REG - Gresham House Energy - Trading Update

Gresham House Energy Storage FundAnnouncement

01/02/2024 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:20240201:nRSA6115Ba&default-theme=true

RNS Number : 6115B  Gresham House Energy Storage Fund  01 February 2024

NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, DIRECTLY OR INDIRECTLY, IN WHOLE
OR IN PART, TO U.S. PERSONS OR IN OR INTO THE UNITED STATES, CANADA,
AUSTRALIA, THE REPUBLIC OF SOUTH AFRICA OR JAPAN OR THEIR RESPECTIVE
TERRITORIES OR POSSESSIONS, OR INTO ANY OTHER JURISDICTION WHERE IT IS
UNLAWFUL TO DISTRIBUTE THIS ANNOUNCEMENT. THE INFORMATION CONTAINED HEREIN
DOES NOT CONSTITUTE OR FORM PART OF ANY OFFER TO ISSUE OR SELL, OR ANY
SOLICITATION OF ANY OFFER TO SUBSCRIBE OR PURCHASE, ANY INVESTMENTS IN ANY
JURISDICTION.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

 

1 February 2024

 

Gresham House Energy Storage Fund PLC

("GRID" or the "Company")

 

Trading Update

 

Gresham House Energy Storage Fund plc (LSE: GRID), the UK's largest fund
investing in utility-scale battery energy storage systems (BESS), today
provides a trading update ahead of the publication of its audited annual
results in April 2024.

 

The Company continues to be impacted by the weak revenue environment, due to a
combination of:

 

·    BESS still being significantly under-utilised in National Grid ESO's
(ESO's) Balancing Mechanism (BM) - its forum for trading the necessary amounts
of electrical energy to balance supply and demand for each half-hourly period
- resulting in 'skip rates' remaining high despite the recent launch of ESO's
Open Balancing Platform (OBP), one of the key milestones in ESO's Balancing
Programme;

 

·    the continued excessive use of legacy gas-fired electricity
generation by ESO to provide the BM with flexible generation which in turn
causes oversupply in the wholesale electricity market, reducing the revenue
opportunity for BESS; and

 

·    the slower than expected pace of commissioning of new projects to
date, due to elongated grid connection times.

 

The rising need for BESS as renewable generation increases remains as true as
ever. The revenue environment is expected to improve, as discussed in the
Market update below, although there is some uncertainty on the timing and
trajectory of such improvement.

 

Also, notwithstanding challenges around the completion of connection works at
certain projects, the Company remains on target to reach 1,072MW in total
operational capacity (currently 740MW) and intends to complete a number of
extensions to project durations in 2024, taking the average project duration
to 1.6hrs (currently 1.2hrs), doubling the number of MWh installed over the
course of the year. A more detailed update is included below.

 

In light of the uncertainties and challenges mentioned above, the Board and
Manager's aim is to put the Company in the strongest possible position, to
ensure it remains cash generative as it manages its way through the current
low revenue backdrop and make certain that revenue accretive projects get
commissioned during 2024. As previously reported, the increase in operational
capacity detailed above would enable the Company to cover its historical
dividend on a run-rate basis at depressed revenue levels.

 

Meanwhile, the Board and Manager are determined to take a proactive and
disciplined approach to capital allocation, focusing on i) capex, ii) dividend
policy, iii) share buybacks and iv) the Company's debt facility.

 

i)          Capex - In 2024, the Company intends to solely focus on
completion of its 2023 pipeline projects comprising of a further 332MW, all of
which are constructed and awaiting completion of grid connection related
works, together with the duration extensions already committed to, given the
potential for this to meaningfully increase the earnings capacity of the
portfolio. A significant amount of this capex is expected to be financed by
cash on hand (which stood at in excess of £40 million as at 31 December
2023).

 

ii)         Dividend policy - Given the recent difficult revenue
environment, the Board has decided not to declare a dividend for Q4 2023. In
terms of the dividend for 2024, if the current revenue environment endures, it
will be challenging to generate the cash required to cover the dividend this
year. As such, the Board intends to recalibrate the Company's dividend target
for 2024, as well as the Dividend policy on an ongoing basis to better reflect
the predominantly merchant nature of the Company's revenues. A further
announcement in this regard will be made as soon as possible and not later
than the announcement of our Annual Results.

 

iii)         Share buybacks - Noting the recent sharp decline in the
Company's share price, the Board confirms its intention to commence a share
buyback programme. Initial buybacks are not expected to exceed any reduction
in the dividend. Further details will be announced in due course.

