REG - Gore Street Energy - Final Results
17/07/2023 07:00
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RNS Number : 1317G Gore Street Energy Storage Fund PLC 17 July 2023
17 July 2023
Gore Street Energy Storage Fund plc
(the "Company" or "GSF")
Full Year Results
Internationally diversified portfolio supports strong growth in NAV, EBITDA
and best-in-class revenue generation
Gore Street Energy Storage Fund plc, the internationally diversified energy
storage fund, is pleased to announce its Audited Full Year results for the
year ended 31 March 2023.
Performance highlights for the year ended 31 March 2023:
· NAV increased 47.8% to £556.3m (FY 2022: £376.5m).
· NAV per share increased 5.9% to 115.6 pence (FY 2022: 109.1 pence).
· Total NAV return of 12.3% and 48% since 31 March 2022 and IPO,
respectively (FY22: 13.1% and 34.2%).
· £39.3m in revenue was generated during the reporting period (FY 2022
£29.3m), averaging £135,000 per MW/yr. Over the 2022 calendar year, the
Company achieved a consistently high average revenue of £157,000 per MW/yr.
· EBITDA of the operational portfolio increased 19% to £27.8 million
(FY 2022: £23.3 million), with 63.5% secured outside Great Britain.
· Dividends paid during the 12-month period of 7 pence per share, with
an operational dividend cover of 0.90x. This was achieved with c.25% of the
Company's portfolio operational at the period end.
· Dividends declared for the period of 7.5 pence per share.
· Weighted average discount rate increased to 10.1% (FY 2022: 8.3%).
· Portfolio revenue curves increased during the period, largely
driven by the Company's geographically diverse portfolio.
Deployment and fundraising
· The Company raised £150m in an oversubscribed issuance in April
2022.
· As of 31 March 2023, the Company had drawn down £nil from its Debt
Facility.
· The Company remains fully funded to meet all contractual obligations
and EPC payments over the next 18 months, utilising equity and its existing
debt facility.
· Operational assets producing income increased to a total capacity of
291.6MW (FY 22: 231.7MW).
· Portfolio expansion continued with sizeable new projects acquired in
attractive new markets, offering unique diversification and differentiation:
· 144.65 MW across 8 assets in Texas, US
· 200 MW construction asset in GB
· 200 MW construction-ready asset in California, US
· The Company's geographical split is now: 42% in GB, 27% in Ireland,
12% in Texas, 17% in California and 2% in Germany.
Post Period-end Highlights:
· The energisation of the Stony asset, with a capacity of 79.9 MW, has
been scheduled with National Grid ESO for July-end 2023.
· Post reporting period, the Company increased its existing Debt
facility from £15m to £50m, with an accordion option of up to 30% of Gross
Asset Value ("GAV").
CEO of Gore Street Capital, the investment manager to the Company, Alex
O'Cinneide, commented:
"I am pleased to announce that the Company has maintained its upward
trajectory, achieving significant milestones by adding landmark assets to our
portfolio. Additionally, we have generated industry-leading revenues from four
uncorrelated markets, further bolstering our success.
As we have consistently communicated, the discussion around system duration in
GB has now shifted towards recognising international diversification as the
key determinant of sustained profitability. The Company's ability to thrive
amidst challenging market dynamics in GB showcases the strength of the
Company's unique approach.
Looking ahead to 2023 and 2024, we look forward to bringing over half a GW of
operational capacity online across five diverse markets. We are confident this
strategic expansion will have a positive impact on dividend cover, leading to
increased shareholder value whilst supporting continued incremental growth in
NAV. We look forward to updating the market regularly on the progress of this
expanding international operational capacity.
We remain committed to driving efficiency and have witnessed a consistent
growth in revenue and EBITDA year on year. This trend is expected to be
further supported as we bring online increased operational capacity in rapidly
evolving markets that offer significantly higher revenue potential and
promising forward-looking revenue forecasts.
In line with our focus on driving efficiencies, we have made strategic
decisions to prioritise larger assets for energisation. This approach
leverages economies of scale and ongoing efforts to increase the capacity of
some of the smaller sites within our construction portfolio. More details on
this can be found within the Annual Report.
We are optimistic about the next year as we strategically expand our capacity
in multiple jurisdictions. This approach ensures sustainable returns across a
well-diversified portfolio, mitigating risks associated with a single market.
We look forward to updating our valued shareholders on our progress throughout
the upcoming reporting period."
Results presentation today
There will be a presentation for sell-side analysts at 9.00 a.m. today, 17
July 2023. Please contact Buchanan for details
on gorestreet@buchanancomms.co.uk (mailto:gorestreet@buchanancomms.co.uk)
Annual Report:
The Company's annual report and accounts for the year ended 31 March 2023 are
also being published in hard copy format and an electronic copy will shortly
be available to download from the Company's
webpages https://www.gsenergystoragefund.com/
(https://www.gsenergystoragefund.com/) . Please click on the following link
to view the document:
http://www.rns-pdf.londonstockexchange.com/rns/1317G_1-2023-7-14.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/1317G_1-2023-7-14.pdf)
The Company will be submitting its Annual Report and Accounts to the National
Storage Mechanism, which will shortly be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
For further information:
Gore Street Capital Limited
Alex O'Cinneide / Paula Travesso
Tel: +44 (0) 20 3826 0290
Shore Capital (Joint Corporate Broker)
Anita Ghanekar / Rose Ramsden / Iain Sexton (Corporate Advisory)
Tel: +44 (0) 20 7408 4090
Fiona Conroy (Corporate Broking)
J.P. Morgan Cazenove (Joint Corporate Broker)
William Simmonds / Jérémie Birnbaum (Corporate Finance)
Tel: +44 (0) 20 3493 8000
Buchanan (Media Enquiries)
Charles Ryland / Henry Wilson / George Beale
Tel: +44 (0) 20 7466 5000
Email: gorestreet@buchanan.uk.com (mailto:gorestreet@buchanan.uk.com)
Notes to Editors
About Gore Street Energy Storage Fund plc
Gore Street is London's first listed and internationally diversified energy
storage fund dedicated to the low carbon transition. It seeks to provide
Shareholders with sustainable returns from their investment in a diversified
portfolio of utility-scale energy storage projects. In addition to growth
through increasing operational capacity and a considerable pipeline, the
Company aims to deliver consistent and robust dividend yield as income
distributions to its Shareholders.
https://www.gsenergystoragefund.com (https://www.gsenergystoragefund.com)
Gore Street Energy Storage Fund plc Annual report for the year ended 31 March
2023
Key Metrics
For the year ending 31 March 2023
NAV PER SHARE
115.6p
(2022: 109.1p)
OPERATIONAL EBITDA
£27.8m
(2022: £23.3m)
DIVIDEND YIELD
6.9%
(2022: 6.2%)
NAV TOTAL RETURN
for the year ended 31 March 2023
12.3%
(2022: 13.1%)
OPERATIONAL CAPACITY
291.6MW
(2022: 231.7MW)
TOTAL CAPACITY
1.17GW
(2022: 628.5MW)
Key Metrics
As at 31 March 2023 As at 31 March 2022 % Change
Net Asset Value (NAV) £556.3m £376.5m 47.8%
Number of issued Ordinary shares 481.4m 345.0m 39.5%
NAV per share 115.6p 109.1p 5.9%
NAV Total Return for the year* 12.3% 13.1%
NAV Total Return since IPO* 48.0% 34.2%
NAV Total Return for the year including dividend reinvestment* 12.6% 13.4%
NAV Total Return since IPO including dividend reinvestment* 52.4% 36.8%
Share price based on closing price at indicated date 100.8p 113.0p -10.8%
Market capitalisation based on closing price at indicated date £485.3m £389.9m 24.5%
Share Price Total return for the year* -4.6% 11.1%
Share price total return since IPO* 31.8% 37.0%
(Discount)/Premium to NAV* -12.8% 3.6%
Portfolio's total capacity 1.17 GW 628.5 MW 86.2%
Portfolio's operational capacity 291.6 MW 231.7 MW 25.9%
Total Comprehensive Income for the Company £63.4m £42.5m 49.1%
Operational EBITDA £27.8m £23.3m 19.0%
Total Fund EBITDA £16.8m £15.2m 10.8%
Dividends per Ordinary Share paid during the year 7p 7p**
Operational Dividend cover* 0.90x 1.29x**
Dividend Yield* 6.9% 6.2%
Ongoing Charges Figure* 1.37% 1.45%
* Some of the financial measures above are classified as
Alternative Performance Measures, as defined by the European Securities and
Markets Authority and are indicated with an asterisk (*). Definitions of these
performance measures, and other terms used in this report, are given on page
103 together with supporting calculations where appropriate.
** Dividends of 5p per Ordinary Share were paid in the year ended
March 2022, as a result of two dividends payments being made in the quarter
ended March 2021, with the December 2020 quarter dividend paid at the end of
March 2021. Due to this timing of payments, only 5p was paid for the prior
year. To ensure comparability and to reflect a more meaningful and accurate
dividend cover for the comparable period, dividends paid of 7p is reflected,
being the 5p paid between 1 April 2021 and March 2022 plus the December 2020
quarter dividend paid at the end of March 2021, which due to timing of payment
was not reflected as paid in the year ended 31 March 2022.
Chair's Statement
I am pleased to present the Company's Annual Results for the year ending 31
March 2023
Overview and Performance
This has been a successful period of growth and diversification, with the
Company entering two new grids and holding a uniquely diversified portfolio
of 1.17 GW across five uncorrelated markets. These assets achieved strong
growth and an attractive dividend yield for our investors, with a NAV total
return of 12.3% and 7.5p in dividends declared for the period. The dividend
for the year, based on the 31 March closing share price of 100.8p, was
equivalent to a 6.9% yield. Over the five years since our IPO, the Company has
delivered a NAV total return of 48%, including 29p of dividends paid to
Shareholders. With 291.6 MW of operational capacity in the portfolio thus far,
the last financial year laid the foundations for a sustained period of growth
and opportunity for our portfolio. Over 500 MW of capacity is scheduled to
come online by the end of 2024 across the Company's portfolio, including in
California, where the 200 MW Big Rock asset will establish us in a new market,
the CAISO grid. During the reporting period, the Company generated an average
revenue of £135,000 per MW/ yr, resulting in total revenue of £39.3 million.
Post-reporting period, the Company successfully expanded the existing GBP 15
million revolving debt facility with Santander to GBP 50 million together with
an accordion option.
In 2018, we identified the vulnerability of relying on a single market and the
volatility it introduced to our revenues and overall profitability. We made
our first international acquisition in 2019 on the all-Irish Grid, where we
now have a fleet of assets totalling 310 MW, of which 130 MW is operational.
During the reporting period, the contributions from our Irish assets have been
significant, generating the largest proportion of revenue for the Company. Our
Irish assets boast a duration of sub-30 minutes (and therefore the lowest
capital expenditure within our portfolio and significantly below the market
average), which is optimally sized to capitalise on the available contracts on
this grid. Moreover, these assets have consistently over delivered and now
surpass the level of revenue we see in the GB market.
Expanding our operations into new geographies required extensive efforts to
navigate the regulatory landscapes, establish networks, and understand the
contracts available with each grid operator. While pursuing a GB-only strategy
could have expedited deployment and led to a larger operational asset base
today, 2023 has shown us that this would not have been the correct approach.
By pursuing an internationally diversified strategy, the Company hasn't been
wholly exposed to a grid with currently declining revenues, as opposed to the
diversified fleet of assets we currently possess, which continues to deliver
industry-leading returns for our investors.
The Company remains well-capitalised to meet all contractual obligations over
the next 12 months without further debt. The Company maintains a gearing level
of less than 5% of NAV. This aspect is significant, differentiating the
Company and insulating it from increased debt servicing costs.
Over the next period, we aim to introduce a conservative level of debt.
Accounting for the construction funding requirements for the 522 MW of
capacity targeting energisation by end of December 2024 and milestone payments
for assets targeting energisation after this period, net debt is expected to
stay below £150m or 21% of GAV over the 18 months from the date of
publication. Considering the prevailing cost of debt and the recent interest
rate hikes, I believe this is the appropriate approach.
During the period, the Company continued to execute on its growth strategy,
both in terms of capacity and geographical diversification. This first led to
the successful acquisition of three operational assets and four
pre-construction assets in the ERCOT market of Texas in April 2022, with a
combined capacity of 69.65 MW, which was later followed in January 2023 with
the acquisition of the 75 MW Dog Fish asset in the State. The Company
continued this momentum in February 2023 by entering a fifth grid market with
the completion of the acquisition of Big Rock, a 200 MW/400 MWh asset located
in California.
The Company made one of its largest investments to date with the 200 MW
Middleton project, which will be built in the north of England. Together these
project additions have taken the Company's portfolio to a capacity of 1.17 GW
spread across five distinct energy systems, with access to more uncorrelated
revenue streams than ever before.
Macroeconomic Environment
There have been considerable macroeconomic shifts in the reporting period -
ranging from rising short-term inflation and interest rates to increasing
construction costs - due, in part, to the unprecedented financial market
conditions that have developed over the financial year. Our Investment Manager
has demonstrated sound risk management and resilience within this context,
adopting effective measures to mitigate their impact on the portfolio.
Through its dedicated construction team, we have secured competitively priced
engineering, procurement, and construction (EPC) contracts, leveraging
pre-established relationships and economies of scale, given the size of the
Company's construction portfolio. The Company has also benefitted from minimal
debt exposure, insulating it from increased debt servicing costs, while our
unique diversification has proven valuable in creating natural hedges against
FX volatility and pricing movements experienced in the GB market.
Despite these conditions, the fundamental growth drivers for energy storage
remain strong, driven by the worldwide transition to low-carbon energy
generation and further reinforced by the global concern over energy security.
We remain confident in the Company's ability to deliver sustainable dividends
and attractive capital growth for our investors over the long term.
Dividends
The Board has approved a fourth interim dividend of 1.5 pence per share,
bringing the total dividend announced for the period ending 31 March 2023, to
7.5 pence per share, in line with the Company's progressive Dividend Policy.
The dividend paid for the year based on the 31 March 2023 closing share price
of 100.8p was equivalent to a 6.9% yield.
NAV Performance
NAV has continued to progress in line with the Company's target returns
increasing from 109.1p per share in March 2022 to 115.6p per share as of 31
March 2023, reflecting a NAV Total Return of 12.3% for the reporting period.
With a significant portion of the portfolio under construction (c. 75% on a MW
basis), we maintain a positive outlook on our ability to continue to deliver
long-term value to our shareholders as we deploy operational capacity over the
next period and beyond.
As we progress with the build-out of our construction portfolio, we expect
further positive impacts on revenue generation, dividend coverage, and
enhanced shareholder value as projects are de-risked and revalued from stages
of construction to becoming operational.
Discount Management
In the interest of discount management, at the Board's discretion, the Company
is able to repurchase its shares at a price lower than Net Asset Value (NAV).
However, as the Company's funds are fully committed to the build-out of the
portfolio assets, and the healthy returns available, we do not believe this to
be the optimal course of action. The Board will diligently monitor the
performance of the share price and retains the ability to employ appropriate
discount control mechanisms if deemed necessary.
Strategy and Operational Performance
Our strategy in FY 2022/23 continued to be led by participation in various
ancillary services, which remain the most profitable source of income
available to energy storage assets. The portfolio engaged in some wholesale
trading opportunities when appropriate but achieved 93% of total revenue from
ancillary services, emphasising the significance of these services in the
revenue stack and highlighting the effectiveness of our system duration in the
GB market.
The GB portfolio performed well in the first half of the reporting period,
driven by our success in FFR services and the introduction of Dynamic
Services. High revenues from DS3 ancillary services in Ireland, resulting from
increased renewable generation in winter months, helped offset the impact of
declining prices witnessed in GB during the second half of the financial year.
This seasonal volatility underscores the value of our portfolio operating
across multiple grids and geographies, reducing our exposure to revenue
fluctuations in any single market.
Similar patterns of seasonal performance were seen in Germany, where our newly
acquired asset was called on to help tackle the sustained volatility
experienced over the summer months as gas prices peaked. August provided the
highest monthly revenue from the ancillary services market, with prices
remaining stable throughout winter.
The summer also proved beneficial for the Company's operational assets in
Texas, where several extreme weather events, including a heat wave in July
2022, caused ancillary services prices to spike above $2,000 (£1,590)/MW/hr
as demand increased. A similar impact was seen in December 2022, resulting
from a winter storm, which drove prices even higher.
This volatility in summer and winter, separated by subdued pricing in the
transitional seasons of spring and autumn, can be seen broadly across the
portfolio and illustrates the value of having assets located across multiple
grids to capitalise on extreme swings in supply and demand.
Sustainability
Over the past 12 months, we have continued to build on our commitments around
how we record and report the Company's impact. The Company's first ESG &
Sustainability report, published in August 2022 for the previous reporting
period, delivered voluntary disclosures for our GB and Ireland assets covering
emissions, social metrics and efforts to understand the human rights exposure
of our supply chain. We have ramped up these efforts during the reporting
period and expanded our reporting to cover Germany, Texas and California,
where we added assets in early 2022.
An SFDR Article 8 periodic report covering Principle Adverse Impacts (PAIs) is
disclosed in this report. This will be followed in August 2023 by the
Company's second ESG & Sustainability Report, which will include reporting
under the Sustainable Finance Disclosure Regulation (SFDR) and the Task Force
for Climate-related Financial Disclosures (TCFD) disclosures.
Debt
Post-reporting period, the Company successfully expanded the existing £15
million GBP revolving debt facility with Santander to £50 million. The
facility includes an accordion option to increase beyond £50m to up to 30% of
Gross Asset Value. Pricing for the £50m facility remains unchanged at 300
basis points over SONIA. Throughout the calendar year, we will remain focused
on optimising the Company's capital structure and are actively exploring debt
options in both GBP and USD.
The recent acquisition of the Big Rock project in California presents an
opportunity for project level financing by leveraging its unique revenue
profile under the Resource Adequacy mechanism. This programme has similarities
to GB's Capacity Market in that it aims to ensure safe and reliable operation
of the grid through security of supply but can offer up to 40% of revenue
under a long-term contract. This level of secured revenue allows us to
consider asset-level debt financing in a new way, further supporting the
Company's decision to diversify its portfolio.
Board Composition and Succession Planning
In the 2022 half-year report, I updated shareholders on our progress with the
recruitment of a new Director. We are delighted to welcome Lisa Scenna to the
Board, effective 1 May 2023. Lisa's skills and experience are detailed on
page 49 and she will be standing for election at the AGM with the rest of the
Board.
The remuneration and nomination committee also recommended that the Board seek
to appoint a new Director in 2024/25 and every two or three years thereafter,
such that Directors' retirement dates are staggered as part of orderly
succession planning.
AGM and Continuation Vote
This year marks an important milestone for the Company, as it passed its
five-year anniversary. When the Company's shares started trading on 25 May
2018, it was the first listed company offering access to energy storage.
Five years later, the Company has built an internationally diversified
portfolio of 1.17 GW and delivered a NAV total return of 48% including 29p of
dividends paid to Shareholders.
The Company's continued progress with geographic, grid and revenue
diversification is detailed in this report, as are the Company's plans for
future growth as its pre-construction assets become operational, accessing and
stacking additional revenue sources, driving returns and adding to dividend
cover.
In accordance with the Company's articles of association, the Board is
required to put forward a proposal for the continuation of the Company to
shareholders at five-yearly intervals. The Board believes the Company is
delivering what it set out to do at IPO, that its long-term investment
objectives remain appropriate and that the Investment Manager is well placed
to continue to deliver those objectives. The Board encourages shareholders to
vote in favour of the continuation resolution at the AGM.
The AGM will be held at the offices of Stephenson Harwood, 1 Finsbury Circus,
London EC2M 7SH on Thursday 21 September 2023 at 9.30 am. Further details are
included in the Notice of AGM on page 90 of the annual report. I look forward
to welcoming shareholders attending in person. If you are not able to attend
in person, or prefer to vote by proxy, but have questions for the Board,
please contact the Company Secretary at cosec@gorestreetcap.com
(mailto:cosec@gorestreetcap.com) .
Outlook
We begin the next reporting period cautiously optimistic, recognising the
opportunities that our diversified strategy presents. The current pricing
landscape in GB necessitates an international approach granting access to a
wide range of revenue streams across uncorrelated markets, 2023 and beyond
will illustrate this as we bring more international capacity online.
The appropriate assumptions employed by the Company, coupled with the
continued growth of our fund and diligent work by the Investment Manager,
provide reassurance amidst the recent pricing volatility experienced within
the energy storage industry and prepares us for future market developments.
The regulatory landscape continues to shift in GB as we head towards the
uncertainty of a General Election, which is already delaying decisions by
regulators and obscuring the broader future direction of the market. New
revenue opportunities in Germany and the US, such as through the Resource
Adequacy programme in California or the yet‑to‑be‑implemented ECRS
service in Texas, help to provide a focus for activity in the coming months
while maintaining our high levels of availability across the fleet.
