Trading progress update and 3-year strategic plan

Gresham House Energy Storage Fund

29 November 2024

 

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29 November 2024

Gresham House Energy Storage Fund plc

(GRID or the Company)

Trading progress update & three-year strategic plan

Gresham House Energy Storage Fund plc (LSE: GRID), the UK's largest fund investing in utility-scale battery energy storage systems (BESS), is announcing an update on current trading progress and the highlights of its three-year plan presented at the Company's Capital Markets Day on 27 November 2024.

The Company encourages Investors and Analysts to view the replay of the event which will shortly be available on the Company's website. The key points covered are as follows:

Trading progress update

Improving financial position

·    Capital allocation policy in 2024 has focused on cash preservation which has allowed GRID to manage through the recent challenging operational backdrop.

·    A focus on prudent capital deployment is expected to result in installed MWh capacity[1] growing 116% since 31 December 2023 through to Q1 2025 with a 13% increase in total capital[2]

·    c.£45mn of EBITDA in 2025, two thirds contracted[3], creating revenue visibility, as highlighted in the H1 2024 Interim report and accounts

·    Focus on disposals to reduce debt continues while current debt arrangements remain in place

·    Compliance with debt terms, with net debt expected to peak at 20% of Gross Asset Value[4]

·    Commenced process to refinance existing debt facilities with new sustainable amortising debt to align with launch of GRID's new 3-year plan envisioning the transition of its portfolio away from a primarily merchant asset base and sizing debt off contracted revenues  

Aiming to set a valuation benchmark proving GRID's NAV

·    Equity investment into 50MW Glassenbury project, under exclusivity

·    Targeting a pre-money valuation at the project's current valuations which is reflected in the Company's NAV

·    The prospective investment provides funding for an accretive augmentation to a 4-hour duration

·    Deal is expected to close in Q1 2025

Reinstating GRID's Dividend Policy

·    GRID expects to reinstate its Dividend Policy in 2025 once the current debt has been refinanced

·    The future Dividend Policy will be focused on providing:

o  sustainable, fully covered dividends (after costs)

o  three smaller quarterly distributions with a final larger payment linked to performance

·    If EBITDA reaches £45-55mn in 2025, cashflow[5] per share to be 4.5-6.2p

·    Capital allocation: balance between income and growth to reflect the stabilised earnings of the business and its growth potential

Clean Power 2030: a strong commitment to BESS in Great Britain

·    Clean Power 2030 requires[6] 22GW of BESS and up to 81GW / 99GWh of Long Duration Energy Storage (LDES)

Sector fundamentals providing tailwinds including

·    The National Energy System Operator's (NESO) Open Balancing Platform (OBP) rollout

·    Wind & solar capacity is growing rapidly

·    Demand growth: electric vehicles are just 4% of cars on UK roads

·    Slower UK BESS growth in 2024 is expected to result in less competition in the near term

·    Baseload capacity is decreasing with coal fired generation now offline and the gas and nuclear fleets set to shrink

·    Long duration storage cap and floor opportunity adds a new dimension to the BESS industry

Three-year plan

£150mn EBITDA target[7]

Subject to a successful refinancing, indicated level of £45mn during tolling period is targeted to increase as follows:

·    2025-2027: 1.5GWh augmentation of existing portfolio targeting incremental EBITDA of £33mn

·    2026-2027: 680MW targeting incremental EBITDA of £47mn

·    2025-2027: Increased revenue stack: agreement in principle reached; targeting EBITDA of £25mn

·    No improvement in the trading backdrop is assumed, which is based on £45,000 per MW per year for uncontracted projects, which in turn reflects the revenue backdrop at the time that Interim results were presented in September 2024

Backdrop to refinancing: Moving with the times

·    Experience means only low leverage is appropriate on merchant revenues

·    Long-term revenue contracts emerging

·    Blended approach route to market looking forward means debt can be sized off long term contracted revenues while maintaining an uncontracted asset base to capture upside potential

Benefits of blended contracting approach

·    Project financing with contracted revenues significantly reduces risk of unexpected drops in revenues and provides a more stable platform for optimizing GRID's capital structure and payment of future dividends

·    Potential returns remain strong thanks to project financing offering a lower cost of capital and unlocks growth through augmentations and the new pipeline indicated above in the three-year plan.

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

"Following a review of the Company's performance over recent years and a considered view of the outlook for the coming three-year period, the Board and Manager are able to offer a positive view that the BESS sector in the UK is turning a corner and is on a path to improving performance. The underlying rationale is based on:

·    The UK's Net Zero policy and regulatory regime becoming progressively more favourable to BESS

·    NESO's operating practices, as the Operational Balancing Platform rollout progresses, more opportunities are created for BESS

·    The Company has significantly reduced counterparty risk with NESO by reducing merchant revenue exposure by c.50%

·    The recently launched process to refinance should move from debt servicing based on merchant revenues to one where the debt is sized off contracted revenues and amortised over a longer term

Therefore, taking these factors into consideration, the Board and the Manager are feeling more confident of delivering growth for the Company and re-instating the ability of the Company to pay covered dividends during 2025."

For further information, please contact: 

Gresham House New Energy Ben Guest James Bustin Harry Hutchinson	[phone]
Jefferies International Limited Stuart Klein Gaudi Le Roux Harry Randall	[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 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 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.

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.

