Half-year Results to 30 June 2023

Gresham House Energy Storage Fund

27 September 2023

 

27 September 2023

Gresham House Energy Storage Fund plc

("GRID" the "Company" or the "Fund")

Half-year results to 30 June 2023

Targeting 2.5GWh by mid-2025: 300% capacity growth with no further equity capital[1]

Gresham House Energy Storage Fund plc, the UK's largest fund investing in utility-scale battery energy storage systems (BESS), announces its half-year results for the period ending 30 June 2023.

Performance highlights in H1 2023

·      Net Asset Value (NAV) of £841.0mn (31 Dec 2022: £841.7mn, 30 June 2022: £785.4mn)

·      NAV per share (pence): 146.66p (-5.7%) (31 Dec 2022: 155.51p, 30 June 2022: 145.11p)

o  driven by lower third-party revenue forecasts resulting in lowest forecasts since IPO

·      NAV Total Return: -3.5% in H1 2023: +90.0% since IPO in November 2018

·      Share price total return of -8.3% vs FTSE All Share Index total return of +2.6% in H1 23

·      Dividends of 3.675p per share paid in H1 2023 (30 June 2022: 3.5p)

o  Committed to pay 7.35p per share for 2023 despite a drop in Operational Dividend Cover to 0.63x in H1 2023, following Operational Dividend Cover of 1.32x in 2021 and 1.28x in 2022.

o  Run-rate dividend cover expected to be approximately 1x once the 2023 Pipeline projects are commissioned.

·      Underlying Operational Portfolio Revenue fell 31.9% to £20.5mn (H1 22: £30.1mn) and EBITDA stood at £13.8mn (H1 22: £22.7mn) as long-expected saturation of ancillary services has not been replaced by the anticipated level of trading revenues.  

·      Recent weaker trading has been driven by:

o  Low power price volatility; lower demand caused by higher energy bills and increased supply from rising renewable energy generation. Volatility is cyclical and is expected to normalise.

o  Most significantly, current low utilisation of Batteries by National Grid ESO (ESO) in the Balancing Mechanism (BM). This is affecting the entire GB BESS industry.

·      ESO is holding a key industry event on 16 October 2023 to discuss their initiatives to improve their control room's utilisation of Batteries in the BM. These include:

o  Their previously announced new trading platform which ESO have publicly committed to launch on 15 December 2023;

o  Parametric changes which will allow Batteries to input the actual capacity they have available to trade; currently Batteries cannot display more than 15 minutes' capacity at a time, and;

o  Changes to make Batteries contractable, e.g., 4 hours, in advance. This is to address National Grid ESO's control room's concerns that Batteries are currently not contractable ahead of when they will be needed and so could, in theory, not be available when needed. 

·      GRID's projects are achieving operating uptime of greater than 95% and generating revenues at a competitive level compared with the rest of the sector, according to available market data[2].

·      Weighted average discount rate of 10.9% (31 December 2022: 10.9%) for assets valued on a DCF basis. GRID only values projects on a DCF basis if they are fully funded and within nine months of commissioning.

 Deployment and Fundraising

·      590MW across 21 operational projects as at 30 June 2023, which has risen to 640MW across 22 operational projects as at 31 August 2023 (up from 425MW, 500MW at respective 2022 dates).

·      An additional 387MW across six projects have been built. Grid connection works for these projects are expected to be completed this year and into H1 2024 with delays attributed to ongoing industry grid connection challenges[3].

·      Further deployment results in a target portfolio of c.1.3GW / 2.5GWh, at an average duration of 2 hours, by mid-2025.

·      £50mn raised in equity placing in May 2023 for GRID's first international project in California, Project Iliad, a 160MW/640MWh solar plus BESS collocation project.

o  Subject to final DD and negotiations the deal is expected to sign in 2023, construction is expected to commence in early 2024 and commercial operations to commence from 2025.

·      Further £50mn drawn from existing debt facilities: total of £110mn debt drawn as at 30 June 2023, out of total £335mn available.

John Leggate CBE, Chair of Gresham House Energy Storage Fund plc, said:

"While we currently face a more challenging electricity market, the Manager's track record and our leading position in BESS in Great Britain position us solidly to take advantage of the market's recovery.

