, whether caused by external attack, insider threat or error, could lead to loss of access to systems or data, adversely impacting business operations across both the Information Technology and Operational Technology networks.
A business continuity plan is in place with resilient infrastructure and disaster recovery environments available. A Cyber Security Policy is in place along with access security and protocols. Penetration testing is carried out at regular intervals. The business liaises with the National Centre for Cyber Security and the Centre for the Protection of National Infrastructure and utilises security consultants as required.
Moyle Interconnector (Financing) plc20
Strategic report for the year ended 31 March 2023 (continued)
Risk management (continued)
Financial risk
The risk of failing to safeguard the organisation’s assets, financial impropriety or financial misreporting. Inadequate financing, liquidity problems, non-compliance with covenants, market changes or failure of counterparties could lead to failure of financial structure. It includes fraud risk which is seen as the risk of internal or external fraud leading to financial loss, service disruption and reputational damage.
Risk description and potential impact
Mitigations and actions taken
Risk trend
Poor financial management could result in breach of financing covenants, compliance failure or financial loss.
Controls are in place which cover authority limits, budgeting and financial processes and the overall governance structure. A strict ring back process is in place to verify payee changes.
Inadequate financing, liquidity problems, non-compliance with covenants, market changes or failure of counterparties could lead to failure of financial structure.
Financing costs from borrowing arrangements are fully recovered through income allowances reducing the Group’s exposure to inflation risk. Processes are in place to monitor covenant compliance and there is active management of market changes. Treasury policies are aimed at minimising the risks associated with the Mutual Energy Group’s financial assets and liabilities and financial counterparty failure clauses are included in financing documents. The Group has low liquidity risk due to its strong cash flows and the reserve accounts and liquidity facilities required by its financing documents. The required reserve accounts remain fully funded and £10m of liquidity facilities were in place throughout the year. Business planning processes are in place to identify cash requirements in advance.
Business environment and market risk
The risk to the organisation of potentially failing to meet its objectives following significant changes or negative events within the external environment in which it operates. Examples of external risk include but are not limited to: sectoral risks such as Brexit; the impact of global factors and market conditions such as economic slowdown; external political environment or ‘global shocks’ such as terrorist attacks; extreme weather events, third party damage to assets etc.
Risk description and potential impact
Mitigations and actions taken
Risk trend
Market changes for electricity in Northern Ireland could result in reduced volumes transported through the assets, insufficient revenue recovery, default on debt, damage to reputation of mutual model or fines.
Longer term the market changes could be driven by climate change and net zero targets.
Licence provisions implementing a collection agency agreement in the electricity business are designed to offset the impact of such changes. An influencing strategy is in place to positively impact market developments. Recent and future market development are discussed on page 15. Risk has increased in the period due to the need for market changes to meet decarbonisation targets and the ongoing SONI dispute as discussed on page 9.
Political and regulatory risk
Risks driven by regulatory or political attitudes to the industry generally or the Mutual Energy Group in particular.
Risk description and potential impact
Mitigations and actions taken
Risk trend
As the Group consists primarily of regulated businesses it is exposed to regulatory risk. Changes in economic regulation or government policy could have an adverse impact on our financial position.
The Group’s relationships with NIAUR and DfE are managed at senior level through frequent meetings and correspondence in line with the Group’s communication strategy. The Group coordinates with other EU system operators on EU issues. A proactive approach is taken to consultations on any issue which could affect the Group’s business interests, with legal advice sought where appropriate.
As the Group is subject to growing number of laws and regulations, the cost of compliance or the failure to comply with current and future laws/regulations may negatively affect the Group’s business and our financial position.
There is a full suite of processes in place to ensure compliance. Our asset management systems and Health and Safety management and environmental systems are essential in ensuring legislative compliance.
Moyle Interconnector (Financing) plc21
Strategic report for the year ended 31 March 2023 (continued)
Risk management (continued)
Corporate strategy and communication risk
The risk associated with failure to achieve the strategic and business objectives. Inadequate corporate strategy and communication with external stakeholders could result in reputational damage, regulatory action, loss of support from members or lost growth opportunities.
Risk description and potential impact
Mitigations and actions taken
Risk trend
Inadequate corporate strategy and communication with external stakeholders could result in reputational damage, regulatory action, loss of support from members or lost growth opportunities.
The Mutual Energy Board retains responsibility for strategy as a reserved matter and manages communications directly in line with its communication plan, using outsourcing as appropriate. A member of staff has been appointed to have oversight of the day-to-day operation of Group communications and management of the external consultant.
Risk of failure to develop brand and reputation to successfully deliver on strategic objectives.
The key control in this area is the communications plan and Board’s involvement in this. As part of the execution of the current communications plan, there has been extensive recent engagement with the relevant politicians.
Failure to prepare for energy transition and/or inadequate operating model to support the energy transition could result in significant financial, operational and reputational impacts.
The Mutual Energy Group’s decarbonisation strategic objective ensures the Board’s cycle of strategy evaluation and business planning gives explicit regard to energy transition. This, along with investment in an energy transition staff, seeks to involve the business as much as possible in future developments and manage the risk in this area.
Project delivery risk
The risk of an event or occurrence that may negatively impact on the delivery of a project. This could be as a result of poor contracting or management, insufficient resources or extreme weather could cause project delays resulting in financial losses, reputational damage, and damage to assets or loss of availability.
Risk description and potential impact
Mitigations and actions taken
Risk trend
Poor contracting or management, insufficient resources or extreme weather could cause project delays resulting in financial losses, reputational damage, damage to assets or loss of availability.
The Group’s main project, the Control System Upgrade, was completed during the year, reducing the risk. This project had been overseen by the Moyle Control System Upgrade Subcommittee, with sufficiently qualified and trained resources in place throughout the governance structure. Controls are project specific, but centre round project execution plans and project governance arrangements for each project. Contractors are closely monitored and stakeholder engagement plans and insurance are in place.
Health, Safety and Wellbeing
The Mutual Energy Group continues to put a high value on the Health and Safety of its operations and the wellbeing of the staff is considered extremely important to the business.
The Mutual Energy Group has a comprehensive Health and Safety Management System (HSMS) which is based on HSE’s HSG 65 ‘Successful Health and Safety Management’ and the revised joint Institute of Directors / Health & Safety Executive guidance “Leading Health and Safety at Work”. HSG 65 was substantially revised in December 2013 and re-titled ‘Managing for Health and Safety’ and is now based on the “Plan, Do, Check, Act” approach which achieves a balance between the systems and behavioural aspects of management. It also treats Health and Safety management as an integral part of good management generally, rather than a stand-alone management system. In addition, the Mutual Energy Group has incorporated a number of wellbeing strategies into the Health and Safety Management System.
A Royal Society for the Prevention of Accidents (RoSPA) Quality Safety Audit was carried out in 2021, with an improvement having been obtained on the already strong result from the previous audit in 2018/19. A plan to deliver the recommendations and further considerations was put into place to progress any further improvements identified.
The Mutual Energy Group is committed to good environmental performance and holds under review its policies and strategies to monitor and deliver on this commitment, in the context of shifting societal awareness and priority on improving environmental performance. No breach of any environmental licence or permits were recorded in the year.
Moyle Interconnector (Financing) plc22
Strategic report for the year ended 31 March 2023 (continued)
Forward-looking statements
The Chair’s statement and Strategic report contain forward-looking statements. Due to the inherent uncertainties, including both economic and business risk factors underlying such forward-looking information, the actual results of operations, financial position and liquidity may differ materially from those expressed or implied by these forward-looking statements.
By order of the Board
Gerard McIlroy
Director
26 June 2023
Moyle Interconnector (Financing) plc23
Directors’ report for the year ended 31 March 2023
The directors present their annual report and the audited financial statements of the Group and Parent Company for the year ended 31 March 2023.
General information on the Company can be found on page 1 and within note 1 to the financial statements.
Results and dividends
The Group’s profit for the financial year is £22,736,000 (2022: £25,162,000). The directors do not recommend the payment of a dividend (2022: £nil).
A review of our operational and financial performance, research and development activity, current position and future developments is included in our Strategic report and this is included in this report by cross-reference.
Directors
The directors, who served the Group during the year, and up to the date of signing the financial statements, were:
Patrick Larkin
Gerard McIlroy
Going concern
The Group is cash generative and is forecast to remain cash positive. The forecast cash generated is adequate to meet the Group’s liabilities as they fall due over the 12 months from the date of approval of the financial statements, including the scheduled bond payments, and to comply with financing covenants, including the required Annual Debt Service Cover Ratio. Reserve accounts are fully funded and £10m of liquidity facilities are in place. Accordingly, the directors consider it appropriate to adopt the going concern basis in the preparation of the financial statements.
Financial risk management
Please refer to note 23 to these financial statements for a description of the financial risks that the Group faces and how it addresses those risks.
Post balance sheet events
There were no subsequent events that need to be brought to the attention of the users of the financial statements.
The Company is subject to and complies with UK law comprising the Companies Act 2006 and the Disclosure and Transparency Rules, and the Listing Rules of the UK Listing Authority. The Company does not apply additional requirements to those required by the above. Each of the service providers engaged by the Company is subject to their own corporate governance requirements.
