REG - Gore Street Energy - Full-Year Trading Update
21/05/2024 07:00
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RNS Number : 1835P Gore Street Energy Storage Fund PLC 21 May 2024
21 May 2024
Gore Street Energy Storage Fund plc
(the "Company" or "GSF")
Full-Year Trading Update
Continued Growth in Revenue, EBITDA and Capacity
Gore Street Energy Storage Fund plc ("the Company" or "GSF") is pleased to
provide the following trading update for the 12 months ended 31 March 2024.
The Company again reports a high consolidated estimated average revenue of
£15.1 per MW/hr (c.£133,000 per MW/yr) and an estimated weighted average
operational EBITDA margin of c.69%. These strong results highlight the
benefits of the Company's unique portfolio, diversified by geography, revenue
streams and regulatory regimes.
During the period the Company raised capital via both equity and debt,
enabling continued focus on key portfolio objectives. The last 12 months'
growth in operational capacity, estimated revenue, and EBITDA demonstrates the
Company's continued positive trajectory even in the face of UK revenue
headwinds.
Figure FY24e 1 FY23 % change
Total Revenue £41,400,000 £39,300,000 5%
EBITDA £28,400,000 £27,800,000 2%
Energised Capacity at Year-End 421.4MW 291.6MW 45%
Average Operational MW 311.5MW 291.6MW 7%
Average Revenue per MW/yr £133,000 £135,000 -1%
Cash Balance £60,700,000 £123,700,000 N/A
Fund Level Dividend Cover 0.56x 0.54x 4%
Acquisitions 75MW 544.7MW N/A
Shares Issued 23,700,000 136,363,700 N/A
Dividend Yield 2 11.60% 6.90% 69%
FY24 Operational Highlights:
YoY increase in revenue and EBITDA. The portfolio generated an estimated
£41.4 million of revenue during the fiscal year (31 March 2023: £39.3
million) and an estimated £28.4 million in operational EBITDA (31 March 2023:
£27.8m).
o Stable revenue profile: Estimated average revenue of £15.1/MW/hr,
highlighting the benefits of the diversification strategy.
o Outperformance vs GB: The Company's estimated non-Great Britain (GB)
revenue average of £19.6 per MW/hr over the period, 2.2x the GB portfolio's
average of £8.8 3 per MW/hr, inclusive of Liquidated Damages payments.
o Increasing dividend cover: The Company's dividend cover continued to trend
upward, with the estimated operational dividend cover being 0.78x and an
estimated fund-level dividend cover of 0.56x, achieved from the average
operational capacity during the period of 311.5MW. As the prioritised
portfolio is built out, the Company expects a material increase in dividend
cover.
o Growing operational asset base: 45% increase in energised capacity
achieved by year-end, with the successful energisation of Stony (79.9MW) and
Ferrymuir (49.9MW).
o Positive trajectory: Energised capacity is scheduled to nearly double over
the coming quarters based on the build-out of the prioritised portfolio.
Upcoming projects where construction is mobilised include 57MW in GB and 275MW
of assets in the US, including the 200MW Big Rock asset in California.
Appropriate liquidity management: As of 31 March 2024, the Company had
£60.7 million in cash or cash equivalents and £58.6 million in headroom on
its existing debt facilities. During the reporting period:
o The revolving credit facility ("RCF") with Santander was upsized from £15
million to £50 million.
o A $60 million loan financing from First Citizens Bank at project level
secured against the Company's 200MW / 400MWh Big Rock asset in California.
o Share issuances at NAV: During the year, the Company issued a total of
23,700,000 new Ordinary Shares to strategic partners, Nidec and Low Carbon.
The shares were issued at the prevailing Net Asset Value on the date of
issuance.
Continued growth: The Company acquired a 75MW pre-construction asset
during the year, located in the Republic of Ireland. The Company also acquired
the remaining 49% stake in two of its existing Irish projects, Porterstown, a
90MW 4 asset, and Kilmannock, a 120MW 5 pre-construction asset.
Estimated revenue for the 12-month period ended 31 March 2024
Market FY24e £ per MW/yr FY23 £ per MW/yr % change
GB £77,000 £138,000 -44%
Ireland £182,000 £131,000 39%
Germany £80,000 £150,000 -47%
Texas £200,000 £128,000 56%
Portfolio Weighted Average £133,000 £135,000 -1%
Market Update
Great Britain:
The GB market witnessed a prolonged period of suppressed pricing during the
financial year due to increased competition in ancillary services markets and
reduced volatility in the wholesale market. The introduction of the Enduring
Auction Capability platform (EAC) further diminished dynamic services pricing,
while trading opportunities did not materialise for BESS under lower energy
prices. The introduction of the Open Balancing Platform partially reduced the
skip rate for batteries by automating part of the BM process. Further changes
came in the market for Balancing Mechanism-registered sites, with the
introduction of Balancing Reserve (BR) and the 30-minute rule, increasing the
potential duration of bids and offers for battery energy storage systems.
