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.