The directors are responsible for establishing and maintaining adequate internal control and risk management systems of the Company in relation to the financial reporting process. Such systems are designed to manage rather than eliminate the risk of failure to achieve the Company’s financial reporting objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board has established processes regarding internal control and risk management systems to ensure its effective oversight of the financial reporting process.
For further details, refer to the notes to the financial statements, particularly note 23 on financial risk management.
Moyle Interconnector (Financing) plc24
Directors’ report for the year ended 31 March 2023 (continued)
Political contributions
Neither the Company nor its subsidiary have any political donations or incurred any political expenditure in the year (2022: £nil).
Streamlined Energy & Carbon Report
Mutual Energy Limited, the ultimate parent undertaking, reports energy and carbon information on behalf of the entire Mutual Energy group, including the Group and Company. This information can be found in Mutual Energy’s Strategic Report within their Annual Report.
Other information
Statement of directors' responsibilities in respect of the annual report and the financial statements
The directors are responsible for preparing the annual report and the Group and Parent Company financial statements in accordance with applicable law and regulations.Company law requires the directors to prepare Group and Parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with UK adopted international accounting standards and applicable law, and have elected to prepare the Company financial statements on the same basis.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 Group and Parent Company and of their profit or loss for that period. In preparing the Group and Company financial statements, the directors are required to:
•select suitable accounting policies and then apply them consistently;
•make judgements and estimates that are reasonable, relevant and reliable;
•state whether applicable Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;
•assess the Group and Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and
•use the going concern basis of accounting unless they either intend to liquidate the Group or Company or to cease operations, or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting records that 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 its financial statements comply with the Companies Act 2006. They are responsible for such internal controls as they determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements and other information included in the Directors report may differ from legislation in other jurisdictions.
Under applicable law and regulations, the directors are also responsible for preparing a strategic report, directors’ report, and Corporate Governance Statement that complies with that law and those regulations.
Moyle Interconnector (Financing) plc25
Directors’ report for the year ended 31 March 2023 (continued)
Responsibility statement of the directors in respect of the annual financial report
Each of the Directors, whose names and functions are listed on page 1 of this annual report, confirm that, to the best of each person’s knowledge and belief:
•the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
•the strategic report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
Auditor
In accordance with section 489 of the Companies Act 2006, a resolution for the re-appointment of Grant Thornton (NI) LLP as auditor of the Company is to be proposed at the forthcoming Annual General Meeting.
Statement of disclosure of information to auditor
So far as each of the directors in office at the date of approval of these financial statements is aware:
•there is no relevant audit information of which the Group and Company’s auditor is unaware; and
•they 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 Group and Company’s auditor is aware of that information.
On behalf of the Board
Director
First Floor
The Arena Building
85 Ormeau Road
Belfast
BT7 1SH
Independent auditor’s report to the members of Moyle Interconnector Financing plc
26
Report on the audit of the financial statements
Opinion
We have audited the financial statements of Moyle Interconnector Financing plc (“the Company”) and its subsidiary (“the Group’’), which comprise the Consolidated statement of profit and loss and other comprehensive income, the Consolidated and Parent Company balance sheet, the Consolidated and Parent Company statement of changes in equity and the Consolidated and Parent Company cash flow statements for the year ended 31 March 2023, and the related notes to the financial statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and accounting standards including UK-adopted international accounting standards (UK-adopted IAS).
In our opinion, Moyle Interconnector Financing plc’s financial statements:
•give a true and fair view in accordance with UK-adopted IAS of the financial position of the Group and the Company as at 31 March 2023 and of the Group financial performance and the Group and Parent Company cash flows for the year then ended; and
•have been properly 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 ‘Responsibilities of the auditor for the audit of the financial statements’ section of our report. We are independent of the Group and Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the United Kingdom, including the FRC’s Ethical Standard and the ethical pronouncements established by Chartered Accountants Ireland, applied as determined to be appropriate in the circumstances for the entity. 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 going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the validity of the directors’ assessment of the Group and Company’s ability to continue to adopt the going concern basis of accounting included:
•We assessed and challenged the key assumptions used by management in prospective financial information, namely budgets and forecasts which covered at least 12 months from date of approval of the
Independent auditor’s report to the members of Moyle Interconnector Financing plc
27
financial statements. In particular we carried out an analysis on the key assumptions within the model to determine the level of working capital head room available for the Group under normal trading conditions;
•We compared budgeted financial results to actual financial results for the current year to critically assess management’s point of estimate;
•We inspected the financing agreement from the lender of the level of committed financing, and the associated covenant requirements where applicable; and
•We inspected the financing agreement to assess the restriction on the use of funds and compared these with the restrictions to management’s model.
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 Group and Company’s ability to continue as a going concern for a period of at least twelve months from the date when the financial statements are authorised for issue.
We have nothing material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Independent auditor’s report to the members of Moyle Interconnector Financing plc
28
Emphasis of matter – recoverability of unpaid revenue amounts in relation to imposed capacity constraints
We draw attention to note 12 to the financial statements concerning the recoverability of unpaid revenue amounts in relation to imposed capacity constraints. The Directors have recognised the amounts in full within the financial statements on the basis it is more likely than not that these amounts will be recovered. Our opinion is not modified in respect of this matter.
Other matter
The financial statements of Moyle Interconnector Financing plc for the year ended 31 March 2022, were audited by KPMG who expressed an unmodified opinion on those statements on 1 July 2022.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current financial period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and the directing of efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and therefore we do not provide a separate opinion on these matters.
Overall audit strategy
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. We also addressed the risk of management override of internal controls, including evaluating whether there was any evidence of potential bias that could result in a risk of material misstatement due to fraud.
Based on our considerations as set out below, our areas of focus included:
•Valuation of intangible assets;
•Valuation of investment in subsidiary; and
•Valuation of fixed assets.
How we tailored the audit scope
The Group has one operating segment being the the operation of the Moyle Interconnector which links the electricity transmission systems of Northern Ireland and Scotland. We tailored the scope of our audit taking into account the areas where the risk of misstatement was considered material to the Group and Company, taking
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into account the nature of the Group and Company’s business and the industry in which it operates. We performed an audit of the complete financial information of the Group’s component. Components represent business units across the Group considered for audit scoping purposes.
In establishing the overall approach to our audit, we assessed the risk of material misstatement at a Group and Company level, taking into account the nature, likelihood and potential magnitude of any misstatement. As part of our risk assessment, we considered the control environment in place at Moyle Interconnector Financing plc.
Materiality and audit approach
The scope of our audit is influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, such as our understanding of the entity and its environment, the history of misstatements, the complexity of the Group and Company and the reliability of the control environment, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the Group financial statements as a whole to be £629k (2022: £2,330k) for the year ended 31 March 2023, determined as being 0.25% of total assets (2022: 1%). We have applied this benchmark because the main objective of the Group is to operate the Moyle Interconnector and associated assets, and to repay loans used to purchase the assets which serve the principal activity of the business.
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Materiality and audit approach (continued)
We have set Performance materiality for the Group at 60% of materiality, being £377k (2022: £1,748k), having considered the risk of misstatements in prior years, business risks and fraud risks associated with the entity and it’s the control environment. This is to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements in the financial statements exceeds materiality for the financial statements as a whole.
We agreed with the Audit and Risk Committee that we would report to them misstatements identified during our audit above 5% of overall Group materiality.
Based on our professional judgement, we determined materiality for the Parent Company financial statements as a whole to be £184k (2022: £740k) for the year ended 31 March 2023, determined as being 0.25% of total assets (2022: 1%). We have applied this benchmark because the main objective of the company is to operate the Moyle Interconnector asset and to repay loans used to purchase the assets which serve the principal activity of the business.
We have set Performance materiality for the Parent Company at £46k (2022: £555k), having considered the risk of misstatements in prior years, business risks and fraud risks associated with the entity and it’s the control environment. This is to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements in the financial statements exceeds materiality for the financial statements as a whole.
We agreed with the audit committee that we would report to them misstatements identified during our audit above 5% of overall Parent Company materiality.
Significant matters identified
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are set out below as significant matters together with an explanation of how we tailored our audit to address these specific areas in order to provide an opinion on the financial statements as a whole. This is not a complete list of all risks identified by our audit.
Valuation of intangible asset (Group) £23m (2022: £25m)
Description of significant matter
Our audit approach
There is a risk that the intangibles held by the Group are not carried at their realisable value on
Our procedures included, but not limited to:
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the statement of financial position, in line with the requirements of UK-adopted IAS. The Group has intangible assets of £18m which were created in the consolidation of the Parent and the Subsidiary undertaking. The carrying value of these intangible assets are material to the user of the financial statements.
Significant auditor’s attention was deemed appropriate because of the materiality of the intangible assets. The recoverability of the carrying value the Group’s intangible assets are supported by the overall performance of the business, including consideration of prospective information.
Impairment is considered annually at the reporting date by the directors.
As a result, we considered this to be a key audit matter.
