REG - Gresham House Energy - Half-year Results to 30 June 2022
27/09/2022 07:00
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RNS Number : 7035A Gresham House Energy Storage Fund 27 September 2022
27 September 2022
Gresham House Energy Storage Fund plc
("GRID" the "Company" or the "Fund")
Half-year results to 30 June 2022
Gresham House Energy Storage Fund plc, the UK's largest fund investing in
utility-scale battery energy storage systems (BESS) to power the renewable
energy transition, announces its half-year results for the period ending 30
June 2022.
Performance highlights in H1 2022
· Net Asset Value (NAV) up 53.5% to £785.4mn (31 December 2021:
£511.7mn)
· NAV total return of 27.2% with NAV per share rising to 145.11p (31
Dec 2021 :116.86p)
· Share price total return of 23.3% vs FTSE All Share Index total
return of -4.6% in H1 22. Since IPO, returns have been 86.9% and 15.8%
respectively
· Dividends of 3.5p per share paid in H1 22, with Operational Dividend
Cover at 1.18x
· Underlying Operational Portfolio Revenue rose 20.6% to £30.1mn (H1
21: £24.9mn) and EBITDA stood at £22.7mn (H1 21: £22.4mn)
· Weighted average discount rate of 10.79% for assets valued on a
discounted cash flow basis (31 December 2021: 10.77%)
Deployment, Fundraising
· 425MW across 17 operational projects as at 30 June 2022, which has
risen to 500MW across 19 operational projects as at 31 August 2022
· 602MW across 11 projects under construction as at 30 June 2022, 527MW
as at 30 August 2022, and a further 90MW (Enderby and Coupar Angus) due to
commission in the coming days
· Total operating capacity of over 1GW / 1.2GWh(1) targeted by end Q1
23. All projects 100%-owned
· Target portfolio of 1.6GW by mid-2024 with a duration of 2.1GWh 1
(#_ftn1)
· £150mn raised in oversubscribed equity placing in May 2022
· Significant additional pipeline in progress in GB as well as Overseas
following recent Investment Policy changes
· Timely commissioning of projects is our key focus by resolving
connection bottlenecks in the industry
Market environment and outlook
· UK renewable penetration reached a record 45.5% 2 (#_ftn2) in Q1 22
driven by offshore wind
· 11GW of renewable capacity contracted in latest Contracts for
Difference (CfD) subsidy auctions, which could drive renewable penetration
above 65% within 5 years, underpinning the need for BESS
· Power price volatility primarily driven by renewables as well as
shortfalls in generation capacity and gas supply constraints in Europe in the
near term
Other highlights
· NAV per share increase in H1 22 assisted by upward revaluations of
projects as they go from being valued at cost to a fair value using a net
present value basis, reflecting the attractive underlying internal rates of
return (IRRs) of our projects at the time they are acquired. Discount rate
assumptions have remained unchanged during the period
· Revenues have remained high, supported by elevated frequency response
pricing and a strong trading backdrop. Frequency response pricing is beginning
to drop as additional BESS capacity becomes operational
· The very recent announcement by the Chancellor of the Exchequer of
the cancellation of the previously planned Corporation Tax increase to 25%
from April 2023, is expected to contribute positively to the Q3 2023 NAV, and
NAV per share. In addition, we are still assessing the potential impact over
time of FOREX movements
· Awarded Best Sustainable Specialist Fund at the Investment Week
Sustainable Investment Awards for the second year in succession
John Leggate CBE, Chair of Gresham House Energy Storage Fund plc, said:
"We are pleased with GRID's performance in the first half of the year as we
continue to deploy essential battery energy storage infrastructure and deliver
above-target total returns to shareholders. We have started to draw down on
our debt facilities as expected. Combined with the £150 million equity we
raised from shareholders, we expect these funds to deliver most of the
existing pipeline, taking GRID to over 1GW of capacity, currently expected by
the end of Q1 2023.
"We are ambitious to scale up GRID, both in the UK and beyond, enabling a
cost-effective transition to net zero, supporting near-term energy security as
gas supplies continue to be unreliable while helping maximise the output from
low-cost renewable energy sources."
Ben Guest, Fund Manager of Gresham House Energy Storage Fund plc and Managing
Director of Gresham House New Energy, said:
"It has been gratifying to see an increase in our operational capacity, with
lots more expected, which is expected to drive growth proportionately in
revenues, EBITDA and dividend cover, all things being equal.
"Our next batch of projects is in advanced stages of construction; as of
today, a further 527MW across 9 projects are anticipated to commission in the
next six months, going into 2023. Beyond that, our project pipeline into 2024
is also strong, with over 500MW planned for the 12-18 months that follow.
"GB needs at least 20GW of BESS by 2030, demonstrating its critical importance
to the energy transition. We are working on additional pipeline both in GB and
Overseas, and we look forward to providing updates as this work progresses.
"The rate of deployment of BESS continues to lag the deployment of renewables
in GB and this will continue to underpin revenues for the sector for years to
come. However, while this backdrop is positive it is important for the
industry to acknowledge the need for the rate of deployment of BESS to
accelerate. While lockdowns and supply chain issues caused constraints in
recent times, the main bottleneck today is in the slow rate of grid connection
activity, impacting the industrywide deployment of BESS. We invite Ofgem, grid
companies and other stakeholders to act to solve this issue. It is not in
anyone's interest to see the unnecessary curtailment of incremental renewable
generation and for associated balancing costs to increase exponentially due to
a lack of flexible generation."
The Company's Interim Report and Financial Statements for the period ending
30 June 2022 are included in this
announcement http://www.rns-pdf.londonstockexchange.com/rns/7035A_1-2022-9-26.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/7035A_1-2022-9-26.pdf) ,
available on the Company's website
https://greshamhouse.com/real-assets/new-energy-sustainable-infrastructure/gresham-house-energy-storage-fund-plc/
(https://greshamhouse.com/real-assets/new-energy-sustainable-infrastructure/gresham-house-energy-storage-fund-plc/)
and also on the National Storage Mechanism
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
A webinar and Q&A session for investors, to discuss the results, will be
held at 11am (BST) today, Tuesday 27 September 2022. This will be an
opportunity to hear fund manager, Ben Guest provide an update on GRID's
operational and financial performance and to ask questions. Registration is at
https://greshamhouse.zoom.us/webinar/register/WN_aiAZNNgPTWOYT0J3lR3bwQ
(https://greshamhouse.zoom.us/webinar/register/WN_aiAZNNgPTWOYT0J3lR3bwQ) or
via the GRID website
https://greshamhouse.com/real-assets/new-energy-sustainable-infrastructure/gresham-house-energy-storage-fund-plc/
(https://greshamhouse.com/real-assets/new-energy-sustainable-infrastructure/gresham-house-energy-storage-fund-plc/)
.
For further information, please contact:
Gresham House New Energy +44 (0)20 3837 6270
Ben Guest
Rupert Robinson
Jefferies International Limited +44 (0)20 7029 8000
Stuart Klein
Gaudi Le Roux
KL Communications +44 (0)20 3995 6673
Charles Gorman
Charlotte Francis
Millie Steyn
JTC (UK) Limited as Company Secretary +44 (0)20 3846 9774
Christopher Gibbons
About the Company and the Manager:
Gresham House Energy Storage Fund plc seeks to provide investors with an
attractive and sustainable dividend over the long term by investing in a
diversified portfolio of utility-scale battery energy storage systems (known
as BESS) located in Great Britain, Northern Ireland, and the Republic of
Ireland. In addition, the Company seeks to provide investors with the prospect
of capital growth through the re-investment of net cash generated in excess of
the target dividend in accordance with the Company's investment policy.
The Company targets an unlevered Net Asset Value total return of 8% per annum,
calculated net of the Company's costs and expenses.
Gresham House Asset Management Limited is the FCA authorised operating
business of Gresham House plc, a London Stock Exchange quoted specialist
alternative asset manager. Gresham House is committed to operating responsibly
and sustainably, taking the long view in delivering sustainable investment
solutions. www.greshamhouse.com (http://www.greshamhouse.com/)
Definition of utility-scale battery energy storage systems (BESS)
Utility-scale battery energy storage systems (BESS) are the enabling
infrastructure that will support the continued growth of renewable energy
sources such as wind and solar, essential to the UK's stated target to reduce
carbon emissions. They store excess energy generated by renewable energy
sources and then release that stored energy back into the grid during peak
hours when there is increased demand. BESS also provide Frequency Response
services to National Grid whereby batteries import and export power with the
aim to keep real-time supply and demand in near-perfect balance while also
protecting against unexpected outages of major power plants.
1. HIGHLIGHTS
Company Financial Highlights
· NAV per share (pence): 145.11p (31 December 2021: 116.86p)
(as at 30 June 2022)
· Company profit and total comprehensive income: up 291% to £141.9mn
(30 June 2021: £36.3mn)
(for the six months to 30 June 2022)
· Total gross equity funds raised: £150mn (30 June 2021: £nil)
(for the six months to 30 June 2022)
· EBITDA of underlying investment portfolio 3 (#_ftn3) : £22.7mn (30
June 2021: £22.4mn)
(for the six months to 30 June 2022)
· Dividend per Ordinary Share (pence): 3.5p (30 June 2021: 3.5p)
(for the six months to 30 June 2022)
· Ordinary Share Price Total Return since IPO: +86.9%
(IPO to 31 December 2021: +51.5%)
(for the period from IPO to 30 June 2022)
· NAV per Ordinary Share Total Return : +27.2%
(six months to 30 June 2021: +10.0%)
(total return for the six months to 30 June 2022)
· Operational portfolio reached 500MW (425MW as of 31 December 2021)
(as of 31 August 2022)
Performance Highlights
Net Asset Value (NAV) as of 30 June 2022 rose to £785.4mn or 145.11p per
share (vs. 116.86p as at 31 December 2021 and 109.89p as at 30 June 2021).
Full Operational Dividend Cover(1) of 3.5 pence dividend was achieved in H1
2022. This is equivalent to a 4.5% annualised dividend yield based on the
closing share price on 30 June 2022.
The Board reaffirms a target dividend of 7.0p for 2022 and expects full
Operational Dividend Cover for the full year. The Company will balance future
dividend target levels with increases in Operational Dividend Cover.
A new Prospectus was published in May 2022 with an initial equity raise of
£150mn which was oversubscribed. The share capital raised, combined with the
debt facilities both available and anticipated in the form of the accordion,
will allow the Company to execute on the deployment of most of its pipeline of
Battery Energy Storage Systems, (BESS) which is expected to see total
operating capacity reach 1,597MW.
A first drawdown of £10mn was made from the £180mn total debt facility 4
(#_ftn4) in May 2022, as deployment into BESS under construction progressed in
the period. The Company expects to fully utilise the existing £150mn capex
facility by Q1 2023 and has begun looking at extending the facility in the
second half of 2022 through the uncommitted accordion already in place.
Operational Highlights
The underlying investment portfolio generated revenues 5 (#_ftn5) of £30.1mn
(June 2021: £24.9mn) and EBITDA of £22.7mn (June 2021: £22.4mn).
While Operational Capacity remained unchanged at 425MW in the six months ended
30 June 2022, the Company is pleased to report that as of 31 August 2022 two
additional projects have been commissioned: the 35MW project at Arbroath and
the 40MW Stairfoot project.
As flagged in the full year results, assets under construction have continued
to experience delays with equipment deliveries and grid connections being
experienced industry-wide. The future projections of the pipeline later in
this report include these impacts.
The Company also expects the commissioning of the 50MW Enderby project and the
40MW Coupar Angus project in the coming days which will increase Operational
Capacity further. In addition, further capacity currently under construction
is expected to become fully operational in the coming months. Total
Operational Capacity is expected to reach 690MW by the end of 2022.
During the first half of 2022 four out of five, or 85MW out of 120MW, of the
projects contracted in Enhanced Frequency Response (EFR) reached the end of
their 4-year contracts. These projects have subsequently entered Dynamic
frequency response services, resulting in a like for like increase in
revenues. The remaining 35MW project saw its EFR contract end in July 2022 and
was also successfully submitted into the newer services.
Work has begun to increase the duration of each of the EFR projects, most to
two hours, with construction completion planned for between Q4 2022 and Q1
2023, as detailed in the Investment Manager's report.
2. CHAIR'S STATEMENT
On behalf of the Board, I am pleased to present the Interim Report and
Accounts of Gresham House Energy Storage Fund plc (the "Fund" or the
"Company") for the six-month period ending 30 June 2022.
Summary
The Board is delighted that the Fund continues to thrive and scale up.
Strong share price performance has been underpinned by significant uplifts in
the Fund's NAV per share which have largely been driven by upward revaluations
of projects as they go from being fair valued at cost to a fair value using a
net present value basis in accordance with the Company's valuation policy.
These valuation uplifts reflect the attractive underlying internal rates of
return (IRRs) of our projects at the time they are acquired. We look forward
to this theme continuing to drive value as the current pipeline is built out
over the coming quarters.
Following shareholder approval of changes to the Company's Investment Policy,
the Company is now permitted to invest up to 30% of its gross assets
internationally. This important change allows the Manager to pursue
opportunities beyond British shores as the BESS market opportunity expands
globally with energy security high on the agenda. Exciting as it is, this
expansion will be approached in measured steps, to ensure that the risks of
different geographies are well understood. The other changes to the Investment
Policy approved by our shareholders will provide the Manager with welcome
flexibility and ability to operate and execute transactions in a more
streamlined and efficient manner.
The Fund's projects also continue to generate above budget cash returns as
market fundamentals remain healthy. The key factor driving the revenue
generation potential of batteries continues to be the rising penetration of
renewables, combined with the falling contribution from gas-fired and
coal-fired generation. In this vein, it has been positive to see renewables
reach a new record share of electricity generation in the UK in Q1 2022 of
45.5%. The new UK Government is expected to continue to support renewables
and decarbonisation in order to reduce reliance on fossil fuels and accelerate
the UK's strategic agenda towards energy self-sufficiency.
Meanwhile a record 11GW of renewable capacity has been contracted in the
fourth Contracts for Difference (CfD) subsidy regime's Allocation Round (known
as AR4). 7.6GW of this capacity will be offshore and remote island wind which
was contracted at a new record low price of £37/MWh (in 2012 real prices).
This, along with other capacity already contracted in AR3, could take UK
renewable penetration above two-thirds within the next five years, which might
drive significant increases in required BESS capacity.
Whilst market fundamentals remain healthy, the markets are clearly becoming
more volatile as inflation grips economies, as interest rates rise and as the
geopolitical backdrop turns more unstable. In addition, supply chain
challenges remain following two years of COVID-19 related lockdowns and other
restrictions, including increased transport costs. The Manager is working hard
to build resilience against future disruptions by taking advantage of our
scale and expertise and by extracting maximum value from our operational
portfolio and construction activities.
It is clear that Energy Storage is a business strongly driven by the use of
data. The Manager's team continues to build on its digital platform, first
mentioned at our Capital Markets Day in May 2022, to take advantage of this by
combining the huge amounts of market, commercial, technical and other
information to which it has access to optimise project designs and revenue
generating operations. We look forward to sharing more on this topic shortly.
Last but not least, the Manager continues to progress its ESG (environmental,
social and governance) considerations. The Company is committed to reporting
against Diversity & Inclusion (D&I) standards and Task Force on
Climate-related Financial Disclosures (TCFD) at the next annual report, as
well as progressing internally motivated initiatives, with a current focus on
a battery supply chain audit and the long-term recycling of batteries.
Fund performance update
The NAV rose significantly in the six months to 30 June 2022 to £785.4mn up
from £511.7mn at 31 December 2021. NAV per share increased by 24% to 145.11p,
driven mostly by gains from the revaluation of projects previously held at
cost now being valued based on the Net Present Value of future cashflows in
accordance with the Company's Valuation Policy. This valuation uplift
primarily reflects the attractive IRR of projects relative to the Company's
weighted average discount rate as well as the benefit of funding incremental
projects with debt financing.
