Portfolio Update and Net Asset Value

Harmony Energy Income Trust PLC

30 November 2023

 

30 November 2023

Harmony Energy Income Trust plc
(the "Company" or "HEIT")

Portfolio Update and Net Asset Value

Harmony Energy Income Trust plc, which invests in battery energy storage system ("BESS") assets in Great Britain, announces its unaudited Net Asset Value ("NAV") update, together with a portfolio and operational update.

Highlights

·     2 pence per Ordinary Share dividend was paid on 29 September 2023, meaning the Company has distributed 75% of the 8p target in relation to the Financial Year 2023, in line with expectations.

·     The unaudited NAV as at 31 October was £262.12 million, or 115.40 pence per Ordinary Share, an increase of 0.61 pence per Ordinary Share (+0.53%) compared to 31 July 2023.

·     99 MW Rye Common project sold on 1 September 2023 at 1.5 per cent. premium to carrying value (as at 30 April 2023, as per the Company's interim results.  Project sold at "shovel ready" status).

·      Bumpers and Little Raith projects (combined 297 MWh / 148.5 MW) energised in October 2023. 

·     As previously reported on 1 September 2023, the Company procured a T-1 Capacity Market contract via the secondary market booking £403k of contracted income - factored into this NAV update.

·     Post period-end, additional T-1 Capacity Market contract procured via the secondary market, creating a further £324k of contracted revenue (not incorporated into this NAV update). 

Portfolio Update

The Company's portfolio consists of eight 2-hour duration BESS projects totalling 790.8 MWh / 395.4 MW (the "Portfolio"), of which 555 MWh / 227.5 MW (70% of the Portfolio) is operational.

The operational capacity of the Portfolio more than doubled during the reporting period with the energisation (ahead of schedule) of Bumpers and Little Raith (combined 297 MWh / 148.5 MW). The Bumpers project is the Company's largest BESS project, and the joint-largest in Europe (by MWh), being 2 MWh larger in capacity than the Company's Pillswood project. The Company now owns two of the three largest operational BESS assets in Europe (by MWh). The Rusholme project (70 MWh / 35 MW), has completed BESS installation (defined as "Cold Commissioned") but grid connection works continue to be delayed, with the modelled programme now pushed out to early Q2 2024. The Wormald Green and Hawthorn Pit projects have recently taken delivery of the first Envision battery modules.

From 1 October, the Pillswood, Broadditch and Farnham projects began to benefit from contracted T-1 Capacity Market payments, in line with modelled cashflows. As reported in the Portfolio Update published on 1 September 2023, early energisation of Little Raith and Bumpers enabled the Company to procure a T-1 Capacity Market contract via the secondary market to the value of £403k, now factored into the NAV for this period. Post period-end, the Company has procured another T-1 Capacity Market contract, realising a further £324k over 11 months from November 2023 (to be factored into the Company's NAV in the next update). Combined, the two contracts represent £727k of additional contracted revenue for the Company in relation to Financial Year 2024.

Operationally, the Portfolio continues to perform well relative to peers (on a £/MW basis).  As at the date of publication of this Factsheet, the Company's Pillswood (Phase 1) project ranks #1 year-to-date (Source: Modo Energy).

Project	MWh / MW	Location	Target Commercial Operations Date1	Status
Pillswood	196 / 98	Yorkshire	Operational	Operational
Broadditch	22 / 11	Kent	Operational	Operational
Farnham	40 / 20	Surrey	Operational	Operational
Bumpers	198 / 99	Bucks.	Operational	Operational
Little Raith	99 / 49.5	Fife	Operational	Operational
Rusholme	70 / 35	Yorkshire	Q2 2024	Cold Commissioned
Wormald Green	66 / 33	Yorkshire	Q2 2024	Under Construction
Hawthorn Pit	99.8 / 49.9	County Durham	Q2 2024	Under Construction
Total	790.8 / 395.4

¹ Dates are based on calendar year

External Debt Update

The Company currently benefits from £130 million of senior debt facilities, consisting of a £20 million revolving credit facility (unhedged) and a £110 million term loan facility (hedged by way of an interest rate cap of 5.25% per annum). The high rate of project construction completions during the reporting period has meant that the Company has accelerated the rate of debt drawdowns from such facilities. As at the end of the reporting period, total debt drawn equated to £95 million, including £10.6 million drawn under the revolving facility.  This equates to 36% of current NAV.

Market Commentary

Average GB BESS revenues were mixed over the quarter.  Day-ahead wholesale power market spreads narrowed to more seasonal norms in August before increasing again in September and October (by 25% and 32% respectively). Continued depressed pricing in the ancillary services markets encouraged greater participation (>50% of Portfolio revenues during the period) in arbitrage revenue strategies (wholesale trading and Balancing Mechanism), and it is well documented that longer-duration BESS outperforms shorter-duration BESS in such conditions. Of the ancillary services, the preferred strategy of the Portfolio has been the Dynamic Regulation ("DR") service (c.33% of Portfolio revenues during the period).  As previously reported, 2-hr duration BESS can dedicate a greater proportion of their MW capacity to the DR service than shorter-duration BESS, and DR has historically cleared at a consistently higher price than other ancillary services.  Using a combination of DR and wholesale trading is a common strategy for the Portfolio. DR provides opportunity for the BESS to either be paid to charge or charge for free, and this in turn provides opportunity to maximise the spread when the stored power is exported later in the day via the wholesale markets.  Post-reporting period, the recent introduction by National Grid ESO of the Enduring Auction Capability is expected to make DR less valuable.  However, the planned launch of the Open Balancing Platform by National Grid ESO in December 2023 is expected to significantly increase trading volumes for BESS via the Balancing Mechanism.  This combination should result in an increased weighting towards arbitrage as the principal revenue strategy for the Portfolio. From October, the Company's first T-1 Capacity Market contracts began delivering additional revenues to the Portfolio. See the Company's published Quarterly Factsheet for a graph showing average monthly revenues by BESS duration across the GB fleet during 2023 (including the impact that a T-1 Contract would have had on such revenues), and a pie chart depicting the proportionate levels of revenue earned by the Portfolio across various strategies during the period.  