Information on the intangible asset can be found in note 8 to the financial statements.
•Obtaining an understanding of the license, and direction with the Group’s regulator. The license allows the Group to operate the electricity network;
•Obtaining financial projections of the Group and critically assessing the key assumptions made by the directors in respect of predicting the expected revenue receipts and costs incurred for the remaining life of the license;
•Reviewing and challenging the assumptions regarding the remaining useful economic life of the licence, and assessed the accuracy of the closing balance and amortisation charged in the year;
•Assessing the level of headroom available between the projected discounted surplus at the end of the life of the license and the carrying value of the license; and
•Reviewing the accounting treatment and associated disclosures in the financial statements for conformity with the requirements of UK-adopted IAS.
We completed our planned audit procedures, with no exceptions noted.
Valuation of investment in subsidiary undertaking (Parent Company) £21m (2022: £21m)
Description of significant matter
Our audit approach
The Parent Company has an investment in a subsidiary undertaking of £21m. There is no observable market price quoted for this investment. There is a risk that the investment held by the Parent Company is not carried at realisable value on the statement of financial position, in line with the
Our procedures included, but not limited to:
•Obtaining an understanding of the underlying investment in the subsidiary and how this links to the overall performance of the Group;
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requirements of UK-adopted IAS.
Significant auditor’s attention was deemed appropriate because of the materiality of the investment. The recoverability of carrying value the Parent Company’s investment is supported by the overall performance of the business, including consideration of prospective information.
Impairment is considered annually at the reporting date by the directors.
As a result, we considered this to be a key audit matter.
Information on the investment can be found in note 9 to the financial statements.
•Obtaining financial projections for the subsidiary and Group and critically assessing the key assumptions made by the directors in respect of predicting the expected revenue receipts and costs; incurred for the remaining life of the assets;
•Assessing the level of headroom available between the projected discounted surplus at the end of the life of the subsidiary’s assets and the carrying value of the investment in subsidiary; and
•Reviewing the accounting treatment and associated disclosures in the financial statements for conformity with the requirements of UK-adopted IAS.
We completed our planned audit procedures, with no exceptions noted.
Valuation of tangible assets (Group)
Description of significant matter
Our audit approach
The Subsidiary Company revised its estimate of the useful life of the Interconnector assets during the year ended 31 March 2023. This estimate determines the carrying value of the tangible assets, which amounted to £76m at the year end. There is a risk that the interconnector assets are not held at realisable value on the statement of financial position, in line with the requirements of the UK-adopted IAS.
The previous useful life of the assets were assessed to be 30 years. The revised useful life of the assets
Our procedures included, but not limited to:
Our procedures included, but not limited to:
•Obtaining an understanding of the underlying process and controls by the directors’ in respect of determining the useful life of assets;
•Discussions with the company’s electrical engineer on key estimates made by management and the directors;
•Obtaining industry benchmarking information from similar transmission assets and entities;
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have been determined to be 40 years.
Significant auditor’s attention was deemed appropriate because of the materiality of the interconnector assets. The useful life of the assets have been supported by industry knowledge and benchmarking against other transmission assets and information in respect of the performance of the asset.
The useful life of tangible assets are considered annually at the reporting date by the directors.
As a result, we considered this to be a kay audit matter.
Information on the fixed assets can be found in note 7 to the financial statements.
•Compared the revised useful life of the asset on some of the key elements of the interconnector to the manufacturing life specifications; and
•Reviewing the accounting treatment and associated disclosures in the financial statements for conformity with the requirements of UK-adopted IAS.
We completed our planned audit procedures, with no exceptions noted.
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Other information
Other information comprises information included in the annual report, other than the financial statements and our auditor’s report thereon, including the Directors’ Report and the Strategic Report.
The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, 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 audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies in the financial statements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this 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, 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 the 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 any material misstatements in the Strategic Report and the Directors’ Report. We have nothing to report in respect of the following matters where 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 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.
Responsibilities of management and those charged with governance for the financial statements
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As explained more fully in the Directors' responsibilities statement, management is responsible for the preparation of the financial statements which give a true and fair view in accordance with UK-adopted IAS, and for such internal control as directors determine necessary to enable the preparation of financial statements are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Group and 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 management either intends to liquidate the Group or company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group and Company’s financial reporting process.
Responsibilities of the auditor for the audit of the financial statements
The objectives of an auditor 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 their 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.
A further description of an auditor’s responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
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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 material misstatements in respect of irregularities, including fraud. Owing to the inherent limitations of an audit, there is an unavoidable risk that material misstatement in the financial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs (UK). The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations related to compliance with Stock Exchange Listing Rules, Prudential Regulatory Authority, and Financial Conduct Authority, Data Privacy law, Employment Law, Environmental Regulations, Pensions Legislation, Health & Safety and the Utilities Regulator in Northern Ireland, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006 and UK tax legislation. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries to manipulate financial performance and management bias through judgements and assumptions in significant accounting estimates, in particular in relation to significant one-off or unusual transactions. We apply professional scepticism through the audit to consider potential deliberate omission or concealment of significant transactions, or incomplete/inaccurate disclosures in the financial statements.
In response to these principal risks, our audit procedures included but were not limited to:
•enquiries of management, the board, and the audit committee on the policies and procedures in place regarding compliance with laws and regulations, including consideration of known or suspected instances of non-compliance and whether they have knowledge of any actual, suspected or alleged fraud;
•inspection of the Group’s regulatory and legal correspondence and review of minutes of board and audit committee meetings during the year to corroborate inquiries made;
•gaining an understanding of the entity’s current activities, the scope of authorisation and the effectiveness of its control environment to mitigate risks related to fraud;
•discussion amongst the engagement team in relation to the identified laws and regulations and regarding the risk of fraud, and remaining alert to any indications of non-compliance or opportunities for fraudulent manipulation of financial statements throughout the audit;
•identifying and testing journal entries to address the risk of inappropriate journals and management override of controls;
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•designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing;
•challenging assumptions and judgements made by management in their significant accounting estimates, including estimating the useful economic life of assets, judgements made in the continuing implementation of IFRS 16: leases;
•review of the financial statement disclosures to underlying supporting documentation and inquiries of management; and
•the audit engagement partner considered the experience and expertise of the engagement team to ensure that the team had appropriate competence and capabilities to identify or recognise non-compliance with the laws and regulation.
The primary responsibility for the prevention and detection of irregularities including fraud rests with those charged with governance and management. As with any audit, there remains a risk of non-detection or irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations or override of internal controls.
The purpose of our audit work and to whom we owe our responsibilities
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.
Report on other legal and regulatory requirements
We were appointed by the Board of Directors on 25 November 2022 to audit the financial statements for the year ended 31 March 2023. This is the first year we have been engaged to audit the financial statements of the Group and the Parent Company.
We have not provided non-audit services prohibited by the FRC’s Ethical Standard and have remained independent of the entity in conducting the audit.
The audit opinion is consistent with the additional report to the audit committee.
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Louise Kelly (Senior Statutory Auditor)
For and on behalf of
Grant Thornton (NI) LLP
Chartered Accountants & Statutory Auditors
Belfast
26th June 2023
Moyle Interconnector (Financing) plc
39
Consolidated statement of profit and loss and other comprehensive income for the year ended 31 March 202358,395 58,825 56,814 57,100 35,885 40,298 2,257 174 28,288 35,525 22,736 25,162
2023
2022
Note
£’000
£’000
Revenue
2a
Revenue rebate
2a
(1,581 )
(1,725 )
Revenue – continuing operations
2a
Operating expenses
2b
(20,929 )
(16,802 )
Operating profit
Finance income
4
Finance expenses
4
(9,854 )
(4,947 )
Finance expenses - net
4
(7,597 )
(4,773 )
Profit before tax
Taxation
5
(5,552 )
(10,363 )
Profit and total comprehensive income for the year attributable to the owners of the parent
15
All results arise from continuing operations.
The notes on pages 37 to 62 are an integral part of these consolidated financial statements.
Moyle Interconnector (Financing) plc
40
Consolidated and Parent Company balance sheet as at 31 March 2023
The notes on pages 37 to 62 are an integral part of these consolidated financial statements.
Group
Company
2023
2022
2023
2022
Note
£’000
£’000
£’000
£’000
Assets
Non-current assets
Current assets
Tax receivable
-
-
Equity and liabilities
Equity attributable to the owners of the parent
Liabilities
Non-current liabilities
Current liabilities
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41
Consolidated and Parent Company statement of changes in equity for the year ended 31 March 202350 104,777 104,827 25,162 25,162 50 122,315 122,365 22,736 22,736 50 145,051 145,101
Group
Share capital
£’000
Retained earnings
£’000
Total equity
£’000
At 1 April 2021
Profit and total comprehensive income for the year
-
Distribution
-
(7,624 )
(7,624 )
At 31 March 2022
Profit and total comprehensive income for the year
-
At 31 March 2023
Share capital
Retained earnings
Total equity
Company
£’000
£’000
£’000
Distribution
-
(7,624)
(7,624)
The notes on pages 37 to 62 are an integral part of these consolidated financial statements.