The Fund has continued the strong financial performance of 2021 into the first
six months of 2022, achieving Operational Dividend Cover 6 (#_ftn6) of 1.18x
(FY 2021: 1.32x). This has been achieved despite an increase in gross
dividends paid (due to the increased share count following the Company's
equity issuance in May 2022) and while not yet benefitting from operational
earnings from the projects that this equity capital has funded. The latter is
set to change with operational capacity of the underlying portfolio increasing
by 75 MW to 500MW since the period end, as of 31 August 2022. Further
capacity of 240MW is expected to be added in the remainder of 2022, bringing
the anticipated operational capacity of the portfolio to 690MW by the end of
2022.
Performance has been underpinned by high prices earned from frequency response
services, and from Dynamic Containment (DC) in particular. The volume procured
by National Grid ESO has exceeded their forecast levels at the start of 2022,
while delays in commissioning new BESS projects in general has resulted in a
tight supply and thus high prices. We do expect the frequency response market
to become saturated across all contract periods (each 4 hours long) on most
days in H2 2022 as our own and other capacity edges the market into oversupply
for this service, as the Manager has long expected and predicted.
Commissioning of our pipeline projects, combined with battery duration
extensions at the projects that were previously in EFR contracts, is
increasing the revenue-generating potential of the portfolio over the second
half of 2022. This is expected to offset expected declines in frequency
response service market revenues. Importantly, the Manager is confident that
the portfolio will earn revenues at or above the level assumed in our
valuation models which underpins the Company's NAV.
Fund strategy and market positioning
In Q2 2022 the Company received shareholder approval for amendments to its
Investment Policy. The purpose of these amendments is to carefully position
the Company to capture the growth emerging in Overseas Jurisdictions 7
(#_ftn7) and to drive incremental value for shareholders, by seeking
permission to:
· Invest in Ready-to-Build Projects (up to 10% of GAV 8 (#_ftn8) )
· Invest in BESS projects in Overseas Jurisdictions (up to 30% of GAV)
with or without co-location arrangements 9 (#_ftn9)
· Acquire land in connection with BESS projects in the portfolio, and
· Combine equipment and construction loan buckets into one (combined
limit up to 25% of GAV)
The Investment Policy changes will allow the Manager to deploy incremental
capital into exciting opportunities in new markets, diversifying revenues and
risks whilst maintaining the same focus on the fundamental wholesale market
dynamics enjoyed by our BESS projects in the UK. The ability to buy land gives
the Manager the opportunity to improve long-term project returns, while the
other changes above give the Manager a greater degree of flexibility to
execute projects as efficiently as possible.
Capital Markets Day
On 4 May 2022, the Manager hosted its inaugural Capital Markets Day. Over 200
participants registered for the event, which was hosted online and recorded.
We appreciate the support of our growing investor base and deepening analyst
interest as we continue to provide insights into the Company's business model
and how the Company creates shareholder value.
Fundraising
The Company issued a Prospectus in May 2022 for the issue of up to 400 million
new shares. Following the publication of the Prospectus, the Company raised
£150mn through the issue of 103 million shares at a valuation of 145p per
share.
The Board and Manager were encouraged by the strong uptake of the Company's
shares with demand significantly exceeding the share issuance, and we are
thankful to our shareholders for their support of the share offer.
Share price performance
During a turbulent time for the UK and global economy, it has been gratifying
to see the continuing appreciation in the Company's share price, in particular
the continuing premium to NAV per share. We would like to think this might be
in part because of our operational track record, the Manager's prudent
management of capital and acquisition strategy and the sector's return
characteristics which are uncorrelated to broader markets.
The Share Price Total Return since IPO reached 86.9% through to 30 June 2022
(FY 2021: 51.5%) and 23.3% for the six months to 30 June 2022. By contrast,
the FTSE all share index Total Return was -4.6% for the six months to 30 June
2022.
ESG - Sustainability
The Manager is working hard on its commitments to integrate sustainability
metrics into its project evaluation and operations. The Manager has committed
to seven core areas of focus which are highlighted in the Sustainability
Report on page 15.
It is worth drawing out the highlights:
- a commitment to comply with all applicable standards starting with
Task Force on Climate-Related Financial Disclosures (TCFD) (which include
emissions) and Diversity, Equity & Inclusion disclosures in the next
Annual Report and compliance with SDR (and potentially SFDR, the EU
equivalent) once the UK standards have been finalised
- a commitment to proactivity and integrating guidance and feedback
from our investors
- completion of a third-party supply chain audit of the battery market
- commitment to developing a working policy on battery recycling
The Board is clear on the importance of aligning the ESG activities and
measures with the Company's purpose, and that is an active area of discussion
between the Board and the Manager.
Outlook
The outlook for the Company remains exciting and the Manager remains focused
on future growth opportunities. International markets are starting to open up
for BESS investment, with regulatory changes and growing renewable penetration
echoing the development seen in the UK, and the Fund is ready to take
advantage of this opportunity. However, over the next two years, the Manager
will primarily deliver against its UK and Ireland pipeline. Despite some
delays, our ambitions are broadly on track. In summary, the Manager fully
expects to continue to build on the pipeline, both domestically and abroad.
Our scale remains a competitive advantage that we continue to exploit. It
allows the Manager to continue investing in its team, to extract synergies and
to capture the interest and attention of even the largest battery and other
critical equipment suppliers. That in turn allows the Manager to secure timely
supplies, even in the current tight market for batteries.
Staying focused on near term delivery goals, the Company looks forward to the
commissioning of the next suite of investment projects and markedly increasing
the revenue generating potential of this portfolio as the MWs and MWh scale
up.
Even in the face of the impact of the geopolitical tensions impacting the
global energy markets, the Company remains in a strategic sweet spot of
opportunity.
John S. Leggate CBE, FREng
Chair
Date: 26 September 2022
3. INVESTMENT MANAGER'S REPORT
Gresham House Asset Management Limited (GHAM) is wholly owned by Gresham House
plc (GH), an AIM-quoted specialist alternative asset manager with a market
capitalisation of £302mn as at 30 June 2022. Gresham House provides funds,
direct investments and tailored investment solutions, including co-investment,
across a range of highly differentiated alternative strategies. GHAM's
expertise includes strategic public equity, private equity, forestry, housing,
new energy and infrastructure.
Portfolio and pipeline overview
In the first six months of 2022 the Company grew its overall portfolio through
the acquisition of the project rights relating to Elland (50MW), York (50MW)
and West Bradford (87MW) taking the total portfolio capacity to over 1GW as of
June 2022 (December 2021: 850MW).
The average battery duration has also increased. New projects will be built
with at least 1.5 hour batteries, and in addition, duration extensions are
underway for 120MW of assets previously contracted in EFR, which will take the
duration for most of those projects to c.2 hours.
The operational capacity of the Company's investment portfolio remained at
425MW across 17 projects as of 30 June 2022 (31 December 2021: 17 projects and
425MW), although it increased to 500MW as of 31 August 2022 with the
energisation of Arbroath and Stairfoot. Coupar Angus (40MW) and Enderby (50MW)
are expected to be energised in the coming days taking total operational
capacity to 590MW. Delays in both equipment availability and connection dates
have caused a number of delays to commissioning dates meaning several projects
which were originally planned for H1 2022 are now expected in H2 2022.
By the end of 2022, the Company is expected to have 690MW of operational
capacity as West Didsbury (50MW), and Penwortham (50MW) commission, resulting
in a 62% increase in operational capacity from the half-year stage.
Planning and EPC agreements for the project extensions on the assets
previously contracted in EFR (Glassenbury, Cleator, Tynemouth, Port of Tyne
and Nevendon) have progressed well and planned outages are expected around the
end of the year. Batteries for these project extensions are also ordered.
Large total battery orders from the Fund in the last 12 months have resulted
in favourable pricing from our suppliers considering the underlying increase
in raw material costs. This is a good example of how the Fund is able to
benefit from its scale.
In addition to the portfolio and pipeline shown in tables 1 and 2 below, there
is a large yet-to-be-announced pipeline of projects at various stages of
negotiations and/or development both in the UK and overseas. Further updates
on this incremental pipeline will be announced in due course.
As at 30 June 2022, the valuation of the portfolio was £565mn (FY 2021:
£389mn, HY 2021: £323mn), a 45% increase since the beginning of the year.
The valuation primarily reflects 425MW in operational projects (FY21: 425MW),
487MW of assets in-construction (FY21: 150MW) and cash in hand. The assets
in-construction are expected to commission within nine months of 30 June
2022. The MW capacity of projects valued above cost has increased by 337MW
in the last six months, made up of the three acquired projects in the period
(Elland, York and West Bradford totalling 187MW), plus Grendon 1 (50MW) and
Melksham (100MW).
Table 1. Company portfolio
Map Ref. Asset Name Location Capacity (MW) Battery size (MWh) Battery duration (hrs) Site type* Operational Status on 30 June 2022 Ownership %
1 Staunch Staffordshire 20 2.9 0.20 Battery and generators, 0.5MW import Operational 100%
2 Rufford Nottinghamshire 7 9.5 1.35 Battery and generators, symmetrical Operational 100%
3 Lockleaze Bristol 15 22.1 1.45 Battery, symmetrical Operational 100%
4 Littlebrook Kent 8 6.3 0.80 Battery, symmetrical Operational 100%
5 Roundponds Wiltshire 20 25.8 1.30 Battery and generators, 16MW import Operational 100%
6 Wolves West Midlands 5 7.8 1.55 Battery, symmetrical Operational 100%
7 Glassenbury Kent 40 28.2* 0.70 Battery, symmetrical Operational 100%
8 Cleator Cumbria 10 7.1* 0.70 Battery, symmetrical Operational 100%
9 Red Scar Lancashire 49 74.3 1.50 Battery, symmetrical Operational 100%
10 Bloxwich West Midlands 41 46.6 1.15 Battery, symmetrical Operational 100%
11 Thurcroft South Yorkshire 50 75.0 1.50 Battery, symmetrical Operational 100%
12 Wickham Suffolk 50 74.0 1.50 Battery, 40MW import Operational 100%
13 Tynemouth Tyne and Wear 25 17.4* 0.70 Battery, symmetrical Operational 100%
14 Glassenbury Ext. Kent 10 10.1 1.00 Battery, symmetrical Operational 100%
15 Nevendon Basildon 10* 7.1* 0.70 Battery, symmetrical Operational 100%
16 Port of Tyne Tyne and Wear 35 28.0* 0.80 Battery, symmetrical Operational 100%
17 Byers Brae West Lothian 30 30.5 1.00 Battery, symmetrical Operational 100%
Total operational 425 473 1.14
18 Enderby Leicester 50 50.0 1.00 Battery, symmetrical Target COD: Q3 2022 100%
19 West Didsbury Manchester 50 50.0 1.00 Battery, symmetrical Target COD: Q4 2022 100%
20 Melksham Wiltshire 100 100.0 1.00 Battery, symmetrical Target COD: Q1 2023 100%
21 Coupar Angus Scotland 40 40.0 1.00 Battery, symmetrical Target COD: Q3 2022 100%**
22 Arbroath Scotland 35 35.0 1.00 Battery, symmetrical Target COD: Q3 2022 100%**
23 Penwortham Preston 50 50.0 1.00 Battery, symmetrical Target COD: Q4 2022 100%
24 Grendon*** Northampton 100 200.0 2.00 Battery, symmetrical Target COD: Q1 2023*** 100%
25 York York 50 75.0 1.50 Battery, symmetrical Target COD: Q1 2023 100%
26 Bradford West West Yorkshire 87 174.0 2.00 Battery, symmetrical Target COD: Q1 2023 100%
27 Elland West Yorkshire 50 100.0 2.00 Battery, symmetrical Target COD: Q1 2023 100%
28 Stairfoot North Yorkshire 40 40 1.00 Battery, symmetrical Target COD: Q3 2022 100%**
Total portfolio owned by the Company 1,077 1,387 1.29
* Current size prior to increases expected from the planned upgrades
** Acquired subject to satisfaction of conditions
*** The commissioning date reflects the 50MW Grendon 1 project, a further 50MW
known as Grendon 2 is expected to begin construction shortly with a
commissioning date in H2 2023. Only 50MW for Grendon 1 is included in
valuations at this stage.
Table 2. Pipeline summary
Map Ref. Asset Name Location Capacity (MW) Battery size (MWh) Duration (hrs) Site type Commissioning/ Completion status Ownership %
29 Elland 2 West Yorkshire 100 200.0 2.00 Battery, symmetrical Target COD: Q3 2023 100%
30 Monet's Garden North Yorkshire 50 50.0 1.00 Battery, symmetrical Target COD: Q4 2023 100%
31 Lister Drive Merseyside 50 50.0 1.00 Battery, symmetrical Target COD: Q4 2023 100%
32 Bradford West 2 West Yorkshire 100 200.0 2.00 Battery, symmetrical Target COD: H2 2023 100%
33 Monvalet Rep. of Ireland 180 180.0 1.00 Battery, symmetrical Target COD: H1 2024 100%
34 Shilton Lane Scotland 40 40.0 1.00 Battery, symmetrical Target COD: H1 2024 100%
Total pipeline not owned by the Company 520 720 1.38
Total portfolio and pipeline: 1,597 2,107 1.32
Fund performance
The first half of 2022 has been another exceptional period for the Company's
investments as they continued to benefit from high pricing in Frequency
Response services driven by National Grid's demand for these services
continuing to exceed the supply (in MW) of BESS capacity.
This has enabled the portfolio to achieve record cash generation and
Operational Dividend Cover of 1.18x 10 (#_ftn10) .
In May 2022, the Company raised £150mn in equity to fund new projects moving
into construction. The placing was significantly oversubscribed but the
Company exercised capital discipline by not accepting more funds than
currently required. This placing, together with the available debt facility
(£180mn plus up to £200mn in an uncommitted accordion facility), will now
provide the capital for the majority of the existing pipeline shown in Table 2
above.
The Company's share price has continued to outperform equity markets with the
Share Price Total Return for the six months to 30 June 2022 reaching 23.3%
compared with -4.6% for the FTSE All Share Index, supported by the historic
and anticipated NAV growth as pipeline sites are acquired and commissioned.
NAV per share growth in the first half of 2022 was 24.2% to 145.11p (FY 2021:
116.86p) and was itself largely driven by the revaluation of in-construction
assets previously held at cost, as well as strong cash generation from
operational assets. We continue to focus on accretive acquisitions with
returns above the weighted average discount rate to drive future shareholder
value creation via NAV Total Return.
With the growth in NAV, AIFM fees are reducing as a percentage of NAV due to
the tiered fee structure (fees on incremental NAVare lower above certain
thresholds) helping to keep costs down. Annualised ongoing charges in the
period were 1.16% based on the weighted average NAV for the six months to 30
June 2022 (FY 2021: 1.23%, FY 2020: 1.26%), which is among the lowest compared
to other listed funds in the market.
Portfolio performance
The portfolio continued to deliver exceptional returns in H1 2022, following a
strong year in 2021. Revenue from underlying assets for the period was
£30.1mn, up 20.6% on H1 2021 (£24.9mn) and up 13.6% versus H2 2021
(£26.5mn). EBITDA from underlying assets was £22.7mn (H1 2021: £22.4mn, FY
2021: £42.5mn)
Revenues have remained high on the back of high Frequency Response service
pricing due to the continued undersupply of MW capacity delivering Dynamic
Containment (DC) during the period, compared with the amount procured by
National Grid ESO. We expect Frequency Response pricing to begin to drop in
the second half of the year as additional BESS capacity becomes operational -
see the Market update section for further details.
Frequency Response services
In total, Frequency Response (FFR, EFR, DC, DM and DR) made up 88.6% of total
revenues with DC contributing over half of the revenues at 52.8% of total
revenues (2021: 59.6%).
The contribution from EFR fell during the period due to assets coming to the
end of their contracts, with only Port of Tyne remaining in EFR at the period
end and this contract came to an end in July. Each of the former EFR assets
(Glassenbury, Cleator, Tynemouth, Nevendon and Port of Tyne) have now moved
into the available services with DC and Firm Frequency Response (FFR) being
the focus, delivering an uplift in revenue per MW for the portfolio. These
assets will undergo a duration extension to allow them to be better equipped
for the trading environment that the sector is moving towards.