 

iv)        Debt facility - The Company also intends to enter into
discussions with its lenders to seek certain amendments to optimise its debt
facility. This may include a reduction in the size of the facility, to reduce
the overall cost of funding given the whole of this debt facility may not be
required. As of 31 December 2023, £110 million (also £110 million as at June
2023) was drawn under the £335 million debt facility.

 

 

In terms of recent construction progress, we are pleased to report that our
50MW/50MWh West Didsbury project has been commercially operational since
December 2023. In addition, the 50MW/76MWh York project was energised in
mid-January 2024 and is expected to be revenue-generating in February 2024.

 

Meanwhile extensions of project durations are getting underway. The Company
has not previously reported which project durations are being extended. We are
pleased to report that a total 340MW of projects are being upgraded, of which
305MW will have a 2 hour (h) duration;

·    Arbroath (35MW) is being extended to a 1.4h project and work is
underway.

·    Nevendon is being extended from a 0.4h 10MW project to a 2h 15MW
project. This is expected to complete in May.

·    Enderby (50MW) and West Didsbury (50MW), both built with extensions
in mind, are increasing from a 1h to 2h duration. Works are set to start in
March and are expected to take two months.

·    Penwortham (50MW) and Melksham (100MW), similarly built with
extensions in mind are also being upgraded from a 1h to 2h duration with works
expected from April and also expected to take two months.

·    Coupar Angus (40MW) is also being upgraded from 1h to 2h and works
will commence in around June.

 

Given the focus on existing projects, the Company has decided to defer its
investment in Project Iliad, which it intends to revisit once the market
backdrop improves. The Company is continuing to progress a disposal of a
subset of the portfolio and the process is ongoing.

 

 

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

 

"The challenging environment continues to persist for the battery storage
industry in Great Britain as it transitions to a trading-focused business
model, having been focused on frequency response until Q1 2023. These
conditions, and their effect on revenues, are not unique to GRID.

 

"The UK's need for increased energy storage capacity remains as clear as ever
given the rising levels of committed renewable generation coming online over
the period to 2030. In turn, clean energy dominates energy output more and
more frequently, as legacy gas-fired electricity generation continues to be
squeezed off the system by cheaper renewables, with battery storage the clear
technological leader in tackling the consequential rising intermittency. The
ESO's efforts to improve access to the Balancing Mechanism for BESS via the
Balancing Programme (BP), are clear evidence of this and are welcomed.
However, the rollout of ESO's BP must remain on track and enable improved
utilisation of BESS, which has yet to manifest in a material way.

"Proper utilisation of BESS will also result in lower energy bills for
consumers and will accelerate the decarbonisation of our power system.

 

"It is therefore a matter of when, not if, BESS become better utilised and
fully integrated into the ESO's operating environment. Similarly, it is also a
matter of time before our pipeline is completed and target capacity is
reached.

 

"Therefore, the decision to cut our Q4 2023 dividend and reallocate capital in
GRID's shares has been very carefully considered. The current level of the
share price represents the most compelling historic opportunity to invest
capital in GRID's shares, and to enhance net asset value per share. It is for
these reasons that, in parallel with today's dividend announcement, we aim to
commence a share buyback.

 

"In the meantime, the Board is working closely with the Manager to continue to
position the Company to thrive, as further renewable generation comes online
and ESO continues to improve battery storage utilisation in the Balancing
Mechanism."

 

Ben Guest, Fund Manager of Gresham House Energy Storage Fund plc, added:

 

"As GRID goes through this low point, we are determined to take the right
capital allocation decisions to position the Company prudently. The Manager
fully supports the Board's decision to not pay a Q4 2023 dividend and agrees
with the need to reposition the Dividend policy, further details of which will
be announced soon. We firmly believe that in light of prevailing market
conditions, focusing capital on buying back shares and on building out
committed pipeline projects is the right approach for the medium and longer
term success of GRID and for delivering returns to its shareholders.

 

"ESO has always said that its Balancing Programme progress will occur in
stages during 2024 and we look forward to learning of and reporting on
progress, particularly around the imminent launch of Balancing Reserve in
March 2024, as well as communicating continued progress on our construction
and asset enhancement programme."

 

Market update

 

Open Balancing Platform

 

·    The launch of the ESO's OBP took place as planned on 12 December
2023. The system was taken offline on 15 December to address minor technical
issues and was relaunched on 8 January 2024.

 

·    OBP is being actively used, and while the volume of trades allocated
to BESS has increased since the launch, it remains far below its potential. As
such the 'skip rate' has remained high.