The annual Capacity Market auctions cleared at a high price, driven by
increasing requirements set by The Department for Energy Security and Net Zero
(DESNZ) and limited existing capacity. The Company secured a combined 251.5MW
of non-derated Capacity Market contracts across both the T-4 CM auction which
cleared at a price of £65/kW/year and the T-1 CM auction which cleared at
£35.79/kW/year. These agreements will provide an additional c.£1.7 million
in two delivery years, alongside existing Capacity Market commitments. All GB
assets, therefore, continue to have ongoing CM contracts.
Ireland:
During the period, the capacity of renewables generation in Ireland continued
to increase. The substantial increase in wind generation led to a c.27%
increase in SNSP (System Non-Synchronous Penetration) compared with the
previous year and a c.40% year-on-year surge in DS3 (Delivering a Secure
Sustainable Electricity System) revenue as high temporal scalars 6 were
applied to the upper thresholds of SNSP. Assets maintained high availability
(>99%) throughout the year, resulting in fewer frequency events.
Wholesale trading, or energy arbitrage, continued to play a role in Ireland's
electricity market, where trading opportunities were capitalised upon during
periods of high demand and low wind generation, resulting in spikes in the
Day-Ahead and Intra-Day prices.
The Company also secured, with 130 MW of capacity (before de-rating),
lucrative Capacity Market contracts at £100/kW/year for the T-4 27/28 auction
and £128/kW/year for the T-1 24/25.
Wind volatility will shape Ireland's dynamic electricity market structure and
battery energy storage will continue to play a crucial role in maintaining
grid security and stability, supporting the increase in SNSP to 95% by 2030
from the current 75% as part of Ireland's 2050 net-zero goals.
Germany:
The Company's German asset adopted an innovative trading-centric strategy
following engagement of a new Route to Market partner offering algorithmic
trading methods. High-frequency trading was a key source of revenue during the
period due to the liquidity in the wholesale market, which contrasts with the
relatively less liquid wholesale market in GB.
This trading-focused approach, supported by improved analytics and additional
services, allowed the equivalent capacity from the Company's German asset to
surpass the revenue achievable from a strategy focused solely on the Frequency
Containment Reserve (FCR) service by 38%. The German asset has also been
pre-qualified for both aFRR-energy and capacity and, post-period, is active
across all available revenue streams in this market.
Improving access to a wider range of revenue streams positions the Company to
capitalise on upcoming opportunities as Germany broadens its ambitions towards
energy storage. In December 2023, the Federal Ministry for Economic Affairs
and Climate Protection (BMWK) published an electricity storage strategy
designed to remove barriers for the asset class to support Germany's renewable
energy targets for 2035. This was followed by the announcement of a Capacity
Market mechanism, set to launch in 2028, similar to those used in other
markets to secure long-term contracted revenue for energy storage systems.
Following a period of exceptionally high returns attributed to geopolitical
events, the German asset has reverted to a more normalised revenue level,
aligning with initial underwriting and disclosed third-party forecasts.
Texas:
The Texan market saw a year-on-year increase in revenue, driven by high
volatility during the 2023 summer months. Demand on the ERCOT grid continued
to increase year-on-year, with the 2023 summer peak being 5 GW higher than the
2022 equivalent. This led to low available headroom on the grid, increasing
reserve prices and scarcity pricing. The grid operator introduced the ERCOT
Contingency Reserve Service (ECRS) in June 2023, which had more stringent
requirements than the Responsive Reserve Service (RRS) and carried a
significant premium throughout the summer. The operational Texan portfolio
delivered the majority of its revenue (72%) during the summer (FYQ2), driven
by the high summer heat and subsequent demands on the grid.
Renewable energy penetration increased in autumn, leading to high price
volatility, while high levels of wind generation in West Texas provided strong
trading opportunities. Texas did not face the same impact from winter storms
as in previous years except in January 2024 when winter storm Heather brought
freezing temperatures for multiple days, leading to increased reserve prices.
Overall, the Texan portfolio is estimated to have outperformed the previous
year by 57%, with RRS having an average price increase of 22%.
Texas continues to be among the fastest growing renewables markets globally
and, therefore, remains an important location for the Company to gain further
operational exposure within a balanced portfolio.
California:
California continued its shift towards a renewable powered grid, particularly
through deployment of solar power. This transition has resulted in a "duck
curve", a reference to the sharp ramps in load on the grid, causing suppressed
energy pricing during peak solar generation hours and high pricing during
solar output reductions as the sun sets. As a result, BESS trading spreads
have seen an upward trend. Additionally, the implementation of a mid-term
reliability program by grid operator CAISO and regulator CPUC has been
approved, leading to an increase in Resource Adequacy contract values. These
long-term contracts are expected to account for a significant proportion of
revenue (up to 40%), presenting a valuable opportunity for eligible battery
projects, including the Company's 200MW/ 400MWh Big Rock asset, which remains
on track for energisation by the end of this calendar year.
