TIDMHEIT
RNS Number : 9796J
Harmony Energy Income Trust PLC
03 May 2022
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT ARE NOT
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THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES
OF ARTICLE 7 OF REGULATION (EU) NO 596/2014 WHICH IS PART OF UK LAW
BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 ("MAR"). UPON
PUBLICATION OF THIS ANNOUNCEMENT, THE INSIDE INFORMATION IS NOW
CONSIDERED TO BE IN THE PUBLIC DOMAIN FOR THE PURPOSES OF MAR.
3 May 2022
Harmony Energy Income Trust plc
("HEIT" or the "Company")
Company Update
Harmony Energy Income Trust plc, an Investment Trust that
invests in energy storage assets in Great Britain, today announces
a number of updates since the Company's last NAV and Portfolio
update on 22 February 2022.
Key Highlights
-- Portfolio Update - construction progressing, expedited
schedule for Pillswood Project, two further engineering,
procurement and construction ("EPC") contracts signed
-- Revised EPC arrangements to reflect certain contractual
enhancements and cost increases for the Company
-- Increase in projected revenue assumptions of c.17 per cent on
a NPV basis, confirmed by independent valuer and based on revised
independent revenue forecasts, leading to an expected NAV
increase
-- Debt facility agreed (subject to final contract) of up to GBP60 million on competitive terms
-- By end of 2022, the Company expects to have 109MW of
operating projects, 203.5MW "under construction" and a pipeline of
c.500MW "shovel ready" projects ready for acquisition (subject to
financing). All projects expected to be 2-hour duration battery
systems
-- Investment Adviser estimates a net increase in IRR across the
Company's portfolio and the dividend target (as published at IPO)
will be maintained
Portfolio Progress and Updated Contractual Arrangements
Portfolio Progress
Since the last update on 22 February 2022, good progress
continues on the Seed Portfolio Projects. On 29 April 2022 the
Company executed two further EPC contracts with Tesla for the
supply, construction, maintenance and optimisation of the Farnham
(20MW) and Rusholme (35MW) projects, bringing the total number of
projects categorised as "under construction" to four.
In addition, the contracts for Pillswood (Phases 1 & 2 -
each 49MW, total 98MW) have been varied to accelerate the target
commercial operations date by around five months combined across
both phases as further described below. In relation to the Rusholme
Project (35MW), the target commercial operations date has been
moved back slightly by three weeks. Target commercial operations
dates for the remaining Seed Portfolio Projects are unchanged and
are set out in the table below.
Project MW / MWh Location Target Commercial Status
Operations Date
Pillswood 98 / 196 Yorkshire November 2022 Under Construction
----------- --------- ----------------- ------------------
Broadditch 11 / 22 Kent December 2022 Under Construction
----------- --------- ----------------- ------------------
Farnham 20 / 40 Surrey March 2023 Under Construction
----------- --------- ----------------- ------------------
Rusholme 35 / 70 Yorkshire April 2023 Under Construction
----------- --------- ----------------- ------------------
Little Raith 49.5 / 99 Fife October 2023 Shovel Ready
----------- --------- ----------------- ------------------
Total 213.5 / 427
----------- --------- ----------------- ------------------
The Bumpers 99MW project (the "Advanced Project") is expected to
be acquired by the Company shortly. This will take the portfolio to
312.5MW (625MWh).
In addition, Harmony Energy Limited continues to develop
additional pipeline projects under its control for acquisition by
the Company in due course (subject to financing) as part of the
Company's overall 1GW pipeline of BESS projects pursuant to the
pipeline agreement. By 31 December 2022, the Company expects to
have 109MW of operating projects, 203.5MW "under construction" and
c.500MW "shovel ready" projects ready for acquisition (subject to
financing). All pipeline projects are expected to be at least
2-hour duration battery systems.