We find ourselves at a pivotal juncture for the Company's growing presence
across five geographically diverse grids, which I am delighted to say is
contributing to the Company's continued growth in the face of declining
revenue in the GB market.
Patrick Cox
Chair
Investment Manager's Report
Dr Alex O'Cinneide
CEO of Gore Street Capital, the Investment Manager
"I'm delighted to report that the Company continued to deliver for
shareholders through a dedicated focus on building a robust and diversified
portfolio during a historic year for the energy sector. The Company's asset
value continues its trajectory of strong and sustained growth, exceeding
target returns and continues to meet the dividend target laid out to
shareholders. The Company has achieved a NAV Total Return of 48% since IPO."
The Company's NAV increased by 47.8% from the end of the last fiscal year (31
March 2022). The key drivers of the increase from £376.5m (1st April 2022) to
£556.3m (31 March 2023) were: (i) a fundraise of £147.3m in net proceeds in
April 2022, (ii) acquisitions of operational and construction projects in
Great Britain (GB), Texas and California, totalling 544.7 MW. The acquisitions
included the 200 MW Big Rock acquisition in California, the 200 MW Middleton
acquisition in GB, the 75 MW Dogfish asset, and a 69.65 MW portfolio of assets
in Texas, and (iii) changes in key forecasts across the portfolio.
Table 1
Movement in NAV Changes in
since March 2022 NAV per share
in pence
NAV March 2022 109.1
Offering Proceeds 0.3
Offering + Fund + Subsidiary Holding Companies Operating Expense -3.6
Dividends -6.4
Cash Generation 6.5
Revenue Curves 4.7
Inflation 2.7
Discount Rates -2.2
CM Contracts Awarded 2.9
Asset Depreciation and Other DCF Changes -4.7
New Investments to FV 6.3
NAV March 2023 115.6
The Investment Manager's Report provides readers with an explanation of the
backdrop in each of the markets the Company operates in. It details the
revenues generated, how the assets performed, and the specific drivers of the
portfolio's NAV. It also includes a Q&A with the Investment Manager's CIO
and CFO, Sumi Arima, where he talks about the Company's strategy and his
thoughts on the markets in which the Company operates. The Investment
Manager's CEO, Dr Alex O' Cinneide, then gives his views on the Company's
performance, and outlook of the future.
A glossary of industry terms can be found on page 106 of the annual report.
Portfolio
1.17 GW
Total portfolio (GW)
1.54 GWh
Total portfolio (GWh)+
291.6 MW
Operational
881.6 MW
Pre-construction and construction phase projects
Portfolio in GB & Northern Ireland (GBP)
Asset name Capacity Ownership
1 Boulby 6.0 MW | 6.0 MWh 99.9%
2 Cenin 4.0 MW | 4.8 MWh 49.0%
3 POTL 9.0 MW | 4.5 MWh 100.0%
4 Lower Road 10.0 MW | 5.0 MWh 100.0%
5 Mullavilly 50.0 MW | 21.3 MWh 51.0%
6 Drumkee 50.0 MW | 21.3 MWh 51.0%
7 Hulley 20.0 MW | 20.0 MWh 100.0%
8 Lascar 20.0 MW | 20.0 MWh 100.0%
9 Larport 19.5 MW | 19.5 MWh 100.0%
10 Ancala 11.2 MW | 11.2 MWh 100.0%
11 Breach 10.0 MW | 10.0 MWh 100.0%
12 Stony Energisation | July 2023 100.0%
13 Ferrymuir Energisation | Sep 2023 100.0%
14 Enderby Energisation | June 2024 100.0%
15 Middleton Energisation | Dec 2026 100.0%
Republic of Ireland & Germany (EUR)
Asset name Capacity Ownership
16 Cremzow 22.0 MW | 29.0 MWh 90.0%
17 Porterstown 30.0 MW | 30.0 MWh 51.0%
17.1 Porterstown Expansion Energisation | June 2024 51.0%
18 Kilmannock Energisation | H2 2025 51.0%
18.1 Kilmannock Expansion Energisation | H2 2026 51.0%
North America (USD)
Asset name Capacity Ownership
19 Snyder 9.95 MW | 19.9 MWh 100.0%
20 Westover 9.95 MW | 19.9 MWh 100.0%
21 Sweetwater 9.95 MW | 19.9 MWh 100.0%
22 Big Rock Energisation | Dec 2024 100.0%
23 Dogfish Energisation | Dec 2024 100.0%
24 Wichita Falls Energisation | June 2025 100.0%
25 Mesquite Energisation | June 2025 100.0%
26 Mineral Wells Energisation | June 2025 100.0%
27 Cedar Hill Energisation | June 2025 100.0%
● Operational Assets
● Assets under construction / pre-construction
* MWh included for operational sites
+ Based on expected system duration and may be subject to change
Market Overview
Summary
The world is experiencing unparalleled transition to a cleaner, more secure
energy system through the widespread adoption of renewable energy sources.
Generation from wind turbines, solar panels and other distributed renewable
energy resources is rapidly decarbonising global power grids with inherently
intermittent output, leading to higher volatility on energy grids. The ability
to effectively capture, store and discharge energy when it is most needed has
become a critical tool in successfully integrating clean power generation,
improving the efficiency of energy systems and reducing the world's reliance
on polluting fossil fuels.
New urgency has emerged within the low carbon energy transition following
Russia's ongoing invasion of Ukraine, which has exposed several markets'
overreliance on fossil fuels. Shortages of oil and gas, combined with
increased episodes of extreme weather, have caused energy prices to spike as
demand outstripped supply.
Energy storage owners are well placed to provide grid operators with the
flexibility they need to reduce these imbalances between energy demand and
supply by supporting them to reduce system volatility. This improves energy
security to maintain the electricity grid system at the correct frequency and
keep the lights on while ensuring the global move towards decarbonisation can
continue at pace. The faster these flexible renewable energy solutions can be
deployed, the faster society can move to a more sustainable world.
As a global owner of large-scale energy storage assets working in five grids
(Great Britain, Ireland, Germany, ERCOT in Texas and CAISO in California), the
Company is delivering these benefits in multiple jurisdictions. This
internationally diversified approach means the Company's operational assets -
online in four uncorrelated markets to date - can utilise the dynamic and
flexible capabilities of energy storage technology to stack revenue streams
across contracted and merchant opportunities.
The majority (72%) of the Company's 291.6 MW operational portfolio benefit
from Capacity Market (CM) contracts, which allow merchant revenues to be
stacked around secure income. The remaining capacity (28%) operates on a
purely merchant basis, adding further diversity to our revenues. This allows
the entirety of the portfolio to counteract any quarterly downturns or
volatility experienced in specific markets throughout the year and maintain
healthy returns for the Company and its shareholders.
Further details are below in high-level summaries of each market the Company
is active in:
Great Britain (GB) market
Table 2
TSO National Grid
GB Portfolio (operational) 109.7 MW/101 MWh
Share of the market(2) 4.4%
Annual revenue £15.2m
Revenue per MW £138,400/MW (£15.80/MW/hr)
Revenue per MWh £150,400/MWh (£17.17/MW/hr)
EBITDA GB grid % of Total EBITDA 36%
Ancillary services continued to represent the majority of revenues for all
energy storage assets in fiscal year (FY) 2022/23, which saw National Grid ESO
unveil a full suite of new frequency response services. Dynamic Regulation
(DR) was launched in April 2022, after a testing phase in Q4 2021, followed by
Dynamic Moderation (DM) in May 2022. They were introduced with the aim of
retiring services such as Firm Frequency Response (FFR), in which energy
storage had widely participated in previous years. FFR was intended to be
phased out within FY 2022/23 but has continued largely due to uncertainty and
the extension of the trial period for new services (DM and DR). With a view to
duration across the period, the majority of uncontracted revenue came from FFR
or Dynamic Containment (DC) which both can be provided by sub one- and
one-hour systems. Whilst DR was the most profitable in the period, it was
capped at 100 MW, creating a small opportunity for systems over 1.5 hours.
National Grid ESO began to procure higher volumes of the previously introduced
DC over the summer in 2022 and increased the price cap for the DC product
alongside the gradual introduction of DR. Removal of the initial £17/MW/h
price cap, combined with DR and procurement volumes required by National Grid
ESO exceeding the supply-side capacity of energy storage in GB, allowed
participants to push DC clearing prices upwards to the benefit of the entire
market.
H2 of the reporting period was marked by a fall in D-suite (DC, DM, DR) prices
caused by market saturation, particularly towards the end of the period when
additional capacity in the GB market came online.
As FFR and D-suite services are mutually exclusive for a given period, this
downward price trend - which continued into March 2023 - made FFR one of the
most lucrative services for energy storage in the Autumn and Winter of 2022/23
as market participants priced in the opportunity cost of D-suite and wholesale
trading into their FFR bids, which National Grid accepted.
The opportunity cost for FFR bid prices is calculated to encompass the
estimated monthly revenue from the alternative revenue stack. As a result,
D-suite revenues are more sensitive to the daily market grid and market
dynamics such as National Grid ESO buy curves, demand, electricity prices, and
renewable penetration. D-suite clearing prices remain uncertain and,
therefore, more volatile.
Procurement volumes of FFR were reduced towards the end of FY 2022/23 as part
of the electricity transmission system operator's phase-out of FFR, driving
increased competition as the market sought guaranteed monthly revenue rather
than risk exposure to daily volatility in D-suite procurement auctions. The
low perceived opportunity in DC and decreasing procurement volumes dragged FFR
prices down.
DR volume caps, meanwhile, were raised from 100 MW to 200 MW as of March 2023
to accommodate more consistent use of this service by National Grid. DR has a
lower frequency deviation trigger, requiring more battery cycling than DC and
assets below two-hours duration to de-rate their capacity to participate in
the market. The additional strain led to fewer participants entering DR in the
initial period, creating lucrative opportunities for participants qualified to
enter this market. While DR has not been immune to the downturn in revenues
seen with DC, as more energy storage has qualified for delivery, it continues
to clear on average higher than DC, reflecting the additional opportunity
cost.
DM volumes have remained capped at 100 MW, as National Grid ESO does not
systematically acquire DM volumes.
Irish market
Table 3
TSO SONI (Northern Ireland), EirGrid (Republic of Ireland)
Irish portfolio (operational) 130 MW / 72.6 MWh
Share of the market(3) 50% (NI), 6% (RoI)
Annual revenue £17.0m
Revenue per MW £130,800/MW (£14.93/MW/hr)
Revenue per MWh £234,200/MWh (£26.73/MWh/hr)
EBITDA Irish grid % of Total EBITDA 50%
Non-synchronous generation in the Irish market, led by wind power, has been a
key resource in efforts to achieve a 100% renewable energy system and has
created a market for ancillary services through the DS3 (Delivering a Secure
Sustainable Electricity System) programme. Energy storage investment has been
encouraged via procurement through uncapped (annually procured) and capped (up
to six-year contracts auctioned in 2019) schemes.
Uncapped contracts unit price is based on System Non- Synchronous Penetration
(SNSP), which refers to the real-time measure of intermittent renewable
generation on the system and net interconnector flows within the single
electricity market. Revenue is calculated based on annual fixed tariffs
multiplied by various scalars including availability and SNSP, the principal
factor driving volatility in DS3 revenues. This is predominantly set by wind
penetration levels, which represent the largest deployed renewable generation
resource in both Irish grids. There is a direct correlation between SNSP
levels and DS3 uncapped revenue, which fluctuates with seasonal variation to
provide higher financial returns during the peak winter months. In contrast,
summer revenues have not reached the same levels as these months typically
experience fewer windy days and are not pushed higher by the amount of solar
generation in the market.
In contrast, capped contracts are fixed at the contracted price. SNSP scalars,
which provide a multiplier for the uncapped tariff (common across the Irish
DS3 uncapped market), experience seasonal variations.
Energy storage assets can also participate in the Capacity Market (CM), which
functions similarly to the GB equivalent. Eirgrid and SONI have begun testing
trading capabilities and the process of dispatching assets in the Balancing
Mechanism (BM).
1
https://www.cleanenergywire.org/factsheets/what-german-households-pay-electricity#:~:text=The%20increase%20was%20mostly%20caused,
160%20percent%20compared%20with%202021.
2
https://energeia-binary-external-prod.imgix.net/4hCe-bWGRjCXayeF55Yi6NFpKM8.pdf?dl=Annual+Market+Update+2021.pdf
3 Source: Energy Storage Ireland: As of March 2023 there was
470 MW in Republic of Ireland, 200 MW in Northern Ireland.
German market
Table 4
TSO 50Hertz, Amperion, Tennet, Transnet BW
German portfolio (operational) 22 MW / 29 MWh
Share of the market (MaStR)(4) (50 Hertz)(5) 2.16% (Germany), 4.2% (50 Hertz)
Annual revenue £3.3m
Revenue per MW £149,800/MW (£17.10/MW/h)
Revenue per MWh £113,600/MWh (£12.97/MWh/h)
EBITDA German grid % of Total EBITDA 9%
Germany comprises four transmission system operators (TSO) in a single grid,
each controlling an area of the country. The Company currently interacts with
the TSO 50Hertz by providing Frequency (Primary) Control Reserve (FCR).
This cross-border service operates across eleven transmission system
operators in eight European countries, with 50Hertz and other German TSO able
to pass on excess flexibility to the wider European grid. FCR in Germany has
typically been delivered through gas as the biggest provider of generation,
meaning power prices generally mirror seasonal variation in the wholesale gas
market. This usually results in lower prices during summer and higher in
winter when demand for gas and electricity is higher.
As illustrated in figure 4 of the annual report, power prices increased
sharply towards the end of 2021 to accommodate rising demand across the EU as
countries recovered from the economic impact of the Covid-19 pandemic.
Electricity prices continued to increase in line with gas in April 2022
following the Russian invasion of Ukraine, which impacted energy supplies and
gas storage in continental Europe, as shown in figures 4 and 5 of the annual
report. The resulting shortage in supply across Europe during the reporting
period drove gas prices and the marginal cost of power production from
gas-fired power plants up in the summer. Over 2022 Germany paid more than
double for its natural gas imports compared to the previous year, according to
the Federal Office for Economic Affairs and Export Control, BAFA1, which, in
turn, caused FCR prices to surge.
The trend of increasing prices reached a record high of €469/MWh in August
2022 when extreme summer temperatures impacted hydropower generation due to
low water levels. It even contributed to low nuclear capacity in France due to
low reservoir levels reducing water available for cooling reactors³.
As the EU entered the Autumn period, wholesale prices started to decrease due
to milder weather, which led to lower demand, and higher gas storage
availability after the EU implemented a regulation requiring all storage
facilities on the continent to be filled to 80%, on average, before the winter
of 2022/2023. This was achieved in late August using LNG imports from the
US(4) and caused FCR prices to fall faster than seen in previous years.
1
https://www.reuters.com/business/energy/germanys-gas-bill-surged-109-last-year-despite-slashed-buying-2023-03-01/
3
https://gmk.center/en/news/electricity-prices-in-the-eu-fell-significantly-in-october-2022/
4
https://www.consilium.europa.eu/en/infographics/gas-storage-capacity/
4 Source: Mastr database, as of March 2023 there is around
1,019 MW of total capacity in Germany. 50 Hertz 521MW
(https://www.marktstammdatenregister.de/
MaStR/Einheit/Einheiten/OeffentlicheEinheitenuebersicht)
The factors of: Covid-19 recovery, worldwide gas volatility caused by war in
Europe, and extreme temperatures experienced across the mainland created an
abnormal seasonal variation during the period, where FCR was higher in
the summer and lower in the winter. Prices stayed higher than the previous
year, however, with the average natural gas import price in December -
equivalent to €9.38/kWh - remaining 74% above a year earlier, following a
period of divestment from Russian supplies.
Additional revenue for short-duration flexibility is now available through
automatic Frequency Restoration Reserve (aFRR), also known as Secondary
Control Reserve, following a reduction in delivery duration from four hours to
15 minutes. This service is designed to support FCR should it fail to deliver
the flexibility needed to maintain the grid by maintaining a reserve in the
power grid that helps to keep the grid frequency stable. This provides revenue
for availability in case of activation and for actively balancing energy when
called on.
This reporting period also provided opportunities in wholesale trading across
the FCR market, with liquidity available from the demand for balancing from
renewable generators seeking to settle their supply imbalances before facing
high system charges.
ERCOT market (Texas, US)
Table 5
TSO ERCOT
ERCOT portfolio (operational) 29.85 MW / 59.7 MWh
Share of the market (ERCOT)(5) 1.4%
Annual revenue £3.8m
Revenue per MW £127,800/MW (£14.59/MW/h)
Revenue per MWh £63,900/MWh (£7.30/MWh/h)
EBITDA ERCOT grid % of Total EBITDA 5%
US President Joe Biden signed the Inflation Reduction Act into law on 16
August 2022. The legislation provides $369bn over ten years to tackle climate
change and invest in the renewable energy sector to reduce carbon emissions by
40% by 2030, compared with 2005 levels.
Two-thirds of this funding will be used to extend or introduce support for
emission-free electricity generation and storage technologies.
Standalone utility-energy storage projects with a minimum name plate capacity
of 5 kWh can now access investment tax credits (ITCs) worth at least 30% of
capital expenditure for the first time provided construction is underway by
the end of 2024. Projects beginning construction in 2025 through to 2032 will
be able to receive ITC support however specific facilities will be done on a
technology neutral basis. Per the 2022 unemployment data published by the
Bureau of Labour and Statistics (BLS), the Company's assets: Dogfish, Wichita
Falls, and Mineral Wells (combined 95MW) all qualify for 40% ITC, provided
that unemployment rates in these regions remain equal to or higher than the
national average.
This is expected to help grow the US battery storage market from around 10 GW
in 2022 to over 85 GW by 2035, with 29 GW (ERCOT) and 25 GW (CAISO) more in
construction or planned(5).
5 Source: S&P Global: Market Intelligence, as of March
2023 there is 2.2 GW of operational capacity;
https://www.spglobal.com/marketintelligence/en/news-insights/research/battery-stampede-spurs-sunny-storage-economics-in-ercot
(https://www.spglobal.com/marketintelligence/en/news-insights/research/battery-stampede-spurs-sunny-storage-economics-in-ercot)
; https://www.50hertz.com/en/Transparency/GridData/Installedcapacity
Ancillary services are the main revenue driver in ERCOT, except when extreme
weather events create opportunities in wholesale markets as real-time prices
spike due to swings in supply and demand. These weather events also impact
ancillary services and can produce price spikes and supply scarcity, driving
demand for Responsive Reserve Service (RRS).
The Company expanded the number of services offered after the reporting period
to include existing (e.g. Regulation Up/Down) and new (e.g. ECRS - Contingency
Reserve Service) revenue streams. The wholesale market opportunity was and
continues to be bearish, mainly due to falling natural gas prices. This trend
is expected to reverse throughout 2023 and into 2024 in line with commodity
prices and demand increases.
CAISO market (California, US)
Table 6
TSO CAISO
CAISO portfolio (construction) 200 MW / 400 MWh
Current Status Advanced pre-construction phase (pre-NTP): Batteries procured and in warehouse
Target energisation Dec-end 2024
The outlook for ancillary services in California's CAISO market is well
supported by three main fundamentals: grid flexibility, high penetration of
non-dispatchable renewable generation and decommissioning of existing
conventional generation. Deployment of battery storage is integral to
increasing penetration of renewable energy as existing conventional energy
resources are unable to meet sub-second response requirements. This need for
flexible capacity has seen a rapid deployment of battery energy storage
systems motivated by the retirement of fossil fuel generation. CAISO
experiences a similar frequency of extreme weather events as ERCOT despite its
location on the opposite coastline - these events create short-term spikes in
wholesale and ancillary markets.
In addition to ERCOT, the Inflation Reduction Act applies in CAISO and will
give access to an ITC worth at least 30% of capital expenditure, which can be
extended to some Tax Credit Adders for projects in low-moderate income
communities, tribal lands, or repurposed fossil fuel power plants to between
2% and 20% extra per individual possible adder.
Revenue opportunities under the Resource Adequacy (RA) mechanism, which acts
as a tool for CAISO and the Local Regulatory Authorities to ensure enough
generation capacity is secured ahead of time to deliver security of supply,
are also drivers. RA can be compared to the Capacity Market in GB in that it
offers secure revenue on which the prevailing ancillary/wholesale merchant
strategy can be stacked. They differ, however, in that RA contracts are
expected to represent up to 40% of the revenue of a battery energy storage
system, a materially higher proportion than GBs CM contracts account for.
Revenue Generation and Portfolio Performance
The Company exercised a diverse strategy throughout the reporting period,
participating in a mixture of ancillary and trading opportunities across the
markets in which it is active. Revenue was generated from a growing suite of
services launched in 2022 (e.g. the expanded D-suite in GB), while the Company
also implemented steps to prepare for additional streams in 2023 (e.g.
wholesale trading in Germany) and post-period (e.g. ECRS in ERCOT).
