28 February 2024
Harmony Energy Income Trust
plc
(the "Company" or "HEIT")
Portfolio Update and Net
Asset Value
Harmony Energy Income Trust plc,
which invests in battery energy storage system ("BESS") assets in Great Britain,
announces its unaudited Net Asset Value ("NAV") update, together with a
portfolio and operational update for the three months ended 31
January 2024 (the "Period").
Key
Highlights
· 2
pence per Ordinary Share dividend paid on 22 December 2023,
totalling 8 pence per Ordinary Share distributed in relation to the
Financial Year 2023, in line with target.
· The unaudited NAV at 31 January 2024 was £236.3 million, or
104.06 pence per Ordinary Share, a decrease of 11.34 pence per
Ordinary Share (-9.8%) compared to 31 October 2023. The
decrease was driven by weaker-than-expected GB BESS revenues over
the Period, resulting in the Investment Adviser ("IA") reducing the 2024 and 2025
modelled revenue assumptions. This reduction will be reviewed
by the Independent Valuer for the next quarterly NAV update, with
reference to new long-term BESS revenue forecasts expected to be
published by independent third party providers in April.
· Following the end of the Period (as previously
announced):
· the
Company secured contracts in the T-1 Capacity Market auction for
2024/25 delivery, adding £1.7 million of contracted income not yet
factored into valuation models;
· the Company postponed the declaration of the first FY 2024
quarterly dividend of 2 pence per Ordinary Share, pending a review
of the Company's dividend policy; and
· the Company completed a refinancing of its debt facilities on
21 February 2024, lowering costs.
Portfolio Update
The Company's portfolio consists of
eight 2-hour duration BESS projects totalling 790.8 MWh / 395.4 MW
(the "Portfolio"), of which
555 MWh / 227.5 MW (70% of the Portfolio across five projects) is
operational.
Of the remaining three projects, the
Rusholme project (70 MWh / 35 MW) has completed BESS installation
and the DNO has re-mobilised on site to execute requisite
connection works. At the Wormald Green and Hawthorn Pit projects,
the contractor is progressing the installation and connection of
the Envision battery modules, which are on site.
Following the end of the Period, the
Company secured additional contracts in the T-1 Capacity Market
auction held in February 2024, for delivery between October 2024
and September 2025. This increases contracted revenue over the
delivery period to £3.2 million, of which £1.7 million has not yet
been factored into the Company's valuation models but will be
included in the next quarterly update.
Project
|
MWh / MW
|
Location
|
Target Commercial Operations
Date1
|
Status
|
Pillswood
|
196 /
98
|
Yorkshire
|
Operational
|
Operational
|
Broadditch
|
22 /
11
|
Kent
|
Operational
|
Operational
|
Farnham
|
40 /
20
|
Surrey
|
Operational
|
Operational
|
Bumpers
|
198 /
99
|
Bucks.
|
Operational
|
Operational
|
Little
Raith
|
99 /
49.5
|
Fife
|
Operational
|
Operational
|
Rusholme
|
70 /
35
|
Yorkshire
|
Q2
2024
|
Cold
Commissioned
|
Wormald
Green
|
66 /
33
|
Yorkshire
|
Q2
2024
|
Under
Construction
|
Hawthorn
Pit
|
99.8 /
49.9
|
County
Durham
|
Q2
2024
|
Under
Construction
|
Total
|
790.8 /
395.4
|
|
1 Dates are based on calendar
year
External Debt Update
The Company drew the balance of its
£130 million of senior debt facilities during the Period in order
to fund construction milestone payments. Post-Period end, the
Company completed the amendment and restatement of its debt
facilities, structuring a long term sculpted amortisation profile
until February 2031 with reduced margins. Applicable debt covenant
ratios have been reset against updated revenue forecasts to ensure
ongoing headroom in the current revenue environment. The
Company executed an interest rate swap on 22 February 2024 which
"fixes" SONIA at a rate of 4.10% per annum. When combined
with the margin of 2.75% applicable for the initial two years of
the new facility, the total cost of debt is therefore
6.85%.
Market Commentary
Average GB BESS revenues over the
Period were disappointing, declining month-on-month. Average
day-ahead wholesale power market spreads narrowed to £52/MWh in
January, the lowest since June 2021 and 64% lower than January
2023. This correlates with a continued decline in gas prices and
carbon prices over the Period, coupled with relatively mild
weather. In November, National Grid ESO ("NG ESO") upgraded its auction
methodology and bidding structure in relation to ancillary
services. This is known as the Enduring Auction Capability
("EAC"). Amongst other
changes, the EAC allows clearing prices for ancillary services to
be negative, further reducing net ancillary service revenues for
BESS. Continued depressed pricing in ancillary services markets is
encouraging greater participation in arbitrage revenue strategies
(wholesale trading and Balancing Mechanism), which are more
favourable for 2-hour duration BESS relative to shorter-duration
BESS.
