Gresham House Energy Storage Fund (GRID) has released its annual results for the 12 months ending 31 December 2023.
- GRID’s NAV per share declined 17% to 129.07p as of 31 December 2023, down from 155.51p at the end of 2022. This was largely driven by a significant reduction in third-party revenue forecasts impacting project valuations. GRID’s discount rate remains unchanged at 10.9%. GRID reported a NAV total return of -12.9% and share price total return of -28.7%.
- The company reported a loss of £110.1m for 2023, compared to a profit of £217.1 million in 2022. Underlying portfolio revenues decreased 39% to £38.4m. EBITDA generated by operational investments fell 47% to £25.8m.
- Dividends totalling 5.51p per share were paid for the first three quarters of 2023, a 21% decrease from 2022. More importantly, no dividend was declared for Q4 2023 due to low operational dividend coverage, with GRID reporting a dividend cover of only 0.25x for 2023. The board has also decided not to pay dividends in relation to 2024 to prioritise investments. The board has acknowledged that income distribution will continue to be an important part of GRID’s strategy. The future dividend policy will reflect the balance between merchant and contractual revenues with the principle of paying a covered dividend. [“This is the key takeaway from these results, and a painful consequence of the steep decline in revenues, and may further weigh on the trust’s already wide discount“]
- GRID traded on a 15.6% discount on 31 December 2023, though this has widened to a 58.6% discount as of today. The board utilised its share buyback facility to mitigate this, repurchasing 4.4m shares over the period, at an average price of 45.6p. GRID’s share buyback programme completed on 17 April 2024 and has not been renewed, as to focus capital on funding investments and reducing debt.
- The challenging revenue environment in 2023 was due to an oversupplied wholesale market and underutilization of battery storage by the National Grid ESO. Revenues have started recovering since March 2024 with changes made by the ESO.
- £50m in gross equity funds was raised during 2023 at a share price of 155.5p.
- As of 31 December 2023, GRID had operational battery storage capacity of 690 MW / 788 MWh, a 25% increase from 2022, following the completion of three projects in 2023. This further grew to 740 MW in January 2024. GRID aims to reach 1,072 MW / 1,696 MWh of operational capacity by the end of 2024 through completion of the current project pipeline and duration extensions at existing sites. 77% of assets under construction costs were already paid as of year-end.
- GRID renegotiated its £335m debt facility in April 2024, resetting covenants to align with the current revenue environment. £110m was drawn as of year-end with peak debt expected up to £175m to complete the pipeline.
- Key strategic priorities outlined by GRID’s managers are efficiently deploying capital to maximise near-term cash generation, potentially disposing some assets to reduce debt, and securing stable contracted revenues to derisk income while the market recovers. As a result of the focus on immediate returns, GRID’s management deferred its first international project, Project Iliad.
John Leggate, GRID’s chair, commented:
“The energy transition from fossil fuels to renewables in Great Britain was always expected to be challenging, and even more so once levels of intermittent generation begin to dominate the electricity system. The Board and the Investment Manager have progressively worked their way through the many challenges of recent years including COVID, supply chain issues, demand destruction caused by high power prices following Russia’s invasion of Ukraine and new grid connection delays. We have seen how challenging it is for ESO to automate and digitise their legacy systems and processes to a fully modernised platform that can fully utilise and reward BESS assets. During 2024 we expect to see further trends demonstrating improvement in our earnings as a result of planned and announced systems changes.
“Despite this currently challenging environment for the battery storage sector, the continued rapid deployment of new renewable output, particularly offshore wind, drives a parallel demand for battery energy storage. The merits of this technology and the long term commercial attractions remain as true as ever, both in Great Britain and more so internationally.
“We look forward to reaching 1GW of operational capacity this year which will be a significant milestone for GRID. Due to the expansion of the size and duration of the portfolio during the course of 2024, the robustness in our revenue streams will naturally follow allowing us to get back to full operational dividend cover and further potential for capital growth.”