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42
Group
Company
2023
2022
2023
2022
Note
£’000
£’000
£’000
£’000
Cash flows from operating activities
Adjustments for:
Cash flows from investing activities
Cash flows from financing activities
Lease payments
(157 )
(134 )
-
-
The notes on pages 37 to 62 are an integral part of these consolidated financial statements.
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43
Notes to the financial statements for the year ended 31 March 2023The Group’s principal activity during the year was the financing and operation (through its subsidiary undertaking) of the Moyle Interconnector which links the electricity transmission systems of Northern Ireland and Scotland. The Company is a public company limited by shares , incorporated, registered and domiciled in Northern Ireland The Group financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£’000) except when otherwise indicated. All of the Group and Company’s assets and liabilities are denominated in Sterling with the exception of certain payables and receivables in relation to Euro sales contracts. The Group financial statements were authorised for issue by the Board of Directors on 26 June 2023 and were signed on their behalf by Patrick Larkin and Gerard McIlroy. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.The Group financial statements have been prepared and approved by the directors in accordance with UK adopted international accounting standards (“UK-adopted IFRS”) as applied in accordance with the provisions of the Companies Act 2006 and have elected to prepare the Company financial statements on the same basis. The financial statements have been prepared on a going concern basis, under the historical cost convention. The preparation of financial statements in conformity with UK Adopted IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed on pages 45 to 46. The Company has availed of the exemption permitted by Section 408 of the Companies Act 2006, and so the Parent Company’s statement of profit and loss and other comprehensive income has not been included in these financial statements.
1Accounting policies and critical accounting estimates/judgements
General information
The Group financial statements consolidate those of the Company and its subsidiary (together referred to as the “Group”). The Parent Company financial statements present information about the Company as a separate entity and not about its Group.
Basis of preparation
Going concern
The Group is cash generative and is forecast to remain cash positive. The forecast cash generated is adequate to meet the Group’s liabilities as they fall due over the 12 months from the date of approval of the financial statements including the scheduled bond payments, and to comply with financing covenants, including the required Annual Debt Service Cover Ratio. Reserve accounts are fully funded and £10m of liquidity facilities are in place. Accordingly, the directors consider it appropriate to adopt the going concern basis in the preparation of the financial statements.
Newly adopted standards
The Group has adopted the following IFRSs in these financial statements:
•Reference to the Conceptual Framework (Amendments to IFRS 3)
•Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)
•Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37)
•Annual Improvements (2018-2020 Cycle):
•Subsidiary as a First-time Adopter (Amendments to IFRS 1)
•Fees in the ’10 per cent’ Test for Derecognition of Financial Liabilities (Amendments to IFRS 9)
•Lease Incentives (Amendments to IFRS 16)
•Taxation in Fair Value Measurements (Amendments to IAS 41).
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Notes to the financial statements for the year ended 31 March 2023
1Accounting policies and critical accounting estimates/judgements (continued)
The following Adopted IFRSs have been issued but have not been applied by the Group or Parent Company in these financial statements. Their application is not expected to have a material effect on the financial statements unless otherwise indicated:
•IFRS 17 Insurance Contracts (effective date 1 January 2023)
•Amendments to IFRS 17 ‘Insurance Contracts’ (Amendments to IFRS 17 and IFRS 4)
•Initial Application of IFRS 17 and IFRS 9—Comparative Information (effective 1 January 2023)
•Deferred tax related to assets and liabilities arising from a single transaction (effective date 1 January 2023)
•Definition of accounting estimates (effective date 1 January 2023)
•Disclosure of accounting policies (amendments to IAS 1 and IFRS Practice Statement 2) (effective date 1 January 2023)
•Classification of liabilities as current or non-current (effective date deferred until not earlier than 1 Jan 2024)
Basis of consolidation
The consolidated financial statements consolidate the financial statements of Moyle Interconnector (Financing) plc and its subsidiary undertaking drawn up to 31 March 2023. Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights. The acquisition date is the date on which control is transferred to the acquirer. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
Segment reporting
The Group has one business segment, the selling of capacity on the Moyle Interconnector for the transmission of electricity between Scotland and Northern Ireland and one geographical segment, the United Kingdom. Accordingly segment reporting is not deemed to be applicable.
Foreign exchange
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
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Notes to the financial statements for the year ended 31 March 2023
1Accounting policies and critical accounting estimates/judgements (continued)
Revenue
Revenue is made up of two parts: commercial revenue and tariff revenue. All revenue is generated within the United Kingdom and is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group. Revenue is recognised in the period in which the services are provided to the System Operators or customers.
Commercial Revenue
Commercial revenue, totalling £58,371,000 (2022: £58,551,000), comprises the fair value of the consideration received or receivable for making available the capability of the interconnector to the System Operators, SONI and National Grid via the overarching market arrangements. This capability is provided to the System Operators via either direct contracts for services or industry wide contractual arrangements. The revenues are accounted for in line with the delivery of the services provided under the overarching market arrangements. Commercial revenue includes an amount of €11,422,000 (£9,817,000 Sterling equivalent) (2022: €12,062,000 (£10,239,000 Sterling equivalent)), which remains due from SONI in relation to capacity constraints imposed by SONI against Moyle Interconnector Limited during the period from September 2021 to March 2023. Further information on the judgements in respect of this revenue can be found within critical accounting estimates and judgements on page 45 and 46.
Tariff Revenue
The interconnector is entitled to collect revenue via a tariff known as the Collection Agency Income Requirement (CAIRt). CAIRt revenue is recognised in line with the income recovered by SONI on Moyle’s behalf via Northern Ireland electricity tariffs, as provided for in Moyle’s Collection Agency Agreement. No CAIRt revenue was required throughout the current or prior year.
Tariff Revenue Rebate
When there is an agreement in place to rebate revenue via a tariff reduction, tariff revenue rebates are recognised in line with the rebates passed through to Northern Ireland electricity tariffs by SONI, on Moyle’s behalf. In the current year a revenue rebate of £1,581,000 (2022: £1,725,000) was paid (see note 2a for further details).
Finance income and finance expenses
Intangible assets
Property, plant, and equipment
Property, plant and equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses. The initial cost of an asset comprises purchase cost plus any costs directly attributable to bringing the asset into operation and an estimate of any decommissioning costs. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. An asset is derecognised upon disposal or when no future economic benefit is expected to arise from the asset. All other repairs and maintenance are charged to the statement of profit and loss during the financial period in which they are incurred.
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46
Notes to the financial statements for the year ended 31 March 2023
1Accounting policies and critical accounting estimates/judgements (continued)
Property, plant and equipment (continued)
The useful economic lives of each major class of depreciable asset are as follows:
Interconnector assets25 - 40 years*
Control equipment 15 - 20 years**
Plant & Machinery 15 years
Right-of-use assets12 years
*The weighted useful economic life of the interconnector assets is 35.5 years.
** The weighted useful economic life of the control system assets is 15.0 years.
The assets’ residual values and useful economic lives are reviewed, and adjusted if appropriate, at each reporting date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Assets under construction are stated at historical cost less any impairment in value. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset's carrying value amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the entity and the cost of the item can be measured reliably. Assets under construction are not depreciated until commissioned.
Leases
The Group does not act as a lessor on any leases. The accounting policies presented below set out the policies for recognising leases where the Group acts as a lessee.
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of the asset are determined on the same basis as those of property, plant and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. The Group uses its incremental borrowing rate as the discount rate.
Lease payments included in the measurement of the lease liability comprise the following:
-fixed payments;
-variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
-lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option; and
-penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, or if the Group changes its assessment of whether it will exercise a purchase extension or termination option.
Moyle Interconnector (Financing) plc
47
Notes to the financial statements for the year ended 31 March 2023The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset or CGU. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses of continuing operations are recognised in the statement of profit and loss in those expense categories consistent with the function of the impaired asset.
1Accounting policies and critical accounting estimates/judgements (continued)
Leases (continued)
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Group presents right-of-use assets in ‘property, plant and equipment’ and lease liabilities in ‘interest bearing loans and borrowings’ in the balance sheet (see notes 7 and 16 respectively).
Short-term leases and leases of low-value assets
The Group has elected not to recognise right-of-use assets and lease liabilities for lease of low-value assets and short-term leases. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
Investments
Investments in subsidiaries are recognised initially at fair value and subsequently measured at cost less impairment. Investments in other unquoted companies are recorded at cost, which is the consideration paid. These assets are subsequently measured at fair value .
Impairment of non-financial assets
Reversal of impairment losses
Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Financial instruments
(i)Recognition and initial measurement
Trade receivables and debt securities issued are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Group becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.
Financial assets
(a)Classification
On initial recognition, a financial asset is classified as measured at: amortised cost; or fair value through other comprehensive income (FVOCI) – equity investment. Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.
A financial asset is measured at amortised cost if it meets both of the following conditions:
-it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
-its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Moyle Interconnector (Financing) plc
48
Notes to the financial statements for the year ended 31 March 2023To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes the legal form of the Company’s own shares, the amounts presented in these financial statements for called up share capital and share premium account exclude amounts in relation to those shares. Financial liabilities are classified as measured at amortised cost. Financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss .
1Accounting policies and critical accounting estimates/judgements (continued)
Financial instruments (continued)
(ii)Classification and subsequent measurement (continued)
Financial assets (continued)
(a)Classification (continued)
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income (OCI). This election is made on an investment-by-investment basis.
Investments in subsidiaries are carried at cost less impairment.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose only of the cash flow statement.
(b)Subsequent measurement and gains and losses
Financial assets at amortised cost - these assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.
Equity investments at FVOCI - these assets are subsequently measured at fair value. Dividends are recognised as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognised in OCI and are never reclassified to profit or loss.
Financial instruments issued by the Group are treated as equity only to the extent that they meet either of the following two conditions:
(a)they include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Group; or
(b)where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the Company’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
Moyle Interconnector (Financing) plc
49
Notes to the financial statements for the year ended 31 March 2023
1Accounting policies and critical accounting estimates/judgements (continued)
Financial instruments (continued)
(iii)Impairment
The Group recognises loss allowances for expected credit losses (ECLs) on financial assets and contract assets measured at amortised cost.
The Group measures loss allowances at an amount equal to lifetime ECL, except for bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition which are measured as 12-month ECL.
Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECL.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment and including forward-looking information.
Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.
12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).
The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.
Measurement of ECLs
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset.
Credit-impaired financial assets
At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Write-offs
The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery.
Derecognition - financial assets
The Group derecognises a financial asset when:
•the contractual rights to the cash flows from the financial asset expire; or
•it transfers the rights to receive the contractual cash flows in a transaction in which either:
•substantially all of the risks and rewards of ownership of the financial asset are transferred; or
•the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.
Derecognition - financial liabilities
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expired. The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value.
On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss.
Moyle Interconnector (Financing) plc
50
Notes to the financial statements for the year ended 31 March 2023The Group and Company have no directly employed staff of their own. Amounts included in staff costs relate to costs directly charged from Mutual Energy in respect of employees performing asset management activities for the Group .
1Accounting policies and critical accounting estimates/judgements (continued)
Financial liabilities at amortised cost (financial instruments)
(a) Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of profit and loss over the period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.
(b) Trade and other payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation.
Decommissioning costs are provided at the present value of the expenditures expected to settle the obligation, using estimated cash flows based on current prices. The unwinding of the decommissioning provision is included within finance expenses in the statement of profit and loss. The estimated future costs of the decommissioning obligations are regularly reviewed and adjusted as appropriate, through property, plant and equipment, for new circumstances or changes in law or technology. The decommissioning costs have been capitalised within property, plant and equipment and depreciated in line with Group policy.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the profit and loss account except to the extent that it relates to items recognised directly in equity or other comprehensive income, in which case it is recognised directly in equity or other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for the:
•initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and
•differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Government grants
Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to property, plant and equipment are included in current and non-current liabilities as deferred government grants and are credited to the profit or loss on a straight-line basis over the expected useful economic lives of the related assets.
Employee benefits
Moyle Interconnector (Financing) plc
51
Notes to the financial statements for the year ended 31 March 2023
1Accounting policies and critical accounting estimates/judgements (continued)
Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying value of assets and liabilities within the next financial year are discussed below:
Estimates
(a) Estimate of useful economic life of assets
During the 2015/2016 financial year the useful life of the Moyle Interconnector was reduced by 10 years following a spate of cable faults. New cables were subsequently laid which have now been proven to rectify the issues with the original cables. Following a return to reliable operation, a comparison of useful lives of similar assets, and engineering consultation, it has been determined that the useful life should be increased by 10 years, restoring the life to that determined at installation. The Moyle Interconnector assets are now expected to operate until 2042 and have been depreciated on this basis since October 2022.
The remaining useful economic life of the interconnector was assessed at 19 years at 31 March 2023. If the remaining useful economic life had been assessed as one year more depreciation would have decreased by £196,000 (2022: £687,000 based on 12 years remaining at the start of the period) and if the remaining useful economic life had been assessed as one year less depreciation would have increased by £217,000 (2022: £824,000 based on 10 years remaining at the start of the period). The net book value of the Moyle Interconnector assets is disclosed in note 7.
The remaining useful economic life of the licences was determined as approximately 15 (2022: 16) years at the beginning of the year. If the remaining useful economic life had been assessed at 16 (2022: 17) years amortisation would have decreased by £104,000 (2022: £98,000) and if the remaining useful economic life had been assessed at 14 (2022: 15) years amortisation would have increased by £119,000 (2022: £111,000).
(b) Estimate of assumptions used in the calculation of the decommissioning provision
The decommissioning provision has been estimated at current prices and has therefore been increased to decommissioning date by an inflation rate of 3.32% (2022: 3.98%) based on expected time of expenditure of 19 years (2022: 10 years). The decommissioning provision has been discounted using a rate of 3.84% (2022: 1.62%). The effect of changing the discount rate, inflation rate and timing of expenditure on the decommissioning provision is disclosed in the table below.
Increase/(decrease) in provision
2023
2022
£’000
£’000
Increase in inflation rate by 1%
626
325
Decrease in inflation rate by 1%
(526)
(298)
Increase in discount rate by 1%
(519)
(302)
Decrease in discount rate by 1%
629
337
Increase in useful economic life of the asset by one year
(16)
79
Decrease in useful economic life of the asset by one year
16
(85)
Moyle Interconnector (Financing) plc
52
Notes to the financial statements for the year ended 31 March 2023Included within Group revenue is an amount of €11,422,000 (£9,817,000 Sterling equivalent) (2022: €12,062,000 (£10,239,000 Sterling equivalent)) and trade and other receivables is an amount of €23,484,000 (£20,655,000 Sterling equivalent) excluding VAT, which is due from SONI in relation to capacity constraints imposed by SONI against Moyle Interconnector Limited during the period from September 2021 to March 2023. The commercial agreements in place require SONI, as causer, to keep Moyle whole for the lost revenue and set out how this should be calculated. SONI has not, to date, reimbursed Moyle for any of the constraints imposed, and is disputing our entitlement. Legal advice has been received by Moyle Interconnector which confirms its entitlement to this revenue. In line with the contract provisions, this matter has been referred to the Law Society for arbitration, with timelines for resolution still to be determined. Revenue in respect to these constraints has been recognised in full within the accounts on the basis that it is more likely than not that this will be recovered. Some risk exists that this may not be recovered in full and a contingent liability has been disclosed (see note 26).
1Accounting policies and critical accounting estimates/judgements (continued)
Critical accounting estimates and judgements (continued)
(c) Judgements made in the implementation of IFRS 16 Leases
The remaining useful lives of the right of use assets in respect of the Group’s Crown Estate lease was determined to be in line with the useful life of the Moyle Interconnector, which aligns with the non-cancellable period of the lease used to determine the lease liability.
Revenue, which will vary dependent on market circumstances, is recorded in line with the services provided to the system operators in each financial year. The movement of power across the interconnector is effectively predefined by the market rules and will move from the lower priced market to the higher priced market in accordance with a schedule provided by the System Operator in Northern Ireland (SONI), unless this is inconsistent with a system support contract in which case the power will move for a short period in line with separate contractual arrangements with National Grid or SONI.
We do not sell directly to market participants, rather our base entitlement is to the value of the power flown across the interconnector, which is the difference in market price between the two markets multiplied by the amount of power moved after adjusting for losses. We are obliged to make available to Eirgrid and SONI, operating as a body known as SEMOpx, the full capacity, subject to restrictions imposed by the System Operators, of the Interconnector for this purpose. SEMOpx make the capacity available in intraday auctions bilaterally coupled with the GB market. The scheduling of the physical movement of power across the interconnector in the majority of conditions is subject to the requirements of the System Operators (albeit in accordance with pre-defined rules). The schedule is amended in line with defined responses in certain conditions based upon independent contracts with National Grid and SONI. The activities of the interconnector are therefore subject to the requirements of Eirgrid, SONI and National Grid for the majority of time, however the Company is still exposed to the risks of financial loss from outages and to variations in revenue driven by the power price differential between GB and Ireland. Revenue recognition is therefore aligned with the services provided to the system operators in each period.
(e) Recoverability of unpaid amounts in relation to revenue constraints
Moyle Interconnector (Financing) plc
53
Notes to the financial statements for the year ended 31 March 2023
2a Revenue from contracts with customers
Revenue comprises the fair value of the consideration received or receivable from the sale of capacity on the gas pipeline which links the gas transmission systems of Northern Ireland and Scotland. All revenue is generated within the United Kingdom. Revenue is shown net of value-added tax and rebates and after eliminating income within the group. Revenue is recognised in accordance with the terms of the licence issued by the regulatory authority, namely in line with the applicable costs incurred by the Group over the same period.
The Group’s accrued income meets the definition of a contract asset. The Group’s accrued income is disclosed in note 12.