Great Britain (GB) market
Ancillary services played a key role in GB revenue generation, accounting for
85.7% of annual revenue, or £13m. The strategy for bidding into varying
ancillary services was evaluated in advance as FFR is bid into one month
before delivery to secure calendar-month-long agreements. D-suite services,
meanwhile, are bid into on a day-ahead basis and provided an alternative
strategy.
While all the assets were entered into FFR for all EFA blocks at various
points throughout the financial year, a higher bid strategy was adopted for
those more suited to delivering for the DC market. This meant they were
available to pick up FFR contracts if prices reach a higher bid level but, in
most months, meant they could ensure an even split between FFR committed
capacity and DC committed capacity was achieved. This diversified services
strategy acted as a hedge against the volatile conditions experienced earlier
in the year.
Revenue in Q1 2022 was the highest of all reported quarters since April 2021
and was 40% above the previous year's Q1 revenue. This was largely due to the
uplift in DC prices across this period, with DC representing 51% of all
revenues achieved (Capacity Market included). The continued uplift in D-suite
revenues also led to Q2 2022 being 18% ahead of the previous year, with
D-suite representing 73% of all revenues.
Lower prices were bid into FFR in H2 of the reporting period due to fewer
alternative opportunities in the D-suite market caused by market saturation.
H2's performance was 35.5% below the previous year, in stark contrast to the
excellent market conditions in H1.
Whilst FFR prices cleared higher than DC and DM, on average, decreased
procurement volumes ahead of retiring the service (contributing to increased
competition) led to fewer batteries in the portfolio receiving contracts. FFR
represented only 31% of revenue in H2, although the portfolio saw an increase
in trading, which accounted for 11% of revenues during the same period.
FY 2022/23 included the second half of the 2021/22 Capacity Market delivery
year and the first half of the 2022/23 delivery year. Capacity Market revenue
in H2 was 31% above H1, driven in large part by the £75/kW clearing price of
the 2022/23 T-1 Auction; the Port of Tilbury (POTL) asset secured a contract
at 7.061 MW de-rated capacity. Capacity Market revenues represented 8.9% of
the GB portfolio revenues during the financial year.
Irish market
Northern Ireland
Ancillary services, monetised through DS3 uncapped contracts, generated 98% of
revenues for the Northern Irish fleet, totalling £15.5m across the financial
year - an uplift of 27% of total revenue compared with the previous financial
year. DS3 uncapped tariffs for each of the five contracted ancillary services
are subject to yearly variations by the Regulatory Authority in Ireland and
could inevitably lead to lower revenues being secured. Despite a 10% reduction
in DS3 tariffs in January 2022, the NI portfolio still generated 24% more
revenue from DS3 this financial year, driven mainly by increased SNSP levels
in the December-end quarter.
Monthly DS3 uncapped revenues peaked in FY 2022/23 at £29.24/MW/h, just short
of the all-time high of c. £33.87/MW/h in February 2022.
The remaining 2% of the revenue stack comprised two revenue streams: Capacity
Market and wholesale trading. The contracted Capacity Market revenue generated
around £36,000 per month in total from both assets, starting from October
2022 and continuing post-period until the contracts end in September 2023. The
NI portfolio also secured yearly Capacity Market contracts until September
2027.
Trading remains in its infancy in the grid with limited accessibility to the
wholesale market. To date, bids from the NI assets have been accepted to
dispatch volume generating c. £118,000.
Republic of Ireland
Porterstown Phase I operates under a six-year DS3 capped contract (starting
September 2021) with a fixed tariff rate of €6.79/MW/h The asset was
declared available to provide services on 24 January 2023 and has since
generated €326,000 throughout the remainder of the March-end quarter. Prior
to the DS3 capped contract, the asset generated additional revenue from
liquidated damages caused by delays experienced by the engineering,
procurement, and construction (EPC) contractor in delivering the project.
The NI & ROI portfolio generated an overall average weighted price of
£14.90/MW/h, with the bulk of the revenue generated from DS3 uncapped
revenue.
German market
The Company acquired the Cremzow project at the end of the previous fiscal
year with a view to targeting ancillary services in a new market that
presented similar conditions to GB. The asset enabled the Company to
capitalise on uncharacteristic price rises in gas, power and ancillary markets
during the summer of 2022.
Delivery of ancillary services resulted in revenues totalling €3.7m through
provision of FCR for 98.0% of the year, with monthly revenue accrued directly
from FCR peaking at €32.22/MW/h in August to achieve a total of €488,000 -
the highest monthly revenue in FY 2022/23, marginally ahead of October 2022.
FCR prices remained stable during the winter months, once again moving against
expected seasonal variation where previously prices would increase towards the
end of the calendar year. The stability at lower levels pushed the Company
towards expansion into new revenue streams, mainly the wholesale market.
The Company expanded its capabilities in Germany to include wholesale trading
through work with a new optimiser and, in March 2023, generated revenue of
€73,400 solely from wholesale trading following delays transitioning to a
new FCR provider and pending approval from 50 Hertz. Post-period, the
Company's revenues will be a blend of both streams with the expected addition
of aFRR following submittal of tests for post-period evaluation to join the
service.
Texas (ERCOT market)
Due to the significant renewable energy development in this region and unique
characteristics surrounding interconnections, there is exposure to wholesale
price volatility due to the inherent intermittency of renewable generation.
This isolation of the ERCOT grid means there is an increasing need for
flexibility. The Company's activity this period, however, was focused on
performing RRS, which is also affected by swings in renewable supplies.
Several extreme weather events during FY 2022/23, such as a heat wave in July
2022, caused RRS prices to spike above $2,000/ MW/h for a short period. This
occurrence was not isolated, with a similar scenario in December 2022
resulting from a winter storm and cold snap driving prices up to $3,000/MW/h.
These short-term events resulted in monthly revenue of $57.26/MW/h in July and
$36.12/MW/h in December.
Such events related to weather conditions are more likely to occur during
winter and summer, leaving spring and autumn as transition seasons, typically
referred to as shoulder months. In ERCOT, steady wind and thermal generation
led to lower prices in RRS during the March-end quarter; consequently, the
Company's revenue dipped to $4.51/MW/h. The seasonal price volatility captured
by the ERCOT assets during extreme weather events versus shoulder months are
an expected market condition of operating in ERCOT and offset the fall in
revenue experienced during transition periods of the year.
Overall portfolio performance
Overall, the portfolio generated £39.3m in revenues (2022 Fiscal Year
£29.3m), with weighted annualised revenue of c. £135,000/ MW
(£15.40/MW/hr). This was achieved through geographical diversification and
the Company's unique ability to generate revenues even when some markets were
hindered by seasonal variation or saturation.
Table 7
£(000s) FY 2022/23 % within grid % of portfolio
GB - 109.7 MW / 101 MWh
Ancillary services £13,012 85.7%
Capacity Market £1,354 8.9%
Wholesale Trading £822 5.4%
GB total(6) £15,188 100.0% 38.6%
Ireland - 130 MW / 72.6 MWh
DS3 Capped/Uncapped £16,666 98.0%
Capacity Market £216 1.3%
Wholesale Trading £118 0.7%
Ireland total £17,000 100.0% 43.3%
Germany - 22 MW / 29 MWh
Ancillary services £3,231 98.0%
Wholesale Trading £65 2.0%
Germany total(7) £3,296 100.0% 8.4%
ERCOT - 29.9 MW / 59.7 MWh
Ancillary services £3,711 97.3%
Wholesale Trading £104 2.7%
ERCOT total £3,815 100.0% 9.7%
Portfolio total - 291.6 MW / 262.3 MWh £39,299 100.0% 100.0%
Market Revenue £(000s) £(000s)/MW/yr £/MW/hr £(000s)/MWh/yr £/MWh/hr
GB £15,188 £138 £15.80 £150 £17.17
Irish £17,000 £131 £14.93 £234 £26.73
Germany £3,296 £150 £17.10 £114 £12.97
ERCOT £3,815 £128 £14.59 £64 £7.30
Weighted averages £135 £15.39 £150 £17.10
Total Revenue
(£000s) Jun-end Sep-end Dec-end Mar-end
GB £4,844 £4,675 £3,657 £2,012
NI £3,264 £1,963 £4,969 £5,313
ROI £395 £403 £406 £287
Germany £807 £1,076 £918 £494
ERCOT £1,238 £1,529 £813 £235
TOTAL £10,548 £9,646 £10,763 £8,341
6 The Company holds a 49 % ownership interest in Cenin (4.0
MW) and retains 49% of the generated revenue.
7 The Company holds a 90% ownership interest in Cremzow (22
MW) and retains 90% of the generated revenue, while Enertrag maintains a
minority stake in the asset.
The charts on page 20 of the annual report highlight the seasonal variation in
each market and how the Company's diverse portfolio results in exposure to
lucrative opportunities when one market is experiencing a downturn. As
detailed above, saturation in the GB ancillary market drove clearing prices
down at the same time as a pickup in the Irish market. While the overall
result was lower year-on-year fleet revenue in the March-end quarter, the
impact would have been more significant if the portfolio had been solely
exposed to the price decline in GB.
Operational
The operational assets (weighted by asset capacity in MW) achieved over 95%
availability during the year. This excellent performance was supported by the
increased availability of the GB portfolio and a successful operational
takeover of the Porterstown asset in Ireland.
Great Britain: The overall availability for the GB fleet was positive,
highlighting successful interventions by the Commercial Manager and management
of O&M contracts over the year. The latter half of the year showed a c. 5%
increase in weighted average availability to 94% (from 89% in H1 2022), driven
predominantly by improvements at Boulby, Port of Tilbury and Larport. The only
asset with material reductions in availability in the latter half of the year
was Ancala due to various project issues requiring repairs that are now
resolved and where downtime is subject to liquidated damages under
availability guarantees.
Ireland: Portfolio performance in Ireland (and Northern Ireland) remains a
highlight, with weighted availability (by MW capacity) of 99% over the
reporting period between the three Irish projects. The Company saw its first
asset in the Republic of Ireland, Porterstown, enter operations in January
2023. To date, there have been no availability reductions with the asset. The
Northern Irish assets-Drumkee and Mullavilly-continue to meet performance
expectations and achieved 97% and 99% availability over the year,
respectively. Availability was impacted by quickly resolved inverter failures.
The O&M provider is providing additional training with the supplier to
further improve repair times in future.
DS3 services provide most of the revenue for all three operational Irish
projects. In the reporting period, all DS3 events-instances where grid
frequency drops below 49.8Hz and asset response is assessed by the system
operator- recorded on the Irish network were successfully delivered and each
project was monetised successfully. The Commercial Manager's improvements to
the technical response of the assets addressed issues seen during the previous
financial year, highlighting the benefit of the Commercial Manager's
experienced technical team managing the assets.
Germany: The Cremzow project is generally performing well. In July 2022, an
inverter issue with the 2 MW proportion of the project impacted availability
but was resolved in a timely manner. Availability impacts were infrequent and
isolated over the year, limiting the impact through timely successful
maintenance activities and active engagement by the Commercial Manager. The
asset recorded 96% availability over the reporting period and there are no
ongoing concerns, with availability expected to remain high.
US - Texas: The three operational assets-Snyder, Sweetwater and
Westover-performed well during the period. Technical performance was good
across the 9.95 MW projects, and their total availability averaged over 95%.
The most notable availability impact was a commercial restriction at Westover
due to miscommunication between the optimiser and the Texas system operator
ERCOT, resulting in lower availability in October 2022 (no ongoing concern).
System inverter issues were observed with limited availability impacts on each
occurrence, and the Investment Manager opted to make preventative improvements
to all inverters, which drove availability reductions in H2 2022 but are
expected to improve availability over the longer term.
Table 8
Region H1 22/23
Availability
GB 88.8%
IRE 97.7%
GER 94.7%
ERCOT 96.7%
Weighted average: 93.6%
Region H2 22/23
Availability
GB 94.2%
IRE 99.0%
GER 96.7%
ERCOT 93.8%
Weighted average: 96.5%
Region FY-22/23 Availability
(% YTD)
GB 91.5%
IRE 98.6%
GER 95.7%
ERCOT 95.2%
Weighted average: 95.4%
Asset management developments
It was an exciting year for energy storage, particularly for operations of the
Company's portfolio. The Investment Manager successfully onboarded assets on
two new transmission networks: in Germany and Texas. The over 95% availability
on each of these grids demonstrated the team's ability to quickly build and
manage relationships with new contractors despite the expansion into new
territories.
The Investment Manager's in-house technical team grew substantially over the
period and drove important initiatives for the Company's operational assets
and pipeline. The first retrofit of an electrolyte vapour detection
system-used to prevent the operation of batteries in scenarios which may lead
to thermal runaway-was completed for the Cremzow project in Germany. Security
enhancements have been made to reduce the risk of thefts, enhance safety
performance (through monitoring and visibility) and gave the team better
engagement with on-site activities. Trials have begun with industry-leading
analytics partners to further improve performance through state of charge and
state of health prediction improvements whilst materially improving safety
through 'risk reduction by prevention' measures. The continuation of this
workstream is set to be a key focus in 2023.
The Company continues to build key relationships whilst developing contractual
partnerships suited to the portfolio's increasing capacity. The Investment
Manager's increasing technical capability is delivering important initiatives
(such as those referenced above) whilst improving the delivery of the team's
most core requirements. This is evidenced by the materially improved
availability figures reported over the entire reporting period relative to the
H1 2022 period reported in the Company's most recent Interim Report.
Portfolio
Construction/pre-construction
514.8 MW of construction or pre-construction phase assets were acquired during
the reporting period, bringing the total pre-operational capacity to 881.6 MW.
Given the macro environment and future capital expenditure projections, the
Investment Manager has made a decision to optimise asset build out based on
targeted energisation date and capacity. The Investment Manager strategically
decided to prioritise the following assets: Stony, Ferrymuir, and Enderby in
GB; Big Rock in California; Porterstown II expansion in Ireland; and Dogfish
in Texas (a total of 521.8 MW). In the near term, the Investment Manager will
prioritise larger assets over the 9.95 MW sites in Texas. The Investment
Manager is exploring opportunities to increase their capacity, similar to the
expansion projects announced for the Company's Irish assets.
In Great Britain, commissioning of Stony (79.9 MW) has commenced and the
energisation process will begin at the end of July, while Ferrymuir (49.9 MW)
is at the final stages of mechanical completion, with the majority of
contestable works completed. The asset is waiting for energisation of the grid
connection by the distribution network operator, expected in summer 2023.
Works at Enderby (57 MW) are underway but have been impacted by National Grid
ESO's outage availability resulting in a consequent delay to energisation.
National Grid ESO has advised that April 2024 is the next available outage
window during which their works can be completed, and subsequently, the asset
can be energised.
In Ireland, Porterstown Phase II (60MW) consents have been acquired, with
design and procurement underway. Modifications to the connection agreement
have been negotiated with EirGrid to enable the connection of the extension,
and energisation and commissioning are expected in June-end 2024.
In California, the Big Rock (200 MW) project acquired in February 2023 is
progressing well, with batteries and grid transformers delivered and in
storage. The procurement of the key balance of plant contracts is near
completion, with mobilisation planned for August 2023. Permitting and grid
consenting are underway. Enclosures arrive in Spring 2024, and energisation is
scheduled for December-end 2024.
In Texas, Dogfish (75 MW) procurement is underway, with orders of long lead HV
plant in advanced stage of negotiations. The grid connection agreement with
the transmission operator (Texas New Mexico Power) has been signed, with grid
design works underway.
At Kilmannock, the property purchase option has been exercised. Preliminary
engineering and demonstrating planning condition compliance is underway for
Phase I (30MW), while Kilmannock Phase II (90MW) has received and accepted its
connection offer. Optimisation of the design and configuration of the grid
connection plant for phase I and II is underway, however, the delivery of the
project has been deprioritised to optimise capital deployment.
Table 9: Sites in construction/pre-construction
Project Expected Energisation Capacity
Stony July - end 2023 79.9 MW
Ferrymuir Sep - end 2023 49.9 MW
Enderby Jun - end 2024 57.0 MW
Porterstown Ph II Jun - end 2024 60.0 MW
Big Rock Dec - end 2024 200.0 MW
Dog Fish Dec - end 2024 75.0 MW
Mineral Wells Jun - end 2025 9.95 MW
Mesquite Jun - end 2025 9.95 MW
Cedar Hill Jun - end 2025 9.95 MW
Wichita Falls Jun - end 2025 9.95 MW
Kilmannock Ph I Dec - end 2025 30.0 MW
Kilmannock Ph II Dec - end 2026 90.0 MW
Middleton Dec - end 2026 200.0 MW
Q&A with Sumi Arima
Sumi Arima
CIO and CFO of Gore Street Capital, the Investment Manager
Q: Why did the Company invest in Germany, Texas and California during
FY2022/23?
Most available revenue contracts for energy storage projects are short-term in
nature, meaning quarterly revenue figures tend to be volatile. Project
diversification within a grid does not necessarily offer revenue
diversification, as available contracts tend to be identical regardless of the
location of an asset within a single grid. This can leave an energy storage
asset owner exposed to downward revenue trends if they are not internationally
diversified.
The Company has a mandate to invest at least 40% in GB and Ireland, and up to
60% in other selected countries. This allocation is intended to offer a
diversified portfolio for the Company's shareholders, as evidenced by the
performance of the 40% of the Company's portfolio in GB and Ireland. With
three operational Irish projects, the Investment Manager was able to partly
mitigate the reduced revenue available to GB projects in the second half of
the year.
For the remaining 60% of the portfolio, the Manager has been working to
further diversify outside of GB and Ireland. The GB and Ireland grids are,
relatively speaking, smaller than other markets, such as those in the US and
continental European markets, and are prone to saturation. This has driven our
recent investment activities in larger geographic regions.
Continental Europe offers attractive revenue opportunities through frequency
control reserve (FCR) and wholesale trading. Many large European grids are
interconnected and offer similar revenue streams with less concern over market
saturation. The Manager decided to enter the mainland European market via an
operational German project to quickly accumulate experience by operating an
asset without the lead time of construction.
In the US, ERCOT in Texas and CAISO in California had the most compelling
business cases driven by significant pricing volatility, increased penetration
of renewables and pre-existing market conditions to remunerate storage.
Acquisitions of operational assets in ERCOT earlier this fiscal year helped us
accumulate knowledge of the market and evaluate and design new project
opportunities in ERCOT.
The passage of the US Inflation Reduction Act in August 2022 introduced
investment tax credits for standalone storage, further strengthening the
business case for the asset class. The Company capitalised on these new and
material tailwinds through its acquisition of Big Rock in California and its
construction portfolio in Texas.
Our operational portfolio is now benefiting from 19 revenue streams across
four markets with limited correlations, while further revenue opportunities
are expected to follow in California once Big Rock becomes operational. We are
also poised to take advantage of the introduction of new services, such as the
long-expected ECRS in Texas, which will allow our energy storage assets to
deliver additional value during the ramp down of solar in the evening.
Q: How does the Company decide the optimal duration for its assets across five
energy markets?
We have no preference towards a particular system duration. We view optimal
duration decisions purely as a financial one; a function of capex costs and
revenues available for the different duration profiles. We apply the same
logic across multiple jurisdictions by choosing system durations appropriate
to the volatility of the markets we operate, from 25 minutes up to two hours.
In GB, we identified c. one-hour systems as the optimal duration due to
ancillary services remaining the dominant revenue streams to date. Since our
first operational asset, we correctly minimised capex by deploying up to an
hour system and still managed to capture the same revenues available to all
energy storage operators. Without the additional capex required for the
additional duration, we improved the financial return of portfolio companies
by focusing on maximising profitability (not just revenues).
This reality is also true of Ireland - where our sub-30-minute assets are more
than sufficient to deliver under the DS3 ancillary services market, which
values response time and doesn't provide additional payments for longer
durations. System duration in Ireland has been particularly successful, as
evidenced during the reported period when the Company's Irish assets accounted
for the largest portion of the revenue of any geography the Company is active
in, with assets that required the lowest build-out cost within the portfolio.
Our c.90-minute system in Germany sufficiently captures current volatility in
the FCR and wholesale markets. Unlike in GB, wholesale market volatility in
Germany is driven by the lack of an imbalance mechanism, which exposes
participants to high imbalance prices if they do not settle their positions
within the relevant period.
We are building a two-hour system in California to access the spread in peak
prices found in the California grid. The asset has also been designed
specifically to be operated at 100 MW deliverability to access a de-rated
Resource Adequacy (RA) contract requiring four-hour discharge, adding a secure
revenue to the stack that can be obtained by the asset. This will join the
two-hour operational batteries we have in Texas' ERCOT market, which capture
the volatility often caused by extreme weather events.
We will continue to evaluate new revenue streams arising in Texas and every
other market that might shift the duration of the batteries needed and will
deploy capex accordingly for the projects we have yet to build.
