Gresham House Energy Storage Fund (GRID), the UK’s largest utility-scale battery storage fund, has reported a strong operational recovery in its full-year results for 2024, despite a challenging start to the year. While NAV per share fell 15.3% to 109.35p (from 129.07p in 2023), operational and financial performance strengthened notably in the second half, positioning the fund for its next phase of growth.

Financial and operational highlights

• Revenue recovery: Total operational revenues rose 20.1% to £46.5m (2023: £38.7m), driven by a sharp second-half rebound. H2 2024 revenues of £28.6m represented a 58% increase on H2 2023 (£18.1m), offsetting the weak first quarter.
• EBITDA margin remains strong: Operational EBITDA increased 12.7% to £29.1m, delivering an EBITDA margin of 62.5%.
• Capacity growth: Operational grid capacity grew 22% to 845MW, with battery capacity increasing 53% to 1,207MWh. The average duration of the battery fleet rose to 1.43 hours, up from 1.14 hours in 2023.
• Market leadership: GRID maintained its leading position in the GB battery energy storage sector with an estimated 17% market share.

NAV decline and valuation impact

The drop in NAV was primarily driven by reductions in third-party merchant revenue forecasts, following a prolonged period of low utilisation in NESO’s Balancing Mechanism, which led to elevated “skip rates” for battery assets across the system. Despite these pressures, GRID’s valuation methodology was supported by a recent market transaction, and further validation is expected through an ongoing transaction that is nearing completion.

Discount rates were broadly unchanged, with a modest reduction in the weighted average rate to 10.73%, due in part to the introduction of an 8.5% discount rate applied to revenues under new tolling agreements.

Outlook and post-year-end activity

GRID has made an encouraging start to 2025, adding 100MW/240MWh of operational capacity already. Two further projects, Shilton Lane (40MW/80MWh) and West Bradford (87MW/174MWh), are expected to come online in Q2 2025, taking total operational capacity to 1,072MW/1,701MWh.

Key strategic developments include:

• Refinancing and capital structure: A refinancing of the fund’s existing debt facilities, alongside new financing to support growth, is progressing and expected to close in Q2 2025. The transaction is expected to secure lower interest rates and longer debt tenors, underpinned by newly contracted long-term revenues.
• Tolling arrangements: As part of efforts to stabilise cash flows, GRID signed a two-year tolling deal with Octopus Energy covering 568MW, over half the portfolio. 310MW of this was operational by year-end, with the remainder expected to come online in Q2 2025.
• Three-year growth plan: Subject to refinancing completion, GRID will activate its Three-year Plan, targeting new projects totalling up to 694MW and up to 1.5GWh in capacity augmentations. Details of the funded project list will be announced alongside the refinancing.
• Capital allocation and dividends: Once refinancing is completed, GRID intends to resume distributions to shareholders. The board also plans to review broader capital allocation options, including share buybacks.
• Management fee cut: The fund’s management fee structure has been revised to reflect the average of NAV and market capitalisation, resulting in annual savings of approximately £1.6m (a 28% reduction).

Market context and positioning

The battery energy storage sector experienced significant volatility in 2024, with GB-wide revenues falling sharply in early 2024 before rebounding strongly in H2. GRID responded proactively by restructuring part of its portfolio under tolling contracts to provide greater earnings visibility and aligning its funding strategy to unlock future growth.

Chair John Leggate CBE commented: “The continued share price discount to NAV has been difficult for investors, but we ended 2024 on a strong operational note. With refinancing and revenue contracts underway, the board is confident of delivering improved cash flows and shareholder returns.” Fund Manager Ben Guest added: “The next stage of our growth strategy will be underpinned by a larger and more resilient asset base. Once funding is secured, we will begin construction on new projects and commence valuing augmentations—supporting our long-term return targets.”

[QD comment: MR: After a rough start to 2024, GRID’s operational performance rebounded impressively in the second half of the year. While the 15% drop in NAV is significant, it reflects shifts in third-party revenue forecasts, following a period of low-utilisation in NESO’s balancing mechanism, where there should be scope for improvement, rather than underperformance of the portfolio itself, which has remained resilient and ahead of peers.

The strategic pivot to tolling half the portfolio and the planned refinancing could prove to be smart moves in an evolving market, and investors appear to have welcomed the improved alignment from the new fee structure. If the refinancing lands as expected in the second quarter, and project delivery follows, GRID could be in a position to begin to re-establish its growth narrative and hopefully close the persistent NAV discount that has frustrated shareholders over the past 18 months.]