Disaggregation of revenue
2023
2022
Group
£’000
£’000
Commercial revenue:
Revenue from power transfers
27,989
27,844
Revenue from power transfers which were constrained
9,817
10,239
System services
10,468
10,111
Capacity market
10,097
10,357
Total commercial revenue
58,371
58,551
Tariff revenue
10
37
Other
14
237
Revenue
58,395
58,825
Tariff revenue rebate
(1,581)
(1,725)
Net revenue
56,814
57,100
As noted on page 46, in critical accounting judgments and estimates section (d), the scheduling of the physical flow of power on the Moyle Interconnector is subject to the requirements of the system operators. The market arrangements are enduring and have no end date. The resulting revenue from power transfers is variable income depending upon the difference in market spreads. The Group’s system services and capacity market revenue split by customer (for those exceeding 10% of total revenues) is as follows:
2023
2022
£’000
£’000
Customer A
18,620
17,441
Revenue from power transfers which were constrained relates to an amount of €11,422,000 (£9,817,000 Sterling equivalent) (2022: €12,062,000 (£10,239,000 Sterling equivalent)), which is due from SONI in relation to capacity constraints imposed by SONI against Moyle Interconnector Limited during the period from September 2021 to March 2023 and remains unpaid. Further information in this respect can be found within the critical estimates and judgements section (e) on page 46.
The tariff revenue rebate relates to a rebate of revenue previously recovered through the tariff mechanism in order to reduce costs for energy consumers.
Commercial revenue includes £38.0m (2022: £39.0m) which was receivable in Euro.
Moyle Interconnector (Financing) plc
54
Notes to the financial statements for the year ended 31 March 2023Other expenses include a fuel poverty donation of £3.0m and costs incurred for rates and group overheads, together with administrative expenses .The average monthly number of employees during the year (including directors holding contracts of service with the Group) was 10 (2022: 10). All staff perform asset management activities. Amounts included above relate to costs recharged in respect of employees of the wider Mutual Energy Group which are directly attributable to the Moyle Interconnector Financing Group and does not include directors’ emoluments which are disclosed separately below. The Parent Company and its subsidiary undertaking have no directly employed staff of their own.The portion of remuneration and amounts receivable under long term incentive schemes of the highest paid director attributable to the Group was £140,000 (2022: £127,000).
2b Operating expenses
Group
2023
£’000
2022
£’000
Staff costs (note 3)
799
513
Depreciation and amortisation (excluding right-of-use assets)
8,726
10,068
Depreciation of right-of-use assets
135
137
Amortisation of deferred government grants (note 20)
(1,506)
(2,025)
Auditors’ remuneration:
Audit of these financial statements
18
3
Audit of financial statements of subsidiary
24
12
Other services
-
4
Maintenance and insurance
5,692
4,169
Other expenses
7,041
3,921
Total operating expenses
20,929
16,802
3Staff numbers and costs
2023
2022
Group
£’000
£’000
Wages and salaries
644
408
Social security costs
81
48
Pension costs
74
57
799
513
The Group’s directors were not remunerated for their services to the Company but instead received emoluments for their services to the Mutual Energy Group of companies. The portion of these costs recharged to the Moyle Interconnector Financing Group are set out below:
2023
2022
£’000
£’000
Directors’ emoluments
Aggregate emoluments
257
232
Moyle Interconnector (Financing) plc
55
Notes to the financial statements for the year ended 31 March 2023
4Finance income and expense
2023
2022
Group
£’000
£’000
Finance expense:
Borrowings (including borrowing fees)
9,725
4,827
Bank charges
58
89
Lease interest expense
19
-
Unwinding of discount on decommissioning provision (note 18)
52
31
Finance expenses
9,854
4,947
Finance income:
Short-term bank deposits
(1,633)
(126)
Lease interest
-
(4)
Foreign exchange gain
(624)
(6)
Amounts owed by related parties
-
(38)
Finance income
(2,257)
(174)
Finance expense – net
7,597
4,773
5Taxation
Recognised in profit and loss
2023
2022
Group
£’000
£’000
Current income tax:
Current tax on profits for the year
5,238
6,774
Adjustments in respect of prior years
4
(465)
Total current income tax
5,242
6,309
Deferred income tax:
Origination and reversal of temporary differences
311
82
Adjustments in respect of prior years
(1)
470
Adjustments due to change in rate
-
3,502
Total deferred income tax (note 19)
310
4,054
Tax charge
5,552
10,363
Moyle Interconnector (Financing) plc
56
Notes to the financial statements for the year ended 31 March 2023
5Taxation (continued)
The tax charge in the statement of profit and loss for the year is higher than the standard rate of corporation tax in the UK of 19% (2022: 19% - higher than). The differences are reconciled below:
Reconciliation of effective tax rate
2023
£’000
2022
£’000
Profit before tax
28,288
35,525
Tax calculated at the UK standard rate of corporation tax of 19% (2022: 19%)
5,375
6,750
Effects of:
Tax exempt revenue
24
-
Impact of change in tax rates
150
95
Non-deductible expenses
-
11
Adjustments in respect of prior years
3
5
Impact of change in deferred tax rate
-
3,502
Tax charge
5,552
10,363
Future tax changes
The Finance Act 2021 confirmed that the corporation tax rate will be increased to 25% on 1 April 2023 for companies generating taxable profits of more than £250,000. The current 19% tax rate will continue to apply to ‘small’ companies with profits less than £50,000, with a ‘taper relief rate’ for those companies with profits between these thresholds. Deferred tax has been calculated at the rate at which the balances are expected to be settled, based on tax rates that have been substantively enacted at the balance sheet date (see note 19).
6Loss attributable to members of the Parent Company
As permitted by Section 408 of the Companies Act 2006, the Parent Company’s statement of profit and loss has not been included in these financial statements. The loss dealt with in the financial statements of the Parent Company is £108,000 (2022: £7,566,000).
Moyle Interconnector (Financing) plc
57
Notes to the financial statements for the year ended 31 March 2023Assets under construction relates to the new control system brought into use during the year. At 31 March 2023, the Group had no capital commitments (31 March 2022: €8,429,000 (£7,133,000 Sterling equivalent) and £2,316,000 in relation to the control system).
7Property, plant and equipment
Interconnector
assets
Controlequipment
Plant & Machinery
Assets under construction
Right-of-use assets
Total
Group
£’000
£’000
£’000
£’000
£’000
£’000
Cost
At 1 April 2021
176,326
3,890
-
11,084
1,698
192,998
Movement in decommissioning provision
10
-
-
-
-
10
Additions
-
-
192
6,273
-
6,465
At 31 March 2022
176,336
3,890
192
17,357
1,698
199,473
Movement in decommissioning provision
(175)
-
-
-
-
(175)
Additions
-
830
-
7,797
985
9,612
Transfer into use
-
25,154
-
(25,154)
-
-
Accumulated depreciation
At 1 April 2021
85,680
3,559
-
-
274
89,513
Depreciation charge for the year
8,245
157
5
-
137
8,544
Depreciation charge for the year
6,113
939
13
-
135
7,200
Disposals
-
(3,785)
-
-
-
(3,785)
At 31 March 2023
100,038
870
18
-
546
101,472
Net book value
At 31 March 2023
76,123
25,219
174
-
2,137
103,653
At 1 April 2021
90,646
331
-
11,084
1,424
103,485
Depreciation expense of £7,200,000 (2022: £8,544,000) has been charged fully to operating expenses.
The borrowings of the Company are secured on the property, plant and equipment of the Group.
As noted on page 46, the activities of the interconnector asset set out above are subject to the requirements of the system operators under the overarching market arrangements.
Moyle Interconnector (Financing) plc
58
Notes to the financial statements for the year ended 31 March 2023
8Intangible assets
Licences
Group
£’000
Cost
At 1 April 2021, 31 March 2022 and at 31 March 2023
56,477
Accumulated amortisation
At 1 April 2021
29,898
Amortisation for the year
1,661
At 31 March 2022
31,559
Amortisation for the year
1,661
At 31 March 2023
33,220
Net book value
At 31 March 2023
23,257
At 1 April 2021
26,579
Licences include intangible assets acquired through business combinations. Licences have been granted for a minimum of 35 years.
The Group has concluded that these assets have a remaining useful economic life of 14 years as at 31 March 2023 (15 years as at 31 March 2022). Amortisation expense of £1,661,000 (2022: £1,661,000) has been fully charged to operating expenses.
9Investment in subsidiary undertaking
Investments in subsidiaries are recognised initially at fair value and subsequently measured at cost less impairment.
10Other investments
Other investments
Group
£’000
Cost and carrying amount
At 1 April 2021, 31 March 2022 and 31 March 2023
212
Other Investments represent an amount the subsidiary invested in a 5% share in Joint Allocation Office (JAO) S.A., at a cost of £212,000. The investments are held at fair value which equates to the cost paid.