Due to the growth in UK BESS capacity and limited overall Frequency Response
requirement from National Grid, we had expected that the market would reach
oversupply during the first half of 2022. However, delays to construction
across the sector and higher demand than forecast have meant this anticipated
saturation has not yet occurred but is naturally expected to happen soon as
projects do commission.
The Manager has also made the most of relative opportunities in FFR and DC
(the two largest end market in Frequency Response), maintaining a greater
exposure to FFR in H1 2022 (26.2% of revenues) than in H1 2021 (3.9%), as it
has offered better returns.
The higher procurement by National Grid ESO of DC, in particular over the
spring/summer versus their own forecasts has meant saturation has been delayed
and pricing has therefore remained high during the period. The Manager is
particularly pleased to have been able to maximise upside by being in the DC
service at times of peak pricing only and generating better revenues in FFR
and trading the remainder of the time.
Also supporting strong DC revenues at peak times was a further change in
National Grid ESO's pricing and procurement methodology for DC in April 2022
(following the change to 4-hourly contracts in Q4 2021) in allowing for higher
price caps in DC (previously limited at £17/MWh) which then led to increased
pricing volatility and higher peak prices.
This higher pricing manifested most impressively in June 2022 when National
Grid ESO required significantly higher volume than planned, translating into
over £7mn of revenues for the month for the underlying portfolio, as shown in
the chart on page 8. High prices have continued through July and into August;
however, we are now seeing more periods of low DC prices. Based on current
project commissioning timelines we are anticipating significantly higher
operational capacity by the end of the year which will drive more market
saturation and our transition to trading as this begins to offer better
returns.
Capacity Market (CM) contracts
As announced on 28 February 2022, the portfolio secured a significant volume
of record high-priced CM contracts in the auction held in February 2022.
Initial expectations for these contracts were for them to add over £108mn of
revenue over the life of the assets. As these contracts are CPI linked for 15
years, this amount is now likely to be much higher given recent inflation
figures. The first of these contracts to start will be 112MW of 1-year
contracts starting October 2022 which cleared at £75,000 per MW, driving a
further source of additional revenues in H2 2022.
Cost focus
In addition to maximising revenues, we have been focused on cost savings
throughout the construction and operational phases of these assets. The size
of the Gresham House team has grown significantly over the past 12 months as
we look to bring more resource for key functions from transaction execution,
asset management, operations and maintenance and project delivery in
particular.
The limited pool of insurers to date has meant insurance for projects remains
relatively expensive across the sector. To combat this, we have been
implementing additional safety measures across our sites where possible and
are working with insurers to cover off areas of perceived risk. The work is
also feeding into site design for new assets to ensure reduced risk and lower
insurance premiums. We are hopeful of reducing rates as the latest safety
measures can be demonstrated to reduce risk to insurers.
Market update
The following section provides insights from the Manager on the recent
performance and outlook for the end markets the Fund participates in, rather
than a report on its own performance.
i) Frequency Response services
Frequency Response has been dominated by Dynamic Containment since its launch
in October 2020; however, additional services have been launched during 2022
completing the suite of services known as Dynamic Frequency Response services
first anticipated in National Grid ESO SNAPS
(https://www.nationalgrideso.com/document/84261/download) plans established in
2017.
These services consist of Dynamic Containment (DC), Dynamic Moderation (DM)
and Dynamic Regulation (DR), each of which provides a different power response
for a given frequency deviation - see the RH chart. Each of these services is
now procured separately for Low (export) and High (import) - each type of
service is therefore further denoted by an L or H respectively after the
service name.
DCL was the first to launch in October 2020 with DCH arriving in November
2021, DRH and DRL began in April 2022 with DMH and DML completing the set in
May 2022. It is expected that Firm Frequency Response (FFR) will eventually be
phased out, most likely in early 2023.
Each of the new services has different operating parameters resulting in a
different level of battery cycling. DC is the least onerous and DR the most.
Longer duration batteries benefit further as they are less stressed in this
service. DR actually has a longer duration design requirement due to the high
level of cycling required of the batteries and as such is not feasible for
<1 hour BESS. Due to the relatively low volume requirement from National
Grid ESO for DM and DR to date (each c.10% of DC) DC has remained the primary
service of interest.
Demand has been greatest in DCL. The higher requirement for the Low service
reflects the fact that the primary need from National Grid ESO is on the
export side i.e. for protection from "loss of load" such as the unplanned
outage of a generator at which time the frequency collapses if not mitigated.
The DCL service has evolved in three key phases since launch in October 2020
(as depicted in the charts below). The first of these represented the initial
design of the service, procured in 24 hour blocks day ahead with a price cap
of c.£17/MWh and flat volume requirement of 1,100MW each day. During this
time, the market participants all enjoyed consistent revenues at £17/MWh due
to the market being undersaturated.
Phase 2 began in November 2021 when procurement was changed to 4-hourly blocks
(EFA blocks) on a day ahead basis. Along with this came varied intraday volume
requirements by EFA blocks. This drove greater volatility in DC revenues with
volume requirements generally falling in many EFA blocks leaving some periods
saturated, even clearing at £0/MWh in some instances where no volume was
required. This also brought greater upside with price caps in some periods
moving up to £48/MWh. These changes generally resulted in marginally lower
average pricing than in Phase 1 but if combined successfully with FFR, it
could lead to an increase in revenues overall as we proved in February 2022
when the portfolio had a new record month.
Phase 3 began in April 2022 when National Grid ESO announced procurement of
MWs against a continually changing "buy curve", driven by volume requirements
from National Grid ESO's modelling. The result of this was to add volatility
of price caps (now changing dependent on volume available) alongside the
previously added procurement volume volatility. This period saw National Grid
ESO's DCL volume requirements begin to increase as the UK headed towards
spring and summer and, with it, higher solar renewable generation. Higher
solar generation results in less gas generation which makes frequency prone to
dropping more quickly if a power station comes offline unexpectedly, hence
requiring more batteries to respond.
The net result of all the above is a much more merchant Frequency Response
market. Prices have been able to reach >£100/MWh during this phase, and on
occasion have also fallen as low as £0.5/MWh. The increased volatility can be
seen by the frequency and magnitude of the spikes occurring from April 2022 in
the charts. Through the six months to June 2022, overall National Grid ESO has
procured higher volumes in DC than forecast at the start of the year, and this
allowed pricing to remain extremely high on most days as the service remained
undersaturated for longer despite a growing number of MWs competing for the
service.
The Manager analyses "headroom", the difference between maximum volume
required versus volume actually procured, as the best indicator for how close
to saturation the market is. This data is from National Grid ESO. In June
2022, headroom was 122MW in DCL with EFA 5 highest at 254MW. This has fallen
in July 2022 to 72MW on average, with EFA 5 highest at 138MW of headroom.
As more BESS projects commission across the industry, the headroom will
continue to shrink until it is disappears and the market is oversubscribed the
majority of the time. The Fund's own pipeline is likely to cause this market
to become oversubscribed in 2022 given the volumes set to commission.
Once the DC market is saturated, contract prices will be influenced by the
next best revenue opportunity which is likely to be trading i.e. batteries
will step away from offering DC and just trade once pricing falls.
This will support DC prices as supply comes out but alternative revenues from
trading will primarily vary with battery duration. Longer duration assets can
generate much greater revenues from trading. For example, a half hour battery
looking to trade may need to position itself at half its MW-capacity to
emulate a 1-hour battery, to overcome potential overheating when operating as
a 30 minute battery, limiting its trading revenues materially.
As we get closer to the point of saturation in Frequency Response markets, we
will begin to see greater emphasis on trading either through setting of
Frequency Response prices or by moving to trading in the wholesale market and
Balancing Market (BM) instead. This is why understanding, and being ready for
trading, is key to any investment.
ii) Trading/Merchant markets
Despite the limited exposure to trading from the portfolio in the period, due
to the focus being on high Frequency Response, there have been continuing
developments which have contributed to a strengthening trading environment for
BESS.
Gas prices reached record levels in December 2021, on the back of high demand,
low storage levels and fears around disruptions of Russian gas supplies before
Russia invaded Ukraine in February 2022. After the invasion gas prices rose
further reaching a record high.
Gas prices have remained high and are having a direct impact on electricity
prices and volatility, with the price of gas generation often setting the
electricity price - a topic capturing the public's and politicians' attention
due to high cost of electricity, as the uncertainty of gas supply across
Europe remains.
In the longer term we expect for this to return to more 'normal' levels as
higher levels of renewables and alternative supplies bring supply and demand
back into balance at lower price levels, but in the short term we may
experience more extreme pricing, particularly over the winter during higher
demand periods.
This, in part, has led the UK Government to launch the Review of Electricity
Market Arrangements (REMA) looking to reduce the cost of electricity to
consumers, with further information provided later in this report. The wider
political response to the rising gas costs has been to focus efforts on the
rollout of renewable energy which supports the case for increased demand for
BESS.
However, while BESS is a much cheaper alternative power to fossil fuel
generation in providing flexibility to manage intermittency, there is simply
insufficient BESS capacity to manage current levels of renewable generation
and so to meaningfully reduce our reliance on gas. It is therefore likely
that, no matter where gas prices head, volatility from renewable generation
will continue.
Availability of Russian gas across Europe has driven concerns over energy
security, particularly looking forward to the winter. To make matters worse,
France has an increasingly unreliable Nuclear fleet. Given the reliance on
Nuclear in France the loss of generation has led to the need to import power
from other countries. This resulted in April 2022 being the first month of net
export through interconnectors in Great Britain (GB) since 2017. Average
interconnector imports in GB were 2.9GW in February 2022 and have since fallen
to 2.5GW export in June 2022 effectively creating a c.5GW additional demand
requirement to be covered by National Grid ESO.
The combination of high gas prices with increased demand has led to high peak
energy prices, whilst high renewable output through the summer has also
created negative prices at times, resulting in much greater daily energy price
spreads than typically seen during a summer.
The system price chart demonstrates the growing spread between low and high
prices with the current spreads in July and August 2022 significantly above
previous norms for that time of year and more aligned with the high winter
volatility we have seen in the last two winters.
All taken together this presents a favourable trading environment for BESS
assets. As system demand increases, and as we head closer to winter, the
current market drivers of gas prices and interconnector exports are likely to
open up the potential for extreme pricing on particularly high demand days.
With prices for Frequency Response services (ignoring any uplift from trading
opportunity) expected to begin falling, trading is likely to become the main
area of focus for the portfolio.
iii) International markets
Consistent with the investment methodology used for UK and Ireland assets, the
core focus for international investments will be on the evaluation of each
market's underlying wholesale market dynamics. We will also be looking for
markets with high renewable penetration and/or growth with present or expected
wholesale volatility which offers returns in line with stated ranges. Any
ancillary services, subsidies or 'locational' opportunities at different
locations within any given market will be treated as an additional but
short-term benefit, aligning how we think about investments abroad with how we
think about them in the UK.
Our team are working hard to evaluate new opportunities overseas and review
the available markets to focus on the right areas for investment. There are a
number of deals in progress already and we hope to notify shareholders in due
course of additional pipeline sites to be added. The scale of opportunity
overseas is significantly bigger than the UK market and whilst we remain
committed to investment in the UK, and indeed have a considerable pipeline of
assets in the UK already, now is the right time to be looking for
opportunities to enter international markets, relatively early, in the same
way we did in the UK.
Construction update
The Manager has experienced challenges energising new BESS projects, in common
with other BESS players. A summary of the most significant issues and their
current status is shown below:
i) High overall demand for renewables and BESS: Impact is
ongoing
There continues to be huge demand for new projects as a function of the
investment appetite of both institutional investors and major corporations
(such as the oil majors who are increasingly involved). In the context of
BESS, this is creating tight supply chains for inverters, lithium-ion
batteries and other electrical components as well as longer lead times. This
means contractors are worried about potential higher prices during
construction and are increasing their "risk" margins (essentially charging a
higher profit margin to protect against unexpected cost increases). Our key
mitigation is scale which ensures we have access to equipment and a stronger
negotiating position than our competitors which allows us to manage price
increases. We are also increasingly procuring components directly, which
reduces the impact of "margins being charged on margins" by contractors.
ii) General inflation and weakening sterling: Impact is
ongoing
Higher general inflation and a weak pound is leading to higher labour costs
and costs of components sourced abroad. This is also driving higher 'risk'
margins from suppliers. Here, our mitigation is to increasingly source works
on an EPCm basis to split out costs in controllable and transparent work
packages and proactively manage each of these to minimise risks.
iii) Commodity prices: Negative impact turning positive
While we have yet to see significant benefits from this, various commodities
and other costs have fallen sharply in recent months. This includes prices for
iron-based products, concrete and copper as well as shipping costs.
Debottlenecking of ports, all time high investment in new containers and other
shipping and a sharp slowdown in China's housing market are likely to be among
the drivers.
iv) Grid connection challenges: Impact is ongoing
The large number of new grid connections is creating challenges for the grid
companies which feeds into our portfolio projects. Capacity is now tight and
therefore new capacity has to wait for reinforcements elsewhere in the
network. This does not affect projects already in construction as the ability
of a new project to connect is studied carefully before a grid connection
offer is made.
The challenge for projects in construction is more practically linked to a
lack of adequately experienced engineers at the Distribution Network Operators
(DNOs) and in all likelihood impacting National Grid as well. Mitigation
here is challenging: engaging positively with the counterparty on the one hand
or making complaints (including to Ofgem) are limited remedies for late
construction programmes. Further, regulations do not help much: DNOs and
National Grid have next to no liability for delays to connections and have a
huge amount of time to turn around grid connection offers (pre-construction)
or design submissions (during construction). This, combined with the
intrinsically intricate nature of the work, the need for safety and a
workforce which has retired many of their best staffers and recruited too few
over the COVID-19 lockdowns is leaving the industry in a challenging position.
Fortunately, some pragmatism is rising to the surface unlocking some delays.
We are factoring in these delays, which are affecting all participants in the
market, into new construction programmes and are hopeful that further
significant delays at most projects can be avoided.
The Manager does have two key mitigants but as these are commercially
sensitive, they cannot be disclosed here.
Valuations and NAV
NAV per share 11 (#_ftn11) has risen from 116.86p on 31 December 2021 to
145.11p on 30 June 2022. This equates to a NAV Total Return of 27.2% over the
last six month interim period.
The largest contribution to NAV growth came from the revaluation of projects
previously held at cost, representing £61.2mn (FY 2021: £38.0mn) or 12.12p
per share gain. The portfolio valued on a Discounted Cash Flow (DCF) basis
consists of 425MW of operational projects as per Table 1 on page 6 and 487MW
of in-construction assets. 115MW of projects are held at cost, these projects
are under construction with Share Purchase Agreements signed but with
completion subject to Provisional Acceptance Certificate issuance. These
projects are Coupar Angus (40MW), Arbroath (35MW) and Stairfoot (40MW) with
the latter two being operational and Coupar Angus expected to commission very
shortly.
The value of the new CM contracts awarded to the Company's projects in the
February 2022 auction has also benefited the NAV with a 6.68p per share
(£30.6mn) contribution during H1 2022. The remaining uplift from the new CM
contracts will come through the revaluation of remaining assets in H2 and once
the construction premium is removed from discount rates when assets become
operational.
Net issuance from equity raised above NAV in May 2022 contributed 2.32p per
share to NAV, whilst working capital after deduction of fund costs,
transaction costs, debt costs and dividends paid added 0.10p per share to
valuations.
Third party revenue forecasts increased substantially in the period following
relatively low forecasts at the year-end (which reflected the expectation that
DC prices would fall to very low levels). The latest curves reflect the
current market conditions of high DC prices on the back of higher volume
procurement from the ESO as well as greater trading opportunities heading into
the next winter. These therefore provide a short-term uplift in revenues
forecasted, whereas the longer term projections remain consistent with
previous quarters. The total impact of third party revenue forecast changes in
the period was £30.9mn or 6.06p per share.
There have been no changes to the discount rate methodology in the period. The
weighted average discount rate is 10.79% for the portfolio (December 2021:
10.77%). The weighted average discount rate for operational assets was 10.55%
(2021: 10.57%) whilst in-construction assets had a weighted average discount
rate of 11.00% (2021: 11.35%) having fallen due to the addition of CM revenues
to the model.
