REG - Gresham House Energy - Results to 31 December 2022
06/04/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230406:nRSF5563Va&default-theme=true
RNS Number : 5563V Gresham House Energy Storage Fund 06 April 2023
6 April 2023
Gresham House Energy Storage Fund plc
("GRID", the "Company" or the "Fund")
Full-Year Results to 31 December 2022
Strong growth in earnings, operational capacity and NAV per share,
while maintaining fully covered dividend in 2022.
80% increase in MW capacity to 1GW expected in 2023, as pipeline becomes
operational
Gresham House Energy Storage Fund plc (LSE: GRID), the UK's largest
utility-scale battery energy storage fund, is pleased to announce its audited
annual results for the year ended 31 December 2022.
2022 performance highlights
· EBITDA of the underlying portfolio of £48.8mn, a like-for-like
increase of 23.2%
· 155.51p NAV per share as of 31 December 2022, up 33.1% (31
December 2021: 116.86p)
· 7p per share dividend to be paid in respect of 2022, covered
1.28x
· NAV total return (TR) of 39.1%
· NAV TR since IPO increased to 93.2%; 17.2% on an annualised basis
· Performance mostly driven by revaluation of new projects and
increases in third-party revenue forecasts
· Weighted average discount rate up slightly to 10.9% (2021:
10.8%). Revenue assumptions used for project valuations are disclosed in the
Annual Report (see link below)
Deployment and fundraising
· During 2022:
· Total target portfolio grew to 2GW
· Total gross equity funds raised of £150mn (2021: £100mn)
· Incremental debt of £155mn secured, taking total debt facilities
to £335mn
· As of 31 December 2022:
· Operational capacity increased 29.4% to 550MW (FY21: 425MW)
· Eight projects in construction, totalling a further 477MW,
expected to commission in 2023
· Up to 670MW expected to go into construction during 2023
· £60mn of debt drawn down
· As of 31 March 2023:
· 40MW Coupar Angus project has become fully operational
· 50MW West Didsbury and 50MW Penwortham projects are now close to
commissioning having experienced delays
· £110mn of debt drawn down
Operational performance and construction
· GRID remains GB market leader with a market share of around 30%
· Revenue generation and EBITDA were significantly above budget
in 2022
· Longer average battery duration is targeted across the
portfolio as trading opportunities increase
· Four new members were added to the Investment Manager's
Operations team with further recruitment expected in preparation for a
significantly larger portfolio
· Some delays to construction timelines were due to supply chain
and grid connection issues
2023 outlook
· Q1 NAV per share expected to be driven by +3.3p from incremental
project revaluations and +2.2p from newly awarded Capacity Market contracts.
Other factors, including any changes to revenue curves or discount rates are
still to be determined
· Operational capacity is expected to reach 1GW in 2023 and
c.1.5GW in 2024; growth of 80% and 170% respectively vs year-end 2022 which is
expected to drive NAV per share and EBITDA growth
· In light of growth in EBITDA from increased operational
capacity in 2022 and expected in 2023, the Board intends to pay a dividend of
7.35p per share for 2023, a 5% increase over 2022. The Board will periodically
review the dividend policy to maintain a competitive dividend yield while also
ensuring that dividend cover is strong
· The Manager is trialling a new trading revenue opportunity on a
small number of MW which has the potential to add a new income line to our
revenue stack if the trial is successful
Commenting on GRID's results, John Leggate CBE, Chair of Gresham House Energy
Storage Fund plc said:
"In 2022 GRID further built on its strong track record and delivered
significant growth in earnings, operational capacity and NAV per share, while
maintaining a fully covered dividend as projects became operational. Following
GRID's strong trajectory in 2022, the Company has set its ambitions higher
going into 2023.
We expect the EBITDA of the underlying investment portfolio to increase in
2023 as more projects are commissioned and operational capacity increases.
This should also lead to growth in both NAV per share and earnings per share.
As such, we expect to increase our 2023 dividend by 5%.
We are exceptionally well-positioned to capitalise on the exciting battery
energy storage opportunities ahead of us in the UK and our targeted
international markets."
Ben Guest, Fund Manager of Gresham House Energy Storage Fund plc and Managing
Director of Gresham House New Energy said:
"The Manager remains intensely focused on driving shareholder value by
undertaking value-accretive acquisitions at attractive IRRs and adding value
to our existing fleet. In addition, we have been able to add modest amounts of
leverage in an accretive but prudent manner.
To resolve the challenges associated with tightening supply chains, we have
been investing in our project delivery teams to ensure deep involvement in
grid connection processes which ensure projects reach an operational and cash
generative stage in a timely manner.
We are very excited about 2023 as we drive portfolio and NAV growth from
projects in construction becoming operational. We continue to build our
international pipeline and explore incremental opportunities to deliver
revenue from the Company's portfolio."
Annual Report and webinar
An online webinar and Q&A session, to discuss the results, will be held at
11:00 BST on Thursday 6 April 2023. This will be an opportunity to hear Ben
Guest provide an update on GRID's operational and financial performance and to
ask questions. Registration is available via the following link:
https://greshamhouse.zoom.us/webinar/register/WN_j7zIggjiSC6WfbyEP_r_QQ
(https://greshamhouse.zoom.us/webinar/register/WN_j7zIggjiSC6WfbyEP_r_QQ)
A copy of the Annual Report is also available on the Company's website at
https://greshamhouse.com/real-assets/new-energy/gresham-house-energy-storage-fund-plc/
(https://greshamhouse.com/real-assets/new-energy/gresham-house-energy-storage-fund-plc/)
where further information on the Company can also be found. The Annual Report
has also been submitted to the National Storage Mechanism and will shortly be
available at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
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 mailto:gh@kl-communications.com (mailto:gh@kl-communications.com)
Charles Gorman gh@kl-communications.com (mailto:gh@kl-communications.com)
+44 (0)20 3995 6673
Charlotte Francis
Henry Taylor
Millie Steyn
JTC (UK) Limited as Company Secretary +44 (0)203 846 9774
David Rice GHEnergyStorageCoSec@jtcgroup.com (mailto:GHEnergyStorageCoSec@jtcgroup.com)
1. HIGHLIGHTS
Company Financial Highlights
NAV per share (pence): 155.51 pence (+33.07%) (31 December 2021: 116.86 pence)
(as of 31 December 2022)
Company profit and total comprehensive income: up 170% to £217.1mn (31
December 2021: £80.4mn)
(for the year to 31 December 2022)
Total gross equity funds raised: £150mn (+50.0%) (31 December 2021: £100mn)
(for the year to 31 December 2022)
Alternative Performance Measures
EBITDA of underlying investment portfolio: £48.8mn (+14.82%) (31 December
2021: £42.5mn)
(for the year to 31 December 2022)
Dividend per Ordinary Share (pence): 7.0 pence (31 December 2021: 7.0 pence)
(for the year to 31 December 2022)
Ordinary Share Price Total Return since IPO: +96.4% (IPO to 31 December 2021:
+51.5%)
(for the period from IPO to 31 December 2022)
NAV per Ordinary Share Total Return: +39.1% (year to 31 December 2021: +20.3%)
(for the year to 31 December 2022)
Operational portfolio reached 550MW (+29.41%) (425MW as of 31 December 2021)
(as of 31 December 2022)
Performance Highlights
Net Asset Value (NAV) as of 31 December 2022 rose to £841.7mn or 155.51 pence
per share (HY 2022: 144.11 pence / FY 2021 116.86 pence).
Operational Dividend Cover(2) of 1.28x was achieved in 2022. The dividend for
the year of 7.0 pence per share was equivalent to a 4.3% dividend yield based
on the closing share price of 161.50 pence on 31 December 2022.
In light of the growth in EBITDA from increased operational capacity in 2022
and expected in 2023, the Board intends to pay a dividend of 7.35 pence per
share for 2023, a 5% increase over 2022. The Board will periodically review
the dividend policy to maintain a competitive dividend yield while also
ensuring that Operational Dividend Cover(1) remains strong.
£150mn equity was raised in May 2022 at a share price of 145 pence per share.
In addition, a £155mn incremental debt facility was closed by Gresham House
Energy Storage Holdings plc ("MidCo"), a wholly owned subsidiary of Gresham
House Energy Storage Fund plc in November 2022, taking the total debt
available to £335mn. As of 31 December 2022, £60mn had been drawn.
Operational Highlights
The underlying investment portfolio generated revenues of £62.7mn (December
2021: £51.4mn) and EBITDA of £48.8mn (December 2021: £42.5mn).
Operational Capacity of the portfolio has now reached 550MW as of 31 December
2022 with Arbroath (35MW), Stairfoot (40MW) and Enderby (50MW) completed in
the period. The total increased to 590MW in Q1 2023 with the commissioning of
Coupar Angus (40MW) in February 2023.
While the portfolio has experienced anticipated delays on its construction
throughout 2022, the Manager is working to improve lead times on
in-construction assets and increasing the construction capabilities of the
team to ensure smoother programme execution and grid connections processes.
The Company anticipates operational MWs to reach 1027MW by the end of 2023.
2. CHAIR'S STATEMENT
On behalf of the Board, I am pleased to present the Annual Report and Accounts
of Gresham House Energy Storage Fund plc ("GRID", the "Fund" or the "Company")
for the year ending 31 December 2022.
Summary
2022 was another important and successful year for the Fund. We are delighted
to have shown strong growth in earnings, in operational capacity and in our
NAV per share and share price, while maintaining a fully covered dividend.
This progress is despite the challenging macroeconomic backdrop in 2022. The
greatest headwinds were experienced in relation to construction activities
within the investment portfolio, specifically in terms of delays caused by
longer lead times and issues relating to connecting projects to the grid, as
well as some supply chain cost increases linked to, for example, the weakening
of sterling versus the US dollar. These issues have affected the entire
Battery Energy Storage System (BESS) sector. Conversely, and more positively,
delays in the growth of the Great Britain energy storage fleet have given the
existing BESS, portfolio a boost in terms of performance in 2022 as a result
of undersupply of BESS capacity in key services. By the end of 2022, we had
grown our operating capacity to 550MW, and it is expected to reach 1GW during
2023.
Rising interest rates have prompted us to increase the discount rate we apply
to contracted income by 50bps, while merchant discount rates remain unchanged
as we recognise our growing track record and demonstration of the revenue
case. The challenges and delays faced in construction have been reflected in
an increase of 25bps in the discount rate used for projects under
construction. Our weighted average discount rate has risen to 10.9% (2021:
10.8%). We believe that our position on discount rates and approach to
valuation is both robust and appropriate.
Despite the delays in construction experienced by the portfolio, and the
higher interest rate environment, the Board and the Manager remain confident
in our ability to meet the Company's returns targets, made up of income
generated by the existing portfolio and capital growth from the integration of
well-priced project acquisitions.
Performance update
The Company's NAV increased to £841.7mn and 155.51 pence per share as of 31
December 2022, up 64% from £511.7mn and 116.86 pence per share as of 31
December 2021. NAV per share performance in 2022 was driven by project
revaluations, new Capacity Market contracts, stronger revenue forecasts and
healthy cash generation over and above our dividend payment requirements.
Further details can be found in the Investment Manager's report.
The underlying investments owned by the Company generated a record level of
EBITDA at £48.8mn, up 15% year over year and up 22% on a fully comparable
basis (this excludes locked box accrued in 2020 but accounted for in 2021 on
project acquisitions completed in 2021).
Portfolio, transactions, and pipeline
The Fund saw three new projects commissioned during 2022: Arbroath, Enderby
and Stairfoot. These contributed to an increase in operational capacity to
550MW as of 31 December 2022 from 425MW at the end of 2021. During Q1 2023,
operational capacity increased to 590MW through the completion of Coupar
Angus.
The target portfolio has grown to 2GW, due to a further 0.4GW in project
pipeline, as discussed in the Investment Manager's report. Of the new total,
477MW is due to commission during 2023 and a further c.500MW in 2024.
The Manager has also highlighted, for the first time, its efforts to secure a
large, long-term pipeline to build the portfolio in the second half of this
decade. While not detailing specific projects, the Manager has well advanced
pipeline opportunities in place in Great Britain and Ireland and is working on
similar opportunities in the US, European Economic Area and Australia. The
pipeline potential derived from these agreements are expected to exceed 5GW.
This scale reflects the size of the global addressable market created by
intermittent renewable electricity generation.
Construction activities
Throughout 2022, we continued to see supply chain disruptions caused by
COVID-related lockdowns in China. China has rapidly opened up since December
2022 and this has already started to ameliorate disruptions. However, we
continue to see a general tightening of supply chains. This is caused in part
by the huge demand created by the global boom in renewables, boosted by the US
"Inflation Reduction Act" and the anticipated EU "Green Deal Industrial Plan",
both of which are designed to provide tax breaks for renewables and energy
storage projects. The result, unsurprisingly, is longer lead times and higher
equipment prices. The drive for more renewable energy, however, brings with it
an increasing requirement for installed BESS globally, presenting
opportunities for the Company and its investments in the UK and
internationally. In addition, Russia's invasion of Ukraine, and the specific
targeted destruction of its grid infrastructure, is also lengthening lead
times for high voltage equipment as manufacturers support repair and
reinforcement efforts.
In parallel, the growing number of renewables and BESS projects seeking access
to grid capacity has challenged the Distribution Network Operators and
National Grid.
These challenges are industry wide, however GRID is well positioned thanks to
its scale in terms of portfolio size, purchasing power and the investments
made to the Manager's project delivery team with expertise over all areas from
project development, procurement, construction and operations to address these
issues.
Positive developments include a material reduction in shipping rates while
underlying commodity costs such as copper and steel were lower in 2022 than in
2021. Even lithium carbonate prices have recently fallen, and lead times for
battery purchases for GRID have significantly improved. We are excited to see
continued technical innovation which is improving the efficiency, energy
density and functionality of grid-scale batteries.
Capital Structure
The Fund has attracted a significant amount of additional capital in 2022,
first in the form of an oversubscribed £150mn equity raise at a price of 145p
per share in May and then in the form of an incremental debt facility of
£155mn entered into by Midco in November 2022 as an extension to the existing
£180mn facility. As of 31 December, £60mn of this facility had been drawn.
Investment Policy
As reported in the Company's interim results, the Fund has expanded its
horizons through a shareholder resolution, which was overwhelmingly approved
to change the Investment Policy to allow a 30% exposure, as a percentage of
Gross Asset Value (GAV), to invest in Overseas Jurisdictions, which are
defined as the United States, Canada, the European Economic Area (EEA) and
Australia.
The purpose of this change is to permit the Fund to pursue opportunities in
growing markets, following a similar trend in Great Britain, as the increased
electrification of energy consumption and decarbonisation of electricity
generation through the growth in renewable generation capacity has driven the
need for energy storage capacity.
Dividends
The Fund paid a 1.75 pence per share dividend for each quarter in 2022, a
total of 7 pence per share for the full year (2021: 7 pence).
However, the Board is aware that the accretion in NAV per share from IPO to
date and the resulting increase in share price has brought the Fund's dividend
yield to levels of less than 4.5% based on the share price at the end of 2022.
In light of the growth in EBITDA of the underlying portfolio in 2022 and the
increasing operational capacity expected in 2023, the Board intends to pay a
dividend of 7.35p per share for 2023, representing a 5% increase over 2022.
The Board will continue to periodically review the dividend policy to maintain
a competitive dividend yield while also ensuring continued strong dividend
cover. The Board believes that the Fund's investment opportunities merit
retaining some income as well as recycling some capital into accelerating the
growth of the portfolio. The Board wishes to strike a balance between growing
the Company and maintaining its market sector leadership, alongside increasing
the Company's dividend.
Sustainability
The Company's approach to sustainability is inherent in its business: by
operating and increasing BESS capacity, the Company is supporting the
decarbonisation of energy to help address climate change. Previously, we have
described our sustainability performance by reporting against internal
objectives set in the Manager's Sustainable Investment Framework. This was
because reporting standards had not kept pace with our, and our investors',
wish to see progress from a sustainable investment perspective.
The Board recognises that laws and reporting standards are improving with
ratification of the Environment Act in the UK and the establishment of
reporting standards such as the EU Sustainable Finance Disclosure Regulation
(SFDR) and Taskforce for Climate-related Financial Disclosures (TCFD).
Although neither of these standards are compulsory for the Company at this
time, we have adopted these new standards to demonstrate its commitment to
understanding and addressing climate-related risks and to aid consistency and
comparability for stakeholders.
The Company's sustainability work comprises much more than can be reported in
these two external formats.
In our monitoring and reporting, we continue to focus on key indicators of the
Company's contribution to mitigating climate change: Operational BESS capacity
in MW and MWh; greenhouse gas emissions; and carbon emissions avoided. This is
discussed further in our Sustainability Report on page 24.
Outlook
Following GRID's strong trajectory in 2022, the Company has set its ambitions
higher going into 2023. EBITDA of the underlying investment portfolio is
expected to increase in 2023 as more projects are commissioned and operational
capacity increases. This should also lead to growth in NAV per share and in
the Fund's potential to pay dividends.
At the time of writing, the markets were still digesting the market
dislocation in the financial industry and implications of Central Banks
actions. The Manager continues to monitor GRID's banking exposure and will act
to minimise risks on a pro-active basis.
The Manager continues to focus on performance of the fleet from conventional
metrics such as uptime and fully optimised EBITDA delivery. The metrics
displayed in the Investment Manager's report demonstrate the Manager's strong
operational oversight of the portfolio, while its continued investment in
technology-led asset management systems will allow the team to scale the
operational portfolio without a proportionate increase in staff.
The Manager has reviewed and reset the pipeline's commissioning timeline more
conservatively for 2023, which had a minor impact on the NAV per share as of
31 December 2022. This re-basing should result in less risk of further
slippage while the Manager will work to deliver on these expectations.
As set out in the Company's Initial Public Offering prospectus, a Continuation
vote will be proposed at the upcoming AGM. Further information will be made
available in the Notice of Meeting.
We expect to see the income generating capacity of the underlying investment
portfolio grow as the Fund's operational MW capacity almost triples through
2025, and as MWh capacity grows even faster as we increase the average
duration of our portfolio (new projects are increasingly built out to 2-hour
duration). Beyond this, it is clear to the Board and the Manager that we are
still only in the foothills of the opportunities in the energy storage arena
in Great Britain and globally and significant growth beyond 2025 is expected
to drive ongoing shareholder returns for many years.
John Leggate CBE, FREng
Chair
Date: 5 April 2023
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 £289mn as at 31 December 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
The Company increased its operational portfolio further in 2022 with the
addition of Stairfoot (40MW) and the commissioning of Arbroath (35MW) and
Enderby (50MW), taking the total operational portfolio to 20 projects and
550MW (2021: 17 projects and 425MW). In addition to this, the Company has also
added Coupar Angus (40MW) after the year end, taking total operational
capacity to 590MW as of the date of the approval of the accounts.
We are pleased to inform investors that the Company's portfolio and exclusive
pipeline currently stands at a total of 2.0GW, having increased by 410MW since
31 December 2021 with the addition of Shilton Lane (40MW), Rothienorman
(50MW), Walpole (100MW), Project SK (100MW) and Monvalet 2 (120 MW). The
pipeline table can be seen on the next page.
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 required
at that time. In addition to this, the Company, through its wholly owned
subsidiary Gresham House Energy Storage Holdings (MidCo), has increased its
overall borrowing capacity with a £155mn incremental debt facility, secured
in November 2022, taking overall debt available to £335mn. The available debt
alongside the equity raised in the year is being deployed into the existing
pipeline.
Delays in both equipment availability and connection dates have caused a
number of delays to project commissioning, meaning certain projects which were
originally planned for 2022 are now expected to be commissioned in 2023.
Despite these challenges, by the end of 2023, the Company expects to have
1027MW of operational capacity, an 87% increase in operational capacity from
31 December 2022.
The key challenges faced by the Manager and other BESS operators in the market
in commissioning new projects remains similar to what we highlighted in the
Interim 2022 Report. The high demand for renewable and BESS projects is
tightening supply chains, which, along with more general inflationary
pressures and weak sterling, is contributing to higher costs and delays.
However, the greatest impact on commissioning dates through 2022 has come from
grid connection processes: insufficient personnel and other resources at
Distribution Network Operators (DNOs), National Grid and Independent
Connection Providers (ICPs) is resulting in delays to project programmes.
To address the challenges, the Manager has been growing its project delivery
team to ensure deep involvement in the grid connection process and to pre-empt
potential issues which could cause delays. Having in-house asset management
and Operation and Maintenance (O&M) teams enables directing additional
resource to help unlock commissioning challenges.
Table 1. Company portfolio
1. Staunch Staffordshire 20 3 Battery and generators, 0.5MW import Operational 100%
2. Rufford Nottinghamshire 7 10 Battery and generators, symmetrical Operational 100%
3. Lockleaze Bristol 15 22 Battery, symmetrical Operational 100%
4. Littlebrook Kent 8 6 Battery, symmetrical Operational 100%
5. Roundponds Wiltshire 20 26 Battery and generators, 16MW import Operational 100%
6. Wolves West Midlands 5 8 Battery, symmetrical Operational 100%
7. Glassenbury* Kent 40 28 Battery, symmetrical Operational 100%
8. Cleator* Cumbria 10 7 Battery, symmetrical Operational 100%
9. Red Scar Lancashire 49 74 Battery, symmetrical Operational 100%
10. Bloxwich West Midlands 41 47 Battery, symmetrical Operational 100%
11. Thurcroft South Yorkshire 50 75 Battery, symmetrical Operational 100%
12. Wickham Suffolk 50 74 Battery, 40MW import Operational 100%
13. Tynemouth* Tyne and Wear 25 17 Battery, symmetrical Operational 100%
14. Glassenbury Extension Kent 10 10 Battery, symmetrical Operational 100%
15. Nevendon* Basildon 10 7 Battery, symmetrical Operational 100%
16. Port of Tyne* Tyne and Wear 35 28 Battery, symmetrical Operational 100%
17. Byers Brae West Lothian 30 31 Battery, symmetrical Operational 100%
18. Arbroath Scotland 35 35 Battery, symmetrical Operational Q4 2022 100%
19. Enderby Leicester 50 50 Battery, symmetrical Operational Q4 2022 100%
20. Stairfoot North Yorkshire 40 40 Battery, symmetrical Operational Q4 2022 100%
Total Operational 550 598
21. Couper Angus Scotland 40 40 Battery, symmetrical Operational Q1 2023 100%**
22. West Didsbury Manchester 50 50 Battery, symmetrical Target COD: Q2 2023 100%
23. Melksham Wiltshire 100 100 Battery, symmetrical Target COD: Q3 2023 100%
24. Penwortham Preston 50 50 Battery, symmetrical Target COD: Q2 2023 100%
25. Grendon*** Northampton 100 200 Battery, symmetrical Target COD: Q3 2023 100%
26. York York 50 75 Battery, symmetrical Target COD: Q2 2023 100%
27. Bradford West West Yorkshire 87 174 Battery, symmetrical Target COD: Q4 2023 100%
28. Elland 1 West Yorkshire 50 100 Battery, symmetrical Target COD: Q4 2023 100%
29. Shilton Lane Scotland 40 40 Battery, symmetrical Target COD: H1 2024 100%
30. Rothienorman Aberdeenshire 50 50 Battery, symmetrical Target COD: H2 2024 100%
31. Walpole Cambridgeshire 100 200 Battery, symmetrical Target COD: 2026 100%
Total portfolio owned by the Company 1,267 1,677
* Current size prior to any potential duration extensions
** Acquired subject to satisfaction of conditions
*** The commissioning date reflects the 50MW Grendon 1 Project, with a further
50MW known as Grendon 2 anticipated to begin construction in due course.
Grendon 2 has been delayed versus original expectations for various reasons
and is not being prioritised by the Manager until it is fully ready to build.
Table 2. Pipeline summary
32. Elland 2 West Yorkshire 100 200 Battery, symmetrical Target COD: Q2 2024 100%
33. Monet's Garden North Yorkshire 50 50 Battery, symmetrical Target COD: H2 2024 100%
34. Lister Drive Merseyside 50 50 Battery, symmetrical Target COD: H2 2024 100%
35. Bradford West 2 West Yorkshire 100 200 Battery, symmetrical Target COD: H1 2025 100%
36. Monvalet Rep. of Ireland 180 180 Battery, symmetrical Target COD: H2 2024 100%
37. Monvalet 2 Rep. of Ireland 120 120 Battery, symmetrical Target COD: 2025 100%
38. Project SK Yorkshire 100 100 Battery, symmetrical Target COD: 2024 100%
Total pipeline not owned by the Company 700 900
Total Portfolio and Pipeline 1,967 2,577
Fund and portfolio performance
The Fund continues to perform well, with the underlying investment portfolio
yielding its highest revenues to date at £143k per MW, up 13% on 2021. This
has driven the investment portfolio to generate EBITDA of £48.8mn for the
year, resulting in Operational Dividend Cover of 1.28x of the 7.0 pence
dividend paid (2021: 1.32 pence and 7.0 pence dividend).
We are pleased to confirm that the £150mn equity raised in May 2022 has now
been fully deployed and as of the year-end we had begun drawing down on our
available debt facilities to fund the remainder of the pipeline. £60mn has
been drawn down as of the year end, with a further £50mn following in the
first quarter of 2023. The Company through its wholly owned subsidiary,
Gresham House Energy Storage Holdings, has a combined debt facility of
£335mn. This will allow the Company to drive equity returns in the future.
The Company's share price has continued to outperform equity markets with a
Share Price Total Return for the year to 31 December 2022 of 29.6%. This was
underpinned by NAV Total Return of 39.1%, compared with 0.3% for the FTSE All
Share Index. This was supported by historic and anticipated NAV growth as
pipeline sites are acquired and commissioned.
With the appreciation of NAV, AIFM fees continue to fall as a percentage of
NAV due to the tiered fee structure (fees on incremental amounts are lower
above certain thresholds), helping to keep costs down. Annualised ongoing
charges in the period were 1.18% based on the weighted average NAV for the
year to 31 December 2022 (FY 2021: 1.23%, FY 2020: 1.26%). Based on publicly
available information, we believe these are amongst the lowest compared to
other listed funds in the sector.
Portfolio performance
As noted above, the -Company's underlying investment portfolio generated
EBITDA of £48.8mn, an increase of 15% from £42.5mn in 2021. This growth in
earnings was largely driven by exceptional revenues in Dynamic Containment
(DC) in the summer, with a small increase due to new projects commissioning in
Q4 2022 and contributing towards the portfolio's earnings.
Revenue from underlying assets for the year was £62.7mn (£63.3mn including
Liquidated Damages on late commissioning projects), up 21.9% on 2021
(£51.4mn).
Revenues peaked at a high level in June on the back of increased demand for
frequency response services from the Electricity System Operator (ESO) ,
primarily DC, whilst operational capacity in the market lagged expectations
due to industry-wide commissioning delays. This led to peak prices during July
of £105/MWh in DC, although this was short lived with the market eventually
becoming saturated from Q3 2022 as expected - see the market update section
for further details.
With frequency response services remaining undersupplied for the majority of
the year through to September 2022, it is unsurprising that frequency response
services overall made up the bulk of revenues at 82.0%. Out of these services,
DC was the largest single revenue stream with 48.4% of revenues while Dynamic
Moderation (DM) and Dynamic Regulation (DR), which are much smaller capacity
services, represented just 1.5% of revenues.
All Enhanced Frequency Response (EFR) contracts ended in 2022, with Port of
Tyne being the last to finish in the service in July 2022. In total, 4.6% of
revenues for the year came from EFR. Each of the former EFR sites is now fully
tested for all services and have also been trading in the year.
Firm Frequency Response (FFR), being the monthly frequency service, remained a
large part of the revenue base at 27.5% despite a declining number of MWs
being procured. This, at times, presented good opportunities, particularly as
the DC market became saturated towards the end of 2022.
Whilst trading represented a lower overall percentage of the underlying
investment portfolio's revenues at 10.6%, versus 11.5% in 2021, this does not
tell the whole story. We saw trading opportunities throughout the year
however, the exceptionally high frequency response markets during the spring
and summer proved to be more profitable pricing opportunities and the focus of
the portfolio was on capturing those prices. During H2 however, allocation
towards trading revenues increased as the frequency response markets became
saturated, with trading in December making up 27.5% of revenues. The focus is
now very much on the trading opportunity.
Capacity Market (CM) revenues increased from October 2022 as the portfolio
started earning on the record high 1-year contracts awarded in February 2022.
Subsequent pipeline will earn revenue from their CM contracts once they are
operational and so further growth in CM is anticipated over the coming months.
In total, CM revenues made up 7.4% of revenues over 2022 and reached 15.7% of
revenues in December 2022.
As recently announced in the trading update on 13 March 2023, the Company's
underlying portfolio assets were awarded additional CM contracts (T-1 and T-4)
in the latest auctions in February 2023, with the 15-year T-4 auction clearing
at a record high of £63k per derated MW per year. These new contracts are
expected to contribute an additional £36mn of contracted revenues over their
lifetime. This should see CM maintain an increasingly larger percentage of
total revenues, particularly from October 2023 to September 2024. In line with
the valuation policy, these contracts are not included in the year end
valuations as they were not held at the valuation date. The value of these
contracts is c.4.2 pence per share, based on shares outstanding at 31 December
2022, with the impact expected to come through in future quarters, either at
the next valuation date or when an asset is acquired and revalued based on
future cash flows.
Whilst revenues rose in 2022, we are yet to see potential cost decreases come
through as anticipated. For example, insurance costs remain higher than
expected due to a lack of competition in the insurance market. We are working
on ways to utilise the scale of the portfolio to reduce such costs going
forward. In addition to this, we have seen increases in business rates across
a number of our sites and are anticipating potential further increases from
April 2023, as new rateable values are applied, reflecting inflation on
material costs. There is little we can do with rates, but where we can we are
feeding this back into site designs. These increases have been factored into
the forecasts.
In the meantime, the Manager's in-house O&M team has increased its MW
under management, which is leading to a reduction in O&M costs for the
portfolio. We anticipate further reductions across the portfolio as more
assets are included under this lower cost option. The move to in-house O&M
also means greater control over O&M activities for the Company's
portfolio, allowing more optimal management of the sites and aligning works
with commercial opportunities to minimise outage costs and maximise uptime.
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
There has been much change in the make-up of Frequency Response products
during the past year, the first being the end of the National Grid Electricity
System Operator's (ESO) first Frequency Response service adopted by BESS with
all 4-year EFR contracts coming to an end in the year. The first of our
contracts to end was in January 2022, with the final contract ending in July
2022. During 2022, all five of our previous EFR assets have entered the latest
suite of services alongside wholesale trading.
The next oldest remaining service, Firm Frequency Response (FFR) has seen
volume requirements reduced through the year with the ESO still planning to
phase out the service and replace it with the new dynamic suite of frequency
response products. Despite the reducing volume requirement, the service has
proven valuable throughout the year, with Q4 in particular demonstrating
greater value than Dynamic Containment (DC) due to a lag in falling prices to
hit FFR. Now prices have reduced to levels aligned with DC and, as procured
volume continues to reduce over the next year, it is anticipated that FFR will
make up a smaller part of the revenue mix in future.