Q: How do the opportunities for energy storage differ in each of the grids the
Company is now engaged with?
The electricity grids the Company operates in all have different market design
and requirements and, therefore, offer different opportunities. Ancillary
services still dominate GB and Ireland, but they differ in that our Irish
assets are tied directly to the successful integration of wind power, with
higher generation contributing to higher revenue levels for the Company's
assets. In Germany, the Cremzow asset provides a critical suite of balancing
and frequency services to up to 11 transmission system operators across eight
European countries through an interconnected grid system. It also participates
in wholesale and intra-day arbitrage, presenting additional revenue stacking
opportunities.
The starkest difference can be seen in Texas, where our operational assets
support a grid prone to extreme volatility. As a result, in July and December
2022, our assets generated the equivalent of five months of revenue in just
four days. Our newest asset in California will carry out a similar role, once
constructed, in a more regulated market, benefiting from long-term capacity
contracts worth up to 40% of project revenue. This is considerably higher than
an equivalent GB Capacity Market contract and allows us to consider raising
project-level debt financing.
The ERCOT electricity market includes locational energy prices, as opposed to
GB, Ireland and some mainland European markets, where single wholesale
electricity prices apply across an entire grid. Locational energy prices offer
diversification opportunities within a grid and interesting trading
opportunities. The UK government included plans for GB locational energy
prices in its July 2022 review of electricity market arrangements (REMA)
consultation but, given the regulatory and physical barriers that will need to
be overcome, an implementation timeline has yet to be established. Our
experience of various monetisation strategies gathered in the US market is
expected to help formulate a more advanced trading strategy in GB.
Q: How did the Investment Manager overcome challenges when entering new grids?
The ability to deploy in multiple grids is challenging and requires resources
dedicated to managing regulatory and transactional challenges involved with
cross-jurisdictional interfaces. The Investment Manager has built specialised
relationships to help navigate the specific regional conditions in each of the
five grids the Company is currently invested in and has engaged with
appropriate legal, technical and financial advisers to maximise value for
shareholders through diversification across multiple jurisdictions. In
addition, the incumbent developer / DNO maintains a minority stake in the
Cremzow asset, and Avantus, the developer of Big Rock, is working alongside
the Investment Manager to assist with the deliverables of the project. The
Investment Manager also has US-based employees overseeing the construction of
the Company's US projects.
The Investment Manager prioritises acquisitions of operational assets when
entering a new market, if such projects are available. That is evidenced by
the acquisition of Cremzow in Germany and the Snyder/Westover/Sweetwater
assets in ERCOT. That helps us to learn the objective business case quickly
and helps evaluate greenfield project pipelines and procure suitable energy
storage systems more strategically.
Q: What is the Investment Manager's view on utilising leverage for energy
storage?
The utility-scale energy storage market has evolved rapidly in the last five
to six years around a merchant revenue stack, which meant there was limited
appetite for lenders to provide leverage to investments on attractive terms.
As the market has matured and lenders have become more familiar with the
energy storage business model, they have become more comfortable lending
against certain conservative revenue assumptions, underpinned by fundamental
grid demands.
Despite this progress, however, we don't intend to take on excess leverage to
build-out our portfolio (with a limit of 30% of GAV, or c. £230m, as set out
within the Company's investment policy on page 38 of the annual report).
Minimal debt is currently held across the portfolio given the high interest
rate environment, which means that the Company is not servicing highly priced
debt. Resilience of the Company's balance sheet is important, especially when
we are seeing revenue drop in some of the grids the Company operates in. The
Company expects to be able to build out its portfolio with a maximum debt
below the 30% thresholds and is continually working with lenders to ensure
appropriately sized facilities are in place to be utilised when prevailing
funding conditions are attractive to make use of such leverage. We
successfully increased our revolving credit facility post period end from £15
million to £50 million, with a four-year term, to support the construction of
our next phase of projects to be brought online in the coming months.
Q: What is your near-term focus?
Following a successful period of acquisitions (544.7 MW during the reported
period), our focus now is on the build-out of our construction assets across
multiple grids and optimising the Company's capital structure to finance this
capex through a combination of cash on balance sheet and external debt.
Over 520 MW of Capacity is scheduled to come online by the end of 2024 across
GB, Ireland, Texas, and California, which will successfully establish our
presence across five grid systems. The Investment Manager's growing in-house
technical teams will allow us to deliver and optimally manage these projects
at competitive capex costs. We believe 2023 will serve as a prime example of
the benefits of diversification for investors.
Whilst progressing construction, based on the prevailing interest rate
environment, we continue to carefully evaluate the business case of each
pre-operational assets within the portfolio. The reviews are based on the most
recent revenue trends, funding costs, and updated capital expenditures towards
commercial operations and timing of binding capital commitments.
Q: How do you see dividend cover evolving over the next two years?
The Company generated cash flow(7) of 6p per share which translates into 4.8%
cash yield per NAV or 5.5% cash yield per share price as at 31 March 2023. The
Company's dividend yield was 6.9% based on the 31 March 2023 closing share
price.
The Company is following a strategy of acquiring assets at the project rights
stage and constructing them utilising in-house technical expertise. This
enables energy storage system procurement at competitive costs and flexible
battery system design to accommodate future market uncertainty. In addition,
rather than taking a simple approach of replicating similar assets in the same
grid over and over, the Company entered new geographies to deliver a
diversified portfolio with less exposure to single revenue drivers. While this
approach requires longer lead times, the superiority of the strategy is
evidenced by the cashflow of the operational portfolio, which only accounts
for 30% of total NAV and provided 90%(8) operational dividend cover, based
on dividends paid in the period. On a consolidated fund level, these
operational assets provided 0.54x dividend cover for the fund. Given the over
20-year life of energy storage projects, management believes a careful
approach to investment and construction is prudent for energy storage.
7 Operational portfolio EBITDA minus holding company operating
expenses plus external net interest income
8 This figure is based on portfolio EBITDA only and does not
include HoldCo or PLC expenses
The Company raised £150 million in April 2022. While this reduced dividend
coverage by 26.3%, raising equity capital upfront enabled the Company to gain
further financial security without excessive reliance on external debt. It
also supported large strategic acquisitions at an attractive price (over 500MW
acquired during the reported period).
The Company's ability to cover its dividends through the generation of
revenues from its operational asset portfolio undergoes significant change
over the Company's lifecycle. Since inception of the fund, we have delivered
on our promise to pay a 7% dividend to investors each year, despite our
early-stage investments into pre-construction assets which generate cashflows
only when operational. Whilst our project-rights acquisition strategy has
allowed for industry-leading levels of capex per MW, exceptional capital
discipline and a robust foundation for high-performing operational assets, it
is a longer-term approach that prioritises growth over dividend cover in the
short term. Our strong belief in diversification as a key strategy for success
in the storage market meant we focused on entering new geographies. This may
have prolonged the timeline for the buildout of our operational portfolio, but
we believe the revenues generated across five grids or more will be the
necessary basis to manage the merchant volatility and ensure a stable dividend
cover.
If revenues were to remain at the current level across each grid, further
operational capacity will need to be online to fully cover dividends at both a
portfolio and PLC (consolidated) level. Currently, we are at a crucial
juncture as a substantial number of assets are poised to become operational in
the near future across multiple grids, with 130 MW scheduled to come online in
GB over the next six months, and the landmark 200 MW Big Rock project coming
online in California 18 months after that. This strategic diversification and
the upcoming increase in operational capacity will leave us well placed to
cover dividends and drive sustainable growth.
Q: What is the Company's exposure to each market in which its assets operate?
The Company's operational portfolio is split across four grids, with 38% in
GB, 34% in NI, 10% in ROI, 10% in Texas, and 8% in Germany.
The benefits of the Company's diversification strategy were seen this year in
Ireland and Germany, where more lucrative pricing in the first quarter of 2023
offset the subdued pricing seen in GB, keeping the Company's overall revenue
stack relatively constant. This is in line with the Company's strategy to be
exposed to multiple uncorrelated revenue streams, which is particularly
important for a largely merchant asset class.
Q: Were available revenues as you expected during the year?
As expected, seasonal variations played a significant role in revenue
generation for the financial year. GB and NI provided the bulk of revenues in
Q1, followed by a fall in NI in Q2 caused by low SNSP at the same time as an
uptick in Germany and the US.
Portfolio revenues began to dip in Q3 but were supported by a resurgent NI
portfolio thanks to higher SNSP caused by more wind. The final quarter weighed
heavily on the overall portfolio, with GB revenues 55% lower than the average
of the previous three quarters; however, during this time, revenue was highest
in NI.
These results highlight the importance of our geographically diversified
strategy, further endorsed by market saturation in GB towards the end of 2022
and into 2023.
Q: Why delay the construction of assets in Texas, and how do you expect this
delay to impact returns?
As the Investment Manager is responsible for the sustainable delivery of
assets for the Company, we continually evaluate the macroeconomic conditions
that could impact future capital expenditure. Following the macroeconomic
events of the reporting period that resulted in a high interest rate and
inflationary environment, the strategic decision was made to optimise the
construction schedule of our wider portfolio based on targeted energisation
dates and capacity. Prioritising larger assets in GB (Stony, Ferrymuir, and
Enderby in GB) and Ireland (Porterstown II expansion), as well as Big Rock in
California and Dogfish in Texas, will allow us to bring (a total of 521.8 MW)
online while exploring opportunities to increase the capacity of the 9.95 MW
sites in the Perfect Power portfolio, as we have done for the Company's Irish
assets. We believe this updated construction schedule will reduce overall
capital expenditure - the largest cost associated with energy storage assets -
and have a positive impact on returns, ultimately increasing value for
shareholders.
NAV Overview and Drivers
Cash generation during the reporting period resulted in an uplift of £31m in
NAV. An additional £22m uplift was primarily driven by updated forecasted
revenue assumptions for the Company's international assets during the reported
period. In GB, although the revenue curves saw an uplift in the September-end
quarter, this was largely offset by a decrease seen in March-end forecasts.
Revenue curves were revised in line with merchant revenue forecasts received
from third-party providers. New Capacity Market contracts secured across the
portfolio, in addition to merchant revenues, resulted in an uplift of £14m in
the reported period.
The Manager has adjusted inflation rates in response to the current
inflationary and high-interest-rate environment across the portfolio regions.
Changes in inflation rates impacted forecasted revenues and operational
expenses, creating a £13m uplift in NAV. The Manager has updated assets'
discount rates across the portfolio according to their respective grid and
operational status. Changes in discount rates have resulted in a net reduction
of £11m in NAV for the reported period.
Other DCF changes and asset depreciation across the portfolio have resulted in
a reduction in NAV of £23m. These include changes in opex and capex pricing,
such as battery cell costs for repowering, grid capex, business rates, and EPC
pricing.
Acquisitions in the period that sufficiently progressed in their lifecycles
were brought to their respective fair values, which resulted in a £30m uplift
in NAV. Cumulatively, Net DCF changes across the portfolio have resulted in a
£47m uplift in NAV.
FV Breakdown by Grid (in £m) Construction Operation
Great Britain 133.8 47.0
Ireland 9.4 74.3
Germany - 16.7
ERCOT 6.6 23.0
CAISO 119.8 -
Revenue forecasts
The Company sources revenue forecasts for uncontracted revenue from
independent energy research houses and, where feasible, adopts an average of
multiple independent forecasts to present a more comprehensive view. The
Company also considers the advice of independent consultants and
route-to-market providers. This approach has given shareholders visibility on
value which has been proven to be closest to actuals among listed peers.
Great Britain
GB assets' valuations are derived from ancillary services, trading, Capacity
Market contracts and other revenue sources (such as TNUoS benefit). All
forecasts have been updated using data provided by third-party providers. The
price forecasts for ancillary services and trading are illustrated in the
blended curve shown in Figure 20 of the annual report.
During the reported period, the Manager also secured one year T-4 Capacity
Market contracts for Hulley, Lascar, Larport, and the Ancala assets, one
15-year T-4 contract for the Middleton asset and one year T-1 Capacity Market
contracts for Port of Tilbury, Stony and Ferrymuir.
Ireland
Northern Ireland asset valuations use third-party curve averages for all
revenue streams and third-party data for DS3 tariffs. Revenues are derived
from the DS3 uncapped regime until 2025 and, from 2026 onwards, use a
combination of ancillary services, trading, and Capacity Market revenue
forecasts. The Investment Manager has secured Capacity Market contracts from
2023 to 2027; therefore, those contracted prices are used to calculate the
revenue for those periods.
Republic of Ireland asset valuations use third-party curve averages for
ancillary services, trading, and Capacity Market revenue forecasts. Secured
Capacity Market contracts are integrated into the model for the years
applicable. DS3 Capped contracts are used as inputs in the models for relevant
assets.
Germany
German asset valuations are derived from FCR revenue assumptions based on the
central case of third-party forecasts.
ERCOT
ERCOT asset valuations are derived from the central case of a third-party
research house and include revenues from trading and ancillary services.
CAISO
CAISO asset valuations are derived from the central case of a third-party
research house and include revenues from trading and ancillary services.
Resource Adequacy revenues are based on expected future contracts expected to
be secured by the Investment Manager based on bilateral discussions with load
serving entities.
Figure 20 of the annual report showcases revenues across various grids
alongside the weighted average revenue for the Company's ancillary services
and trading. The forecast revenues shown are weighted averages of various
duration assets. The weighted average revenue is calculated using the
operational capacity of the portfolio over the years across various grids. It
gives a comprehensive picture of the forecasted revenue of the operational
portfolio and the benefits of the diversified revenue streams.
Table 10: MW Capacity by Grid in Respective Years
Dec-23 Dec-24 Dec-25 Dec-26
Great Britain 239.5 296.5 296.5 496.5
United States 29.9 304.9 344.7 344.7
Germany 22.0 22.0 22.0 22.0
Northern Ireland 100.0 100.0 100.0 100.0
Republic of Ireland 30.0 90.0 120.0 210.0
Inflation
In response to the current inflationary environment, the Investment Manager
has revised the CPI assumptions across the portfolio, which now reflect
short-term and long-term rates for each grid. These updated assumptions impact
both the applicable revenue contracts in place, anticipated inflationary hikes
in merchant revenue prices, and increases in operational expenses.
Table 11
CPI Assumptions 2023 2024 2025+
GB 5.4% 3.0% 2.5%
EUR 4.8% 3.0% 2.5%
US 3.9% 3.0% 2.5%
Discount rates
The weighted average discount rate across the portfolio increased to 10.1%
from 8.3% in 2022. The increase reflects the rising interest rates and supply
chain concerns.
Pre-construction and construction phase discount rates are applied depending
on construction progress prior to start of commercial operations and
operational phase discount rates are applied once commercial operations have
started. The discount rate matrix used by the Investment Manager is set out
below:
Table 12
Discount Rate Matrix Pre-Construction Phase Construction Phase Operational Phase
Contracted Income 10.35-10.75% 9.0-10.0% 7.0-9.0%
Uncontracted Income 10.35-10.75% 9.0-10.0% 8.5-9.0%
MW 694.8 186.8 291.6
Operating expenditures
Notable increases in operating expenses include:
• Business rates: Local councils in GB and NI had set fixed
rateable values for properties until revaluations that came into effect in
April 2023, post the reporting period. The increase in business rates
resulting from this revaluation was reflected in the GB and NI portfolio
valuations.
• New prices associated with O&M and asset management
contracts have been reflected.
Capital Expenditure
Capital-intensive items, such as grid and EPC contracts secured at the project
level, were reflected in valuations in line with their contract prices.
Forecasted capital expenditures relating to inverter replacements and battery
augmentation (determined by the degradation profile of the asset) are
underwritten using third-party forecasts. Although these reflect higher cell
and equipment costs in the short term, valuations have not been materially
affected by these due to the timeframe of these capital works, typically
scheduled to occur between 7-15 years of operation.
The Investment Manager has been assessing EPC contract options for the
pre-construction and construction portfolio, specifically regarding EPC
providers and the optimal duration of its projects.
The NAV of the Company's construction and pre-construction portfolio, which
has been reflected at fair market value, is £376k/MW, driven by progress in
construction work and acquisitions during the period. The construction
portfolio refers to Stony (energisation process scheduled to begin at the end
of July 2023), Ferrymuir, Enderby, Porterstown Expansion, Mineral Wells,
Mesquite, Cedar Hills, Wichita Falls, Kilmannock Phase 1, Middleton and Big
Rock. The Company is expecting to build out the portfolio of 1.17 GW at a
competitive cost of £617k/MW and £510k/MWh.
As a leading global player in the energy storage market, the Manager
prioritises fire and general safety measures. During the period, the Manager
performed site security upgrades across four sites within its GB and all the
Irish operational assets.
Energisation and commissioning timelines
Given the macro environment and future capital expenditure projections, the
Manager has made a decision to optimise asset build out based on targeted
energisation date and capacity. The Investment Manager strategically decided
to prioritise the following assets: Stony, Ferrymuir, and Enderby in GB; Big
Rock in California; Porterstown II expansion; and Dogfish in Texas (a total of
521.8 MW). In the near term, the Investment Manager will prioritise larger
assets over the 9.95 MW sites in the Perfect Power portfolio. The Investment
Manager is exploring opportunities to increase the capacity of the Perfect
Power portfolio, similar to the expansion projects announced for the Company's
Irish assets.
The Manager has worked to mitigate construction delays across the portfolio
stemming from supply chain issues and grid operator bottlenecks, however, some
of the construction portfolio is facing delayed energisation. As of the date
of publication, the energisation process for Stony is due to commence on 31
July 2023 and Ferrymuir is now expected to be online in September-end 2023.
Enderby will follow in June 2024 and Kilmannock in December-end 2025 due to
delayed grid connections. Middleton remains to be on track for energisation in
December-end 2026.
1. Key Sensitivities
The NAV sensitivities shown in the table cover the critical macro-economic
factors and valuation assumptions that affect the NAV of the portfolio. The
value of the portfolio broadly rises with an increase in inflation, lowering
of discount rate, weakening of the pound and a decrease in EPC pricing secured
for assets yet to be built out.
a. Inflation rate: +/- 1.0%
b. FX volatility: +/- 3.0%
c. Discount rate: +/- 1.0%
d. EPC costs: +/-10.0%
NAV Sensitivities Chart
NAV in FX Discount
Base Case Inflation Inflation +3.0% FX -3.0% Rate Discount
Region (With DCF) +1.0% -1.0% (£ stronger) (£ weaker) +1.0% Rate -1.0% EPC +10% EPC -10%
Northern Ireland £55.0m £59.4m £51.3m £54.2m £56.0m £51.8m £58.8m £54.7m £55.4m
Republic of Ireland £28.6m £33.2m £24.7m £28.5m £28.8m £22.7m £35.6m £26.9m £30.4m
Great Britain £180.7m £211.6m £153.1m n/a n/a £155.6m £210.4m £170.6m £190.8m
Germany £16.7m £17.5m £16.0m £16.4m £17.1m £16.1m £17.4m n/a n/a
Texas £29.6m £32.7m £26.9m £28.8m £30.5m £27.3m £32.2m £28.5m £30.7m
California £119.8m £131.3m £109.8m £116.3m £123.5m £108.3m £133.0m £113.3m £126.2m
2. NAV Scenarios
The NAV scenarios demonstrate the change in the value of the portfolio when
considering alternate scenarios, such as utilising high case and low case
revenue forecasts, valuing the portfolio using peer proxy funds' assumptions
and applying operational discount rates for projects in construction.
Forecasts from independent research houses have been used to derive the
valuation for both the high and low cases reported.
The peer revenue assumptions scenario is based on publicly disclosed
information from comparable funds. The scenario represents the value of the
Company's GB portfolio using future revenue data points of peer funds within
the GB market as at 31 March 2023.
The last scenario illustrates the portfolio value of assets as they transition
from construction stage to operational stage, reflecting the reduction in risk
in line with the valuation matrix.
a. Revenue Scenarios: NAV based on third-party high & low cases;
b. Valuation of GB portfolio using peers' revenue assumptions:
c. Valuation of construction portfolio using operational discount rates.
Region NAV in Base Case Revenue Revenue NAV Scenarios Chart Construction NAV Using
(High Case) (Low case) GB NAV Using Peer Operational Discount Rates
Revenue Assumptions
Northern Ireland £55.0m £60.3m £46.3m n/a n/a
Republic of Ireland £28.6m £34.8m £14.5m n/a £36.6m
Great Britain £180.7m £234.7m £112.8m £255.3m £231.7m
Germany £16.7m £20.7m £10.9m n/a n/a
Texas £29.6m £37.5m £23.2m n/a £31.8m
California £119.8m £123.1m £116.6m n/a £140.4m
Message from Alex O' Cinneide
Dr Alex O'Cinneide
CEO of Gore Street Capital, the Investment Manager
I'm delighted to report that the Company has continued to deliver for
shareholders through a focus on building a robust and diversified portfolio
during a historic year for the energy market.