Updated Contractual Arrangements
High global demand for batteries and rising costs of key raw
materials (for example the price of lithium carbonate, a key
battery component, which has increased by over 250 per cent. in the
past seven months) has increased pressure on project budgets across
the GB battery storage sector. In light of these challenges and
reflecting the strong working relationship between Tesla and
Harmony Energy, the Company and Tesla have agreed a suite of
contractual amendments. The amendments allow Tesla to increase
pricing for the three remaining Seed Portfolio Projects (and the
Advanced Project) but simultaneously grant the Company enhanced
contractual terms which allow the Company to maximise profitability
in current strong revenue market conditions, resulting in a neutral
impact on the Company's base case returns.
The key capex increase is primarily driven by increases in
Megapack prices in aggregate across the Rusholme, Farnham, Little
Raith Projects (and the Advanced Project), however these are
substantially mitigated by the following new arrangements:
i. a reduction in the revenue optimisation fee chargeable by
Tesla for its Autobidder services under the Revenue Optimisation
Agreements across all Seed Portfolio Projects (and the Advanced
Project);
ii. improved warranty terms allowing higher cycling over project
life across all Seed Portfolio Projects (and the Advanced
Project);
iii. an agreement to bring forward the target commercial
operations date for both phases of the Pillswood project to
November 2022 (from December 2022 and March 2023 respectively),
meaning that all 98MW (196MWh) is now scheduled to be generating
revenue for the Company significantly earlier than first
timetabled. This increases the capability of the Company to take
advantage of the current high revenues prevailing in the
market;
iv. in relation to the Advanced Project, the capex increase will
be fully off-set by a "GBP-for-GBP" reduction in the consideration
due to Harmony Energy Limited for such project, meaning that
Harmony Energy Limited will be entitled to a significantly lower
consideration amount, currently estimated to be less than GBP1.0
million, payable in consideration shares (being ordinary shares to
be issued at a price equal to the higher of (i) the most recent
published NAV per ordinary share; or (ii) the average of the last
ten business days closing price per ordinary share). This ensures
that the Company's all-in funding requirement for the Advanced
Project remains at the expected GBP750,000 per MW capacity; and
v. payment of a large proportion of the increased capex will be
deferred until the date of commercial operations of the final
project within the Seed Portfolio, Little Raith (currently expected
to occur in October 2023), subject to a long-stop date of 31
December 2023. Note that the commercial operations date for the
Advanced Project is scheduled to occur several months in advance of
Little Raith.
These new arrangements have been reflected in an amended and
restated Framework Agreement, revised contracts regarding the
Pillswood and Broadditch projects, and the new contracts in respect
of Farnham and Rusholme. The pipeline agreement has also been
varied to reflect the consideration offset in relation to the
acquisition of the Advanced Project.
Certain costs in relation to each project, the 'civils' works,
are variable up to the signing of the relevant EPC contract in
which those costs are then fixed following receipt of tenders from
sub-contractors. As such, an aggregate 24.7 per cent. (GBP3.8
million) of the cash consideration in respect of the Seed Portfolio
was deferred (the "Deferred Consideration") and withheld to offset
any increase in the Company's variable capex budget between the
date of acquisition and the date of contract signing. Further to
the execution of the EPC contracts for Rusholme and Farnham, all
pricing is now fixed for the Seed Portfolio, with Little Raith
remaining as the only exception. Whilst achieved prices are in
excess of those budgeted at the time of IPO, most of this
additional cost has been borne by a corresponding reduction in the
Deferred Consideration, thus shielding the Company from the
majority of such increases. The Company has also introduced
additional contingency to project budgets over and above these
price increases as a prudent measure for valuation purposes.
When taking this additional contingency into account, and
incorporating the additional capex for the Rusholme, Farnham,
Little Raith and Bumpers Megapacks (as outlined above) the current
modelled budget for the Seed Portfolio (and Advanced Project) has
increased by 7.3 per cent.