NAV Update 31 October 2023

As at 31 October 2023, the Company's unaudited NAV was calculated to be £262.12 million (115.40 pence per Ordinary Share). This represents an increase of 0.61 pence per Ordinary Share (+0.53%) compared to 31 July 2023. The principal positive drivers were (i) the roll forward effect as "under construction" projects become closer to revenue generation (+2.94 pence per Ordinary Share); and (ii) the energisation and subsequent revaluation of Little Raith and Bumpers projects (combined 1.31 pence per Ordinary Share). Negative factors impacting the NAV included (i) a further revision to the energisation date for the Rusholme project together with one month extensions to the construction timetables for Wormald Green and Hawthorn Pit (aggregate -2.12 pence per Ordinary Share); and (ii) payment of the quarterly dividend (-2.0 pence per Ordinary Share). Revenue assumptions and discount rates have been revised, as further detailed below.

Revised Revenue Assumptions and Discount Rates

Having analysed updated long term revenue forecasts published by independent market commentators, and as agreed with the Company's independent valuer, the Company is publishing updated forward looking revenue assumptions used for performing asset valuations. Compared to previous assumptions, this translates to a marginally positive impact on NAV (0.01 pence per Ordinary Share), with slightly lower headline revenue figures balanced against less degradation losses over the long term. In addition, whilst the discount rates applicable to "under construction" (10.50%) and "operating" (10.00%) assets have not changed, the independent valuer has recommended the introduction of a new discount rate category of 10.25%, to apply to newly energised assets (less than 3 months operating track record). This withholds an element of construction risk whilst the projects prove an absence of technical teething issues over the initial 3 months of operations.

The Company's factsheet for 31 October 2023 (including, inter alia, a NAV bridge and detailed long term revenue, cost and inflation assumptions) is available on the Company's website at: https://www.heitp.co.uk/investors/results-reports-and-presentations/

Norman Crighton, Chair of Harmony Energy Income Trust plc, said:

"We have previously commented on the significant achievement by the Investment Adviser's delivery team in energising 555 MWh / 277.5 MWh of the Company's assets by the second anniversary of IPO. Having the third largest operating BESS portfolio (by MW) in GB means the Company will make a material contribution to GB's energy security and network stability during the coming winter months and beyond".

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For further information, please contact:

Harmony Energy Advisors Limited Paul Mason Max Slade Peter Kavanagh James Ritchie [e-mail]
Berenberg Ben Wright Dan Gee-Summons	[phone]
Stifel Nicolaus Europe Limited  Mark Young Edward Gibson-Watt Rajpal Padam Madison Kominski	[phone]
Camarco Eddie Livingstone-Learmonth Georgia Edmonds	[phone]
JTC (UK) Limited Uloma Adighibe [e-mail]	[phone]

LEI: 254900O3XI3CJNTKR453

About Harmony Energy Advisors Limited (the "Investment Adviser")

The Investment Adviser is a wholly owned subsidiary of Harmony Energy Limited.

The management team of the Investment Adviser have been exclusively focussed on the energy storage sector (across multiple projects) in Great Britain for over seven years, both from the point of view of asset owner/developer and in a third-party advisory capacity.  The Investment Adviser is an appointed representative of Laven Advisors LLP, which is authorised and regulated by the Financial Conduct Authority.

Important Information

This announcement does not constitute an offer to sell or the solicitation of an offer to acquire or subscribe for shares in the Company in any jurisdiction. This distribution of this announcement outside the UK may be restricted by law. No action has been taken by the Company that would permit possession of this announcement in any jurisdiction outside the UK where action for that purpose is required. Persons outside the UK who come into possession of this announcement should inform themselves about the distribution of this announcement in their particular jurisdiction.

This announcement contains (or may contain) certain forward-looking statements with respect to certain of the Company's plans and/or the plans of one or more of its investee companies and their respective current goals and expectations relating to their respective future financial condition and performance and which involve a number of risks and uncertainties. The Company's target returns are a target only and there is no guarantee that these will be achieved. This Company cautions readers that no forward-looking statement is a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statements.

It should also be noted that any future NAV per Ordinary Share announced by the Company in due course will, in addition to the matters described in this announcement, also be affected by valuation movements in the Company's Portfolio and other factors including, without limitation, purchase prices of battery energy storage systems and components, project development and construction costs, income and pricing from contracts with National Grid ESO and other counterparties, the potential for trading profitability in the wholesale electricity markets and/or Balancing Mechanism, performance of the Company's investments, and the availability of projects which meet the Company's minimum return parameters in accordance with the Company's investment policy .

 

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