As the Company continued to pursue its strategy of delivering a
well-diversified market leading stream of income, built on the lowest cost per
MW/h installed and leading optimisation of revenue opportunities, market
developments around the world demonstrated why our mandate to seek out
investments across different geographies is the correct approach.
The passing of the game-changing Inflation Reduction Act - the most ambitious
and important piece of climate legislation the world has ever seen - validates
the Company's acquisitions in the US over the reporting period. The
under-construction projects will benefit from investment tax credits (ITCs)
covering at least 30% of capital expenditure under the policy package
targeting $369bn towards energy security and climate change initiatives.
The positivity around this legislation was offset by the outbreak of war, with
Russia's invasion of Ukraine upending the European market as gas prices
increased. As countries previously reliant on Russian gas race to lower their
exposure to fossil fuels, the need for energy storage will continue to grow as
higher levels of renewable generation are brought onto European grid systems.
We've already seen this reflected in a series of policy recommendations made
by the European Commission in March 2023, which all centred on deploying
energy storage to support the wider adoption of renewables.
This recognition of energy storage as the crucial technology to underpin
decarbonised and secure energy systems worldwide shows that policymakers have
caught up to what we've seen in the technology all along. Our internationally
diverse portfolio is already well positioned to act on the increased
opportunities we expect to emerge while protecting the Company from seasonal
variations in revenue experienced in individual markets.
The Company's GB portfolio, for example, performed well in the first half of
the reporting period thanks to our success across ancillary services, which
continued to play a dominant role in the revenues available to energy storage
systems. Strong revenues from DS3 services in Ireland, meanwhile - mainly
driven by increased generation from renewables in winter months - meant the
Company's Irish assets produced the highest revenue over the year across the
portfolio, mitigating a sharp decline in revenue seen in GB in 2023 and
insulating the Company on a portfolio level.
This meant falling GB revenue, broadly in line with forecasts, had a less
severe impact on our portfolio due to the effectiveness of our diversification
strategy. I am pleased to report the Company once again produced
industry-leading returns, generating an average of £157,000/MW/yr during the
2022 calendar year.
We are, therefore, confident that our growing international presence will
continue to deliver strong returns for our investors. We have made significant
progress in expanding our portfolio, with 514.8 MW of construction and
pre-construction phase assets acquired during the period, bringing the total
pre-operational capacity to 881.6 MW. The Company has reached a turning point
at which the 25% operational capacity is expected to become 70% by the end of
2024, with assets scheduled to come online across the GB, ERCOT and CAISO
grids.
The expanding portfolio further maximises our exposure to a range of revenue
streams, allowing us to explore debt options across the portfolio, both in USD
and GBP, including portfolio-and asset-level debt. Project-level debt for the
Big Rock project is particularly interesting, given its unique revenue
profile. Assets in California's CAISO market can generate up to 40% of revenue
from the Resource Adequacy mechanism, which delivers long-term,
inflation-linked revenues lasting up to 20 years.
Following a period of acquisitions, we are now focused on building out the
Company's construction portfolio. As previously announced in February, the
Company is well-funded for this, utilising a combination of cash on balance
sheet and the judicious use of debt in line with the Company's gearing policy.
Overall our balance sheet is best in class with very strong ratios across the
board.
Capital discipline remains a top priority, with capital expenditure
representing the most significant expense for renewable energy solutions like
energy storage. Due to the Company's construction portfolio size, we have
strategically adjusted construction schedules to capitalise on the expected
decrease in capital expenditure costs for the Company's construction assets in
Texas and Kilmannock in Ireland. This was an economic decision and aims to
impact returns positively.
The Company's ongoing expansion will continue to be supported by the technical
excellence cultivated within the Investment Manager, as ensuring our systems
under management are available as much as possible will continue to be a key
decider of success. We are proud of our record over FY 2022/23 maintaining
fleet availability above 95%, including the operational assets acquired in new
grids, further demonstrating our ability to operate assets successfully across
multiple jurisdictions.
We continue to invest in our in-house resources at the Investment Manager,
which now has dedicated construction, asset management, and commercialisation
teams, as well as providing the Company Secretary function, ESG, legal and
finance expertise. Internalising these functions has resulted in higher
efficiency and optimal delivery against our mandate and will continue to
support the Company during this next phase of growth.
The Company's NAV continues to show strong and incremental growth, increasing
from 109.1p/share (31 March 2022) to 115.6p/ share (31 March, 2023),
reflecting a 12.3% NAV Total Return for the reporting period. The valuation
approach has delivered a true picture to our shareholders of the portfolio's
worth whilst minimising the large volatility experienced by peers and
maintaining the management fee at the correct level. In line with the
Company's progressive dividend target, declared dividends for the period
amount to 7.5p. With 75% of the portfolio under construction, we remain
positive about delivering long-term value to shareholders as further
operational capacity is brought online.
Delivery against strategy
The reported period marked a milestone year for the Company. Following a
significantly oversubscribed fundraise, the Investment Manager completed four
new international projects totalling 544.7 MW, bringing the total portfolio
capacity to over 1.17 GW - cementing the Company as a globally diversified
energy storage player. The Company has delivered against its growth and
diversification strategy with entry into two new grids in the US-ERCOT (Texas)
and CAISO (California)-resulting in a portfolio spanning five grids.
This US expansion began with its 69.7 MW acquisition in ERCOT-a portfolio of
three 9.95 MW operational sites and four 9.95 MW construction sites followed
by the acquisition of the Dogfish (75.0 MW) project, also in Texas, in January
2023. The scale of the Company's US pre-construction portfolio warrants lower
expected construction capital expenditure on a per MW basis due to the
economies of scale that can be achieved. ERCOT is a high-growth market that
remains an area of interest for the Company.
In the GB market, the Company completed the 200.0 MW Middleton acquisition,
representing one of the largest standalone storage acquisitions of its kind.
The scale of this GB acquisition further established the Company's commitment
to invest in proven markets where its existing operational portfolio has
demonstrated success. It is also reflective of the type of asset that our
portfolio is geared to, relevant to the energy system. Its size will help the
Company achieve best-in class cost, while being connected to the transmission
network will allow it to avail of cost savings and new revenue streams. We
shall make a decision over the next 12 months on what duration this asset
should be depending on factors such as capex and revenue streams. To date our
minimising of capex and duration in the GB market has been proved correct
again and again.
The final acquisition completed during the reported period was the landmark
200.0 MW / 400.0 MWh acquisition of Big Rock in CAISO - the Company's first
acquisition in this market, furthering the geographical diversification of the
portfolio. CAISO is an attractive market featuring contracted revenues through
Resource Adequacy and merchant revenue opportunities through trading and
ancillary services. The project is on track to meet its target energisation of
December-end 2024.
Alongside the portfolio growth, the Manager has maintained a focus on
allocating capital for the buildout of the construction and pre-construction
portfolio. The successful commissioning of Porterstown (30.0 MW/30.0 MWh) in
January 2023 added the Republic of Ireland to its EBITDA-generating
jurisdiction. The asset will benefit from contracted income for the first six
years of its operations under the DS3 Capped programme, further diversifying
the Company's revenue stack and risk profile.
The Company has made further progress on the construction of its near-term
186.8 MW GB portfolio, including the Stony (79.9 MW/79.9 MWh), Ferrymuir (49.9
MW/49.9 MWh) and Enderby (57.0 MW/57.0 MWh) projects.
The Company secured lucrative Capacity Market contracts for its GB and Irish
assets in the February 2023 auction. In addition to the one-year T-4 contracts
secured for £63/kW for five of its operational GB assets, the Company also
secured a 15-year T-4 contract for the Middleton asset and now has 15-year
contracts for the entire GB construction portfolio. The two 50.0 MW assets in
NI secured contracts from 2022 until 2027, and Porterstown in ROI secured a CM
contract for 2026-2027.
Outlook
Over the next twelve months, we are focused on our portfolio along the
following areas:
1) bringing projects to operation at the lowest cost per MW/ MWh fully
installed.
2) generating the highest revenue per MW/MWh in each of the markets in
which we are competing in.
3) utilising our economics of scale to materially increase EBITDA
margin.
4) creating increased capacity in our existing projects over the
original project size.
The Investment Manager's focus has therefore transitioned primarily to
building out the Company's 881.6 MW of construction assets located across four
grids and optimising the capital structure of the Company. With 521.8 MW
scheduled to be commissioned by the end of 2024, the Company seeks to optimise
cash generation and, in turn, dividend cover.
The Manager is assessing project finance and Company leverage structures to
fund the buildout of the construction portfolio. Lenders have become more
comfortable with the prospect of merchant revenues in the energy storage
market after observing a solid track record of operational and revenue
performance and an accelerated growth rate of key industry players. Debt will
enable more flexibility in capital deployment and improved returns for
shareholders. As of the date of publication, the Company has increased its
existing facility with Santander from £15m to £50m. The Investment Manager
is also actively engaging other project-level debt providers to optimise the
capital structure of suitable assets.
The conviction on the long-term success of energy storage continues to be
based on the fundamental market drivers of climate action and energy security,
supported by policies and legislation of several governments around the world.
The Manager will continue engaging with grid operators to explore and
capitalise on new revenue opportunities, such as National Grid ESO's
"black-start" and ERCOT's "ECRS" programmes in GB and Texas, respectively. As
discussions regarding the future of the revenue stack remain ongoing, the
Manager will continue to assess the target duration of construction assets in
the procurement process. It is confident in its ability to retrofit the three
GB assets targeting energisation during the next 12 months with additional
duration should capex prices and revenue opportunities align to create an
advantageous environment to do so. The large portfolio of construction assets
to be brought online in the near future will bolster the industry-leading
revenue generation already achieved by the existing international fleet. The
increased operational capacity and resulting cash generation will support the
progressive dividend target and contribute to the Company's continued
profitability and support growth in Net Asset Value.
The reporting period has showcased the portfolio's value and ability to
deliver consistently across multiple uncorrelated energy systems. The
forthcoming increase in operational capacity will add to this established
success and, combined with the appropriate valuation applied to the Company's
revenue forecasts, create significant value. These factors enable the Company
to allocate capital efficiently to meet the target IRR outlined within its
mandate while justifying appropriate asset valuations.
The creation of this shareholder value allows the Company to continue to
deliver energy storage as the critical asset class needed to integrate
renewable generation contribute towards global decarbonisation and,
ultimately, drive forward the fight against climate change.
Strategic report
Risk Management and Internal Control
The Board is responsible for the Company's system of risk management and
internal control and for reviewing its effectiveness. The Board has adopted a
detailed matrix of principal risks affecting the Company's business as an
investment trust and has established associated policies and processes
designed to manage and, where possible, mitigate those risks, which are
monitored by the audit committee on an ongoing basis. This system assists the
Board in determining the nature and extent of the risks it is willing to take
in achieving the Company's strategic objectives. Both the principal risks and
the monitoring system are also subject to robust review at least annually. The
last review took place in July 2023.
Although the Board believes that it has a robust framework of internal
controls in place this can provide only reasonable, and not absolute,
assurance against material financial misstatement or loss and is designed to
manage, not eliminate, risk.
Actions taken by the Board and, where appropriate, its committees, to manage
and mitigate the Company's principal risks and uncertainties are set out in
the table below.
*The "Change" column on the right highlights at a glance the Board's
assessment of any increases or decreases in risk during the year after
mitigation and management. The arrows show the risks as increased or
decreased.
EMERGING RISKS AND UNCERTAINTIES
During the year, the Board also discussed and monitored risks that could
potentially impact the Company's ability to meet its strategic objectives.
These were political risk, and climate change risk. Political risk includes
regulatory and legal changes impacting strategy, and potential changes to
national and cross-border energy policy. Climate change risk was reviewed
during the year and following its assessment, the audit and risk committee
recommended and the Board agreed that climate change risk should be included
in the principal risks.
The Board has determined they are not currently sufficiently material for the
Company to be categorised as independent principal risks. The Board receives
updates from the Manager, Company Secretary and other service providers on
other potential risks that could affect the Company. The Board also considered
the uncertainties caused by the conflict in Ukraine, the threat of a global
recession and increasing energy prices although they are not factors which
explicitly impacted the Company's performance.
PRINCIPAL RISKS AND UNCERTAINTIES
Risk Description Mitigation and Management Change*
Changes to Market Design The Company's assets generate revenue by delivering balancing services to The Company has assets in five grids to mitigate the impact of one grid's ó
power grid operators in the United Kingdom, Ireland, Germany, Texas and changes.
California. There is a risk in any of those markets that unanticipated changes
to the design of power system services or any change in the specifications and In addition, the Manager aims to stack revenue contracts to vary the types of
requirements for service delivery (including network charges or changes to income streams received from each system operator and within each market.
market rules) could negatively impact cash flow or constrain revenue
projections for assets within the region in which a change occurs and thereby
reduce the net asset value of the affected assets.
Inflation The Company's profit projections are based in part on its budget for capital The Company ensures that it generates revenues in the markets in which it ó
and operating expenditure incurred in the construction, operation, and incurs operating costs from a diverse mix of short, medium and long-term
maintenance of its portfolio of battery storage assets. These include, amongst contracts that are subject to fixed or floating contract prices. As revenues
other things, the cost of battery cells, inverters, the cost of power required are pegged to operating expenditure, the Company shall aim to neutralise
to charge the batteries and the labour costs for operations. inflationary increases (e.g., cost of power to charge the batteries) by
rebalancing its revenue services (e.g., changing the timing or bases for
There is a risk that unanticipated inflation will increase capital expenditure charging batteries to either reduce costs or increase revenues) as appropriate
and operating costs materially beyond budget, without a commensurate impact on to maintain its investment forecast. The long-term Capacity Market contracts
revenues, with the consequence of reducing profitability below the investment of up to 15 years are index linked.
forecast and/or rendering projects less economic or uneconomic.
There is also a risk that continued or severe inflation could positively
and/or negatively change the grid power market design (see Changes to Market
Design above).
The Company has little exposure to debt financing but has access to debt
facilities. There is a risk that increases in the inflationary index rates
could render the interest rates applicable to these debt facilities less
economic or uneconomic.
Exposure to Lithium-Ion Batteries, Battery Manufacturers and technology The portfolio currently consists only of lithium-ion batteries. The Group's The Company remains technology agnostic and continues to evaluate other ó
changes battery energy storage systems are designed by a variety of EPC providers, but economically viable energy storage opportunities to reduce its exposure to
the underlying lithium-ion batteries are manufactured primarily by BYD, CATL lithiumion and further diversify its portfolio mix.
and LG Chem. While the Company considers lithium-ion battery technology to be
the most efficient and most competitive form of storage in today's market, The Company is not under an exclusivity agreement with any individual battery
there is a risk that other technologies may enter the market with the ability manufacturer and will manage its supply framework agreements in a manner that
to provide similar or more efficient services to power markets at comparable allows it to take advantage of any improvements or amendments to new storage
or lower costs, reducing the portfolio's market share of revenues in the technologies as they become commercially viable, as well as mitigating any
medium or long term. There is also a risk that batteries might be unavailable potential supply chain issues.
due to delays caused by supply chain issues.
Service Provider The Company has no employees and has delegated certain functions to several Service providers are appointed subject to due diligence processes and with ó
service providers, principally the Manager, Administrator, depositary and clearly documented contractual arrangements detailing service expectations.
registrar. Failure of controls, and poor performance of any service provider,
could lead to disruption, reputational damage or loss. Regular reports are provided by key service providers and the quality of their
services is monitored. The Directors also receive presentations from the
Manager, depositary and custodian, and the registrar on an annual basis.
Review of annual audited internal controls reports from key service providers,
including confirmation of business continuity arrangements and IT controls,
and follow up of remedial actions as required.
Valuation of Unquoted Assets The Company invests predominantly in unquoted assets whose fair value involves The Investment Manager routinely works with market experts to assess the ó
the exercise of judgement by the Investment Manager. There is a risk that the reasonableness of key data used in the asset valuation process (such as energy
Investment Manager's valuation of the portfolio may be deemed by other third price forecasts) and to reassess its valuations on a quarterly basis. In
parties to have been overstated or understated. addition, to ensure the objective reasonableness of the Company's NAV
materiality threshold and the discount rates applied, a majority of the
components of the portfolio valuation, (based on a NAV materiality threshold)
are reviewed by an independent third party, prior to publication of the
halfyear and year-end reports.
Delays in Grid Energisation or Commissioning The Company relies on EPC contractors for energy storage system construction, The Company works closely with EPC contractors to ensure timely performance of ó
and on the relevant transmission systems and distribution systems' owners services and imposes liquidated damage payments under the EPC contracts for
(TSO) for timely energisation and connection of that battery storage asset to certain delays in delivery.
the transmission and distribution networks appropriately.
The Company seeks commitments from TSOs to a target energisation date as a
There is a risk that either the EPC contractor or relevant TSO could delay the condition to project acquisition and provides maximum visibility on project
target commercialisation date of an asset under construction and negatively development to TSOs to encourage collaboration towards that target
impact projected revenues. energisation date.
The Manager factors in delays by adjusting the valuation on an ongoing basis.
Currency Exposure The Company is the principal lender of funds to Group assets (via intercompany The Company acts as guarantor under currency hedge arrangements entered into ó
loan arrangements) for their investments in projects, including projects by impacted subsidiaries to mitigate its exposure to Euros and US Dollars. The
outside of the UK. This means that the Company may indirectly invest in Company will also guarantee future hedging arrangements as appropriate to seek
projects generating revenue and expenditure denominated in a currency other to manage its exposure to foreign currency risks.
than Sterling, including in US Dollars and Euros. There is a risk that the
value of such projects and the revenues projected to be received from them
will be diminished as a result of fluctuations in currency exchange rates. The
diminishing in value could impact a subsidiary's ability to pay back the
Company under the intercompany loan arrangements.
Cyber-Attack and Loss of Data The Company is exposed (through the server, software, and communications Among other measures, the Company ensures its contractors and service á
systems of its primary service providers and suppliers) to the risk of providers incorporate firewalls and virtual private networks for any equipment
cyber-attacks that may result in the loss of data, violation of privacy and capable of remote access or control. Cybersecurity measures are incorporated
resulting reputational damage. for both external and internal ('local') access to equipment, preventing
exposure to ransomware attacks or unsolicited access for any purpose. The
Company engages experts to assess the adequacy of its cybersecurity measures
and has implemented a requirement for annual testing to confirm and certify
such adequacy for representative samples for the entire fleet.
Physical and transitional climate-related risks The Company's assets are located in several different countries, some of which The Manager's due diligence and site design processes factor in climate New
experience extreme weather, which could have a physical impact on the assets change-related risks when selecting sites and assets and designing systems to
and as a result affect shareholder returns. operate within a range of temperatures.
Climate change may also affect the development of technologies, markets and The Manager reports to the Board on developments in these areas regularly,
regulations. including recommendations for the Company to acclimate to technological,
market or regulatory change, including any driven by climate change.
RISK ASSESSMENT AND INTERNAL CONTROLS REVIEW BY THE BOARD
Risk assessment includes consideration of the scope and quality of the systems
of internal control operating within key service providers, and ensures
regular communication of the results of monitoring by such providers to the
audit and risk committee, including the incidence of significant control
failings or weaknesses that have been identified at any time and the extent to
which they have resulted in unforeseen outcomes or contingencies that may have
a material impact on the Company's performance or condition.
No significant control failings or weaknesses were identified from the audit
and risk committee's ongoing risk assessment which has been in place
throughout the financial year and up to the date of this report. The Board is
satisfied that it has undertaken a detailed review of the risks facing the
Company.
A full analysis of the financial risks facing the Company is set out in note
18 to the Financial Statements on pages 82 to 84 of the annual report.
GOING CONCERN AND VIABILITY
The Company's business activities, together with the factors likely to affect
its future development performance and position, are set out in the Investment
Manager's Report. The Company faces a number of principal risks and
uncertainties, as set out above, and financial risks such as counterparty
risk, credit risk and concentration risk as discussed in the financial
statements.
The Company also continues to monitor and assess emerging risks which may
potentially impact operations, including the impact of climate change. Whilst
the Company's articles of association require that a proposal for the
continuation of the Company be put forward at the Company's AGM, the Directors
have no reason to believe that such a resolution will not be passed by
shareholders.
GOING CONCERN
As at 31 March 2023, the Company had net current assets of £121.5 million and
had cash balances of £123.7 million (excluding cash balances within investee
companies), which are sufficient to meet current obligations as they fall due.
The major cash outflows of the Company are the payment of dividends, costs
relating to the acquisition of new assets and further investments in existing
portfolio Companies, all of which are discretionary. The Company is a
guarantor to GSES 1 Limited's revolving credit facility with Santander.
Subsequent to year end this facility was increased from £15m to £50m, with
an extended term of four years to 2027. The Company had no outstanding debt as
at 31 March 2023.
The completed going concern analysis considers liquidity at the start of the
period and cash flow forecasts at both the Company level and project level.
