Quarterly NAV and Factsheet Publication

Gresham House Energy Storage Fund

22 May 2024

 

22 May 2024

GRESHAM HOUSE ENERGY STORAGE FUND PLC

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

Quarterly NAV and Factsheet publication

Gresham House Energy Storage Fund plc (LSE: GRID) announces its NAV as at 31 March 2024 was £745.2mn and NAV per share was 130.58p per ordinary share (31 December 2023: 129.07p).

Highlights

·    As of 31 March 2024, NAV per share increased 1.17% to 130.58p

·    Operational portfolio reached 740MW on 31 March 2024 vs 690MW on 31 December 2023 and has subsequently increased to 790MW.

·    During the quarter, the most significant changes to NAV per share included:

o  +1.13p from portfolio cashflow generation

o  +0.92p from West Didsbury and York being revalued as operational projects

o  +0.51p from new one-year, T-1 Capacity Market (CM) contracts awarded in February 2024

o  +0.39p from the buyback of 2,743,621 shares at an average price of 48.01p

o  +0.07p from updated revenue forecasts

o  -0.35p relating to Fund costs, including transaction fees

o  -0.47p relating to interest and other debt-related costs

o  -0.69p for other items including model roll-forward and movement in fair value of interest rate swaps.

·    No changes to inflation assumptions or underlying discount rates during the period.

·    Weighted average discount rate (WADR) was 10.8% in Q1 2024; 10.6% if only taking the portfolio's operational assets.

·    Operational assets have been valued at £761k/MW. The discounted cashflow valuation represented £699k/MW of this total while working capital, which includes cash, batteries and other equipment held for upgrades, represented the remainder.

Portfolio activity

York (50MW / 76MWh) was energised in January bringing the operational portfolio to 740MW / 864MWh.

Further progress has been made subsequently with Penwortham (50MW / 50MWh) energising in early May. It is currently expected that the portfolio will reach 1GWh of operational battery capacity by mid-year, and then 1.1GW with 1.7GWh of operational project capacity by the end of the year.

Project augmentations to increase battery duration[1] are also progressing well. Arbroath's augmentation was completed during April while Nevendon, Enderby and West Didsbury are expected to be completed in the near future. Further, Penwortham, having recently energised at a one-hour duration will begin its augmentation programme in early June and Melksham and Coupar Angus augmentations will follow later in the summer.

Market outlook

Q1 2024 was one of the most difficult periods for the GB Battery Energy Storage Systems (BESS) industry to date with the revenue environment being very depressed. Initiatives implemented by the Electricity System Operator (ESO), such as the change of the 15-minute rule to 30 minutes, and the launch of reserve products aim to improve the utilisation of batteries in the Balancing Mechanism. The changes to date have started to have an impact and revenues for March and April increased meaningfully from depressed levels and were above those achieved in January and February[2]. For example, April's portfolio revenues were c.90% above those achieved in February[3]. The Company expects further recovery as the ESO progresses through its Balancing Programme in 2024 and 2025.

The underlying fundamentals for BESS remain strong. Rising renewable penetration and ongoing decommissioning of legacy power plants mean balancing of supply and demand in real time is getting much more challenging and make batteries essential. This is why longer term (2027+) revenue forecast assumptions provided by third-party consultants have not reduced meaningfully despite the current malaise, as it is likely to become much more expensive and difficult for the ESO to balance electricity flows with a combination of gas-fired power plants and curtailment of renewables as renewable penetration rises further.

Valuation process

The Fund's valuation uses the most currently available blended third-party revenue forecasts, or curves, which can be adjusted downwards when deemed appropriate by the Board and Manager. This was considered necessary for the latest third-party curves because, in the Board and Manager's view, they do not yet fully reflect the current weak revenue environment whilst utilisation of BESS improves through the Balancing Programme until 2027.

Through 2020 to 2022, the Company's portfolio consistently outperformed revenue forecasts. In 2023, revenues underperformed third-party forecasts, particularly in the second half of the year. However, the Company is confident that the primary cause of this underperformance - the Balancing Mechanism not functioning as intended - will be addressed through systems upgrades that are underway via the Balancing Programme.

Valuations are reviewed on a half-yearly basis by the Company's Independent Valuer, Grant Thornton, who provides a rigorous 'valuation opinion' to ensure they are calculated using appropriate assumptions including, amongst other things, appropriate revenue curves and discount rates. As part of this exercise, asset values are also compared with those of market peers and available transaction data. Valuations also undergo an annual review as part of the annual audit process by the Company's Auditors BDO.

Portfolio outlook

To give the business additional headroom in the current lower revenue environment, the Company amended and restated its debt facility agreement, amending default covenant levels and cancelling £110mn of the undrawn debt facility.

During this period, the Company continues to focus on strict capital discipline, which will include no dividend payments or further share buybacks in 2024 and a focus on the completion of new and augmentation projects announced in the 2023 Annual Report. Completion of these projects will result in a near doubling of operational battery capacity, from 864MWh at the end of March to 1,696MWh by the end of 2024. This increase in capacity should provide the Fund with higher cashflow levels and provide a stable basis for paying dividends, even in a low revenue environment, during 2025.

Q1 2024 Factsheet

The factsheet for the period ended 31 March 2024 is available within the key documents section of the website at https://greshamhouse.com/real-assets/new-energy/gresham-house-energy-storage-fund-plc/

LEI: 213800MSJXKH25C23D82

For further information, please contact:

Gresham House New Energy

Ben Guest                                                                [phone]
James Bustin 

Jefferies International Limited

Stuart Klein                                                               [phone]
Gaudi Le Roux
Harry Randall 

KL Communications                                                [e-mail]
Charles Gorman                                                        [phone]
Charlotte Francis
Effie Aye-Maung-Hider

JTC (UK) Limited as Company Secretary             [e-mail]
Christopher Gibbons                                                   [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 internationally. 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 Ltd is the FCA authorised operating business of Gresham House Ltd, a specialist alternative asset manager. Gresham House is committed to operating responsibly and sustainably, taking the long view in delivering sustainable investment solutions.

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] Defined as the ratio of MWh (battery capacity) to MW (grid connection capacity)

[2] A revenue update was provided on 24 April 2024 via RNS, and is available here

[3] Total revenue on a sterling basis for the month

 

END