REG - Gore Street Energy - Strategy and Capital Allocation Plan

Gore Street Energy Storage FundAnnouncement

Wed 07:02

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RNS Number : 0814T  Gore Street Energy Storage Fund PLC  30 July 2025

30 July 2025

Gore Street Energy Storage Fund plc

(the "Company" or "GSF")

 

Strategy and Capital Allocation Plan

 

Conclusion of Independent Review and Strategic Pathway to Enhanced Shareholder
Value

 

The Board of Gore Street Energy Storage Fund has completed the Company's
previously announced independent strategy review and, together with the
Investment Manager, announces its capital allocation plan and other steps to
enhance shareholder value.

The plan has four principal elements:

1.   Sale or co-investment for the Company's c.495 MW of pre-construction
assets to confirm valuation and free up capital.

2.   Increase key GB and Irish assets' duration to capture additional value
and revenues, to be funded from cash on hand, debt from existing loan
facilities and proceeds from the sale of pre-construction assets.

3.  Increase revenues through proprietary and proven revenue optimisation
models, which are driving outperformance against industry benchmarks, while
assessing and implementing, where appropriate, emerging tolling and floor
price arrangements to further reduce revenue volatility.

4.    Further cost reductions in addition to the fee reductions previously
announced. The Investment Manager will focus on operating and financing cost
reductions, including seeking to reduce borrowing costs as the portfolio
reaches maturity and financial stability.

The initiatives in augmentation, monetisation, revenue generation, and cost
reduction are expected to add significant value to the Company's portfolio,
reinforcing the dividend and underpinned by an asset base that continues to
appreciate.

 

Independent Review Complete

Following seven years of the Company's operations, the Board commissioned an
independent review by Alexa Capital LLP, a specialist in clean energy and
climate transition investments, to review the proposed strategy that had been
set out by the Board and Investment Manager. The review's conclusions
supported the Board's confidence in:

(i) the NAV for the portfolio is in line with market valuations, underpinned
by its scale and geographic diversity;

(ii) there is private buyer market appetite for battery energy storage, and
confidence that the Fund's portfolio of pre-construction projects is
well-positioned for value realisation;

(iii) increasing the duration of selected assets results in material increases
in revenue to enhance investment returns;

(iv) the market need and investor appetite for storage assets continues to
grow; and,

(v) there are an increasing number of potentially attractive revenue hedging
products that may further reduce revenue volatility.

Based on the review, the Board and the Investment Manager have set out the
following steps and plans through to 2027.

 

1.    Sale or Co-investment of Pre-Construction Assets

The Company holds a c.495 MW portfolio of pre-construction assets with
near-term grid connection rights across GB, Ireland, and Texas, representing
c.8% of the Company's NAV as at 31 March 2025.

With land, planning permissions and grid connection rights secured, coupled
with preliminary works completed and procurement well-advanced, these are
valuable assets.  This is particularly the case in an environment in which
firm grid connection rights and dates are increasingly challenging to secure,
which means values should hold, and potentially increase as their grid
connection dates become closer.

 

The Board has resolved to realise this embedded value through a structured
sale or partnership programme.

Accordingly, the Company will pursue the following pathways to maximise
shareholder value:

·      Selective asset sales with the expectation to realise value at
or above carrying value.

·      Co-investment partnerships with strategic or financial investors
to share development upside and enable the Company to unlock additional
operational cashflow.

·      Accretive capital structures, including the potential use of
non-recourse project financing.

·      Ongoing review of floor price and tolling arrangements, enabling
asset build-out to be financed on a standalone basis with non-recourse project
finance.

The programme, which will start immediately, will be executed in tranches. The
Company has already solicited interest from multiple counterparties and is in
active negotiations regarding potential transactions for its GB and Irish
pre-construction assets. Due to the commercial sensitivity of these ongoing
negotiations, the market will be updated in due course.