Finally, Dynamic Frequency Response through Dynamic Containment (DC), Dynamic
Moderation (DM) and Dynamic Regulation (DR) are now the priority services for
the ESO, with the bulk of volume coming from these services. DM and DR are
still relatively low volume today, at typically 100MW each, but they are
expected to take over from FFR as the latter is phased out.
DC, and in particular, the low (export-only) service, has been the main
revenue driver for the whole market through 2022, as this is usually where the
most volume is procured. DC reached record levels in June 2022, on the back of
increased volume requirements, exceeding forecasts made at the start of the
year by the ESO. This, coupled with a delay in new assets coming online across
the market, led to a period of undersupply at a time when requirements
increased. As can be seen from the chart above, since August 2022, this has
changed, and we have been in a period of regular oversupply which has driven
DC prices down. This decline was not unforeseen and had actually been expected
to occur sooner in the year, but it is now clear that high prices for
frequency response revenues have come to an end.
The investment case for all our assets is underpinned by trading potential and
therefore not reliant on frequency response to meet our return levels.
However, it is likely that there will remain some element of frequency
response revenues for the near term, where frequency response prices outweigh
the trading opportunity on certain days.
As requirements for these services are linked to the volume of renewable power
on the system, it is likely that overall volume requirements will grow
slightly, although the growth in BESS capacity in Great Britain is expected to
continue exceeding this. There is also a degree of seasonality which should
see higher volume requirements during the summer months, as seen in 2022,
which could present opportunities on occasion going forward.
ii) Trading/Merchant markets
While revenues for portfolio during 2022 were dominated by Frequency Response,
the trading market continued to offer additional value. As noted in the
Interim Report, significant outages across the French nuclear fleet from April
2022 resulted in Great Britain seeing its first month as a net exporter of
electricity since 2017, something which continued for eight straight months.
With the gradual return of French nuclear power, the interconnectors have
returned to mostly importing to Great Britain since December, which has
reduced some of the volatility seen earlier in 2022.
Peak gas prices in August further exacerbated the challenging backdrop,
resulting in consistently higher electricity prices over this period as gas
tended to set the price, which meant that the minimum daily price in the
Nordpool day ahead auction over a 25-day period did not fall below £200/MWh.
A combination of strong LNG (Liquefied Natural Gas) imports, increased gas
production from Norway, mild weather and lower gas consumption have meant gas
prices have fallen consistently since this peak.
Average system price spreads have remained strong throughout 2022 and in to
2023, leaving a positive backdrop for trading revenues. The system price is
set by the actions taken by the ESO in the Balancing Market (BM), this should
indicate the opportunities available for batteries in the BM. However, we have
found that BESS assets are often not being taken despite being lower cost (the
metric for tracking this is often referred to as the skip rate) which has to
date restricted some of the trading revenues, this is something we are
focussed heavily on to ensure the BM is run efficiently and BESS are rightly
recognised for the value they bring to the system.
As a result of energy scarcity concerns globally, significant preparations
were made in the lead up to Winter 2022/23 to ensure security of supply.
Firstly, National Grid ESO delayed the closures of several coal plants.
Secondly, some examples of domestic demand destruction were seen through
incentives to consumers to reduce demand during peak periods (while sharply
higher prices for consumers drove many customers to reduce demand). Finally,
the EU passed new rules requiring operators of gas storage sites to reach a
minimum 80% storage level by 1 November 2022, ensuring adequate reserve supply
should there be a prolonged period of low renewable generation.
The combination of these actions reduced gas prices which, combined with
above-average seasonal temperatures, meant the energy markets have not seen
the consistent high power price volatility through the winter of 2022/23 that
were seen in Winter 2021/22. In a break from the year's trend of warmer
temperatures, a cold snap coupled with lower wind output in the first two
weeks of December did bring a brief period of exceptional trading returns,
along with a record £2,586/MWh day ahead wholesale electricity price on 12
December 2022. The investment portfolio was ready to trade this opportunity
with the bulk of revenues able to be earned in the day ahead market.
The actions taken by National Grid to increase reserve capacity and reduce
electricity prices have had an impact on trading opportunity in the short
term, however we do not see this as likely to continue in the long term, with
the bulk of actions over the current winter being to increase generation
capacity from fossil fuels, something the ESO, the UK Government and the EU
have made clear they wish to move away from. We are confident therefore that
volatility will return as greater reliance is placed on renewable energy and
the demise of fossil-fuel powered generation.
iii) New revenue opportunities
As the Fund begins to expand internationally, we are progressing the
diversification of our revenue base driving growth in BESS across wider
geographies. Our international investment decisions are based on the same
market fundamentals as the UK, namely growth in renewable energy and
increasing electricity price volatility driving an ongoing trading
opportunity.
We also look forward to demonstrating the value BESS assets can provide when
it comes to meeting the objectives of the ESO's new System Operability
Framework - see the Regulatory Update section on page 22. As BESS assets are
already capable of contributing to each of the seven categories, we hope this
will result in a greater utilisation of our assets by the ESO and leads to
higher revenues.
Valuations and NAV
NAV per share has risen from 116.86 pence per Ordinary Share at 31 December
2021 to 155.51 pence per Ordinary Share at 31 December 2022. This equates to
an NAV Total Return(6) of 39.1% for the year.
Valuation Basis Discount rate approach MW (31 December 2021) MW (30 June 2022) MW (31 December 2022)
Operational DCF Contract cash flows e.g. CM contract revenues: 5.5% (5% at HY22 and FY21) 425 425 460
Merchant/uncontracted revenues: 10.85% (no change)
Commissioning DCF (energised) Cash flows of projects in commissioning phase - energised project subject to - - 40 *
60 day proving period: 50bps commissioning premium to Operational discount
rates above (n/a in prior periods)
Applies until satisfactory completion of commissioning
Construction DCF (energised) Cashflows of projects in construction phase - energised project but not - - 50 **
achieved PAC at valuation date: 75bps construction premium to Operational
discount rates above (50bps premium at HY22 and FY21)
Total MWs in Operational Portfolio 425 425 550
Construction DCF Cashflows of projects in construction phase: 75bps construction premium to 150 487 437
Operational discount rates above (50bp premium at HY22 and FY21)
Cost incurred to date Held at cost 225 115 230
Total Portfolio MWs included in valuations 800 1,027 1,217
* Stairfoot (40MW) achieved both energisation and PAC by 31 December 2022 and
is therefore operational. This has been valued with a 50bps "commissioning
premium" above the operational DCF until it has successfully completed a
60-day proving period post PAC. After this 60-day proving period Stairfoot
will be valued on an operational DCF basis with no premium.
** Enderby (50MW) was energised before the year end but did not achieve PAC
until after 31 December 2022. It is therefore valued with a 75bps
"construction premium" until PAC when the construction premium will expire and
be replaced by a 50bps commissioning premium. After PAC a proving period of 30
days will apply (2022: 60 days) and after this period has expired Enderby will
be valued on an operational DCF basis with no premium.
The largest increase in NAV came from revaluing new investments (16.86 pence),
including assets under construction. Projects at, or near, commissioning, as
well as a significant pipeline of future projects, present growth
opportunities for future quarters. Stairfoot and Enderby (both operational in
Q4 2022) as well as Coupar Angus (operational in Q1 2023) are the next assets
expected to contribute further revaluation growth at the Q1 2023 stage, as
they start to be valued using operational discount rates.
A net increase in third party revenue forecasts, predominantly in the short
term, on the back of increased volatility driven by concerns over security of
supply and higher gas costs, contributed the next largest increase at 11.23p.
This was further boosted by increasing inflation rates in the short-term
reflecting Office for Budget Responsibility (OBR) data. In later years
inflation has been reduced versus the prior year assumptions, reflecting Bank
of England target rates.
The Company uses third-party curves for forecasting revenues for each site.
Due to the variety of durations and locations of the portfolio, the Company
has multiple versions of curves in order to closely model the relevant
opportunity for each site. The revenue inputs range from a frequency response
only curve through to a 2-hour trading curve in Great Britain. To illustrate
the revenue assumptions used across the portfolio for the purpose of valuing
the Company's assets, we have summarised the range of inputs applicable to its
assets as well as the weighted average revenue assumption used in the DCF
valued portfolio below.
Following a review of discount rates by the Company's independent valuer, the
Company has increased its discount rate for contracted revenues by 50bps to
5.5%. A lengthening track record of the portfolio delivering against
forecasts, as well as the securing of a significant debt facility (£335mn)
against a merchant business model, demonstrate the increasing maturity of the
sector and of our portfolio. All other factors being equal, this would have
driven a reduction of discount rates. However, the Company has decided to
hold the discount rate for non-contracted revenues at 10.85%, with the higher
interest rate environment offsetting what might have otherwise justified a
reduction in this discount rate.
A construction premium is added to discount rates for assets under
construction. This premium has been increased by 0.25% in the period to
account for the increased risks and delays faced through 2022. This results in
a premium of 0.75% for assets in construction. The additional 0.25% is removed
once an asset is commissioned and begins its 60-day proving period to
demonstrate operations and revenue generation, referred to as the "in
commissioning" period. Therefore, during this "proving period" the premium on
the discount rate is 0.5%. Once demonstrated successful operations and revenue
generation the discount rate premium is removed, and valuations are on the
basis of operational discount rates.
As a result of the above changes, the weighted average discount rate has
increased to 10.9% at 31 December 2022 (2021: 10.8%). The net impact of the
increase in discount rates has been a small reduction in value of 1.76 pence
per share in Q4 2022.
A modification was made to the valuation policy after the year end. Based on
the maturing nature of the operating portfolio and experience of commissioning
assets, the "proving period", or commissioning phase for operational assets,
was reduced from 60 to 30 days. A project may therefore be revalued on an
operational basis slightly earlier in future, subject to successfully
completing commissioning. This also reflects the change in revenue streams
since the original policy was set with 60 days originally representing a
2-month cycle from bidding into and performing FFR. With Dynamic Frequency
Response services being day ahead auctions and trading being available to
commissioned assets immediately, the Board has determined this reduction in
the operational proving period to 30 days was appropriate. There was no
valuation impact from this change in 2022.
As noted earlier in the report, there have been a series of delays and cost
increases in commissioning new projects. This has reduced valuations by 4.84
pence per share during the year. The Manager has updated forecasts using more
conservative commissioning dates and valued them using an increased premium on
discount rates. We thereby hope to limit any future reductions as a result of
delays. In addition to this, increases in operating costs, largely from
business rates, has resulted in a reduction of 0.76 pence per share across the
portfolio.
The large operational portfolio enabled the Fund to maintain strong dividend
coverage, leading to a net increase in NAV (+0.55 pence) as a result of cash
generation by the portfolio exceeding fund costs (+7.9 pence), debt costs
(-0.4 pence) and dividends (-7.0 pence). We are pleased to demonstrate again
to investors the robust capital management by the Manager, which has kept the
effect of cash drag as small as possible, whilst our focus on sustainable
dividends has helped enhance the value of the Company.
The issuance of shares priced at a premium to NAV at the significantly
oversubscribed fundraising in May 2022 generated an additional 2.32 pence of
value for shareholders.
The remainder of the NAV movements came from new CM contracts awarded in
February 2022 being modelled (+6.68 pence), transaction fees (-0.18 pence) and
the roll-forward effect of the model (-0.21 pence). Subsequent CM contracts
awarded post year end in February 2023 are not included in the valuation
assumptions. The Manager anticipates further value growth from the portfolio
once these are included from Q1 2023.
Aside from the NAV movements noted above, the main factor driving growth in
investment value of the Company was the further investment of £220.7mn into
Gresham House Energy Storage Holdings for investment into projects under
construction. Most of these funds were used for the building of the pipeline
sites listed above, including some small amounts used to future-proof the new
sites built to a 1-hour duration but prepared for duration extensions in due
course.
Regulatory update
We continue to engage with all parties leading the Review of Electricity
Market Arrangements (REMA) consultation, released on 18 July 2022. This
started with submitting consultation responses in October and has continued
through regular discussion with Government, National Grid ESO and supporting
consultants. The key areas of focus for BESS are wholesale market
arrangements, Capacity Market reforms and review of Contracts for Difference
(CfD). Since our Interim Report, we have fed back further on each of these
topics, but the largest focus has been on proposed changes to wholesale
markets.
Locational Marginal Pricing (LMP) (also known as 'nodal pricing') appears to
be considered more seriously given there are already examples of this being in
use abroad. Whilst we can see some merit in this approach, we do not believe
these changes alone necessarily fix the issues faced in a net zero energy
system. We continue to engage with Government departments on this topic and
are also part of a third-party industry study into the possible impact of such
changes and what such a market could look like, which will be fed back through
future REMA consultations.
Other topics being considered for change to the wholesale markets are the
potential decoupling of electricity from fossil fuels and changes to the
design of the Balancing Mechanism (BM). Neither of these topics are
sufficiently fleshed out at this stage. Rather, we have emphasised the need
for a reduction in skip rates of batteries in the BM and pointed towards
previous successful trials such as BM reserve from storage back in 2020, which
demonstrate what is already possible. In summary, we believe National Grid
should focus on making better use of batteries which are currently not fully
utilised, rather than looking at less effective reforms.
Away from REMA, National Grid ESO have updated their System Operability
Framework for 2023. The framework aims to combine insight from their Future
Energy Scenarios with technical assessments to identify operability
requirements over a medium to long term. The new framework is broken down into
seven elements across two broad categories of 'Reliable Network' and
'Balancing the system' [as shown on the right]. BESS assets can deliver all
these operability needs but to date have only really been used for Frequency
and Stability. Change is needed at the ESO in order to achieve the full
potential of BESS and maximise the value they can bring in the move to a net
zero energy system. Today, fossil fuel generation is often used to deliver
many of these system needs. There is no reason why BESS cannot already replace
these legacy arrangements. With the significant growth in operational BESS
anticipated over the next few years, there will soon be the scale of MWs
available to challenge existing technologies on each of these operability
fronts, delivering on targets for reduced emissions in the energy system and
reducing costs to end consumers.
Outlook
The focus of the Manager through 2023 will be to increase the operational
capacity of the portfolio through commissioning new projects totalling 477MW
in incremental capacity, which is the greatest driver of earnings and
shareholder value. The Manager is also focused on increasing revenues from
existing sources by pushing the use case of BESS across all aspects of
National Grid ESO's System Operability Framework, and by working on new
sources of revenue which we believe are achievable. The Company is also
targeting putting a further c.500MW into construction by the end of 2023 while
continuing to develop the significant incremental pipeline behind this.
Growing the operational capacity via the acquisition and construction of
well-priced projects drives NAV growth for GRID, as well as the scale and
revenue earning capacity supporting our Operational Dividend Cover.
In particular, in 2023, all MW under construction will be completed using debt
funding, driving the potential for higher EBITDA per share.
With the falling away of Frequency Response markets in recent months, 2023 is
expected to be the year where the value in tradable BESS assets is
demonstrated. Our experience tells us that upgrading of legacy sites is a
complex area and takes time to get right. This is the reason our new
projects are being built from the outset with the potential to be upgraded to
a longer duration at short notice and minimal cost. The Fund intends to
diversify its revenue base in international markets whilst playing to its
strengths and know-how to leverage the same fundamental market drivers which
have seen continued excellent performance for BESS assets in Great Britain.
We believe the UK Government and National Grid ESO remain supportive of BESS
infrastructure and see its essential contribution in moving to a net zero
electricity system. We look forward to ongoing engagement with both parties to
ensure full use of BESS to meet their aims under REMA and the ESOs System
Operability Framework and in doing so benefit end consumers. We are confident
in the opportunity for BESS in the UK and similarly see significant
opportunities overseas for the Company to capitalise on similar market drivers
and growth trajectories.
The Manager remains excited about the opportunity ahead and is confident in
its ability to continue to deliver target returns in a market increasingly
focused on trading, while also exploiting new opportunities.
4. GRID 2022 - Sustainability Report
This Sustainability Report describes the integration and enhancement of
sustainability in the Company's investment processes and asset operations.
As mentioned in the Chair's statement, the Company's approach to
sustainability is inherent in its business - by increasing operational BESS
capacity, the Company is supporting the decarbonisation and electrification of
energy systems to help address climate change. The Board is therefore focusing
on several key indicators to monitor and report the sustainability of its
business: operational BESS capacity in MW and MWh; carbon emissions; and
carbon emissions avoided. The Company's sustainability approach is exercised
in the context of policies and processes of the Manager, a unit of GH.
Sustainability policies, processes and activities of the Manager and GH are
described here.
The Board recognises that laws and reporting standards are improving with the
ratification of the Environment Act in the UK and the establishment of
reporting standards such as the EU Sustainable Finance Disclosure Regulation
(SFDR) and Taskforce for Climate-related Financial Disclosures (TCFD).
Although neither of these two standards are compulsory for GRID at this time,
the Board has adopted them to demonstrate its commitment to understanding and
addressing climate-related risks and opportunities and to aid consistency and
comparability for stakeholders.
The SFDR is an EU regulation which aims to improve transparency and
standardise disclosures in the market of sustainable investments. The Company
promotes environmental and social characteristics in accordance with Article 8
of the SFDR. Further information is provided on the Company's website. In
addition to this, information on sustainable investments is provided as part
of the Company's SFDR periodic disclosure in Appendix 1 of the Annual Report.
The TCFD report is provided after this Sustainability Report on page 30.
Each of the TCFD and SFDR reports are written to be understood on a
stand-alone basis, so there may be some overlap in topics discussed. This
Sustainability Report is designed to cover the key topics relevant to the Fund
and as such focusses on the following areas:
· The Company's core sustainability objective
· Sustainability-related activities undertaken by the Manager in
2022
· Sustainable investment processes and commitments applied by the
Manager on behalf of the Company
Core Sustainability Focus
The central sustainability focus of the Company is investing in and increasing
Battery Energy Storage System (BESS) capacity to support the decarbonisation
and electrification of energy systems. BESS play a fundamental role in
supporting the decarbonisation of energy systems and consequently the broader
economy. In this way, the Company, aims to contribute very positively to
climate change mitigation and net zero strategies.
Through its provision of investment in, and development of new BESS capacity,
the Company demonstrates additionality. "Additionality" is a term used by
impact investors that demonstrates the meaningful contribution that an entity
has in addressing environmental or social challenges through the deployment of
capital and management expertise that enables the creation of solutions that
would otherwise not exist.
The Company aims to monitor and report on four key metrics that demonstrate
its additionality and contribution to climate change mitigation going forward.
These metrics show the direction of travel and are most important in
demonstrating the positive sustainability outcomes of the Fund. More detail on
why these metrics have been selected is given below. These metrics are:
Operational BESS Connection Capacity (MW) 550MW 425MW
Operational BESS Battery Capacity (MWh) 598MWh 473MWh
Carbon emissions (tCO(2)) Scope 1 9,423 1,660
Scope 2 5,149 2,891
Scope 3 593 392
(Transmission and Distribution losses)
Carbon emissions avoided (tCO(2))* 510,291 n/a
*Carbon emissions calculation methodology has been updated from a UK
government (BEIS) approach in 2021 to application of the Partnership for
Carbon Accounting Financials (PCAF) Global GHG Accounting & Reporting
Standard for the Financial Industry in 2022. In addition, granularity has been
increased from annual net metered volumes to half-hourly metered volumes and
carbon intensity in 2022. Whilst the methodologies applied in each year are
similar, they are not an exact match. Some information was not available from
the 2021 calculations to provide a consistent comparison.
As reliance on renewable power grows globally there will be an increased need
for energy storage to stabilise energy networks and ensure supply and demand
are balanced in a cost effective and environmentally beneficial manner.
Therefore, operational BESS capacity (MW and MWh) is the biggest indicator of
the Fund's impact on enabling the transition to a net zero electricity system
and will be a key focus for the Manager.
Being able to reliably calculate the carbon emissions of our operations is
important to understanding the role of BESS in decarbonising the power grid.
The Company aims to maintain as accurate a calculation of carbon emissions as
possible. In this report we have included emissions as well as emissions
avoided through the operations of the BESS calculated by an independent
third-party consultant. We are also working on factoring in all aspects of the
batteries' life cycle contribution for future reporting. Calculating the
carbon dioxide emission avoidance via the various roles that BESS play within
the energy system can be challenging. The Metrics & Targets section of the
TCFD Report provides more context on carbon avoidance, detail of the current
methodology applied and limitations in the current methodology.
Sustainability-Related Activities
The Company's work in managing long-term risks and creating value from
long-term opportunities linked to sustainability factors comprises the
following actions during 2022 and plans for further progress in 2023:
Environmental Objectives
Objective 2022 Update 2023 plans
Commitment to sustainability:
Increase capacity under management to increase GRID's contribution to the Operational MW increased by 29% to 550MW at the year end. The Company is committed to the development of new BESS capacity in the UK and
decarbonisation of the network and a reliable, low-cost energy system. overseas.
Climate change and pollution:
Report annual carbon footprint to stakeholders. Carbon footprint and avoided emissions data calculated with support from a Carbon footprint will be maintained as a KPI, and further carbon and
third-party carbon consultant. climate-related information will be disclosed under TCFD.
Set targets and actions to reduce operational carbon emissions.
Carbon data provided as part of KPIs above and reported in the Director's Undertake to improve the Carbon Avoided methodology and to estimate the
Apply TCFD guidance and report in line with recommendations. Report. lifecycle carbon impact. Carbon intensity reduces as the build-out of
renewables progresses. BESS are vital to accommodate the growth in renewable
TCFD Report published see page 30. generation (such as by avoiding curtailment) and will therefore contribute to
the reduction in carbon intensity.
Natural Capital:
Measure and report on key natural capital impacts and dependencies. Consideration of the ecological and biodiversity impact of all new assets is Monitor the final Biodiversity Regulation (expected in 2023) and ensure
embedded into the investment process through inclusion in the ESG decision Biodiversity Net Gain requirements are met by all assets.
Enhance policies and processes to reduce, restore and enhance biodiversity and tool used for each investment.
other key ecosystem services at asset sites.
Biodiversity remains an important aspect of our site designs however, we plan
to report only on exceptions or particularly interesting examples going
forward.
Waste Management:
Work with contractors to incorporate full lifecycle analysis into BESS design Waste reduction during the construction phase has been a key area of focus. Plan in 2023 and beyond is to understand options relating to BESS end-of-life
to maximise asset life, reduce the overall carbon footprint of constructing This has been incorporated into the planning and site design phase to ensure use and next steps.
and operating projects, and consider end-of-life use to reduce negative efficient use of resources.
environmental and social impacts of battery production and the battery
Many batteries could have a second life before needing to be recycled so we
components including raw materials. We have been in discussion with battery manufacturers to ensure effective end are looking at both recycling and second-use options which may be available
of life disposal and recycling plans are in place. when required in future.
Engage with contractors/suppliers on their end-of-life process development and
technology.
Social Objectives
Objective 2022 Update 2023 plans
Supply Chain management
Update the supply chain policy to fully reflect best practice in the market During the year a supply chain audit was carried out on a major battery Based on findings from the Supply Chain Audit results, update the Supply Chain
and the commitments of the Investment Manager. supplier. Please see case study below for further details on the review. Policy and supply chain management processes.
Develop 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.
Include sustainability criteria into supplier contract renewal and supplier
selection decisions.
Engage with key suppliers to enhance their sustainability processes and reduce
the Fund's ESG risk exposure.
Governance Objectives
Objective 2022 Update 2023 plans
Governance & ethics: engaged and active ownership
Identify and work with key industry bodies to drive positive industry outcomes GRID shareholder questionnaire sent to top 15 investors to better understand The Manager intends to contribute to industry projects to improve
linked to sustainability topics. shareholder sustainability requirements. The findings contributed to the understanding of the role of BESS in decarbonising the energy system. This
selection of priority metrics and the reporting framework adopted by the includes projects with Government departments and ESO.
Track and report on engagement activities and key outcomes. Company.
Increase community engagement, where applicable, continuing to educate the The Manager contributed to a Green Finance Initiative workshop to provide
public on the role of BESS in the UK's decarbonisation ambitions. insights for a sector report on how to increase battery financing to support
decarbonisation of industry and solutions to improve the sustainability of
Solicit, where practical, feedback from key stakeholders who are in a position batteries.
to contribute.
The Manager provided feedback to the REMA consultation on net-zero energy
systems.
Marketplace responsibility: processes, policies and education
Assess all assets against our Sustainable Infrastructure Framework using the The ESG Decision Tool continues to be applied for each asset prior to Finalise "Red, Amber, Green" (RAG) rating of additional sustainability data
ESG Decision Tool and establish plans to rectify any material risks to create investment and remains a helpful way to identify the key ESG risks and availability and finalise fuller list of KPIs to be measured and monitored on
and protect value for shareholders. opportunities associated with investments. an ongoing basis.
Ensure the ESG Decision Tool remains up to date to reflect any enhancements to The Tool was updated to include more specific climate-related factors and to Develop a system or platform to improve the efficiency of data measurement and
the sustainable investment processes and sustainability related policies. explicitly address net gains in biodiversity. monitoring.
Finalise ESG KPIs to monitor and measure sustainability performance of the KPIs were finalised and documented above, the focus being on growth in
Fund and report these regularly to stakeholders. operational capacity and accurate measurement of carbon emissions.
The team is also undertaking an exercise to determine the availability of
additional sustainability data that might be gathered to complement the
priority metrics.
Other sustainability-related activities conducted in 2022
In addition to the core focus of the business and the updates provided above,
the Manager has also been working on some other areas related to
sustainability, demonstrating the wider activity around the Company's
underlying investments.
- Battery Supply Chain Audit
In 2022, the Manager engaged RCS to conduct a review of the Manager's Supply
Chain policy and an audit of CATL, the team's primary supplier of batteries.
The purpose of the audit was to better understand CATL's approach towards, and
policies for, managing its supply chain, particularly in the key risk areas of
labour and the environment. A key component (cathode) supplier was also
audited in this process.
CATL's policies were comprehensively reviewed and found to be satisfactory.
However, the audit of a key component supplier highlighted that CATL may face
challenges ensuring its supply chain policies are implemented by its supply
chain. The audit verified that CATL had a framework in place to manage ESG
risks, providing comfort to the Board that its main supplier is committed to
responsible business practices and has comprehensive policies in place.
Whilst the information did not impact on the team's construction or asset
management decisions, useful feedback was obtained that will lead to an update
of the Gresham House New Energy's Supply Chain Policy. Follow up actions
include updating the Manager's Supply Chain Policy and assessing whether and
how the Manager, as a key customer, can influence BESS suppliers' promotion of
their policies further down the supply chain.
- REMA/Industry Consultation:
The Government released its consultation document on REMA in July 2022. REMA
is a major review into the GB electricity market design, with the aim to
ensure cost benefits to customers whilst constructing a long-term net-zero
energy network. The consultation document outlined many ideas including
changing the wholesale market to Locational Marginal Pricing (LMP) (also known
as 'Nodal pricing'), reforms to the Capacity Market and a review of Contracts
for Difference (CfD). These plans are key to the potential success of any
net-zero plans and as key infrastructure in enabling that plan the role of
BESS is a high priority.
Gresham House has taken an active role in the consultation and has responded
on all points raised. The New Energy team continues to be involved (directly
and through industry networks) with government departments and the ESO to
ensure a sensible and effective solution is found whilst protecting the
returns case for renewable and storage assets, highlighted as a priority in
the consultation document. The review is expected to take several years,
however the team remains involved, through taking part in market studies into
the effects of various plans outlined and will continue to communicate with
the new Department for Energy Security and Net Zero and the ESO to protect the
investment case.
- Security (Physical and Cyber):
Without a safe and secure energy infrastructure, all the other social and
environmental benefits we aspire to will amount to nothing. Whilst often
overlooked in the context of sustainability, thus the instability of national
power systems arising during the energy crisis has reinforced the need and
societal benefits of having a reliable national power grid. BESS are a
fundamental and critical component to the transition to a net zero electricity
system. Ensuring that our sites are available to the electricity network when
needed and are not at increased risk from cyber or physical attack is vitally
important. Every major outfit connected to the nation's grid has an incredibly
important role to play in guaranteeing the security of that network from
hostile intruders. The Company and Manager takes the security of its
investments seriously and so appointed an expert cyber security company in the
year to test the security of its assets through three different tests:
· Penetration test: to simulate a cyber-attack on the BESS assets;
· Network security: if gained access how vulnerable different parts of
the site equipment would be to hacker influence;
· Physical security: Simulating a break-in of sites.
The penetration test was concluded in December 2022 with strong results with
few issues detected. The Network and Physical security tests are ongoing, with
some initial feedback already implemented across the portfolio prior to tests
being concluded. We look forward to finding out the results of these tests and
implementing any further recommendations to ensure our sites remain as secure
as they need to be.
The Manager's Sustainable Investment policies, processes and commitments
The Manager's work for the Company is part of its commitment to be a leader in
sustainable investment as set out in the GH 2025 Strategy. The Manager
recognises the importance of environmental, social and governance (ESG)
considerations and incorporating them into the investment process to deliver
long term, sustainable growth and consistent positive outcomes across local
and national communities.
To support this ambition, as well as its commitment to responsible investment
as a signatory to the Principles for Responsible Investment (PRI), the Manager
has established an approach to sustainable investment that is based on three
core components:
· its Sustainable Investment Framework:
· commitments and committees; and
· policies and processes.
These three core components drive a common approach across all the Manager's
investments and ensure the Manager's investment activities reflect its public
sustainable investment commitments.
These commitments are applied by the Manager in respect of the investment
processes and asset management approach of the Company. The Manager has
developed and published a New Energy Sustainable Investment Policy
(https://greshamhouse.com/wp-content/uploads/2022/06/New-Energy-Sustainable-Investment-Policy-April-22.pdf)
which is specific to the Company's sector. This policy describes the Manager's
approach to sustainable investment for the New Energy division and highlights
the commitments to investing sustainably which apply to the Company.
The Manager has also integrated sustainability into the investment process for
all divisions which starts with the completion of a proprietary ESG Decision
Tool. The ESG Decision Tool (the Tool), first applied by the Manager in 2020,
supports the identification of potential, material ESG risks that need to be
managed and mitigated and which helps shape the due diligence process prior to
investment into a new battery site. The Tool aims to provide a rational and
replicable assessment of key ESG risks which should be considered prior to an
investment decision being made. The Tool continues to be applied for all new
investments prior to acquisition.
More information on the Manager's sustainable investment activities can be
found on its website (https://greshamhouse.com/sustainable-investing/) and in
its annual Sustainable Investment Reports.
5. Task Force on Climate-related Financial Disclosures (TCFD)
The recommendations of the Task Force on Climate-Related Financial Disclosures
provide a reporting framework based on a set of consistent disclosure
recommendations. This framework provides a level of comparability and
transparency around climate-related risk exposures and approaches.