Market Update & Revenue Forecasts
Battery storage projects in Great Britain have continued to
enjoy strong revenue performance from both ancillary services and
wholesale energy trading with existing 2-hour batteries earning an
average of c.GBP200k per MW per annum between January and March
2022. April saw the launch of two additional ancillary services
which are currently under-supplied, resulting in even higher
performance for those operating assets. Whilst these markets are
expected to stabilise, the overall market conditions are expected
to remain strong in a high gas price environment which, according
to independent revenue projections, is not expected to stabilise
until 2026.
Independent revenue forecasts received by the Investment Adviser
in April 2022 are around 27 per cent. higher than previous
forecasts (dated November 2021) on an NPV basis. The Investment
Adviser produces its own revenue projections which take into
account independent forecasts as well as portfolio specific items.
The Company's Independent Valuer has now agreed an updated revenue
forecast for the Company which is 17 per cent. higher than that
which was considered when calculating the Company's NAV position as
at 31 January 2022. This will be fully confirmed and commented upon
in the Company's next NAV update for 30 April which is due to be
published in mid-May.
Indicative NAV Update
Taking account of the revised revenue forecasts and the revised
contractual arrangements, the next NAV is expected to indicatively
increase by c.9 pence per share. This does not take into account
the signing of the EPC contracts or any other appropriate NAV
movements which will be reflected in the 30 April 2022 NAV to be
published shortly. The new arrangements are not expected to change
the Company's dividend target and are expected to have a positive
impact on IRR once the Advanced Project is acquired.
Once acquired, the Investment Adviser currently expects the
Advanced Project to increase NAV by a further 8 pence per share.
Further valuation uplifts are expected as projects move through the
construction phase and into operations.
New Debt Facility
As previously announced, the Company was in advanced discussions
with a lender to secure a debt facility to fund (among other
things) the consideration of the acquisition and construction of
the Advanced Project. The Company is pleased to announce that it
has reached agreement (subject to contract) on commercial terms
with National Westminster Bank PLC in relation to a debt facility
of up to GBP60 million on terms which the Board and the Investment
Adviser believes to be competitive in the current market.
Documentation in respect of this is expected to be finalised and
executed shortly.
Future Pipeline
By 31 December 2022 the Company anticipates a pipeline of
c.500MW "shovel ready" projects, over which it has exclusivity,
will be ready for acquisition (subject to financing). All projects
are expected to be at least 2-hour duration battery systems. Under
the terms of the pipeline agreement with Harmony Energy Limited,
the Company has the right to acquire these projects based on a
discount rate of no less than 10 per cent. unlevered, ensuring the
Company will have access to attractive projects to drive growth
regardless of potential cost increases prevailing in the wider
market.
Paul Mason, Managing Director of the Investment Adviser
commented:
"The case for battery storage remains compelling with
unprecedented energy prices and the ever-pressing need for
renewable energy. Holes Bay and Contego, the two operating Tesla
battery assets developed by Harmony Energy (in partnership with
FRV) are two of the top performing battery assets in Great Britain.
Both are testament to the two-hour duration battery and Autobidder
software which we fundamentally believe is the best in the market
at the current time."
For further information, please contact:
Harmony Energy Advisors Limited
Paul Mason
Max Slade
Peter Kavanagh
James Ritchie
info@harmonyenergy.co.uk
Berenberg
Gillian Martin
Ben Wright
Ciaran Walsh
Dan Gee-Summons +44 (0)20 3207 7800
Camarco
Georgia Edmonds
Eddie Livingstone-Learmonth +44 (0)20 3757 4980
JTC (UK) Limited
Christopher Gibbons
Harmony.CoSec@jtcgroup.com +44 (0)20 3846 9774
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 focused on the energy storage sector (across multiple
projects) in Great Britain for over six years, both from the point
of view of asset owner/developer and in a third-party advisory
capacity.
Important Information
This announcement contains inside information for the purposes
of Article 7 of MAR. Upon publication of this announcement, the
inside information is now considered to be in the public domain for
the purposes of MAR. The person responsible for arranging the
release of this announcement on behalf of the Company is Harmony
Energy Advisors Limited.
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 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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