These forecasts take into consideration expected operating expenditure of the
Company, expected cash generation by the project companies available for
distribution to the Company, additional funding from the Company to project
companies, under construction, and continued discretionary dividend payments
to Shareholders at the target annual rate of 7% of NAV, subject to a minimum
target of 7 pence per Ordinary Share in each financial year. Financial
assumptions also include expected inflows and outflows in relation to external
debt held of the Company or its subsidiaries.
The Directors have reviewed Company forecasts and projections which cover a
period of 18 months from 31 March 2023, and as part of the going concern
assessment have modelled downside scenarios considering foreseeable changes in
investment and trading performance, which show that the Company has sufficient
financial resources.
The Directors consider the following scenarios:
• A base case scenario considering expected Company operating
expenditure and dividends, and cash inflows and outflows relating to
subsidiary companies under the current planned strategy to focus on build-out
of existing construction projects. This factors in expectations of available
external debt.
• Although a simultaneous reduction in project companies'
revenue across the five grids they operate is not considered likely, a
plausible average reduction in base case revenue has been considered as a
downside scenario. This would result in a reduction in cash flow available for
distribution from subsidiaries to the Company.
This analysis shows that, under both the base case and downside scenarios, the
Company is expected to have sufficient financial resources available to meet
current obligations and commitments as they fall due for at least 12 months
until 30 September 2024.
The Directors acknowledge their responsibilities in relation to the financial
statements for the year ended 31 March 2023 and the preparation of the
financial statement on a going concern basis remains appropriate and the
Company expects to meet its obligations as and when they fall due for at least
12 months until 30 September 2024.
LONG TERM VIABILITY
In reviewing the Company's viability, the Directors have assessed the
prospects of the Company over a period of five years to 31 March 2028. After
assessing the risks, which include emerging risks like climate change and
reviewing the Company's liquidity position, together with the forecasts of
performance under various scenarios, the Directors have a reasonable
expectation that the Company will be able to continue in operation and meet
its liabilities over the period of five years.
In making this statement, the Directors have reviewed cash forecasts over this
period, taking into consideration base case expectations and potential
downside scenarios. The Directors have also considered the current unlevered
nature of the Company and its subsidiaries and its capacity and ability to
raise further debt up to 30% of Gross Asset Value per internal policy.
The diversified nature of the portfolio, across 5 different grids, has been
taken into account when assessing concentration of any prolonged downturns to
the portfolio. In addition, mitigating actions under severe downside scenarios
have been considered, such as the discretionary nature of dividends and
ability to delay uncontracted capital expenditure on build out of construction
phase projects in the portfolio. This assessment has not considered the
potential for further fundraising through equity markets.
Statement of Directors' Responsibilities in respect of the preparation of the
Annual Financial Report
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial period. Under that law the Directors are required to prepare the
Company financial statements, in accordance with UK adopted international
accounting standards.
Under company law, the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss for the Company for that
period.
In preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them
consistently;
· make judgements and accounting estimates that are
reasonable and prudent;
· state whether they have been prepared in accordance with
UK adopted international accounting standards, subject to any material
departures disclosed and explained in the financial statements;
· prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the Company will continue in
business; and
· prepare a Report of the Directors, a Strategic Report and
Directors' Remuneration Report which comply with the requirements of the
Companies Act 2006.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for ensuring the Annual Report and the financial
statements are made available on a website. Financial statements are published
on the Company's website in accordance with legislation in the UK governing
the preparation and dissemination of financial statements, which may vary from
legislation in other jurisdictions. The maintenance and integrity of the
Company's website (www.gsenergystoragefund.com) is the responsibility of the
Directors. The Directors' responsibilities also extend to the ongoing
integrity of the financial statements contained therein.
The Directors confirm that to the best of their knowledge:
· the Annual Report, taken as a whole, is fair, balanced,
and understandable and provides the information necessary for shareholders to
assess the Company's performance, business model and strategy;
· the Company's financial statements have been prepared in
accordance with UK adopted international accounting standards and give a true
and fair view of the assets, liabilities, financial position and net return of
the Company; and
· the Annual Report includes a fair review of the
development and performance of the business and the financial position of the
Company, together with a description of the principal and emerging risks and
uncertainties that it faces.
Statement of Comprehensive Income
For the Year Ended 31 March 2023
Year Ended 31 March 2023 Year Ended 31 March 2022
Revenue Capital Total Revenue Capital Total
Notes (£) (£) (£) (£) (£) (£)
Net gain on investments at fair value through profit and loss 7 - 60,826,822 60,826,822 - 43,531,405 43,531,405
Investment income 8 12,466,909 - 12,466,909 5,489,529 - 5,489,529
Administrative and other expenses 9 (9,881,436) - (9,881,436) (6,493,364) - (6,493,364)
Profit/(loss) before tax 2,585,473 60,826,822 63,412,295 (1,003,835) 43,531,405 42,527,570
Taxation 10 - - - - - -
Profit/(loss) after tax and profit for the year 2,585,473 60,826,822 63,412,295 (1,003,835) 43,531,405 42,527,570
Total comprehensive income/(loss) for the year 2,585,473 60,826,822 63,412,295 (1,003,835) 43,531,405 42,527,570
Profit per share (basic and diluted) - pence per share 11 0.55 12.76 13.31 (0.33) 14.48 14.15
All Revenue and Capital items in the above statement are derived from
continuing operations.
The Total column of this statement represents the Company's Income Statement
prepared in accordance with UK adopted IAS. The profit/(loss) after tax and
profit/(loss) for the year is the total comprehensive income and therefore no
additional statement of other comprehensive income is presented.
The supplementary revenue and capital columns are presented for information
purposes in accordance with the Statement of Recommended Practice issue by the
Association of Investment Companies.
Statement of Financial Position
As at 31 March 2023
Company Number 11160422
Notes 31 March 2023 31 March 2022
(£)
(£)
Non - Current Assets
Investments at fair value through profit or loss 12 434,762,146 180,762,419
434,762,146 180,762,419
Current assets
Cash and cash equivalents 13 123,705,727 198,047,440
Trade and other receivables 14 843,825 46,476
124,549,552 198,093,916
Total assets 559,311,698 378,856,335
Current liabilities
Trade and other payables 15 3,046,853 2,375,241
3,046,853 2,375,241
Total net assets 556,264,845 376,481,094
Shareholders equity
Share capital 20 4,813,995 3,450,358
Share premium 20 315,686,634 269,708,123
Special reserve 20 349,856 186,656
Capital reduction reserve 20 111,125,000 42,258,892
Capital reserve 20 125,584,414 64,757,592
Revenue reserve 20 (1,295,054) (3,880,527)
Total shareholders equity 556,264,845 376,481,094
Net asset value per share 19 1.16 1.09
Statement of Changes in Equity
For the Year Ended 31 March 2023
Share Share Special Capital reduction reserve (£) Capital Revenue reserve (£) Total shareholders equity (£)
capital (£)
premium reserve (£) reserve (£)
reserve (£)
As at 1 April 2022 3,450,358 269,708,123 186,656 42,258,892 64,757,592 (3,880,527) 376,481,094
Profit for the year - - - - 60,826,822 2,585,473 63,412,295
Total comprehensive profit for the year - - - - 60,826,822 2,585,473 63,412,295
Transactions with owners
Ordinary Shares issued at a premium during the year 1,363,637 148,636,363 - - - - 150,000,000
Share issue costs - (2,657,852) - - - - (2,657,852)
Transfer to capital reduction reserve - (100,000,000) - 100,000,000 - - -
Movement in special reserve - - 163,200 (163,200) - - -
Dividends paid - - - (30,970,692) - - (30,970,692)
As at 31 March 2023 4,813,995 315,686,634 349,856 111,125,000 125,584,414 (1,295,054) 556,264,845
Capital reduction reserve and revenue reserves are available to the Company
for distributions to Shareholders as determined by the Directors.
For the Year Ended 31 March 2022
Share Share Special reserve (£) Capital reduction reserve (£) Capital Revenue reserve (£) Total shareholders equity (£)
capital (£)
premium reserve (£)
reserve (£)
As at 1 April 2021 1,438,717 107,713,725 186,656 17,446,348 21,226,187 (2,876,692) 145,134,941
Profit for the year - - - - 43,531,405 (1,003,835) 42,527,570
Total comprehensive profit for the year - - - - 43,531,405 (1,003,835) 42,527,570
Transactions with owners
Ordinary Shares issued at a premium during the year 2,011,641 206,616,364 - - - - 208,628,005
Share issue costs - (4,621,966) - - - - (4,621,966)
Transfer to capital reduction reserve - (40,000,000) - 40,000,000 - - -
Dividends paid - - - (15,187,456) - - (15,187,455)
As at 31 March 2022 3,450,358 269,708,123 186,656 42,258,892 64,757,592 (3,880,527) 376,481,094
Capital reduction reserve and revenue reserves are available to the Company
for distributions to Shareholders as determined by the Directors.
Statement of Cash Flows
For the Year Ended 31 March 2023
Notes Year Ended Year Ended
31 March 31 March
2023 2022
(£) (£)
Cash flows generated from operating activities
Profit for the year 63,412,295 42,527,570
Net profit on investments at fair value through profit and loss (60,826,822) (43,531,405)
(Increase) / decrease in trade and other receivables (797,348) 5,317,691
Increase in trade and other payables 671,610 1,299,422
Net cash generated from operating activities 2,459,735 5,613,279
Cash flows used in investing activities
Purchase of investments (225,765,788) (56,536,739)
Repayment from investments 32,592,883 -
Net cash used in investing activities (193,172,905) (56,536,739)
Cash flows used in financing activities
Proceeds from issue of Ordinary Shares at a premium 150,000,000 208,628,005
Share issue costs (2,657,852) (4,621,966)
Dividends paid (30,970,691) (15,187,456)
Net cash inflow from financing activities 116,371,457 188,818,583
Net (decrease)/increase in cash and cash equivalents for the year (74,341,713) 137,895,123
Cash and cash equivalents at the beginning of the year 198,047,440 60,152,317
Cash and cash equivalents at the end of the year 123,705,727 198,047,440
During the year, interest received by the Company totalled £12,466,909 (2022:
£5,489,530).
Notes to the Financial Statements
For the Year Ended 31 March 2023
1. General information
Gore Street Energy Storage Fund plc (the "Company"), a public limited company
limited by shares was incorporated and registered in England and Wales on 19
January 2018 with registered number 11160422. The registered office of the
Company is 16-17 Little Portland Street, First Floor, London, W1W 8BP.
Its share capital is denominated in Pound Sterling (GBP) and currently
consists of Ordinary Shares. The Company's principal activity is to invest in
a diversified portfolio of utility scale energy storage projects currently
located in the UK, the Republic of Ireland, North America and Germany.
2. Basis of preparation
STATEMENT OF COMPLIANCE
The annual financial statements have been prepared in accordance with UK
adopted international accounting standards. The Company has also adopted the
Statement of Recommended Practice issued by the Association of Investment
Companies which provides guidance on the presentation of supplementary
information.
The financial statements have been prepared on a historical cost basis except
for financial assets and liabilities at fair value through the profit or loss.
The Company is an investment entity in accordance with IFRS 10 which holds all
its subsidiaries at fair value and therefore prepares separate accounts only.
FUNCTIONAL AND PRESENTATION CURRENCY
The currency of the primary economic environment in which the Company operates
(the functional currency) is Pound Sterling ("GBP or £") which is also the
presentation currency.
GOING CONCERN
In assessing the going concern basis of accounting the Directors have had
regard to the guidance issued by the Financial Reporting Council. After making
enquiries and bearing in mind the nature of the Company's business and assets,
the Directors consider the Company to have adequate resources to continue in
operational existence over the period to 30 September 2024, being at least 12
months from the date of approval of the financial statements. As such, they
have adopted the going concern basis in preparing the annual report and
financial statements.
The going-concern analysis takes into account expected increases to Investment
Adviser's fee in line with the Company's NAV and expected increases in
operating costs, as well as continued discretionary dividend payments to
shareholders at the annual target rate of 7% of NAV, subject to a minimum
target of 7 pence per Ordinary Share in each financial year. Consideration has
been given to the current macro-economic environment and volatility in the
markets. Based on the analysis performed, the Company will continue to be
operational and will have excess cash after payment of its liabilities for at
least the next 12 months to 30 September 2024.
As at 31 March 2023, the Company had net current assets of £121.5 million and
had cash balances of £123.7 million (excluding cash balances within investee
companies), which are sufficient to meet current obligations as they fall due.
The major cash outflows of the Company are the payment of dividends, costs
relating to the acquisition of new assets and further investments in existing
portfolio Companies, all of which, are discretionary. The Company is a
guarantor to GSES1 Limited's revolving credit facility with Santander.
Subsequent to year end this facility was upsized from £15m to £50m, with an
extended term of four years to 2027. The Company had no outstanding debt as at
31 March 2023.
Shareholders will have the opportunity to vote on an ordinary resolution on
the continuation of the Company at the AGM of the Company to be held in 2023.
The Directors have considered this when evaluating the Going concern
assessment for the Company and have no reason to believe that such resolution
will not be passed by shareholders.
The Directors acknowledge their responsibilities in relation to the financial
statements for the year ended 31 March 2023 and have prepared the financial
statement on a going concern basis. The Company expects to meet its
obligations as and when they fall due for at least the next twelve months to
30 September 2024.
The Board has considered the impact of climate change on the investments
included in Company's financial statements and has assessed that it does not
materially impact the estimates and assumptions used in determining the fair
value of the investments.
OPERATING SEGMENTS
Under IFRS 8, particular classes of entities are required to disclose
information about any of their individual operating segments. Having
considered that the Company's entire portfolio is held through the Company's
direct subsidiary, GSES 1 Limited, the Directors are of the opinion that there
is only one segment and therefore no operating segment information is given.
3. Significant accounting judgements, estimates and assumptions
The preparation of the financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amount of assets, liabilities, income and
expenses. Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to the accounting estimates are recognised in the period in
which the estimates are revised and in any future periods affected.
During the period the Directors considered the following significant
judgements, estimates and assumptions:
ASSESSMENT AS AN INVESTMENT ENTITY
Entities that meet the definition of an investment entity within IFRS 10 are
required to measure their subsidiaries at fair value through profit or loss
rather than consolidate them unless they provided investment-related services
to the Company. As such, the Directors are required to make a judgement as to
whether the Company continues to meet the definition of an investment entity.
To determine this, the Company is required to satisfy the following three
criteria:
a) the Company obtains funds from one or more investors for the
purpose of providing those investors with investment management services;
b) the Company commits to its investors that its business purpose is
to invest funds solely for returns from capital appreciation, investment
income, or both; and
c) the Company measures and evaluates the performance of
substantially all of its investments on a fair value basis.
The Company meets the criteria as follows:
• the stated strategy of the Company is to deliver stable
returns to shareholders through a mix of energy storage investments;
• the Company provides investment management services and has
several investors who pool their funds to gain access to infrastructure
related investment opportunities that they might not have had access to
individually; and
• the Company has elected to measure and evaluate the
performance of all of its investments on a fair value basis. The fair value
method is used to represent the Company's performance in its communication to
the market, including investor presentations. In addition, the Company reports
fair value information internally to Directors, who use fair value as the
primary measurement attribute to evaluate performance.
Having assessed the criteria above and in their judgement, the Directors are
of the opinion that the Company has all the typical characteristics of an
investment entity and continues to meet the definition in the standard. This
conclusion will be reassessed on an annual basis.
VALUATION OF INVESTMENTS
Significant estimates in the Company's financial statements include the
amounts recorded for the fair value of the investments. By their nature, these
estimates and assumptions are subject to measurement uncertainty and the
effect on the Company's financial statements of changes in estimates in future
periods could be significant. These estimates are discussed in more detail in
note 17.
4. New and revised standards and interpretations
NEW AND REVISED STANDARDS AND INTERPRETATIONS
The accounting policies used in the preparation of the financial statements
have been consistently applied during the year ended 31 March 2023.
In February 2021, the International Accounting Standards Board issued further
amendments to IAS8: Accounting Policies, Changes in Accounting Estimates and
Errors. Those amendments clarify the distinction between changes in accounting
estimates, changes in accounting policies and correction of errors. They
further clarify how entities use measurement techniques and inputs to develop
accounting estimates. These amendments are effective for periods beginning on
or after 1 January 2023 and having reviewed the amendments, the Board is of
the opinion that these amendments will not have a material impact on the
Company's financial statements.
In May 2021, the IASB issued amendments to IAS 12: Income Taxes regarding
deferred tax relating to Assets and Liabilities arising from a Single
Transaction. The amendments introduce an exception to the 'initial recognition
exemption' for an entity, whereby deferred tax previously did not need to be
recognised when, in a transaction that is not a business combination, an
entity purchased an asset that would not be deductible for tax purposes (even
though there is a difference between the asset's carrying amount and its tax
base). These amendments are effective for periods beginning on or after 1
January 2023 and having reviewed the amendments, the Board is of the opinion
that these amendments will not have a material impact on the Company's
financial statements.
There have been no new standards, amendments to current standards, or new
interpretations which the Directors feel have a material impact on these
financial statements.
NEW AND REVISED IFRS IN ISSUE BUT NOT YET EFFECTIVE
In January 2020, the International Accounting Standards Board issued
amendments to IAS 1: Presentation of Financial Statements to clarify how an
entity classifies debt and other financial liabilities as current or
non-current. The amendments specify that covenants to be complied with after
the reporting date do not affect the classification of debt as current or
non-current at the reporting date. Instead, the amendments require a company
to disclose information about these covenants in the notes to the financial
statements. The amendments are effective for annual reporting periods
beginning on or after 1 January 2024 and having reviewed the amendments, the
Board is of the opinion that these amendments will not have a material impact
on the Company's financial statements.
5. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these
financial statements are set out below:
INVESTMENT INCOME
Interest income is recognised on an accrual basis in the Revenue account of
the Statement of Comprehensive Income.
Investment income arising from the portfolio assets is recognised on an
accruals basis in totality, with amounts received in cash recognised in
investment income and the unrealised portion disclosed in net gain on
investments at fair value through profit and loss.
EXPENSES
Expenses are accounted for on an accrual basis and charged to the Statement of
Comprehensive Income. Share issue costs are allocated to equity. Expenses are
charged through the Revenue account except those which are capital in nature,
these include those which are incidental to the acquisition, disposal or
enhancement of an investment, which are accounted for through the Capital
account.
NET GAIN OR LOSS ON INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS
Gains or losses arising from changes in the fair value of investments are
recognised in the Capital account of the Statement of Comprehensive Income in
the period in which they arise. The value of the investments may be increased
or reduced by the assessed fair value movement.
TAXATION
The Company is approved as an Investment Trust Company ("ITC") under sections
1158 and 1159 of the Corporation Taxes Act 2010 and Part 2 Chapter 1 Statutory
Instrument 2011/29999 for accounting periods commencing on or after 25 May
2018. The approval is subject to the Company continuing to meet the
eligibility conditions of the Corporations Tax Act 2010 and the Statutory
Instrument 2011/29999. The Company intends to ensure that it complies with the
ITC regulations on an ongoing basis and regularly monitors the conditions
required to maintain ITC status.
From 1 April 2015 there is a single corporation tax rate of 19%, which is the
rate applicable at year end. From 1 April 2023 the main UK corporation tax
rate increased to 25%. Current Tax and movements in deferred tax asset and
liability are recognised in the Statement of Comprehensive Income except to
the extent that they relate to the items recognised as direct movements in
equity, in which case they are similarly recognised as a direct movement in
equity. Current tax is the expected tax payable on any taxable income for the
period, using tax rates enacted or substantively enacted at the end of the
relevant period. Any closing deferred tax balances have been calculated at 25%
as this is the rate expected to apply in future periods.
Deferred taxation is recognised in respect of all timing differences that have
originated but not reversed at the Statement of Financial Position date where
transactions or events that result in an obligation to pay more tax or a right
to pay less tax in the future have occurred. Timing differences are
differences between the Company's taxable profits and its results as stated in
the financial statements. Deferred taxation assets are recognised where, in
the opinion of the Directors, it is more likely than not that these amounts
will be realised in future periods, at the tax rate expected to be applicable
at realisation.
INVESTMENT IN SUBSIDIARIES
Subsidiaries are entities controlled by the Company. Control exists when the
Company is exposed, or has rights, to variable returns from its involvement
with the subsidiary entity and has the ability to affect those returns through
its power over the subsidiary entity. In accordance with the exception under
IFRS 10 Consolidated financial statements, the Company is an investment entity
and therefore only consolidates subsidiaries if they provide investment
management services and are not themselves investment entities. All
subsidiaries are investment entities and held at fair value in accordance with
IFRS 9 and therefore not consolidated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash at bank and call deposits held with
the bank with original maturities of three months or less.
RESTRICTED CASH
Restricted cash comprises cash held as collateral for future contractual
payment obligations and deferred payments payable from indirect subsidiaries
to third parties of the Company in relation to the Big Rock project.
