Harmony Energy Income Trust has updated the market on its asset sale process alongside issuing its latest NAV and providing a portfolio update for the three months ended 31 October 2024. Key highlights from the announcement are as follows:

• The unaudited NAV at 31 October 2024 was £201.04m, or 88.51 pence per share, a decrease of 6.33 pence per share (-6.68%) compared to 31 July 2024. The decrease was driven by an increase (+25bps) in the discount rate applied to operating projects together with lower revenue assumptions and an increase in opex budget for FY 2025. The fall was partially offset by the roll forward effect and an increase in the mark-to-market valuation of the company’s interest rate swap.
• Increased opex budget is driven by recent increases in network access charges (set by individual DNOs).
• Wormald Green (66 MWh / 33 MW) and Hawthorn Pit (99.8 MWh / 49.9 MW) were successfully energised during the period and have commenced trading, taking the company’s total operational capacity to 790.8 MWh / 395.4 MW (100% of the portfolio). Revenue for these projects is recognised from November 2024 onwards.
• Portfolio revenues of £62.4k/MW/Yr for the period, an increase of 38% vs the previous quarter (£45.3k/MW/Yr). Performance was driven by higher wholesale market spreads and increasing balancing mechanism volumes. Revenue growth was offset by some portfolio unavailability due to scheduled network outages.
• Total operational revenues for the current financial year (up to 31 October) of £15.96m (£55.5k/MW/Yr).
• Further improved revenue performance in November (£67.8k/MW/Yr, estimated month-to-date and on a full-portfolio basis).
• Asset sale process continues to progress well. An encouraging number of non-binding offers were received, with a short-list of bidders progressing through to the detailed due diligence stage. Subject to receipt of sufficiently attractive final offers, the intention would be to enter exclusivity with a preferred bidder in December and sign binding agreements in January 2025.

Update on asset sale process

As previously announced, JLL has been appointed to seek offers for some or all of HEIT’s assets. HEIT says that the process has attracted strong interest and an encouraging number of non-binding offers were received in September, relating to both individual assets as well as the full portfolio. A selected number of parties were allowed to progress through to the detailed due diligence stage. The level of due diligence being undertaken is thorough and has resulted in bidders requesting more time and so the transaction timetable has been extended by one month. Subject to receipt of sufficiently attractive final offers, the intention would be for the Company to enter exclusivity with a preferred bidder in December with a view to signing binding agreements in January 2025.

Portfolio update

HEIT’s portfolio is now fully operational and consists of eight 2-hour duration BESS projects totalling 790.8 MWh / 395.4 MW. The Wormald Green and Hawthorn Pit projects commenced trading in October and have been active in wholesale markets and the balancing mechanism (BM) during November. HEIT says that both projects will soon enter the ancillary service markets.

Portfolio performance and outlook

HEIT’s operational portfolio generated revenue (net of all electricity import charges and state of charge management costs) of £4.88m during the three months ended 31 October 2024 (£62.4k/MW/Yr). For the full Financial Year (up to 31 October), the portfolio generated revenue (net of all electricity import charges and state of charge management costs) of £15.96m (£55.5k/MW/Yr).

HEIT says that its portfolio continued to experience a higher than usual number of outage events during September and October, due to scheduled short-term DNO technical works at local sub-stations and connection points. HEIT’s investment adviser estimates that, had the portfolio been fully available, the revenue would have been c.£69k/MW/Yr. It says that its investment adviser continues to work closely with DNOs to maximise project availability.

HEIT reports that volumes captured in the BM continued to grow, with August 2024 seeing the second-highest monthly total of over 12,000 MWh captured by the portfolio, generating £522k in revenue (£20k/MW/Yr). Since the relaunch of the Open Balancing Platform (OBP) and the removal of the ’15-minute’ rule in the second quarter, average BM monthly dispatch volumes have increased by approximately 300%, rising from c.2,920 MWh to c.11,456 MWh. HEIT says that spreads in the BM are consistently wider than in the wholesale markets. Therefore, an increase in capture rates helps its 2-hour duration BESS cushion any negative impact of volatile wholesale spreads.

HEIT comments that strong revenue performance has continued through November (£67.6k/MW/Yr estimated month-to-date on a full-portfolio basis), with wholesale gas prices trending upwards, volatile temperatures and stormy weather conditions. HEIT expects these conditions to continue through winter, adding that it will seek to capitalise by increasing average cycling over the coming months. HEIT is also engaging with third party service providers to explore opportunities to increase levels of contracted income across the portfolio from spring 2025.

NAV Update 31 October 2024

As at 31 October 2024, HEIT’s unaudited NAV was £201.04m (88.51 pence per share). This represents a decrease of 6.33 pence per share (-6.68%) when compared to 31 July 2024. The principal movements are:

• an increase (+25bps) in the discount rates applicable to operating projects (-2.36 pence per share);
• a reduction in third party revenue forecasts (-2.41 pence per share)
• an increase in opex assumptions, largely driven by higher network access charges (-4.14 pence per share); and
• an increase in the mark-to-market valuation of HEIT’s interest rate swap (+0.87 pence per share).

HEIT says that the long-term revenue assumptions (derived from third party revenue forecasts) have reduced since 31 July 2024 by 0.9% (in NPV terms),although these were partially offset by small increases applied to the next three years (being a partial recovery from the larger reductions published earlier this year, reflecting the positive movements in the underlying fundamentals).

In addition, and in line with guidance from HEIT’s independent valuer, the discount rate for operational projects has been increased by 25bps (10.25% from 10.00%). The discount rates for projects with less than 3 months operating history has also increased by 25bps (10.50% up from 10.25%). As such, the discount rates applied to Rusholme, Hawthorn Pit and Wormald Green remain at 10.50%, with 10.25% applied to the balance of the portfolio. The discount rate applied to projects under construction has been removed from the analysis given that 100% of the portfolio is now operational. Inflation and tax assumptions used in calculating the NAV have not changed since 31 July 2024.