Whilst the Company is not required to comply with TCFD, the Company supports
the disclosure recommendations and has therefore voluntarily adopted the
recommendations. The 2021 Annual Report provided a preliminary assessment
against all eleven of the TCFD recommendations. In this 2022 Annual Report,
the Company builds on that preliminary assessment and includes climate-related
financial disclosures which aim to be consistent with the TCFD recommendations
and recommended disclosures. In relation to the disclosure of GHG scope 3
emissions, the Company is engaging with third-party providers to establish
suitable methodologies and data gathering has commenced. The Company has
provided scope 3 transportation and distribution losses in this report and
aims to provide further scope 3 emissions data in its subsequent annual
reports.
Governance
1. Describe the Board's oversight of climate-related risks and
opportunities.
The Board has overall responsibility for the Company's sustainability risks,
opportunities and compliance, which include those related to climate change.
The Board meets at least once per quarter and in those meetings discusses the
Company's approach to ESG considerations and risks, which include the
potential impact of the physical consequences of climate change and changes to
the business outlook for BESS as a result of governmental policy and the
increased penetration of renewables.
Climate change risks are also captured by the Company's Risk Management
Framework. A risk matrix is maintained by the Investment Manager which is
subject to review by the Board and is discussed at its quarterly meetings and
updated accordingly.
The outcome of discussions around ESG considerations and climate-related risks
and opportunities are reflected in the Company's strategy, including the
intention to continue to expand the portfolio to capture opportunities arising
from the decarbonisation of energy use and the increased penetration of
renewable energy.
In relation to ESG and climate considerations, the Company follows the Gresham
House New Energy Sustainable Investment Policy which is available on the
Gresham House website:
https://greshamhouse.com/wp-content/uploads/2022/06/New-Energy-Sustainable-Investment-Policy-April-22.pdf
(https://greshamhouse.com/wp-content/uploads/2022/06/New-Energy-Sustainable-Investment-Policy-April-22.pdf)
. Climate change and environmental pollution is a key topic within the
Sustainable Investment Framework which is used to structure analysis,
monitoring and reporting of ESG issues and opportunities within the lifecycle
of our investments.
The Board reviews all aspects of the Investment Manager's performance
annually, including their adherence to the Company policies. The Board's Audit
Committee considers the Company's climate-related disclosures.
2. Describe management's role in assessing and managing climate-related
risks and opportunities.
Whilst ESG considerations and risks are discussed formally with the Board on a
quarterly basis, the day-to-day management of ESG and climate matters is the
responsibility of the Investment Manager. The Investment Manager has
positioned the investment portfolio to benefit from the increasing penetration
of renewable energy generation and monitors climate-related risks through the
risk matrix, utilising knowledge gained by its experience in operating the
investment portfolio, information gathered through due diligence processes
entered into when acquiring new investments and by engaging with third parties
as appropriate.
The Investment Manager's Sustainable Investment team monitors the evolving
climate-related government policy and participates in industry forums and
discussions to influence sustainable investment-related policy developments
that may include climate change mitigation and adaptation. In April 2022,
Gresham House released its second Sustainable Investment Report highlighting
the Manager's increasing focus on ESG and climate change related matters as
part of its 2025 Corporate Sustainability Strategy (CSS). The Manager
published a third Sustainable Investment Report in April 2023 which will
include updates on climate-related activities across the group in the past
year. This will be available on the Gresham House website:
https://greshamhouse.com/sustainable-investing/
(https://greshamhouse.com/sustainable-investing/) .
The Gresham House New Energy Sustainable Investment Policy, which includes
climate change considerations, applies when making new investments and running
of the Company's existing investments. The Manager also ensures that climate
change-related risks are considered for individual investment projects.
The CSS and Sustainable Investment Policy inform the application of the
Company's strategy and assessment of the risks faced by the Company. This is
complemented by sustainable investment objectives that have been established
for the New Energy division and align to the Investment Manager's CSS. The New
Energy division's sustainable investment objectives include Climate Change
& Pollution as a priority topic with an objective by 2025 to "Demonstrate
the role of New Energy in the energy transition and understand the carbon
footprint of the full lifecycle of assets with the intention of reducing it".
The Investment Manager has also engaged with the Company's largest
shareholders to better understand the investor community's perspective on
sustainability-related issues, including climate-related strategy, disclosure,
and metrics.
Strategy
3. Describe the climate-related risks and opportunities the organisation
has identified over the short, medium, and
long-term.
The Company is committed to investing in and developing Battery Energy Storage
Systems (BESS) to contribute to the decarbonisation of energy systems. The
Manager and the Board support this commitment, and this guides the Company's
activities. The portfolio is currently geographically limited to Great Britain
although the Company has ambitions to develop internationally.
The Company's investments in BESS are well positioned to benefit from
climate-related opportunities over the short, medium and long-term by
participating in the opportunities arising in the UK and overseas from the
decarbonisation of energy usage and the increased penetration of renewable
energy.
The Company is already benefitting from climate-related opportunities arising
from the transition to renewable energy technologies which are inherently
intermittent, creating additional requirements for ancillary services to
support the transmission network balancing mechanism and presenting wholesale
trading opportunities.
The Board and Investment Manager also recognise that there are certain
climate-related risks that could have an impact on the Company in relation to
changes in the business environment and physical risks caused by extreme
weather events.
As described above, the Manager maintains a risk matrix, which includes
climate-related risks, and this is subject to regular discussion with the
Board. As part of this risk management process the Board and Investment
Manager have identified what they consider to be the principal risks facing
the Company and this includes climate-related risks. The table below sets out
the key climate-related risks and opportunities identified by the Board and
Investment Manager over the short, medium and long-term, and include their
potential impact on the financial performance of the Company. Climate-related
risks and opportunities are embedded in the Company's strategy.
Timeframe Opportunity Risks
Short-term & medium-term · The continuing rollout of renewable generation, encouraged by · Co-located batteries on renewable generation sites may reduce the
governments, increases demand for BESS to balance the energy system need for standalone BESS
· Increased government and public support for decarbonisation · Lower power prices due to over-deployment of renewables may
increases the volume of sustainable and impact investing affect ability to earn revenues from wholesale trading activities
· Implementation of carbon pricing may lead to increased investment · Saturated market for ancillary services, driven by significant
in companies that enable renewable deployment capacity increases in BESS, may lead to low pricing for those services
· Increased competition for investment opportunities will increase
project costs and lead to a reduction in financial returns
· Increased focus on BESS as a key enabler of renewable deployment
may lead to greater regulation and associated costs
Long-term · As economies continue to move away from fossil fuels, demand for · Physical risks arising from extreme weather events including
electricity will increase and could increase power prices flooding and storm damage
· Advances in battery technology may lower cost of ownership and · Extreme temperatures can affect the performance of battery
provide new opportunities to increase participation in energy markets technologies
· Development of alternative energy storage systems to support the
roll-out of renewable power generation may lead to early obsolescence of BESS
causing asset write-downs
· Advances in battery technology may lead to lower cost of
production leading to a reduction in financial returns for existing projects
4. Describe the impact of climate-related risks and opportunities on the
organisation's businesses, strategy, and financial planning.
Investment Portfolio
Opportunities
The Company's operational BESS investments participate in the market
opportunities identified above and benefit from governmental and societal
support for deployment of renewable technologies. These operational entities
have already benefitted from high levels of volatility and power prices, in
part caused by increased renewables penetration and a relative lack of BESS
capacity.
The Company has also developed a significant future portfolio by investing in
projects which have been constructing BESS assets. Large parts of this
pipeline have recently been commissioned or are expected to be commissioned
shortly and will benefit from market opportunities once operational.
Risks
The Company's portfolio is focussed exclusively on BESS and as such are
exposed to the physical, technological and market risks identified above.
However, the investment portfolio is geographically spread in the UK, and
given the nature of BESS technology, are not generally adversely affected by
weather patterns. Consideration is given to potential physical risks such as
flooding during the planning phase and the geographic spread provides
resilience against localised issues.
Strategy
Opportunities
Increasing awareness and attention to climate change has spurred increased
deployment of renewable energy worldwide. The Board and the Manager believe
that this will continue, providing significant opportunities for BESS in the
short, medium and long-term. The Company is a leading provider of BESS in the
UK and has a significant future pipeline of investments in different stages of
development in the UK and overseas.
This awareness has spurred high levels of investor interest and support for
the Company, enabling it to raise equity funds. This investor support has
provided the Company with the necessary capital to continue to invest in BESS
portfolio projects. The Company's development is part of a growing industry as
BESS is rolled out by peers in the UK and overseas.
Risks
Development of BESS capacity by the Company's portfolio investments and
competitors is leading to the saturation of the market for BESS ancillary
services in the UK. The Manager has anticipated this for some time and sees
exposure to the wholesale trading market increasing in pursuit of profits
which may result in greater volatility of returns.
High levels of investment in BESS, and wider awareness of the market
opportunities, is leading to increased competition for project rights and key
equipment and consequently increases in prices of those project rights and the
equipment required, which results in higher costs to develop projects and may
lead to a reduction in returns.
Financial Planning
Opportunities
Strong investor demand for organisations with strong ESG credentials that are
addressing environmental and social challenges, and on the back of attractive
revenue opportunities for BESS, is providing the Company with capital to
continue to grow its investment portfolio and the potential for increases in
the asset value of the portfolio.
The importance of BESS in supporting the further deployment of renewable
energy generation, and the resulting strong investment case underpinning BESS,
is also opening up access to further sources of funding, such as bank debt,
further enabling the Company to grow its portfolio.
Volatility of wholesale power prices, driven by volatility in the availability
of renewable energy generation, may provide significant opportunities for
trading energy as renewables become an increasing proportion of the energy
mix. As high energy prices are typically driven by fossil fuel generation and
low prices driven by high renewable generation, any increase in carbon pricing
is likely to extend spreads with fossil fuel generation having to increase
pricing to cover the cost of running. This means there is an opportunity for
increased revenues resulting from increasing carbon prices.
Risks
As noted above, future cash flows of the portfolio investments are likely to
be significantly affected by wholesale power prices as the market for BESS
ancillary services becomes saturated. During periods of high renewable energy
generation, the revenue opportunities will be diminished. Over time this could
lead to the reduction in value of asset values.
Increased input prices linked to carbon-related raw material costs may
increase construction costs of pipeline assets and therefore reduce returns
available to the Company.
The emergence of new energy storage technologies may require the Company to
invest in research and development, thereby impacting on returns.
5. Describe the resilience of the organisation's strategy, taking into
consideration different future climate scenarios, including a 2°C or lower
scenario.
Physical risks
Given the geographic spread of the Company's investment portfolio within the
UK and the nature of BESS technologies the Board and Investment Manager do not
consider that there are likely to be significant physical risks to the current
investment portfolio arising from various climate scenarios. Potential
physical risks that could exist, such as flooding in an extreme weather event,
are considered as part of design specifications and increased infrastructure
costs to cope with potential physical risks are not anticipated to be
material. Flood defences are already considered in the investment portfolio
with a number of projects having key equipment elevated above the ground to
reduce risk of damage in the event of a flood. The geographic spread provides
resilience against localised issues.
Transition risks
As previously noted, the portfolio investment companies' principal sources of
revenue in the future are expected to be focussed more towards the wholesale
energy market rather than the provision of ancillary services. It is likely
that wholesale energy markets will be significantly impacted by a number of
climate-related factors. Some of the most important factors include:
· government policy (including carbon cost regimes and mandated
plant closure);
· penetration of renewables;
· development in future technologies designed to deal with
climate-related matters (e.g. a move to a hydrogen-based energy system); and
· changing patterns of demand (including the impact of electric
vehicles, heat pumps and increased use of air conditioning).
The Company uses the services of third-party experts to estimate the impact of
those factors in energy prices over the short, medium and long-term to create
low, high and central case scenarios. These scenarios, which factor in
Government Net Zero commitments, a view on the likelihood of their
implementation, and expected carbon prices, are then embedded within financial
modelling. Although the scenarios are used within the Company's financial
modelling, the precise effect on power price of any of the identified factors,
and their timing, is highly uncertain.
The ability of BESS to participate flexibly within the wholesale market, or to
provide ancillary services, provides revenue opportunities even in low case
scenarios.
6. Describe the organisation's processes for identifying and assessing
climate-related risk.
Climate-related risks which may affect the Company or its investment portfolio
are identified and assessed by the Investment Manager as part of the risk
management process described above. These risks are included within the
Company's risk register which is maintained by the Investment Manager and
discussed and reviewed with members of the Board including at its formal
quarterly meetings where strategic decisions are taken. When preparing the
risk matrix the Investment Manager draws upon its experience of operating the
investment portfolio and its knowledge of developments that are taking place
within the BESS sector and wider energy industry gained through its membership
of relevant industry bodies and discussions with key suppliers and National
Grid. Identified risks are included in the risk matrix and quantified with
consideration given to likelihood and impact and ranked accordingly.
Potential risks may also be identified as part of the due diligence process
that is carried out by the Investment Manager and independent experts prior to
acquiring new portfolio companies. The Investment Manager has created a
detailed ESG Decision Tool which is completed prior to making acquisitions of
portfolio companies. This decision tool includes consideration of numerous ESG
and climate factors including environmental assessment, potential flooding /
drainage and the suitability of construction contractors to adequately deal
with environmental or climate-related mitigation actions. During investment
appraisal, consideration is given to available climate mitigation and the
costs of putting this in place are factored into the investment proposal which
is reviewed by the Board before such acquisitions are made.
Principal and emerging risks, which may include climate-related risks, are
disclosed within the Company's Annual Financial Statements.
The Company will continue to refine its climate risk assessment approach in
line with the evolving nature of climate factors and emergence of
climate-related tools and data.
7. Describe the organisation's processes for managing climate-related
risks.
Discussions between the Board and the Investment Manager are focussed on the
most significant risks facing the Company, as determined and quantified in the
risk matrix.
Physical risks
As previously stated, the Investment Manager and the Board do not consider
that there are likely to be significant physical climate-related risks to the
investment portfolio. Potential physical risk factors that are identified as
part of the initial acquisition process, or identified subsequently via design
reviews, site inspections or during routine maintenance, may be mitigated via
design changes. Such design changes include the cooling systems used, and
heating where it may be required, as well as having containers raised on
plinths which can reduce flood risks where applicable. The geographical spread
of the investment portfolio mitigates against local environmental factors such
as flooding. Flood risk assessments, based on Environment Agency data, are
undertaken and will determine a flood zoning and a probabilistic analysis of
flooding, including effects of climate change. BESS assets have temperature
managements (such as air conditioning or liquid cooling), further mitigations
of physical risks are considered at the planning stage and are often required
to be considered as part of planning approval.
Transition risk
The anticipated growth of renewable energy generation, which is likely to lead
to increased volatility of wholesale power prices, is considered to be an
opportunity for the investment portfolio rather than a risk. However, shifts
in power demand or supply and their effect on power market pricing will impact
the ability of the portfolio companies to generate revenue which may impact
the Company's ability to meet its dividend target. The Investment Manager
regularly updates the portfolio cash flow model to reflect future net revenue
yield curves.
The Manager is engaged in the Review of Electricity Market Arrangements (REMA)
consultation with National Grid ESO and UK Government departments, having
submitted initial consultation responses in October 2022 and holding several
meetings during this time on proposals put forward. The Manager is also an
active participant in industry bodies. The Manager is currently involved in an
industry study looking into the possible effects of some of the proposed
changes such as locational pricing. The results of these studies will be
discussed with the ESO and the UK Government to ensure an effective market
design is agreed on.
The Investment Manager keeps abreast of developments in battery and storage
technologies which may affect the Company's market opportunities in the
future.
8. Describe how processes for identifying, assessing, and managing
climate-related risks are integrated into the organisation's overall risk
management.
As noted above, climate-related risks are integrated into the Company's risk
management framework through the investment process and through the regular
review of the Company's risks carried out by the Investment Manager and are
included in the risk matrix which is reported quarterly to the Board. The
Board considers the completeness of the risks recognised and the proposed
mitigations.
Metrics
9. Disclose the metrics used by the organisation to assess
climate-related risks and opportunities.
The Company's investments in BESS play an important role in facilitating the
continued deployment of renewable energy generation. Renewable energy
generation through wind and solar is inherently intermittent and the increased
penetration of renewable energy generation therefore increases the challenges
facing energy system operators to ensure a stable supply of energy.
BESS has the ability to help deal with some of those challenges by providing
ancillary services that support the transmission network balancing system and
by storing energy from the electricity grid during period of high supply / low
demand and releasing energy to the Grid during periods of low supply / high
demand.
To date, the roll-out of BESS has lagged behind the deployment of renewable
energy. The Company has been targeting rapid growth of its investments in BESS
to help close the gap and support the future increase in renewable generating
capacity and thereby reduce dependency on fossil fuels.
The Board and Investment Manager consider that the most important
climate-related metrics for the Company relate to the scale, availability and
efficiency of the Company's BESS investments, measured as:
- Total operational BESS capacity at the year-end (MW and MWh)
- Weighted average BESS capacity for the year (MW)
- Carbon emissions avoided (tCO(2)e)
In addition, the Investment Manager will monitor carbon emissions and carbon
intensity metrics in line with TCFD recommendations for the financial industry
including:
- GHG emissions - scope 1,2 & 3 carbon emissions (tCO(2)e)
- Weighted average carbon intensity (WACI) (scope 1+2
emissions/£mn revenue)
The methodology used to calculate the average carbon intensity and carbon
emissions is documented in sections 10 and 11 of this report respectively.
10. Disclose Scope 1, Scope 2, and if appropriate, Scope 3 greenhouse gas
emissions, and the related risks.
The Company reports emissions using the Greenhouse Gas (GHG) Protocol which is
the most widely used framework for reporting on carbon emissions and this
framework separates emissions into the following categories:
• Scope 1: Direct emissions from owned or controlled sources
• Scope 2: Indirect emissions from the generation of purchased energy
• Scope 3: Indirect emissions that occur in the value chain
The Company has calculated Scope 1, Scope 2 and Scope 3 (Transmission and
distribution losses) CO(2) emissions for the year ended 31 December 2022. The
calculations were supported with input from third-party carbon consultant,
Carbon Trust, and apply the Partnership for Carbon Accounting Financials'
(PCAF) "The Global GHG Accounting & Reporting Standard for the Financial
Industry" (Nov,2020). UK Government conversion factors and EEIO emissions
factors have been utilised to facilitate the calculations.
Metric 2022 2021*
Scope 1 emissions (tCO(2)e) 9,423 1,660
Scope 2 emissions (tCO(2)e) 5,149 2,891
Scope 3 (Transmission and distribution losses) emissions (tCO(2)e) 593 392
WACI (tCO(2)e/£mn revenue in portfolio) 178 n/a
*Carbon emissions calculation methodology has been updated from a UK
government (BEIS) approach in 2021 to application of the Partnership for
Carbon Accounting Financials (PCAF) Global GHG Accounting & Reporting
Standard for the Financial Industry in 2022. In addition, granularity has been
increased from annual net metered volumes to half-hourly metered volumes and
carbon intensity in 2022. Whilst the methodologies applied in each year are
similar, they are not an exact match. Some information was not available from
the 2021 calculations to provide a consistent comparison.
Carbon emissions methodology
All carbon emissions are calculated in line with PCAF guidance for project
finance. Scope 1, 2 and 3 emissions are calculated using the following
formula:
Emissions reported currently encompass only operational assets and do not yet
account for construction assets. The Company intends to expand reporting to
cover construction assets in 2023 reporting.
More information on Scope 1, 2 and 3 emissions
Scope 1 emissions for the Company reflect diesel and gas fuel consumed by
certain assets. Only one of the Company's portfolio companies uses significant
amounts of gas or diesel, with the bulk of generation coming from gas at that
site. Further, one other asset used a small amount of Diesel for testing under
its Capacity Market contract obligations and did not represent a material
trading return. Scope 2 emissions reflect greenhouse gas emissions released
from indirect consumption of energy. For battery assets, the presumed energy
consumption of an asset is calculated by deducting energy exported from energy
imported (kWh) by the asset. Half-hourly UK electricity grid carbon emissions
factors are then applied to estimate the carbon footprint associated with this
energy consumption.
Scope 3 emissions in this reporting only include Transmission &
distribution losses. T&D losses reflect emissions associated with loss
during transmission and distribution of energy consumed by the BESS assets.
The Company intends to expand its metrics for Scope 3 emissions, which will
give clarity on emissions within its value chain and will enable the Company
to engage with suppliers to take action to reduce such emissions. The
Investment Manager is engaging with third-party providers to establish
suitable mechanisms to calculate the Company's Scope 3 emissions and data
gathering to support these estimates has commenced. For this report the
Company has stated Scope 3 Transmission and distribution losses only and plans
to extend further in subsequent reporting periods.
It is likely that the Company's Scope 3 emissions will represent the majority
of its carbon footprint.
Weighted-average carbon intensity methodology and metric
The Company's weighted average carbon intensity reflects a portfolio's
exposure to carbon-intensive assets, expressed in tCO2e/£mn revenue. It is
calculated, as per TCFD guidance for Financial Institutions, using the
following formula:
Note that "issuer" in the case of the Company refers to its battery assets.
11. Describe the targets used by the organisation to manage climate-related
risks and opportunities and performance against targets.
BESS capacity
BESS capacity supports multiples of renewable generation capacity and
therefore incremental BESS deployment is a key measure. The Investment Manager
continues to develop a pipeline of BESS investments and the Company has made
good progress in expanding operational capacity despite Covid-related
construction and supply chain challenges. The operational capacity and
pipeline reported by the Company, measured in MW capacity, has grown as
follows:
Operational capacity Total pipeline capacity
31 December 2020 315MW 1,227MW
31 December 2021 425MW 1,557MW
31 December 2022 550MW 1,967MW
GHG emissions avoided
As BESS generally store energy during periods of high renewable energy
generation / low demand and release energy during periods of low renewable
energy generation / high demand, there is an inherent carbon benefit to using
BESS within the electricity grid. However, BESS also displaces fossil
fuel-based energy generation as a backup system and it therefore enables the
avoidance of emissions greatly in excess of the differential between the
carbon associated with the energy imports and exports.
More detail on the methodology applied for this is found below. It should be
noted that at this stage the carbon avoided methodology only accounts for
operational assets and does not account for lifecycle carbon impact, i.e.,
carbon emissions associated with the supply chain and production of the
assets.
On this measure, the carbon avoided by the Company's BESS investments is
calculated by a third-party consultant (Carbon Trust) as follows:
YE 31 December 2022 510,291 tCO2
Carbon emissions avoided methodology
Scope 2 emissions show the net carbon emissions impact of assets operations
through energy consumption. This methodology for BESS assets is such that the
net metering, i.e. import and exports of energy by each battery, are assumed
to be consumed/avoided at the average intensity of the national grid for each
half hour.
This calculation demonstrates the operational carbon emissions of the assets
but does not reflect the important role of BESS assets when it comes to
broader grid carbon emissions and their role in supporting increased
penetration of renewables and decreased use of carbon-intensive energy
generation. The scope 2 methodology omits two key aspects of the broader role
of BESS that should be factored into carbon avoidance methodologies:
1) no value is attributed to BESS services offered such as Frequency
Response and the renewable generation this allows on the system; and
2) whilst trading, the battery exports would replace the next marginal
asset that would otherwise be called upon, which would be a higher carbon
intensity technology such as gas or even coal, than the average intensity on
the grid. Therefore, the emissions avoided should reflect the marginal unit
carbon cost and not the average intensity.
As shown in the chart on the previous page imports are typically carried out
during half-hourly periods when carbon intensity is lower, whilst exports are
typically delivered during higher carbon intensity periods on the grid.
Low prices are typically driven by high output from cheap renewables, leading
to lower grid carbon intensity, whilst high prices are typically driven by
periods of lower renewables output and instead power is delivered by higher
carbon-intensive and more expensive power technologies such as gas or even
coal.
The average carbon intensity of the grid currently does not change too
significantly due to a general high prevalence of gas today. Therefore, the
difference between high and low carbon intensity is often relatively small
particularly in a single day. The scope 2 emissions methodology of a battery
will therefore typically result in net consumption of energy as a result of
its round-trip losses, i.e. it imports a greater volume of energy than
exported with a resulting "carbon consumption". Unless consideration is given
to the wider carbon emission benefits that BESS assets enable, i.e. frequency
response enabling greater reliance on renewables, the carbon emissions impact
of these assets will be miscalculated.
Therefore, we have worked and continue to work with Carbon Trust to use an
updated methodology which also factors in the benefit from assets providing
frequency response services.
The avoided emissions are calculated by comparing calculated emissions against
a baseline emission if these assets were not available to the grid and the
grid had continued to operate as usual. The baseline can vary depending on the
strategy adopted by a BESS asset. The baseline for an asset performing
frequency response services is assumed to be a plant at the operating margin.
It is assumed a BESS asset would maintain headroom in the battery in order to
deliver upwards and downwards actions, for simplicity, Carbon Trust assume the
state of charge of a battery is 50% in this scenario. When comparing against
the baseline it is therefore assumed only half of the nominal battery capacity
is used, this is multiplied against the number of hours operational in the
service and then multiplied against the average operational margin grid carbon
intensity in the location. The baseline calculation is therefore summarised
as:
Grid stability baseline emissions = 50% BESS capacity x No. hours in service x
grid operational margin
This baseline is then compared to the actual calculated emissions to calculate
the emissions avoided. The approach taken is a conservative estimation of the
avoided baseline emissions and today only factors in the emissions avoided
during periods of frequency response services.
Whilst we view this methodology as an improvement over our previous
calculations, the calculation still assumes that exports, when batteries are
trading, avoid only the average carbon intensity on the system and not the
marginal asset intensity. We are working with Carbon Trust as well as other
data consultants to keep iterating the calculation and derive a more detailed
analysis of the carbon emissions avoided both in frequency response services
and whilst trading, we hope to share further updates in future reports.
Under the current methodology the estimated carbon emissions avoided from our
portfolio for 2022 was 510,291 tCO2.
Target for GHG emissions avoided
The Investment Manager is considering the setting of a Science Based Target
(SBT) for its Financed Emissions, that is the emissions associated with
investments managed by the Investment Manager. As part of this process, the
Company is considering the potential implications of setting a SBT.
6. STRATEGIC REPORT
The Directors present their Strategic Report for the period ended 31 December
2022. Details of the Directors who held office during the period and as at the
date of this report are given on page 50 of the Annual Report and Financial
Statements. This Strategic Report has been prepared in accordance with the
requirements of Section 414 of the Companies Act 2006 and best practice. Its
purpose is to inform the members of the Company and help them to assess how
the Directors have performed their duty to promote the success of the Company,
in accordance with Section 172 of the Companies Act 2006.
Business review and outlook
A detailed discussion of individual asset performance and a review of the
business in the period together with outlook are covered in the Investment
Manager's Report on page 10.
The Directors are of the view that the investment strategy, incorporating both
additional acquisitions and the existing portfolio, is performing well. The
Company has a strong portfolio of diversified investments, which are well
positioned to take advantage of a growing opportunity set. The equity
fundraising during Q2 of 2022 demonstrates strong investor support for the
Company's growth strategy and the resilience of the Company's income. One of
the Board's key objectives for 2023 is to grow the operational portfolio and
pipeline by continuing to ensure an effective and efficient deployment of the
capital raised by the Company, augmented by a drawdown of the debt facility,
into a portfolio of accretive assets that are in line with the Company's
Investment Policy.
Key performance indicators
The Board believes that the key performance indicators detailed in the
Highlights section on page 4 and the Investment Manager's Report, which
include profit, projected revenues, dividend, NAV, total return, project
capacities and battery sizes, provide shareholders with balanced information
to assess how the Company is performing against its investment objectives.
The Board monitors these key metrics on a routine basis and is encouraged by
performance in the year: the capacity of the batteries has increased; the
pipeline of new batteries is substantial; and the revenue earning
opportunities for these batteries are continually developing in line with
expectations. Further discussion of the KPIs and results are included in the
Chair's Statement on page 6 and in the Investment Manager's Report on page 10.
The Company has generated £217.1mn of profit in the year ended 31 December
2022, including interest receivable from subsidiaries. Total dividends paid in
respect of 2022 were £36.1mn (including the dividend paid on 27 March 2023).
The Board maintains a focus on operating profit and Operational Dividend Cover
to ensure underlying profits from the Company's investments are available to
cover dividends. As the capital raised is fully deployed and underlying assets
upgraded, the Board will continue to ensure this is monitored closely.
Grid connection capacity (in MW) and the capacity of the batteries (in MWh)
are also crucial to ensure the underlying investments are able to operate at
full capacity: the Investment Manager has ensured grid capacities (both import
and export) are optimised and symmetrical wherever possible. Finally, as the
Company has undertaken several fundraisings following IPO, the Board monitors
the project pipeline to ensure quality projects are available to meet investor
demand and that funds raised are deployed in a reasonable timeframe.
Investment Policy: diversification of assets and revenues
The Company invests in a diversified portfolio of utility-scale energy storage
systems, which utilise batteries. The BESS Projects comprising the Portfolio
will be located in diverse locations across Great Britain and the Overseas
Jurisdictions.
Individual ESS Projects will be held within special purpose vehicles into
which the Company invests through equity and/or debt instruments. It is
intended that each BESS Project Company will hold one BESS Project but a BESS
Project Company may own more than one BESS Project. The Company will typically
seek legal control through direct or indirect stakes of up to 100 per cent in
such BESS Project Companies, but may participate in joint ventures or
co-investments, including, without limitation with other investors or entities
managed, operated or advised by the Gresham House plc group where this
approach enables the Company to gain exposure to assets within the Company's
investment policy. In such circumstances the Company will seek to secure its
shareholder rights through protective provisions in shareholders' agreements,
co-investment agreements and other transactional documents.
Asset type and diversification
The Company invests primarily in BESS Projects using lithium-ion battery
technology as this technology is considered by the Company to offer the best
risk/return profile. However, the Company is adaptable as to which energy
storage technology is used by the projects in which it invests and may invest
in projects with alternative battery technologies such as sodium and zinc
derived technologies, or other forms of energy storage technology (such as
flow batteries/machines and compressed air technologies), and will consider
such investments (including combinations thereof) where they meet the
Company's investment policy and objectives.
The Company intends to invest with a view to holding assets until the end of
their useful life. BESS Projects may also be disposed of, or otherwise
realised, where the Manager determines in its discretion that such realisation
is in the interests of the Company. Such circumstances may include (without
limitation) disposals for the purposes of realising or preserving value, or of
realising cash resources for reinvestment or otherwise.
BESS Projects will be selected with a view to achieving appropriate
diversification in respect of the Portfolio.
First, diversification will be sought by geographical location of the BESS
Projects in which the Company invests across Great Britain and the Overseas
Jurisdictions, provided that no more than 30%. Of Gross Asset Value
(calculated at the time of investment) may be invested in the Overseas
Jurisdictions.
