Q2 2024 NAV, valuation & trading update for H1'24

Gresham House Energy Storage Fund
09 September 2024
 

GRESHAM HOUSE ENERGY STORAGE FUND PLC

("GRID" or the "Company")

 

Q2 2024 NAV, valuation and trading update for H1 2024

Contracted revenues and upcoming construction completion provide confidence in a strong earnings recovery in 2025

Three-year plan to be announced at Capital Markets Day in November 2024

 

GRID is pleased to provide an updated NAV per share as of 30 June 2024 alongside an update on recent trading, an outlook on the business into 2025 including an indicative three-year plan for 2025 to 2027, and information about upcoming events.

 

H1 2024 highlights (see below for more detailed commentary)

§ NAV per share declined to 109.16p, down 19.91p since 31 December 2023 with third party revenue forecasts contributing to 19.47p of this decline, principally due to the introduction of a new, more conservative curve provider.

§ Existing merchant and Capacity Market discount rates were unchanged over the period. A new discount rate was introduced to value the tolling agreement related cashflows at 8.5% over the life of the tolling arrangements.

§ The operational portfolio generated net revenues of £17.9mn (H1 23: £20.5mn) and EBITDA of £10.4mn (H1 23: £13.8mn), down 14.5% and 24.6%, respectively. Lower revenues were driven by an especially weak first quarter, following which revenues recovered and stabilised albeit at a lower level than expected over the longer term.

§ Construction of projects and site augmentations continued to progress; as at 30 June 2024 the operational portfolio increased to 790MW (up 14.5% since 31 December 2023) / 931MWh (up 18.1%).

§ Landmark tolling agreement signed with Octopus Energy fixing revenues at above recent merchant revenue levels for two years on 568MW; over 50% of the target portfolio of 1072MW.

§ Debt facility amended and restated to provide additional operational flexibility to build the remainder of the target portfolio.

§ Total debt drawn at the end of the period was £120mn; the total size of debt facility reduced from £335mn to £225mn.

§ Cash on hand between the Company and its investments of £26.8mn as of 30 June 2024.

 

Highlights in the period from 30 June 2024 to date

§ Early net revenue figures for July and August are averaging at the highest levels of the year so far and are c.25% higher than average net revenues in H1 2024.

§ Operational capacity increased further to 790MW / 1031MWh following the energisation of Enderby and West Didsbury extensions, taking operational MWh capacity to over 1GWh for the first time.

§ Four projects (representing 105MW) have been onboarded by Octopus Energy so far and commenced their tolling agreement.

§ GRID cancelled a further £30mn of its debt facility, reducing the total size of the facility to £195mn. The Manager is continuing to have constructive discussions with interested parties around the sale of a subset of the portfolio's projects.

 

Outlook

§ All projects contracted under the tolling agreement are expected to have been technically enabled and onboarded by Octopus Energy by the end of 2024. All tolling contracts are for two years from the date of onboarding a project. Similarly, the Manager expects to complete construction of all new and augmentation projects in the same timeframe. When both are achieved, and taking into account the Company's Capacity Market contracts:

§ approximately two-thirds of the operational portfolio's revenues would be contracted during 2025 and for the first three quarters of 2026

§ Should revenues be £45,000/MW/yr[1] (in line with Modo's August BESS index) on the merchant portion of the portfolio (504MW), total operational portfolio revenues could be c.£65mn1 in 2025 and portfolio EBITDA, c.£45mn1. This would provide a supportive backdrop for the recommencement of dividend distributions.

§ At its upcoming Capital Markets Day (details to follow), the Company intends to announce a three-year plan seeking to maximise portfolio capacity, revenues and cashflow from 2025 to 2027 whilst reducing the volatility of earnings. The Manager believes that GRID, in achieving scale over the last 5 years, has a significant opportunity to maximise value for shareholders as the industry moves past the recent low point in revenues. The key areas of focus include further augmentations, new pipeline opportunities, efficient capital management, and alternative revenue sources.

 

Upcoming events

§ Interim results announcement on 30 September

§ In October, the Manager will host site visits for institutional and retail investors.

§ In November, the Company will host a Capital Markets Day (CMD) which will include the details of a three-year plan from 2025 to 2027 as mentioned above. Further details will be communicated in due course.