The main assumption changes for valuations came from updating the inflation
rates, with a short-term increase in inflation to 7.5% in 2022, 4.5% in 2023
and falling to 2.5% from 2025. The impact of the update was an increase in
valuations of 3.88p per share. We believe our current inflation assumptions
are conservative. We will continue to monitor developments in the UK and
potentially revisit inflation assumptions ahead of the year end. An increase
in inflation rates is expected to increase valuations further.
Valuations by asset can be found in the notes to the financial statements in
Note 9 with sensitivities performed on the discounted cash flow modelling for
the portfolio shown in Note 15.
Regulatory update
On 18 July 2022 we saw the release of two significant energy market reports,
the first being the launch of the government's Review of Electricity Market
Arrangements (REMA) and the second being National Grid's Future Energy
Scenarios (FES) Report for 2022.
REMA is a major review into the GB electricity market design with the aim to
ensure cost benefits to customers in the long term. There are several
proposals being considered in the review with the key areas of focus for BESS
being:
· Wholesale Markets: first, the introduction of Locational Marginal
Pricing (LMP) or 'Nodal' pricing; second, the potential decoupling of the cost
of electricity from fossil fuels; and third, changes to the design of the
Balancing Mechanism
· Reforms to the Capacity Market to support low-carbon, flexible
technologies which contribute to energy security
· Review of Contracts for Difference (CfD) and how to incentivise the
deployment of renewable generation
REMA is likely to take several years to be fully completed. The deadline for
consultation submissions is 10 October 2022 and we are in communication with
the relevant parties to get further clarity and feedback on the proposals
including ongoing conversations with National Grid ESO on more specific topics
coming from REMA.
Given that the build-out of cheap renewables and batteries is a key target for
the UK Government and National Grid ESO, and the acknowledgement for the need
to encourage more low carbon flexibility to cope with this, we anticipate the
net impact of changes to be neutral to positive for the BESS industry. The
move to Nodal pricing (which will in any case be at least five years) may
present opportunities for greater locational volatility and pricing
opportunities for well positioned assets and any changes to CM auctions aimed
to encourage BESS, should also be positive.
The Future Energy Scenarios (FES) report for 2022 released by National Grid
ESO, was released in tandem with the REMA report. FES 2022 aimed to provide a
roadmap for decarbonising energy usage in GB. In each scenario there is a
heavy reliance on the further rollout of renewable generation. In all
scenarios the ESO significantly increased the amount of storage they expect to
see and how early it is deployed. BESS is expected to become the largest share
of storage capacity in all scenarios by 2050. The ESO forecasts growth in BESS
requirements from 1.6GW in 2021 to 20GW in 2030 and 35GW by 2050 under their
'Leading the way' scenario. In addition to this they also note the need for
policy, regulatory and market environments to change for storage assets in
order to bring forward the levels of energy storage expected to be needed on
the system with particular consideration for developing revenue streams and
stacking of services to support business cases for storage projects.
Outlook
Through the remainder of 2022 the core focus of the Manager is to increase the
operational capacity and revenue potential of the portfolio by commissioning
projects due, with the Company targeting 690MW operational capacity in the
portfolio by the year end and over 1GW of operational capacity by the end of
H1 2023.
This growing operational portfolio should ensure greater cash generation and
support Operational Dividend Cover. We anticipate Operational Dividend Cover
to increase progressively in line with projects commissioning and expect full
Operational Dividend Cover for the year. Dividend levels will continue to be
monitored against the level of Operational Dividend Cover.
NAV growth is expected to continue through the end of the year driven largely
by revaluation of projects with Coupar Angus, Arbroath and Stairfoot in
particular set to be revalued later in the year once they are operational and
fully acquired.
As assets under construction commission, and others in the market also come
online, we expect to see the remaining headroom for DC disappear, leading to
falling Frequency Response service pricing. This should see longer duration
assets focus increasingly on the trading potential available to them. The
coming winter may see even greater volatility than in previous years, offering
significant trading upside from those assets able to trade. We look forward to
seeing our portfolio demonstrate their capabilities in this increasingly
merchant environment.
The upcoming upgrades to our previous EFR portfolio will increase the duration
of these legacy assets allowing them to trade more freely alongside the
remainder of our portfolio and ensuring they are capable of earning the
revenue opportunity expected over the short to medium term.
The GB electricity market is likely to experience large scale changes over the
medium to long term as plans from REMA begin to be put in place. Overall, we
believe the UK Government and the ESO remain supportive of BESS and we look
forward to ongoing engagement with them to ensure the full benefit of BESS can
be felt by the market and by consumers. We remain confident in the opportunity
for BESS in the UK markets and are excited by further opportunities open to
the Company overseas following the change to the investment policy during the
period.
We are seeing comparable market drivers in numerous overseas markets
presenting expectations for growing volatility in merchant markets and a solid
revenue base. We remain committed to the investment thesis of the fund and
hope to have further information on overseas projects in due course. We
continue to develop the expertise and size of the team to appropriately match
the opportunities ahead.
4. GRID 2022 Interim Report - Sustainability Report
In the 2021 Annual Report and Accounts the Sustainability Report detailed the
Company's approach to Sustainability including its focus areas. Having
reported on 2021 achievements, the report also pointed to our "Future
Objectives" which span the period 2022-2025. The aim of this Sustainability
Report is to update our shareholders on the Company's progress on these Future
Objectives, listed below as "Objectives" as follows.
1. Commitment to sustainability (Environment)
Objective
Continue to increase capacity under management to increase GRID's contribution
to the decarbonisation of the UK's electricity network and a reliable,
low-cost energy system.
Update: This is reported on extensively in this Interim Report. In alignment
with the Fund's commercial aims, the Manager remains fully focused on growing
grid-connected MW and MWh capacity to make a valuable contribution to Net Zero
and related goals.
2. Supply chain management (Social)
Objectives
a. Update the Supply Chain Policy to fully reflect best practice in the
market and the commitments of the Investment Manager.
b. Have a comprehensive supply chain monitoring and management process in
place to assess ESG risks in the supply chain and to ensure the compliance of
suppliers with the Supply Chain Policy.
c. Include sustainability criteria into supplier contract renewal and
supplier selection decisions.
d. Engage with key suppliers to enhance their sustainability processes and
reduce the Fund's ESG risk exposure.
Update: The Manager is awaiting the completion of an audit of the BESS supply
chain, from raw material production to the final product, commissioned earlier
this year which is due in Q4. This will inform the actions required for each
of the objectives listed above.
3. Marketplace responsibility: processes, policies and education
(Governance)
Objectives
a. Assess all assets against our Sustainable Infrastructure Framework
using the ESG Decision Tool and establish plans to rectify any material risks
to create and protect value for shareholders.
b. Ensure the ESG Decision Tool remains up to date to reflect any
enhancements to the sustainable investment processes and sustainability
related policies.
c. Finalise ESG KPIs to monitor and measure sustainability performance of
the Fund and report these regularly to stakeholders.
Update: These Objectives are ongoing. There is no significant change to report
on this occasion. The ESG tool continues to be a valuable tool to focus the
Manager on ESG topics.
4. Climate change and pollution (Environment)
Objectives
a. Report annual carbon footprint to stakeholders.
b. Set targets and actions to reduce operational carbon emissions.
c. Apply full TCFD guidance and report in line with recommendations.
Update: The 2022 Annual Report will report against TCFD and the Manager, Board
and our auditors are all preparing for this.
The Manager is also taking active steps to measure energy losses, through
on-site energy consumption or losses through heat as the BESS charges and
discharges. The Manager is considering alternative designs to reduce such
inefficiencies on future sites. As with Objective 1, there is complete
alignment between commercial, operational and ESG goals on the subject of
carbon emissions.
5. Governance & ethics: engaged and active ownership (Governance)
Objectives
a. Identify and work with key industry bodies to drive positive industry
outcomes linked to sustainability topics.
b. Track and report on engagement activities and key outcomes.
c. Increase community engagement, where applicable, continuing to educate
the public on the role of BESS in the UK's decarbonisation ambitions.
d. Solicit, where practical, feedback from key stakeholders who are in a
position to contribute.
Update: The Manager is working with industry bodies as well as key industry
stakeholders to communicate on various topics. At the top of the agenda at the
moment is the Reform of Electricity Market Arrangements, a consultation
launched by the Department for Business, Energy and Industrial Strategy
(BEIS). This consultation aims to address the challenges the electricity
system faces as the energy transition progresses, as well as exploring various
ways of addressing the 'cost of living crisis'. Consultation responses are due
in October and the Manager is involved in submitting a set of responses.
In the last period we have also shared a questionnaire with our largest
shareholders to identify their own priorities, so that in addition to
complying with all reporting standards, we also take on board our investors'
insights.
6. Natural capital (Environment)
Objectives
a. Measure and report on key natural capital impacts and dependencies.
b. Enhance policies and processes to reduce, restore and enhance
biodiversity and other key ecosystem services at asset sites.
Update: The Manager is monitoring developments following passing of the
Environment Act which will require all developments to create a biodiversity
'net gain' (currently expected from Q4 2022).
7. Waste management (Environment)
Objectives
a. Work with contractors to incorporate full lifecycle analysis into BESS
design to maximise asset life, reduce the overall carbon footprint of
constructing and operating projects, and consider end-of-life use to reduce
negative environmental and social impacts of battery production and the
battery components including raw materials.
b. Engage with contractors/suppliers on their end-of-life process
development and technology.
Update: The Manager is working to fully understand the responsibilities
resting with the importer of the batteries, whose obligation it is to recycle
batteries at the end of their life. Due to how the construction of the
projects has been contracted, this has generally fallen on the EPC contractor.
Nevertheless, the Manager is working to understand these obligations too, in
order to understand any indirect impacts on the Fund, as well as the
implications of being the importer going forward.
5. Principal Risks and Uncertainties
Risk management approach
The Company continues to recognise that effective risk management is critical
to enable it to meet its strategic objectives. The Company has a clear
framework for identifying and managing risk, at both an operational and
strategic level. Its risk identification and mitigation processes have been
designed to respond to the changing environment in which it operates. The
impact of emerging risks on the Company's business model are also considered
and used to make informed decisions, including as to the delivery and
evolution of the Company's strategy. The table below captures those risks
that would have the most significant adverse impact on the Company (and the
underlying investments), based on their impact and/or likelihood.
Existing risks
Risk area Gross impact Mitigation Net impact
Availability of batteries and other critical components. Inability of the Company to deploy capital raised into investments due to The Company's investments are within SPVs and these are subject to a battery This will remain an issue in the future, although the size and scale of the
incomplete or lengthening project timescales. order with a Tier 1 supplier which has been secured. Due to the size of this Company provides the ability to secure key components.
order, advantageous terms have been secured.
Residual risk: high
Price increases for components making investments less attractive
(2021 FY: N/A)
Emerging business model and impact on revenue streams sourced from National Adverse changes by National Grid in relation to services contracted by them The Company's investments enjoy several different income streams ranging from Battery energy storage is a versatile asset, and it can perform a variety of
Grid mechanisms. may reduce the size/scope of income earning opportunities to the Company's BM, Capacity Payments, FFR, TRIADs, and DC as contracted services to National roles to manage risk.
investments and potential impact on valuation. Grid; the Company's investments are able to change which income streams are
contracted and ascertain the most advantageous on any given time period: this
is continuously monitored by the Investment Manager and optimisation partners.
Residual risk: medium
There is also the potential to "revenue stack" and gain multiple revenue
HM Government Energy Strategy moves away from intermittent renewable assets streams from different services.
(2021 FY: high) which impact on future growth of the Company.
Due to the progressive decommissioning of other carbon intensive options
available to National Grid for managing these services, and the need to
support the security of this critical national infrastructure, BESS is The income stream opportunities and usage of battery energy storage systems is
expected to form an integral part of transforming the electricity sector in expected to evolve over time.
the UK.
Environmental, Social and Governance: production and recycling of batteries BESS are manufactured, installed, and operated with the intention of driving The supply for battery manufacture relies on high quality global partners who Some aspects of this are still evolving over time, especially the end
creates risk. the transformation to a low carbon energy supply in the UK. However, the ensure their supply chain does not involve the use of illegally or unethically use/recycling of BESS.
lifecycle ESG impact of the batteries needs to be considered and minimised. sourced "rare earth" materials or inadequate labour standards. This could be
mitigated by undertaking reviews of the supply chain.
Residual risk: medium The ability of the BESS market to drive a low carbon electricity system needs
to be considered versus the other, mainly fossil fuelled, options when
(2021 FY: medium) The recycling of the BESS systems is subject to constant development and considering the overall ESG impact of BESS. Work will continue to minimise
research; the importer of these batteries (not the Company or SPV companies) this over time.
is responsible for their disposal, but the Company will facilitate this to
ensure low environmental impact.
Valuation risk. The Company's investments are valued using discounted cash flows and The Company's investments are impaired if income streams are not as profitable The Company utilises a modelling methodology which ensures income streams are
assessment of future income streams: these valuations may be materially as expected or costs are higher than expected. discounted using appropriate discount rates dependent on the perceived risks.
incorrect or not held at fair value.
Residual risk: medium
Risk adjusted discount rates drive valuation along with the external pricing The weighted average discount rates are reviewed regularly and the Company
(2021 FY: medium) The impact of volatile inflation and interest rates may impact upon these curves. believes the valuations are conservative.
valuations.
A third-party valuer reviews valuations and confirms appropriateness.
Operational and performance risk in the underlying investments leading to loss The BESS investments do not perform in the manner expected (i.e. degradation The Company underwent a programme of upgrades to the seed assets to optimise The Investment Manager has substantial experience managing BESS assets and
of value. in performance) or are not optimised in the best commercial manner to capture these assets and has ensured that the new assets being invested into are works with leading asset optimisers to ensure assets are designed and operated
revenue streams leading to reduction in valuations. designed in a flexible manner. The battery duration for the new investments as expected.
is also considered to ensure fullest flexibility for future operation.
Residual risk: low
Performance within the SPVs may not meet planning or safety requirements and
Health and safety performance is rigorously tested and reviewed.
(2021 FY: low) result in curtailment of operations and loss of investment value. Design and commissioning testing takes place in each investment to ensure all
relevant planning and HSE conditions are met. Fire risk, in particular, is
carefully assessed and sites are designed and operated to ensure this risk is
as low as practicable.
The portfolio relies on contracts with suppliers to maintain certain key
equipment: these suppliers may fail to provide adequate support.
Cyber security risk is managed via secure systems used by optimisation
partners.
The portfolio has a number of alternative suppliers and optimisers to manage
risk.
Investment in development and construction projects. The Company invests in projects via loans before and after the projects are The Company does not invest in speculative project development. Any Limited exposure to the Company due to careful vetting and management of
owned by the Company. There is a risk that the project does not complete, investments in projects are carefully assessed and vetted by the Investment project development activities and commercial arrangements with the Investment
and the Company incurs financial loss. Manager: they will have secured certain minimum requirements and are expected Manager to manage construction risk.
to be ready to proceed to construction in a relatively short timescale.
Residual risk: low
(2021 FY: low) The Company invests in construction projects as part of its investment
The Company is usually investing in the advance purchase of equipment which
portfolio. There is a risk of financial loss or delay of revenue has inherent value and can be used on other projects if needed.
generation.
Late delivery of plant items may lead to delay.
Reliance on the Investment Manager. The Company relies on the Investment Manager as a key supplier. The Company has long-term contractual arrangements in place with the The Investment Manager remains incentivised to continue to grow the Company
Investment Manager, and the Investment Manager has confirmed to the Company and drive value.
that the growth of the Company is a key focus area of the Investment Manager.
Residual risk: medium
The growth in scale and associated activity supplied by the Investment Manager
(2021 FY: low) will tend to increase this risk.
Financing risk. Equity or debt financing is not available and the Company is unable to fund The Company does not enter into unfunded commitments: all committed pipeline Limited overall impact on deployment of pipeline.
its pipeline of assets. can be funded from existing equity finance or the existing debt facility.