Second, it is the Company's intention that at the point at which any new
investment is made, no single project (or interest in any project) will have
an acquisition price (or, if an additional interest in an existing investment
is being acquired, the combined value of the Company's existing investment and
the additional interest acquired shall not be) greater than 20%. Of Gross
Asset Value (calculated at the time of investment). However, in order to
retain flexibility, the Company will be permitted to invest in a single
project (or interest in a project) that has an acquisition price of up to a
maximum of 30% of Gross Asset Value (calculated at the time of acquisition).
The Company will also target a diversified exposure with the aim of holding
interests in not less than five separate projects at any one time.
Third, the Company intends to achieve diversification by securing multiple and
varied revenue sources across the Portfolio by investing in BESS Projects
which can benefit from a number of different income streams with different
contract lengths and return profiles. The Company intends that the BESS
Projects in which it invests will primarily generate revenue from in front of
meter services but may also provide behind-the-meter services. The Company may
invest in changes to its equipment, technical configurations and technology in
order to access revenue streams as they become available, noting that revenue
streams and revenue stacking continues to evolve not only in Great Britain but
also in the Overseas Jurisdictions as the energy storage market matures.
BESS Projects in which the Company invests may diversify their revenue sources
further by collaborating with renewable generators or large users of power in
close proximity to a BESS Project, or providing availability-based services to
restore electric power stations or part of electric grids to operation. The
Company may also invest in BESS Projects with Co-Location Arrangements in the
Overseas Jurisdictions and may purchase solar panels for use at such
co-located BESS Projects in the Overseas Jurisdictions provided that the
proportion of an investment spent on purchases of solar panels does not exceed
6% of Gross Asset Value (calculated at the time of such purchase).
Fourth, the Company aims to achieve diversification across the Portfolio
through the use of a range of third-party providers, in so far as appropriate,
in respect of each energy storage project such as developers, Engineering,
procurement and construction (EPC) contractors, battery manufacturers and
landlords.
Finally, each BESS Project internally mitigates operational risk because each
BESS Project will contain a battery system with a number of battery modules in
each stack, each of which is independent and can be repaired, upgraded or
replaced separately, thereby reducing the impact on the project as a whole of
the failure of one or more battery modules.
Other investment restrictions
The Company will generally seek to acquire BESS Projects where construction is
substantially complete and where BESS Projects are capable of commercial
operations ("Operational Projects"). Operational Projects will need to have in
place sufficient land rights, either in the form of a freehold interest or
substantially similar interest in the Overseas Jurisdictions or a completed
lease on satisfactory terms in relation to the land where that BESS Project is
situated, a grid connection agreement or grid sharing or such other rights to
import or export from the relevant network as are market standard, and
completion of relevant commissioning tests confirming commissioning
completion.
The Company may also acquire BESS Projects or rights to acquire BESS Projects
which are considered "shovel ready" that as a minimum have in place sufficient
land rights either in the form of a freehold interest or substantially similar
interest in the Overseas Jurisdictions or a completed lease, lease option, or
agreement for lease, on satisfactory terms in relation to the land where that
BESS Project is situated, full planning permission enabling the construction
of a suitable BESS Project on that land, and a grid connection offer or grid
sharing or such other rights to import or export from the relevant network as
are market standard prior to connection works being completed (Ready to Build
Projects).
The Company may invest in Ready to Build Projects provided that no more than
10% of Gross Asset Value (calculated at the time consideration is paid for
such acquisition) may be exposed in aggregate to such Ready to Build Projects.
If the Company wishes to acquire other Ready to Build Projects in excess of
the 10% of Gross Asset Value restriction, it may acquire such Ready to Build
Projects for a nominal upfront consideration provided that (i) any remaining
consideration is paid by the Company only where construction is substantially
complete and where such BESS Projects are capable of commercial operations and
(ii) the Company has a put option to transfer back the Ready to Build Project
to the seller in certain circumstances.
The Company may provide loan finance to BESS Project Companies before they
hold Operational Projects so that the BESS Project Companies can acquire
equipment or make payments in connection with the BESS Projects' construction
or delivery, provided that no more than 25% of Gross Asset Value (calculated
at the time that finance is provided based on the latest available valuations)
may be exposed in aggregate to any such loans.
Once an Operational Project is acquired, or after a Ready to Build Project
becomes an Operational Project, the Company may invest in upgrades by loans or
otherwise and enter into new lease arrangements to increase the size of the
site, new planning permissions enabling construction of an increased capacity
BESS Project on that land, a new and/or amended grid connection which provides
for increased capacity or altered technical parameters, and/or an EPC
contract, Engineering, procurement and construction management (EPCm) contract
suite or other construction contracts to undertake construction of the
relevant upgrades.
The Company does not intend to invest in listed closed-ended investment funds
or in any other investment fund (other than, potentially, in money market
funds as cash equivalents) and in any event shall not invest any more than 15%
of its total assets in listed closed-ended investment funds or in any other
investment fund.
Investment in Developers
The Company may invest in one or more Developers of BESS Projects through
equity issued by the relevant Developer, provided that investment in
Developers (calculated at the time of investment) shall be capped at £1
million in aggregate.
Cash management
Uninvested cash or surplus capital may be invested on a temporary basis in:
· cash or cash equivalents, money market instruments, money market
funds, bonds, commercial paper or other debt obligations with banks or other
counterparties having a "single A" or higher credit rating as determined by
any internationally recognised rating agency selected by the Board which, may
or may not be registered in the European Union; and
· any UK "government and public securities" as defined for the
purposes of the FCA Rules.
Leverage and derivatives
The Company may raise debt and introduce leverage (at the Company level and/or
the level of one or more of its subsidiaries, such leverage to be introduced
directly or through one or more subsidiaries) to the extent funding is
available on acceptable terms. In addition, it may from time-to-time use
borrowing for short-term liquidity purposes which could be achieved through a
loan facility or other types of collateralised borrowing instruments. The
Group is permitted to provide security to lenders in order to borrow money,
which may be by way of mortgages, charges or other security interests or by
way of outright transfer of title to the Group's assets. The Directors will
restrict borrowing to an amount not exceeding 50 per cent. of the Company's
Net Asset Value at the time of drawdown. There will be no cross
collateralisation between the BESS Projects.
Derivatives may be used for currency, interest rate and power price hedging
purposes as set out below and for efficient portfolio management. The Midco
has entered into interest rate swap agreements in relation to its debt
facility to fix the interest rate and has also entered into Forward Contract
Share Purchase Agreements in relation to certain pipeline assets. However,
apart from those contracts the Directors do not anticipate that extensive use
of derivatives will be necessary.
Efficient portfolio management
Efficient portfolio management techniques may be employed by the Group, and
this may include (as relevant) currency hedging, interest rate hedging and
power price hedging.
Amendment to and compliance with investment policy
No material change will be made to the investment policy without the approval
of Shareholders by ordinary resolution.
In the event of any material breach of the investment restrictions applicable
to the Company, Shareholders will be informed of the actions to be taken by
the Manager through a Regulatory Information Service.
Bribery and Corruption Policy
The Investment Manager has an Anti-Bribery and Corruption Policy. The Company
has considered whether it needs to have an Anti-Bribery and Corruption Policy
that are separate from the Manager and its other service providers and has
concluded that separate policies are not required.
Dividend policy
The Board expects that dividends will constitute the principal element of the
return to the holders of Ordinary Shares. On the basis of current market
conditions, the Company will target dividend payments of 7.35 pence per
Ordinary Share in the financial year ending 31 December 2023 and in financial
periods thereafter.
It is intended that dividends on the shares will be payable quarterly for the
quarters ending in March, June, September, and December, all in the form of
interim dividends (the Company does not intend to pay any final dividends).
The Board reserves the right to retain, within a revenue reserve, a proportion
of the Company's net income in any financial year, such reserve then being
available at the Board's absolute discretion for subsequent distribution to
shareholders, subject to the distribution requirements of the Investment Trust
Regulations.
The dividend policy will be subject to an annual vote at each Annual General
Meeting (AGM). The Company may, at the discretion of the Board, and to the
extent possible, pay all or part of any future dividend out of capital.
Share buybacks
The Company may purchase Ordinary Shares in the market at prices which
represent a discount to the prevailing NAV per Ordinary Share of that class so
as to enhance the NAV per Ordinary Share for the remaining holders of Ordinary
Shares of the same class. The Company is authorised to make market purchases
of up to 35,117,170 Ordinary Shares. The Board intends to seek shareholder
approval to renew its authority to make market purchases of its own issued
Ordinary Shares once its existing authority has expired or at subsequent AGMs.
Purchases of shares will be made within guidelines established from time to
time by the Board and only in accordance with the Statutes and the Disclosure
Guidance and Transparency Rules. Any purchase of shares may be satisfied by
the available cash or cash equivalent resources of the Company, from
borrowings, the realisation of the Company's assets or any combination of
these sources of liquidity, at the Directors' discretion.
Ordinary Shares bought back by the Company may be held in treasury or
cancelled. Such shares may (subject to there being in force a resolution of
shareholders to disapply the rights of pre-emption that would otherwise apply)
be resold by the Company. C Shares bought back by the Company will be
cancelled.
At the date of this Annual Report, the Company does not hold any shares in
treasury and has no intention to buy back shares at the present time.
Continuation Votes
Shareholders will have the opportunity to vote on an ordinary resolution on
the continuation of the Company at the AGM of the Company to be held in 2023,
and every fifth AGM thereafter. If any such ordinary resolution is not passed,
the Directors shall draw up proposals for the voluntary liquidation,
unitisation, reorganisation, or reconstruction of the Company for
consideration by the shareholders at a general meeting to be convened by the
Directors for a date not more than six months after the date of the meeting at
which such ordinary resolution was not passed.
Going concern and viability
The Strategic 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 page 44. The Board notes that it is difficult to foresee the
viability of any business over the long term given the inherent uncertainty
involved and that the risks associated with investments within the
infrastructure sector could result in a material adverse effect on the
Company's performance.
Going concern
As at 31 December 2022, the Company had net current assets of £6.9mn
(excluding cash balances within investee companies) and no debt. The Company
is a guarantor to the £305mn debt facility (£150mn capex facility, £155mn
incremental facility) and £30mn revolving credit facility entered into by the
MidCo in September 2021 and amended and restated in November 2022 which was
partially drawn at the year end. It is anticipated that the capex and
incremental facilities will be further utilised during 2023 to make
acquisitions, purchase equipment and make construction related payments for
pipeline projects.
The Company will hold a continuation vote in 2023 in line with the Company's
Articles of Association and it is anticipated that the shareholders will vote
to continue on the basis of the growth seen since IPO and future opportunities
available to the Company. Current shareholder interaction has not indicated
any concerns around the continuation vote.
Financial models have been prepared for the going concern period which
consider liquidity at the start of the period and key financial assumptions at
the Company level as well as at the operational project level. These financial
assumptions include expected cash generated by the portfolio companies,
available to be distributed to the Company. Financial assumptions also include
inflows and outflows in relation to the external debt and interest payments
expected within the MidCo, committed expenditure for investments, expected
dividends and the ongoing administrative costs of the Company. It is also
assumed that there is no vote to terminate the Company in 2023.
The Directors have applied two scenarios to their going concern assessment:
i. A base case assessment to consider the Company's ability to continue in
operation under the current planned strategy to fund and acquire the currently
committed Exclusivity Pipeline; and
ii. A severe but plausible downside case scenario which assumes a reduction in
underlying portfolio EBITDA of 33% to the base case. This would negatively
impact on cash-flow available to the Company and its ability to service
shareholder dividends and the ability of the MidCo to service interest
payments. 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.
Both the conservative base case and the downside case show that the Company is
expected to have sufficient cash available to meet current obligations and
commitments as they fall due and that the debt covenants of MidCo's debt
facility, which include interest cover and leverage tests, are expected to be
met.
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
therefore adopted the going concern basis in preparing the Annual Report and
Financial Statements.
Viability statement
The Directors have assessed the prospects of the Company for the period to
October 2026. Although the Company maintains cash flow models which extend
well beyond this period, there is less certainty over the later cash flows as
the profitability of the underlying investment portfolio (and therefore
available dividends to the Fund) is driven by future pricing volatility in the
electricity market. We therefore limit the review to three and a half years to
reduce this uncertainty in forecasting. This also reflects the current
investment strategy and cash deployment plan. The Company's MidCo includes a
financing facility which expires in October 2028, the viability statement
assumes this is refinanced by October 2026.
As noted in the going concern assessment, an uncertainty in the Company's
viability is the continuation vote which will be held later this year in line
with the Company's Articles of Association. We believe the Company will
continue on the basis of the growth seen since IPO and the future
opportunities to drive valuation growth. As shown in the equity raise in May
2022, the Company has experienced strong demand for its shares.
As with the going concern period, financial models have been prepared for the
viability period which consider liquidity at the start of the period and key
financial assumptions at the Company level as well as at the operational
project level. These financial assumptions include expected cash, generated
and distributed by the portfolio companies, available to be distributed to the
Company, inflows and outflows in relation to the external debt and interest
payments expected within the MidCo, committed expenditure for investments and
expected dividends as well as the ongoing administrative costs of the Company.
It is also assumed that there is no vote to terminate the Company in 2023.
Sensitivities similar to those undertaken in the going concern period have
been applied to the viability period. The Company is expected to continue to
have sufficient cash available to meet its obligations and is not expecting to
need to utilise all of the debt facilities available.
The principal risks are set out on page 44 and management have considered the
mitigation to those risks when setting the downside case scenario, which,
given the revenue opportunities available to the portfolio companies, the
critical nature of the services provided by the portfolio companies to the
National Grid and the continued volatility of power prices, is considered
unlikely.
The financial models show that the debt covenants in relation to the debt
entered into by the MidCo are expected to be met throughout the period and the
viability assessment considers the Company/MidCo is able to refinance any
external debt when it becomes due.
The Directors believe that the Company is well placed to manage its business
risks successfully over both the short and medium term and accordingly, the
Board has a reasonable expectation that the Company will be able to continue
in operation and to meet its liabilities as they fall due for a period of at
least three years.
Based on the assessment of the Company's financial position, after assessing
the risks and significant assumptions together with forecasts of the Company's
future performance under the various scenarios, the Board has a reasonable
expectation that the Company is well positioned to continue to operate and
meet its liabilities as they fall due over the period to October 2026.
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 established a
clear framework with the Investment Manager for identifying and managing risk,
at both an operational and strategic level through a detailed risk matrix and
quarterly risk reviews. 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 in detail
Risk area Gross impact Mitigation Net impact
Availability and cost 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 at preferential rates.
order, advantageous terms have been secured.
Residual risk: high
Price increases for components (including forex risks) making investments less
(2021 FY: high) attractive and impacting on overall returns. Demand for High Voltage equipment is increasing due to destruction of
Ukrainian grid assets: discussions are ongoing between the Company and key
suppliers to ensure continuing availability.
Performance and availability of grid connections and their impact on project Grid Connections performance affecting project commissioning timescales. Expertise bought into the Manager via external consultants to ensure GRID This issue will remain a constraint across the whole industry: the Manager has
commissioning dates causing delay to investment revenues and earnings. Shortage of skilled industry staff increasing issues. applications are high quality. Future EPC(m) team delivering investments taken measures to mitigate delays as much as possible.
will have more resources to ensure DNO / ESO are constantly reviewed for their
performance.
Residual risk: high This affects the ability of the Company's portfolio to generate project
revenues to deliver earnings to pay dividends on the timescales expected by
(2021 FY: N/A) the markets. The existing pipeline has grid connection certainty.
Financing risk of existing investments and availability of future growth Equity or debt financing is not available due to macroeconomic issues and the The Company does not enter into unfunded commitments: all committed pipeline Limited overall impact on deployment of pipeline.
capital Company is unable to fund its pipeline of assets. can be funded from existing equity finance or the existing debt facility.
As the Company's investments draw down more debt this risk will tend to
Residual risk: medium The Company's investments are subject to banking covenants which could be The banking covenants have been carefully modelled by the Investment Manager increase.
breached if the Company's investments do not perform as expected. to ensure they are achievable and are monitored on at least a monthly basis.
(2021 FY: low)
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.
GB located assets are based on a business model which relies on certain Adverse changes by National Grid in relation to services contracted caused by 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
revenue streams sourced from National Grid mechanisms and resulting from either: BM, Capacity Payments, FFR, TRIADs, and DC as contracted services to National roles to manage risk.
overall roll-out of intermittent renewables.
Grid; the Company's investments are able to change which income streams are
A) National Grid moving away from their "Net Zero" ambition (e.g. utilising contracted and ascertain the most advantageous on any given time period: this
thermal plant rather than BESS) may reduce the size/scope of income earning is continuously monitored by the Investment Manager and optimisation partners.
opportunities to the Company's investments and have potential impact on
There is also the potential to "revenue stack" and gain multiple revenue
Residual risk: medium valuation; or streams from different services.
(2021 FY: high) Due to the progressive decommissioning of other carbon intensive options
available to National Grid for managing these services, and the need to
(B) HM Government Energy Strategy moves away from intermittent renewable support the security of this critical national infrastructure, BESS is The income stream opportunities and usage of battery energy storage systems
assets which create revenue opportunities for BESS and instead move to other expected to form an integral part of transforming the electricity sector in has and is expected to continue to evolve over time.
strategies which impact on BESS future growth. the UK.
The risk is reducing due to the lower reliance on National Grid services and
Either or both of the above may impact on the revenues available to BESS on the move into other jurisdictions.
the GB grid.
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.
Poor market conditions create lower volatility / FFR saturation create lower
revenue streams.
The portfolio has a number of alternative suppliers and optimisers to manage
risk.
The portfolio relies on multiple income streams to ensure diversification.
Geographic risk UK assets dominate the portfolio at present: there is a concentration risk and Over time, the international exposure will be deployed: a number of strategic The overall asset balance will evolve: the Company has been careful to ensure
over reliance on the UK market. relationships/opportunities are in place. market suitability and regulations are clearly understood before capital
deployment.
Residual risk: low
Following investment objective changes to increase exposure to other The Company has advanced plans and potential near term deployment
(2021 FY: new) jurisdictions, this risk is new opportunities being actively pursued.
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, and investments in projects are carefully assessed and vetted by the Investment project development activities and commercial arrangements with the Investment
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 commissioning delays.
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: low
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.
Compared to market peers the risk is deemed to low when discount rates are
considered.
Reliance on the Investment Manager. The Company relies on the Investment Manager and "key persons" as a mission The Company has long-term contractual arrangements in place with the The Investment Manager remains incentivised to continue to grow the Company
critical supplier. 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: low
The growth in scale and associated activity supplied by the Investment Manager
(2021 FY: low) on the one hand, will tend to increase this risk. On the other hand, the
Investment Manager has built out a large team of experts which reduces "key
people" risks.
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 Under current tax laws there is very little tax compliance risk.
tests. Company's tax advisers review this regularly.
Residual risk: low
(2021 FY: low)
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.
Residual risk: low
The ability of the BESS market to drive a low carbon electricity system needs
The Company has undertaken a Supply Chain review (see page 28) to be considered versus the other, mainly fossil fuelled, options when
(2021 FY: medium)
considering the overall ESG impact of BESS. Work will continue to minimise
this over time.
The recycling of the BESS systems is subject to constant development and
research; the importer of these batteries (not the Company or SPV companies)
is responsible for their disposal, but the Company will facilitate this to
ensure low environmental impact. This is an industry wide focus, and the
residual value of materials remains high and therefore likely to be value from
recycling of materials in future.
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 assumes
technology might adversely impact on the Company's investments. warranties and performance guarantees. 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.
Geopolitical risk of potential equipment shortages if China is subject to If China invades Taiwan or takes other hostile measures which cause sanctions The Manager has relationships with other non-Chinese suppliers, but they are The Company ensures it is securing key equipment orders in advance.
sanctions. (i.e. supply of weapons to Russia) the supply chain of crucial equipment would likely to source sub-components from China.
be disrupted.
Residual risk: Medium The Company ensures payments are protected via Letters of Credit to ensure no
financial loss.
(2021 FY: low)
STAKEHOLDER ENGAGEMENT AND STATEMENT UNDER SECTION 172
The Board recognises that the Company should be run for the benefit of
shareholders, but that the long-term success of a business is dependent on
maintaining relationships with stakeholders and considering the external
impact of the Company's activities.
The Company has identified the following key stakeholders:
• The Company's shareholders and lenders
• The Company's Investment Manager
• The communities in which the Company's assets
are located
• The Company's business partners and key
service providers
Engagement with shareholders and lenders
Who they are?
The Company will require further funding to continue the requirements of the
investment strategy and obtain the additional pipeline investments. As such,
existing and prospective equity investors and existing lenders are vitally
important stakeholders.
Why is it important to engage with this group of stakeholders?
Through our engagement activities, we strive to obtain investor buy-in into
our strategic objectives and how they are executed. Since IPO, the Company
has issued a significant number of shares to allow the Company to meet the
investment strategy of the Company.
How has the Company engaged with the equity investors and lenders?
The Company engaged with the stakeholder group in the period through the
following:
· Interim and full year accounts
· The Company's corporate brokers and Investment Manager are in
regular communication with shareholders and shareholder views are reported to
the Board on at least a quarterly basis
· Company's corporate brokers set up direct call between investors
the Board members
· At the request of shareholders, the Chair and the Board members
have made themselves available to engage in discussions around governance
· One-to-one meetings with the Investment Manager
· Regular news and quarterly NAV updates
· A webinar and Q&A session with the Chair and the Investment
Manager
What came out of the engagement?
Through these engagement activities, the Company has developed a strong and
diversified list of shareholders who support the Company in its ambitions,
including the changes in investment policy. These shareholders were
instrumental in the successful equity raise in 2022.
In addition, the Company secured a £155mn incremental term debt facility, in
additional to the debt facility secured in 2021. This will support the
Company's commitment to continue to scale up its portfolio.
The Company also entered into Capacity Market contracts, these offered
valuable government backed contracts and had a positive NAV uplift. This
supported the UK government and the Company's shareholders.
The Company also secured several new projects throughout 2022 and diversified
its portfolio. The Company added the York, Elland, West Bradford, Stairfoot,
Shilton Lane and Arbroath projects.
The Company tested investor's priorities re ESG, including Board composition
and diversity.
Engagement with the Investment Manager
Who they are?
The Investment Manager implements and oversees the investment strategy of the
Company, including acquisition identification, and manages the value
enhancement in the underlying SPVs. The Investment Manager is crucial for the
Company to meet dividend, profit and NAV expectations.
Why is it important to engage with the Investment Manager?
Constructive engagement with the Investment Manager is important in order to
ensure that the expectations of the shareholders are being met and that the
Board is aware of challenges being faced by the Investment Manager.
How does the Company engage with the Investment Manager?
The Company, supported by its Management Engagement Committee, conducts both
ongoing reviews and an annual review of the Investment Manager's performance
and the terms of engagement of the Investment Manager. The Board and the
Investment Manager maintain an ongoing open dialogue on key issues facing the
Company with a view to ensuring that key decisions such as investment
decisions, IM's capabilities and resourcing, trading partner performance in
the SPVs and the Company's strategy are aligned with achieving long-term
shareholder value.
This open dialogue takes the form of a number of ad hoc Board meetings, as
discussed in the Corporate Governance Report, and more informal contact, as
appropriate to the subject matter.
What came out of the engagement?
The Company and Investment Manager have aligned interests to ensure the future
success of the Company. The Investment Manager sees the growth of the Company
as both a key element of its strategy and a Company which fits well with the
ESG strategy of the Investment Manager.
Through this engagement the Company has been able to carry out an additional
equity raise during the year for an increased pipeline of investments.
The Board and the Investment Manager also discussed and revisited governance
and resourcing arrangements going forward as the Company grows in size.
Engagement with Communities
During construction of investment projects, the Company ensures all relevant
planning and construction conditions are met. In addition, the Company
remains committed to proactively engaging with the communities within which
the Company operates. The Investment Manager is part of the Gresham House
plc group and is focused on a sustainability agenda which includes engagement
with communities.
Engagement with business partners and key service providers
Who they are?
The Company has various key service providers who provide management services.
Why is it important to engage with the key service providers?
The intention of the Company is to maintain long-term and high-quality
business partnerships to ensure stability while the Company pursues its growth
strategy.
How does the Company engage with the key service providers?
The Company, supported by its Management Engagement Committee, reviews all key
service providers to the Company and the terms of their engagement. During the
period, the Company conducted a review of the terms of all service provider
engagements along with their fee levels to ensure appropriate levels of
support to the Company during the period. The Company seeks two-way
engagement between the Board and key service providers on service delivery
expectations and feedback on important issues experienced by service providers
during the period. The intention of the Company is to maintain long-term and
high-quality business partnerships to ensure stability while the Company
pursues its growth strategy.
What came out of the engagement?
The Company has ensured that the interests of key service providers are
aligned with the Company. The support of the Company's key service providers
was also fundamental in the successful completion of the Company's equity
placing and debt raise.
Key strategic decisions during 2022
The Company continued its growth phase in the period ended 31 December 2022.
Key strategic decisions included:
· Investment in future asset pipeline
· Fund-raising decisions to align the investment programme with
available funds (including securing an addition to the debt facility)
· Continuing to further broaden the depth of the Investment
Manager's team to match the increasing scale of the portfolio
· Setting the level of dividends to meet expectations
In relation to these key decisions, stakeholders, such as key contractors,
were involved to ensure asset pipeline was available to the Company on the
timescales required. As noted above, shareholder discussions were held to
ensure clear communication was made in relation to progress and market
interest for expansion of the Company. Finally, the Company worked with the
Investment Manager to ensure the Company's dividend target of 7.0p per
Ordinary Share for 2022 was delivered.
This Strategic Report is approved on behalf of the Board by
John S Leggate CBE, FREng
Chair
5 April 2023
7. BOARD OF DIRECTORS AND INVESTMENT TEAM
Board
The Company has a Board of five Independent Non-Executive Directors. The Board
has 40% female and 20% ethnic minority representation. The Board has also
adopted a formal diversity policy and considers diversity on the Company's
Board as an important part of it's existing skills, experience and knowledge.
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 gender, 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 will conduct an
externally facilitated effectiveness evaluation every three years. Its first
such evaluation took place during 2021.
The Board's Nomination Committee reviews the requirement for succession
planning on an annual basis and during 2022 considered there to be no
immediate succession requirements. Additional detail can be found in the
Nomination Committee Report on page 76.
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
"blue chip" international consultants and senior advisor to Dial Partners LLP/
Clairfield International. John was appointed to the Board on 24 August 2018.
Significant interests: John is a Director of Global Integrity, Inc. and
Flamant Technologies.
Isabel Liu (Independent Non-Executive Director) - Isabel has over 25 years
global experience investing equity in infrastructure, including the AIG Asian
Infrastructure Fund, the ABN AMRO Global Infrastructure Fund and was managing
director of the Asia Pacific investment business of John Laing plc. Isabel
served as a non-executive director of Pensions Infrastructure Platform, backed
by UK pension schemes to invest in UK infrastructure. She has been a board
member of Transport Focus, the consumer watchdog for public transport and
England's highways, and Heathrow Airport's Consumer Challenge Board. Isabel
was appointed to the Board on 1 October 2022.
Significant interests: Isabel is a Director of Schroder Oriental Income Fund
Limited and Utilico Emerging Markets Trust plc.
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 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 and capital markets. 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 non-executive director of Baillie Gifford UK
Growth Trust plc and the Association of Investment Companies 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 Senior 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.alt
(www.alt) fi.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 Castelnau Group Limited, the
Secured Income Fund plc and Aurora Investment Trust plc.
John, Duncan, David and Cathy were re-appointed as Directors at the Company's
AGM in 2022. As is the Company's policy, all of the Directors will all stand
for re-election at the Company's AGM every year. Isabel will stand for
election at the AGM in 2023.
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 many project companies.
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.
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.
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.
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.
Lefteris Strakosias (Investment Director, New Energy)
Lefteris joined Gresham House in March 2023 and has over 15 years of
experience in infrastructure and energy transition investments including solar
PV, onshore and offshore wind, anaerobic digestion, and hydroelectric power.
He has held principal investment and advisory roles with large institutions
such as Columbia Threadneedle Investments, National Pension Service of South
Korea (NPS), Macquarie, and Société Générale, as well as corporate and
business development roles with Libra Group and Maple Power.
Lefteris holds a MSc in Finance from Imperial College London and a BSc in
Management Science from Athens University of Economics and Business.
Ana Segizbayeva (Associate Director, Project Delivery, New Energy)
Ana joined Gresham House in September 2022 and is responsible for implementing
the EPCM structure and delivering the New Energy team's project pipeline.
Ana is a multi-skilled professional with 12 years of experience delivering
innovative, award-winning renewable energy projects in the UK.
Previously, Ana helped to establish quality management, project delivery, and
commercial project functions at GRIDSERVE Sustainable Energy. She also
successfully delivered the UK's first Electric Forecourt and subsidy-free
solar and battery storage hybrid projects with bi-facial panels and tracking
technology. Prior to that, Ana was part of the BELECTRIC projects team
building utility-scale solar farms.
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.
Stephen Beck (Divisional Finance Director, Real Assets)
Stephen has 26 years of industry experience and is a law graduate and
Barrister called to the Bar in 1996. He is also a Fellow of the Institute of
Chartered 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.
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.
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.
8. DIRECTORS REPORT
The Directors present the Annual Report and Financial Statements of the
Company for the period ended 31 December 2022.
The Company has no employees. The Directors during the period, including their
appointment dates, are set out in the Nomination Committee Report on page 76.
The Corporate Governance Report on page 65 forms part of this report.
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 10 and the Chair's
Statement on page 6.
Financial risk management
Details in relation to the Company's use of financial instruments, financial
risk management objectives and policies, including policies for hedging each
major type of forecasted transaction for which hedge accounting is used; the
Company's exposure to price, credit, liquidity, or cash flow risk can be found
under Note 18 on page 107.
Share capital
At the period end, the Company had in issue 541,290,353 Ordinary Shares. There
are no other share classes in issue and the Company does not own any of its
own shares.
All shares have voting rights; each Ordinary Share has one vote.
Dividends
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 AGM.
Period in relation to which dividend was paid Announcement date Ex-dividend date Payment Amount per Ordinary Share Total amount
Date
1 January to 31 March 2022 4 May 2022 12 May 2022 27 May 2022 1.75p £7,662,236
1 April to 30 June 2022 27 September 2022 6 October 2022 28 October 2022 1.75p £9,472,581
1 July to 30 September 2022 31 October 2022 24 November 2022 16 December 2022 1.75p £9,472,581
1 October to 31 December 2022 10 February 2023 2 March 2023 27 March 2023 1.75p £9,472,581
Dividends are not recognised in the financial statements of the Company until
paid, and therefore the dividend in respect of the final period, from 1
October to 31 December 2022 is not recognised in the period to 31 December
2022.
