REG - Gresham House Energy - Q2 2024 NAV, valuation & trading update for H1'24
09/09/2024 07:00
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RNS Number : 3215D Gresham House Energy Storage Fund 09 September 2024
GRESHAM HOUSE ENERGY STORAGE FUND PLC
("GRID" or the "Company")
Q2 2024 NAV, valuation and trading update for H1 2024
Contracted revenues and upcoming construction completion provide confidence in
a strong earnings recovery in 2025
Three-year plan to be announced at Capital Markets Day in November 2024
GRID is pleased to provide an updated NAV per share as of 30 June 2024
alongside an update on recent trading, an outlook on the business into 2025
including an indicative three-year plan for 2025 to 2027, and information
about upcoming events.
H1 2024 highlights (see below for more detailed commentary)
§ NAV per share declined to 109.16p, down 19.91p since 31 December 2023 with
third party revenue forecasts contributing to 19.47p of this decline,
principally due to the introduction of a new, more conservative curve
provider.
§ Existing merchant and Capacity Market discount rates were unchanged over
the period. A new discount rate was introduced to value the tolling agreement
related cashflows at 8.5% over the life of the tolling arrangements.
§ The operational portfolio generated net revenues of £17.9mn (H1 23:
£20.5mn) and EBITDA of £10.4mn (H1 23: £13.8mn), down 14.5% and 24.6%,
respectively. Lower revenues were driven by an especially weak first quarter,
following which revenues recovered and stabilised albeit at a lower level than
expected over the longer term.
§ Construction of projects and site augmentations continued to progress; as
at 30 June 2024 the operational portfolio increased to 790MW (up 14.5% since
31 December 2023) / 931MWh (up 18.1%).
§ Landmark tolling agreement signed with Octopus Energy fixing revenues at
above recent merchant revenue levels for two years on 568MW; over 50% of the
target portfolio of 1072MW.
§ Debt facility amended and restated to provide additional operational
flexibility to build the remainder of the target portfolio.
§ Total debt drawn at the end of the period was £120mn; the total size of
debt facility reduced from £335mn to £225mn.
§ Cash on hand between the Company and its investments of £26.8mn as of 30
June 2024.
Highlights in the period from 30 June 2024 to date
§ Early net revenue figures for July and August are averaging at the highest
levels of the year so far and are c.25% higher than average net revenues in H1
2024.
§ Operational capacity increased further to 790MW / 1031MWh following the
energisation of Enderby and West Didsbury extensions, taking operational MWh
capacity to over 1GWh for the first time.
§ Four projects (representing 105MW) have been onboarded by Octopus Energy so
far and commenced their tolling agreement.
§ GRID cancelled a further £30mn of its debt facility, reducing the total
size of the facility to £195mn. The Manager is continuing to have
constructive discussions with interested parties around the sale of a subset
of the portfolio's projects.
Outlook
§ All projects contracted under the tolling agreement are expected to have
been technically enabled and onboarded by Octopus Energy by the end of 2024.
All tolling contracts are for two years from the date of onboarding a project.
Similarly, the Manager expects to complete construction of all new and
augmentation projects in the same timeframe. When both are achieved, and
taking into account the Company's Capacity Market contracts:
§ approximately two-thirds of the operational portfolio's revenues would be
contracted during 2025 and for the first three quarters of 2026
§ Should revenues be £45,000/MW/yr 1 (#_ftn1) (in line with Modo's August
BESS index) on the merchant portion of the portfolio (504MW), total
operational portfolio revenues could be c.£65mn(1) in 2025 and portfolio
EBITDA, c.£45mn(1). This would provide a supportive backdrop for the
recommencement of dividend distributions.
§ At its upcoming Capital Markets Day (details to follow), the Company
intends to announce a three-year plan seeking to maximise portfolio capacity,
revenues and cashflow from 2025 to 2027 whilst reducing the volatility of
earnings. The Manager believes that GRID, in achieving scale over the last 5
years, has a significant opportunity to maximise value for shareholders as the
industry moves past the recent low point in revenues. The key areas of focus
include further augmentations, new pipeline opportunities, efficient capital
management, and alternative revenue sources.
