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INFORMATION
1 February 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), today provides a trading
update ahead of the publication of its audited annual results in
April 2024.
The Company continues to be impacted
by the weak revenue environment, due to a combination
of:
·
BESS still being significantly under-utilised in
National Grid ESO's (ESO's) Balancing Mechanism (BM) - its forum
for trading the necessary amounts of electrical energy to balance
supply and demand for each half-hourly period - resulting in 'skip
rates' remaining high despite the recent launch of ESO's Open
Balancing Platform (OBP), one of the key milestones in ESO's
Balancing Programme;
·
the continued excessive use of legacy gas-fired
electricity generation by ESO to provide the BM with flexible
generation which in turn causes oversupply in the wholesale
electricity market, reducing the revenue opportunity for BESS;
and
·
the slower than expected pace of commissioning of
new projects to date, due to elongated grid connection
times.
The rising need for BESS as
renewable generation increases remains as true as ever. The revenue
environment is expected to
improve, as discussed in the Market update below, although there is
some uncertainty on the timing and trajectory of such
improvement.
Also, notwithstanding challenges
around the completion of connection works at certain projects, the
Company remains on target to reach 1,072MW in total operational
capacity (currently 740MW) and intends to complete a number of
extensions to project durations in 2024, taking the average project
duration to 1.6hrs (currently 1.2hrs), doubling the number of MWh installed
over the course of the year. A more detailed update is included
below.
In light of the uncertainties and
challenges mentioned above, the Board and Manager's aim is to put
the Company in the strongest possible position, to ensure it
remains cash generative as it manages its way through the current
low revenue backdrop and make certain that revenue accretive
projects get commissioned during 2024. As previously reported, the
increase in operational capacity detailed above would enable the
Company to cover its historical dividend on a run-rate basis at
depressed revenue levels.
Meanwhile, the Board and Manager are
determined to take a proactive and disciplined approach to capital
allocation, focusing on i) capex, ii) dividend policy, iii) share
buybacks and iv) the Company's debt facility.
i)
Capex - In 2024, the
Company intends to solely focus on completion of its 2023 pipeline
projects comprising of a further 332MW, all of which are
constructed and awaiting completion of grid connection related
works, together with the duration extensions already committed to,
given the potential for this to meaningfully increase the earnings
capacity of the portfolio. A significant amount of this capex is
expected to be financed by cash on hand (which stood at in excess
of £40 million as at 31 December 2023).
ii)
Dividend policy - Given the
recent difficult revenue environment, the Board has decided not to
declare a dividend for Q4 2023. In terms of the dividend for 2024,
if the current revenue environment endures, it will be challenging
to generate the cash required to cover the dividend this year. As
such, the Board intends to recalibrate the Company's dividend
target for 2024, as well as the Dividend policy on an ongoing basis
to better reflect the predominantly merchant nature of the
Company's revenues. A further announcement in this regard will be
made as soon as possible and not later than the announcement of our
Annual Results.
iii)
Share buybacks - Noting the
recent sharp decline in the Company's share price, the Board
confirms its intention to commence a share buyback programme.
Initial buybacks are not expected to exceed any reduction in the
dividend. Further details will be announced in due
course.
iv) Debt facility - The Company also
intends to enter into discussions with its lenders to seek certain
amendments to optimise its debt facility. This may include a
reduction in the size of the facility, to reduce the overall cost
of funding given the whole of this debt facility may not be
required. As of 31 December 2023, £110 million (also £110 million
as at June 2023) was drawn under the £335 million debt
facility.
In terms of recent construction
progress, we are pleased to report that our 50MW/50MWh West
Didsbury project has been commercially operational since December
2023. In addition, the 50MW/76MWh York project was energised in
mid-January 2024 and is expected to be revenue-generating in
February 2024.
Meanwhile extensions of project
durations are getting underway. The Company has not previously
reported which project durations are being extended. We are pleased
to report that a total 340MW of projects are being upgraded, of
which 305MW will have a 2 hour (h) duration;
·
Arbroath (35MW) is being extended to a 1.4h
project and work is underway.
·
Nevendon is being extended from a 0.4h 10MW
project to a 2h 15MW project. This is expected to complete in
May.
·
Enderby (50MW) and West Didsbury (50MW), both
built with extensions in mind, are increasing from a 1h to 2h
duration. Works are set to start in March and are expected to take
two months.
·
Penwortham (50MW) and Melksham (100MW), similarly
built with extensions in mind are also being upgraded from a 1h to
2h duration with works expected from April and also expected to
take two months.
·
Coupar Angus (40MW) is also being upgraded from 1h
to 2h and works will commence in around June.
Given the focus on existing
projects, the Company has decided to defer its investment in
Project Iliad, which it intends to revisit once the market backdrop
improves. The Company is continuing to progress a disposal of a
subset of the portfolio and the process is ongoing.