Moyle Interconnector (Financing) plc
59
Notes to the financial statements for the year ended 31 March 2023
11Trade and other receivables (non-current)
Group
Company
2023
2022
2023
2022
£’000
£’000
£’000
£’000
Trade receivables due from fellow subsidiary undertaking
13
13
-
-
Trade receivables due from fellow subsidiary undertaking (current assets) (note 12)
(13)
(13)
-
-
All of the Company’s non-current loans are denominated in Sterling. None of the Company’s loans are past due. The Company has no history of default in respect of its loans. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The fair value of the Company’s loans is £56,975,000 (2022: £67,495,000). This fair value has been calculated by discounting the future contracted interest cash flows using a discount rate of 1.74% (2022: -1.37%) that reflects the maturity profile of the Company’s loans. If the discount rate had been 2.00% the fair value would have been £56,324,000. In calculating fair value, RPI interest is excluded from the loan’s future cash flows and excluded from the related discount rate. The current effective interest rate, inclusive of interest and Retail Price Index indexation, for the loan is 3.35%.
12Trade and other receivables (current)
Group
Company
2023
2022
2023
2022
£’000
£’000
£’000
£’000
Trade receivables
24,799
12,395
-
-
Trade receivables due from fellow subsidiary undertakings
13
13
-
-
Loans due from subsidiary undertakings
-
-
6,252
6,132
Prepayments
2,137
1,863
90
90
Accrued income
3,227
8,266
-
-
Other receivables
1,391
3,279
-
-
VAT receivable
25
-
3
2
31,592
25,816
6,345
6,224
All of the Group’s and Company’s trade and other receivables are denominated in Sterling with the exception of certain balances receivable in Euro as a result of Euro sales contracts as follows: i) trade receivables includes €28,181,000 due (£24,786,000 Sterling equivalent) (2022: includes €14,576,000 due (£12,372,000 Sterling equivalent)); and ii) accrued income includes €61,000 due (£54,000 Sterling equivalent) (2022: includes €5,737,000 due (£4,855,000 Sterling equivalent)); and iii) other receivables includes €1,000 (£1,000 Sterling equivalent) (2022: €2,584,000 (£2,169,000 Sterling equivalent).
Included within trade and other receivables is €23,484,000 (£20,655,000 Sterling equivalent) excluding VAT which is due from SONI in relation to capacity constraints imposed by SONI against Moyle Interconnector Limited during the period from September 2021 to March 2023 and remains unpaid. Further information in this respect can be found within the critical estimates and judgements on pages 45 and 46.
Apart from those balances identified in the paragraph above, none of the remaining Group’s or Company’s trade and other receivables are impaired or past due and no impairment losses on trade and other receivables were recognised in profit and loss in the year (2022: £nil). No provisions were deemed to be required at the reporting date as the Group and Company has no history of default in respect of its trade and other receivables and no current expectation of such. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The fair value of the Group’s and Company’s trade and other receivables is not materially different to their carrying values.
Moyle Interconnector (Financing) plc
60
Notes to the financial statements for the year ended 31 March 2023
12Trade and other receivables (current) (continued)
Loans due from subsidiary undertakings are unsecured and carry interest at a rate of 3.52% (2022: 3.52%) and are receivable within 12 months. Trade receivables due from fellow subsidiaries are unsecured, interest free and are repayable on demand.
13Cash and cash equivalents
Cash and cash equivalents earn interest at a range from Bank of England base rate less 0.77% to Bank of England base rate plus 0.15%, or nil if higher. During the year some cash and cash equivalents were placed on deposits with maturities great than 90 days but less than 364 days. These financial assets earned interest at a range from Bank of England base rate less 2.56% to Bank of England base rate plus 0.20%. None of the cash and cash equivalents are restricted.
14Share capital
2023
2022
Group and Company
£’000
£’000
Allotted, called up and fully paid
15Retained earnings
Group
£’000
At 1 April 2021
104,777
Total comprehensive income for the year
25,162
Distribution
(7,624)
At 31 March 2022
122,315
Total comprehensive income for the year
22,736
At 31 March 2023
145,051
Company
£’000
Distribution
(7,624)
Moyle Interconnector (Financing) plc
61
Notes to the financial statements for the year ended 31 March 2023
16Interest bearing loans and borrowings
Group
Company
2023
2022
2023
2022
£’000
£’000
£’000
£’000
Non-current
Lease Liabilities
1,970
1,078
-
-
Total Non-current
57,194
56,786
55,224
55,708
Current
2.9376% Index linked guaranteed secured bond
7,409
7,256
7,409
7,256
Lease liabilities
93
138
-
-
Changes in liabilities from financing activities
Group
Company
Loans and borrowings
Lease liabilities
Total
Loans and borrowings
£’000
£’000
£’000
£’000
Changes from financing cash flows
Lease payments
-
(134)
(134)
-
Interest paid
(5,968)
-
(5,968)
(5,968)
Total changes from financing cash flows
(11,341)
(134)
(11,475)
(11,341)
Other changes
Interest and indexation expense
4,827
-
4,827
4,827
Total non cash changes
4,827
(4)
4,823
4,827
Changes from financing cash flows
Lease payments
-
(157)
(157)
-
Interest and indexation paid
(5,817)
-
(5,817)
(5,817)
Total changes from financing cash flows
(10,056)
(157)
(10,213)
(10,056)
Other changes
Interest and indexation expense
9,725
-
9,725
9,725
Lease revaluation
-
985
985
-
Total non cash changes
9,725
1,004
10,729
9,725
Moyle Interconnector (Financing) plc
62
Notes to the financial statements for the year ended 31 March 2023
The 2.9376% guaranteed secured bond 2033 was issued to finance the acquisition of Moyle Interconnector Limited and to repay indebtedness owed to members of Viridian Group PLC and are indexed linked to the Retail Price Index. The bond is listed on the London Stock Exchange and is secured by fixed and floating charges over all the assets of the Group, and also by way of an unconditional and irrevocable financial guarantee given by Assured Guaranty (Europe) Limited as to scheduled payments of principal and interest, excluding default interest. In return for this guarantee, every six months the Group pays an index linked fee of 0.125% of the outstanding balance of the bond. The fair value of the bond is £66,539,000 (2022: £78,764,000). This fair value has been calculated by discounting the future contracted interest cash flows using a discount rate of 1.74% (2022: -1.37%) that reflects the maturity profile of the Group’s and the Company’s borrowings. Increasing/decreasing the discount rate by 0.5% would result in a fair value of £65,068,000/£68,065,000 respectively. In calculating fair value, RPI interest is excluded from the bond’s future cash flows and excluded from the related discount rate. The current effective interest rate, inclusive of interest and Retail Price Index indexation, for the bond is 2.94% (2022: 2.97%). The undiscounted maturity profile of the Group’s and the Company’s borrowings are shown in note 23.
Lease liabilities represent future payments in respect of Crown Estate leases (see note 17).
17Leases
The Group holds a Crown Estate lease, entered into in 2001, which gives exclusive right to use and maintain the cables which are on or under the seabed. The lease runs to 31 March 2100, with a right to cancel with 12 months’ notice from 31 March 2031. Lease payments are subject to review in 2027 and 2057. The lease provides for uplifts on rent payments every 5 years in line with changes in the Retail Prices Index. There are no extension options for any period after 31 March 2100. The Group is restricted from entering into any sub-lease arrangements in relation to this lease.
The Group leases wayleaves which are short-term and has elected not to recognise right-of-use assets and lease liabilities for these leases.
Information about leases for which the Group is a lessee is presented below.
Right-of-use assets
The right-of-use assets, as presented in property, plant and equipment (see note 7), relate to the Crown Estate lease noted above.
Amounts recognised in the profit or loss
The following amounts have been recognised in profit or loss for which the Group is a lessee:
Group
2023
£’000
2022
£’000
Depreciation expense in respect of right-of-use assets
135
137
Lease liabilities interest expense/(income)
19
(4)
Expenses relating to short-term leases
1
1
Amounts recognised in statement of cash flows
Group
2023
£’000
2022
£’000
Total cash outflow for leases
157
134
Moyle Interconnector (Financing) plc
63
Notes to the financial statements for the year ended 31 March 2023Provision has been made for expenditure to be incurred in meeting the expected costs arising from the future decommissioning of the Interconnector in 19 years, at the end of its useful economic life. This provision is expected to be utilised within 19 years. The provision represents the present value of the current estimated costs of dismantling the connections to the main electricity grids in Scotland and Northern Ireland. The provision has been discounted at a rate of 3.84% (2022: 1.62%) .
18Provisions
Decommissioning
provision
Group
£’000
At 31 March 2021
3,199
Cost adjustments through property, plant and equipment
10
Unwinding of discount during the year
31
At 31 March 2022
3,240
Cost adjustments through property, plant and equipment
(175)
Unwinding of discount during the year
52
At 31 March 2023
3,117
19Deferred tax liabilities
The gross movement on the deferred tax liability is as follows:
Group
£’000
At 1 April 2021
11,250
Recognised in profit and loss
4,054
At 31 March 2022
15,304
Recognised in profit and loss
310
At 31 March 2023
15,614
Movement in deferred tax liabilities during the year is as follows:
Moyle Interconnector (Financing) plc
64
Notes to the financial statements for the year ended 31 March 2023
20Government grant
Group
£’000
At 1 April 2021
22,282
Amortised during the year
(2,025)
At 31 March 2022
20,257
Amortised during the year
(1,506)
At 31 March 2023
18,751
Moyle Interconnector Limited, a subsidiary of the Group, was awarded a government grant in 1999 in respect of the costs of construction of the project. All obligations in respect of this grant have now been met. The current portion of the government grant is £987,000 (2022: £2,025,000). The non-current portion is £17,764,000 (2022: £18,232,000).