Upcoming events
§ Interim results announcement on 30 September
§ In October, the Manager will host site visits for institutional and retail
investors.
§ In November, the Company will host a Capital Markets Day (CMD) which will
include the details of a three-year plan from 2025 to 2027 as mentioned above.
Further details will be communicated in due course.
Commentary on the latest NAV per share and other valuation metrics
The reduction in NAV per share has primarily been driven by lower revenue
forecasts from the two third party consultants used by the Company, Modo and
Aurora (on a 50/50 blended basis), with Modo being used by the Company for the
first time in preparing the Q2 NAV (as a result of the previous consultant
maintaining comparatively optimistic revenue assumptions).
The Board and Manager are acutely conscious that the volatility in revenue
forecasts has made NAV per share a difficult metric for investors to place
reliance on, especially in current market conditions. As such, the Company
will also make available alternative valuation metrics, including Price to
Earnings and EV to EBITDA, which the Board and Manager believe will help
investors and analysts better evaluate the business. Such metrics will be set
out for the first time in the Company's Interim Report.
The NAV per share bridge for the half year period is set out below:
§ -19.47p from lower third-party revenue curves
§ -2.14p from the reduction of 2024 inflation rates
§ -1.88p from contracted revenue changes reflecting the impact from valuing
tolling revenues at 8.5% in place of merchant forecasts
§ +0.51p from the fair value movement of interest rate swaps
§ +0.64p gain on share buybacks
§ +1.09p from revaluing Penwortham as in commissioning (25bps discount rate
reduction) and York as operational
§ +1.35p from model roll-forward, modelling adjustments, working capital
movements, fund, and debt costs
§ The discount rates for projected merchant cash flows and capacity market
cash flows are unchanged despite the significant reduction in forecasts
§ The weighted average discount rate fell from 10.87% to 10.76% reflecting a
lower rate for tolling revenues and as projects moved from construction to
operational
John Leggate CBE, Chair of Gresham House Energy Storage Fund plc, commented:
"We are well aware that net asset value per share metric has been volatile
across the renewables ITC sector and can be difficult for investors to assess.
We are therefore keen to share mainstream equity valuation metrics in future
for our portfolio as well as continuing to disclose the NAV per share. The
Board and Manager believe this will help a wider range of investors evaluate
the investment case for the shares in more familiar ways. We are also aware
that a net asset value figure, as a simple discounted cashflow of projects'
cashflows, may not adequately reflect the potential growth and income
prospects of this Company.
"Last week's results from the latest UK contract-for-difference (CfD) auction
have seen contracts awarded to 9.6GW of further solar and wind projects to be
constructed. This provides strong visibility for renewables deployment
naturally supporting the need for BESS, especially as less economically
efficient gas-fired generation is increasingly pushed off the system. Further
progress from the Electricity System Operator (ESO) is needed to take full
advantage of BESS. We are confident it will increasingly do so as the Open
Balancing Platform (OBP) roll out continues."
Ben Guest, Fund Manager of Gresham House Energy Storage Fund plc &
Managing Director of Gresham House New Energy, added:
"The current phase of GRID's construction programme is approaching its
conclusion, and the Octopus tolling agreement provides revenue visibility for
the next two years. This gives GRID a steady cashflow base to grow from.
Building on this more stable base, GRID can start to look beyond its recent
challenges and focus on the next three years with further development and
innovation. In particular, there are significant further augmentation
opportunities which will deliver strong incremental returns as low battery
prices and large revenue differentials between durations offer strong returns.
"Sources of alternative funding are starting to appear at an acceptable cost
of capital that may allow the Company to unlock new pipeline opportunities.
The Manager is also seeking to unlock value via further alternative revenue
opportunities building on its recent tolling agreement. As such we have
renewed and growing confidence over the medium-term prospects for the business
and its ability to deliver value for shareholders."