DISCLAIMERS

This announcement has been prepared for information purposes only. This announcement does not constitute a prospectus relating to the Company and does not constitute, or form part of, any offer or invitation to sell or issue, or any solicitation of any offer  to subscribe for, any shares in the Company in any jurisdiction nor shall it, or any part of it, or the fact of its distribution, form the basis of, or be relied on in connection with or act as any inducement to enter into, any contract therefor. The merits or suitability of any securities must be independently determined by the recipient on the basis of its own investigation and evaluation of the Company. Any such determination should involve, among other things, an assessment of the legal, tax, accounting, regulatory, financial, credit and other related aspects of the securities.

This announcement may not be used in making any investment decision in isolation. This announcement on its own does not contain sufficient information to support an investment decision and investors should ensure that they obtain all available relevant information before making any investment. This announcement does not constitute or form part of and may not be construed as an offer to sell, or an invitation to purchase or otherwise acquire, investments of any description, nor as a recommendation regarding the possible offering or the provision of investment advice by any party. No information in this announcement should be construed as providing financial, investment or other professional advice and each prospective investor should consult its own legal, business, tax and other advisers in evaluating the investment opportunity. No reliance may be placed for any purposes whatsoever on this announcement or its completeness.

The information and opinions contained in this announcement are provided as at the date of the announcement and are subject to change without notice and no representation or warranty, express or implied, is or will be made in relation to the accuracy or completeness of the information contained herein and no responsibility, obligation or liability or duty (whether direct or indirect, in contract, tort or otherwise) is or will be accepted by the Company, Gresham House Asset Management Limited, Jefferies International Limited or any of their affiliates or by any of their respective officers, employees or agents to update or revise publicly any of the statements contained herein. No reliance may be placed for any purpose whatsoever on the information or opinions contained in this announcement or on its completeness, accuracy or fairness. The document has not been approved by any competent regulatory or supervisory authority.

Any investment in the Company is speculative, involves a high degree of risk, and could result in the loss of all or substantially all of the investment. Results can be positively or negatively affected by market conditions beyond the control of the Company or any other person. Any data on past performance contained herein is no indication as to future performance and there can be no assurance that any targeted or projected earnings or returns will be achieved or that the Company will be able to implement its investment strategy, including without limitation, the refinancing, or achieve its investment objectives. Any target earnings or returns published by the Company are targets only. There is no guarantee that any such earnings or returns can be achieved or can be continued if achieved, nor that the Company will make any distributions whatsoever. There may be other additional risks, uncertainties and factors that could cause the earnings and returns generated by the Company to be materially lower than the target earnings and returns of the Company.

The information in this announcement may include forward-looking statements, which are based on the current expectations, intentions and projections about future events and trends or other matters that are not historical facts and in certain cases can be identified by the use of terms such as "may", "will", "should", "expect", "anticipate", "project", "estimate", "intend", "continue", "target", "believe" (or the negatives thereof) or other variations thereof or comparable terminology. These forward-looking statements, as well as those included in any related materials, are not guarantees of future performance and are subject to known and unknown risks, uncertainties, assumptions about the Company and other factors, including, among other things, the development of its business, trends in its operating industry, and future capital expenditures and acquisitions. In light of these risks, uncertainties and assumptions, the events in the forward-looking statements may not occur and actual results may differ materially from those expressed or implied by such forward looking statements. Given these risks and uncertainties, prospective investors are cautioned not to place undue reliance on forward-looking statements.  In particular (i) any disposal is subject to various factors including, without limitation, completion of satisfactory sale and purchase agreements; and (ii) any investment is subject to completion of satisfactory legal, technical and financial due diligence and documentation, which may include, without limitation, entering into and completion of investment documentation.  There can be no guarantee that the Company will dispose of, or invest in any BESS project.

Jefferies International Limited, which is authorised and regulated by the Financial Conduct Authority in the United Kingdom, is acting only for the Company in connection with the matters described in this announcement and is not acting for or advising any other person, or treating any other person as its client, in relation thereto and will not be responsible for providing the regulatory protection afforded to clients of Jefferies or advice to any other person in relation to the matters contained herein. Neither Jefferies nor any of its directors, officers, employees, advisers or agents accept any responsibility or liability whatsoever for this announcement, its contents or otherwise in connection with it or any other information relating to the Company, whether written, oral or in a visual or electronic format. Each of the Company, the Manager, Jefferies and their affiliates and their respective officers, employees and agents expressly disclaim any and all liability which may be based on this announcement and any errors therein or omissions therefrom.

No representation or warranty is given to the achievement or reasonableness of future projections, management targets, estimates, prospects, earnings or returns, if any. Any views contained herein are based on financial, economic, market and other conditions prevailing as at the date of this announcement. The information contained in this announcement will not be updated.

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1 MWhs will have grown from 788MWh on 31 December 2023 to 1,701MWh in Q1 2025

[2] Increase in total capital refers to the increase in net debt divided by the opening Gross Asset Value (GAV) at 31 December 2023, with GAV adjusted for the latest valuations at 30 September 2024.

3 Revenues will be 2/3 contracted once all tolling agreements are in place and assumes a merchant revenue rate on 504MW of uncontracted assets, of £45k/MW/yr

[4]  As defined in GRID's Interim Report for the period ended 30 June 2024

[5] Cashflow is calculated by deducting net interest costs and charges and GRID costs from EBITDA.

[6] https://www.neso.energy/document/346651/download, NESO, 4 November 2024

[7] This is a target and is based on current market conditions as at the date of this announcement only and is not a profit forecast.  There can be no assurance that this target will be met.  This target and the other targets described in this announcement should not be taken as an indication of GRID's expected or actual current or future EBITDA.

 

END