 

·    ESO has committed to reporting on its progress via its Operational
Transparency Forum (OTF)
(https://www.nationalgrideso.com/what-we-do/electricity-national-control-centre/operational-transparency-forum)
webcast going forward.

 

·    ESO has indicated that it will allocate a rising volume of trades to
BESS, as pre-contracting of gas assets declines, which in turn will help
increase volumes of trades to the OBP (and therefore BESS).

 

·    Specifically, in accordance with ESO's Balancing Programme milestones
published here (https://www.nationalgrideso.com/document/294786/download) , we
expected better utilisation of BESS:

 

i.    As BESS capacity in the Balancing Mechanism is seen as being present
in sufficient volume for the control room to schedule marginally less
gas-fired power. Expected timeframe: February 2024.

 

ii.    As a result of the launch of Balancing Reserve (BR), BESS will be
able to pre-contract their capacity in the day ahead market, in a competitive
forum, head-to-head with gas-fired generation (for the first time since the
small Reserve from Storage trials in 2020). This will allow BESS to be "seen"
and used by the Control Room ahead of real time. This represents a new revenue
stream for BESS while also ensuring less gas-fired power hits the market,
leading to lower skip rates in real time. BR is intended to replace Regulating
Reserve, through which gas-fired generation is currently reserved, and is
expected to be a gigawatt-scale opportunity. Expected timeframe: BR launches
12 March 2024.

 

iii.   Quick Reserve is set to launch in the summer and represents a further
revenue opportunity for BESS. It is a service for reserving primarily BESS, to
take advantage of their highly responsive capabilities. Expected timeframe:
Summer 2024.

 

Wholesale electricity market

 

·    The impact of gas-fired generation being turned on in order to meet
flexibility requirements of the market is leading to oversupply in the
wholesale market, and curtailment of renewables, in our view this is
distorting half-hourly power prices.

 

·    As gas-fired generation is used less often, gas will supply the
marginal demand less frequently. This will result in more volatile power
prices, unlocking again the revenue potential for BESS in the wholesale
market.

 

The Manager will be holding two webinar and Q&A sessions for investors.
During these, Fund Manager, Ben Guest will discuss this Trading Update
and investors will have the opportunity to ask questions.

 

Thursday 1 February at 11:15am - please register here
(https://eur02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fgreshamhouse.zoom.us%2Fwebinar%2Fregister%2FWN_i5CMbCs2RDmGryPSWolXAw%23%2Fregistration&data=05%7C02%7CL.Darbourne%40greshamhouse.com%7C649216a5be304f4c302608dc2287f4a0%7C7a74c7b448444bcaa292c2f67edf7466%7C1%7C0%7C638423214520767950%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C0%7C%7C%7C&sdata=loJxUq3rtNZjaIYCajVhn5yaIGAybb7ifcTFFIciTfg%3D&reserved=0)
.

 

Thursday 8 February at 10:30am - please register here
(https://eur02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fgreshamhouse.zoom.us%2Fwebinar%2Fregister%2FWN_IM3X2cRqSx2-MsVGWAzTwA%23%2Fregistration&data=05%7C02%7CL.Darbourne%40greshamhouse.com%7C649216a5be304f4c302608dc2287f4a0%7C7a74c7b448444bcaa292c2f67edf7466%7C1%7C0%7C638423214520784900%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C0%7C%7C%7C&sdata=Uy97QvCYJCMNgzxwXgF4bd13Eu0tI3rcw3%2FLlUuYjKs%3D&reserved=0)
.

 

 

For further information, please contact:

Gresham House New Energy

Ben Guest
 
+44 (0) 20 3837 6270

James Bustin

 

Jefferies International Limited

Stuart
Klein
+44 (0) 20 7029 8000

Gaudi Le Roux

Harry Randall

 

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

Charles Gorman
 
+44 (0) 20 3995 6673

Charlotte Francis

Effie Aye-Maung-Hider

 

JTC (UK) Limited as Company Secretary
  GHEnergyStorageCoSec@jtcgroup.com
(mailto:GHEnergyStorageCoSec@jtcgroup.com)
Christopher Gibbons
            +44 (0)20 7409 0181

 

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.

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
of any securities must be independently determined by the recipient on the
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, the
Manager, Jefferies International Limited (Jefferies) 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 Company is speculative, involves a high degree of risk, and
could result in the loss of all or substantially all of their 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 returns will be achieved or that the
Company will be able to implement its investment strategy or achieve its
investment objectives. Any target returns published by the Company are targets
only. There is no guarantee that any such 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 returns generated by the Company to be materially lower
than the target 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.

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 accepts 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 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.

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  TSTFFFIILAILVIS