REG - Gresham House Energy - Trading progress update and 3-year strategic plan

Gresham House Energy Storage FundAnnouncement

29/11/2024 07:00

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RNS Number : 1035O  Gresham House Energy Storage Fund  29 November 2024

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29 November 2024

 

Gresham House Energy Storage Fund plc

(GRID or the Company)

 

Trading progress update & three-year strategic plan

 

Gresham House Energy Storage Fund plc (LSE: GRID), the UK's largest fund
investing in utility-scale battery energy storage systems (BESS), is
announcing an update on current trading progress and the highlights of its
three-year plan presented at the Company's Capital Markets Day on 27 November
2024.

 

The Company encourages Investors and Analysts to view the replay of the event
which will shortly be available on the Company's website
(https://greshamhouse.com/real-assets/new-energy/gresham-house-energy-storage-fund-plc/)
. The key points covered are as follows:

 

Trading progress update

 

Improving financial position

·    Capital allocation policy in 2024 has focused on cash preservation
which has allowed GRID to manage through the recent challenging operational
backdrop.

·    A focus on prudent capital deployment is expected to result in
installed MWh capacity 1  growing 116% since 31 December 2023 through to Q1
2025 with a 13% increase in total capital 2 

·    c.£45mn of EBITDA in 2025, two thirds contracted 3 , creating
revenue visibility, as highlighted in the H1 2024 Interim report and accounts

·    Focus on disposals to reduce debt continues while current debt
arrangements remain in place

·    Compliance with debt terms, with net debt expected to peak at 20% of
Gross Asset Value 4 

·    Commenced process to refinance existing debt facilities with new
sustainable amortising debt to align with launch of GRID's new 3-year plan
envisioning the transition of its portfolio away from a primarily merchant
asset base and sizing debt off contracted revenues

 

Aiming to set a valuation benchmark proving GRID's NAV

·    Equity investment into 50MW Glassenbury project, under exclusivity

·    Targeting a pre-money valuation at the project's current valuations
which is reflected in the Company's NAV

·    The prospective investment provides funding for an accretive
augmentation to a 4-hour duration

·    Deal is expected to close in Q1 2025

 

Reinstating GRID's Dividend Policy

·    GRID expects to reinstate its Dividend Policy in 2025 once the
current debt has been refinanced

·    The future Dividend Policy will be focused on providing:

o  sustainable, fully covered dividends (after costs)

o  three smaller quarterly distributions with a final larger payment linked
to performance

·    If EBITDA reaches £45-55mn in 2025, cashflow 5  per share to be
4.5-6.2p

·    Capital allocation: balance between income and growth to reflect the
stabilised earnings of the business and its growth potential

 

Clean Power 2030: a strong commitment to BESS in Great Britain

·    Clean Power 2030 requires 6  22GW of BESS and up to 81GW / 99GWh of
Long Duration Energy Storage (LDES)

 

Sector fundamentals providing tailwinds including

·    The National Energy System Operator's (NESO) Open Balancing Platform
(OBP) rollout

·    Wind & solar capacity is growing rapidly

·    Demand growth: electric vehicles are just 4% of cars on UK roads

·    Slower UK BESS growth in 2024 is expected to result in less
competition in the near term

·    Baseload capacity is decreasing with coal fired generation now
offline and the gas and nuclear fleets set to shrink

·    Long duration storage cap and floor opportunity adds a new dimension
to the BESS industry

 

Three-year plan

 

£150mn EBITDA target 7 

Subject to a successful refinancing, indicated level of £45mn during tolling
period is targeted to increase as follows:

·    2025-2027: 1.5GWh augmentation of existing portfolio targeting
incremental EBITDA of £33mn

·    2026-2027: 680MW targeting incremental EBITDA of £47mn

·    2025-2027: Increased revenue stack: agreement in principle reached;
targeting EBITDA of £25mn

·    No improvement in the trading backdrop is assumed, which is based on
£45,000 per MW per year for uncontracted projects, which in turn reflects the
revenue backdrop at the time that Interim results were presented in September
2024

 

Backdrop to refinancing: Moving with the times

·    Experience means only low leverage is appropriate on merchant
revenues

·    Long-term revenue contracts emerging

·    Blended approach route to market looking forward means debt can be
sized off long term contracted revenues while maintaining an uncontracted
asset base to capture upside potential

 

Benefits of blended contracting approach

·    Project financing with contracted revenues significantly reduces risk
of unexpected drops in revenues and provides a more stable platform for
optimizing GRID's capital structure and payment of future dividends

·    Potential returns remain strong thanks to project financing offering
a lower cost of capital and unlocks growth through augmentations and the new
pipeline indicated above in the three-year plan.