Residual risk: low
As the Company's investments draw down more debt this risk will tend to
The Company's investments are subject to banking covenants which could be The banking covenants have been carefully modelled by the Investment Manager increase.
(2021 FY: low) breached if the Company's investments do not perform as expected. to ensure they are achievable.
As debt is drawn the Company enters into interest rate hedging instruments to
Higher interest rates will increase the Company's cost of debt. manage this risk.
Tax compliance. The Company is registered as an Investment Trust and must comply with certain The Investment Manager undertakes the relevant tests each quarter and the None.
tests. Company's tax advisers review this regularly.
Residual risk: low
(2021 FY: low)
Emerging Risks
Risk area Gross impact Mitigation Net impact
Emerging technology replaces battery energy storage assets. The Company invests in battery storage projects: a new or disruptive The Company utilises proven technologies with associated Tier 1 supplier The Company will also benefit from lower costs and the valuation model
technology might adversely impact on the Company's investments. warranties and performance guarantees. assumes continuing cost reductions for replacement assets over time.
Residual risk: low
Future income streams may be reduced if new entrants have significantly lower The Company continues to review available technologies. It is currently viewed
(2021 FY: low) marginal costs. as unlikely that a completely new reliable and cost competitive technology
will appear during the lifetime of these batteries and impact on the lifecycle
of these batteries.
Potential equipment shortages if China is subject to sanctions. If China invades Taiwan or takes other hostile measures which cause sanctions, The Company has relationships with other non-Chinese suppliers, but they are The Company ensures it is securing key equipment orders in advance.
the supply chain of crucial equipment would be disrupted. likely to source components from China.
Residual risk: low
The Company ensures payments are protected via Letters of Credit to ensure no
(2021 FY: low) financial loss.
6. BOARD OF DIRECTORS AND INVESTMENT TEAM
The Investment Team
Ben Guest (Managing Director, New Energy); Lead Manager of Gresham House
Energy Storage Fund plc)
Ben was the founder and managing partner of Hazel Capital which was acquired
by Gresham House in 2017. He has 28 years' of investment experience. Ben's
expertise spans the investment spectrum, across infrastructure, public
equities and venture capital. Today, Ben is Managing Director of Gresham
House's New Energy division, and the Lead Manager of the Company. He is
responsible for the origination and execution of investment opportunities and
is responsible for the overall strategy and ongoing portfolio management of
the Fund.
Ben started his fund management career at Lazard Asset Management in 1994
before going on to co-found Cantillon Capital and later founded Hazel Capital
in 2007.
Ben currently serves as a Director of over 50, mostly project, companies.
Bozkurt Aydinoglu (Investment Director, New Energy)
Bozkurt joined Gresham House in 2017 as Investment Director having previously
been at Hazel Capital and has 29 years' investment, advisory and businesses
building experience.
Bozkurt's primary focus is on procurement, contracting, delivery and
evaluation of new energy storage opportunities, in addition Bozkurt also
manages the Gresham House New Energy VCTs containing a portfolio of solar and
wind assets.
Bozkurt dedicated the early part of his career to funding and advising
companies in the telecommunications and technology industries, whilst in roles
at Nomura, Salomon Brothers, Bowman Capital and Deloitte & Touche.
In 2002, Bozkurt cofounded and built New Energy Finance (NEF), which became
the leading provider of data, research and analysis to investors in the global
cleantech industry.
Gareth Owen (Investment Director, New Energy)
Gareth was a Partner at Hazel Capital (now Gresham House New Energy) and has
over 20 years' experience executing structured transactions across a variety
of sectors.
Before Hazel Capital, Gareth worked at Barclays Natural Resource Investments,
a captive private equity fund investing in the natural resource and renewable
energy sectors.
Prior to this, Gareth worked in the Structured Capital Markets divisions of
Barclays Capital and Deutsche Bank, handling the acquisition and disposal of
various asset-based companies.
Rupert Robinson (Managing Director, Gresham House Asset Management Limited)
Rupert Robinson has been the Managing Director of Gresham House Asset
Management Ltd since September 2015. Before joining Gresham House, Rupert was
CEO and CIO of Schroders (UK) Private Bank for 11 years and prior to that
spent 17 years at Rothschild where he was latterly Head of Private Clients at
Rothschild Asset Management.
Rupert has a proven track record of delivering significant value to
shareholders.
He has over 30 years' of experience in asset management, private banking and
wealth management, focusing on product innovation, investment management,
business development, banking and wealth structuring. He is a member of the
Gresham House Group Management and Investment Committees.
Stephen Beck (Divisional Finance Director, Real Assets)
Stephen has 26 years' of industry experience and is a law graduate and
Barrister and was called to the Bar in 1996. He is also a Fellow of the
Institute of Charted Accountants of England and Wales and qualified with
PricewaterhouseCoopers.
He leads an in-house finance team managing New Energy, Renewables, Commercial
Forestry and Housing sectors.
Prior to this, Stephen worked at E.ON, where he held a variety of financial
and commercial roles from 2000 onwards, ranging from leading large finance
teams, developing power station projects, M&A transactions, and working
with HM Government delivering low carbon solutions.
James Bustin (Investment Manager, New Energy)
James has nine years' of experience across investments, finance and accounting
and joined the team in 2019 having previously worked on public equities and
venture capital in the Gresham House Ventures team. James' role in the New
Energy team covers fund and portfolio management as well as new investments.
James joined Gresham House in 2018 as part of the acquisition of Livingbridge
VC where he had been working as an analyst since 2016. Prior to Livingbridge
James worked in TMT audit at EY for three years, qualifying as a chartered
accountant.
Charlie von Schmieder (Investment Director, New Energy)
Charlie has over 20 years' experience having started his career as a
commercial solicitor before moving to Investment Management for the past nine
years.
Charlie has extensive experience in the development, funding and asset
management of distributed energy infrastructure projects and has worked on a
wide range of technologies including solar PV, hydroelectric, anaerobic
digestion, thermal heat networks, gas peaking and battery energy storage.
Charlie's current role began in February 2021, following a year in the team as
a contractor. He is responsible for executing investments in energy storage
systems, whether acquired before construction or when already operational.
Fernando Casas Garcia (Head of Operations and Asset Management, New Energy)
Fernando has 15 years' experience in the renewable energy sector, mostly in
solar PV. Since joining the team in May 2021, Fernando has been focused on the
design, development and deployment of processes and procedures that allow the
growth in MWs under management and improvement in operational performance.
Prior to Gresham House Fernando was Global Head of Technical for a 2.2GW solar
PV portfolio at WiseEnergy focused on the operation of their solar PV assets
and increasing overall revenues.
Paul George (Health and Safety Manager, New Energy)
Paul is responsible for building risk management capabilities, systems,
processes and culture to support the management of health and safety risks and
opportunities in the New Energy team.
Paul has ten years' experience in health and safety risk management in the
construction sector as well as a degree in occupational health and safety
management.
Prior to Gresham House Paul worked at HS2 Ltd in their infrastructure
integrated project team and prior to that worked at Network Rail.
Nick Vest (Finance Director, Energy Storage)
Nick joined Gresham House in January 2021. He has over 20 years' accounting
and finance experience and is a Chartered Accountant and Chartered Tax
Advisor.
Prior to Gresham House, Nick worked as Finance Director for an internationally
focused property investment group and before that was Associate Director of
Tax at Temenos Group SA in Switzerland.
The Board
John Leggate CBE, FREng (Chair and Independent Non-Executive Director) - John
is highly experienced as an energy sector executive and is a venture investor
in the ''clean tech'' and digital technologies. John has significant board
experience and is currently on the board of cyber security firm Global
Integrity in Washington DC and is a senior advisor in the energy sector to a
"blue chip" international consultant. John was appointed to the Board on 24
August 2018.
Significant interests: John is a Director of Flamant Technologies and Global
Integrity, Inc.
Duncan Neale (Audit Committee Chair and Independent Non-Executive Director) -
Duncan is a CFO and Finance Director with over 20 years' of commercial
experience working for both publicly listed and privately-owned companies.
Duncan is a Fellow of the Institute of Chartered Accountants and qualified
with Price Waterhouse in London. Duncan was appointed to the Board on 24
August 2018.
Significant interests: Duncan is a Trustee of the Cambodian Children's Fund UK
and a Director of DJN Consultancy Limited.
Catherine Pitt (Chair of the Nominations Committee and Management Engagement
Committee and Independent Non-Executive Director) - Cathy is a legal adviser
who has specialised in the investment company and asset management sectors for
over 20 years, specialising in governance, regulation, capital markets and
mergers and acquisitions. Cathy was appointed to the Board on 1 March 2019.
Significant interests: Cathy is a consultant and former partner at CMS
Cameron McKenna Nabarro Olswang LLP, a director of Baillie Gifford UK Growth
Trust plc and a member of the Advisory Council of Sex Matters, a
not-for-profit company limited by guarantee.
David Stevenson (Chair of the Remuneration Committee and Independent
Non-Executive Director) - David is a financial journalist and commentator for
a number of leading publications including the Financial Times (the
Adventurous Investor), Citywire, and MoneyWeek. He is also Executive Director
of the world's leading alternative finance news and events service
www.altfi.com, which focuses on covering major trends in marketplace lending,
crowdfunding and working capital provision for small to medium sized
enterprises as well as www.ETFstream.com (http://www.ETFstream.com) . David
was appointed to the Board on 24 August 2018.
Significant interests: David is a Director of Aurora Investment Trust plc;
Altfi Limited; Altfi Data Limited; TF Stream Limited; Planet Sports Rights
Limited; Rocket Media LP; The Secured Income Fund plc; Stockmarkets Digest
Limited; and Windhorse Aerospace Limited.
The Company has a Board of four Independent Non-Executive Directors.
The Board has 25% female representation. This will rise to 40% following
Isabel Liu's appointment to the Board from 1 October 2022. Ms Liu's
appointment will also result in the Board having a member from a minority
ethnic background (as defined in the Listing Rules). The Board has adopted a
formal diversity policy and strongly believes that diversity in all its forms
(whether of skills, background or characteristic) is an important contributor
to strong decision-making and intends to prioritise diversity in its ongoing
succession planning.
All appointments to the Board are, and will continue to be, subject to a
formal, rigorous and transparent procedure as required by the AIC Code. The
Board's requirements for vacancies on the Board are set with reference to
objective criteria and promote diversity of sex, social and ethnic
backgrounds, cognitive and personal strengths.
Further, the Board reviews, at least annually, its effectiveness and its
combination of skills, experience and knowledge. The Board conducts an
externally facilitated effectiveness evaluation every three years, with its
first such evaluation having taken place during 2021 and Ms Liu's appointment
being made in response to that evaluation process.
The Directors will all stand for re-election at the Annual General Meeting of
the Company.
DIRECTORS' REPORT
The Directors present the Interim Report and Accounts of the Company for the
period ended 30 June 2022.
The Directors during the period, including their appointment dates, are set
out in the Board of Directors summary on page 23.
Company performance
The Directors have reviewed the performance of the Company throughout the
period. Details of the performance of each investment owned by the Company are
included in the Investment Manager's Report on page 5.
The Directors and Investment Manager have developed several tools to review
ongoing performance. These include ongoing monthly and quarterly dashboards
detailing the performance of each investment in relation to the individual
income streams expected of each investment and performance against costs. As
the Company deploys capital raised, the Directors have a focus on the
underlying investment model for each new investment to ensure it meets the
Investment Objectives of the Company.
The Directors are satisfied that underlying performance is being developed in
line with expectations: the rollout programme of new investments and upgrades
and extensions of investments acquired at IPO is continuing to progress well
and has ensured an increasing level of operational performance throughout 2022
so far, which is summarised within the Chair's Statement on page 3.
Financial risk management
The Board believes that the main financial risks of the Company relate to the
requirement to ensure the capital commitments of the Company are commensurate
with the capital available and the ability of the underlying investments to
generate income to the Company to ensure the targeted dividend payments can be
paid to investors and total NAV return targets are met. The Board constantly
monitors these financial risks.
The Company has the ability to assume up to 50% of gearing and may increase
gearing in future ensuring any covenants or associated financial instruments
are appropriate for the risk profile of the Company.
Share capital
At the period end, the Company had in issue 541,290,353 Ordinary Shares. There
are no other share classes in issue. All shares have voting rights; each
Ordinary Share has one vote.
All Ordinary Shares are entitled to receive dividends and interim dividends
have been paid by the Company, as shown in the table below. No final dividend
has been or will be declared, but the Company's dividend policy of paying four
interim dividends will be tabled for approval at each annual general meeting.
Period in relation to which dividend was paid Announcement date Ex-dividend date Payment Amount per Ordinary Share Total amount
date
1 July to 30 September 2021 15 November 2021 25 November 2021 27 December 2021 1.75 pence £7,662,236.36
1 October to 31 December 2021 14 February 2022 3 March 2022 25 March 2022 1.75 pence £7,662,236.36
1 January to 31 March 2022 4 May 2022 12 May 2022 27 May 2022 1.75 pence £7,662,236.36
Dividends are not recognised in the financial statements of the Company until
paid.
The results of the Company are disclosed in the Investment Manager's Report on
page 5 of this Report.
Substantial interests
As at 30 June 2022, and the date of this Interim Report and Accounts, the
Company had been notified the following beneficial interests exceeding 3% of
the issued share capital, being 541,290,353 Ordinary Shares.
Shareholder Number of Ordinary Shares to date Percentage of Issued Share Capital
Sarasin & Partners (London) 51,964,886 9.60%
Border to Coast Pensions Partnership (Leeds) 33,583,839 6.20%
Gresham House (London) 28,928,388 5.34%
Close Asset Mgt (London) 26,463,865 4.89%
Gravis Capital Mgt (London) 24,492,210 4.52%
Schroder Investment Mgt (London) 24,207,069 4.47%
Newton Investment Mgt (London) 19,759,575 3.65%
BlackRock Investment Mgt - Index (London) 19,713,218 3.64%
CCLA Investment Mgt (London) 18,363,884 3.39%
JM Finn & Co (London) 18,208,842 3.36%
Annual General Meeting
The Company's second Annual General Meeting (AGM) was held on 30 June 2022.
All resolutions proposed to the Company's shareholders at this AGM were duly
passed on a poll vote.
Directors remuneration and interests
Details of the gross fees paid to Directors in the period are set out below.
Fixed Salary and fees for period from 1 Jan 2022 to 30 June 2022 Short term variable pay period from 1 Jan 2022 to 30 June 2022 Total fixed remuneration period from 01/01/22 to 30/06/22 Total variable remuneration period from 01/01/22 to 30/06/22
£ £
Catherine Pitt 23,648 - 23,648 -
David Stevenson** 23,648 - 23,648 -
Duncan Neale(*) 32,844 - 32,844 -
John Leggate 42,040 - 42,040 -
Total fixed remuneration 122,180 - 122,180 -
In accordance with FCA Listing Rules 9.8.6(R)(1), Directors' interest in the
shares of the Company (in respect of which transactions are notifiable to the
Company under FCA Disclosure and Transparency Rule 3.1.2(R)) as at 30 June
2022 are shown below:
Director No. of Ordinary Shares Percentage of total issued share capital
Catherine Pitt 30,615 0.0057%
David Stevenson 22,330 0.0041%
Duncan Neale 20,375 0.0038%
John Leggate 101,170 0.0187%
Total Shares 174,490
Going concern
The Interim Report describes the Company's business activities, together with
factors likely to affect its future performance and development and an
assessment of the principal risks and uncertainties facing the Company. The
key risks facing the Company include, but are not limited to, the risks
mentioned on pages 17 to 20.
As at 30 June 2022, the Company had net cash and cash equivalent balances of
£222mn (excluding cash balances within investee companies) and no debt. The
Company is a guarantor to the £180mn debt facility (£150mn capex facility
and £30mn revolving credit facility) entered into by the Midco in September
2021 which was partially drawn at the period end. It is anticipated that the
capex facility will be fully drawn during 2022 and 2023 to purchase equipment
and make payments under EPC contracts for pipeline projects.
