TIDMGRID
RNS Number : 3968H
Gresham House Energy Storage Fund
06 April 2022
6 April 2022
Gresham House Energy Storage Fund plc
(the "Company" or the "Fund")
Full Year Results to 31 December 2021
Gresham House Energy Storage Fund plc (LSE: GRID), the UK's
largest utility-scale battery energy storage fund, is pleased to
announce its third set of annual results since the IPO in November
2018. This covers the 12 months ended 31 December 2021.
Performance highlights during the year
-- Underlying Operational Portfolio revenues up 170% to GBP51.4mn (FY20: GBP19.0mn)
-- Underlying Operational Portfolio EBITDA up 172% to GBP42.5mn (FY20: GBP15.6mn)
-- Dividends of 7.0p per share paid for the year, with
Operational Dividend Cover (1) at 1.32x
-- Net Asset Value (NAV) up 42.6% to GBP511.7mn (FY20: GBP358.9mn)
-- NAV per share up 13.5% to 116.86p (FY20:102.96p) and NAV total return of 20.3%
-- Share price total return of 23.0% versus FTSE All-Share Index total return of 18.3%
-- Share price total return since IPO of 51.5% versus FTSE
All-Share Index total return of 21.4%
-- Weighted average discount rate of 10.8% as of 31 December 2021 (FY20:10.8%)
Deployment and fundraising
-- GBP49.0mn invested in 110MW of operational capacity, taking the total to 425MW (FY20:315MW)
-- 8 projects, totalling a further 415MW, under construction as of 31 December 2021
-- Additional 717MW due to enter construction as of 31 December 2021
-- Total gross equity funds raised of GBP100mn (2020: GBP151.2mn)
-- Debt facility secured of GBP180mn
-- Cash position of GBP122mn at year end
Operational performance and construction
-- GRID remains GB market leader with a market share of around 30%
-- Revenue generation and EBITDA significantly above budget in 2021
-- Degradation of batteries was modest in 2021 with the
portfolio's State of Health (SOH) at 97.5%
-- Targeting a longer average battery duration across the
portfolio as Trading opportunities increase
-- Four new members added to the Investment Manager's Operations
team with further recruitment expected in preparation for a
significantly larger portfolio
-- Some delays to construction timelines due to COVID-related supply chain issues
2022 Outlook
Dividends:
-- Year-to-date revenues per MW are at a similar level to 2021
with a greater share of revenues from Trading
-- The Board reaffirms a target dividend of 7.0p for 2022 and
expects full Operational Dividend Cover from underlying earnings in
the portfolio
-- GRID will aim to balance future dividend targets with
increases in Operational Dividend Cover1
NAV per share:
On 10 January 2022, the Company announced that NAV growth for
FY22 was expected to be towards the upper end of the target range
of 8% to 15% and on 28 February 2022, the Company announced that CM
contracts were expected to add approximately 15p per Ordinary Share
to NAV.
The Company confirms that NAV growth from revaluations is now
expected to be at least 15% in FY22. In addition, CM contracts are
now expected to drive a c.15p increase in NAV of which c.10p is
expected to be recognised in the course of 1H 2022.
Taking these statements together, the Investment Manager
currently expects NAV per share to increase to at least 124p by 31
March 2022 and in the range of 140-145p by 30 June 2022 (2) .
Investment Policy and Strategy:
The Company intends to seek all relevant approvals (from
shareholders and lenders) for certain changes to its investment
policy. As such, the Company intends to issue a Circular during
April. The principal proposed amendments are as follows:
- To invest up to 10% of GAV (3) in shovel-ready project rights which is expected to:
o Simplify and accelerate acquisition processes
o Reduce the total acquisition cost by a further 5-10%
o Eliminate related party transactions with the Gresham House
group
o Facilitate the option of a premium listing on the Main Market
of the London Stock Exchange
- To invest up to 30% of GAV (3) in certain international
markets (4) replacing the existing ability to invest up to 10% of
GAV in Ireland which is expected to:
o Increase EBITDA and NAV growth over time by exporting core
competencies including scale advantages, business model and
operational capabilities to international markets
o Diversify into major OECD markets with similarities to the UK
in terms of wholesale market structure, renewables growth and
penetration where the market is often at an early stage resulting
in stronger target returns compared with the UK
- To invest in the land under new or existing projects which is expected to:
o Significantly increase the duration of a project
o Increase asset backing while eliminating an index-linked
cost
Commenting on GRID's results, John Leggate CBE, Chair of Gresham
House Energy Storage Fund plc said:
"2021, our third full calendar year since IPO in November 2018,
has seen GRID delivering key milestones and gain significant
momentum, with robust and rising dividend cover backed by strong
increases in profitability and net asset value as projects become
operational.
