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
+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.