The launch of the Open Balancing
Platform ("OBP") by NG ESO
in December 2023 was interrupted by technical issues and
re-launched in early January 2024. Volumes captured by BESS in the
Balancing Mechanism increased over January but inconsistent
application of the new software by NG ESO has created challenges
for revenue optimisers looking to predict market behaviours. These
teething issues are expected to be overcome and a widening of
wholesale spreads is expected to generate greater revenues for BESS
via the Balancing Mechanism.
The Company's operational portfolio
generated revenue of £3.2 million over the Period. 74% of revenues
came from wholesale and Balancing Mechanism trading. Balancing
Mechanism volume has increased since the re-launch of OBP in
January, but the prevalence of low wholesale market spreads means
that the full impact is yet to be seen.
NAV
Update 31 January 2024
As at 31 January 2024, the Company's
unaudited NAV was calculated to be £236.35 million (104.06 pence
per Ordinary Share). This represents a decrease of 11.34 pence per
Ordinary Share (-9.83%) compared to 31 October 2023. The principal
movement relates to a reduction in modelled revenues throughout
2024 and 2025 (-9.26 pence per Ordinary Share). Other negative
movements relate to an increase in budgeted cost for operational
project insurance (-1.52 pence per Ordinary Share) following recent
observed trends, a reduction in the value of the Company's interest
rate cap (-0.28 pence per Ordinary Share), debt service over the
Period (-1.53 pence per Ordinary Share) and the dividend paid in
December 2023 (-2.00 pence per Ordinary Share).
The above negative movements were
partially offset by (i) the roll forward effect as "under
construction" projects become closer to revenue generation (+1.55
pence per Ordinary Share); and (ii) a reduction in discount rate of
the Little Raith and Bumpers projects from 10.25% to 10.00%
following three months of operations (combined +1.36 pence per
Ordinary Share) and operating free cash flow generated (+1.04 pence
per Ordinary Share).
Revised Revenue Assumptions
Having analysed revenues currently
being generated by BESS projects in GB, the Company is publishing
updated forward-looking revenue assumptions used for performing
asset valuations. Compared to previous assumptions, this
significantly reduces modelled revenues in 2024 and 2025, which
translates to a negative impact on NAV.
Revised long-term forecasts are
expected to be published by independent providers in April 2024.
However the IA has taken this action now in recognition that the
current forecasts do not reflect the near-term revenue environment
being experienced.
The IA will analyse new forecasts
when they are released and will work with the Company's Independent
Valuer to agree revised revenue assumptions during the April 2024
valuation process.
The Company's factsheet for 31
January 2024 (including, inter alia, a NAV bridge and detailed long
term revenue, cost and inflation assumptions) is available on the
Company's website at:
https://www.heitp.co.uk/investors/results-reports-and-presentations/
Norman Crighton, Chair of Harmony Energy Income Trust plc,
said:
"The strong performance of the Company in delivering 555 MWh
of operating assets in time for winter 2023/24 has, regrettably,
not been followed by the high revenue environment such efforts
deserved. In recognition of the lower-than-anticipated BESS revenue
experienced by the sector pre-and post-Christmas, we have taken the
proactive step of lowering modelled revenue assumptions for 2024
and 2025. This, together with a growing amount of support
from contracted capacity market income, lower debt costs and a
review of dividend policy will provide a platform for the Company
to use its technical advantages and commercially skilled team to
take maximum advantage of any reversal of recent revenue
trends."
END
For further information, please
contact:
Harmony Energy Advisors Limited Paul Mason
Max Slade
Peter Kavanagh
James Ritchie
info@harmonyenergy.co.uk
|
|
Berenberg
Ben Wright
Dan Gee-Summons
|
+44 (0)20 3207 7800
|
Stifel Nicolaus Europe Limited
Mark Young
Edward Gibson-Watt
Rajpal Padam
Madison Kominski
|
+44 (0)20 7710 7600
|
Camarco Eddie
Livingstone-Learmonth
Georgia Edmonds
|
+44 (0)20 3757 4980
|
JTC
(UK) Limited Uloma
Adighibe
Harmony.CoSec@jtcgroup.com
|
+44 (0)20 3832 3877
|
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 focussed on the energy
storage sector (across multiple projects) in Great Britain for over
seven years, both from the point of view of asset owner/developer
and in a third-party advisory capacity. The Investment
Adviser is an appointed representative of Laven Advisors LLP, which
is authorised and regulated by the Financial Conduct
Authority.
Important
Information
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 Ordinary 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 .