EBITDA:
The Company generated an estimated £28.4 million in operational EBITDA during
FY24, of which only 17% was contributed by the Company's GB fleet, with the
remaining coming from the Company's international portfolio.
Based on the above, the Company's estimated GB EBITDA margin was 49%, compared
to 75% for the Company's international portfolio, resulting in a total
weighted average of 69%.
Dividend Cover:
Due to the Company's diversified portfolio which has been delivering a
consistent average revenue per MW, and the portfolio's ongoing increase in
operational capacity, the Company's dividend cover has continued to trend
upward.
As previously highlighted, the Company reaffirms its dividend target of 7% of
NAV for the reported period.
During the Period, the Company achieved an estimated operational dividend
cover of 0.78x and an estimated portfolio-level dividend cover of 0.56x. This
dividend cover was achieved from an average operational capacity of 311.5MW,
achieving an estimated average per MW/hr revenue of £15.1.
CEO of Gore Street Capital, the investment manager to the Company, Alex
O'Cinneide, commented:
"I'm proud to present a strong set of operational results. The performance
highlights ongoing year-on-year growth across the key industry metrics and
revenue stability through the clear success of the Company's strategy. Despite
the turbulence seen in the sector, the Company achieved continued growth while
demonstrating leadership and resilience.
"Across the sector, it is increasingly apparent that the range of strategies
employed by asset owners are yielding increasingly different financial
outcomes, with Gore Street producing revenues c.3x of our peers and lowering
the volatility of those revenues by 50%. In the GB market, participants
largely act as price takers, resulting in similar revenue generation across
asset owners. However, it is clear that the impact of capital allocation
strategies, whether based on gearing levels, geography concentrations or
capital expenditure, is a key component of a company's long-term viability.
Within the sector, we have seen reports of a resurgence in GB revenue based on
annualising a very limited data set of revenue over a 15-day period in April.
It should be noted that GSF's estimated average revenue of £15.1 / MW / hr
(or £133k / MW / year) for the past 12 months is almost double that of what
peers considered as an annualised highlight based on 15 days of trading in GB
in April (equating to c.£70k / MW / year). GSF's consistent outperformance is
a testament to our prudent approach to capital allocation and operational
excellence. We are the first asset owner to stack revenues in the Irish and
German markets, and this control of the optimisation of our portfolio, we
believe will continue to produce superior returns.
"The case for energy storage remains strong around the globe, with rising
levels of renewable penetration creating an increased system need for
flexibility assets. We are also seeing policy drivers emerge to promote the
use of assets like those in the Company's portfolio. The US assets continue to
benefit from Investment Tax Credits under the Inflation Reduction Act while
new energy storage mandates and potentially even support schemes are expected
under new legislation agreed by the European Parliament.
"The combination of positive policy environments, falling technology costs and
financial expertise held in-house at the Investment Manager ensures the
Company remains well-positioned to deliver sustainable value to our
shareholders."
For further information:
Gore Street Capital Limited
Alex O'Cinneide / Paula Travesso
Email: ir@gorestreetcap.com
(https://gorestreetcap01-my.sharepoint.com/personal/bpaulden_gorestreetcap_com/Documents/ir@gorestreetcap.com)
Tel: +44 (0) 20 3826 0290
Shore Capital (Joint Corporate Broker)
Anita Ghanekar / Rose Ramsden
Tel: +44 (0)
20 7408 4090
Fiona Conroy (Corporate Broking)
J.P. Morgan Cazenove (Joint Corporate
Broker)
William Simmonds / Jeremie Birnbaum (Corporate Finance)
Tel: +44 (0) 20 3493 8000
Buchanan (Media Enquiries)
Charles Ryland / Henry Wilson / George
Beale
Tel: +44 (0) 20 7466 5000
Email: gorestreet@buchanan.uk.com (mailto:gorestreet@buchanan.uk.com)
Notes to Editors
About Gore Street Energy Storage Fund plc
Gore Street is London's first listed and internationally diversified energy
storage fund dedicated to the low-carbon transition. It seeks to provide
Shareholders with sustainable returns from their investment in a diversified
portfolio of utility-scale energy storage projects. In addition to growth
through increasing operational capacity and a considerable pipeline, the
Company aims to deliver consistent and robust dividend yield as income
distributions to its Shareholders.
https://www.gsenergystoragefund.com (https://www.gsenergystoragefund.com/)
1 The FY24 metrics are provided as estimates only and will be subject to an
external audit before being included in the Company's Annual Report and
Accounts.
2 Based on share price close as at 31 March of the reported year.
3 The figure includes c.£3.0m of Liquidated Damages.
4 Porterstown comprises a 30MW operational asset and an expansion 60MW
construction asset.
5 Kilmannock comprises a 30MW pre-construction asset and an expansion 90MW
pre-construction asset.
6 Temporary Scarcity Scalars (TSS) are applied to DS3 tariffs to incentivise
availability from providers at times of high RES. Performance scalars are used
to incentivise reliability.
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