Financial models have been prepared on a conservative base case and on a
severe but plausible downside case which show that sufficient cash is expected
to be available to the Company to meet current obligations and commitments as
they fall due and that the debt covenants of Midco's debt facility are
expected to be met. The base case assessment considers the Company's ability
to continue in operation under the current planned strategy to fund and
acquire the currently committed Exclusivity Pipeline. The severe but plausible
downside case scenario assumes a reduction in underlying portfolio EBITDA of
25% to the base case. The downside case also takes account of the availability
of mitigating actions available to the Directors, such as reducing
discretionary spend and pausing the roll-out of projects.
The Directors confirm they have a reasonable expectation that the Company has
adequate resources to continue its operations for at least 12 months from the
date of signing these financial statements. As such, the Directors have
adopted the going concern basis in preparing the Interim Report.
Directors' responsibilities
The Directors confirm to the best of their knowledge:
· the Interim Report and Accounts have been prepared in accordance with
International Accounting Standard 34 "Interim Financial Reporting" and give a
true and fair view of the assets, liabilities, financial position and profit
or loss of the Company, as required by DTR 4.2.4 R of the Disclosure Guidance
and Transparency Rules;
· the Chair's Statement and Interim Investment Manager's Report include
a fair review of the development, performance and position of the Company and
a description of the principal risks and uncertainties, that it faces for the
next six months as required by DTR 4.2.7.R of the Disclosure Guidance and
Transparency Rules; and
· the Investment Manager's Interim Report and Note 20 to the Condensed
Financial Statements include a fair review of related party transactions and
changes therein, as required by DTR 4.2.8.R of the Disclosure Guidance and
Transparency Rules.
John Leggate CBE, FREng.
Chair
26 September 2022
Unaudited Condensed Statement of Comprehensive Income
Six months ended 30 June 2022 Notes Revenue Capital Total
(unaudited) (unaudited) (unaudited)
(£) (£) (£)
Net gain on investments at fair value through the profit and loss 5 13,584,083 131,571,872 145,155,955
Bank interest income 60,037 - 60,037
Other income 199,500 - 199,500
Total income 13,843,620 131,571,872 145,415,492
Administrative and other expenses 6 (3,527,579) - (3,527,579)
Profit before tax 10,316,041 131,571,872 141,887,913
Taxation 7 - - -
Profit after tax and total comprehensive income for the period 10,316,041 131,571,872 141,887,913
Profit per share (basic and diluted) - pence per share 8 2.26 28.88 31.15
Six months ended 30 June 2021 Notes Revenue Capital Total (unaudited)
(unaudited) (unaudited) (£)
(£) (£)
Net gain on investments at fair value through the profit and loss 5 10,670,174 27,891,255 38,561,429
Other income 90,000 - 90,000
Total income 10,760,174 27,891,255 38,651,429
Administrative and other expenses 6 (2,153,981) (172,546) (2,326,527)
Profit before tax 8,606,193 27,718,709 36,324,902
Taxation 7 - - -
Profit after tax and total comprehensive income for the period 8,606,193 27,718,709 36,324,902
Profit per share (basic and diluted) - pence per share 8 2.47 7.95 10.42
All items dealt with in arriving at the result for the period relate to
continuing operations.
The notes on pages 31 to 44 form an integral part of these Condensed Financial
Statements.
There are no other items of comprehensive income or expense apart from those
disclosed above and consequently a separate statement of comprehensive income
has not been prepared.
Unaudited Condensed Statement of Financial Position
As at 30 June 2022
Company number 11535957
Notes 30 June 2022 31 December 2021
unaudited audited
(£)
(£)
Non-current assets
Investment in subsidiaries at fair value through profit or loss 9 564,696,989 389,346,748
Total non-current assets 564,696,989 389,346,748
Current assets
Cash and cash equivalents 11 222,179,880 122,175,081
Trade and other receivables 12 431,582 359,467
Total current assets 222,611,462 122,534,548
Total assets 787,308,451 511,881,296
Current liabilities
Trade and other payables 13 (1,867,214) (210,255)
Total current liabilities (1,867,214) (210,255)
Total net assets 785,441,237 511,671,041
Shareholders' equity
Share capital 18 5,412,904 4,378,421
Share premium 18 495,230,992 349,058,720
Merger relief reserve 19 13,299,017 13,299,017
Capital reduction reserve 19 22,837,700 38,162,172
Capital reserves 19 206,993,712 75,421,840
Revenue reserves 19 41,666,912 31,350,871
Total shareholders' equity 785,441,237 511,671,041
Net asset value per share (pence) 17 145.11 116.86
The Interim Report and Accounts were approved and authorised for issue by the
Board of Directors and are signed on its behalf by:
________________________
Chair
Date: 26 September 2022
The notes on pages 31 to 44 form an integral part of these Condensed Financial
Statements.
Unaudited Condensed Statement of Changes in Equity
Six months ended 30 June 2022
Notes Share capital Share premium reserve Merger relief reserve Capital reduction reserve Capital reserves Revenue reserves Total shareholders' equity
(£) (£) (£) (£)
(£) (£) (£)
As at 1 January 2022 4,378,421 349,058,720 13,299,017 38,162,172 75,421,840 31,350,871 511,671,041
Profit after tax and total comprehensive income for the period - - - - 131,571,872 10,316,041 141,887,913
Transactions with owners
Ordinary shares issued 18 1,034,483 148,965,516 - - - - 149,999,999
Costs of Ordinary shares issued - (2,793,244) - - - - (2,793,244)
Dividends paid 18 - - - (15,324,472) - - (15,324,472)
As at 30 June 2022 18 5,412,904 495,230,992 13,299,017 22,837,699 206,993,712 41,666,912 785,441,237
Six months ended 30 June 2021
Notes Share capital Share premium reserve Merger Capital reduction reserve Capital reserves Revenue reserves Total shareholders' equity
(£) relief (£) (£)
(£) reserve (£) (£)
(£)
As at 1 January 2021 3,485,564 251,601,260 13,299,017 64,123,617 12,867,362 13,513,590 358,890,410
Profit after tax and total comprehensive income for the period - - - - 27,718,709 8,606,193 36,324,902
Transactions with owners
Dividends paid 18 - - - (12,199,472) - - (12,199,472)
As at 30 June 2021 18 3,485,564 251,601,260 13,299,017 51,924,145 40,586,071 22,119,783 383,015,840
The notes on pages 31 to 44 form an integral part of these Condensed Financial
Statements
Unaudited Condensed Statement of Cash Flow
Note Six months ended 30 June 2022 Six months ended 30 June 2021
(Unaudited) (Unaudited)
(£) (£)
Cash flows from operating activities
Profit for the period 141,887,913 36,324,902
Net gain on investments at fair value through profit and loss 5 (131,571,872) (27,891,255)
Interest income (13,584,083) (10,670,174)
Increase in trade and other receivables (72,115) (146,300)
Increase/(decrease) in trade and other payables 1,656,959 (246,973)
Net cash used in operating activities (1,683,198) (2,629,800)
Cash flows from investing activities
Loans made to subsidiaries 9 (30,194,286) (34,744,684)
Disposal of investments - (238,095)
Net cash used in investing activities (30,194,286) (34,982,779)
Cash flows from financing activities
Proceeds from issue of Ordinary shares at a premium 18 149,999,999 -
Share issue costs 18 (2,793,244) -
Dividends paid (15,324,472) (12,199,472)
Net cash from/(used in) financing activities 131,882,283 (12,199,472)
Net increase/(decrease) in cash and cash equivalents for the period 100,004,799 (49,812,051)
Cash and cash equivalents at the beginning of the period 122,175,081 110,967,025
Cash and cash equivalents at the end of the period 222,179,880 61,154,974
The notes on pages 31 to 44 form an integral part of these Condensed Financial
Statements
1. General information
Gresham House Energy Storage Fund plc (the Company) was incorporated in
England and Wales on 24 August 2018 with company number 11535957 as a
closed-ended investment company. The Company's business is as an investment
trust within the meaning of Chapter 4 of Part 24 of the Corporation Tax Act
2010. The registered office of the Company is The Scalpel, 18th Floor, 52 Lime
Street, London, EC3M 7AF. Its share capital is denominated in Pounds Sterling
(GBP or £) and currently consists of Ordinary Shares. The Company's principal
activity is to invest in a diversified portfolio of operating utility-scale
Battery Energy Storage Systems (BESS), which utilise batteries and may also
utilise generators. The BESS projects comprising the portfolio are located in
diverse locations across Great Britain.
These interim financial statements cover the period from 1 January 2022 to 30
June 2022, with a comparative period from 1 January 2021 to 30 June 2021, and
comprise only the results of the Company as all of its subsidiaries are
measured at fair value.
2. Basis of preparation
Statement of compliance
The Interim Report and Accounts have been prepared in accordance with
International Accounting Standard 34 'Interim Financial Reporting'. The
Condensed 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 accounts have been prepared on a basis that is consistent with
accounting policies applied in the preparation of the Company's Annual
Financial Statements for 31 December 2021.
Where presentational guidance set out in the Statement of Recommended Practice
(SORP) 'Financial Statements of Investment Trust Companies and Venture Capital
Trusts', issued by the Association of Investment Companies (AIC) is consistent
with the requirements of IFRS, the Directors have prepared the Interim
Condensed Financial Statements on a basis compliant with the recommendations
of SORP. The supplementary information which analyses the Statement of
Comprehensive Income between items of revenue and a capital nature is
presented in accordance with the SORP.
These Condensed Financial Statements do not include all information and
disclosures required in the Annual Financial Statements and should be read in
conjunction with the Company's audited financial statements for the year ended
31 December 2021, which were prepared in accordance with UK adopted
international accounting standards.
There are no new standards, amendments or interpretations at the reporting
date which have been issued but are not yet effective, which could impact the
Interim Report and Condensed Financial Statements of the Company and which are
deemed to be material for the Company.
Functional and presentation currency
The currency of the primary economic environment in which the Company operates
(the functional currency) is Pounds Sterling (GBP or £) which is also the
presentation currency.
Going concern
As at 30 June 2022, the Company had net current assets of £221mn and had cash
balances £222mn (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 costs relating to the acquisition of new
assets and payment of dividends, both of which are discretionary (other than
committed transactions). All committed acquisitions at the end of the period
are sufficiently covered through current cash reserves and debt facilities.
The Company had no outstanding debt owing as at 30 June 2022. The Company is
an obligor to the debt facility entered into by Gresham House Energy Storage
Holdings (the Midco), which was partially drawn at 30 June 2022.
As such, the directors have adopted the going concern basis in preparing the
Interim Report and Condensed Financial Statements.
3. Significant accounting judgements, estimates and assumptions
The preparation of the Condensed 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 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 and are not themselves investment entities. To determine that
the Company continues to meet the definition of an investment entity, 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 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.
An indicator of whether a Company is an investment entity is the existence of
a formal exit strategy. Although there is currently no documented exit
strategy, the assets have a limited life and are not expected to be held
indefinitely.
A further indicator of whether a Company is an investment entity is the
expectation they hold more than one asset. Following the sale of the
investment in Noriker Power in the year to 31 December 2021 the Company holds
one investment directly but many investments indirectly, as there is a
portfolio of investments within the Midco.
The Directors believe the Company meets the business purpose criteria to
invest for capital appreciation and/or income generation and note that the
Company is not required to hold its investments indefinitely.
The Directors are of the opinion that the Company meets the typical
characteristics of an investment entity and will reassess this conclusion on
an annual basis.
Assessment of the Midco as an investment entity
The Midco (see note 9) is not consolidated as it is considered to be an
investment entity. The Board of the Midco have considered the requirements of
IFRS 10 as per above and confirm the Midco meets these criteria. If the Midco
was not considered to meet the definition of an investment entity, then the
Company would be required to consolidate the entity. The impact of
consolidating the Midco would be to increase the investment value to
£577,228,493 (31 December 2021: £401,115,427) and net working capital would
decrease by £12,513,504 (31 December 2021: £11,768,679).
Investment Manager not a related party
The AIFM is not disclosed as key management personnel in the financial
statements. To meet the key management personnel definition the AIFM would
need to have authority and responsibility for planning, directing and
controlling the activities of the entity. The Directors are of the opinion
that the AIFM does not meet these criteria as the Board has to approve key
decisions
Valuation of investments in subsidiaries
Significant estimates in the Company's Condensed Financial Statements include
the amounts recorded for the fair value of the instruments. By their nature,
these estimates and assumptions are subject to measurement uncertainty and the
effect on the Company's Condensed Financial Statements of changes in estimates
in future periods could be significant. See note 15 for further details.
4. Fees and expenses
Accounting, secretarial and directors
JTC (UK) Limited acts as secretary and administrator for the Company through
the Administration and Company Secretarial Agreement. JTC (UK) Limited is
entitled to a £60,000 annual fee for the provision of Company Secretarial
services and a £55,000 annual fee for the provision of fund accounting and
administration services, based on a Company Net Asset Value of up to £200mn.
An ad valorem fee based on total assets of the Company which exceed £200mn
will be applied as follows:
§ 0.04% on the Net Asset Value of the Company in excess of £200mn
During the period, expenses incurred with JTC (UK) Limited for administrative
and secretarial services amounted to £143,194 (2021: £88,312) with £35,784
(2021: £29,210) being outstanding and payable at the period end.
AIFM
The AIFM, Gresham House Asset Management Limited (the Investment Manager), is
entitled to receive from the Company, in respect of its services provided
under the AIFM agreement, a fee as follows:
§ 1% on the first £250mn of the Net Asset Value of the Company
§ 0.9% on the Net Asset Value of the Company in excess of £250mn and up to
and including £500mn
§ 0.8% on the Net Asset Value of the Company in excess of £500mn
During the period, Investment Manager fees recognised in these Condensed
Financial Statements amounted to £2,633,215 (2021: £1,754,677) with
£1,438,960 (2021: £896,591) being outstanding and payable at the period end.
5. Net gain on investments at fair value through the profit and loss
Six months ended 30 June 2022 Six months ended 30 June 2021
(£) (£)
Unrealised gain on investments at fair value through the profit and loss 131,571,872 27,891,255
Interest on loans to subsidiaries 13,584,083 10,670,174
145,155,955 38,561,429
6. Administrative and other expenses
Six months ended 30 June 2022 Six months ended 30 June 2021
(£) (£)
Administration fees 112,714 88,312
Audit fees paid 94,303 76,250
Depositary fees 17,921 22,369
Directors' remuneration 146,845 125,858
Management fees 2,633,215 1,754,677
Sundry expenses 203,631 86,515
Transaction fees - (57,355)
Legal and professional 318,950 229,901
3,527,579 2,326,527
7. Taxation
The Company is recognised as an Investment Trust Company (ITC) for the
accounting period and is taxed at the main rate of 19%.
The Company may utilise group relief or make interest distributions to reduce
taxable profits for the period to 30 June 2022, therefore, no corporation tax
charge has been recognised for the Company for the period.
Six months ended 30 June 2022 Six months ended 30 June 2021
(£) (£)
(a) Tax charge in profit or loss
UK corporation tax - -
(b) Reconciliation of the tax charge for the period
Profit/ before tax 141,887,913 36,324,902
Tax at UK main rate of 19% 26,958,703 6,901,731
Tax effect of:
Net gain on investments at fair value through the profit and loss (24,998,656) (5,299,338)
Non-deductible expenses (12,509) (54,579)
Subject to group relief/designated as interest distributions (1,947,538) (1,547,814)
Tax charge for the period - -
8. Earnings per Ordinary Share
Earnings per Ordinary 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 Ordinary Share are identical.
Six months ended 30 June 2022
Revenue Capital Total
(£) (£) (£)
Net profit attributable to ordinary shareholders 10,316,041 131,571,872 141,887,913
Weighted average number of Ordinary Shares for the period 455,559,738 455,559,738 455,559,738
Profit per Ordinary Share (basic and diluted) - pence per Ordinary Share 2.26 28.88 31.15
Six months ended 30 June 2021
Revenue Capital Total
(£) (£) (£)
Net profit attributable to ordinary shareholders 8,606,193 27,718,709 36,324,902
Weighted average number of Ordinary Shares for the period 348,556,364 348,556,364 348,556,364
Profit per Ordinary Share (basic and diluted) - pence per Ordinary Share 2.47 7.95 10.42
9. Investment in subsidiaries
The Company meets the definition of an investment entity. Therefore, it does
not consolidate its subsidiaries 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 there are no
restrictions in place in passing monies up the structure.