Updated portfolio and pipeline as of 30 June 2024
Existing assets Location Capacity (MW) Battery size (MWh) Battery duration (c. hours) Capacity post augmentation (MW) Battery size post augmentation (MWh) Battery duration post augmentation (c. hours) Operational Status at 30 June 2024
1. Staunch Staffordshire 20 3 0.20 20 3 0.20 Operational
2. Rufford Nottinghamshire 7 9 1.35 7 9 1.35 Operational
3. Lockleaze Bristol 15 22 1.45 15 22 1.45 Operational
4. Littlebrook Kent 8 6 0.80 8 6 0.80 Operational
5. Roundponds Wiltshire 20 26 1.30 20 26 1.30 Operational
6. Wolves West Midlands 5 8 1.55 5 8 1.55 Operational
7. Glassenbury Kent 40 28 0.70 40 28 0.70 Operational
8. Cleator Cumbria 10 7 0.70 10 7 0.70 Operational
9. Red Scar Lancashire 49 74 1.50 49 74 1.50 Operational
10. Bloxwich West Midlands 41 47 1.15 41 47 1.15 Operational
11. Thurcroft South Yorkshire 50 75 1.50 50 75 1.50 Operational
12. Wickham Suffolk 50 74 1.50 50 74 1.50 Operational
13. Tynemouth Tyne and Wear 25 17 0.70 25 17 0.70 Operational
14. Glassenbury Extension Kent 10 10 1.00 10 10 1.00 Operational
15. Nevendon Basildon 10 7 0.70 15 33 2.20 Operational
Augmentation: Nov 2024
16. Port of Tyne Tyne and Wear 35 28 0.80 35 28 0.80 Operational
17. Byers Brae West Lothian 30 30 1.00 30 30 1.00 Operational
18. Arbroath Scotland 35 52 1.49 35 52 1.49 Operational
Augmentation completed
19. Enderby Leicester 50 100 2.00 50 100 2.00 Operational
Augmentation completed
20. Stairfoot North Yorkshire 40 40 1.00 40 40 1.00 Operational
21. Couper Angus Scotland 40 40 1.00 40 80 2.00 Operational
Augmentation: Nov 2024
22. Grendon 1 Northampton 50 100 2.00 50 100 2.00 Operational
23. West Didsbury Manchester 50 100 2.00 50 100 2.00 Operational
Augmentation completed
24. York York 50 76 1.50 50 76 1.50 Operational
25. Penwortham Preston 50 50 1.00 50 100 2.00 Operational
Augmentation: Oct 2024
Total Operational 790 1031 1.30 795 1147 1.44
26. Elland 1 West Yorkshire 50 100 2.00 50 100 2.00 Target energisation: Oct 2024
27. Shilton Lane Scotland 40 80 2.00 40 80 2.00 Target energisation: Sep 2024
28. Melksham Wiltshire 100 100 1.00 100 200 2.00 Target energisation: Oct 2024
Augmentation: Dec 2024
29. Bradford West West Yorkshire 87 174 2.00 87 174 2.00 Target energisation: Dec 2024
Total Operational or Under Construction 1067 1485 1.39 1072 1701 1.59
30. Walpole Cambridgeshire 100 200 2.00 100 200 2.00
Total portfolio owned by the company 1167 1685 1.44 1172 1901 1.62
Pipeline projects Location Capacity (MW) Battery size (MWh) Battery duration (c. hours) Capacity post augmentation (MW) Battery size post augmentation (MWh) Battery duration post augmentation (c. hours)
31. Grendon 2 Northampton 50 100 2.00 50 100 2.00
32. Thurcroft 2 South Yorkshire 85 170 2.00 85 170 2.00
33. Monet's Garden North Yorkshire 50 100 2.00 50 100 2.00
34. Lister Drive Merseyside 50 100 2.00 50 100 2.00
Total pipeline not owned by the company 235 470 2.00 235 470 2.00
Total Portfolio and Pipeline 1402 2155 1.54 1407 2371 1.68
ENDS
For further information, please contact:
Gresham House New Energy +44 (0)20 3837 6270
Ben Guest
James Bustin
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.
1 (#_ftnref1) Disclaimer: Revenue rates on the merchant portion of the
portfolio may vary significantly upwards or downwards from the figure
mentioned above; the information given here does not and should not be treated
as indicating any likely level of any profits for the current financial period
or any subsequent financial period or as otherwise constituting a profit
forecast.
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