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Inaugural annual results from Gresham House Energy Storage

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Renewable energy infrastructure company, Gresham House Energy Storage (GRID), reported its first set of annual results since its launch in November 2018.

Performance highlights

  • Net Asset Value of £205.9m, up 6.48% on a total return basis.
    • Driven by portfolio cash generation, improved revenue forecasts and project-level value enhancements.
  • Total dividends for the year of 4.5p per share, as targeted, and target of 7.0p per share reaffirmed for 2020.
  • Share price total return since IPO of 11.15%
    • Shares consistently traded at a premium to NAV in the period
  • £207m total funds raised during the period, including £100m at IPO
    • Further £31m raised in February 2020, taking cumulative funds raised to £238m

Deployment and operational highlights

  • Investment portfolio grown to 174MW of operational Energy Storage Systems (ESS) projects.
    • Five seed assets totalling 70MW were acquired at IPO and a further four assets totalling 104MW were acquired subsequently.
    • In addition, GRID advanced secured loans to three project companies to secure these in the investment pipeline.
  • Plans to increase total capacity to c.364MW during 2020, taking market share to around 30%, via:
    • Conditional Share Purchase Agreements signed on two investments totalling 100MW which are under construction.
    • Exclusivity agreed on a further 80MW across two projects, and a further 10MW extensionStrong pipeline conversion and growing average acquisition value has increased project size to 30-50MW, driving portfolio growth and reducing unit costs
  • Successfully upgraded existing sites to facilitate Asset Optimisation as part of the revenue mix, via new control units and larger batteries.
  • Prepares portfolio for greater revenue contribution from electricity trading.

Covid-19 and outlook

  • Able to ensure operational integrity of projects, and ongoing operations & maintenance so far.
  • Trading continues as expected with remotely operated systems.
  • Asset Optimisation revenues driven by energy price volatility, which depends on weather and remains broadly unchanged, and unrelated to absolute energy prices or power demand.
  • Minor delays foreseen in commissioning of 100MW of projects currently in advanced stages of construction. Main equipment already secured with ongoing monitoring of ability of commissioning personnel to attend construction sites.
  • Outlook
    • Energy storage systems address the peaks and troughs of generation from intermittent renewables and reduce the need for expensive carbon intensive baseload generation. As the share of renewable generation in the UK continues to expand, driven by falling installation costs and climate change obligations, so the need and business opportunity for Energy Storage Systems increases. As such, energy storage systems are a vital tool for the further decarbonisation the UK electricity supply.
    • GRID’s trading revenues driven by power price volatility, and not average energy prices therefore resilient to potential long-term fall (or rise) in unit cost of energy.
    • Growth in renewables, demand for more frequency services from National Grid, gradual decommissioning of baseload and a favourable regulatory backdrop are key revenue drivers for Energy Storage systems in GB.
    • Increasing portfolio size and market maturation expected to reduce costs.
    • Final Decision on Ofgem’s targeted charging review is expected to reduce projects’ fixed grid-related charges in a staged manner over next 2 years.

Fundraising, pipeline and covid-10

Some thoughts from GRID’s chairman, John Leggate:

“The company was launched on 13 November 2018 with the IPO raising £100 million of gross proceeds in difficult equity market conditions. The Company has since been back to the market on three occasions: first, in May 2019 raising gross proceeds of £49.7m The total of £206.7m raised exceeded the £200m goal under the IPO prospectus.

Our journey, we believe, has just begun. The market still has only around 1GW of installed ESS capacity compared with a requirement of at least 10GW within four years (according to research from Gresham House New Energy division). The increasing opportunity for ESS is evident from the chart below which shows how much over-generation of renewable energy there is likely to be as more renewables are deployed and thus the amount of power that could need storing when renewables are supplying more electricity than is required by the system. It is this oversupply which requires the National Grid to support ESS battery and rapid response technologies.

Thus, the growth in renewables generation clearly provides the potential for more pronounced and frequent imbalances in supply and demand, and therefore increased power price volatility. Batteries are uniquely able to capture and monetise power price volatility.

We are also confident of improvements in the traders’ systems seeking to capitalise on the market volatility and, separately, an increase in the National Grid’s active use of batteries in the Balancing Mechanism which is being driven by improvements in the National Grid’s own systems.

In addition, Ofgem have made their final decision relating to the targeted charging review, a review of grid-related charges which has been ongoing for around three years. It is expected to lead to a reduction in our projects’ fixed grid-related costs in a staged manner from 1 April 2021 and 1 April 2022.

The energy markets in which the assets operate remain robust and this operational backdrop endorses the Investment Manager’s belief that energy storage project revenues are driven by the volatility of half-hourly power prices – which remain broadly unchanged simply because half hourly power prices vary according to the weather which drives the amount of renewable energy being generated – and not the level or general direction of daily power prices which can be affected by overall electricity demand as well as commodity prices.

We also expect to see gradual decreases in costs as a function of our portfolio’s scale on the one hand, and from the market’s maturation, on the other.

On a final note, we are living in a rapidly changing world as a result of the covid-19 pandemic outbreak echoed by the significant impact to the financial markets and the broader economy. At the time of writing this statement, whilst the facts are still emerging, the board have assessed the potential impact on the company using a range of stress test scenarios. Indeed, the share price of the company has reduced from its historic high of 110.5 pence in mid-January to 92.0 pence at the end of March.

The manager does not foresee a significant delay in the commissioning of the 100MW of projects currently in construction due to covid-19. The main items of equipment for this investment pipeline have already been secured contractually although the ability of commissioning personnel to attend site to complete these projects is being carefully monitored. However, these risks are being managed and will remain a constant focus of the company.”

GRID: Inaugural annual results from Gresham House Energy Storage

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