The Directors evaluate the performance of the portfolio of energy storage
investments through its subsidiary companies on a fair value basis. The income
approach is used to value investments as it indicates value based on the sum
of the economic income that a project, or group of projects, is anticipated to
earn in the future. Where projects are acquired within the quarter to the
valuation date, the cost approach is used to determine the fair value.
Therefore, the investments in subsidiaries are measured at FVTPL under IFRS 9,
as these financial assets are managed and their performance evaluated on a
fair value basis.
Immediate Parent Place of business Registered Office Percentage ownership
Gresham House Energy Storage Holdings PLC The Company England & Wales The Scalpel, 18th Floor, 52 Lime Street, London, EC3M 7AF 100%
Equity Loans Total
equity and loans
(£)
(£) (£)
As at 30 June 2022 200,696,010 364,000,979 564,696,989
As at 31 December 2021 69,124,138 320,222,610 389,346,748
The loan attracts an interest rate of 8% per annum from the date of advance.
Interest compounds on 31 December of each period and the loan is unsecured.
The loan principal and any interest accrued shall be repayable on the earlier
of (i) written demand from the Company, or (ii) 31 December 2030.
Reconciliation 30 June 2022 31 December 2021
(£)
(£)
Opening balance 389,346,748 248,964,175
Add: loans advanced 30,194,286 55,730,831
Less: loan repayments - (419,290)
Less: disposals during the year - (238,095)
Add: accrued interest on loans (see note 5) 13,584,083 22,470,837
Total fair value movement through the profit or loss (see note 5) 131,571,872 62,838,290
Closing balance 564,696,989 389,346,748
Further analysis
The Company owns 100% of the ordinary shares in Gresham House Energy Storage
Holdings plc (the Midco) which holds the investments in the underlying
subsidiaries. The investment totalling £564,696,989 (31 December 2021:
£389,346,748) in the Midco comprises underlying investments in the following
companies:
Location Percentage ownership Total investment
Investment 30 June 2022 31 December 2021 30 June 2022 31 December 2021
(£)
(£)
Noriker Staunch Limited UK 100% 100% 19,427,900 17,342,193
HC ESS2 Limited UK 100% 100% 25,317,764 23,881,200
HC ESS3 Limited UK 100% 100% 22,722,829 20,066,324
West Midlands Grid Storage Two Limited UK 100% 100% 4,371,266 3,961,609
Cleator Battery Storage Limited UK 100% 100% 6,512,416 7,612,741
Glassenbury Battery Storage Limited UK 100% 100% 34,712,435 38,507,279
HC ESS4 Limited UK 100% 100% 50,318,757 46,118,825
Bloxwich Energy Storage Limited UK 100% 100% 29,943,664 25,088,436
HC ESS6 Limited UK 100% 100% 48,148,235 44,737,484
HC ESS7 Limited UK 100% 100% 49,870,043 46,055,369
Tynemouth Battery Storage Limited UK 100% 100% 15,538,309 15,956,108
Gridreserve Limited UK 100% 100% 22,959,209 19,569,973
Nevendon Energy Storage Limited UK 100% 100% 5,455,003 5,028,954
Port of Tyne Energy Storage Limited UK 100% 100% 13,824,905 17,551,881
Enderby Limited UK 100% 100% 30,346,496 19,189,475
West Didsbury Limited UK 100% 100% 29,706,072 14,917,971
Penwortham Limited UK 100% 100% 28,591,476 15,073,790
Grendon Storage Limited UK 100% 100% 18,632,772 2,943,599
Melksham East Storage Limited and Melksham West Storage Limited UK 100% 100% 55,583,038 10,066,239
UK Battery Storage Limited UK 100% - 54,295,488 -
Investments in subsidiaries - subtotal 566,278,077 393,669,450
Coupar Limited 3,940,514 3,519,729
Arbroath Limited 4,202,579 3,926,248
Stairfoot Generation Limited 2,807,323 -
Total investments 577,228,493 401,115,427
Working capital in MidCo (12,531,504) (11,768,679)
Total investment in Midco 564,696,989 389,346,748
Refer to Note 15 for valuation disclosures relating to the investments in
subsidiaries.
10. Loans receivable
The only loans receivable at 30 June 2022 and 31 December 2021 are loans to
the Midco, which is accounted for as an Investment subsidiary.
11. Cash and cash equivalents
30 June 2022 31 December 2021
(£)
(£)
Cash at bank 119,179,880 122,175,081
Short term deposits 103,000,000 -
222,179,880 122,175,081
12. Trade and other receivables
30 June 2022 31 December 2021
(£)
(£)
Management fees 41,985 41,397
Prepaid expenses 60,433 88,666
VAT receivable 329,164 229,404
431,582 359,467
13. Trade and other payables
30 June 2022 31 December 2021
(£)
(£)
Administration fees 29,211 29,210
Audit fees 86,500 95,804
Other accruals 1,751,503 85,241
1,867,214 210,255
14. Categories of financial instruments
30 June 2022 31 December 2021
(£)
(£)
Financial assets
Financial assets at amortised cost:
Cash and cash equivalents 222,179,880 122,175,081
Trade and other receivables (excluding VAT) 102,418 130,063
Fair value through profit or loss:
Investment in subsidiaries 564,696,989 389,346,748
Total financial assets 786,979,287 511,651,892
Financial liabilities
Financial liabilities at amortised cost
Trade and other payables (1,867,214) (210,255)
Net financial assets 785,112,073 511,441,637
At the balance sheet date, all financial assets and liabilities were measured
at amortised cost except for the investment in subsidiaries which are measured
at fair value.
15. Fair value measurement
Valuation approach and methodology
The same valuation methodology and process is followed in these Condensed
Financial Statements as was applied in the preparation of the Company's Annual
Financial Statements for the year ended 31 December 2021. The Company used the
income approach to value its investments. The income approach 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 DCF approach and the method
discounts free cash flows using an estimated discount rate (WACC).
Valuation process
The Company, via the Midco, held a portfolio of energy storage investments
with a capacity of 425 Megawatt ("MW") operational (the Investments). The
Investments comprise 28 projects held in 24 special project vehicles.
All of these investments are based in the UK. The current portfolio consists
of non-market traded investments, and valuations are analysed using forecasted
cash flows of the assets and use the discounted cash flow approach for
valuation purposes. 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 Manager. As at 30 June 2022 the fair value of
the portfolio of investments has been determined by the Investment Manager and
reviewed by Grant Thornton UK LLP.
The valuations have been determined using discounted cash flow methodology,
whereby the estimated post-tax future cash flows relating to the Company's
equity investment in each project have been discounted to 30 June 2022, using
post-tax discount rates reflecting the risks associated with each investment
project and the time value of money. The Investment Manager believes that use
of post-tax discount rates is most appropriate methodology to determine fair
values.
New operational projects acquired are initially held at cost, which is deemed
to be fair value, and are revalued once the performance of the assets has been
verified. The valuation of these assets, after the initial period, is
performed on the same basis as the remainder of the portfolio. Assets in the
course of construction are also held initially at cost, but are revalued, with
a construction risk premium of 0.5%, once certain criteria are met including
the timescale to expected commercial operations and the signing of certain
contracts.
The determination of the discount rate applicable to each individual
investment project takes into account various factors, including, but not
limited to, the stage reached by each project, the period of operation, the
historical track record, the terms of the project agreements and the market
conditions in which the project operates.
The Investment Manager exercises its judgement in assessing the expected
future cash flows from each investment. The Investment Manager produces
detailed financial models for each underlying project. The Investment Manager
makes amendments where appropriate to:
a) discount rates (i) implied in the price at which comparable
transactions have been announced or completed in the UK energy storage sector
(if available); (ii) publicly disclosed by the Company's peers in the UK
energy storage sector (if available); and (iii) discount rates applicable for
other comparable infrastructure asset classes and regulated energy sectors;
b) changes in power market forecasts from leading market forecasters;
c) changes in the economic, legal, taxation or regulatory environment,
including changes in retail
price index expectations;
d) technical performance based on evidence derived from project
performance to date;
e) the terms of any power purchase agreement arrangements;
f) accounting policies;
g) the terms of any debt financing at project level;
h) claims or other disputes or contractual uncertainties; and
i) changes to revenue, cost or other key assumptions (may include an
assessment of future
cost trends, as appropriate).
Valuation assumptions include consideration of climate related matters such as
expected levels of renewable energy entering the grid system, demand patterns
and current regulatory policy. These are factored into the pricing assumptions
which are prepared by an independent consultancy.
The Board reviews the operating and financial assumptions, including the
discount rates, used in the valuation of the Company's underlying portfolio.
30 June 2022 31 December 2021
Key valuation input Range (project) average Weighted average Range (project) average Weighted average
WACC / WADR 9.99% - 11.35% 10.79% 9.99% -11.40% 10.77%
RPI (see assumption below) 2.7%-2.8% 2.7% 2.8%-2.9% 2.8%
RPI assumptions include 7.5% for 2022, 4.5% for 2023 and 2.5% from 2025.
Another key assumption in the valuation models is the volatility of power
prices. Due to the Asset Optimisation strategy, the investments are able to
benefit from a range of revenue streams, either arbitrage on power price
volatility or FFR and other similar income streams. Due to the nature of the
assets owned by the investments, should one revenue stream be impacted the
asset is able to switch to alternative sources of revenue to seek to maintain
total revenue targets.
Sensitivity analysis
The below table reflects the range of sensitivities in respect of the fair
value movements of the Company's investments, via the MidCo.
The sensitivity analysis does not include an assessment of the fall in the
power price as underlying power information is provided on a net revenue basis
as the investment portfolio generates value through maximising on the
volatility in the market, therefore adjusting revenue as a total is a more
relevant measure. Therefore, we have provided a sensitivity based on
percentage changes in revenue overall.
Investment Project Valuation technique Significant inputs Sensitivity Estimated effect on fair value Estimated effect on fair value
30 June 2022 31 December
(£) 2021
(£)
Noriker Staunch Ltd Staunch DCF Discount rate +1% (1,253,032) (1,188,112)
-1% 1,412,873 1,346,462
Revenue +10% 1,449,587 1,307,467
-10% (1,461,687) (1,321,450)
HC ESS2 Ltd Rufford, Lockleaze, Littlebrook DCF Discount rate +1% (1,456,122) (1,622,287)
-1% 1,643,637 1,844,065
Revenue +10% 1,544,893 1,594,147
-10% (1,671,904) (1,947,003)
HC ESS3 Ltd Roundponds DCF Discount rate +1% (1,434,104) (1,504,951)
-1% 1,654,650 1,744,638
Revenue +10% 1,618,914 1,475,139
-10% (1,617,950) (1,505,125)
West Midlands Grid Storage Two Ltd Wolverhampton DCF Discount rate +1% (236,691) (271,807)
-1% 266,431 308,750
Revenue +10% 416,429 399,734
-10% (427,599) (435,547)
Cleator Battery Storage Ltd Cleator DCF Discount rate +1% (723,772) (743,633)
-1% 822,252 851,165
Revenue +10% 978,070 883,206
-10% (982,821) (886,715)
Glassenbury Battery Storage Ltd Glassenbury A and Glassenbury B DCF Discount rate +1% (3,490,830) (3,576,483)
-1% 3,966,367 4,092,515
Revenue +10% 4,655,027 4,201,276
-10% (4,674,406) (4,216,089)
HC ESS4 Ltd Red Scar DCF Discount rate +1% (3,406,653) (3,751,022)
-1% 3,985,911 4,416,962
Revenue +10% 4,480,141 4,393,203
-10% (4,441,518) (4,420,195)
Bloxwich Energy Storage Ltd Bloxwich DCF Discount rate +1% (1,685,810) (1,822,905)
-1% 1,909,995 2,074,137
Revenue +10% 2,872,364 2,690,591
-10% (2,898,708) (2,719,548)
HC ESS7 Ltd Thurcroft DCF Discount rate +1% (3,333,169) (3,605,403)
-1% 3,863,604 4,203,128
Revenue +10% 4,635,319 4,234,266
-10% (4,495,812) (4,284,189)
HC ESS6 Ltd Wickham DCF Discount rate +1% (2,935,199) (3,207,419)
-1% 3,349,866 3,680,717
Revenue +10% 4,204,014 4,004,174
-10% (4,125,033) (4,060,406)
Tynemouth Battery Storage Ltd Tynemouth DCF Discount rate +1% (1,532,915) (1,661,999)
-1% 1,792,801 1,956,686
Revenue +10% 2,199,245 2,037,818
-10% (2,211,050) (2,044,741)
Gridreserve Ltd Byers Brae DCF Discount rate +1% (1,413,615) (1,436,577)
-1% 1,603,077 1,638,084
Revenue +10% 2,261,484 2,013,383
-10% (2,263,998) (2,048,092)
Nevendon Energy Storage Ltd Nevendon DCF Discount rate +1% (691,947) (646,090)
-1% 774,931 729,222
Revenue +10% 1,260,925 1,097,594
-10% (1,267,204) (1,104,807)
Port of Tyne Energy Storage Ltd Port of Tyne DCF Discount rate +1% (1,333,953) (1,377,801)
-1% 1,450,442 1,510,192
Revenue +10% 2,614,900 2,248,320
-10% (2,628,516) (2,243,005)
Enderby Storage Ltd Enderby DCF Discount rate +1% (2,867,644) (2,598,696)
-1% 3,305,444 3,026,012
Revenue +10% 3,846,162 3,466,831
-10% (3,873,764) (3,516,511)
West Didsbury Storage Ltd West Didsbury DCF Discount rate +1% (2,859,544) (2,605,119)
-1% 3,296,741 3,035,333
Revenue +10% 3,805,776 3,426,385
-10% (3,833,194) (3,472,099)
Penwortham Storage Ltd Penwortham DCF Discount rate +1% (2,560,294) (2,640,548)
-1% 2,910,373 3,079,486
Revenue +10% 3,601,039 3,361,519
-10% (3,627,128) (3,402,072)
Grendon Storage Ltd Grendon DCF Discount rate +1% (3,326,590) -
-1% 3,842,652
Revenue +10% 4,663,979 -
-10% (4,713,881)
Melksham East Ltd and Melksham West Ltd Melksham DCF Discount rate +1% (5,835,801) -
-1% 6,740,567
Revenue +10% 7,245,918 -
-10% (7,298,895)
UK Battery Storage Ltd Elland DCF Discount rate +1% (3,140,661) -
-1% 3,557,220
Revenue +10% 4,529,277 -
-10% (4,623,746)
UK Battery Storage Ltd York DCF Discount rate +1% (2,698,525) -
-1% 3,063,555
Revenue +10% 4,125,004 -
-10% (4,187,657)
UK Battery Storage Ltd Bradford West DCF Discount rate +1% (5,309,534) -
-1% 6,018,033
Revenue +10% 7,770,385 -
-10% (7,860,356)
The Coupar, Arbroath, and Stairfoot projects are held at cost.
Portfolio Sensitivity of RPI Sensitivity Estimated effect on fair value Estimated effect on fair value
30 June 2022 31 December 2021
(£) (£)
Inflation +0.25% 16,525,365 9,733,718
-0.25% (16,016,559) (9,417,405)
The level in the fair value hierarchy within which the fair value measurement
is categorised is determined on the basis of the lowest level input that is
significant to the fair value measurement in its entirety. For this purpose,
significance of the inputs is assessed against the fair value measurement in
its entirety. Assessing the significance of a particular input to the fair
value measurement in its entirety requires judgement, considering factors
specific to the asset or liability. If a fair value measurement uses
observable inputs that require significant adjustment based on unobservable
inputs or any other significant unobservable inputs, that measurement is a
Level 3 measurement.
Valuation of financial instruments
The investment at fair value through profit or loss is a Level 3 in the
fair-value hierarchy and the reconciliation in the movement of this Level 3
investment is presented below. No transfers between levels took place during
the period.
