9 November 2021
Gresham House Energy Storage Fund plc
(the "GRID" or the "Fund")
Quarterly NAV and Factsheet Publication
Gresham House Energy Storage Fund plc (LSE: GRID) (the "Fund") announces its NAV as at 30 September 2021 was £490.0m or 111.91p per ordinary share.
Financial Highlights
- NAV has increased to £490.0m, or 111.91p per share, up 2.02p per share in the quarter.
- From the IPO in November 2018 to the end of September 2021, the Fund has delivered a share price total return of 42.7% compared with 16.5% for the FTSE All Share and a NAV Total Return of 31.2%.
- Dividend cover remained healthy at 1.2x notwithstanding the increased cash balance following £100m equity fundraising in July.
- The portfolio achieved record EBITDA performance during the quarter with Dynamic Containment generating over 50% of revenues. Increased power price volatility during September led to a record monthly EBITDA, driven by trading.
- Volatility, which is remaining high in Q4 2021, is driving continued record revenue levels, therefore trading is expected to achieve a larger share of revenues going forward.
- Review of weighted average discount rates: as highlighted in the Interim Results, the Fund has completed a review of the discount rates used for valuation purposes. The Board and Manager, in consultation with its Independent Valuer, have agreed that a 0.25% reduction in discount rate applied to merchant cashflows from 11.10% to 10.85% is appropriate. There is no change to the discount rate applied to contracted cashflows. Accordingly, the weighted average discount rate (WADR) for operational assets as at 30 September has therefore dropped to 10.5% from 10.7% at the end of June.
- Review of valuation methodology for in-construction assets: following the Investment Policy change in November 20202, the Fund has acquired several projects at the pre-construction stage from its target pipeline and is currently putting these projects into construction. The Board and the Manager have determined that the appropriate approach is to revalue projects in construction using a discount rate of WADR+0.5% so long as they are projected to commission within 9 months. Post-commissioning, the WADR is applied. This approach will ensure that the revaluation of projects takes place gradually as they are de-risked and major milestones are achieved.
- As at 30 September, the blended WADR across all operational assets (425MW) and in-construction assets (100MW) combined is 10.7%.
Commentary on changes to the NAV
During the quarter, the most significant changes to NAV per share included:
· +3.39p due to revaluation of 100MW of projects under construction (Enderby and West Didsbury)
· +2.25p from cash generated by the portfolio
· +1.32p from the reduction in the discount rate on merchant cashflows of 0.25%
· +0.41p from raising £100m in July 2021 at 112p, a premium to the prevailing NAV
· -1.75p from the payment of dividends
· -1.93p due to lower revenue forecasts. The Fund's third-party consultants revised down Dynamic Containment pricing forecasts following National Grid moving to contracting in four-hourly blocks in mid-September and announcing reduced demand during certain blocks, impacting rest-of-2021 and 2022 price and volume forecasts. Higher trading revenue assumptions offset some of the reduction although overall revenue forecasts remain below currently achievable levels.
Portfolio activity & market outlook
- The Fund has seen a lot of activity in the third quarter of 2021 both in terms of transactions and market backdrop.
- The Fund successfully raised equity of £100m before expenses at 112p in early July 2021. This was in addition to the £120m raised in November 2020.
- In September, the Fund signed a £180m debt facility which consists of a £150m capex facility and a £30m RCF. The facility carries a cost of 300bps over SONIA on amounts drawn and has a term of five years allowing the Fund financial flexibility through the prudent utilisation of this facility.
- The Fund put four projects into construction: Coupar Angus, Arbroath, Enderby and West Didsbury, totalling 175MW. A further 190MW are expected to follow in Q4 and over 200MW in Q1 2022.
- The Fund continues to develop its pipeline which currently stands at 852MW. The team is focused on scaling up through adding new pipeline opportunities to the current batch of projects.
- The market environment has been developing as expected in terms of rising volatility due to the increasing penetration of renewables; in the Manager's opinion, this feature of the market is here to stay and is expected to continue to evolve as more renewables are deployed, resulting in more supply side intermittency.