The pre-construction portfolio is summarised below:

 Project                                                                       Capacity (MW)  Market
 KBSL Phase 1 & 2                                                              120            Ireland
 PBSL Phase 2                                                                  60             Ireland
 Dallas & Surrounds Portfolio (Wichita Falls, Mineral Wells, Mesquite and      40             Texas
 Cedar Hill)
 Middleton                                                                     200            GB
 Mucklagh                                                                      75             Ireland

 

The Board believes that realising value from these assets will support
shareholder value creation by:

·      Unlocking capital for redeployment into higher-return
opportunities, with increased duration of identified existing assets as a
priority.

·      Support distributions of dividends to shareholders by enhancing
the operational performance of existing assets.

·      Narrow the share price discount to NAV by demonstrating
disciplined capital allocation and value realisation.

This strategy is fully aligned with the Company's objective to maximise
shareholder value and reflects the Board's commitment to proactive portfolio
management in response to market conditions.

 

2. Increased Duration of Selected Assets

The Investment Manager has continuously tracked the economics of changes in
BESS duration, from 30 minutes to one hour to 2 hours across each of its
markets. Over the last 18-24 months, there has been a significant reduction in
both battery and overall capex costs. This has coincided with changes in the
electricity trading and ancillary service markets in the UK, whereby 2-hour
duration systems are expected to capture a 37% increase in revenue over 1-hour
systems.  The premium for longer duration was reaffirmed by the independent
Alexa Capital report.

This trend materially enhances project economics, increasing the return
profile and therefore presents a clear path to value enhancement through
increased revenues and free cashflow. As such, the Company will now embark on
increasing the duration of selected GB assets as described below.

The following projects have been identified for increased duration based on
(i) ability to expand within existing planning permissions, (ii) substantially
completed equipment procurement and (iii) project layout and design which
allows for short construction cycles, retaining instead of replacing existing
battery cells and the ability upgrade container by container, leaving the
assets largely operational during the upgrade with less than 50 days
(equivalent) of lost revenue per project.

 

Phase 1 (2025 - 2026)

·      Stony (79.9 MW) and Ferrymuir (49.9 MW) will be upgraded from
1-hour to 2-hour systems.

·      These sites were selected for their modular design, enabling
shorter upgrade times with minimal disruption to revenue, with fewer than 50
days (equivalent) downtime.

·      Total capex: £18-22 million, funded from existing capital
reserves.

·      Expected deployment: 2026.

 

Phase 2 (2026 - 2027)

·      Enderby (57 MW) is expected to be augmented once its first 12
months of operations are completed.

·      Mullavilly (50 MW) and Drumkee (50 MW) are expected to be
augmented following the conclusion of the DS3 revenue programme in Ireland and
in line with the requirements and opportunities presented in the Irish grid.

·      Expected deployment: 2026 -2027.

 Site        Capacity (MW)  Duration Post-augmentation  Target Deployment Period
 Stony       79.9           2 hours                     2026
 Ferrymuir   49.9           2 hours                     2026
 Enderby     57.0           2 hours                     H2 2026 - 2027
 Mullavilly  50.0           1-2 hours                   2027
 Drumkee     50.0           1-2 hours                   2027

 

3. Driving Revenue Optimisation and Stability

Since last Autumn, GSET, a bespoke BESS trading platform within the Investment
Manager which uses a proprietary AI-driven trading and forecasting model, has
gradually been taking over the trading functions of much of the GB portfolio
from third-party providers. These external providers faced numerous conflicts
on how each asset in their managed and owned portfolios approached the
markets. This shift was supported by strong evidence at the time last year
when the Board made the decision to proceed with this approach, and has since
been reaffirmed through actual performance. The beneficial results have
exceeded expectations, with the portion of the GB assets under GSET management
during the 2025 financial year achieving revenue 11% higher than the GB Modo
benchmark.

The Company will continue to migrate more of its trading to the GSET platform
over the next two years, which is expected to lead to a further increase in
distributable cashflow and dividend cover.