 

John Leggate CBE, Chair of Gresham House Energy Storage Fund plc, says

"Following a review of the Company's performance over recent years and a
considered view of the outlook for the coming three-year period, the Board and
Manager are able to offer a positive view that the BESS sector in the UK is
turning a corner and is on a path to improving performance. The underlying
rationale is based on:

 

·    The UK's Net Zero policy and regulatory regime becoming progressively
more favourable to BESS

·    NESO's operating practices, as the Operational Balancing Platform
rollout progresses, more opportunities are created for BESS

·    The Company has significantly reduced counterparty risk with NESO by
reducing merchant revenue exposure by c.50%

·    The recently launched process to refinance should move from debt
servicing based on merchant revenues to one where the debt is sized off
contracted revenues and amortised over a longer term

 

Therefore, taking these factors into consideration, the Board and the Manager
are feeling more confident of delivering growth for the Company and
re-instating the ability of the Company to pay covered dividends during 2025."

 

For further information, please contact:

 

 Gresham House New Energy                +44 (0)20 3837 6270

 Ben Guest

 James Bustin

 Harry Hutchinson

 Jefferies International Limited         +44 (0)20 7029 8000

 Stuart Klein

 Gaudi Le Roux

 Harry Randall

 KL Communications                       gh@kl-communications.com (mailto:gh@kl-communications.com)

 Charles Gorman                          +44 (0)20 3882 6644

 Charlotte Francis

 Effie Aye-Maung-Hider

                                         GHEnergyStorageCoSec@jtcgroup.com (mailto:GHEnergyStorageCoSec@jtcgroup.com)

                                       +44 (0)20 7409 0181
 JTC (UK) Limited as Company Secretary

 Christopher Gibbons

About the Company and the Manager:

Gresham House Energy Storage Fund plc seeks to provide investors with an
attractive and sustainable dividend over the long term by investing in a
diversified portfolio of utility-scale battery energy storage systems (known
as BESS) located in Great Britain and internationally. In addition, the
Company seeks to provide investors with the prospect of capital growth through
the re-investment of net cash generated in excess of the target dividend in
accordance with the Company's investment policy.

 

The Company targets an unlevered Net Asset Value total return of 8% per annum
and a levered Net Asset Value total return of 15% per annum, in each case
calculated net of the Company's costs and expenses.

 

Gresham House Asset Management is the FCA authorised operating business of
Gresham House Ltd, a specialist alternative asset manager. Gresham House is
committed to operating responsibly and sustainably, taking the long view in
delivering sustainable investment solutions.

 

http://www.greshamhouse.com/ (http://www.greshamhouse.com/)

 

Definition of utility-scale battery energy storage systems (BESS)

 

Utility-scale battery energy storage systems (BESS) are the enabling
infrastructure that will support the continued growth of renewable energy
sources such as wind and solar, essential to the UK's stated target to reduce
carbon emissions. They store excess energy generated by renewable energy
sources and then release that stored energy back into the grid during peak
hours when there is increased demand.

 

DISCLAIMERS

This announcement has been prepared for information purposes only. This
announcement does not constitute a prospectus relating to the Company and does
not constitute, or form part of, any offer or invitation to sell or issue, or
any solicitation of any offer  to subscribe for, any shares in the Company in
any jurisdiction nor shall it, or any part of it, or the fact of its
distribution, form the basis of, or be relied on in connection with or act as
any inducement to enter into, any contract therefor. The merits or suitability
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basis of its own investigation and evaluation of the Company. Any such
determination should involve, among other things, an assessment of the legal,
tax, accounting, regulatory, financial, credit and other related aspects of
the securities.

This announcement may not be used in making any investment decision in
isolation. This announcement on its own does not contain sufficient
information to support an investment decision and investors should ensure that
they obtain all available relevant information before making any investment.
This announcement does not constitute or form part of and may not be construed
as an offer to sell, or an invitation to purchase or otherwise acquire,
investments of any description, nor as a recommendation regarding the possible
offering or the provision of investment advice by any party. No information in
this announcement should be construed as providing financial, investment or
other professional advice and each prospective investor should consult its own
legal, business, tax and other advisers in evaluating the investment
opportunity. No reliance may be placed for any purposes whatsoever on this
announcement or its completeness.