On 10 February 2023, the Company announced its interim dividend for Q4 2022 of
1.75 pence per Ordinary Share successfully meeting its dividend target for the
2022 financial year of 7.0 pence per Ordinary Share (2021: 7.0 pence per
Ordinary Share). Further, the Board confirmed its commitment to targeting a
7.35 pence per Ordinary Share dividend for 2023.
Substantial interests
As at 31 December 2022, and the date of this report, the Company had been
notified of the following beneficial interests exceeding 3% of the issued
share capital, being 541,290,353 Ordinary Shares (see table on page 57).
Shareholder Number of Ordinary Shares as at 31 Dec 2022 Percentage of Issued Share Capital as at 31 Dec 2022
BlackRock Investment Mgt - Index (London) 43,199,825 7.98%
Sarasin & Partners 32,990,777 6.09%
Gresham House plc 28,928,388 5.34%
Border to Coast Pensions Partnership (Leeds) 26,083,839 4.82%
Schroder Investment Management 25,388,334 4.69%
Gravis Capital Management 24,492,210 4.52%
Close Asset Management Limited 23,758,366 4.39%
JM Finn & Co (London) 19,585,753 3.62%
Newton Investment Management 19,056,919 3.52%
As at the date of this report the Company has not been notified of, or made
aware of, any changes to the holding in voting rights in the Company.
The Directors' interests in the ordinary share capital of the Company are
disclosed in the Directors' Remuneration Report on page 61.
Annual General Meeting (AGM)
The Company's 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.
The Company's next AGM is expected to be held in May / June 2023. The Notice
of the AGM and Form of Proxy will be circulated to all shareholders in advance
of this meeting.
Auditor
A resolution proposing the reappointment of BDO LLP will be submitted at the
AGM.
Directors' responsibilities
The Directors are responsible for preparing the Annual Report and the
Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors are required to prepare the
financial statements and have elected to prepare the Company financial
statements in accordance with UK adopted international accounting standards.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss for the Company for that
period.
In preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them
consistently;
· make judgements and accounting estimates that are reasonable and
prudent;
· state whether they have been prepared in accordance with UK
adopted international accounting standards, subject to any material departures
disclosed and explained in the financial statements;
· prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will continue in
business; and
· prepare a Director's Report, a Strategic Report and Director's
Remuneration Report which comply with the requirements of the Companies Act
2006.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy, at any time, the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities. The Directors are responsible for ensuring
that the Annual Report and Financial Statements, taken as a whole, are fair,
balanced, and understandable and provide the information necessary for
shareholders to assess the Company's performance, business model and strategy.
Website publication
The Directors are responsible for ensuring the annual report and the financial
statements are made available on the Company's website. Financial statements
are published on the Company's website in accordance with legislation in the
UK governing the preparation and dissemination of financial statements, which
may vary from legislation in other jurisdictions. The maintenance and
integrity of the Company's website is the responsibility of the Directors. The
Directors' responsibility also extends to the ongoing integrity of the
financial statements contained therein.
Directors' responsibilities pursuant to DTR4
The Directors confirm to the best of their knowledge:
· The financial statements have been prepared in accordance with UK
adopted international accounting standards and give a true and fair view of
the assets, liabilities, financial position and profit and loss of the
Company.
· The annual report includes a fair review of the development and
performance of the business and the financial position of the Company,
together with a description of the principal risks and uncertainties that they
face.
Insurance cover
Directors' and Officers' liability insurance cover is held by the Company in
respect of the Directors.
Corporate governance
The Company's corporate governance statement and compliance with the 2019 AIC
Code of Corporate Governance which has been endorsed by the Financial
Reporting Council (www.frc.org.uk (www.frc.org.uk) ) is shown on page 65.
Streamlined energy and carbon reporting: quantification and reporting
methodology
Associated greenhouse gases have been calculated in accordance with the
Partnership for Carbon Accounting Financials (PCAF) Global GHG Accounting
& Reporting Standard for the Financial Industry, using National Grid ESO
half-hourly carbon intensity data and where applicable 2022 conversion factors
published by the Department for Business, Energy & Industrial Strategy.
Boundaries
We have used the equity share approach.
The Company itself is not an emitter of greenhouse gas. However, the
underlying investments within the Company's portfolio companies import and
export electricity which are sourced from either the grid or, in limited
cases, from gas or diesel generators. These have been included in our
emissions disclosures. The energy used and produced by the companies is fully
metered and carefully monitored.
UK energy use covers the battery storage activities across all the portfolio
companies owned directly or indirectly by the Company from the date of
ownership. It does not cover energy use of assets under construction where
construction is being carried out by third parties. All operations are in the
UK.
Energy used:
2022 2021*
Scope 1 emissions in metric tonnes C0(2)e
Gas consumption 9,299 1,596
Diesel consumption 124 64
Total Scope 1 9,423 1,660
Scope 2 emissions in metric tonnes CO(2)e
Consumption of electricity (1)** 5,149 2,891
Total Scope 2 5,149 2,891
Scope 3 emissions in metric tonnes CO(2)e
Transmission and distribution losses 593 392
Total Scope 3 593 392
UK energy consumption used to calculate emissions (MWh) (1)
Gas 19,852 8,716
Diesel 173 233
Electricity (1) 28,985 12,509
Total UK energy consumption 49,010 21,458
Weighted Average Carbon Intensity ratio
CO(2) emissions per £m revenue in underlying portfolio companies 178 N/A*
* Carbon emissions calculation methodology has been updated from a UK
government (BEIS) approach in 2021 to application of the Partnership for
Carbon Accounting Financials (PCAF) Global GHG Accounting & Reporting
Standard for the Financial Industry in 2022. In addition, granularity has been
increased from annual net metered volumes to half-hourly metered volumes and
carbon intensity in 2022. Whilst the methodologies applied in each year are
similar, they are not an exact match. Some information was not available from
the 2021 calculations to provide a consistent comparison.
** The figures shown are the net import/(export) of electricity from the grid
Scope 3 emissions
We have identified the following as Scope 3 emissions which have been
partially quantified:
- Carbon emissions from distribution system losses
- End-to-end manufacturing, transport, and installation at
battery energy storage systems (not quantified)
- Investment Manager emissions (i.e. office buildings) (not
quantified)
Intensity measurement
The chosen intensity measurement ratio is gross emissions per £mn revenue in
the underlying investment portfolio. This is considered a more appropriate
ratio than MWh due to variability in operation of assets and different service
types.
Measures taken to improve energy efficiency
The usage of diesel generators within the operational portfolio has been
significantly reduced since IPO. Diesel generators are in place to meet CM
contract requirements and TRIAD operations on three of the sites but are also
available for trading activities. One of the seed portfolio sites also uses
gas-fired generation, this is predominantly used for trading and to support
the grid in periods of higher demand. The use of gas has remained consistent
but represents an ever-decreasing percentage of the overall portfolio. The
Company is not currently making new investments in projects which require
either diesel or gas generators.
Going concern
The going concern statement is detailed on page 42 of this Annual Report.
Future developments
Future developments in the Company are detailed in the Chair's Statement on
page 6.
Engagement with stakeholders
Further information on the Directors' engagement with the Company's
stakeholders can be found on page 48 .
Post balance sheet events
Post Balance Sheet events are disclosed in Note 24 of the Accounts on page
113.
Statement as to disclosure of information to the Auditor
The Directors in office at the date of the report have confirmed, as far as
they are aware, that there is no relevant audit information of which the
Auditor is unaware. Each of the Directors has confirmed that they have taken
all the steps that they ought to have taken as Directors in order to make
themselves aware of any relevant audit information and to establish that it
has been communicated to the Auditor.
This Directors' Report is approved on behalf of the Board by:
John Leggate CBE, FREng
Chair
5 April 2023
9. DIRECTORS REMUNERATION REPORT
The Board presents the Directors' Remuneration Report for the period to 31
December 2022 which has been prepared in accordance with the requirements of
the Large and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 (SI2008/410) and the Companies Act 2006.
Under the requirements of Section 497 of the Companies Act 2006, the Company's
Auditor is required to audit certain disclosures contained within the
report. Where disclosures have been audited, they are indicated as such. The
Auditor's opinion is included in their report on page 80.
The Annual Remuneration Statement
The Chair of the Remuneration Committee has summarised the major decisions on
Directors' remuneration, including the discretion which has been exercised in
the award of Directors' remuneration, the changes relating to Directors'
remuneration made during the year and the context in which those changes
occurred, and decisions have been taken in the report from the Remuneration
Committee on page 74.
Remuneration Policy
The remuneration of Non-Executive Directors should be determined with due
regard to the experience of the Board as a whole, the time commitment required
and to be fair and comparable to that of other Non-Executive Directors of
similar companies. The Company may also periodically choose to benchmark
Directors' fees with an independent review, to ensure they remain competitive,
fair, and reasonable. The Non-Executive Directors are entitled to an annual
increase in remuneration, effective from the first date of each financial
year, at the rate of the UK Consumer Price Inflation as at December each year.
This policy will be put to shareholders for approval at least every three
years and will be tabled for approval at the Company's AGM in 2023.
The fees for the Directors are determined within the limits set out in the
Company's Articles of Association which states that the Directors'
remuneration for their services in the office of Director shall, in the
aggregate not exceed £500,000 per annum or such higher figure as the Company,
by ordinary resolution, determines.
The Directors are entitled only to their annual fee and to be reimbursed for
any expenses properly and reasonably incurred by them respectively in and
about the business of the Company or in the discharge of his or her duties as
a Director.
Any Director who performs services which in the opinion of the Directors are
outside the scope of the ordinary duties of a Director, may be paid such
reasonable additional remuneration to be determined by the Directors or any
committee appointed by the Directors and such additional remuneration shall be
in addition to any remuneration provided for by way of their annual fee and
their reasonable expenses.
No element of the Directors' remuneration is performance related, nor does any
Director have any entitlement to pensions, share options or any long-term
incentive plans from the Company.
The Directors hold their office in accordance with the Articles and their
appointment letters. No Director has a service contract with the Company, nor
is any such contract proposed. The Directors' appointments can be terminated
in accordance with the Articles and without compensation.
In order to avoid conflicts of interest, no Director is involved in the
setting of their own remuneration and remuneration is set by the Remuneration
Committee, in line with the Remuneration Policy and aggregate remuneration
levels are limited under the Company's Articles of Association.
John Leggate and David Stevenson signed letter of appointments with the
Company dated 14 October 2018. Duncan Neale signed a letter of appointment
with the Company dated 15 October 2018. Catherine Pitt signed a letter of
appointment with the Company dated 28 February 2019. Isabel Liu signed a
letter of appointment with the Company dated 26 September 2022. These
agreements are available for inspection at the Company's registered office and
at the AGM. The agreements are terminable on three months' notice by either
side. The Directors are not entitled to any variable consideration or any
other taxable benefits under these agreements.
The Annual Remuneration Report
The Remuneration Committee considers any change in the Directors' remuneration
policy. The report from the Remuneration Committee is set out on page 74.
Directors' remuneration and interests (audited)
Directors' remuneration (excluding National Insurance Contributions) for the
Company and dividend received for the period under review was as follows:
2022 Fixed salary and fees Total variable remuneration Total remuneration
Period from 01/01/22 to 31/12/22
Period from 01/01/22 to 31/12/22 Period from 01/01/22 to 31/12/22
£
£ £
John Leggate 84,080 - 84,080
Duncan Neale 65,687 - 65,687
Catherine Pitt 47,295 - 47,295
David Stevenson 47,295 - 47,295
Isabel Liu 11,824 - 11,824
Total fixed remuneration 256,181 - 256,181
2021 Fixed salary and fees Total variable remuneration Total remuneration
Period from 01/01/21 to 31/12/21 Period from 01/01/21 to 31/12/21 Period from 01/01/21 to 31/12/21
£ £ £
John Leggate 80,000 - 80,000
Duncan Neale 62,500 - 62,500
Catherine Pitt 45,000 - 45,000
David Stevenson 45,000 - 45,000
Total fixed remuneration 232,500 - 232,500
2022 (unaudited) Percentage increase from 31 December 2019 to 31 December 2020 on salary annual Percentage increase from 31 December 2020 to 31 December 2021 on salary annual Percentage increase from 31 December 2021 to 31 December 2022 on salary and
fees fees annual fees
John Leggate 0% 23.0% 5.1%
Duncan Neale 0% 38.8% 5.1%
Catherine Pitt 0% 12.5% 5.1%
David Stevenson 0% 12.5% 5.1%
The Directors of the Company had the following beneficial interests in the
issued Ordinary Shares as at 31 December 2022 and at the date of this report:
Directors As at the date of this report As at 31 Dec 2022
5 April 2023
John Leggate 133,170 133,170
Duncan Neale 23,575 23,575
Catherine Pitt 36,858 36,858
David Stevenson 22,330 22,330
Isabel Liu 9,385 5,958
The Company does not oblige the Directors to hold shares in the Company, but
this is encouraged to ensure the appropriate alignment of interests.
2022/2023 remuneration
Subject to a further review, the remuneration levels for the forthcoming year
for the Directors are expected to be at the annual fee level, as shown in the
table above. In line with the Remuneration policy described above, the
Directors' remuneration increased at the rate of the UK Consumer Price
Inflation as at December 2022, which was set at 10.5%. The Board reviews
Directors' remuneration at least annually to ensure that it is in line with
market rates.
Consideration of shareholders' views
An ordinary resolution to approve the Remuneration Report will be put to
shareholders at the Company's 2023 AGM and shareholders will have the
opportunity to express their views and raise any queries in respect of the
Remuneration Policy at this meeting.
Statement of voting at the 2022 Annual General Meeting
The Directors' Remuneration Report was subject to an advisory vote at the 2022
AGM. The voting outcome is shown in the table below:
Resolution to approve Directors' Votes %
Remuneration Report
Votes for* 321,900,359 96.93
Votes against 10,212,213 3.07
Total votes validly cast 332,112,572
Total votes cast as % of issued share capital 61.36
Votes withheld** 34,281
* Includes discretionary votes
** A vote withheld is not a vote in law and is not counted in the calculation
of the votes for or against a resolution.
No concerns were noted from the shareholders as part of the AGM.
Payments to past Directors or for loss of office
There are no payments to disclose. Under the terms of the Directors'
Remuneration Policy there would be no compensation for loss of office.
Performance graph
The graph below represents the Company's performance during the period since
the Company's Ordinary Shares were first admitted to trading on the London
Stock Exchange on 13 November 2018 and shows Ordinary Share price total return
and NAV total return performance on a dividends reinvested basis. Both series
are rebased to 13 November 2018, being the date the Company's Ordinary Shares
were listed.
This graph has been chosen as a comparison as it is a publicly available broad
equity index which focuses on smaller companies and is therefore more relevant
than most other publicly available indices.
Relative importance of spend on pay
The difference in actual spend between 31 December 2021 and 31 December 2022
on Directors' remuneration in comparison to distributions (dividends and share
buybacks) and other significant spending are set out in the table below.
PAYMENTS MADE DURING THE YEAR ENDED 31 DECEMBER 2022 PAYMENTS MADE DURING THE YEAR ENDED 31 DECEMBER 2021
£ £
Remuneration to Directors 256,181 232,500
Dividends paid to shareholders 34,269,634 25,961,445
Buy-back of Ordinary Shares - -
Total 34,525,815 26,193,945
This Directors' Remuneration Report is approved on behalf of the Board by:
David Stevenson
Chair of the Remuneration Committee
5 April 2023
10. CORPORATE GOVERNANCE REPORT
The Board of Gresham House Energy Storage Fund plc has considered the
Principles and Provisions of the AIC Code of Corporate Governance (AIC
Code). The AIC Code addresses the Principles and Provisions set out in the
UK Corporate Governance Code (the UK Code), as well as setting out additional
Provisions on issues that are of specific relevance to Gresham House Energy
Storage Fund plc.
The powers to issue the Company's shares and any amendments to the Company's
Articles of Association require approval by shareholders.
The Board considers that reporting against the Principles and Provisions of
the AIC Code provides relevant information to shareholders.
The Company has complied with the Principles and Provisions of the AIC Code.
The AIC Code is available on the AIC website (www.theaic.co.uk
(www.theaic.co.uk) ). It includes an explanation of how the AIC Code adapts
the Principles and Provisions set out in the UK Code to make them relevant for
investment companies.
Capital structure and voting rights
Information about the Company's capital structure and voting rights are set
out in Note 20 of the Financial Statements on page 111.
On 13 May 2022, the Directors were authorised at a General Meeting of the
Company to allot new ordinary shares and/or C-Shares up to an aggregate
nominal value of £4,000,000. Further, on 25 May 2022, the Company published a
prospectus relating to its Placing and Share Issuance Programme of Ordinary
Shares. Under the authority granted at the General Meeting and pursuant to the
Placing and Share Issuance Programme, the Company raised gross new proceeds of
£150mn through the issue of 103,448,275 ordinary shares.
The Directors were granted the authority at the 2022 AGM to issue new ordinary
shares, on a non-pre-emptive basis, of up to up to an aggregate nominal value
of £541,290.35, representing approximately 10% of the issued ordinary share
capital as at June 2022. Further, the Directors were also granted the
authority to make market purchases of its own ordinary shares from time to
time of up to 81,139,424 of its ordinary shares, or, if less, 14.99% of the
Company's issued ordinary share capital. No new share issues or market
purchased of the Company's own ordinary shares were conducted under these
authorities. Further, these authorities expire or the earlier of 29 September
2023 or at the Company's next AGM.
Board Leadership and Purpose
The Board views its purpose as supporting the Investment Manager, including
providing constructive challenge, to achieve the Company's intended
acquisition of a portfolio of BESS projects to take advantage of the
significant market opportunity for battery-based energy storage systems. The
Board is also committed to delivering the Company's targeted dividends and NAV
total return. Further discussion of the Company's strategy has been set out
within the Strategic Report on page 38.
The Board seeks to establish a culture of openness and engagement. The Board
considers this culture aligned with the strategic purpose of the Company
through its growth phase. The Board met frequently with the Investment Manager
throughout the period in an effort to sustain continuous dialogue on key
issues.
During the year ended 31 December 2022, the Board supported the Investment
Manager with further deployment of the available funds and in further
fundraising by way of both debt and equity.
As set out in the section on Stakeholder Engagement and Statement under
Section 172, page 48, the Board seeks to understand the views of the Company's
key stakeholders and to consider these views in Board discussions and
decision-making.
The Board assesses and monitors its own culture, including its policies,
practices, and behaviour to ensure it is aligned with the Company's purpose,
values, and strategy.
The Board remains committed to diversity and further detail on the Company's
Diversity Policy and approach to diversity is set out in the Nomination
Committee Report on page 76.
Chair
The Chair, John Leggate, is responsible for the leadership of the Board and
ensuring its effectiveness. Further, the Chair, supported by the Investment
Manager and key advisors, including the Broker and Company Secretary, ensures
that the Board, as a whole, has a clear understanding of the views of the
Company's stakeholders, including shareholders. The Board conducts an annual
review of the Company's stakeholders and their interests.
Composition and Succession
The Board was pleased to welcome Isabel Liu as a Non-Executive Director in
October 2022. Isabel's appointment has brought further knowledge in investment
management and international experience in infrastructure investment. Further
details on Isabel's recruitment process are included in the Nomination
Committee Report on page 76.
The Board has now reached 40% female representation and Isabel's appointment
has also resulted 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.
Division of Responsibilities
Matters reserved to the Board
Full Board meetings take place quarterly and the Board meets or communicates
more regularly to address specific issues. The Board has a formal schedule of
matters specifically reserved for its decision which includes, but is not
limited to, considering proposals from the Investment Manager; making
decisions concerning the acquisition or disposal of investments; and
reviewing, annually, the terms of engagement of all third-party advisers
(including the Investment Manager) and the appointment and removal of the
Company Secretary.
The Board has also established procedures whereby Directors, wishing to do so
in the furtherance of their duties, may take independent professional advice
at the Company's expense.
All Directors have access to the advice and services of the Company Secretary.
The Company Secretary provides the Board with full information on the
Company's assets and liabilities and other relevant information requested by
the Chair, in advance of each Board meeting.
There is a clear division of responsibilities between the Board and the
Investment Manager. Under the AIFM Agreement, the Investment Manager acts as
discretionary investment manager and AIFM to the Company within the strategic
guidelines set out in the Investment Policy and subject to the overall
supervision of the Board. The asset management role encompasses the oversight
of all operational and financial management, the placing and managing of all
operational contracts, management of all health and safety operational risks,
advising the Board on the monthly and quarterly asset/portfolio performance,
management of power price/market exposure, progress with the asset pipeline
and reporting to the Board, identifying any circumstances in which the manager
should refer to the board for approval before undertaking transactions and
reporting to the Board.
The Company also has a business relationship with Gresham House DevCo Limited,
a related party of the Investment Manager, which:
- sources, due diligences and acquires pipeline on a speculative
basis exclusively for the Company to ensure the Company's ability to grow in a
burgeoning market with few operational projects;
- manages these projects through construction;
- sells projects to the Company; and
- takes development risk on behalf of the Company, where the
Company's investment mandate prevents taking this risk.
The Management Engagement Committee, on an annual basis, reviews the
Investment Manager's performance during the year along with its adherence to
the terms of the AIFM Agreement. Further details are contained in the
Management Engagement Committee Report on page 78.
The capital structure of the Company is disclosed in the Financial Statements.
Board committees
The Board has four committees: the Audit Committee, Remuneration Committee,
Nomination Committee, and the Management Engagement Committee (MEC). All the
Directors of the Company are Non-Executive Independent Directors and served on
all committees. Isabel Liu was appointed to each of the Committees with effect
from 9 December 2022.
Board and committee meetings
The table on page 69 sets out the Directors' attendance at the Board and
committee meetings during the period:
Quarterly Audit MEC Nomination Committee Remuneration
Board Meetings
Committee Committee
(4 held) (4 held) (1 held) (2 held) (1 held)
John Leggate 4 4 1 2 1
Duncan Neale 3 4 0 2 1
Catherine Pitt 4 4 1 2 1
David Stevenson 4 4 1 2 1
Isabel Liu* 1 2 0 1 1
*Isabel Liu was appointed on 1 October 2022 and has attended each QBM &
Committee meeting during her tenure
During the period the Board held a number of additional ad hoc Board meetings
outside of the regular quarterly Board meetings. These Board meetings were
mainly to discuss the progress of investments proposed by the Company and
completion of such investments and further fundraising completed by the
Company during the period. Typically, there was attendance by the full Board
at these ad hoc meetings and attendance was in line with the requirements of
the AIC Code.
The primary focus at regular Board meetings is a review of investment
performance, asset allocation, marketing and investor relations, peer group
information and industry issues.
At the Company's quarterly Board meetings, the Board typically considers the
following business:
• Update from the Investment Manager, including:
o Investment portfolio commentary
o Health & Safety commentary
o Trading data and investment performance, by month
o Analysis of the Company's financial model, including and updates to key
assumptions
o Risk management and risk mitigation, including climate change and ESG
risks
o Review of any recommendations made by the Investment Manager
• Update from the Company's Broker; including;
o Market commentary
o Share price performance against the Company's peers
o Sales and trading commentary
• Report from the Company's Depositary
• Report from the Administrator and Company Secretary,
including;
o Compliance monitoring
o Regulatory and governance updates
The Board has been focused on developing ongoing and positive communication
with the Investment Manager and regular meetings are one way the Board seeks
to encourage open and constructive engagement on key issues.
Relations with shareholders
Shareholders have the opportunity to meet the Board at the AGM. The Board is
also happy to respond to any written queries made by shareholders to the
Company or its broker during the course of the period, or to meet with major
shareholders if so requested. The Board and Investment Manager welcomed a
number of shareholders at the Company's AGM and had constructive discussions
on the Company's strategy. The Board was pleased with the level of engagement
with shareholders and is looking forward to the Company's AGM in 2023.
The Board ensured that the Company regularly kept shareholders informed of
investment activities and quarterly financial performance through appropriate
public announcements and the publication of quarterly factsheets by the
Investment Manager that are available on the Company's website. There were no
specific actions arising from the Company's interactions with shareholders in
the period.
In addition to the formal business of the AGM, representatives of the
Investment Manager and the Board are available to answer any questions a
shareholder may have. If shareholders are not able to attend the AGM in
person, shareholders will be given the opportunity to ask questions in advance
of the AGM, with answers to any questions received published on the Company's
website.
Separate resolutions are proposed at the AGM on each substantially separate
issue. The Registrar collates proxy votes and the results (together with the
proxy forms) are forwarded to the Company Secretary immediately prior to the
AGM. Proxy votes are announced at the AGM, following each vote on a show of
hands, except in the event of a poll being called.
Remuneration
The Board is committed to implementing remuneration policies and practices
that are designed to support strategy and promote long-term sustainable
success. This policy is set on in the Directors Remuneration Report on page
61.
This Corporate Governance Report is approved on behalf of the Board by:
John Leggate, CBE, FREng
Chair
5 April 2023
11. AUDIT COMMITTEE REPORT
Introduction
During the year and since, the Committee has played an integral role in
reviewing and challenging the Company's financial modelling, financial
reporting, key financial controls, and other risk management topics.
Building on its work during 2021, the Committee continued to work with the
Investment Manager and key service providers in 2022, to ensure that the
Company can rely on robust internal financial controls and clear risk
management procedures.
Audit Committee composition
The Audit Committee is chaired by Duncan Neale, who is a Chartered Accountant,
CFO and Finance Director and therefore has recent and relevant financial
experience. Duncan is supported by the other four independent Non-Executive
Directors on this committee.
The Audit Committee meets at least twice a year and operates within clearly
defined terms of reference. The Committee met four times during the period.
These meetings were also attended by representatives of the Investment
Manager, the Company Secretary (JTC (UK) Limited) and the Auditor (BDO LLP).
Given the size of the Board and the diverse range of experience and skills
possessed by the Directors, the Board has considered it appropriate to have
all Directors serve on this Committee. The Board has also considered it
appropriate for the Chair of the Board to serve on the Committee in order to
allow the Chair to directly contribute to the Committee's work and provide
input on the Company's reporting obligations.
Terms of reference
The Committee reviewed its terms of reference to ensure that they remain in
alignment with the pro-forma terms of reference published by ICSA and the
latest version of the AIC Code.
Principal responsibilities
The principal responsibilities which the Board has delegated to the Audit
Committee are:
(i) to monitor the integrity of the Financial Statements
of the Company and any formal announcements relating to the Company's
financial performance;
(ii) reviewing the Company's internal financial controls
and internal control and risk management systems, unless expressly addressed
by a separate Board risk committee composed of independent Non-Executive
Directors, or by the Board itself;
(iii) conducting the tender process and making
recommendations to the Board, about the appointment, reappointment, and
removal of the external Auditor, and approving the remuneration and terms of
engagement of the external Auditor;
(iv) reviewing the effectiveness of the external audit
process, taking into consideration relevant UK professional and regulatory
requirements;
(v) to review and monitor the Auditor's independence and
objectivity and the effectiveness of the audit process; and
(vi) to develop and implement policy on the engagement of
the Auditor to supply non-audit services and considering relevant guidance
regarding the provision of non-audit services by the Auditor.
The Chair of the Audit Committee is required to report formally to the Board
on the Committee's findings after each meeting on all matters within its
duties and responsibilities.
Financial reporting
The Audit Committee is also responsible for reviewing the financial reporting
and in providing advice to the Board on whether the Annual Report and
Financial Statements, taken as a whole, is fair, balanced, and understandable,
as required under the AIC Code, and provides the information necessary for
shareholders to assess the Company's position and performance, business model
and strategy.
The Audit Committee considered the detailed reviews undertaken at various
stages of the production process by the Investment Manager, Administrator and
Auditor, which are intended to ensure consistency and overall balance.
The Committee also sought additional comfort from the Investment Manager in
relation to the conclusion reached by the Board.
As a result of the work performed by the Audit Committee, the Board is able to
conclude that the Annual Report and Financial Statements for the period ended
31 December 2022, taken as a whole, is fair, balanced, and understandable and
provides the information necessary for shareholders to assess the Company's
performance, business model and strategy.
The Committee also reviews the significant financial reporting issues and
judgements made in connection with the preparation of the Company's Financial
Statements and considers whether the accounting policies adopted are
appropriate.
The Committee has worked with the Investment Manager to improve the Company's
impact on Sustainability and Environmental, Social and Governance. As a
result, the Company has voluntarily adopted the Task Force on Climate-related
Financial Disclosures in the 2022 Annual Accounts.
Going concern and viability
The Committee considered the Going Concern Statement and Viability Statement
on page 42. The Committee was satisfied that the Company remained a going
concern and was expected to remain well positioned to continue to operate and
meet its liabilities over the short term and the outlook period.
Key accounting judgements and estimates
The key accounting judgement reviewed by the Audit Committee is the high level
of judgement involved in determining the unquoted investment valuations. The
Investment Manager's fee is based on the value of the net assets of the
Company. The Investment Manager is responsible for preparing the valuation of
investments which are reviewed by the Audit Committee and approved by the
Board.
During the period, the valuation of the Company's investments has been a focus
point for the Audit Committee and the Board. The Chair of the Audit
Committee has worked closely with the Investment Manager to understand how the
Company's investment valuations are calculated and this has been reported to
the Board.
The Board has also carefully considered the discount rates used by the
Investment Manager and considers these rates to be appropriate given the
strategic objectives of the Company and the commercial risks associated with
the Company's Investment activities.
The Audit Committee has also taken additional comfort from the opinion of an
external independent valuation assessment prepared by Grant Thornton, which
concluded that the Investment Manager's calculation of valuation is fair and
reasonable on a fair value basis.
Following the detailed and ongoing assessment of investment valuations, the
Audit Committee and the Board are able to conclude that the Company's
investments are valued fairly and reasonably.
Auditor independence, objectivity, and effectiveness
BDO has formally confirmed its independence as part of the annual reporting
process, and the Audit Committee considered and agreed that BDO, the
engagement team and other partners and Directors conducting the audit had
complied with relevant ethical requirements including the FRC's Ethical
Standard and were considered independent of the Company.
The Audit Committee discussed the effectiveness of BDO as Auditor and agreed
that the Auditor had adhered to high professional and ethical principles and
demonstrated the appropriate skills and knowledge about the business,
industry, and environment together with the regulatory and legal frameworks in
which the Company operates. The Audit Committee also agreed that the audit
partner demonstrates experience in the energy sector and is well informed
about current topical issues with the FRC. The Audit Committee concluded that
it had no concerns with BDO's effectiveness.
Marc Reinecke has been BDO's lead audit partner for the Company since IPO in
2018. This is Mr Reinecke's fourth annual audit for the Company. In line with
best practice, the Company would under normal circumstances seek a rotation of
the lead audit partner every five years, with an audit firm tender process
every ten years and a mandatory audit firm rotation after 20 years. BDO
confirmed that Mr Reinecke would be rotated out in 2024.
The Audit Committee has recommended that a resolution to reappoint BDO is
proposed to shareholders at the next AGM.