 

Commentary on the latest NAV per share and other valuation metrics

The reduction in NAV per share has primarily been driven by lower revenue forecasts from the two third party consultants used by the Company, Modo and Aurora (on a 50/50 blended basis), with Modo being used by the Company for the first time in preparing the Q2 NAV (as a result of the previous consultant maintaining comparatively optimistic revenue assumptions).

 

The Board and Manager are acutely conscious that the volatility in revenue forecasts has made NAV per share a difficult metric for investors to place reliance on, especially in current market conditions. As such, the Company will also make available alternative valuation metrics, including Price to Earnings and EV to EBITDA, which the Board and Manager believe will help investors and analysts better evaluate the business. Such metrics will be set out for the first time in the Company's Interim Report.

 

The NAV per share bridge for the half year period is set out below:

§ -19.47p from lower third-party revenue curves

§ -2.14p from the reduction of 2024 inflation rates

§ -1.88p from contracted revenue changes reflecting the impact from valuing tolling revenues at 8.5% in place of merchant forecasts

§ +0.51p from the fair value movement of interest rate swaps

§ +0.64p gain on share buybacks

§ +1.09p from revaluing Penwortham as in commissioning (25bps discount rate reduction) and York as operational

§ +1.35p from model roll-forward, modelling adjustments, working capital movements, fund, and debt costs

§ The discount rates for projected merchant cash flows and capacity market cash flows are unchanged despite the significant reduction in forecasts

§ The weighted average discount rate fell from 10.87% to 10.76% reflecting a lower rate for tolling revenues and as projects moved from construction to operational

 

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

"We are well aware that net asset value per share metric has been volatile across the renewables ITC sector and can be difficult for investors to assess. We are therefore keen to share mainstream equity valuation metrics in future for our portfolio as well as continuing to disclose the NAV per share. The Board and Manager believe this will help a wider range of investors evaluate the investment case for the shares in more familiar ways. We are also aware that a net asset value figure, as a simple discounted cashflow of projects' cashflows, may not adequately reflect the potential growth and income prospects of this Company.

 

"Last week's results from the latest UK contract-for-difference (CfD) auction have seen contracts awarded to 9.6GW of further solar and wind projects to be constructed. This provides strong visibility for renewables deployment naturally supporting the need for BESS, especially as less economically efficient gas-fired generation is increasingly pushed off the system. Further progress from the Electricity System Operator (ESO) is needed to take full advantage of BESS. We are confident it will increasingly do so as the Open Balancing Platform (OBP) roll out continues."

 

Ben Guest, Fund Manager of Gresham House Energy Storage Fund plc & Managing Director of Gresham House New Energy, added:

 

"The current phase of GRID's construction programme is approaching its conclusion, and the Octopus tolling agreement provides revenue visibility for the next two years. This gives GRID a steady cashflow base to grow from. Building on this more stable base, GRID can start to look beyond its recent challenges and focus on the next three years with further development and innovation. In particular, there are significant further augmentation opportunities which will deliver strong incremental returns as low battery prices and large revenue differentials between durations offer strong returns.

 

"Sources of alternative funding are starting to appear at an acceptable cost of capital that may allow the Company to unlock new pipeline opportunities. The Manager is also seeking to unlock value via further alternative revenue opportunities building on its recent tolling agreement. As such we have renewed and growing confidence over the medium-term prospects for the business and its ability to deliver value for shareholders."

 

Updated portfolio and pipeline as of 30 June 2024

 

Existing assets

Location

Capacity (MW)

Battery size (MWh)

Battery duration (c. hours)

Capacity post augmentation (MW)

Battery size post augmentation (MWh)

Battery duration post augmentation (c. hours)