The information and opinions contained in this announcement are provided as at
the date of the announcement and are subject to change without notice and no
representation or warranty, express or implied, is or will be made in relation
to the accuracy or completeness of the information contained herein and no
responsibility, obligation or liability or duty (whether direct or indirect,
in contract, tort or otherwise) is or will be accepted by the Company, Gresham
House Asset Management Limited, Jefferies International Limited or any of
their affiliates or by any of their respective officers, employees or agents
to update or revise publicly any of the statements contained herein. No
reliance may be placed for any purpose whatsoever on the information or
opinions contained in this announcement or on its completeness, accuracy or
fairness. The document has not been approved by any competent regulatory or
supervisory authority.

Any investment in the Company is speculative, involves a high degree of risk,
and could result in the loss of all or substantially all of the investment.
Results can be positively or negatively affected by market conditions beyond
the control of the Company or any other person. Any data on past performance
contained herein is no indication as to future performance and there can be no
assurance that any targeted or projected earnings or returns will be achieved
or that the Company will be able to implement its investment strategy,
including without limitation, the refinancing, or achieve its investment
objectives. Any target earnings or returns published by the Company are
targets only. There is no guarantee that any such earnings or returns can be
achieved or can be continued if achieved, nor that the Company will make any
distributions whatsoever. There may be other additional risks, uncertainties
and factors that could cause the earnings and returns generated by the Company
to be materially lower than the target earnings and returns of the Company.

The information in this announcement may include forward-looking statements,
which are based on the current expectations, intentions and projections about
future events and trends or other matters that are not historical facts and in
certain cases can be identified by the use of terms such as "may", "will",
"should", "expect", "anticipate", "project", "estimate", "intend", "continue",
"target", "believe" (or the negatives thereof) or other variations thereof or
comparable terminology. These forward-looking statements, as well as those
included in any related materials, are not guarantees of future performance
and are subject to known and unknown risks, uncertainties, assumptions about
the Company and other factors, including, among other things, the development
of its business, trends in its operating industry, and future capital
expenditures and acquisitions. In light of these risks, uncertainties and
assumptions, the events in the forward-looking statements may not occur and
actual results may differ materially from those expressed or implied by such
forward looking statements. Given these risks and uncertainties, prospective
investors are cautioned not to place undue reliance on forward-looking
statements.  In particular (i) any disposal is subject to various factors
including, without limitation, completion of satisfactory sale and purchase
agreements; and (ii) any investment is subject to completion of satisfactory
legal, technical and financial due diligence and documentation, which may
include, without limitation, entering into and completion of investment
documentation.  There can be no guarantee that the Company will dispose of,
or invest in any BESS project.

Jefferies International Limited, which is authorised and regulated by the
Financial Conduct Authority in the United Kingdom, is acting only for the
Company in connection with the matters described in this announcement and is
not acting for or advising any other person, or treating any other person as
its client, in relation thereto and will not be responsible for providing the
regulatory protection afforded to clients of Jefferies or advice to any other
person in relation to the matters contained herein. Neither Jefferies nor any
of its directors, officers, employees, advisers or agents accept any
responsibility or liability whatsoever for this announcement, its contents or
otherwise in connection with it or any other information relating to the
Company, whether written, oral or in a visual or electronic format. Each of
the Company, the Manager, Jefferies and their affiliates and their respective
officers, employees and agents expressly disclaim any and all liability which
may be based on this announcement and any errors therein or omissions
therefrom.

No representation or warranty is given to the achievement or reasonableness of
future projections, management targets, estimates, prospects, earnings or
returns, if any. Any views contained herein are based on financial, economic,
market and other conditions prevailing as at the date of this announcement.
The information contained in this announcement will not be updated.

(#_ftnref1) 1 MWhs will have grown from 788MWh on 31 December 2023 to 1,701MWh
in Q1 2025

 2  Increase in total capital refers to the increase in net debt divided by
the opening Gross Asset Value (GAV) at 31 December 2023, with GAV adjusted for
the latest valuations at 30 September 2024.

(#_ftnref3) 3 Revenues will be 2/3 contracted once all tolling agreements are
in place and assumes a merchant revenue rate on 504MW of uncontracted assets,
of £45k/MW/yr

 4   As defined in GRID's Interim Report for the period ended 30 June 2024

 5  Cashflow is calculated by deducting net interest costs and charges and
GRID costs from EBITDA.

 6  https://www.neso.energy/document/346651/download
(https://www.neso.energy/document/346651/download) , NESO, 4 November 2024

 7  This is a target and is based on current market conditions as at the date
of this announcement only and is not a profit forecast.  There can be no
assurance that this target will be met.  This target and the other targets
described in this announcement should not be taken as an indication of GRID's
expected or actual current or future EBITDA.

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