Internal controls and risk management systems
The Audit Committee's responsibilities in respect of internal controls and
risk management are to:
(i) review the reports on the internal controls of the
Company's service providers which identify the risk management systems in
place for assessing, managing, and monitoring risks applicable to such service
providers;
(ii) establish a process for identifying, assessing,
managing, and monitoring the risks which may have a financial impact on the
Company;
(iii) review reports on the conclusions of any testing
carried out by the Auditors;
(iv) carry out at least annually a robust assessment of the
emerging and principal risks facing the Company; and
(v) review and approve the statements included in the
Annual Report in relation to internal control and the management of risk.
The Audit Committee reviews the Company's internal controls on an annual basis
with the last review being conducted in November 2022. The Audit Committee
obtains evidence of the internal control frameworks of both the Administrator
and Investment Manager to review. Further, the Company Secretary reports to
the Board quarterly on any potential internal control failures.
The Audit Committee confirms that it has completed its assessment of the
Company's emerging and principal risks and the details of this assessment are
set out in emerging risks, principal risks, uncertainties assessment, and
going concern assessment on page 42. The Audit Committee considers the
Company's risk matrix on an annual basis with regular risk reporting being
presented to the Board by the Investment Manager on a quarterly basis. The
Audit Committee Chair has engaged with the Investment Manager during the year
to improve the risk reporting to the Board on an ongoing basis and this
improved reporting is expected to enhance the Board's oversight of principal
risks. The Audit Committee was satisfied with the Investment Manager's overall
assessment of principal risks.
Although the Board is ultimately responsible for safeguarding the assets of
the Company, the Board has delegated, through written agreements, the
day-to-day operation of the Company (including the financial reporting
process) to Gresham House Asset Management Limited as Investment Manager and
JTC (UK) Limited as Administrator.
Whistleblowing
The Audit Committee has reviewed the arrangements by which staff of the
Investment Manager and Administrator and other service providers as the
Committee sees fit may, in confidence, raise concerns about possible
improprieties in matters of financial reporting or other matters and satisfy
itself that arrangements are in place for the proportionate and independent
investigation of such matters and for appropriate follow-up action. These
arrangements are embedded into the Investment Manager's and Administrator's
internal policies.
There were no instances of whistleblowing during the period.
External audit
The Audit Committee also makes recommendations to the Board in relation to the
appointment of the external Auditors and to ensure the independence of the
external Auditor. It also reviews and comments on the audit strategy paper,
presented by the Auditor in advance of the audit, which sets out the key risk
areas to be covered during the audit and confirms their status on
independence.
The Audit Committee has reviewed the engagement of the external Auditor on the
supply of non-audit services in order to ensure that the independence of the
external Auditor is maintained, considering the relevant regulations and
ethical guidance in this regard.
The Company's Auditor did not provide any non-audit services during the
period.
The Audit Committee, after taking into consideration comments from the
Investment Manager and Administrator, regarding the effectiveness of the audit
process; immediately before the conclusion of the annual audit, will recommend
to the Board either the re-appointment or removal of the Auditors.
Internal audit
The Audit Committee discussed the need for an internal audit function. The
debate included input from the Investment Manager and consideration of the
assurance received from third parties under the risk management framework. In
the light of this consideration, the Audit Committee decided that there was no
current requirement for an internal audit as the internal controls and risk
management were adequate and effective.
Financial reporting
The Directors' responsibilities statement for preparing the accounts is set
out in the Report of the Directors on page 56 and a statement by the Auditor
about their reporting responsibilities is set out in the Independent Auditor's
Report on page 80.
Statement on Investment Manager's risk management and internal controls
During the period the Audit Committee has reviewed and has received
appropriate evidence of the Investment Manager's risk management and internal
control systems. The Audit Committee is satisfied that this framework is fit
for purpose and appropriately designed to safeguard the shareholder's
investment and the Company's assets. The Board and the Audit Committee will
continue to review the Investment Manager's risk management and internal
control systems on a quarterly basis.
Audit Committee evaluation
An evaluation of the Audit Committee was undertaken as part of the overall
Board evaluation in 2022. The evaluation concluded that the Audit Committee
was found to be working well and the skills and experience of the members was
found to be appropriate. The Audit Committee will continue to concentrate on
development and training of committee members, as the regulatory focus on
audit and audit committees increases. Isabel Liu's appointment in December
2022 was welcomed by the members as it brought further diversification of
skills and experience to the Committee.
This Audit Committee Report is approved on behalf of the Board by:
Duncan Neale
Chair of the Audit Committee
5 April 2023
12. REMUNERATION COMMITTEE REPORT
Introduction
During the period, the Board was mindful of the requirements under the AIC
Code and the Company's objective of maintaining high governance standards.
Remuneration Committee composition
The Remuneration Committee is chaired by David Stevenson. David is supported
by the other four independent Non-Executive Directors on this Committee.
The Remuneration Committee meets at least once a year and operates within
clearly defined terms of reference. The Remuneration Committee met once during
the period. The Remuneration Committee's meeting was also attended by
representatives of the Company Secretary (JTC (UK) Limited) and the Company's
Investment manager (Gresham House Asset Management Limited).
Given the size of the Board and the diverse range of experience and skills
possessed by the Directors, the Board has considered it appropriate to have
all Directors serve on this Remuneration Committee. The Chair of the Board was
independent on appointment to the Board and remains independent and is
therefore eligible to serve on the Remuneration Committee.
Terms of reference
The Remuneration Committee reviewed its terms of reference to ensure that they
were in alignment with the pro-forma terms of reference published by ICSA and
the latest version of the AIC Code.
Principal responsibilities
The main role and responsibilities of the Remuneration Committee include:
· in conjunction with the Chair, setting the Directors'
remuneration levels; and
· considering the need to appoint external remuneration
consultants.
Review of Directors' remuneration
The Remuneration Committee considered that the appointment of an external
remuneration consultant was not required for 2022. During the year, the
Remuneration Committee considered the appropriate level of increases to the
Directors' fees for 2023.
The Directors' remuneration was set at launch at a level that was considered
to be appropriate for a Company of its size and nature at the time, and
without knowledge of the level of commitment that would be involved. Over the
past three years, that commitment has grown as the Company itself has grown.
In 2021, the Remuneration Committee decided to increase the Directors'
remuneration in line with Consumer Price Inflation (CPI) each year to ensure
that Directors fees remain competitive and in line with inflation.
Director 2022 Fee 2023 Fee
John Leggate £84,080 £92,908
Duncan Neale £65,687 £72,585
Cathy Pitt £47,295 £52,261
David Stevenson £47,295 £52,261
Isabel Liu £47,295 £52,261
The Remuneration Committee considers the increases in Directors' fees to be in
line with the Company's Remuneration Policy approved by the Company's
shareholders at the Company's 2020 AGM. The Remuneration Committee has
delegated authority to set the remuneration of the Non-Executive Directors,
including the remuneration of the Chair of the Board, under its terms of
reference. David does not receive additional remuneration for his role as
Senior Independent Director (SID).
Committee evaluation
An evaluation of the Remuneration Committee was undertaken as part of the
overall Board evaluation in 2022. The evaluation concluded that there was a
good balance of skills between the five Directors to support the work of the
Remuneration Committee.
This Remuneration Committee Report is approved on behalf of the Board by
David Stevenson
Chair of the Remuneration Committee
5 April 2023
13. NOMINATION COMMITTEE REPORT
Introduction
During the period, the Board, mindful of the requirements of the AIC Code and
the Company's objective of maintaining high governance standards, constituted
the Nomination Committee during 2022.
Nomination Committee composition
The Nomination Committee is chaired by Cathy Pitt. Cathy is supported by the
other four independent Non-Executive Directors on this Nomination Committee.
The Nomination Committee meets at least once a year and operates within
clearly defined terms of reference. The Nomination Committee met twice during
the period. The Nomination Committee's meeting was also attended by
representatives of the Company Secretary, (JTC (UK) Limited).
Given the size of the Board and the diverse range of experience and skills
possessed by the Directors, the Board has considered it appropriate to have
all Directors serve on this Nomination Committee.
Terms of reference
The Nomination Committee reviewed its terms of reference to ensure that they
were in alignment with the pro-forma terms of reference published by ICSA and
the latest version of the AIC Code.
Principal responsibilities
The Nomination Committee's principal responsibilities are:
· leading the process for appointments;
· ensuring plans are in place for orderly succession to the Board;
and
· overseeing the development of a diverse pipeline for succession
to the Board.
The Nomination Committee is also responsible for supporting the Chair of the
Board in an annual review of the effectiveness of the Board, its Nomination
Committee and each of its Directors.
Composition, succession and evaluation
Composition
The Company has a Board comprising five Non-Executive Directors, with the
Chair being John Leggate. All of the Directors are independent from the
Investment Manager as defined in the AIC Code and no circumstances have been
identified that are likely to impair, or could appear to impair, a
Non-Executive Director's independence. Further, all Directors' significant
interests have been reviewed and no conflicts of interest with the interests
of the Company have been identified. The Board does not consider these
interests to have any significant impact on the Directors' ability to
discharge their duties to the Company.
Biographical details of all Board members (including significant other
commitments) are shown on page 50.
When making new appointments, the Board will consider other demands on
Directors' time. Prior to appointment, significant commitments will be
disclosed with an indication of the time involved. Additional external
appointments should not be undertaken without prior approval of the Nomination
Committee and Board, with the reasons for permitting significant appointments
explained in the Annual Report.
The Nomination Committee reviewed the size and composition of the Board having
regard to the skills of each Director and the commitment involved in service
on the Board. The Committee procured the services of an external recruitment
consultant, Trust Associates, to identify candidates for a fifth Non-Executive
Director. Trust Associates has no other connection to the Company or other
Directors of the Board. The Chair identified a short list of potential
candidates for the Committee members to interview and through careful
consideration, the Committee recommended to the Board the appointment of
Isabel Liu as the fifth Non-Executive Director to the Board. Further, Isabel
Liu was appointed to each of the Company's committees on 9 December 2022. The
Nomination Committee also considered the opportunity for scholarship
initiatives and Board apprenticeship programmes. The Nomination Committee
considered that access to experience would be valuable for disadvantaged
individuals and for the Nomination Committee to support the wider community.
The Nomination Committee resolved to pursue initiatives to support scholarship
initiatives and Board apprenticeship programmes during 2023.
Board evaluation
During the period, the Board, supported by the Company Secretary undertook an
internal Board evaluation. The evaluation involved the completion of board
surveys prepared by the Company Secretary and completed by the Directors. The
evaluation was a comprehensive internal review, by the Committee as a whole,
of the effectiveness of the Board, individual Directors, the Chair and each of
the Board's Committees. The evaluation concluded there was generally a good
balance of skills on the Board and external communication with shareholders
required improvement. Improving engagement with the Company's shareholders
remains a focus from the Board evaluation and the Board intends to continue to
make improvements on this during 2023. While the Committee concluded that
there was good balance of skills and experience on the Board, the Committee
would seek opportunities to refresh the composition of the Board and to
further support the Board's diversity.
Re-election and succession
John Leggate, David Stevenson and Duncan Neale were appointed to the Board on
24 August 2018 and re-elected by the shareholders at the 2022 AGM. Catherine
Pitt was appointed to the Board on 1 March 2019 and duly elected by the
shareholders at the 2022 AGM. Isabel Liu was appointed to the Board on 1
October 2022 and will be eligible for election by the Company's shareholders
at the Company's 2023 AGM.
In accordance with the AIC Code, all Directors are required to retire at the
forthcoming AGM, and being eligible, offer themselves for re-election.
Further, in relation to the tenure of the Chair, the Board considers it
appropriate to have no fixed term for the tenure of the Chair and deems this
appropriate given the long-term nature of the Company's investments. However,
the Nomination Committee will review this policy on an annual basis.
Diversity
The Company recognises the benefits of having a diverse Board and sees
increasing diversity at Board level as an essential element in maintaining an
effective Board. The Company has adopted a formal Diversity Policy, which sets
out the Company's approach to and commitment to diversity. The policy was
reviewed by the Nomination Committee during 2022.
The Company's policy is to ensure that there is broad experience and diversity
on the Board. Diversity includes, and makes good use of, differences in
knowledge and understanding of relevant diverse geographies, peoples and their
backgrounds including race or ethnic origin, sexual orientation, sex, age,
disability, and religion. Appointments to the Board should be made on merit,
in the context of complimenting and expanding the skills, knowledge and
experience of the Board as a whole (and in accordance with the Equality Act
2010). Accordingly, with the recruitment of the fifth Director, the Board
liaised with an external independent recruitment consultant to ensure a wide
pool of candidates from a diverse background were considered for the position.
The Nomination Committee will be responsible for the implementation of the
Company's Diversity Policy and for monitoring progress towards the achievement
of its objectives.
This Nomination Committee Report is approved on behalf of the Board by
Cathy Pitt
Chair of the Nomination Committee
5 April 2023
14. MANAGEMENT ENGAGEMENT COMMITTEE REPORT
Introduction
Building on its work during 2022, the Management Engagement Committee
continued to work with the Investment Manager and key service providers to
ensure that the Company had a robust system of internal financial controls and
a clear risk management procedure.
During the year, the Management Engagement Committee played an integral role
in:
- reviewing the contractual relationship and performance of the
Investment Manager; and
- evaluating key service providers, including the Company
Secretary, Depositary, Registrar, and Broker.
Management Engagement Committee composition
The Management Engagement Committee is chaired by Cathy Pitt. The Chair of the
Management Engagement Committee is supported by the other four independent
Non-Executive Directors.
The Management Engagement Committee meets at least once a year and operates
within clearly defined terms of reference. The Management Engagement Committee
met once during the period. This meeting was also attended by representatives
of the Investment Manager and the Company Secretary (JTC (UK) Limited).
Given the size of the Board and the diverse range of experience and skills
possessed by the Directors, the Board has considered it appropriate to have
all Directors serve on the Management Engagement Committee.
Terms of reference
The Management Engagement Committee reviewed its terms of reference to ensure
that they remain in alignment with the pro-forma terms of reference published
by ICSA and the latest version of the AIC Code.
Principal responsibilities
The Management Engagement Committee's principal responsibilities include:
· monitoring and evaluating the Investment Manager's investment
performance and, if necessary, providing appropriate guidance;
· putting in place procedures by which the Board regularly reviews
the continued retention of the Investment Manager's services;
· considering the merit of obtaining, on a regular basis, an
independent appraisal of the Investment Manager's services;
· reviewing the level and method of remuneration, the basis of
performance fees (if any) and the notice period; and
· putting in place processes to review the Company's risk
management and internal control systems designed to safeguard shareholders'
investment and the Company's assets. A review of the effectiveness of these
systems should be made annually by the Board and reported to shareholders in
the annual report.
The Management Engagement Committee also reviews the performance of other
service providers to the Company and makes recommendation to the Board,
including by:
· reviewing and considering the appointment and remuneration of
service providers to the Company; and
· considering any points of conflict which may arise between the
providers of services to the Company.
Performance of the Investment Manager
The Management Engagement Committee reviewed the performance of the Investment
Manager and the Management Engagement Committee was generally satisfied that
the Investment Manager had performed well during the period with the Company
completing a number of acquisitions during the period, driving the performance
of the operating assets, successfully deploying the capital raised during 2021
and conducting a further successful fundraising during 2022.
The Management Engagement Committee continues to collaborate with the
Investment Manager to improve reporting and information flow to the Board and
its committees.
The Management Engagement Committee reviewed the size of the Investment
Manager's workload, key-person policies and resources to handle the
anticipated workload. The Committee reviewed the diversity of the Investment
Manager and its capacity to the Company's ambitions for growth. The Management
Engagement Committee also noted the additional resources being added to the
Investment Manager's team, in particular the additional capacity to support
the Company's financial modelling.
The Management Engagement Committee reviewed the remuneration of the
Investment Manager and found these fees to be in line with market rates for
the services delivered to the Company during the period.
The Management Engagement Committee is satisfied that the Investment Manager
has performed well under the terms of the AIFM Agreement and is of the view
that the continued engagement of the Investment Manager is in the best
interests of the Company and would support the Company's long-term sustainable
success.
Performance of key service providers
The Management Engagement Committee undertook at review of all key service
providers to the Company and there were no issues to report.
The Management Engagement Committee specifically discussed the performance of
JTC (UK) Limited appointed by the Company both as Administrator and as Company
Secretary and concluded that the performance as Administrator and Company
Secretary remained satisfactory. The Company is responsible for the
appointment or removal of the Company Secretary.
Committee evaluation
An internal evaluation of the Management Engagement Committee was undertaken
as part of the overall Board evaluation. The Management Engagement Committee
was found to be working well and the skills and experience of the members was
found to be appropriate for their roles. This Management Engagement Committee
Report is approved on behalf of the Board by
Cathy Pitt
Chair of the Management Engagement Committee during the reporting period.
5 April 2023
15. INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF GRESHAM HOUSE
ENERGY STORAGE FUND PLC
Opinion on the financial statements
In our opinion:
• the financial statements give a true and fair view of the
state of the Company's affairs as at 31 December 2022 and its profit for the
year then ended;
• have been properly prepared in accordance with UK adopted
international accounting standards; and
• the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006.
We have audited the financial statements of Gresham House Energy Storage Fund
plc (the 'Company') for the year ended 31 December 2022 which comprise
Statement of Comprehensive Income, Statement of Financial Position, Statement
of Changes in Equity, Statement of Cash Flows and notes to the financial
statements, including a summary of significant accounting policies. The
financial reporting framework that has been applied in their preparation is
applicable law and UK adopted international accounting standards.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor's responsibilities for the
audit of the financial statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion. Our audit opinion is consistent with the additional
report to the audit committee.
Independence
Following the recommendation of the audit committee, we were appointed by the
Board of Directors in December 2019 to audit the financial statements for the
year ending 31 December 2019 and subsequent financial periods. The period of
total uninterrupted engagement including retenders and reappointments is four
years, covering the years ending 31 December 2019 to 31 December 2022. We
remain independent of the Company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the UK,
including the FRC's Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. The non-audit services prohibited by that
standard were not provided to the Company.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation of the Directors'
assessment of the Company's ability to continue to adopt the going concern
basis of accounting included:
· assessing the reasonableness of the Company's cash flow forecast
by comparing the expected cash flows to contractual obligations and that these
are covered by the available cash reserves for the period of 12 months from
the date of approval of the financial statements;
· considering the appropriateness of the approach and model used by
the Directors;
· assessing the reasonableness of the Directors judgement on the
impact of the continuation vote;
· assessing the reasonableness of the stress test performed by the
Directors which assumed that there would be a 33% reduction in inflows and a
reduction in dividends of 33% and all existing funding obligations towards the
investments would still be met over the next 12 months,
· assessing the covenants which are relevant to the debt facility,
which the Company is party to as Guarantor and the ability to meet these
covenants even under the stress test scenario; and
· reviewing the adequacy and consistency of the disclosure in line
with the Directors' assessment.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Company's ability to continue
as a going concern for a period of at least twelve months from when the
financial statements are authorised for issue.
Our responsibilities and the responsibilities of the Directors with respect to
going concern are described in the relevant sections of this report.
Overview
2022 2021
Valuation of unquoted investments a a
Key audit matters
Financial statements as a whole
Materiality
£12.6mn (2021: £7.6mn) based on 1.5% of net assets
Specific materiality
£1.3mn (2021: £870k) based on 5% of profit before tax less fair value gains
Materiality
Financial statements as a whole
£12.6mn (2021: £7.6mn) based on 1.5% of net assets
Specific materiality
£1.3mn (2021: £870k) based on 5% of profit before tax less fair value gains
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the Company and its
environment, including the Company's system of internal control, and assessing
the risks of material misstatement in the financial statements. We also
addressed the risk of management override of internal controls, including
assessing whether there was evidence of bias by the Directors that may have
represented a risk of material misstatement.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit, and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Key audit matter How the scope of our audit addressed the key audit matter
Valuation of unquoted investments As detailed in Note 11, the Company owns an investment portfolio of unquoted Our procedures in relation to management's valuation of the unquoted
equity and loan investments, which as described in the accounting policies in investments include:
Note 5 are held at fair value in the Company Financial Statements.
[Refer to note 11 on page 98 and note 17 on page 102 of the financial
statements.]
• We assessed the competency, qualification, independence and
The valuations of the investments is a subjective accounting estimate where objectivity of the external valuer engaged by the Company and reviewed the
there is an inherent risk of management override arising from investment terms of their engagement for any unusual arrangements or limitation on the
valuations being prepared by the Investment Manager, who is remunerated based scope of their work.
on the Net Assets Value (NAV) of the Company.
• With the assistance of our internal valuation experts, we
The Company has engaged an independent expert valuer to help mitigate the challenged the appropriateness of the selection and application of key
risk. estimates in the discounted cash flow model including discount rate, net
energy yield, annual generation, inflation rate, underlying costs and asset
life by benchmarking to available industry data and actual results in the
year.
The fair value was determined through the use of a discounted cash flow model.
The valuation involved significant judgements and estimates from management
including, but not limited to discount rates, changes in net revenue yield and
changes in energy production. Changes to the estimates and/or judgements can • Agreed net energy yield and annual generation used in the
result, either on an individual or aggregate basis, in a material change to discounted cash flow model to independent third party pricing curve report. We
the valuation of unquoted investments and therefore we considered this to be a held discussions with them to understand the model assumptions and how the
key audit matter. models are produced.
• For new investments, we obtained and reviewed the sale and
purchase agreements and loan contracts and checked if they were accurately
reflected in the valuation model.
• For new investments which were either acquired or committed we
challenged the appropriate valuation through consideration of the stage of
construction of the underlying battery storage project and our understanding
of the associated risks.
• For investments where the battery asset is under construction,
we have challenged the policy applied to fair value these investments through
obtaining an understanding of the status of each project and the risks of the
projects. For the construction risk premium applied, we benchmarked this
against other companies and considered the risks in the projects. We discussed
the premium with management's independent external valuer and involved our
internal valuations experts in assessing the appropriateness of the premium.
• Agreed period end working capital adjustments in determining
the fair value of the portfolio companies to the working capital recognised in
the management accounts of the portfolio companies as well as bank statements,
invoices and VAT returns.
• Agreed the movements in loans provided to the portfolio
companies including interest rates to underlying loan agreements, vouched cash
movements to bank statements and re-performed the calculation of interest.
Key observations:
Based on the audit procedures performed, we found the estimates and judgements
made by the management in relation to the valuation to be appropriate.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit,
and in evaluating the effect of misstatements. We consider materiality to be
the magnitude by which misstatements, including omissions, could influence the
economic decisions of reasonable users that are taken on the basis of the
financial statements.
In order to reduce to an appropriately low level the probability that any
misstatements exceed materiality, we use a lower materiality level,
performance materiality, to determine the extent of testing needed.
Importantly, misstatements below these levels will not necessarily be
evaluated as immaterial as we also take account of the nature of identified
misstatements, and the particular circumstances of their occurrence, when
evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the
financial statements as a whole and performance materiality as follows:
Company financial statements
2022 2021
£ £
Materiality £12,600,000 £7,600,000
Basis for determining materiality 1.5% net assets
Rationale for the benchmark applied We consider that net assets is the most relevant performance measure for users
of the financial statements.
Performance materiality £8,750,000 £5,110,000
Basis for determining performance materiality 70% of materiality based on consideration of factors including the level of
historical errors and nature of activities, which resulted in an increase in
the performance materiality benchmark.
Specific materiality
We also determined that for transactions and balances that impact on the
Company's return other than the valuation of the unlisted investment
portfolio, a misstatement of less than materiality for the financial
statements as a whole, specific materiality, could influence the economic
decisions of users. As a result, we determined materiality for these items
based to be £1.26mn (2021: £0.87mn) based on 5% of profit before tax less
fair value gains. We further applied a performance materiality level of 70% of
specific materiality to ensure that the risk of errors exceeding specific
materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual
audit differences in excess of £63,000 (2021: £43,500). We also agreed to
report differences below this threshold that, in our view, warranted reporting
on qualitative grounds.
Other information
The directors are responsible for the other information. The other information
comprises the information included in the Annual Report and Financial
Statements other than the financial statements and our auditor's report
thereon. Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon. Our
responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit, or otherwise
appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to
determine whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are
required to report that fact.
We have nothing to report in this regard.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during
the course of the audit, we are required by the Companies Act 2006 and ISAs
(UK) to report on certain opinions and matters as described below.
Strategic report and Directors' report In our opinion, based on the work undertaken in the course of the audit:
· the information given in the Strategic report and the Directors'
report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
· the Strategic report and the Directors' report have been prepared
in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Company and its
environment obtained in the course of the audit, we have not identified
material misstatements in the Strategic report or the Directors' report.
Directors' remuneration In our opinion, the part of the Directors' remuneration report to be audited
has been properly prepared in accordance with the Companies Act 2006.
Matters on which we are required to report by exception We have nothing to report in respect of the following matters in relation to
which the Companies Act 2006 requires us to report to you if, in our opinion:
· adequate accounting records have not been kept , or returns
adequate for our audit have not been received from branches not visited by us;
or
· the Company financial statements and the part of the Directors'
remuneration report to be audited are not in agreement with the accounting
records and returns; or
· certain disclosures of Directors' remuneration specified by law
are not made; or
· we have not received all the information and explanations we
require for our audit.
Responsibilities of Directors
As explained more fully in the Directors' responsibilities statement, the
Directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for such internal
control as the Directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the Directors are responsible for
assessing the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate the Company or
to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Extent to which the audit was capable of detecting irregularities, including
fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
• We obtained an understanding of the legal and regulatory
framework that is applicable to the Company and determined that the relevant
laws and regulations related to the elements of the Company Act 2006 and tax
legislation, the financial reporting framework, the supervisory requirements
of LSE Listing and Disclosure Rules, Financial Conduct Rule 'FCA' Listing
rules, and the Association of Investment Companies 'AIC' SORP.
• We understood how the Company is complying with these laws and
regulations by making enquiries of management and those responsible for legal
and compliance matters. We reviewed correspondence between the Company and
regulated bodies and reviewed minutes of meetings and gained an understanding
of the Company's approach to governance.
• We assessed the susceptibility of the financial statements to
material misstatement, including fraud and made enquiries of the Investment
Manager, the management service provider and the Board of Directors of any
known or suspected instances of fraud. The key area for fraud and manipulation
is around the unquoted investment valuation (see related key audit matter) and
management override of controls.
Obtaining an understanding of management's internal controls that are relevant
to preventing and detecting irregularities including fraud.
· Challenging assumptions made by management in their significant
accounting estimates in particular in relation to valuation of unquoted
investments (see related key audit matters);
· Identifying and testing journal entries, in particular any
journal entries posted with unusual account combinations, journals posted by
the investment manager and journals posted and reviewed by the same individual
by agreeing to supporting documentation.
• Communicating relevant identified laws and regulations and
potential fraud risks to all engagement team members who were all deemed to
have appropriate competence and capabilities and remained alert to any
indications of fraud or non-compliance with laws and regulations throughout
the audit.
Our audit procedures were designed to respond to risks of material
misstatement in the financial statements, recognising that the risk of not
detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery, misrepresentations or through collusion.
There are inherent limitations in the audit procedures performed and the
further removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less likely we are
to become aware of it.
A further description of our responsibilities is available on the Financial
Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities
(http://insite.bdo.co.uk/sites/audit/Documents/www.frc.org.uk/auditorsresponsibilities)
. This description forms part of our auditor's report.
Use of our report
This report is made solely to the Company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company's members those matters we
are required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's members as a
body, for our audit work, for this report, or for the opinions we have formed.
Marc Reinecke (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, United Kingdom
5 April 2023
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
16. FINANCIAL STATEMENTS
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2022
Company number 11535957
For the year ended 31 December 2022 Notes Revenue Capital Total
(£) (£) (£)
Net return on investments at fair value through profit and 7 32,868,283 191,828,651 224,696,934
loss
Other income 747,218 - 747,218
Total income 33,615,501 191,828,651 225,444,152
Administrative and other expenses:
Legal and professional fees (713,709) - (713,709)
Other administrative expenses 8 (7,592,943) - (7,592,943)
Total administrative and other expenses (8,306,652) - (8,306,652)
Profit before tax 25,308,849 191,828,651 217,137,500
Taxation 9 - - -
Profit and total comprehensive income for the year 25,308,849 191,828,651 217,137,500
Earnings per share (basic and diluted) - pence 10 5.07 38.46 43.53
For the year ended 31 December 2021 Notes Revenue Capital Total
(£) (£) (£)
Net gain on investments at fair value through profit and 7 22,470,837 63,058,528 85,529,365
loss
Other income 298,500 - 298,500
Total income 22,769,337 63,058,528 85,827,865
Administrative and other expenses:
Transaction fees - 56,539 56,539
Legal and professional fees - (560,589) (560,589)
Other administrative expenses 8 (4,932,056) - (4,932,056)
Total administrative and other expenses (4,932,056) (504,050) (5,436,106)
Profit before tax 17,837,281 62,554,478 80,391,759
Taxation 9 - - -
Profit and total comprehensive income for the year 17,837,281 62,554,478 80,391,759
Earnings per share (basic and diluted) - pence 10 4.57 16.02 20.59
The total column of this statement is the Statement of Comprehensive Income of
the Company prepared in accordance with UK adopted International Accounting
Standards. The supplementary revenue return and capital columns have been
prepared in accordance with the Association of Investment Companies Statement
of Recommended Practice (AIC SORP).
All results are derived from continuing operations. The notes starting on page
90 form an integral part of these Financial Statements.