John Leggate CBE, Chair of
Gresham House Energy Storage Fund plc, commented:
"The challenging environment
continues to persist for the battery storage industry in Great
Britain as it transitions to a trading-focused business model,
having been focused on frequency response until Q1 2023. These
conditions, and their effect on revenues, are not unique to
GRID.
"The UK's need for increased energy
storage capacity remains as clear as ever given the rising levels
of committed renewable generation coming online over the period to
2030. In turn, clean energy dominates energy output more and more
frequently, as legacy gas-fired electricity generation continues to
be squeezed off the system by cheaper renewables, with battery
storage the clear technological leader in tackling the
consequential rising intermittency. The ESO's efforts to improve
access to the Balancing Mechanism for BESS via the Balancing
Programme (BP), are clear evidence of this and are welcomed.
However, the rollout of ESO's BP must remain on track and enable
improved utilisation of BESS, which has yet to manifest in a
material way.
"Proper utilisation of BESS will
also result in lower energy bills for consumers and will accelerate
the decarbonisation of our power system.
"It is therefore a matter of when,
not if, BESS become better utilised and fully integrated into the
ESO's operating environment. Similarly, it is also a matter of time
before our pipeline is completed and target capacity is
reached.
"Therefore, the decision to cut our
Q4 2023 dividend and reallocate capital in GRID's shares has been
very carefully considered. The current level of the share price
represents the most compelling historic opportunity to invest
capital in GRID's shares, and to enhance net asset value per share.
It is for these reasons that, in parallel with today's dividend
announcement, we aim to commence a share buyback.
"In the meantime, the Board is
working closely with the Manager to continue to position the
Company to thrive, as further renewable generation comes online and
ESO continues to improve battery storage utilisation in the
Balancing Mechanism."
Ben Guest, Fund Manager of
Gresham House Energy Storage Fund plc, added:
"As GRID goes through this low
point, we are determined to take the right capital allocation
decisions to position the Company prudently. The Manager fully
supports the Board's decision to not pay a Q4 2023 dividend and
agrees with the need to reposition the Dividend policy, further
details of which will be announced soon. We firmly believe that in
light of prevailing market conditions, focusing capital on buying
back shares and on building out committed pipeline projects is the
right approach for the medium and longer term success of GRID and
for delivering returns to its shareholders.
"ESO has always said that its
Balancing Programme progress will occur in stages during 2024 and
we look forward to learning of and reporting on progress,
particularly around the imminent launch of Balancing Reserve in
March 2024, as well as communicating continued progress on our
construction and asset enhancement programme."
Market
update
Open Balancing
Platform
·
The launch of the ESO's OBP took place as planned
on 12 December 2023. The system was taken offline on 15 December to
address minor technical issues and was relaunched on 8 January
2024.
·
OBP is being actively used, and while the volume
of trades allocated to BESS has increased since the launch, it
remains far below its potential. As such the 'skip rate' has
remained high.
·
ESO has committed to reporting on its progress via
its
Operational Transparency Forum (OTF) webcast going forward.
·
ESO has indicated that it will allocate a rising
volume of trades to BESS, as pre-contracting of gas assets
declines, which in turn will help increase volumes of trades to the
OBP (and therefore BESS).
·
Specifically, in accordance with ESO's Balancing
Programme milestones published here,
we expected better utilisation of BESS:
i. As BESS
capacity in the Balancing Mechanism is seen as being present in
sufficient volume for the control room to schedule marginally less
gas-fired power. Expected timeframe: February 2024.
ii. As a result of
the launch of Balancing Reserve (BR), BESS will be able to
pre-contract their capacity in the day ahead market, in a
competitive forum, head-to-head with gas-fired generation (for the
first time since the small Reserve from Storage trials in 2020).
This will allow BESS to be "seen" and used by the Control Room
ahead of real time. This represents a new revenue stream for BESS
while also ensuring less gas-fired power hits the market, leading
to lower skip rates in real time. BR is intended to replace
Regulating Reserve, through which gas-fired generation is currently
reserved, and is expected to be a gigawatt-scale opportunity.
Expected timeframe: BR launches 12 March 2024.
iii. Quick Reserve is
set to launch in the summer and represents a further revenue
opportunity for BESS. It is a service for reserving primarily BESS,
to take advantage of their highly responsive capabilities. Expected
timeframe: Summer 2024.
Wholesale electricity
market
·
The impact of gas-fired generation being turned on
in order to meet flexibility requirements of the market is leading
to oversupply in the wholesale market, and curtailment of
renewables, in our view this is distorting half-hourly power
prices.
·
As gas-fired generation is used less often, gas
will supply the marginal demand less frequently. This will result
in more volatile power prices, unlocking again the revenue
potential for BESS in the wholesale market.
The Manager will be holding two
webinar and Q&A sessions for investors. During these, Fund
Manager, Ben Guest will discuss this Trading Update
and investors will have the opportunity to ask
questions.
Thursday 1 February at 11:15am -
please register
here.
Thursday 8 February at 10:30am -
please register
here.
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 3995 6673
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 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
International Limited (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.