REG - Gore Street Energy - Further Portfolio and Trading Update

Gore Street Energy Storage FundAnnouncement

05/02/2024 07:00

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RNS Number : 9424B  Gore Street Energy Storage Fund PLC  05 February 2024

5 February 2024

Gore Street Energy Storage Fund plc

(the "Company" or "GSF")

Further Portfolio and Trading Update

 

Gore Street Energy Storage Fund plc ("the Company" or "GSF") notes the
turbulence in the market and reconfirms its strong liquidity and its
commitment to the current dividend policy. The Company also reconfirms its
commitment to a diversification strategy, which has insulated it from the
current dynamics of the GB market.

Overview:

Dividend policy

·    GSF reaffirms its dividend target of 7% of NAV for the fiscal year.
It has met its dividend target since listing.

·    The Company's dividend cover has been trending upward and was fully
covered in the last reported quarter (September-end 2023).

Revenue generation

·    Further to the Company's update on 10 January (link here
(https://www.gsenergystoragefund.com/content/news/archive/2024/100124) ), the
reported portfolio average revenue across all assets for the fiscal
year-to-date stands at £15.1 per MW/hr (H1 & Q3), given its effective
diversification strategy.

Liquidity

·    The Company maintains a healthy balance sheet with low debt. As
previously disclosed, the Company had £66 million in cash or cash equivalents
as of 31 December 2023. Of the available $60 million in the Big Rock Facility,
approximately $15.8 million had been drawn down as of 31 December 2023, and
there were no draws on the Company's £50 million RCF with Santander.

Portfolio

·    The Company's construction program is progressing per the schedule
outlined on page 11 of its Interim Report (link here
(https://www.gsenergystoragefund.com/docs/librariesprovider22/archive/results/interims-2023.pdf?v=2)
).

·    The Company's operational fleet is on track to more than double by
the end of 2024.

·    Based on the build-out schedule, by the end of 2024, the Company's US
assets will account for 55% of total operational capacity, while GB will
account for less than 30% on a MWh basis.

Background:

The Company has been at the forefront of the energy storage sector since
becoming the first energy storage fund to list on the Premium Segment of the
London Stock Exchange in May 2018.

From inception, the Company's strategy prioritised diversification as a
critical pillar of success. This led the Company to expand its portfolio into
the Irish market in 2019, followed by expansion into mainland Europe, Texas,
and California in the United States. This unique portfolio composition across
five uncorrelated markets significantly reduces reliance on any single revenue
stream, market dynamic, or regulatory regime, positioning the Company to
achieve its long-term investment objective of sustainable growth and
consistent dividend payments.

The Company has maintained strict control over capital expenditure to achieve
a competitive build cost per MW. Through a comprehensive understanding of each
market, each system is currently optimally sized for the market in which it
operates. Augmentation has also been built into the design assumptions,
allowing for upsizing when revenue signals (and capex pricing) dictate an
increase in duration. This efficient deployment, including around duration, is
a key variable in capex costs and ultimately a determining factor in the IRR
of an asset.

Storage investors have relied on forward-looking revenue curves to make
capital deployment decisions and determine asset values. The revenue curves
employed in valuing GSF's assets have proven to be the closest to actuals
amongst those disclosed in the market, avoiding Net Asset Value volatility.

Liquidity and Dividends:

The Board seeks to reassure shareholders and address any potential concerns on
liquidity management and dividends. While these are recognised as valid in
light of recent sector news, the Board wishes to provide comfort to investors.
The Company maintains a strong balance sheet, with sufficient cash to meet its
contractual obligations and undrawn lines of credit totalling c.£83 million.
In line with its prudent investment policy on leverage, the Company has a low
debt burden and, consequently, a low refinancing risk. The Company also
continues to generate a healthy operational cash flow and fully covered its
dividend during the last reported quarter (September-end 2023).

The Company continues to follow its mandate to deliver sustainable long-term
returns for its investors. Based on the current year's performance, GSF
reaffirms its commitment to a dividend target of 7% of NAV for the fiscal
year.

Revenue Generation:

The Board and  Investment Manager of the Company share the concerns expressed
regarding the current challenges posed by low revenue generation in the GB
market.  The Company's portfolio diversification serves as the primary driver
of the Company's stable revenue and profit profile and has allowed the
Company's portfolio to generate a consistent revenue profile on a consolidated
basis. The Company's active management strategy continually adapts to navigate
the cyclical fluctuations in the GB market while taking full advantage of the
portfolio's broad exposure to much higher growth markets that are able to
deliver increased profitability.

 

Pat Cox, Chair of Gore Street Energy Storage Fund, commented: 

"In this challenging period for the GB energy storage industry, it is crucial
to acknowledge the resilience and fundamentally differentiated strategy
employed by our Company. The GB market's cyclical nature has posed significant
hurdles, yet we remain well-positioned to navigate these challenges - largely
thanks to our investment policy and Investment Manager's foresight and
strategic understanding.

"Fundamentally, the importance of energy storage as a critical asset in
driving the energy transition and ensuring the sustainability of the grid
remains true. The current headwinds the sector faces in GB highlight some of
the more complex aspects unique to this asset class, which require long-term
planning and experienced management. We have long recognised the cyclical
dynamics of the energy storage sector in GB, which is why we took proactive
measures beginning in 2019 to diversify our portfolio across five grids to
mitigate consolidated cash flow volatility.

"Today, we can see that this differentiated strategy has proven effective and
contributed significant resilience. Our unique portfolio structure allows us
to access a diverse selection of revenue streams, including highly contracted
ones, such as the Resource Adequacy Contract currently being negotiated for
our largest asset to date, which will provide further consistency to portfolio
income. Even during periods of low revenue generation, such as the current
downturn in the GB market, our portfolio has demonstrated resilience thanks to
the far-sighted decisions made five years ago.

"Looking ahead to the coming quarters and years, it is evident that effective
capital allocation and our unique diversification strategy have shielded us
from the severe impacts others in the industry face. The Company remains
well-positioned to weather the current challenges and continue to lead the
sector."

 

Alex O'Cinneide, CEO of Gore Street Capital, the Investment Manager of the
Company, commented:

"Energy storage is and will remain a critical asset for our transition to a
low-carbon society and, I believe, an essential part of every investor's
portfolio. The asset class does, however, require expert knowledge of multiple
energy markets, renewables construction and management experience, clear
investment execution around capital allocation, correct use of leverage, and,
essentially, revenue diversity across multiple geographies. Without that skill
set, experience and discipline, energy storage is a challenging asset class.

"We have raised the correct amount of capital when appropriate to do so at a
fair price. The GSF portfolio has been built up over multiple years, with the
careful addition of new markets and new revenue streams whilst keeping capital
expenditure low and leverage correctly managed. This has led to our growing
dividend coverage and increasing cash flow, and that consistency will see us
through valid concerns over the sector's performance.

"We continue to be well positioned to capitalise on this growing sector and
will benefit as the market leader."

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/)  

 

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