STATEMENT OF FINANCIAL POSITION
As at the year ended 31 December 2022
Company number 11535957
Notes 31 December 2022 31 December 2021
(£) (£)
Non-current assets
Investments in subsidiaries at fair value through profit or loss 11 834,771,492 389,346,748
Current assets
Cash and cash equivalents 13 7,327,492 122,175,081
Trade and other receivables 14 217,698 359,467
7,545,190 122,534,548
Total assets 842,316,682 511,881,296
Current liabilities
Trade and other payables 15 (571,020) (210,255)
Total net assets 841,745,662 511,671,041
Shareholders' equity
Share capital 20 5,412,904 4,378,421
Share premium 20 495,230,993 349,058,720
Merger relief reserve 20 13,299,017 13,299,017
Capital reduction reserve 20 3,892,537 38,162,172
Capital reserves 20 267,250,491 75,421,840
Revenue reserves 20 56,659,720 31,350,871
Total shareholders' equity 841,745,662 511,671,041
Net Asset Value per Ordinary Share (pence) 19 155.51 116.86
The Financial Statements were approved and authorised for issue by the Board
of Directors and were signed on its behalf by:
_________________________
John Leggate CBE, FREng
Chair
Date: 5 April 2023
The notes starting on page 90 form an integral part of these Financial
Statements.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2022
Note Share capital Share premium Merger relief reserve Capital reduction reserve Capital reserves Revenue reserves Total shareholders' equity
(£) (£) (£)
(£) (£) (£) (£)
Shareholders' equity at 1 January 2022 4,378,421 13,299,017 38,162,172 75,421,840 31,350,871 511,671,041
349,058,720
Profit for the year - - - - 191,828,651 25,308,849 217,137,500
Total comprehensive income for the year - - - - 191,828,651 25,308,849 217,137,500
Transactions with owners
Ordinary Shares issued at a premium during the year 1,034,483 148,965,516 - - - - 149,999,999
20
Share issue costs 20 - (2,793,243) - - - - (2,793,243)
Dividends paid 20 - - - (34,269,635) - - (34,269,635)
Shareholders' equity at 31 December 2022 5,412,904 495,230,993 13,299,017 3,892,537 267,250,491 56,659,720 841,745,662
Note Share capital Share premium Merger relief reserve Capital reduction reserve Capital reserves Revenue reserves Total shareholders' equity
(£) (£) (£)
(£) (£) (£) (£)
Shareholders' equity 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 for the period - - - - 62,554,478 17,837,281 80,391,759
Total comprehensive income for the year - - - 62,554,478 17,837,281 80,391,759
-
Transactions with owners
Ordinary Shares issued at a premium during the year 892,857 - - - 100,000,000
20
99,107,143 -
Share issue costs 20 - - - - - (1,649,683)
(1,649,683)
Dividends paid 20 - - - (25,961,445) - - (25,961,445)
Shareholders' equity at 31 December 2021 4,378,421 349,058,720 13,299,017 38,162,172 75,421,840 31,350,871 511,671,041
The total distributable reserves available at 31 December 2022 are
£60,552,257 (2021: £69,513,043). Distributable reserves consist of the
capital reduction reserve and revenue reserve.
The notes starting on page 90 form an integral part of these Financial
Statements.
STATEMENT OF CASH FLOWS
For the year ended 31 December 2022
Note 31 December 2022 31 December 2021
£ £
Cash flows used in operating activities
Profit for the year 217,137,500 80,391,759
Net gain on investments at fair value through profit and loss 7 (224,696,934) (85,529,365)
Interest income (312,217) -
Decrease/(increase) in trade and other receivables 141,769 (85,040)
Increase/(decrease) in trade and other payables 360,765 (74,431)
Net cash used in operating activities (7,369,117) (5,297,077)
Cash flows used in investing activities
Deferred consideration paid - (1,030,530)
Disposal of investments - 458,331
Loans made to subsidiaries (220,727,811) (55,730,831)
Loans repaid by investments - 419,291
Bank interest received 312,218 -
Net cash used in investing activities (220,415,593) (55,883,739)
Cash flows used in financing activities
Proceeds from issue of Ordinary Shares at a premium 20 149,999,999 100,000,000
Share issue costs 20 (2,793,243) (1,649,683)
Dividends paid 20 (34,269,635) (25,961,445)
Net cash inflow from financing activities 112,937,121 72,388,872
Net (decrease)/increase in cash and cash equivalents for the year (114,847,589) 11,208,056
Cash and cash equivalents at the beginning of the year 122,175,081 110,967,025
Cash and cash equivalents at the end of the year 7,327,492 122,175,081
The notes starting on page 90 form an integral part of these Financial
Statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
1. General information
Gresham House Energy Storage Fund plc (the Company) is a company limited by
shares and is listed on the special fund Segment of the London Stock Exchange.
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, 18(th) Floor, 52 Lime Street, London, EC3M 7AF. Its share capital is
denominated in Pounds Sterling (GBP or £) and currently consists of Ordinary
Shares. Through its subsidiaries, the Company's principal activity is to
invest in SPVs which operate 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 investment
portfolio are located in diverse locations across Great Britain.
These Annual Financial Statements cover the year ended 31 December 2022 with
comparatives for the year ended 31 December 2021 and comprise only the results
of the Company as all its subsidiaries are measured at fair value.
2. Basis of preparation
Statement of compliance
The Annual Report and Financial Statements have been prepared in accordance
with UK adopted international accounting standards (UKIAS). The accounts have
been prepared on a historical cost basis except for financial assets at fair
value through profit or loss. All accounting policies have been applied
consistently in these financial statements.
Where presentational guidance set out in the Statement of Recommended Practice
(the 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 UKIAS, the Directors have prepared the
annual Financial Statements on a basis compliant with the recommendations of
the 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.
Functional and presentation currency
The currency of the primary economic environment in which the Company operates
(the functional currency) is Pound Sterling (GBP or £) which is also the
presentation currency.
Going concern
As noted in the Strategic Report, as at 31 December 2022, the Company had net
current assets of £6.9mn including cash balances of £7.3mn (excluding cash
balances within investee companies), which are sufficient to meet the
cashflows for a period of not less than 12 months from the date of signing the
financial statements. 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). These
acquisitions are funded through drawdowns under the debt facility within MidCo
which had available capacity of £275mn at year end. All committed
acquisitions at the end of the year and subsequent to year end are
sufficiently covered through current cash reserves and available debt
facilities, in Midco, already in place. The Company had no outstanding debt
owing as at 31 December 2022. The Company is a guarantor of the debt facility
entered into by the MidCo in 2021, of which £60mn was drawn as at 31 December
2022.
Having performed the assessment of going concern, the Directors have adopted
the going concern basis in preparing the Annual Report and Financial
Statements.
Shareholders will have the opportunity to vote on an ordinary resolution on
the continuation of the Company at the AGM of the Company to be held in 2023,
and every fifth AGM thereafter. If any such ordinary resolution is not passed,
the Directors shall draw up proposals for the voluntary liquidation,
unitisation, reorganisation, or reconstruction of the Company for
consideration by the shareholders at a general meeting to be convened by the
Directors for a date not more than six months after the date of the meeting at
which such ordinary resolution was not passed. The Board have considered this
when evaluating the Going concern assessment for the Company.
3. Significant accounting judgements, estimates and assumptions
The preparation of the Financial Statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amount of assets, liabilities, income,
and expenses. Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to the accounting estimates are recognised in the period in
which the estimates are revised and in any future periods affected.
During the year the Directors considered the following significant judgements:
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 battery 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.
Based on the above factors the Directors are of the opinion that the Company
meets the characteristics of an investment entity and meets the definition in
the standard. The Directors will reassess this conclusion on an annual basis.
Assessment of the MidCo as an investment entity
The MidCo (see Note 11) is not consolidated as the MidCo is also considered to
be an investment entity. The Board of the MidCo has considered the
requirements of IFRS 10 as per above and confirm the MidCo meets these
criteria. If the MidCo were not considered to meet the definition of an
investment entity, then the Company would be required to consolidate the
entity. The net assets of the MidCo have been set out in Note 11. The impact
of consolidating the MidCo would be to increase the investment value to
£855,652,343 (2021: £401,115,427) and recognise a reduction in net working
capital of £20,880,856 (2021: additional net working capital of
£11,768,679)).
Note 11 includes an overview of the balances within the MidCo and what would
be included in the accounts of the Company if the Company were required to
consolidate the entity.
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. The AIFM are restricted to the delivery of the investment policy.
During the year the Directors considered the following significant estimates:
Valuation of investments in subsidiaries
Significant estimates in the Company's Financial Statements include the
amounts recorded for the fair value of the investments. By their nature, these
estimates and assumptions are subject to measurement uncertainty and the
effect on the Company's Financial Statements of changes in estimates in future
periods could be significant. See Note 17 for further details.
4. New standards, amendments and interpretations published but not yet
adopted
Certain new accounting standards, amendments to accounting standards and
interpretations have been published that are not mandatory for 31 December
2022 reporting periods and have not been early adopted by the Company. These
standards, amendments or interpretations are not expected to have a material
impact on the Company in the current or future reporting periods and on
foreseeable future transactions hence they have not been presented in detail
in these financial statements.
The new and amended standards and interpretations that are issued, but not yet
effective, up to the date of issuance of the Company's financial statements
are disclosed below. The Company intends to adopt these new and amended
standards and interpretations, if applicable, when they become effective.
.
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to
specify the requirements for classifying liabilities as current or
non-current. The amendments clarify:
· What is meant by a right to defer settlement
· That a right to defer must exist at the end of the reporting
period
· That classification is unaffected by the likelihood that an
entity will exercise its deferral right
· That only if an embedded derivative in a convertible liability is
itself an equity instrument would the terms of a liability not impact its
classification
The amendments are effective for annual reporting periods beginning on or
after 1 January 2023 and must be applied retrospectively. The Company is
currently assessing the impact the amendments will have on current practice
and whether existing loan agreements may require renegotiation.
Definition of Accounting Estimates - Amendments to IAS 8
In February 2021, the IASB issued amendments to IAS 8, in which it introduces
a definition of 'accounting estimates'. The amendments clarify the distinction
between changes in accounting estimates and changes in accounting policies and
the correction of errors. Also, they clarify how entities use measurement
techniques and inputs to develop accounting estimates.
The amendments are effective for annual reporting periods beginning on or
after 1 January 2023 and apply to changes in accounting policies and changes
in accounting estimates that occur on or after the start of that period.
Earlier application is permitted as long as this fact is disclosed.
The amendments are not expected to have a material impact on the Company's
financial statements.
Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice
Statement 2
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice
Statement 2 Making Materiality Judgements, in which it provides guidance and
examples to help entities apply materiality judgements to accounting policy
disclosures. The amendments aim to help entities provide accounting policy
disclosures that are more useful by replacing the requirement for entities to
disclose their 'significant' accounting policies with a requirement to
disclose their 'material' accounting policies and adding guidance on how
entities apply the concept of materiality in making decisions about accounting
policy disclosures.
The amendments to IAS 1 are applicable for annual periods beginning on or
after 1 January 2023 with earlier application permitted. Since the amendments
to the Practice Statement 2 provide non-mandatory guidance on the application
of the definition of material to accounting policy information, an effective
date for these amendments is not necessary.
The Company is currently revisiting their accounting policy information
disclosures to ensure consistency with the amended requirements.
Deferred Tax related to Assets and Liabilities arising from a Single
Transaction - Amendments to IAS 12
In May 2021, the Board issued amendments to IAS 12, which narrow the scope of
the initial recognition exception under IAS 12, so that it no longer applies
to transactions that give rise to equal taxable and deductible temporary
differences.
The amendments should be applied to transactions that occur on or after the
beginning of the earliest comparative period presented. In addition, at the
beginning of the earliest comparative period presented, a deferred tax asset
(provided that sufficient taxable profit is available) and a deferred tax
liability should also be recognised for all deductible and taxable temporary
differences associated with leases and decommissioning obligations.
The Company is currently assessing the impact of the amendments.
The Company does not expect any other standards issued by the IASB, but not
yet effective, to have a material impact on the Company.
5. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these
Financial Statements are set out below:
Segmental information
The Board is of the opinion that the Company is engaged in a single segment
business, being the investment in the United Kingdom in battery energy storage
assets.
Income and expenses (excluding investments)
Income and expenses are accounted for on an accruals basis. The Company's
income and expenses are charged to the Statement of Comprehensive Income.
Costs directly relating to the issue of Ordinary Shares are charged to share
premium.
Net gain or loss on investments at fair value through profit and loss
The Company recognises movements in the fair value of investments in
subsidiaries through profit and loss.
Other income
Other income consists of bank interest and management fee income which are
accounted for on an accruals basis.
Taxation
The Company is approved as an Investment Trust Company (ITC) under sections
1158 and 1159 of the Corporation Taxes Act 2010 and Part 2 Chapter 1 Statutory
Instrument 2011/2999 for accounting periods commencing on or after 25 May
2018. The approval is subject to the Company continuing to meet the
eligibility conditions of the Corporations Tax Act 2010 and the Statutory
Instrument 2011/2999. The Company intends to ensure that it complies with the
ITC regulations on an ongoing basis and regularly monitors the conditions
required to maintain ITC status.
From 1 April 2015 there was a single corporation tax rate of 19%. This rate
is increasing to 25% from 1 April 2023. Tax is recognised in the profit
and loss except to the extent that it relates to the items recognised as
direct movements in equity, in which case it is similarly recognised as a
direct movement in equity. Current tax is the expected tax payable on any
taxable income for the period, using tax rates enacted or substantively
enacted at the end of the relevant period. The Company may use taxable losses
from within the Group to relieve taxable profits in the Company and also
income streams part of the dividends paid into interest payments to achieve
tax efficiency for the Company. The increase in the headline rate of
corporation tax does impact on the valuation of the Company's investments.
Investment in subsidiaries
Investments in subsidiaries are held at fair value through profit and loss.
Subsidiaries are entities controlled by the Company. Control exists when the
Company is exposed, or has rights, to variable returns from its involvement
with the subsidiary entity and has the ability to affect those returns through
its power over the subsidiary entity. In accordance with the exemption under
IFRS 10 Consolidated Financial Statements, the Company is an investment entity
and only consolidates subsidiaries that provide investment management services
and which are not themselves investment entities. As a result, the Company
does not consolidate any of its subsidiaries.
Financial Instruments
In accordance with IFRS 9, the Company classifies its financial assets and
financial liabilities at initial recognition into the categories of amortised
cost or fair value through profit or loss.
Financial assets
The Company classifies its financial assets at amortised cost or fair value
through profit or loss on the basis of both:
· the entity's business model for managing the financial assets;
and
· the contractual cash flow characteristics of the financial asset.
Financial assets measured at amortised cost
A financial asset is measured at amortised cost if it is held within a
business model whose objective is to hold financial assets in order to collect
contractual cash flows and its contractual terms give rise on specified dates
to cash flows that are solely payments of principal and interest on the
principal amount outstanding. The Company includes in this category short-term
non-financing receivables which include cash and trade and other receivables.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and term deposits held with
the bank with maturities of up to three months which can be readily converted
to cash.
Trade and other receivables
Trade and other receivables are recognised initially at fair value and
subsequently stated at amortised cost which is calculated using the provision
matrix of the expected credit loss model.
Financial liabilities measured at amortised cost
This category includes all financial liabilities, other than those measured at
fair value through profit or loss, including short-term payables.
Trade and other payables
Trade and other payables are recognised initially at fair value and
subsequently stated at amortised cost.
Deferred consideration
Deferred consideration relates to consideration payable in terms of the
purchase price stated in the Share Purchase Agreement (SPA) and are recognised
initially at fair value and reassessed at the end of each reporting period.
Financial asset measured at fair value through profit or loss (FVPL)
A financial asset is measured at fair value through profit or loss if:
a) its contractual terms do not give rise to cash flows on specified
dates that are solely payments of principal and interest (SPPI) on the
principal amount outstanding; or
b) it is not held within a business model whose objective is either to
collect contractual cash flows, or to both collect contractual cash flows and
sell; or
c) it is classified as held for trading (derivative contracts in an
asset position).
The Company's investment in subsidiaries (which comprises both debt and
equity) is held at fair value through profit or loss under IFRS 9 as the
equity portion of the investment does not meet the SPPI test nor will the
Company elect to designate the investments at fair value through other
comprehensive income. The debt investment forms part of a group of assets that
are managed, and the performance evaluated on a fair value basis.
The Company includes in this category equity instruments including investments
in subsidiaries (which comprises both debt and equity). There are no
consolidated subsidiaries.
Recognition and derecognition
Financial assets are derecognised on the date on which the Company commits to
purchase or sell an asset. A financial asset is derecognised where the rights
to receive cash flows from the asset have expired, or the Company has
transferred its rights to receive cash flows from the asset. The Company
derecognises a financial liability when the obligation under the liability is
discharged, cancelled, or expired.
Impairment of other financial assets
While cash and cash equivalents are also subject to the impairment
requirements of IFRS 9, there has been no impairment loss identified.
Investments held at fair value through profit or loss are not subject to IFRS
9 impairment requirements.
Dividends
Dividends are recognised as a reduction in equity when they become legally
payable. In the case of interim dividends this is when they are paid. Final
equity dividends will be recognised when approved by the shareholders.
Equity
Equity instruments issued by the Company are recorded at the amount of the
proceeds received, net of directly attributable issue costs. Costs not
directly attributable to the issue are immediately expensed in the Statement
of Comprehensive Income.
Fair value measurement and hierarchy
Fair value is the price that would be received on the sale of an asset, or
paid to transfer a liability, in an orderly transaction between market
participants at the measurement date. The fair value measurement is based on
the presumption that the transaction takes place either in the principal
market for the asset or liability, or in the absence of a principal market, in
the most advantageous market. It is based on the assumptions that market
participants would use when pricing the asset or liability, assuming they act
in their economic best interest. A fair value measurement of a non-financial
asset considers the best and highest value use for that asset.
The fair value hierarchy to be applied under IFRS 13 is as follows:
Level 1: Quoted (unadjusted) market prices in active markets for identical
assets or liabilities.
Level 2: Valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly
observable.
Level 3: Valuation techniques for which the lowest level input that is
significant to the fair value measurement is unobservable.
For assets and liabilities that are carried at fair value and which will be
recorded in the financial information on a recurring basis, the Company will
determine whether transfers have occurred between levels in the hierarchy by
reassessing categorisation at the end of each reporting period.
6. Fees and expenses
Accounting, secretarial and Directors
JTC (UK) Limited has been appointed to act 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 year, expenses incurred with JTC (UK) Limited for administrative
and secretarial services amounted to £409,798 (2021: £235,934) with
£192,258 (2021: £29,210) being outstanding and payable at the year 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 NAV of the Company
- 0.9% on the NAV of the Company in excess of £250mn and up to
and including £500mn
- 0.8% on the NAV of the Company in excess of £500mn
There were no changes in the AIFM agreement during the year and remains
consistent with the prior year.
During the year Investment Manager fees amounted to £6,245,057 (2021:
£4,052,956) with no outstanding payables at the year-end (2021: nil).
The Investment Manager is a wholly owned subsidiary of Gresham House plc, a
significant shareholder in the Company holding 5.34% (2021: 6.05%) of total
issued Ordinary Shares. Ben Guest (a Director of the Investment Manager),
holds 2.66% (2021: 3.29%) of total issued Ordinary Shares, including direct
and indirect holdings.
7. Net gain on investments at fair value through the profit and loss
31 December 2022 31 December 2021
(£) (£)
Unrealised gain on investments at fair value through the profit and loss 191,828,651 62,838,290
Realised gain on investments at fair value through the profit and loss - 220,238
Interest on loans to subsidiaries 32,868,283 22,470,837
224,696,934 85,529,365
8. Administrative and other expenses
31 December 2022 31 December 2021
(£) (£)
Administration and secretarial fees 409,798 235,934
Remuneration received by the Company's Auditor for the audit of these 263,800 144,400
financial statements
Remuneration received by the Company's Auditor for the audit of the prior year - 34,400
financial statements
Remuneration received by the Company's Auditor for the audit of the subsidiary 17,200 15,600
accounts (recognised in underlying investments financial statements)
Depositary fees 77,079 54,949
Directors' remuneration salary 256,181 232,500
Directors' remuneration social security contributions and similar taxes 31,285 23,209
Investment Manager fee 6,245,057 4,052,956
Sundry expenses 292,543 138,108
7,592,943 4,932,056
9. Taxation
The Company is recognised as an Investment Trust Company (ITC) and is taxed at
the main rate of 19%.
For the year ended 31 December 2022, the Company may utilise group relief or
make interest distributions to reduce taxable profits to nil. There is no
corporation tax charge for the year (2021: Nil).
31 December 2022 31 December 2021
(£) (£)
(a) Tax charge in profit or loss
Current tax on profits for the year - -
Adjustments for current tax of prior periods - -
- -
(b) Reconciliation of the tax charge for the year
Profit before tax 217,137,500 80,391,759
Tax at UK main rate of 19% 19.00% 41,256,125 15,274,434
Tax effect of:
Non-taxable income (36,447,444) (11,981,120)
Non-deductible expenses - 31,350
Subject to group relief/designated as interest distributions (4,808,681) (3,324,664)
Tax charge for the year - -
10. 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
EPS are identical.
31 December 2022
Total
Revenue Capital
Net profit attributable to ordinary shareholders (£) 25,308,849 191,828,651 217,137,500
Weighted average number of Ordinary Shares for the year 498,777,363 498,777,363 498,777,363
Profit per share (basic and diluted) - pence 5.07 38.46 43.53
31 December 2021
Total
Revenue Capital
Net profit attributable to ordinary shareholders (£) 17,837,281 62,554,478 80,391,759
Weighted average number of Ordinary Shares for the period 390,386,109 390,386,109 390,386,109
Profit per share (basic and diluted) - pence 4.57 16.02 20.59
11. Investments in subsidiaries at fair value through profit or loss
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, except as a
guarantor to the debt facility entered into by the MidCo, and there are no
restrictions in place in passing monies up the structure.
Immediate parent Projects Place of business Registered office Percentage ownership
Gresham House Energy Storage Holdings plc The Company MidCo The Scalpel, 18(th) Floor, 52 Lime Street, London, EC3M 7AF Gresham House Asset Management Limited, 5 New Street Square, London, England, 100%
EC4A 3TW
Refer to Note 17 for valuation disclosures relating to the investments in
subsidiaries.
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.
When acquiring new investments, the Company will recognise value as these
investments are effectively derisked. If under construction but not expected
to be completed within nine months, the project will be held at cost. After
this date, during construction and once certain key milestones which reduce
risk are met, the project will be fair valued. However, a construction
premium of 0.75% (increased from 0.50% in 2021) will be added to the discount
rate. When the investment reaches "PAC" a project will be fair valued with a
reduced construction premium for 60 days as a Proving Period. After 60 days
the project will be fair valued without a construction premium. From 2023
onwards this Proving Period will be reduced to 30 days.
The Company engaged with Grant Thornton as independent and qualified valuers
to assess the fair value of the Company's investments and have provided their
opinion on the reasonableness of the valuation of the Company's investment
portfolio.
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.
Reconciliation 31 December 2022 31 December 2021
(£) (£)
Opening balance 389,346,748 248,964,175
Less: disposals during the year - (238,095)
Add: loans advanced 220,727,810 55,730,831
Less: loan repayments - (419,290)
Add: accrued interest on loans 32,868,283 22,470,837
Total fair value movement through the profit or loss 191,828,651 62,838,290
Closing balance 834,771,492 389,346,748
31 December 2022 31 December 2021
(£) (£)
Equity 260,952,789 69,124,138
Loans 573,818,703 320,222,610
Total equity and loans 834,771,492 389,346,748
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.
Unless otherwise agreed, 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.
Further analysis
The Company owns 100% of the Ordinary Shares in Gresham House Energy Storage
Holdings plc (the MidCo) which itself holds a number of 100% owned
subsidiaries. The investment in the MidCo of £834,771,492 (2021:
£389,346,748) comprises underlying investments as follows:
Percentage ownership Total investment
31 December 2022 31 December 2021 31 December 2022 31 December 2021
(£) (£)
Noriker Staunch Ltd 100% 100% 20,725,873 17,342,193
HC ESS2 Ltd 100% 100% 26,249,676 23,881,200
HC ESS3 Ltd 100% 100% 21,021,765 20,066,324
West Midlands Grid Storage Ltd 100% 100% 4,649,291 3,961,609
Cleator Battery Storage Ltd 100% 100% 12,635,799 7,612,741
Glassenbury Battery Storage Ltd 100% 100% 55,572,940 38,507,279
HC ESS4 Ltd 100% 100% 50,735,176 46,118,825
Bloxwich Energy Storage Ltd 100% 100% 26,329,677 25,088,436
HC ESS6 Ltd 100% 100% 49,672,338 44,737,484
HC ESS7 Ltd 100% 100% 51,549,996 46,055,369
Tynemouth Energy Storage Ltd 100% 100% 17,276,210 15,956,108
Gridreserve Ltd 100% 100% 22,494,647 19,569,973
Nevendon Energy Storage Ltd 100% 100% 11,646,848 5,028,954
Port of Tyne Energy Storage Ltd 100% 100% 35,279,004 17,551,881
Enderby Storage Ltd 100% 100% 35,056,336 19,189,475
West Didsbury Storage Ltd 100% 100% 31,816,696 14,917,971
Penwortham Storage Ltd 100% 100% 30,637,328 15,073,790
Grendon Storage Ltd 100% 100% 37,124,697 2,943,599
Melksham East Storage Ltd and Melksham West Storage Ltd 100% 100% 60,303,907 10,066,239
UK Battery Storage Ltd 100% - 172,918,927 -
Stairfoot Generation Ltd 100% - 32,367,129 -
GreenGridPower1 Ltd 100% - 4,763,091 -
Gresham House Energy Storage Solutions Ltd 100% - 8,899,321 -
Arbroath Ltd 100% - 31,781,429 -
Investments in subsidiaries - subtotal 851,508,101 393,669,450
Loans to affiliated entities of the Investment Manager- - - - 3,926,248
Arbroath Ltd (prior to acquisition) - - 4,144,247 3,519,729
Coupar Ltd
Total investments 855,652,348 401,115,427
Working capital in MidCo (20,880,856) (11,768,679)
Total investment in MidCo 834,771,492 389,346,748
The place of business for all the investments is 5 New Street Square, London,
England, EC4A 3TW.
An example of what the Company would look like if the MidCo was consolidated
is included in Note 3.
12. Loans receivable
The only loans receivable at 31 December 2022 are loans to the MidCo, which
are accounted for as investments in subsidiaries - see Note 11.
13. Cash and cash equivalents
31 December 2022 31 December 2021
(£) (£)
Cash at bank 7,327,492 122,175,081
7,327,492 122,175,081
14. Trade and other receivables
31 December 2022 31 December 2021
(£) (£)
Prepayments 59,479 88,666
Accrued income 147,302 41,397
VAT receivable 10,917 229,404
217,698 359,467
15. Trade and other payables
31 December 2022 31 December 2021
(£) (£)
Administration and secretarial fees 192,258 29,210
Audit fee accrual 166,468 95,804
Other accruals 212,294 85,241
571,020 210,255
16. Categories of financial instruments
31 December 2022 31 December 2021
(£) (£)
Financial assets
Financial assets at amortised cost:
Cash and cash equivalents 7,327,492 122,175,081
Trade and other receivables 147,302 130,063
Fair value through profit or loss:
Investment in subsidiaries 834,771,492 389,346,748
Total financial assets 842,246,286 511,651,892
Financial liabilities
Financial liabilities at amortised cost:
Trade and other payables (571,020) (210,255)
Net financial assets 841,675,266 511,441,637
As at 31 December 2022, the Company had an outstanding charge with Santander
UK plc in respect of its position as guarantor to the debt facility, held
against all the assets and undertakings of the Company.
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.
17. Fair Value measurement
Valuation approach and methodology
The Company, via the MidCo, used the income approach to value its underlying
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.
Valuation process
The Company, via the MidCo, held a portfolio of energy storage investments
with a capacity of 550 Megawatt (MW) operational and 507MW in construction
(together the investments). The investments comprise 29 projects held in 25
special project vehicles.
All of the investments are based in the UK. The Directors review and approve
the valuations of these assets following appropriate challenge and
examination. The current portfolio consists of non-market traded investments,
and valuations are analysed using forecasted cash flows of the assets and 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 31 December 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 future cash flows relating to the Company's equity
investment in each project have been discounted to 31 December 2022, using
discount rates reflecting the risks associated with each investment project
and the time value of money. The valuations are based on the expected future
cash flows, using reasonable assumptions and forecasts for revenues, operating
costs, macro-level factors and an appropriate discount rate.
When acquiring new investments, the Company will recognise value as these
investments are effectively derisked. If projects are under construction but
not expected to be completed within nine months the project will be held at
cost. After this date, during construction and once certain key milestones
which reduce risk are met the project will be fair valued. However, a
construction premium of 0.75% (increased from 0.50% in 2021) will be added to
the discount rate. When the investment reaches "PAC" a project will be fair
valued with a reduced construction premium for 60 days as a Proving Period.
After 60 days the project will be fair valued without a construction
premium. From 2023 onwards this Proving Period will be reduced to 30 days.
Conditional acquisitions, where the price of an acquisition has been agreed
but shares have not been transferred, result in the recognition of a
derivative at fair value.
The determination of the discount rate applicable to each individual
investment project considers 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
and approves them based on the recommendation of the Investment Manager.
31 December 2022 31 December 2021
Key valuation input Range Weighted average Range Weighted average
WACC / WADR 9.7% - 11.6% 10.9% 9.9 - 11.4% 10.8%
RPI 2.7% - 3.1% 2.7% 2.8 - 2.9% 2.8%
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 including 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, as mentioned in the Investment Manager's report.
