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Gresham House Energy Storage Fund

Opportunities in Energy Storage Systems

26 Feb 2019 / Corporate research

Gresham House Energy Storage Fund

Given the pronounced growth and the intermittency of renewable generation, energy storage systems (ESSs) and battery cell developments are attracting real attention – the recent acquisition by Shell of Sonnen, Germany’s leading battery power business, being a case in point. GHESF, which now owns 70 MW of ESS projects, was floated last October 2018. Simultaneously, it raised £100m of proceeds, around 60% of which have now been invested in the recently acquired seed portfolio. GHESF aspires to expand its portfolio, although the pace of this expansion will be determined by future fundraising opportunities. It plans a 4.5p dividend for this year and a minimum 7p annual dividend payment subsequently.

  • Strategy: GHESF aims to invest in battery-based ESSs by building up an operating portfolio; to date, 70 MW of capacity has been bought for £57.22m. A further 262 MW of capacity is under consideration – and at various stages of development. Subject to the availability of the requisite finance, GHESF seeks to acquire – and integrate – most of this pipeline.
  • UK Generation: With very low plant margins and more intermittent renewable generation, National Grid is finding it ever more challenging to manage the system to the required 50Hz frequency requirement. Grid support services, including the ability to provide Firm Frequent Response (FFR) power, are becoming increasingly important.
  • Valuation: Having joined LSE in November 2018, GHESF is now valued at £103m, a figure underpinned by its £100m fundraising, around 60% of which has now been invested in its 70 MW seed core portfolio. GHESF’s valuation will also be closely compared with that of Gore Street Energy Storage Fund – with 29 MW of capacity due to be commissioned shortly; the latter is currently valued at £29m.
  • Risks: For new companies with unproven business models, such as GHESF, there are clearly risks. Revenues are currently modest but are expected to grow meaningfully. FFR contracts and the ability to deliver Asset Optimisation (AO) revenues are key. Regulatory and technical risks are clearly present, and the arrival of more competitors seems likely. Assessing GHESF’s financials, including its underlying NAV, and determining its acquisition costs could also be challenging.
  • Investment summary: As a new company in a newish market, any discerning investor must accept that there are risks and that much of the attraction lies in the concept of battery-based ESSs – and of their considerable potential for widespread deployment. GHESF has, though, pledged to deliver a 4.5p dividend for 2019 and a 7p payment for 2020.
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