Operational Status at 30 June 2024

1. Staunch

Staffordshire

20

3

0.20

20

3

0.20

Operational

2. Rufford

Nottinghamshire

7

9

1.35

7

9

1.35

Operational

3. Lockleaze

Bristol

15

22

1.45

15

22

1.45

Operational

4. Littlebrook

Kent

8

6

0.80

8

6

0.80

Operational

5. Roundponds

Wiltshire

20

26

1.30

20

26

1.30

Operational

6. Wolves

West Midlands

5

8

1.55

5

8

1.55

Operational

7. Glassenbury

Kent

40

28

0.70

40

28

0.70

Operational

8. Cleator

Cumbria

10

7

0.70

10

7

0.70

Operational

9. Red Scar

Lancashire

49

74

1.50

49

74

1.50

Operational

10. Bloxwich

West Midlands

41

47

1.15

41

47

1.15

Operational

11. Thurcroft

South Yorkshire

50

75

1.50

50

75

1.50

Operational

12. Wickham

Suffolk

50

74

1.50

50

74

1.50

Operational

13. Tynemouth

Tyne and Wear

25

17

0.70

25

17

0.70

Operational

14. Glassenbury Extension

Kent

10

10

1.00

10

10

1.00

Operational

15. Nevendon

Basildon

10

7

0.70

15

33

2.20

Operational
Augmentation: Nov 2024

16. Port of Tyne

Tyne and Wear

35

28

0.80

35

28

0.80

Operational

17. Byers Brae

West Lothian

30

30

1.00

30

30

1.00

Operational

18. Arbroath

Scotland

35

52

1.49

35

52

1.49

Operational
Augmentation completed

19. Enderby

Leicester

50

100

2.00

50

100

2.00

Operational
Augmentation completed

20. Stairfoot

North Yorkshire

40

40

1.00

40

40

1.00

Operational

21. Couper Angus

Scotland

40

40

1.00

40

80

2.00

Operational
Augmentation: Nov 2024

22. Grendon 1

Northampton

50

100

2.00

50

100

2.00

Operational

23. West Didsbury

Manchester

50

100

2.00

50

100

2.00

Operational
Augmentation completed

24. York

York

50

76

1.50

50

76

1.50

Operational

25. Penwortham

Preston

50

50

1.00

50

100

2.00

Operational
Augmentation: Oct 2024

Total Operational

 

790

1031

1.30

795

1147

1.44


26. Elland 1

West Yorkshire

50

100

2.00

50

100

2.00

Target energisation: Oct 2024

27. Shilton Lane

Scotland

40

80

2.00

40

80

2.00

Target energisation: Sep 2024

28. Melksham

Wiltshire

100

100

1.00

100

200

2.00

Target energisation: Oct 2024
Augmentation: Dec 2024

29. Bradford West

West Yorkshire

87

174

2.00

87

174

2.00

Target energisation: Dec 2024

Total Operational or Under Construction

1067

1485

1.39

1072

1701

1.59


30. Walpole

Cambridgeshire

100

200

2.00

100

200

2.00


Total portfolio owned by the company

1167

1685

1.44

1172

1901

1.62


 

Pipeline projects

Location

Capacity (MW)

Battery size (MWh)

Battery duration (c. hours)

Capacity post augmentation (MW)

Battery size post augmentation (MWh)

Battery duration post augmentation (c. hours)

 

31. Grendon 2

Northampton

50

100

2.00

50

100

2.00


32. Thurcroft 2

South Yorkshire

85

170

2.00

85

170

2.00


33. Monet's Garden

North Yorkshire

50

100

2.00

50

100

2.00


34. Lister Drive

Merseyside

50

100

2.00

50

100

2.00


Total pipeline not owned by the company

235

470

2.00

235

470

2.00


Total Portfolio and Pipeline

 

1402

2155

1.54

1407

2371

1.68


 

 

 

ENDS

 

 

For further information, please contact: 

 

Gresham House New Energy

Ben Guest

James Bustin

 

 

+44 (0)20 3837 6270

Jefferies International Limited

Stuart Klein

Gaudi Le Roux

Harry Randall

 

+44 (0)20 7029 8000

KL Communications

Charles Gorman

Charlotte Francis

Effie Aye-Maung-Hider

 

gh@kl-communications.com

+44 (0)20 3882 6644

 

JTC (UK) Limited as Company Secretary

Christopher Gibbons

 

GHEnergyStorageCoSec@jtcgroup.com +44 (0)20 7409 0181

 

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.

 



[1] Disclaimer: Revenue rates on the merchant portion of the portfolio may vary significantly upwards or downwards from the figure mentioned above; the information given here does not and should not be treated as indicating any likely level of any profits for the current financial period or any subsequent financial period or as otherwise constituting a profit forecast.

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