- Natural gas and carbon prices have risen significantly with the former having the greater impact on electricity prices. We do not expect these very high prices to last more than a few months. It is also not expected that a reversal in gas prices will necessarily result in much lower power price volatility - for example we witnessed similar volatility in December 2020 and January 2021 of last winter despite much lower gas prices.
- As mentioned above, we are seeing lower Dynamic Containment service procurement by National Grid. In moving to four hourly contracting in mid-September, National Grid can now procure less during those times of the day when they need less grid support services. The result is to lower expected prices for Dynamic Containment due to oversupply, in line with the Manager's prior expectations.
The net result of the developments above is that higher volatility is expected to underpin trading revenues while the frequency response market is now in saturation much of the time. As such, the Manager is expecting trading revenues to represent over 50% of revenues in 2022, with total revenues expected to remain robust. The Manager remains confident, given its strong technical capabilities and large scale operating portfolio, to be able to capture significant revenues from this evolving market environment.
Project |
Location |
MW |
Acquisition date |
Staunch |
Staffordshire |
20 |
November 2018 |
Rufford |
Nottinghamshire |
7 |
November 2018 |
Lockleaze |
Bristol |
15 |
November 2018 |
Littlebrook |
Kent |
8 |
November 2018 |
Roundponds |
Wiltshire |
20 |
November 2018 |
Wolverhampton |
West Midlands |
5 |
August 2019 |
Glassenbury |
Kent |
40 |
December 2019 |
Cleator |
Cumbria |
10 |
December 2019 |
Red Scar |
Lancashire |
49 |
December 2019 |
Bloxwich |
West Midlands |
41 |
Operational - Q3 2020 |
Thurcroft |
South Yorkshire |
50 |
Operational - Q4 2020 |
Wickham Market |
Suffolk |
50 |
Operational - Q4 2020 |
Tynemouth |
North Tyneside |
25 |
Operational - Q1 2021 |
Glassenbury Extension |
Kent |
10 |
Operational - Q1 2021 |
Nevendon |
Essex |
10 |
Operational - Q1 2021 |
Port of Tyne |
Tyneside |
35 |
Operational - Q1 2021 |
Byers Brae |
West Lothian |
30 |
Operational - Q2 2021 |
Total Portfolio |
|
425 |
|
|
|
|
|
Project |
Location |
MW |
Target Commissioning |
Enderby |
Leicester |
50 |
Q1 2022 |
West Didsbury |
Manchester |
50 |
Q1 2022 |
Melksham East & West |
Swindon |
100 |
H1 2022 |
Coupar Angus |
Co. Perth |
40 |
Q1 2022 |
Arbroath |
Co. Angus |
35 |
Q1 2022 |
Penwortham |
Preston |
50 |
H2 2022 |
Grendon |
Northampton |
100 |
H2 2022 |
Monet's Garden |
North Yorkshire |
50 |
Q1 2023 |
Lister Drive |
Merseyside |
50 |
Q1 2023 |
Project E2 |
West Yorkshire |
150 |
Q1 2023 |
Stairfoot |
South Yorkshire |
40 |
Q1 2022 |
Project B |
West Yorkshire |
87 |
H2 2022 |
Project Y |
York, N. Yorks. |
50 |
H2 2022 |
Total Pipeline |
|
852 |
|
The factsheet for the period ended 30 September 2021 is available here .
For further information, please contact:
Gresham House New Energy Ben Guest
|
+44 (0) 20 3837 6270 |
Jefferies International Limited Stuart Klein Gaudi Le Roux
|
+44 (0) 20 7029 8000
|
KL Communications Charles Gorman Camilla Esmund Alex Hogan
|
+44 (0) 20 3995 6673 |
JTC (UK) Limited as Company Secretary Christopher Gibbons
|
+44 (0)203 846 9774 |
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, Northern Ireland, and the Republic of Ireland. 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.
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.
Definition of Utility-scale battery Storage Systems
Utility-scale battery storage systems 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 for it.