16. Financial risk management
As at 30 June 2022 there have been no changes to the financial instruments
risk identified in the Annual Financial Statements of 31 December 2021.
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 considered
potentially material to the Company, how it arises and the policy for managing
it is summarised in the Annual Financial Statements of 31 December 2021.
The Company's only financial liabilities are trade and other payables. The
Company has sufficient cash reserves to cover these in the short to 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 following table reflects the maturity analysis of financial assets and
liabilities.
< 1 year 1 to 2 Years 2 to 5 years > 5 years Total
(£) (£) (£) (£) (£)
As at 30 June 2022
Financial assets
Cash and cash equivalents 222,179,880 - - - 222,179,880
Trade and other receivables (note 12)** 102,418** - - - 102,418
Investments - - - -
Fair value through profit or loss:
Investment in subsidiaries - - - 564,696,989* 564,696,989
Total financial assets 222,282,298 - - 564,696,989 786,979,287
Financial liabilities
Financial liabilities at amortised cost
Trade and other payables (note 13) - - - 1,867,214
1,867,214
Total financial liabilities 1,867,214 - - - 1,867,214
< 1 1 to 2 years 2 to 5 years > 5 years Total
year (£) (£)
As at 31 December 2021 (£) (£) (£)
Financial assets
Cash and cash equivalents 122,175,081 - - - 122,175,081
Trade and other receivables (note 12) 41,397** - - - 41,397
Investments - - - - -
Fair value through profit or loss:
Investment in subsidiaries - - - 389,346,748 * 389,346,748
Total financial assets 122,216,478 - - 389,346,748 511,563,226
Financial liabilities
Financial liabilities at amortised cost
Trade and other payables (note 13) 210,255 - - - 210,255
Total financial liabilities 210,255 - - - 210,255
*excludes the equity portion of the investment in subsidiaries
**excludes VAT
17. Net asset value per Ordinary Share
Basic NAV per Ordinary 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 Ordinary Share are identical.
30 June 2022 31 December 2021
(£) (£)
Net assets per Statement of Financial Position 785,441,239 511,671,041
Ordinary Shares in issue 541,290,353 437,842,078
NAV per Ordinary Share - Basic and diluted (pence) 145.11 116.86
18. Share capital
Ordinary Shares number Share capital
(£)
Allotted and issued share capital
As at 30 June 2022 541,290,353 5,412,904
As at 31 December 2021 437,842,078 4,378,421
Share capital and share premium account
On incorporation the Company issued 1 Ordinary Share of £0.01 which was fully
paid up and 50,000 redeemable preference shares of £1 each which were paid up
to one quarter of their nominal value. These 50,000 redeemable preference
shares were subsequently redeemed.
On 25 May 2022, the Company announced the successful raise of gross proceeds
of £150mn through the issue of 103,448,275 new Ordinary Shares at an issue
price of 145p per share.
Dividends
An interim dividend of 1.75p per Ordinary Share for the period from 1 October
2021 to 31 December 2021 was announced on 14 February 2022. The dividend of
£7,662,236 was paid on 25 March 2022 to shareholders on the register as at
the close of business on 4 March 2022. The ex-dividend date was 3 March 2022.
An interim dividend of 1.75p per Ordinary Share for the period from 1 January
2022 to 31 March 2022 was announced on 4 May 2022. The dividend of £7,662,236
was paid on 27 May 2022 to shareholders on the register as at the close of
business on 13 May 2022. The ex-dividend date was 12 May 2022.
Ordinary shareholders are entitled to all dividends declared by the Company
and, in a winding-up, 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.
19. Reserves
The nature and purpose of each of the reserves included within equity at 30
June 2022 are as follows:
§ Merger relief reserve relates to the premium on shares which were issued in
exchange for shares as part of the IPO.
§ Capital reduction reserve represents a distributable reserve created
following a Court approved reduction in capital.
§ Revenue reserves represent cumulative revenue net profits recognised in the
Condensed Statement of Comprehensive Income.
§ Capital reserves represent cumulative net gains and losses on investments
and cumulative capital expenses recognised in the interim Condensed Statement
of Comprehensive Income.
The only movements in these reserves during the period are disclosed in the
Condensed Statement of Changes in Equity.
20. Transactions with related parties and other significant contracts
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
Six months ended 30 June 2022 Six months ended 30 June 2021
(£) (£)
Directors' remuneration 122,180 116,250
Employer's NI 15,037 13,608
Total Key management personnel 137,217 129,858
All directors' remuneration is short term salary.
No dividend amounts were payable as at 30 June 2022 (2021: none).
The aggregate fees of the Directors will not exceed £500,000 per annum. There
are no performance conditions attaching to the remuneration of the Directors
as the Board does not believe that this is appropriate for Non-Executive
Directors. The Directors are not eligible for bonuses, pension benefits, share
options, long-term incentive schemes or other benefits.
Loans to related parties
Loans to subsidiaries represent amounts due to the Company and are disclosed
in Note 9.
21. Capital commitments
As at 30 June 2022 the Company is a guarantor to the Midco debt facility but
otherwise has no significant binding or conditional future capital
commitments.
22. Post balance sheet events
There were no significant post balance sheet events that need to be disclosed
in the financial statements.
9. Alternative Performance Measures
1) Dividend per Ordinary share
Dividend per Ordinary share is a measure to show the distributions made to
shareholders during the year.
Dividend period: 6 months to 30 June 2022 Dividend paid per share (£) Number of shares on dividend payment date Total dividend
(£)
Q1 2022 (declared 4 May 2022) 0.0175 437,842,078 7,662,236
Q2 2022 0.0175 541,290,353 9,472,581
0.0350 17,134,817
Dividend period: 6 months to 30 June 2021 Dividend paid per share (£) Number of shares on dividend payment date Total dividend
(£)
Q1 2021 (declared 28 April 2021) 0.0175 348,556,364 6,099,736
Q2 2021 (declared 1 July 2021) 0.0175 348,556,364 6,099,736
0.0350 12,199,472
2) Ordinary share price total return
Ordinary share price total return is a measure of the return that could have
been obtained by holding a share over the reporting period.
6 months to 30 June 2022 6 months to 30 June 2021
pence pence
Share price at end of period 157.00 120.75
Dividends paid from inception to end of period 18.50 13.25
Dividend reinvestment impact 11.35 2.25
Share price at initial public offering (100.00) (100.00)
Ordinary share price total return since inception 86.85 36.25
Ordinary share price total return since inception % 86.9% 36.3%
3) Net asset value (NAV) per Ordinary share
30 June 2022 30 June 2021
NAV at end of period £785,441,237 £383,015,839
Ordinary shares in issue 541,290,353 348,556,364
NAV per Ordinary share (pence) 145.11 109.89
4) NAV per Ordinary share total return for the period
NAV per Ordinary share total return is a measure of the success of the
Investment Manager's strategy to grow the NAV, showing how the NAV has changed
over a period of time, taking into account both capital returns and dividends
paid to shareholders.
Six months to 30 June 2022 Six months to 30 June 2021
pence pence
NAV per Ordinary share at end of period 145.11 109.89
Dividends paid from inception to end of period 18.50 13.25
Dividend reinvestment impact 9.58 1.34
NAV per Ordinary share at end of period including dividend reinvestment 173.19 124.48
NAV per Ordinary share at beginning of period including dividend reinvestment (136.12) (113.13)
NAV total return for the period 37.07 11.35
NAV per Ordinary share total return for the period 27.2% 10.0%
5) Gross asset value (GAV)
GAV is a measure of the total value of the Company's assets.
30 June 2022 30 June 2021
(£'000) (£'000)
Total assets reported in the Company at end of period 787,308 384,084
External debt held by the MidCo 10,000 -
GAV 797,308 384,084
6) Ongoing charges figure (OCF)
OCF measures the Company's recurring fund management costs incurred during the
year expressed as a percentage of the average of the net assets at the end of
each quarter during the period.
Six months to 30 June 2022 Six months to 30 June 2021
(£'000) (£'000)
Fees to Investment Manager 2,633 1,755
Legal and professional fees 319 230
Other transaction fees - (57)
Administration fees 197 159
Directors' remuneration 147 126
Audit fees 94 76
Other ongoing expenses 138 38
Total expenses 3,528 2,327
Non-recurring expenses not in OCF calculation (66) 9
Total ongoing expenses 3,462 2,336
Weighted Average NAV for the period 601,601 371,411
Number of days in period 181 181
Ongoing charges for the period (annualised) 1.16% 1.27%
7) Operational dividend cover
Operational dividend cover is a measure to demonstrate the Company's ability
to pay dividends from the earnings of its underlying investments, including
interest earned on construction capital deployed to non-operational SPVs, and
after accounting for external interest costs and administrative costs of the
Company, but excluding transaction costs and debt arrangement fees.
Six months to 30 June 2022 Six months to 30 June 2021
(£'000) (£'000)
EBITDA generated by subsidiaries 22,723 22,438
Bank interest received 60 -
Ongoing costs in the Company (3,462) (2,336)
Debt service costs in subsidiaries (966) (451)
Interest income on construction capital deployed to SPVs 1,913 66
Net earnings for dividend cover 20,268 19,717
Dividends declared by the Company 17,135 12,199
Dividend cover 1.18x 1.62x
8) Dividend yield
Dividend yield is a measure to show the dividend return received by
shareholders for the year.
Six months to 30 June 2022 Six months to 30 June 2021
Dividend per share declared in respect of the period (pence) 7.00 7.00
Share price at end of period (pence) 157.00 120.75
Dividend yield 4.5% 5.8%
10. COMPANY INFORMATION
Non-Executive Directors: Catherine Pitt
David Stevenson
Duncan Neale
John Leggate - Chair
Registered Office The Scalpel
18th Floor
52 Lime Street
London
EC3M 7AF
Manager and AIFM Gresham House Asset Management Limited
5 New Street Square
London
EC4A 3TW
Corporate Broker and Financial Adviser Jefferies International Limited
Vintners Place
68 Upper Thames Street
London
EC4V 3BJ
Tax Advisor Blick Rothenberg Limited
16 Great Queen Street
Covent Garden
London
WC2B 5AH
Independent Auditor BDO LLP
55 Baker Street
London
W1U 7EU
Administrator and Secretary JTC (UK) Limited
The Scalpel
18th Floorgoing
52 Lime Street
London
EC3M 7AF
Registrar and Receiving Agent Computershare Investor Services plc
The Pavilions
Bridgewater Road
Bristol
BS13 8AE
Legal Adviser Eversheds LLP
1 Wood Street
London
EC2V 7WS
Depositary Services INDOS Financial Limited
54 Fenchurch Street
London
EC3M 3JY
Investment Valuer Grant Thornton LLP
30 Finsbury Square
London
EC2A 1AG
Ticker: GRID
11. GLOSSARY
Asset optimisation
Asset optimisation involves buying and selling electricity in order to capture
a spread between the high and low electricity prices on any given day. This
can be done via one or more market mechanisms, hence the expression ''Asset
Optimisation''.
Asymmetric
An asymmetrical grid connection is where the import and export capacities are
different.
Balancing Services
National Grid procure services to balance demand and supply and to ensure the
security and quality of electricity supply across Britain's transmission
system. These include:
§ Black Start
§ Demand side response
§ Enhanced frequency response (EFR)
§ Firm frequency response (FFR)
§ Short term operating reserve (STOR)
https://www.nationalgrideso.com/balancing-services
(https://www.nationalgrideso.com/balancing-services)
C-rate
A unit to measure the speed at which a battery is charged or discharged.1C
reflects a charge of 0% to 100% (or discharge of 100% to 0%) in one hour, a
C-rate greater than 1 means a faster charge (or discharge) and less than 1
means a slower charge (or discharge). The C-rate can be calculated as 1
divided by the time it would take for the charge (or discharge) in hours.
Therefore, 2C is a half hour charge (or discharge), and 0.5C is a 2-hour
charge (or discharge). A BESS max C-rate is calculated as 1 divided by the
Battery duration in hours.
Capacity Market
The income received by generators to ensure generation capacity is available
to meet shortfalls.
Curtailment
Large wind farms are connected to the UK's high-voltage network and National
Grid balances electricity supply and demand. As demand rises and falls
during the day, electricity supply mirrors these peaks and troughs.
National Grid accepts bids and offers from electricity generators to increase
or decrease electricity generation as and when required. As such it may mean
that there are times when generators are paid to curtail their output
(constraint payments).
https://www.nationalgrideso.com/news/grounds-constraint
(https://www.nationalgrideso.com/news/grounds-constraint)
Dynamic Frequency Services:
Consists of three services Dynamic Containment (DC), Dynamic Moderation (DM)
and Dynamic Regulation (DR). Each of these services focuses on a different
frequency deviation however all have a response power linked to a frequency
deviation profile.
Dynamic Regulation is a pre-fault service designed to slowly correct
continuous but small deviations in frequency with the aim of regulating
frequency around 50Hz. Dynamic Moderation is designed to help manage sudden
large imbalances between supply and demand to ensure frequency is maintained
within operational limits. Dynamic Containment acts post-fault and is designed
to quickly cover lost supply or demand and to help return frequency to within
operational limits as quickly as possible.
More information can be found here:
https://www.nationalgrideso.com/industry-information/balancing-services/frequency-response-services
(https://www.nationalgrideso.com/industry-information/balancing-services/frequency-response-services)
EPCm
Contracts for Engineering, Construction and Procurement Management.
NAV
Net Asset Value being the total Net Assets in the Company divided by the total
number of Ordinary Shares in issue as at 30 June 2022.
Ongoing Charges Figure (OCF)
The Ongoing Charges Figure includes all charges and costs incurred by the
Company which relate to the ongoing operation of the Company. This includes
management fees, administration fees, audit fees, Director's remuneration,
depositary services costs and other similar costs. It excludes capital costs
and costs of raising new capital. The Ongoing Charges are then divided by the
weighted average NAV and annualised.
Ordinary Share
Share in the Company with a nominal value of 1 penny.
Symmetrical
A symmetrical grid connection is where the import and export capacities are
the same.
https://www.nationalgrideso.com/information-about-great-britains-energy-system-and-electricity-system-operator-eso/technical-terms-explained
(https://www.nationalgrideso.com/information-about-great-britains-energy-system-and-electricity-system-operator-eso/technical-terms-explained)
TRIADs
Triads are defined as the three half-hours of highest demand on the GB
electricity transmission system between November and February each year, the
Triads are part of a charge-setting process. This identifies peak electricity
demand at three points during the winter in order to minimise energy
consumption. However, Triads must be at least 10 days apart. This is to avoid
all three potentially falling in consecutive hours on the same day, for
example during a particularly cold spell of weather.
https://www.nationalgrideso.com/news/triads-why-three-magic-number
(https://www.nationalgrideso.com/news/triads-why-three-magic-number)
1 (#_ftnref1) GWh capacity figures exclude additional capacity being
installed at our five, previously EFR-contracted sites which are being
upgraded from their current sub-1 hour capacity levels to be able to be traded
in a similar way to the portfolio's other operational projects
2 (#_ftnref2) Department for Business, Energy and Industrial Strategy
Statistical Release 30 June 2022
3 (#_ftnref3) Alternative Performance Measures, including Operational
Dividend Cover, are defined and calculated on pages 45 to 48
4 (#_ftnref4) Facility held by the wholly owned subsidiary, Gresham House
Energy Storage Holdings PLC
5 (#_ftnref5) Financial performance of the underlying investment portfolio
contributes to the valuation of investments through growth in working capital
balances. Earnings greater than forecasted in prior valuations will increase
valuations and hence NAV
(#_ftnref6)
7 (#_ftnref7) Overseas Jurisdictions as defined in the Company's Circular on
22 April 2022 consists of United States, Canada, Australia, Northern Ireland
and any EEA Member Country (including Republic of Ireland)
(#_ftnref8) 6 GAV is defined and calculated on pages 45 to 48
9 (#_ftnref9) Collocation project investments and with solar panels limited
to 6% of GAV
10 (#_ftnref10) Alternative Performance Measures are defined and calculated
on page 45 to 48 of the Interim Report
11 (#_ftnref11) Alternative Performance Measures are defined and calculated
on page 45 to 48 of the Interim Report
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