Restricted cash is recognised at fair value and subsequently stated at
amortised cost less loss allowance, which is calculated using the provision
matrix of the expected credit loss model (refer to note 13 for further
information).
TRADE AND OTHER RECEIVABLES
Trade and other receivables are recognised initially at fair value and
subsequently stated at amortised cost less loss allowance which is calculated
using the provision matrix of the expected credit loss model.
TRADE AND OTHER PAYABLES
Trade and other payables are recognised initially at fair value and
subsequently stated at amortised cost.
DIVIDENDS
Dividends are recognised, as a reduction in equity in the financial
statements. Interim equity dividends are recognised when legally payable.
Final equity dividends will be recognised when approved by the Shareholders.
EQUITY
Equity instruments issued by the Company are recorded at the amount of the
proceeds received, net of directly attributable issue costs. Costs not
directly attributable to the issue are immediately expensed in the Statement
of Comprehensive Income.
FINANCIAL INSTRUMENTS
In accordance with IFRS 9, the Company classifies its financial assets and
financial liabilities at initial recognition into the categories of amortised
cost or fair value through profit or loss.
FINANCIAL ASSETS
The Company classifies its financial assets at amortised cost or fair value
through profit or loss on the basis of both:
• the entity's business model for managing the financial
assets
• the contractual cash flow characteristics of the financial
asset
Financial assets measured at amortised cost
A debt instrument is measured at amortised cost if it is held within a
business model whose objective is to hold financial assets in order to collect
contractual cash flows and its contractual terms give rise on specified dates
to cash flows that are solely payments of principal and interest on the
principal amount outstanding. The Company includes in this category short-term
non-financing receivables including cash and cash equivalents, restricted
cash, and trade and other receivables.
Financial asset measured at fair value through profit or loss (FVPL)
A financial asset is measured at fair value through profit or loss if:
a) its contractual terms do not give rise to cash flows on specified
dates that are solely payments of principal and interest (SPPI) on the
principal amount outstanding; or
b) it is not held within a business model whose objective is either
to collect contractual cash flows, or to both collect contractual cash flows
and sell; or
c) it is classified as held for trading (derivative contracts in an
asset position).
d) It is classified as an equity instrument.
The Company includes in this category equity instruments and loans to
investments.
FINANCIAL LIABILITIES
Financial liabilities measured at fair value through profit or loss (FVPL)
A financial liability is measured at FVPL if it meets the definition of held
for trading of which the Company had none.
Financial liabilities measured at amortised cost
This category includes all financial liabilities, including short-term
payables.
RECOGNITION AND DERECOGNITION
Financial assets and liabilities are recognised on trade date, when the
Company becomes party to the contractual provisions of the instrument. A
financial asset is derecognised where the rights to receive cash flows from
the asset have expired, or the Company has transferred its rights to receive
cash flows from the asset. The Company derecognises a financial liability when
the obligation under the liability is discharged, cancelled or expired.
IMPAIRMENT OF FINANCIAL ASSETS
The Company holds trade receivables with no financing component and which have
maturities of less than 12 months at amortised cost and, as such, has chosen
to apply the simplified approach for expected credit losses (ECL) under IFRS 9
to all its trade receivables. Therefore the Company does not track changes in
credit risk, but instead recognises a loss allowance based on lifetime ECLs at
each reporting date.
The Company's approach to ECLs reflects a probability-weighted outcome, the
time value of money and reasonable and supportable information that is
available without undue cost or effort at the reporting date about past
events, current conditions and forecasts of future economic conditions.
The Company uses the provision matrix as a practical expedient to measuring
ECLs on trade receivables, based on days past due for groupings of receivables
with similar loss patterns. Receivables are grouped based on their nature.
The provision matrix based on historical observed loss rates over the
expected life of the receivables and is adjusted for forward looking
estimates.
FAIR VALUE MEASUREMENT AND HIERARCHY
Fair value is the price that would be received on the sale of an asset, or
paid to transfer a liability, in an orderly transaction between market
participants at the measurement date. The fair value measurement is based on
the presumption that the transaction takes place either in the principal
market for the asset or liability, or in the absence of a principal market, in
the most advantageous market. It is based on the assumptions that market
participants would use when pricing the asset or liability, assuming they act
in their economic best interest.
The fair value hierarchy to be applied under IFRS 13 is as follows:
Level 1: Quoted (unadjusted) market prices in active markets for identical
assets or liabilities.
Level 2: Valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly
observable.
Level 3: Valuation techniques for which the lowest level input that is
significant to the fair value measurement is unobservable.
For assets and liabilities that are carried at fair value, and which will be
recorded in the financial information on a recurring basis, the Company will
determine whether transfers have occurred between levels in the hierarchy by
reassessing categorisation at the end of each reporting period.
6. Fees and expenses
ACCOUNTING, SECRETARIAL AND DIRECTORS
JTC (UK) Limited had been appointed to act as secretary for the Company
through the Administration and Company Secretarial Agreement up until 14
September 2022. JTC (UK) Limited was entitled to a £70,000 annual fee for the
provision of Company Secretarial services.
During the year, expenses incurred with JTC (UK) Limited for secretarial
services amounted to £47,271 with £31,680 being outstanding and payable at
the year end.
On 14 September 2022, Gore Street Operational Management Limited replaced JTC
(UK) Limited as secretary for the Company.
During the year, expenses incurred with Gore Street Operational Management
Limited for secretarial services amounted to £nil with £nil being
outstanding and payable at the year end.
Apex Group Fiduciary Services (UK) Limited ("Apex") had been appointed as
administrator. Through an Administration agreement, Apex is entitled to an
annual fee of £50,000 for the provision of accounting and administration
services based on a Company Net Asset Value of up to £30 million. An ad
valorem fee based on total assets of the Company which exceed £30 million
will be applied as follows:
• 0.05% on a net asset value of £30 million to £75 million
• 0.025% on a net asset value of £75 million to £150 million
• 0.02% on a net asset value thereafter.
During the year, expenses incurred with Apex for accounting and administrative
services amounted to £144,233, with £41,829 being outstanding and payable at
the year end.
AIFM
The AIFM, Gore Street Capital Limited (the "AIFM"), was entitled to receive
from the Company, in respect of its services provided under the AIFM
agreement, a fee of £75,000 per annum for the term of the AIFM agreement.
During the year, AIFM fees amounted to £74,793, there were no outstanding
fees payable at the year end.
At the year end, an amount of £18,854 paid in the year to Gore Street Capital
Limited in respect of these fees, is being disclosed in prepayments as it
relates to the period 1 April 2023 to 30 June 2023.
INVESTMENT ADVISORY
The fees relating to the Investment Advisor are disclosed within note 22
Transactions with related parties.
7. Net gain on investments at fair value through profit and loss
31 March 31 March
2023 2022
(£) (£)
Net gain on investments at fair value through profit and loss 60,826,822 43,531,405
60,826,822 43,531,405
8. Investment Income
31 March 31 March
2023 2022
(£) (£)
Bank interest income 3,631,520 58,977
Loan interest income received from subsidiaries 8,835,389 5,430,552
12,466,909 5,489,529
9. Administrative and other expenses
31 March 31 March
2023 2022
(£) (£)
Accounting and Company Secretarial fees 191,504 161,812
Auditors' Remuneration (see below) 303,500 226,000
Bank interest and charges 7,813 8,464
Directors' remuneration and expenses 242,313 204,009
Directors & Officers insurance 39,336 18,617
Foreign exchange loss 34 13,604
Investment advisory fees 4,914,324 3,090,737
Legal and professional fees 1,218,993 772,617
AIFM fees 74,793 75,207
Marketing fees 94,630 69,652
Performance fees 2,457,164 1,545,369
Sundry expenses 337,032 223,342
Write back of NEC interest receivable - 83,934
9,881,436 6,493,364
During the year, the Company received the following services from its auditor,
Ernst & Young LLP.
31 March 31 March
2023 2022
(£) (£)
Audit services
Statutory audit Annual accounts - current year 285,900 210,000
Non-audit services
Other assurance services - Interim accounts 17,600 16,000
Total audit and non-audit services 303,500 226,000
The statutory auditor is remunerated £171,350 (2022: £145,900), in relation
to audits of the subsidiaries. This amount is not included in the above.
10. Taxation
The Company is recognised as an Investment Trust Company ("ITC") for
accounting periods beginning on or after 25 May 2018 and is taxed at the main
rate of 19%. From 1 April 2023 the main UK corporation tax rate increased to
25%.
31 March 31 March
2023 2022
(£) (£)
(a) Tax charge in profit and loss account
UK Corporation tax - -
(b) Reconciliation of the tax charge for the year
Profit before tax 63,412,295 42,527,570
Tax at UK standard rate of 19% 12,048,336 8,080,238
Effects of:
Unrealised gain on fair value investments (11,557,096) (8,270,966)
Expenses not deductible for tax purposes 12,064 995
Utilisation of brought forward tax losses not previously recognised as (503,304) 189,733
deferred tax
Tax charge for the year - -
Estimated losses not to be recognised due to insufficient evidence of future 7,334,364 3,147,853
taxable profits
Estimated deferred tax thereon 25% (2022: 25%) 1,833,591 786,963
There is no corporate tax charge for the year (2022: £nil). The Company may
utilise available tax losses from within the UK tax group to relieve future
taxable profits in the Company and may also claim deductions on future
distributions or parts thereof designated as interest distributions.
Therefore, a deferred tax asset, measured at the prospective corporate rate of
25% (2022: 25%) of £1,833,591 (2022: £786,963) has not been recognised in
respect of carried forward tax losses. These carried forward tax losses
include a £7,220,992 tax deduction resulting from the dividend for the
quarter ending 31 March 2023 being designated in full as an interest
distribution.
11. Earnings per share
Earnings per share (EPS) amounts are calculated by dividing the profit or loss
for the period attributable to ordinary equity holders of the Company by the
weighted average number of Ordinary Shares in issue during the period. As
there are no dilutive instruments outstanding, basic, and diluted earnings per
share are identical.
31 March 31 March
2023 2022
Net gain attributable to ordinary shareholders £ 63,412,295 £ 42,527,570
Weighted average number of Ordinary Shares for the year 476,542,691 300,542,518
Profit per share - Basic and diluted (pence) 13.31 14.15
12. Investments
31 March 31 March
Place of business Percentage ownership 2023 2022
GSES1 Limited ("GSES1") England & Wales 100% 434,762,146 180,762,419
31 March 31 March
2023 2022
Reconciliation (£) (£)
Opening balance 180,762,419 80,694,272
Loan drawdowns during the year 225,765,788 56,536,742
Loan repayments during the year (32,592,883) -
Loan interest received (8,835,389) (5,430,553)
Loan interest receivable from GSES 1 Limited 8,714,157 4,180,723
Total fair value movement on equity investment 60,948,054 44,781,235
434,762,146 180,762,419
The Company meets the definition of an investment entity. Therefore, it does
not consolidate its subsidiaries or equity method account for associates but,
rather, recognises them as investments at fair value through profit or loss.
The Company is not contractually obligated to provide financial support to
the subsidiaries and associate, except as guarantor to the debt facility
entered into by its direct subsidiary GSES 1 Limited, and there are no
restrictions in place in passing monies up the structure.
The investment in GSES1 is financed through equity and a loan facility
available to GSES1. The facility may be drawn upon, to any amount agreed by
the Company as lender, and is available for a period of 20 years from 28 June
2018. The rest of the investment in GSES1 is funded through equity. The
amount drawn on the facility at 31 March 2023 was £309,182,178 (2022:
£116,009,272). The loan is interest bearing and attracts interest at 5% per
annum. Investments in the indirect subsidiaries are also structured through
loan and equity investments and the ultimate investments are in energy storage
facilities.
Realisation of increases in fair value in the indirect subsidiaries will be
passed up the structure as repayments of loan interest and principal. GSES1
controls GSF Albion, GSF England, GSF IRE and GSF Atlantic as listed below
which in turn hold an interest in project companies. GSF Atlantic also
controls GSF Americas, which itself invests in its own project companies.
Percentage
Immediate Parent Place of business Ownership Investment
GSF Albion Limited ("GSF Albion") GSES1 England & Wales 100%
NK Boulby Energy Storage Limited GSF Albion England & Wales 99.998% Boulby
Kiwi Power ES B GSF Albion England & Wales 49% Cenin
GSF England Limited ("GSF England") GSES1 England & Wales 100%
OSSPV001 Limited GSC LRPOT England & Wales 100% Lower Road Port of Tilbury
GSF IRE Limited GSES1 England & Wales 100%
Mullavilly Energy Limited GSF IRE Northern Ireland 51% Mullavilly
Drumkee Energy Limited GSF IRE Northern Ireland 51% Drumkee
Porterstown Battery Storage Limited GSF IRE Republic of Ireland 51% Porterstown
Kilmannock Battery Storage Limited GSF IRE Republic of Ireland 51% Kilmannock
Ferrymuir Energy Storage Limited GSF Albion England & Wales 100% Ferrymuir
Ancala Energy Storage Limited GSF England England & Wales 100% Beeches, Blue House Farm, Brookhall, Fell View, Grimsargh, Hermitage, Heywood
Grange, High Meadow, Hungerford, Low Burntoft
Breach Farm Energy Storage Limited GSF England England & Wales 100% Breach Farm
Hulley Road Energy Storage Limited GSF England England & Wales 100% Hulley Road
Larport Energy Storage Limited GSF England England & Wales 100% Larport
Lascar Battery Storage Limited GSF England England & Wales 100% Lascar
Stony Energy Storage Limited GSF England England & Wales 100% Stony
Enderby Battery Storage Limited GSF England England & Wales 100% Enderby
Middleton Energy Storage Limited((3)) GSF England England & Wales 100% Middleton
GSF Atlantic Limited GSES1 England & Wales 100%
GSF Americas Inc.((1)) GSF Atlantic Delaware 100%
GSF Cremzow GmbH & Co KG GSF Atlantic Germany 90% Cremzow LP
GSF Cremzow Verwaltungs GmbH GSF Atlantic Germany 90% Cremzow GP
Snyder ESS Assets, LLC((1)) GSF Americas Delaware 100% Snyder
Sweetwater ESS Assets, LLC((1)) GSF Americas Delaware 100% Sweetwater
Westover ESS Assets, LLC((1)) GSF Americas Delaware 100% Westover
Cedar Hill ESS Assets, LLC((2)) GSF Americas Delaware 100% Cedar Hill
Mineral Wells ESS Assets, LLC((1)) GSF Americas Delaware 100% Mineral Wells
Wichita Falls ESS Assets, LLC((2)) GSF Americas Delaware 100% Wichita Falls
Mesquite ESS Assets, LLC((2)) GSF Americas Delaware 100% Mesquite
Dogfish ESS Assets, LLC((4)) GSF Americas Delaware 100% Dogfish
Big Rock ESS Assets, LLC((5)) GSF Americas Delaware 100% Big Rock
(1) The acquisition of Snyder ESS Assets, LLC, Sweetwater ESS
Assets, LLC, Westover ESS Assets, LLC and Mineral Wells ESS Assets, LLC was
completed on 22 April 2022.
(2) The acquisition of Cedar Hill ESS Assets, LLC, Wichita Falls
ESS Assets, LLC and Mesquite ESS Assets, LLC was completed on 26 August 2022.
(3) The acquisition of Middleton Energy Storage Limited was
completed on 28 October 2022.
(4) The acquisition of Dogfish BEES, LLC was completed on 24
January 2023. Post year end, on 17 April 2023, Dogfish BEES, LLC changed its
name to Dogfish ESS Assets, LLC.
(5) The acquisition of 92JT 8ME, LLC was completed on 16 February
2023. Post year end, on 17 April 2023, 92JT 8ME, LLC changed its name to Big
Rock ESS Assets, LLC.
13. Cash and cash equivalents
31 March 31 March
2023 2022
(£) (£)
Cash at bank 99,199,093 198,047,442
Restricted cash 24,506,634 -
123,705,727 198,047,442
Restricted cash comprises cash held as collateral for future contractual
payment obligations and deferred payments payable from indirect subsidiaries
to third parties of the Company in relation to the Big Rock project.
Collateral will be released to the Company upon settlement of the contractual
and deferred payments, to be made in accordance with the applicable contracts.
At the date of publication £9,817,089 has been released, with the remaining
£14,689,545 to be released in H1 2024.
14. Trade and other receivables
31 March 31 March
2023 2022
(£) (£)
VAT recoverable 213,360 -
Prepaid Director's and Officer's insurance 4,085 4,920
Other Prepayments 36,746 39,027
Other Debtors 280,560 2,529
Bank interest receivable 309,074 -
843,825 46,476
15. Trade and other payables
31 March 31 March
2023 2022
(£) (£)
Administration fees 73,509 50,765
Audit fees 283,100 226,000
Directors remuneration 8,222 6,668
Professional fees 2,554,634 1,897,707
Other creditors 127,388 5,002
VAT payable - 189,099
3,046,853 2,375,241
16. Categories of financial instruments
31 March 31 March
2023 2022
(£) (£)
Financial assets
Financial assets at amortised cost
Cash and cash equivalents 123,705,727 198,047,440
Trade and other receivables 843,825 46,476
Fair value through profit and loss
Investment 434,762,146 180,762,419
Total financial assets 559,311,698 378,856,335
Financial liabilities
Financial liabilities at amortised cost
Trade and other payables 3,046,853 2,375,241
Total financial liabilities 3,046,853 2,375,241
At the balance sheet date, all financial assets and liabilities were measured
at amortised cost except for the investment in equity and loans to
subsidiaries which are measured at fair value.
17. Fair Value measurement
VALUATION APPROACH AND METHODOLOGY
There are three traditional valuation approaches that are generally accepted
and typically used to establish the value of a business; the income approach,
the market approach, and the net assets (or cost based) approach. Within these
three approaches, several methods are generally accepted and typically used to
estimate the value of a business.
The Company has chosen to utilise the income approach, which indicates value
based on the sum of the economic income that an asset, or group of assets, is
anticipated to produce in the future. Therefore, the income approach is
typically applied to an asset that is expected to generate future economic
income, such as a business that is considered a going concern. Free cash flow
to total invested capital is typically the appropriate measure of economic
income. The income approach is the Discounted Cash Flow ("DCF") approach and
the method discounts free cash flows using an estimated discount rate
(Weighted Average Cost of Capital ("WACC")).
VALUATION PROCESS
In the year, the Company, via its subsidiaries, acquired eight projects
totalling 144.65 MW connected to The Electric Reliability Council of Texas,
Inc. ("ERCOT") and a 200MW project in the scope of the California Independent
System Operator ("CAISO"). It also acquired a 200MW project Middleton in
England. These acquisitions bring the Company's portfolio of lithium-ion
energy storage investments to a total capacity of 1.17GW (2022: 628.5 MW). As
at 31 March 2023, 291.6 MW of the Company's total portfolio was operational
and 881.6 MW pre-operational (the "Investments").
The Investments comprise thirty-six projects, based in the UK, the Republic of
Ireland, mainland Europe or North America. The Directors review and approve
these valuations following appropriate challenge and examination. The current
portfolio consists of non-market traded investments and valuations are
analysed using forecasted cash flows of the assets and used the discounted
cash flow approach as the primary approach for the valuation. The Company
engages external, independent and qualified valuers to determine the fair
value of the Company's investments or valuations are produced by the
Investment Advisor.
As at 31 March 2023, the fair value of the portfolio of investments has been
determined by the Investment Manager and reviewed by BDO UK LLP.
The below table summarises the significant unobservable inputs to the
valuation of investments.
Significant Inputs Fair Value
31 March 31 March
Valuation 2023 2022
Investment Portfolio technique Description (Range) (£) (£)
Great Britain DCF Discount Rate 7% - 10.75% 180,714,570 89,350,935
(excluding Northern Ireland) Revenue / MW / hr £8 - £14
Northern Ireland DCF Discount Rate 9% - 9% 55,049,170 57,076,847
Revenue / MW / hr €11 - €24
Republic of Ireland DCF Discount Rate 8% - 10.5% 28,515,507 17,595,232
Revenue / MW / hr €7 - €25
Other OECD DCF Discount Rate 9% - 10.5% 171,008,958 12,583,705
Revenue / MW / hr €5 - €26 /
$8 - $34
Holding Companies NAV (526,059) 4,155,700
Total Investments 434,762,146 180,762,419
The fair value of the holding companies represents the net assets together
with any cash held within those companies in order to settle any operational
costs.
• Sensitivity Analysis
The below table reflects the range of sensitivities in respect of the fair
value movements of the Company's investments, via GSES 1.
