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18 April 2024
Gresham House Energy Storage
Fund plc
("GRID" or the
"Company")
Trading
update
Gresham House Energy Storage Fund
plc (LSE: GRID), the UK's largest fund investing in utility-scale
battery energy storage systems (BESS), is pleased to provide
shareholders with the following trading update ahead of the
publication of its annual results for the year ended 31 December
2023 expected on 29 April 2024.
Highlights
·
The challenging trading environment in January and
February 2024 has improved with revenues since March 2024
reflecting the increased efforts by the GB Electricity System
Operator (ESO) to utilise BESS.
·
Full focus on deleveraging and increasing
operational capacity:
o The
Company's debt facility has been amended and restated, among other
things, to amend the Interest Cover and Net Debt to EBITDA
covenants for 2024 and 2025 to give the business additional
headroom in the event that the recent low revenue environment
prevails; the Company has also decided to cancel £110mn of debt
commitments, reducing the total debt facility size to
£225mn.
o Operational capacity increased to 740MW/864MWh as of 31 March
2024, from 690MW/788MWh as of 31 December 2023; the Manager
continues to make good progress on the remainder of the
construction programme which it expects to complete by the end of
October 2024 increasing operational capacity to
1,072MW/1,696MWh.
·
Unaudited NAV per share of 129.07p as of 31
December 2023, resulted in a 17.01p or 11.64% reduction in NAV per
share since 30 September 2023, reflecting significantly more
cautious revenue assumptions adopted for the next 3
years.
· As capital allocation is focused on cash preservation and debt
reduction and given the challenging recent revenue environment, the
Board does not currently expect to pay any dividends or carry out
further share buybacks in 2024.
John Leggate CBE, Chair, Gresham
House Energy Storage Fund plc, said:
"The BESS sector, the Company and
its shareholders are going through the most challenging operating
environment since the Company's inception in 2018. The Board is
taking a series of steps to put the business on a stable footing in
a volatile market so that we can best capture what we continue to
think is a significant strategic opportunity in the BESS
sector.
In particular, the Board is
prioritising deleveraging and cash preservation given the volatile
trading environment. This has led to the difficult decision to
suspend dividend payments and share buybacks for the balance of
2024 but will enable us to complete our ongoing construction
programme which will drive our near-term cash flow potential and
inform our future dividend policy."
Trading update
As previously announced, the GB BESS
industry has been significantly impacted by a weakness in
electricity markets (made more extreme by the impact the invasion
of Ukraine had on gas and power markets) and the slower than
expected adoption of BESS by the ESO.
In this context, January and
February of 2024 were among the most challenging months to date for
the GB BESS market and for the Company. Initiatives such as the
Open Balancing Platform (OBP) which was launched by ESO in December
2023, the first milestone in their Balancing Programme, have not
yet delivered the expected impact on the GB BESS market.
More recently, it has been
encouraging to see revenues in March and April improve
meaningfully. However, revenues remain well below long-term
third-party forecasts. Higher revenues since March can be
attributed to the increased efforts by ESO to utilise BESS while
implementing upgrades in line with their Balancing Programme. In
particular, we have seen the launch of 'Balancing Reserve'
(allowing BESS a completely new revenue stream) and a change from a
'15-minute' rule to a '30-minute' rule (allowing BESS to be
dispatched by ESO for a maximum of 30 minutes instead of 15)
contribute to the recent improvement.
Growing operational capacity from
new projects and duration extensions is increasing the Company's
cash generation potential as the year progresses. More
specifically:
- York (50MW) has been
commissioned and the extension at Arbroath (35MW) from 1h to 1.4h
has been completed;
- Penwortham (50MW) and
Shilton Lane (40MW) are expected to be energised on or around 30
April; and
- Nevendon's extension
to 15MW at 2h (previously 10MW and <1h) and both Enderby's
(50MW) and West Didsbury's (50MW) extensions to 2h are expected to
start earning revenues in the second half of May.
The above represents seven of the
Company's thirteen projects in construction this year. The
remaining six projects (Melksham (100MW), Elland (50MW) and
Bradford West (87MW) as well as the extensions to 2h at Penwortham,
Melksham and Coupar Angus) will follow, with the aim being to
conclude all projects by the end of October 2024.