Over the last 18 months, new hedging products have emerged that offer
longer-term revenue stability, which was further emphasised in the independent
Alexa Capital report. Increased revenue certainty enables projects to smooth
out revenue cycles and can allow for increased leverage at lower interest
rates, with capital freed up for expansion or returned to shareholders.  It
is well established in all infrastructure markets that assets with
longer-contracted revenue streams are valued more highly than those exposed to
market risk. As part of its strategic plan, the Company will further explore
and, where value-accretive, enter into such longer-term contracts.

 

4. Cost Reductions

In addition to maximising revenue, the Company is also focused on reducing
costs, particularly now that all assets have been operationalised and the
portfolio has reached a steady state. The Company is now pursuing a broader
cost reduction strategy and is engaging with lenders to reflect the lower risk
profile of the Company.

As part of this strategy, the Company has already negotiated a reduction in
the Investment Manager's fees. The Investment Manager and the Board continue
to review all areas of expenditure to enhance operational efficiency and
maximise shareholder value.

The Investment Manager is pursuing the optimisation of the cost and structure
of borrowings across existing debt facilities. This includes the potential
refinancing of the Big Rock construction loan into longer-term project
finance, appropriately sized against the 12-year contracted resource adequacy
revenue stream in place. Such refinancing is expected to lower financing costs
and release capital for redeployment, as well as further support sustainable
dividends.

Additionally, the Investment Manager is advancing its proprietary platform to
drive cost efficiencies across key technical functions, including asset
management, commercial functions and optimisation. By integrating directly
with assets via API, the need for additional hardware on the assets for
optimisation is expected to reduce. Greater visibility over the
state-of-charge of the asset is expected, which could unlock more complex
trading strategies. Through this software, the lifetime of the batteries can
be extended by better tracking of their state of health and by pre-empting
failures therefore underpinning the long-term value of the portfolio.

Patrick Cox, the Chair of the Company, commented:

"On behalf of the Board, I am pleased to present the strategy for the
portfolio, which has been reviewed by an independent advisor, Alexa Capital.

The realisation of the pre-construction assets will feed into the second
augmentation phase. The first phase, ending in 2026, will focus on the
Company's larger assets in GB, Stony and Ferrymuir, given their modular
design. Post Phase 1 augmentation, 62% of the operational GB portfolio will be
2-hour duration systems. We are also exploring ways to take advantage of
maturing markets for contracted revenues, to provide downside protection for
cashflow and dividends while preserving upside opportunities for shareholders
with our increasingly strategic energy storage asset class.

This strategy update follows a series of actions your Board has taken to
ensure alignment with the interests of shareholders, including the reduction
in management fees, and our intent to continue to declare sustainable
dividends during this bridging year for the Company and towards driving share
value appreciation."

Alex O'Cinneide, the CEO of the Investment Manager, commented:

"The last 18-months have been a pivotal and successful time for the Company,
with significant de-risking of the portfolio, by operationalising assets
across three grids, a testament to the vertical integration of BESS at the
Investment Manager and the diversification strategy. The outcomes of the
independent review are consistent with our guidance to date. Our view of
augmentation has remained consistent, sizing the market opportunity and the
expected capex, to maximise returns for shareholders.

Market dynamics now present an opportunity to maximise returns for
shareholders through incremental augmentation of the existing portfolio,
supported by the realisation of value from the c.495 MW of pre-construction
assets currently owned by the Company. As part of our active management
approach, we are uniquely positioned to drive operational performance by
leveraging asset data across multiple functions, thereby improving revenue
strategies and reducing costs. This programme of work will add significant
value to the portfolio and support a fully covered and sustainable dividend to
our investors."

 

For further information:  

Gore Street Investment
Management

Alex O'Cinneide / Paula Travesso / Ben Paulden
 

Email: ir@gorestreetcap.com
 
     Tel: +44 (0) 20 3826 0290

 

Shore Capital (Joint Corporate Broker)

Anita Ghanekar / Sophie Collins  (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

 

Burson Buchanan (Media Enquiries) 

Charles Ryland / Henry Wilson / Nick Croysdill
                                         Tel: +44 (0) 20
7466 5000

Email: gorestreet@buchanan.uk.com

 

https://www.gsenergystoragefund.com (https://www.gsenergystoragefund.com)

 

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