Significant Inputs Estimated effect on Fair Value
31 March 31 March
Valuation 2023 2022
Investment Portfolio technique Description Sensitivity (£) (£)
Great Britain (excluding Northern Ireland) DCF Revenue +10% 39,163,849 46,600,000
-10% (39,402,771) (28,312,000)
Discount rate +1% (25,103,594) (12,378,000)
-1% 29,658,404 14,357,000
Northern Ireland DCF Revenue +10% 5,360,179 9,984,000
-10% (5,357,401) (10,034,000)
Discount rate +1% (3,239,801) (3,226,000)
-1% 3,741,944 3,675,000
Exchange rate +3% (896,254) (839,000)
-3% 952,017 897,000
Republic of Ireland DCF Revenue +10% 5,631,626 4,404,000
-10% (6,434,752) (4,937,000)
Discount rate +1% (5,936,555) (3,242,000)
-1% 6,914,698 3,772,222
Exchange rate +3% (101,466) (362,000)
-3% 107,516 382,000
Other OECD DCF Revenue +10% 24,849,092 3,698,000
-10% (25,153,598) (4,465,000)
Discount rate +1% (14,401,398) (704,000)
-1% 16,472,024 804,000
Exchange rate +3% (4,689,659) (285,000)
-3% 4,981,974 303,000
High case (+10%) and low case (-10%) revenue information used to determine
sensitivities are provided by third party pricing sources.
• Valuation of financial instruments
The investments at fair value through profit or loss are Level 3 in the fair
value hierarchy. No transfers between levels took place during the year.
18. Financial risk management
The Company is exposed to certain risks through the ordinary course of
business and the Company's financial risk management objective is to minimise
the effect of these risks. The management of risks is performed by the
Directors of the Company and the exposure to each financial risk is considered
potentially material to the Company, how it arises and the policy for managing
it is summarised below:
• Capital risk management
The capital structure of the Company at year end consists of equity
attributable to equity holders of the Company, comprising issued capital,
reserves and accumulated gains. The Board continues to monitor the balance of
the overall capital structure so as to maintain investor and market
confidence. The Company is not subject to any external capital requirements.
• Counterparty risk
The Company is exposed to third party credit risk in several instances,
including the possibility that counterparties with which the Company and its
subsidiaries, together the Group, contract with, may default or fail to
perform their obligations in the manner anticipated by the Group. Such
counterparties may include (but are not limited to) manufacturers who have
provided warranties in relation to the supply of any equipment or plant, EPC
contractors who have constructed the Company's projects, who may then be
engaged to operate assets held by the Company, property owners or tenants who
are leasing ground space and/or grid connection to the Company for the
location of the assets, contractual counterparties who acquire services from
the Company underpinning revenue generated by each project or the energy
suppliers, or demand aggregators, insurance companies who may provide coverage
against various risks applicable to the Company's assets (including the risk
of terrorism or natural disasters affecting the assets) and other third
parties who may owe sums to the Company. In the event that such credit risk
crystallises, in one or more instances, and the Company is, for example,
unable to recover sums owed to it, make claims in relation to any contractual
agreements or performance of obligations (e.g. warranty claims) or require the
Company to seek alternative counterparties, this may materially adversely
impact the investment returns.
Further the projects in which the Company may invest will not always benefit
from a turnkey contract with a single contractor and so will be reliant on the
performance of several suppliers. Therefore, the key risks during battery
installation in connection with such projects are the counterparty risk of the
suppliers and successful project integration. The Company accounts for its
exposure to counterparty risk through the fair value of its investments by
using appropriate discount rates which adequately reflects its risk exposure.
The Company regularly assesses the creditworthiness of its counterparties and
enters into counterparty arrangements which are financially sound and ensures,
where necessary, the sourcing of alternative arrangements in the event of
changes in the creditworthiness of its present counterparties.
• Concentration risk
The Company's investment policy is limited to investment in energy storage
infrastructure in the UK, Republic of Ireland, North America, Western Europe,
Australia, Japan, and South Korea. The value of investments outside of the UK
is not intended to exceed 60% of Gross Asset Value of the Company. Significant
concentration of investments in any one sector and location may result in
greater volatility in the value of the Group's investments and consequently
the Net Asset Value and may materially and adversely affect the performance of
the Group and returns to Shareholders. The Company currently has investments
located across 5 different grids in the UK, Republic of Ireland, North America
(ERCOT and CAISO), and Germany. This diversification reduces exposure to any
single grid. The investment policy also limits the exposure to any single
asset within the portfolio to 25% of the Gross Asset Value of the Company.
• Credit risk
The Company regularly assesses its credit exposure and considers the
creditworthiness of its customers and counterparties. Cash and bank deposits
are held with Barclays plc, Santander UK plc and JPMorgan Chase and Co., all
reputable financial institutions with Moody's credit ratings of Baa2, A1 and
Aa2 respectively.
• Liquidity risk
The objective of liquidity management is to ensure that all commitments which
are required to be funded can be met out of readily available and secure
sources of funding. The Company may, where the Board deems it appropriate, use
short-term leverage to acquire assets but with the intention that such
leverage be repaid with funds raised through a new issue of equity or cash
flow from the Company's portfolio. Such leverage will not exceed 30 per cent.
at the time of borrowing of Gross Asset Value without Shareholder approval.
The Company intends to prudently introduce a conservative amount of debt
throughout the portfolio. The Company's only financial liabilities as at 31
Mach 2023 are trade and other payables. The Company has sufficient cash
reserves to cover these in the short-medium term. The Company's cash flow
forecasts are monitored regularly to ensure the Company is able to meet its
obligations when they fall due. The Company's investments are level 3 and thus
illiquid and this is taken into assessment of liquidity analysis.
The following table reflects the maturity analysis of financial assets and
liabilities.
31 March 2023 < 1 year 1 to 2 years 2 to 5 years > 5 years Total
Financial assets
Cash at bank 99,199,093 - - - 99,199,093
Restricted cash 19,610,119 4,896,515 - - 24,506,634
Trade and other receivables 843,825 - - - 843,825
Fair value through profit and loss
Investments - - - 434,762,146 434,762,146
Total financial assets 119,653,037 4,896,515 - 434,762,146 559,311,698
Financial liabilities
Financial liabilities at amortised cost
Trade and other payables 3,046,853 - - - 3,046,853
Total financial liabilities 3,046,853 - - - 3,046,853
31 March 2022 < 1 year 1 to 2 years 2 to 5 years > 5 years Total
Financial assets
Cash and cash equivalents 198,047,440 - - - 198,047,440
Trade and other receivables 46,476 - - - 46,476
Fair value through profit and loss
Investments - - - 180,762,419 180,762,419
Total financial assets 198,093,916 - - 180,762,419 378,856,335
Financial liabilities
Financial liabilities at amortised cost
Trade and other payables 9,275,958 - - - 9,275,958
Total financial liabilities 9,275,958 - - - 9,275,958
Investments include both equity and debt instruments. As the equity
instruments have no contractual maturity date, they have been included with
the >5-year category. Additionally, the debt instruments have an original
maturity of 20 years.
• Market risk
Market risk is the risk that the fair value or cash flows of a financial
instrument will fluctuate due to changes in market prices. Market risk
reflects currency risk, interest rate risk and other price risks. The
objective is to minimise market risk through managing and controlling these
risks to acceptable parameters, while optimising returns. The Company uses
financial instruments in the ordinary course of business, and also incurs
financial liabilities, in order to manage market risks.
i) Currency risk
The majority of investments, together with the majority of all transactions
during the current period were denominated in Pounds Sterling.
The Company, via GSES 1 and its direct subsidiaries, holds two investments
(Kilmannock and Porterstown) in the Republic of Ireland, an investment in
Germany (Cremzow), and several investments in North America, creating an
exposure to currency risk. These investments have been translated into Pounds
Sterling at year end and represent 36% (2022: 16.69%) of the Company's fair
valued investment portfolio. The Company regularly monitors its exposure to
foreign currency and executes appropriate hedging arrangements in the form of
forward contracts with reputable financial institutions to reduce this risk.
These derivatives are held by the Company's subsidiaries.
ii) Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates
will affect future cash flows or the fair values of financial instruments. The
Company is exposed to interest rate risk on its cash balances held with
counterparties, bank deposits, advances to counterparties and through loans to
related parties. Loans to related parties carry a fixed rate of interest for
an initial period of 20 years. The Company may be exposed to changes in
variable market rates of interest and this could impact the discount rate used
in the investment valuations and therefore the valuation of the projects as
well as the fair value of the loan receivables. Refer to Note 17 for the
sensitivity of valuations to changes in the discount rate. The Company
currently has no external debt. The Company continuously monitors its exposure
to interest rate risk and where necessary will assess and execute hedging
arrangements to mitigate interest rate risk.
iii) Price risk
Price risk is the risk that the fair value or cash flows of a financial
instrument will fluctuate due to changes in market prices. If the market
prices of the investments were to increase by 10%, there will be a resulting
increase in net assets attributable to ordinary shareholders for the period of
£43,476,217 (2022: £18,025,549). Similarly, a decrease in the value of the
investment would result in an equal but opposite movement in the net assets
attributable to ordinary shareholders. The Company relies on the market
knowledge of the experienced Investment Advisor, the valuation expertise of
the third‑party valuer BDO and the use of third- party market forecast
information to provide comfort with regard to fair market values of
investments reflected in the financial statements.
19. Net asset value per share
Basic NAV per share is calculated by dividing the Company's net assets as
shown in the Statement of Financial Position that are attributable to the
ordinary equity holders of the Company by the number of Ordinary Shares
outstanding at the end of the period. As there are no dilutive instruments
outstanding, basic, and diluted NAV per share are identical.
31 March 31 March
2023 2022
Net assets per Statement of Financial Position £ 556,264,845 £ 376,481,094
Ordinary Shares in issue as at 31 March 481,399,478 345,035,842
NAV per share - Basic and diluted (pence) 115.55 109.11
20. Share capital and reserves
Share Capital
Share premium Special reduction Capital Revenue
capital reserve reserve reserve reserve reserve Total
(£) (£) (£) (£) (£) (£) (£)
At 1 April 2022 3,450,358 269,708,123 186,656 42,258,892 64,757,592 (3,880,527) 376,481,094
Issue of ordinary £0.01 shares:
14 April 2022 1,363,637 148,636,363 - - - - 150,000,000
Share issue costs - (2,657,852) - - - - (2,657,852)
Transfer to capital reduction reserve - (100,000,000) - 100,000,000 - - -
Movement in special reserve - - 163,200 (163,200) - - -
Dividends paid - - - (30,970,692) - - (30,970,692)
Profit for the year - - - - 60,826,822 2,585,473 63,412,295
At 31 March 2023 4,813,995 315,686,634 349,856 111,125,000 125,584,414 (1,295,054) 556,264,845
Share Capital
Share premium Special reduction Capital Revenue
capital reserve reserve reserve reserve reserve Total
(£) (£) (£) (£) (£) (£) (£)
At 1 April 2021 1,438,717 107,713,725 186,656 17,446,348 21,226,187 (2,876,692) 145,134,941
Issue of ordinary £0.01 shares:
27 April 2021 1,323,529 133,676,471 - - - - 135,000,000
Issue of ordinary £0.01 shares:
4 October 2021 688,112 72,939,893 - - - - 73,628,005
Transfer to capital reduction reserve - (40,000,000) - 40,000,000 - - -
Share issue costs - (4,621,966) - - - - (4,621,966)
Dividends paid - - - (15,187,456) - - (15,187,455)
Profit for the year - - - - 43,531,405 (1,003,835) 42,527,570
At 31 March 2022 3,450,358 269,708,123 186,656 42,258,892 64,757,592 (3,880,527) 376,481,094
SHARE ISSUES
On 14 April 2022, the Company issued 136,363,636 ordinary shares at a price of
110 pence per share, raising net proceeds from the Placing of £150,000,000.
Following the approval at the Company's AGM on the 20 September 2022, the
Company made an application to the High Court, together with a lodgement of
the Company's statement of capital with the Registrar of Companies, the
Company was permitted to reduce the capital of the Company by an amount of
£100,000,000. This was affected on the 29 November 2022 by a transfer of
that amount from the share premium account to distributable reserves.
Ordinary shareholders are entitled to all dividends declared by the Company
and to all of the Company's assets after repayment of its borrowings and
ordinary creditors.
Ordinary shareholders have the right to vote at meetings of the Company. All
ordinary Shares carry equal voting rights.
The nature and purpose of each of the reserves included within equity at 31
March 2023 are as follows:
• Share premium reserve: represents the surplus of the gross
proceeds of share issues over the nominal value of the shares, net of the
direct costs of equity issues and net of conversion amount.
• Special reserve: represents a non-distributable reserve
totalling the amount of outstanding creditors at the date of the Company's
approved reduction in capital.
• Capital reduction reserve: represents a distributable
reserve created following a Court approved reduction in capital.
• Capital reserve: represents a non-distributable reserve of
unrealised gains and losses from changes in the fair values of investments as
recognised in the Capital account of the Statement of Comprehensive Income.
• Revenue reserve: represents a distributable reserve of
cumulative gains and losses recognised in the Revenue account of the Statement
of Comprehensive Income.
The only movements in these reserves during the period are disclosed in the
Statement of Changes in Equity.
21. Dividends
31 March 31 March
Dividend 2023 2022
per share (£) (£)
Dividends paid during the year
For the 3 month period ended 31 March 2021 1 pence - 2,762,246
For the 3 month period ended 30 June 2021 2 pence - 5,524,491
For the 3 month period ended 30 September 2021 2 pence - 6,900,718
For the 3 month period ended 31 December 2021 2 pence 6,900,718 -
For the 3 month period ended 31 March 2022 1 pence 4,813,995 -
For the 3 month period ended 30 June 2022 2 pence 9,627,990 -
For the 3 month period ended 30 September 2022 2 pence 9,627,990 -
30,970,693 15,187,456
The table below sets out the proposed final dividend, together with the
interim dividends declared, in respect of the financial year, which is the
basis on which the requirements of Section 1158 of the Corporation Tax Act
2010 are considered.
31 March 31 March
Dividend 2023 2022
per share (£) (£)
Dividends declared for the year
For the 3 month period ended 30 June 2021 2 pence - 5,524,491
For the 3 month period ended 30 September 2021 2 pence - 6,900,718
For the 3 month period ended 31 December 2021 2 pence - 6,900,718
For the 3 month period ended 31 March 2022 1 pence - 4,813,995
For the 3 month period ended 30 June 2022 2 pence 9,627,990 -
For the 3 month period ended 30 September 2022 2 pence 9,627,990 -
For the 3 month period ended 31 December 2022 2 pence 9,627,990 -
For the 3 month period ended 31 March 2023 (declared in June 2023) 1.5 pence 7,220,992 -
36,104,962 24,139,922
22. Transactions with related parties
Following admission of the Ordinary Shares (refer to note 20), the Company and
the Directors are not aware of any person who, directly or indirectly,
jointly, or severally, exercises or could exercise control over the Company.
The Company does not have an ultimate controlling party.
Details of related parties are set out below:
DIRECTORS
During the year, it was agreed to increase each of the Directors' remuneration
and as at 31 March 2023, Patrick Cox, Chair of the Board of Directors of the
Company, is paid a Director's remuneration of £70,625 per annum, (2022:
£57,500), Caroline Banszky is paid a Director's remuneration of £52,500 per
annum, (2022: £45,000), with the remaining Directors' remuneration of
£43,750 each per annum, (2022: £40,000).
Total Directors' remuneration, associated employment costs and expenses of
£242,313 were incurred in respect of the year with £8,222 being outstanding
and payable at the year end.
INVESTMENT ADVISOR
The Investment Advisor, Gore Street Capital Limited (the "Investment
Advisor"), is entitled to advisory fees under the terms of the Investment
Advisory Agreement amounting to 1% of Adjusted Net Asset Value. The advisory
fee will be calculated as at each NAV calculation date and payable quarterly
in arrears.
For the avoidance of doubt, where there are C Shares in issue, the advisory
fee will be charged on the Net Asset Value attributable to the Ordinary Shares
and C Shares respectively.
For the purposes of the quarterly advisory fee, Adjusted Net Asset Value
means:
(i) for the four quarters from First Admission, Adjusted Net Asset
Value shall be equal to Net Asset Value;
(ii) for the next two quarters, Adjusted Net Asset Value shall be
equal to Net Asset Value minus Cash on the Company's Statement of Financial
Position, plus any committed Cash on the Company's Statement of Financial
Position;
(iii) thereafter, Adjusted Net Asset Value shall be equal to Net Asset
Value minus Cash on the Company's Statement of Financial Position.
During the year, the management agreement was amended to change the term of
adjusted NAV to mean net asset value minus uncommitted cash. Uncommitted cash
means all cash on the Company's balance sheet other than committed cash.
Committed cash means cash that has been allocated for repayment of a liability
on the balance sheet of any member of the group. Investment advisory fees of
£4,914,324 (2022: £3,090,737) were paid during the year, there were no
outstanding fees as at 31 March 2023, (2022: £nil outstanding).
In addition to the advisory fee, the Advisor is entitled to a performance fee
by reference to the movement in the Net Asset Value of Company (before
subtracting any accrued performance fee) over the Benchmark from the date of
admission on the London Stock Exchange.
The Benchmark is equal to (a) the gross proceeds of the Issue at the date of
admission increased by 7 per cent. per annum (annually compounding), adjusted
for: (i) any increases or decreases in the Net Asset Value arising from issues
or repurchases of Ordinary Shares during the relevant calculation period; (ii)
the amount of any dividends or distributions (for which no adjustment has
already been made under (i)) made by the Company in respect of the Ordinary
Shares at any time from date of admission; and (b) where a performance fee is
subsequently paid, the Net Asset Value (after subtracting performance fees
arising from the calculation period) at the end of the calculation period from
which the latest performance fee becomes payable increased by 7 per cent. per
annum (annually compounded).
The calculation period will be the 12 month period starting 1 April and ending
31 March in each calendar year with the first year commencing on the date of
admission on the London Stock Exchange.
The performance fee payable to the Investment Advisor by the Company will be a
sum equal to 10 per cent. of such amount (if positive) by which Net Asset
Value (before subtracting any accrued performance fee) at the end of a
calculation period exceeds the Benchmark provided always that in respect of
any financial period of the Company (being 1 April to 31 March each year) the
performance fee payable to the Investment Advisor shall never exceed an amount
equal to 50 per cent of the Advisory Fee paid to the Investment Advisor in
respect of that period. Performance fees are payable within 30 days from the
end of the relevant calculation period. Performance fees of £2,457,164, were
accrued as at 31 March 2023, (2022: £1,545,369).
During the year, Gore Street Operational Management, a direct subsidiary to
the Investment Adviser, provided commercial management services to the Company
resulting in charges in the amount of £855,692 being paid by the Company and
the SPV companies (2022: £781,600).
INVESTMENT
The Company holds 100% interest in GESE 1 through equity and a loan facility.
Transactions and balances held with GSES 1 for the year are all detailed
within note 12.
23. Guarantees and Capital commitments
The Company together with its direct subsidiary, GSES1 Limited entered into
Facility and Security Agreements with Santander UK PLC in May 2021 for £15
million. The Facility was increased to £50 million in June 2023. Under these
agreements, the Company acts as charger and guarantor to the amounts borrowed
under the Agreements by GSES1 Limited. As at 31 March 2023, no amounts had
been drawn on this facility.
The Company had no contingencies and significant capital commitments as at the
31 March 2023.
24. Post balance sheet events
The Directors have evaluated the need for disclosures and / or adjustments
resulting from post balance sheet events through to 14 July 2023, the date the
financial statements were available to be issued.
The Board approved on the 17 March 2023, the issuance of an interim dividend
of 2 pence per share. This dividend totalling £9,627,990 was paid to
investors on 11 April 2023.
The Board approved on the 14 June 2023, the issuance of a final dividend of
1.5 pence per share. This dividend totalling £7,220,992 will be paid to
investors on 17 July 2023.
The size of the revolving credit facility, within which the Company acts as
chargor and guarantor to amounts borrowed by its subsidiary GSES 1 Limited,
has been increase in June 2023 from £15 million to £50 million. The term of
the facility has been extended for four years to 2027.
There were no adjusting post balance sheet events and as such no adjustments
have been made to the valuation of assets and liabilities as at 31 March 2023.
2022 Financial Information
The figures and financial information for 2022 are extracted from the
published Annual Report and Accounts for the year ended 31 March 2022 and do
not constitute the statutory accounts for that year. The 2022 Annual Report
and Accounts have been delivered to the Registrar of Companies and included
the Report of the Independent Auditors which was unqualified and did not
contain a statement under either section 498(2) or section 498(3) of the
Companies Act 2006.
2023 Financial Information
The figures and financial information for 2023 are extracted from the Annual
Report and Accounts for the year ended 31 March 2023 and do not constitute the
statutory accounts for the year. The 2023 Annual Report and Accounts include
the Report of the Independent Auditors which is unqualified and does not
contain a statement under either section 498(2) or section 498(3) of the
Companies Act 2006. The 2023 Annual Report and Accounts will be delivered to
the Registrar of Companies in due course.
Neither the contents of the Company's webpages nor the contents of any website
accessible from hyperlinks on the Company's webpages (or any other website) is
incorporated into, or forms part of, this announcement.
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