Debt Facility - amendment and
restatement agreement
In order to give the business
additional headroom in the recent lower revenue environment, the
Company has amended and restated its debt facility agreement.
Specifically, this includes:
- consent to draw all
remaining funds required (up to £65mn) to complete the current
construction programme, which is forecast to take operational
capacity to 1,072MW/1,696MWh in 2024.
- amended
Interest Cover and Net Debt to EBITDA covenant levels for 2024 and
2025.
The Company has also decided to
cancel £110mn of the undrawn debt facility taking the total size
down to £225mn of which £110mn has been drawn to date. All drawn
debt is fully hedged at 3.70% resulting in a blended cost of debt
of 6.70%. The margin on the debt facility remains unchanged at
300bp over SONIA.
Unaudited NAV per share
The Company's unaudited NAV per
share for 31 December 2023 is 129.07p, resulting in a 17.01p or
11.64% reduction in NAV per share since 30 September 2023. This
reflects a significant haircut applied to near-term, third-party
revenue forecasts to factor in the prevailing under-utilisation of
GB BESS assets by ESO. Specifically, the valuation included revenue
forecasts for 2024 set at 55% of the third-party forecasts, while
2025 and 2026 revenue assumptions apply incrementally smaller
reductions to third-party forecasts. From 2027, a return to
third-party central case forecasts is assumed, as, by this time, i)
ESO's Balancing Programme is expected to have concluded, resulting
in significantly revamped control room systems which are expected
to create a more level playing field which should in turn
significantly increase the utilisation of BESS and ii) the Manager
estimates that renewable electricity penetration will reach 70%
during 2027 (from c.45% today), significantly increasing the need
for 'flexible generation' which BESS provides very
competitively.
The Q1 2024 unaudited NAV per share
will include uplifts from i) an additional £3.2mn of T-1 Capacity
Market contract revenues awarded in the latest auctions, ii) share
buybacks totalling 0.5% of the shares outstanding as of 31 December
2023 and iii) the reduction in the weighted average discount rate
as new projects move into commercial operations. There has been no
change in the level of underlying discount rates used.
Capital Allocation
The Board's priority is to
deleverage without compromising the construction programme which
will significantly increase operational capacity and accordingly
cash flows. These actions will provide the Company with a scalable
platform and a lower debt profile which the Board believes
positions the Company well for a future recovery in the BESS
market.
The Fund's debt to Gross Asset
Value[1] was 13% as of
31 December 2023 and is not expected to exceed 20% by the time all
current construction projects have been completed. Notwithstanding
this relatively low level of gearing, in the current challenging
revenue environment, the Board is focused
on cash preservation during 2024.
Accordingly, the Board does not
expect either to pay a dividend or to carry out any further share
buybacks in 2024.
Webinars
The Company will be holding two
webinars tomorrow morning, 19 April 2024, for both sell-side
analysts and investors. During these, Fund Manager, Ben Guest will
discuss this Trading update and investors will have the opportunity
to ask questions. Access details are as follows:
Analyst webinar: 9:00am - please
register
here.
Investor webinar: 11:00am - please
register
here.
Announcement of Results:
The Company's Annual Report and
Accounts to 31 December 2023 will be released on 29 April 2024
followed by a presentation of results from the Manager.
For further information, please
contact:
Gresham House New Energy
Ben Guest
+44 (0) 20 3837 6270
James Bustin
Jefferies International Limited
Stuart
Klein
+44 (0) 20 7029 8000
Gaudi Le Roux
Harry Randall
KL
Communications
gh@kl-communications.com
Charles Gorman
+44 (0) 20 3882 6644
Charlotte Francis
Effie Aye-Maung-Hider
JTC
(UK) Limited as Company Secretary
GHEnergyStorageCoSec@jtcgroup.com
Christopher
Gibbons
+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 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.
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, the Manager, Jefferies 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 Company is
speculative, involves a high degree of risk, and could result in
the loss of all or substantially all of their 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 returns will be achieved or that the Company will be able
to implement its investment strategy or achieve its investment
objectives. Any target returns published by the Company are targets
only. There is no guarantee that any such 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 returns generated by
the Company to be materially lower than the target 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.
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 accepts 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 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.