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. We have therefore 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
Description 31 December 31 December
2022 2021
(£) (£)
Noriker Staunch Ltd Staunch DCF Discount rate +1% (1,267,783) (1,188,112)
-1% 1,424,331 1,346,462
Revenue +10% 1,754,827 1,307,467
-10% (1,767,537) (1,321,450)
HC ESS2 Ltd Rufford, Lockleaze, Littlebrook DCF Discount rate +1% (1,490,168) (1,622,287)
-1% 1,672,160 1,844,065
Revenue +10% 2,065,501 1,594,147
-10% (2,163,631) (1,947,003)
HC ESS3 Ltd Roundponds DCF Discount rate +1% (1,347,472) (1,504,951)
-1% 1,547,308 1,744,638
Revenue +10% 1,603,570 1,475,139
-10% (1,599,661) (1,505,125)
West Midlands Grid Storage Two Ltd Wolverhampton DCF Discount rate +1% (240,241) (271,807)
-1% 269,205 308,750
Revenue +10% 435,117 399,734
-10% (440,407) (435,547)
Cleator Battery Storage Ltd Cleator DCF Discount rate +1% (432,857) (743,633)
-1% 486,654 851,165
Revenue +10% 649,849 883,206
-10% (650,364) (886,715)
Glassenbury Battery Storage Ltd Glassenbury A and B DCF Discount rate +1% (2,410,337) (3,576,483)
-1% 2,715,542 4,092,515
Revenue +10% 3,363,710 4,201,276
-10% (3,366,223) (4,216,089)
HC ESS4 Ltd Red Scar DCF Discount rate +1% (3,510,236) (3,751,022)
-1% 4,091,406 4,416,962
Revenue +10% 4,670,803 4,393,203
-10% (4,670,761) (4,420,195)
Bloxwich Energy Storage Ltd Bloxwich DCF Discount rate +1% (1,497,684) (1,822,905)
-1% 1,687,936 2,074,137
Revenue +10% 2,838,453 2,690,591
-10% (2,843,308) (2,719,548)
HC ESS7 Ltd Thurcroft DCF Discount rate +1% (3,460,667) (3,605,403)
-1% 3,996,481 4,203,128
Revenue +10% 4,981,152 4,234,266
-10% (4,925,842) (4,284,189)
HC ESS6 Ltd Wickham DCF Discount rate +1% (3,025,000) (3,207,419)
-1% 3,440,682 3,680,717
Revenue +10% 4,373,582 4,004,174
-10% (4,332,843) (4,060,406)
Tynemouth Battery Storage Ltd Tynemouth DCF Discount rate +1% (862,114) (1,661,999)
-1% 1,000,169 1,956,686
Revenue +10% 1,605,779 2,037,818
-10% (1,606,256) (2,044,741)
Gridreserve Ltd Byers Brae DCF Discount rate +1% (1,343,939) (1,436,577)
-1% 1,516,214 1,638,084
Revenue +10% 2,262,625 2,013,383
-10% (2,264,247) (2,048,092)
Nevendon Energy Storage Ltd Nevendon DCF Discount rate +1% (764,076) (646,090)
-1% 849,082 729,222
Revenue +10% 1,439,471 1,097,594
-10% (1,450,232) (1,104,807)
Port of Tyne Energy Storage Ltd Port of Tyne DCF Discount rate +1% (830,756) (1,377,801)
-1% 897,888 1,510,192
Revenue +10% 1,779,700 2,248,320
-10% (1,783,821) (2,243,005)
Enderby Storage Ltd Enderby DCF Discount rate +1% (2,603,101) (2,598,696)
-1% 2,980,365 3,026,012
Revenue +10% 3,779,732 3,466,831
(3,801,665) (3,516,511)
-10%
West Didsbury Storage Ltd West Didsbury DCF Discount rate +1% (2,599,789) (2,605,119)
-1% 2,977,481 3,035,333
Revenue +10% 3,662,585 3,426,385
-10% (3,682,752) (3,472,099)
Penwortham Storage Ltd Penwortham DCF Discount rate +1% (2,353,004) (2,640,548)
-1% 2,662,278 3,079,486
Revenue +10% 3,523,047 3,361,519
-10% (3,539,812) (3,402,072)
Melksham East Ltd and Melksham West Ltd Melksham DCF Discount rate +1% (5,240,274) N/A
-1% 6,016,075
Revenue +10% 7,108,029 N/A
-10% (7,141,352)
Arbroath Ltd Arbroath DCF Discount rate +1% (2,062,233) N/A
-1% 2,384,896
Revenue +10% 2,830,840 N/A
-10% (2,847,661)
Grendon Ltd Grendon DCF Discount rate +1% (3,434,102) N/A
-1% 3,946,188
Revenue +10% 4,975,944 N/A
-10% (5,031,805)
UK Battery Storage Ltd Elland DCF Discount rate +1% (3,213,603) N/A
-1% 3,625,829
Revenue +10% 4,763,463 N/A
-10% (4,831,907)
UK Battery Storage Ltd York DCF Discount rate +1% (2,729,687) N/A
-1% 3,083,764
Revenue +10% 4,360,138 N/A
-10% (4,401,773)
UK Battery Storage Ltd West Bradford DCF Discount rate +1% (5,480,685) N/A
-1% 6,186,530
Revenue +10% 8,220,846 N/A
-10% (8,317,154)
Stairfoot Ltd Stairfoot DCF Discount rate +1% (2,105,812) N/A
-1% 2,416,662
Revenue +10% 3,118,903 N/A
-10% (3,142,585)
All other projects are held at cost
Portfolio Sensitivity of RPI Sensitivity Estimated effect on fair value Estimated effect on fair value
31 December 2022 31 December 2021
(£) (£)
Inflation +0.25% 15,848,661 9,733,718
-0.25% (15,370,105) (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.
The fair value hierarchy of financial instruments measured at fair value is
provided below.
31 December 2022 Level 1 Level 2 Level 3
(£) (£) (£)
Investment in subsidiaries - - 834,771,492
- - 834,771,492
31 December 2021 Level 1 Level 2 Level 3
(£) (£) (£)
Investment in subsidiaries - - 389,346,748
- - 389,346,748
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 in Note 11. No transfers between levels took place
during the period.
18. Financial risk management
The Company is exposed to certain risk 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 below:
· Counterparty risk
The Company is exposed to third party credit risk in several instances and the
possibility that counterparties with which the Company and its subsidiaries,
together the Group, contracts may default by failing to pay for services
received from the Company or its subsidiaries or fail to perform their
obligations in the manner anticipated by the Group. Such counterparties may
include (but are not limited to) manufacturers who have provided warranties in
relation to the supply of any equipment or plant, EPC contractors who have
constructed the Company's plants, who may then be engaged to operate assets
held by the Company, property owners or tenants who are leasing ground space
and/or grid connection to the Company for the locating of the assets,
contractual counterparties who acquire services from the Company underpinning
revenue generated by each project or the energy suppliers, demand aggregators,
insurance companies who may provide coverage against various risks applicable
to the Company's assets (including the risk of terrorism or natural disasters
affecting the assets) and other third parties who may owe sums to the Company.
In the event that such credit risk crystallises, in one or more instances, and
the Company is, for example, unable to recover sums owed to it, make claims in
relation to any contractual agreements or performance of obligations (e.g.
warranty claims) or unable to identify alternative counterparties, this may
materially adversely impact the investment returns. Management has completed a
high-level analysis which considers both historical and forward-looking
qualitative and quantitative information, to assess the credit risk of these
exposures and has determined that the credit risk as at 31 December 2022 is
low due to the financial position of these counterparties.
Further, the projects in which the Company may invest will not always benefit
from a turnkey contract with a single contractor and so will be reliant on the
performance of several suppliers. Therefore, the key risks during battery
installation in connection with such projects are the counterparty risk of the
suppliers and successful project integration.
The Investment Manager regularly assesses the creditworthiness of its
counterparties and enters into counterparty arrangements which are financially
sound and ensures, where necessary, the sourcing of alternative arrangements
in the event of changes in the creditworthiness of its present counterparties.
· Concentration risk
The Company's investment policy is limited to investment (via its subsidiary)
in battery energy storage infrastructure, which will principally operate in
the UK. This means that the Company has a significant concentration risk
relating to the UK battery energy storage infrastructure sector. Significant
concentration of investments in any one sector may result in greater
volatility in the value of the Company's investments via its subsidiary, and
consequently the NAV and may materially and adversely affect the performance
of the Company and returns to shareholders.
The Fund's BESS projects generate revenues primarily from Firm Frequency
Response (FFR), Asset Optimisation, Capacity Market (CM) and other grid
connection-related charges, including TRIADs and Dynamic Containment. Revenues
from the portfolio's seed BESS projects have historically been skewed to FFR
revenues, FFR being the provision to the National Grid of a dynamic response
service to maintain the grid's electrical frequency at 50Hz. In H2 2022,
operations were increasingly targeted towards Asset Optimisation, as this
becomes the more profitable business activity. There are several additional
revenue opportunities emerging for the portfolio as a series of regulatory
changes are implemented.
The Investment Manager is of the view that the UK's exposure to renewable
energy generation has increased significantly over the last few years and the
pace has not lessened despite the removal of legacy subsidies to onshore wind
and solar. This is largely because the development of offshore wind
installations has continued apace. As a result, generation from wind is having
a growing impact on the grid, generating a volatile supply of energy which
underpins the opportunity for BESS.
· Credit risk
Cash and other assets that are required to be held in custody will be held at
bank. Cash and other assets may not be treated as segregated assets and will
therefore not be segregated from the bank's own assets in the event of the
insolvency of a custodian. Cash held with the bank will not be treated as
client money subject to the rules of the FCA and may be used by the bank in
the ordinary course of its own business. The Company will therefore be subject
to the creditworthiness of the bank. In the event of the insolvency of the
bank, the Company will rank as a general creditor in relation thereto and may
not be able to recover such cash in full, or at all.
The Investment Manager regularly assesses its credit exposure and considers
the creditworthiness of its customers and counterparties. Cash and bank
deposits are held with Barclays Bank plc, a reputable financial institution
with a Moody's credit rating Baa2.
Investments held at fair value through profit or loss are not subject to IFRS
9 impairment requirements.
For interest receivables on cash balances and loans receivable, the Company
uses a 12-month expected loss allowance.
The Company has completed some high-level analysis and forward looking
qualitative and quantitative information to determine if the interest and
receivables are low credit risk. Based on this analysis the expected credit
loss on interest and receivables are not material and therefore no impairment
adjustments were accounted for.
· Liquidity risk
The objective of liquidity management is to ensure that all commitments made
by the Company which are required to be funded can be met out of readily
available and secure sources of funding. As noted below, this includes debt
funding.
BESS projects have limited liquidity and may not be readily realisable or may
only be realisable at a value less than their book value. There may be
additional restrictions on divestment in the terms and conditions of any sale
agreement in relation to a particular BESS project.
In 2021, the Company assessed its ability to raise debt and the MidCo entered
into a debt facility for £180mn, which was subsequently amended and restated
in 2022 for a total of £335mn. The Company is permitted to provide security
to lenders in order to borrow money, which may be by way of mortgages,
charges, or other security interests or by way of outright transfer of title
to the Company's assets. The Company is a guarantor to the Midco debt facility
- should there be a default by the Midco the Company may be liable to repay
all debt drawn. The total amount drawn at year end was £60mn. The Directors
will restrict borrowing to an amount not exceeding 50% of the Company's NAV at
the time of drawdown. As at 31 December 2022, Midco had drawn down £60mn on
the facility. The Company is required to provide semi-annual covenant
compliance certificates to the bank, as at the year end the Company was in
compliance with all the covenants disclosed in the loan agreement and had also
filed the required covenant certificates.
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 1 to 2 years 2 to 5 years > 5 years Total
year (£)
As at 31 December 2022 (£) (£) (£) (£)
Financial assets
Cash and cash equivalents (see Note 13) 7,327,492 - - - 7,327,492
Trade and other receivables (see Note 14) * 147,302 - - - 147,302
Fair value through profit or loss:
Investment in subsidiaries - - - 834,771,492 834,771,492
Total financial assets 7,474,794 834,771,492 842,246,286
Financial liabilities
Financial liabilities at amortised cost
Trade and other payables (see Note 15) 571,020 - - - 571,020
Total financial liabilities 571,020 - - - 571,020
< 1 1 to 2 years 2 to 5 years > 5 years Total
year (£) (£)
As at 31 December 2021 (£) (£) (£)
Financial assets
Cash and cash equivalents (see Note 13) 122,175,081 - - - 122,175,081
Trade and other receivables (see Note 14)* 41,397 - - - 41,397
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 (see Note 15) 210,255 - - - 210,255
Total financial liabilities 210,255 - - - 210,255
* *excludes prepayments and VAT
· Market risk
Market risk is the risk that the fair value or cash flows of a financial
instrument will fluctuate due to changes in market prices. Market risk
reflects interest rate risk, currency risk and other price risks. The
objective is to minimise market risk through managing and controlling these
risks to acceptable parameters, while optimising returns. The Company uses
financial instruments in the ordinary course of business, and also incurs
financial liabilities, in order to manage market risks.
Price risk is the risk that the fair value or cash flows of a financial
instrument will fluctuate due to changes in market prices. At 31 December
2022, the valuation basis of the Company's investments was valued at market
value. This investment is driven by market factors and is therefore sensitive
to movements in the market. The Company relies on market knowledge of the
Investment Manager, the valuation expertise of the third-party valuer and the
use of third-party market forecast information to provide comfort with regard
to fair market values of investments reflected in the Financial Statements.
Refer to Note 17 for trading revenue sensitivities.
· Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates
will affect future cash flows or the fair values of financial instruments. The
Company is exposed to interest rate risk on its cash balances held with
counterparties, bank deposits, loans receivable, advances to counterparties
and through loans to subsidiaries. Loans to subsidiaries carry a fixed rate of
interest until repayment at the earlier of written demand from the lender or
31 December 2030. The Company may be exposed to changes in variable market
rates of interest and this could impact the discount rate and therefore the
valuation of the projects as well as the fair value of the loan receivables.
The debt held within MidCo is subject to interest rate hedging.
· Currency risk
All transactions and investments during the current year were denominated in
Pounds Sterling, thus no foreign exchange differences arose. The Company does
not hold any financial instruments at year end which are not denominated in
Pounds Sterling and is therefore not exposed to any significant currency risk.
Subsidiary entities may, from time to time, incur expenditure in currencies
other than Pounds Sterling.
· Capital risk management
The capital structure of the Company at year end consists of equity
attributable to equity holders of the Company, comprising issued capital and
reserves. The Board continues to monitor the balance of the overall capital
structure so as to maintain investor and market confidence. The Company is not
subject to any external capital requirements.
19. Net Asset Value (NAV) 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.
31 December 2022 31 December 2021
Net assets per statement of financial position (£) 841,745,662 511,671,041
Ordinary Shares in issue 541,290,353 437,842,078
NAV per Ordinary Share - Basic and diluted (pence) 155.51 116.86
20. Share capital
Ordinary Shares Share capital Share premium Merger Capital reduction reserve Total
relief (£)
number (£) (£) reserve
(£) (£)
Allotted and issued share capital
As at 31 December 2021 437,842,078 4,378,421 349,058,720 13,299,017 38,162,172 404,898,330
Issue of Ordinary Shares of £0.01 103,448,275 1,034,483 148,965,516 - - 149,999,999
541,290,353 5,412,904 498,024,236 13,299,017 38,162,172 554,898,329
Share issue costs - - (2,793,243) - - (2,793,243)
Dividends paid - - - - (34,269,635) (34,269,635)
As at 31 December 2022 541,290,353 5,412,904 495,230,993 13,299,017 3,892,537 517,835,451
Ordinary Shares Share capital Share premium Merger Capital reduction reserve Total
relief (£)
number (£) (£) reserve
(£) (£)
Allotted and issued share capital
As at 31 December 2020 348,556,364 3,485,564 251,601,260 13,299,017 64,123,617 332,509,458
Issue of Ordinary Shares of £0.01 89,285,714 892,857 99,107,143 - - 100,000,000
437,842,078 4,378,421 350,708,403 13,299,017 64,123,617 432,509,458
Share issue costs - - (1,649,683) - - (1,649,683)
Dividends paid - - - - (25,961,445) (25,961,445)
As at 31 December 2021 437,842,078 4,378,421 349,058,720 13,299,017 38,162,172 404,898,330
Share capital
The Company's capital is represented by the Ordinary Shares.
Share premium
The surplus of net proceeds received from the issuance of new shares over
their par value is credited to this account and the related issue costs are
deducted from this account. The reserve is non-distributable.
Merger relief reserve
The Merger reserve relates to shares issued for shares to acquire investments.
This reserve is not distributable.
Revenue reserves
The Revenue net profit arising in the Statement of Comprehensive Income is
added to or deducted from this reserve which is a distributable reserve.
Capital reserves
The Capital reserve comprises of increases and decreases in the fair value of
investments held at the period end, gains and losses on the disposal of
investments, transaction, and legal fees. The capital reserves are not
distributable.
Capital reduction reserve
Following a successful application to the High Court and lodgement of the
Company's statement of capital with the Registrar of Companies in a prior
period the Company was permitted to cancel its Share premium account. This was
completed on 13 February 2019 by a transfer of the balance of £97,009,475
from the Share premium account to the Capital reduction reserve. The Capital
reduction reserve is classed as a distributable reserve and dividends to be
paid by the Company may be offset against this reserve.
Share capital, Share premium account and Capital reduction reserve
On 14 July 2021, the Company announced the successful raise of gross proceeds
of £100mn through the issue of 89,285,714 new Ordinary Shares at an issue
price of 112 pence per Ordinary Share.
On 27 May 2022, the Company announced and published the successful raise of
gross proceeds of £150mn through the issue of 103,448,275 new Ordinary Shares
at an issue price of 145 pence per Ordinary Share.
Dividends
For the year ending 31 December 2022
Period in relation to which dividend was paid Announcement date Ex-dividend date Payment Amount per Ordinary Share Total amount
date
1 January to 31 March 2022 4 May 2022 12 May 2022 27 May 2022 1.75p £7,662,236
1 April to 30 June 2022 27 September 2022 6 October 2022 28 October 2022 1.75p £9,472,581
1 July to 30 September 2022 31 October 2022 24 November 2022 16 December 2022 1.75p £9,472,581
1 October to 31 December 2022 10 February 2023 2 March 2023 27 March 2023 1.75p £9,472,581
For the year ending 31 December 2021
Period in relation to which dividend was paid Announcement date Ex-dividend date Payment Amount per Ordinary Share Total amount
date
1 January to 31 March 2021 28 April 2021 13 May 2021 4 June 2021 1.75p £6,099,736
1 April to 30 June 2021 1 July 2021 8 July 2021 30 July 2021 1.75p £6,099,736
1 July to 30 September 2021 15 November 2021 25 November 2021 17 December 2021 1.75p £7,662,236
1 October to 31 December 2021 14 February 2022 3 March 2022 25 March 2022 1.75p £7,662,236
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.
21. Cash and non-cash flow items
The non-cash movements for the year ended 31 December 2022 predominantly
relate to movement in the investments. These non-cash movements are
reconciled and discussed in Note 11.
22. 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
31 December 2022 31 December 2021
(£) (£)
Directors' remuneration 256,181 232,500
Employers' NI 31,285 23,209
Total Key management personnel 287,466 255,709
All directors' remuneration is short term salary.
The remuneration arrangements of Directors are disclosed in the Director's
Remuneration Report on page 61.
Dividends paid by the Company to the Directors are disclosed in the Director's
Remuneration Report on page 61. No dividend amounts were payable as at 31
December 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 receivable represent amounts due to the Company from its subsidiary and
are disclosed in Note 11.
31 December 2022 31 December 2021
(£) (£)
Principal advanced 540,950,420 297,751,773
Interest accrued 32,868,283 22,470,837
Total loans 573,818,703 320,222,610
23. Capital commitments
As at 31 December 2022, there are no other significant binding or conditional
future capital commitments (2021: none).
24. Post balance sheet events
On 9 February 2023, the Board approved the payment of an interim dividend in
respect of Q4 2022 of 1.75 pence per Ordinary Share. It was proposed that the
Dividend would be paid on 27 March 2023 to the members whose names appeared on
the Company's register of members on 3 March 2023, with an ex-dividend date of
2 March 2023.
On 14 February 2023, MidCo made a further draw down of £50mn on the Santander
loan facility.
There were no further events after the reporting date which require
disclosure.
17. ALTERNATIVE PERFORMANCE MEASURES
For the period from 1 January 2022 to 31 December 2022
1) Dividend per Ordinary Share
Dividend per Ordinary Share is a measure to show the distributions made to
shareholders during the year.
Dividend period: 12 months to 31 December 2022 Dividend paid per share (£) Number of shares on dividend payment date Total dividend paid (£)
Q1 2022 (declared 4 May 2022) 0.0175 437,842,078 7,662,236
Q2 2022 (declared 27 September 2022) 0.0175 541,290,353 9,472,581
Q3 2022 (declared 31 October 2022) 0.0175 541,290,353 9,472,581
Q4 2022 (declared 10 February 2023) 0.0175 541,290,353 9,472,581
0.0700 36,079,979
Dividend period: 12 months to 31 December 2021 Dividend paid per share (£) Number of shares on dividend payment date Total dividend paid (£)
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
Q3 2021 (declared 15 November 2021) 0.0175 437,842,078 7,662,236
Q4 2021 (declared 14 February 2022) 0.0175 437,842,078 7,662,236
0.0700 27,523,944
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 since initial public offering.
31 December 2022 31 December 2021
pence pence
Share price at end of the year 161.50 130.50
Dividends paid from inception to end of the year 23.75 16.75
Dividend reinvestment impact 11.10 4.26
Share price at initial public offering (100.00) (100.00)
Ordinary Share price total return since inception 96.35 51.51
Ordinary Share price total return since inception % 96.4% 51.5%
3) Net asset value (NAV) per Ordinary Share
31 December 2022 31 December 2021
NAV at end of the year £841,745,662 £511,671,041
Ordinary Shares in issue 541,290,353 437,842,078
NAV per share (pence) - Basic and diluted 155.51 116.86
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, considering both capital returns and dividends paid to
shareholders.
31 December 2022 31 December 2021
pence pence
NAV per Ordinary Share at end of the year 155.51 116.86
Dividends paid from inception to end of the year 23.75 16.75
Dividend reinvestment impact 10.03 2.51
NAV per Ordinary Share at end of the year including dividend reinvestment 189.29 136.12
NAV per Ordinary Share at beginning of the year including dividend (136.12) (113.13)
reinvestment
NAV Total Return for the year 53.17 22.99
NAV per Ordinary Share total return for the year 39.1% 20.3%
5) Gross asset value (GAV)
GAV is a measure of the total value of the Company's assets.
31 December 2022 31 December 2021
(£'000) (£'000)
Total assets reported in the Company at end of period 842,317 511,881
Debt held by intermediate holding company (A) 60,000 -
GAV (B) 902,317 511,881
Gearing as defined by the Company (A / B) 7% 0%
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 year.
31 December 2022 31 December 2021
(£'000) (£'000)
Fees to Investment Manager 6,245 4,053
Legal and professional fees 714 561
Other transaction fees - (57)
Administration fees 312
558
Directors' remuneration 287 256
Audit fees 264 194
Other ongoing expenses 239 117
Total expenses 8,307 5,436
Non-recurring expenses not in OCF calculation (23) (165)
Total ongoing expenses 8,284 5,271
Average NAV for the year 704,188 429,192
Ongoing charges for the year 1.18% 1.23%
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.
31 December 2022 31 December 2021
(£'000) (£'000)
EBITDA of underlying group companies 48,788 42,522
Interest income on construction capital deployed to SPVs 8,173 405
Bank interest received 312 -
Ongoing costs in the Company (8,284) (5,271)
External interest costs (2,852) (1,405)
Net earnings for Operational Dividend Cover 46,137 36,251
Dividends declared by the Company for the year 36,080 27,524
Operational Dividend Cover 1.28x 1.32x
8) Dividend yield
Dividend yield is a measure to show the dividend return received by
shareholders for the year.
31 December 2022 31 December 2021
Dividend per share declared in respect of the period (pence) 7.00 7.00
Share price at end of period (pence) 161.50 130.50
Dividend yield for the period 4.3% 5.4%
18. COMPANY INFORMATION
Non-Executive Directors
John Leggate - Chair
Isabel Liu
Duncan Neale
Catherine Pitt
David Stevenson
Registered office
The Scalpel
18(th) Floor
52 Lime Street
London
EC3M 7AF
Investment Manager and AIFM
Gresham House Asset Management Limited
5 New Street Square
London
EC4A 3TW
Corporate Broker and Financial Advisor
Jefferies International Limited
100 Bishopsgate
London
EC2N 4JL
Tax Advisor
Blick Rothenberg Chartered Accountants
16 Great Queen Street
London
EC4V 6BW
Independent Auditor
BDO LLP
55 Baker Street
London
Administrator and Secretary
JTC (UK) Limited
The Scalpel
18(th) Floor
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
INDOS Financial Limited
54 Fenchurch Street
London
EC3M 3JY
Investment Valuer
Grant Thornton LLP
30 Finsbury Square
London
EC2A 1AG
Ticker: GRID
W1U 7EU
19. GLOSSARY
Asset Optimisation (Trading)
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'' and includes trading in the wholesale market and offering the
battery to National Grid via the Balancing Mechanism.
Asymmetric
An asymmetrical grid connection is where the import and export capacities are
different.
AUM
Assets Under Management: the total net assets of the Company.
Balancing Mechanism (BM)
A tool used by the ESO to balance the electricity supply and demand close to
real time. The BM is used to balance supply and demand in each half hour
trading period of every day. Where the ESO predicts that there will be a
discrepancy between the amount of electricity produced and the level of demand
during a certain period, they may accept a 'bid' or 'offer' to either increase
or decrease generation (or even increase consumption in the case of storage
assets). Sites must be registered in the BM to receive such actions but once
registered they are able to set their own prices for being used.
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
§ Dynamic Containment (DC)
§ Enhanced Frequency Response (EFR)
§ Firm Frequency Response (FFR)
§ Optional Downward Flexibility Management (ODFM)
§ Short Term Operating Reserve (STOR)
https://www.nationalgrideso.com/balancing-services
(https://www.nationalgrideso.com/balancing-services)
Black start
A total or partial shutdown of the national electricity transmission system
(NETS) is an unlikely event. However, if it happens, National Grid are obliged
to make sure there are contingency arrangements in place to ensure electricity
supplies can be restored in a timely and orderly way. Black start is a
procedure to recover from such a shutdown.
https://www.nationalgrideso.com/balancing-services/system-security-services/black-start/
(https://www.nationalgrideso.com/balancing-services/system-security-services/black-start/)
Capacity Market (CM)
The income received by generators to ensure generation capacity is available
to meet short falls.
Combined Cycle Gas Turbine (CCGT)
Energy generation technology that combines a gas-fired turbine with a steam
turbine. The design uses a gas turbine to create electricity and then captures
the resulting waste heat to create steam, which in turn drives a steam
turbine.
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)
Dividend Yield
The annual dividends expressed as a percentage of the current share price.
EBITDA of underlying group companies
EBITDA includes earnings before interest, tax, depreciation and amortisation
and includes liquidated damages earnt by SPVs. Earnings are calculated on an
accruals basis and therefore only SPVs which were owned in the accounting
period have their earnings included here. Transactions completing after the
period will have locked box income recognised once the transaction is
completed.
This is important to measure the underlying performance of the investments and
ensure cash earnings are available to payment of costs in the Company and
dividends to shareholders.
Electricity System Operator (ESO)
Refers to National Grid ESO. The ESO is responsible for ensuring Great
Britain has the essential energy it needs so that supply meets demand on the
electricity system every second of every day.
https://www.nationalgrideso.com/ (https://www.nationalgrideso.com/)
Frequency Response services (FR)
A subset of Balancing Services which relate to services performed by batteries
to manage the frequency on the electricity system. This includes the following
services:
§ Dynamic Containment (DC)
§ Dynamic Moderation (DM)
§ Dynamic Regulation (DR)
§ Enhanced Frequency Response (EFR)
§ Firm Frequency Response (FFR)
§ Optional Downward Flexibility Management (ODFM)
https://www.nationalgrideso.com/balancing-services
(https://www.nationalgrideso.com/balancing-services)
Gross Asset Value (GAV)
Gross Asset Value is the total value of the investments and cash under the
management of the Company including debt held by the MidCo.
International Financial Reporting Standards (IFRS)
International Financial Reporting Standards are accounting standards issued by
the International Accounting Standards Board (IASB) and have been applied by
the Company in the preparation of the financial statements.
Liquidated Damages (LD)Liquidated damages are presented in certain legal
contracts as an estimate of losses to one of the parties. It is a provision
that allows for the payment of a specified sum should one of the parties be in
breach of contract. Liquidated damages are meant as a fair representation of
losses in situations where actual damages are difficult to ascertain.
Liquidated damages are often included in specific contract clauses to cover
circumstances where a party faces a loss from an asset. The Company
typically uses these in EPC arrangements to protect earnings from an asset in
the result of delays to construction but are also common in other contracts
such as for O&M arrangements.
Load Factors
The load factor is usually expressed as the percentage of the actual output of
a generator compared to its theoretical maximum output in a year.
Locked box income
On some acquisitions the Company agrees a date at which the benefit of any
subsequent earnings then flow to the acquirer. This date agreed is referred to
as the Locked box date. Earnings flowing to the acquirer are referred to as
the Locked box income. This mechanism is often used by the Company and aims to
prevent the Company losing out on value as a result of delays to transactions
completing. The period to which Locked box income is earnt varies between
transactions.
Net Asset Value (NAV) per Ordinary Share
The total net assets in the Company divided by the total number of Ordinary
Shares in issue. This is an important measure to understand the capital
return to shareholders.
NAV Total Return
A measure showing how the NAV per share has performed over a period of time,
considering both capital returns and dividends paid to shareholders.
NAV Total Return is shown as a percentage change from the start of the period.
It assumes that dividends paid to shareholders are reinvested at NAV at the
time the shares are quoted ex-dividend.
NAV Total Return shows performance which is not affected by movements in
discounts and premiums (share prices). It also considers the fact that
different investment companies pay out different levels of dividends.
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.
Operational Dividend Cover
Operational Dividend Cover for the purpose of this report refers to a
calculation for the ratio between net earnings of the underlying investment
portfolio in the review period and dividends paid in respect of the same
review period.
This measure aims to add clarity on the Company's ability to pay dividends
from the earnings and cash generation of its underlying investments after
deducting Company costs.
This measure includes the EBITDA of underlying group companies less Company
and holding company costs (excluding capital-related costs and debt
arrangement fees but including external interest expense).
Ordinary Share
Share in the Company with a nominal value of 1p.
Ordinary Share price total return
A measure showing how the share price has performed over a period of time,
considering both capital returns and dividends paid to shareholders.
Share price total return is shown as a percentage change from the start of the
period. It assumes that dividends paid to shareholders are reinvested in the
shares at the time the shares are quoted ex dividend.
Share price total return shows performance which is affected by movements in
discounts and premiums. It also considers the fact that different investment
companies pay out different levels of dividends.
Proving Period
A period of 60 days after a project has achieved PAC. During this time, the
project is fair valued subject to a premium added to the base discount rates
of 50 bps to capture risk during the commissioning of the project. Atter
this period (being reduced to 30 days in 2023), the project is fair valued
without any additional premium. Applying a proving period of 30 days instead
of 60 days as at the year-end would have had no impact on valuations due to no
assets being between 30 and 60 days since PAC as at 31 December 2022.
Seed Assets
The assets acquired at IPO known as Staunch, Littlebrook, Lockleaze, Rufford
and Roundponds.
Skip rates
In the Balancing Mechanism, a skip is broadly defined as when an action is
taken by the control room even though there is a cheaper alternative to
achieving the same outcome - so the cheaper action is 'skipped'.
Site uptime
Calculation for the average level of availability in the portfolio or for an
asset in Frequency Response Services. This is calculated by taking the average
MWs available in each period as a percentage of total capacity contracted.
Symmetrical
A symmetrical grid connection is where the import and export capacities are
the same.
System inertia
Inertia works to keep the electricity system running at the right frequency by
using the kinetic energy in spinning parts in power plant generator turbines.
When needed, the spinning parts in generator turbines can rotate slightly
faster or slower to help balance out supply and demand. The more turbines you
have, the more energy there is in the system and the greater the system
inertia, which helps to stabilise the frequency.
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 Great
Britain 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 ten 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)
Sustainable Finance Disclosures Regulation (SFDR)
Under the EU SFDR, the Company is required to provide periodic disclosure as
referenced in Article 8 of Regulation (EU) 2019/2088. The following section
provides required disclosures as per Annex IV.
Product name: Gresham House Energy Storage Fund PLC
Legal entity identifier: 213800MSJXKH25C23D
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR UPUMWCUPWGBARecent news on Gresham House Energy Storage Fund
See all newsREG - Gresham House Energy - Disclosure of New Directorship
AnnouncementREG - Gresham House Energy - Notice of Full-Year 2023 Results
AnnouncementREG - Gresham House Energy - BESS portfolio revenue update
AnnouncementREG - Gresham House Energy - Trading Update
AnnouncementREG - Gresham House Energy - Transaction in Own Shares
Announcement