21Trade and other payables
Group
Company
2023
2022
2023
2022
£’000
£’000
£’000
£’000
Trade payables
178
246
-
2
Trade payables due to related parties
308
208
11,072
10,989
Accruals
2,910
2,901
23
15
VAT
-
4,439
-
-
Other payables
884
4,388
-
-
4,280
12,182
11,095
11,006
All of the Group’s and Company’s trade and other payables are denominated in Sterling with the exception of certain balances payable in Euro in relation to Euro sales contracts as follows: i) Trade payables includes €26,000 owed (£22,000 sterling equivalent) (2022: includes €12,000 owed (£10,000 sterling equivalent)) ii); and other payables includes €812,000 owed (£714,000 sterling equivalent) (2022: consists of €5,228,000 owed (£4,388,000 sterling equivalent)).
The fair value of trade and other payables is not materially different from their carrying value.
Trade payables due to related parties are unsecured, interest free and are repayable on demand.
Included in accruals are capital creditors of £1,909,000 (2022: £1,960,000).
Moyle Interconnector (Financing) plc
65
Notes to the financial statements for the year ended 31 March 2023
22Related party transactions
The ultimate controlling party of the Group are the members of Mutual Energy Limited.
During the year the Group entered into transactions, in the ordinary course of business, with related parties.
Transactions entered into, and balances outstanding at 31 March with related parties, are as follows:
Amount owed (to)/from
related party
2023
2022
Group
£’000
£’000
Fellow subsidiary undertakings – current assets
13
13
Parent undertakings – current assets
-
-
Parent undertakings – current liabilities
(225)
(203)
Fellow subsidiary undertakings – current liabilities
(83)
(5)
Amount owed (to)/from
related party
2023
2022
Company
£’000
£’000
Value of transaction
2023
2022
Company
Nature of transaction
£’000
£’000
Parent undertakings
Distribution payable
-
(7,624)
Subsidiary undertaking
Distribution receivable
-
7,624
Subsidiary undertaking
Receipts in respect of investing activities
10,056
11,333
Key management compensation
Key management personnel are considered to be the directors, being those persons having authority and responsibility for planning, directing and controlling the activities of the Group, both directly and indirectly. Key management compensation is given in note 3.
Value of transaction
2023
2022
Group
Nature of transaction
£’000
£’000
Parent undertakings
Charges payable
(2,016)
(1,689)
Parent undertakings
Interest (payable)/receivable
-
38
Parent undertakings
Distribution
-
(7,624)
Survey and security costs payable
(1,592)
(250)
Moyle Interconnector (Financing) plc
66
Notes to the financial statements for the year ended 31 March 2023
The Group and Company’s financial instruments are classified as follows:
Assets and liabilities
Category of financial instrument
Other investments
Equity instruments at fair value through other comprehensive income
Trade and other receivables
Financial assets at amortised cost
Cash and cash equivalents
Financial assets at amortised cost
Interest bearing loans and borrowings
Financial liabilities at amortised cost
Trade and other payables
Financial liabilities at amortised cost
The Group’s and the Company’s contractual undiscounted cash flows (including principal and interest payments) of its financial liabilities are as follows:
At 31 March 2023
Within
1 year
1-2
years
2-3
years
3-4
years
4-5
years
More
than 5
years
Total
Group
£’000
£’000
£’000
£’000
£’000
£’000
£’000
2.9376% bond
9,286
8,752
8,279
7,972
7,434
30,381
72,104
Lease liabilities
93
95
97
99
101
1,578
2,063
Trade and other payables*
4,280
-
-
-
-
-
4,280
13,659
8,847
8,376
8,071
7,535
31,959
78,447
At 31 March 2022
Within
1 year
1-2
years
2-3
years
3-4
years
4-5
years
More
than 5
years
Total
Group
£’000
£’000
£’000
£’000
£’000
£’000
£’000
2.9376% bond
9,154
8,266
7,791
7,370
7,097
33,661
73,339
Lease liabilities
138
129
128
128
127
566
1,216
Trade and other payables*
7,743
-
-
-
-
-
7,743
17,035
8,395
7,919
7,498
7,224
34,227
82,298
At 31 March 2023
Within
1 year
1-2
years
2-3
years
3-4
years
4-5
years
More
than 5
years
Total
Company
£’000
£’000
£’000
£’000
£’000
£’000
£’000
At 31 March 2022
Within
1 year
1-2
years
2-3
years
3-4
years
4-5
years
More
than 5
years
Total
Company
£’000
£’000
£’000
£’000
£’000
£’000
£’000
*The Group’s Trade and other payables excludes deferred income and taxation and social security.
Moyle Interconnector (Financing) plc
67
Notes to the financial statements for the year ended 31 March 2023As a result of the option under the Group’s licence agreement to call on customers in the event of any liquidity shortfall the Group has limited liquidity risk. The Group holds significant cash reserves which are only placed on deposit to the extent that these funds are not expected to be required. Should additional funds be required, for example if additional costs arise, counterparties default on payment, or revenue is lower than expected, these deposits can be returned. A £10m liquidity facility with an A – rated bank is also in place to manage any short-term liquidity risk.
23Financial instruments (continued)
Financial risk management
Other price risks
The Group operates the interconnector which links the electricity transmission systems of Northern Ireland and Scotland under a licence agreement with the Northern Ireland Authority for Utility Regulation. The Group earns its revenue from providing capability to transfer power between two markets, selling services to grid operators and from payments for making the asset available. In the event that the Group does not earn sufficient revenues to cover its operating expenses, interest on borrowings and repayment of borrowings, the Group’s licence allows the Group to make a call on its customers for any shortfall. Accordingly, the Group has limited financial risk.
(a) Interest rate risk
The Group’s interest rate risk arises from its long-term borrowings. These borrowings are index linked to the Retail Price Index and expose the Company to interest rate risk. A change in the Retail Price Index by 1% would have increased/decreased finance expenses, profit and equity during the year by £650,000 (2022: £720,000). A recurring annual retail price index of 2% would increase the total repayments on the 2.9376% bond by £17,817,000 over the lifetime of the bond, which would be recovered from customers under the Group’s license. The Group does not need to actively manage its exposure to interest rate risk as a result of its licence agreement mentioned in the preceding paragraph. The Group issued its long-term borrowings to refinance its transmission assets at the lowest possible rates in order to reduce the costs of transmission to the consumers of Northern Ireland.
(b) Credit risk
The Group has limited exposure to credit risk as its customers are high profile electricity suppliers, who provide designated levels of security by way of parent company guarantees or letters of credit.
Included within Group revenue is an amount of €11,422,000 (£9,817,000 Sterling equivalent) (2022: €12,062,000 (£10,239,000 Sterling equivalent)) and trade and other receivables is an amount of €23,484,000 (£20,655,000 Sterling equivalent) excluding VAT which is due from SONI in relation to capacity constraints imposed by SONI against Moyle Interconnector Limited during the period from September 2022 to March 2023 and remains unpaid. Further information in this respect can be found within the critical estimates and judgements on pages 45 and 46.
Apart from those balances identified in the paragraph above, the Group’s trade and other receivables, including amounts due from related parties, are not impaired or past due and management does not expect any losses from non-performance by its customers.
(c) Liquidity risk
Capital risk management
The Group has no obligation to increase member’s funds as the company’s ultimate parent undertaking is a company limited by guarantee. The company’s management of its borrowings and credit risk is referred to in the preceding paragraphs.
24Ultimate parent undertaking
The immediate parent undertaking is Moyle Holdings Limited , a company incorporated in Northern Ireland and whose registered address is First Floor, The Arena Building, 85 Ormeau Road, Belfast, BT7 1SH. Group financial statements for that company are not prepared.
The ultimate parent undertaking, and the only undertaking for which Group financial statements are prepared, is Mutual Energy Limited , a company incorporated in Northern Ireland. Group financial statements for that company are available to the public from First Floor, The Arena Building, 85 Ormeau Road, Belfast, BT7 1SH.
Moyle Interconnector (Financing) plc
68
Notes to the financial statements for the year ended 31 March 2023There are no events after the reporting date requiring adjustment or disclosure in the financial statements .
25Subsequent events
26Contingent liabilities
The Group has referred a dispute to arbitrators in respect of €23,484,000 (£20,655,000 Sterling equivalent) revenue, excluding VAT, which is due from SONI in relation to capacity constraints imposed by SONI against Moyle Interconnector Limited during the period from September 2021 to March 2023 and remains unpaid. In line with the contract, the matter has been referred to an arbitrator. Moyle Interconnector has received legal advice which confirms its entitlement to this revenue but, whilst it is more likely than not that this will be recovered, some risk of non-payment exists, as with any legal determination. The amount of such liability, were this to occur, cannot be reasonably estimated.