"In particular, strong dividend cover in 2021 and 2022 has allowed us to maintain our committed dividend increase for 2023, despite reduced revenues this year. As more projects come online and installed capacity increases later in 2023 and into 2024, we expect full run-rate dividend cover to return.

Looking to the longer term, we firmly believe that BESS are a strategic cornerstone globally which uniquely will enable the transformation of the energy sector towards carbon neutrality. Renewables are the cheapest form of incremental energy generation and batteries the cheapest and most efficient way of addressing intermittency. These are the two fundamental pillars to delivering a zero carbon future."

Ben Guest, Fund Manager of Gresham House Energy Storage Fund plc and Managing Director of Gresham House New Energy, said:

"We are proud of our track record and industry-leading position as we continue to execute on our plans. The past five years since GRID's IPO have seen some of the most extraordinary market conditions condensed into a short timeframe. While some of those periods have been very positive for GRID, the current weaker trading environment has been challenging and lower revenue forecasts in 2023 also arise from industry issues outside our immediate control.

"We have carefully re-examined our strategy to maximise returns in light of the tougher market environment which includes a focus on extending MWh duration rather than creating new MW capacity. These project extensions do not require new grid connections and provide a quicker route to revenues. At the same time, we are diversifying internationally with Project Iliad in California and are excited about what these projects will unlock in terms of further pipeline and growth. Finally, any potential disposals would provide a secondary market valuation reference for our portfolio as well as generating cash that may have multiple opportunistic uses in the current environment. 

"The inexorable rise of renewable energy is driven by both the economic reality of cheaper energy, and international net zero commitments. With National Grid system issues expected to be addressed in the relatively near term, and new capacity coming into operation, we have no doubt that, as we enter 2024, the long-term return opportunities for GRID remain as strong as ever."

The Company's Interim Report and Financial Statements for the period ending 30 June 2023 are available on the Company's website www.greshamhouse.com/gresham-house-energy-storage-fund-plc and also on the National Storage Mechanism https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

A webinar and Q&A session for investors, to discuss the results, will be held at 11:00am (BST) today, 27 September 2023. This will be an opportunity to hear fund manager, Ben Guest provide an update on GRID's operational and financial performance and to ask questions. Registration is at here or via the GRID website www.greshamhouse.com/gresham-house-energy-storage-fund-plc.

For further information, please contact:

Gresham House New Energy Ben Guest Rupert Robinson	[phone]
Jefferies International Limited Stuart Klein Gaudi Le Roux	[phone]
KL Communications Charles Gorman Charlotte Francis Effie Aye-Maung-Hider	[e-mail] [phone]
JTC (UK) Limited as Company Secretary Christopher Gibbons	[e-mail]  [phone]

About the Company and the Manager:     

Gresham House Energy Storage Fund plc seeks to provide investors with an attractive and sustainable dividend over the long term by investing in a diversified portfolio of utility-scale battery energy storage systems (known as BESS) located in Great Britain and in Overseas Jurisdictions. In addition, the Company seeks to provide investors with the prospect of capital growth through the re-investment of net cash generated in excess of the target dividend in accordance with the Company's investment policy.

The Company targets an unlevered Net Asset Value total return of 8% per annum and a levered Net Asset Value total return of 15% per annum, in each case calculated net of the Company's costs and expenses.

Gresham House Asset Management is the FCA authorised operating business of Gresham House plc, a London Stock Exchange quoted specialist alternative asset manager. Gresham House is committed to operating responsibly and sustainably, taking the long view in delivering sustainable investment solutions.

http://www.greshamhouse.com/

Definition of utility-scale battery energy storage systems (BESS)

Utility-scale battery energy storage systems (BESS) are the enabling infrastructure that will support the continued growth of renewable energy sources such as wind and solar, essential to the UK's stated target to reduce carbon emissions. They store excess energy generated by renewable energy sources and then release that stored energy back into the grid during peak hours when there is increased demand.

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[1] This is exclusive of any potential disposals which would be limited to <200MWh and also excludes any additional pipeline being built from proceeds from any disposals.

[2] Not all revenue data is publicly available but revenues from frequency response, Capacity Market and Balancing Mechanism are available and are amalgamated by data providers such as Modo Energy.

[3] At least two interconnection providers have gone into administration in H1 2023 causing delays in connection works.

 

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