"The Board and Investment Manager are closely following the
global response to Russia's military intervention in Ukraine, and
the ensuing humanitarian crisis, as well as considering the
potential impact on financial markets, energy security
considerations, power price volatility and the Company's business
model. In terms of impact on the Company's longer-term outlook, for
the moment, the indications are pointing towards a much faster
rollout of renewable energy globally with an associated increasing
demand for energy storage projects."
Ben Guest, Fund Manager of Gresham House Energy Storage Fund plc
and Managing Director of Gresham House New Energy said:
"2021 has been another year of growth focused on value creation.
We have eight projects in construction and further projects set to
enter construction. This will deploy all existing equity funds as
well as the existing debt facility, improving the Company's
structure while increasing portfolio cashflow significantly. Given
the supportive market backdrop our focus for 2022 remains on
deployment and pipeline execution.
"Operationally, during the fourth quarter, the portfolio's daily
operations became more trading focused as Frequency Response
services started to commoditise, as we have expected for some time.
The investment portfolio performed well in this environment,
benefiting from batteries with one hour or longer durations.
"We also look forward to communicating our strategy further at
our inaugural Capital Markets Day on Wednesday 4 May 2022."
Footnotes:
1. Operational Dividend Cover is the ratio between net earnings
of the underlying investment portfolio in the year less costs in
the Company and MidCo and dividends paid in respect of the same
period. Midco is Gresham House Energy Storage Holdings plc and is
wholly owned by Gresham House Energy Storage Fund plc.
2. This range is intended to allow for minor changes in
commissioning schedules, fluctuations in revenue assumptions
provided by third party consultants as well as potential changes to
CPI and RPI assumptions not yet included in valuation models
following the recent surge in inflation, in particular.
3. GAV is calculated as the total value of the investments and
cash under the management of the Company including debt held by the
Midco.
4. Target Markets for approval are USA, EU27, Australia and
Canada. Furthermore, as certain attractive international investment
opportunities may be designed to include some solar generation
equipment, either to make them possible or to optimise the design,
it may also be proposed that up to 20% of the international
investment allocation (i.e., 6% of total GAV) could be allocated to
solar photovoltaic (PV) equipment. There is no intention to invest
in what could be thought of as solar projects with collocated
batteries; solar PV equipment would always be the minority
element.
Annual Report and Webinar
An online webinar and Q&A session, to discuss the results,
will be held at 11am today, Wednesday 6 April 2022. This will be an
opportunity to hear fund manager, Ben Guest provide an update on
GRID's operational and financial performance and to ask questions.
Registration is available via the GRID website .
A copy of the Annual Report is also available on the Company's
website at
https://greshamhouse.com/real-assets/new-energy/gresham-house-energy-storage-fund-plc/
where further information on the Company can also be found. The
Annual Report has also been submitted to the National Storage
Mechanism and will shortly be available at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
For further information, please contact:
Gresham House New Energy
Ben Guest +44 (0)20 3837 6270
Jefferies International Limited
Stuart Klein
Gaudi Le Roux
Neil Winward +44 (0)20 7029 8000
KL Communications gh@kl-communications.com
Charles Gorman +44 (0)20 3995 6673
Will Sanderson
Millie Steyn
JTC (UK) Limited as Company Secretary
Christopher Gibbons +44 (0)203 846 9774
1. HIGHLIGHTS
Company Financial Highlights
IFRS
NAV per share (pence): 116.86 pence (31 December 2020:
102.96)
(as at 31 December 2021)
Company profit and total comprehensive income (GBPm): up 330% to
GBP80.4mn (2020: GBP18.7mn)
(for the year to 31 December 2021)
Total gross equity funds raised: GBP100mn (2020: GBP151.2mn
)
(GBPfor the year to 31 December 2021)
Alternative Performance Measures (2)
EBITDA of underlying investment portfolio[1]: GBP42.5mn (2020:
GBP15.6mn)
(GBPfor the year to 31 December 2021)
Dividend per Ordinary share: 7.0p (2020: 7.0p)
(for the year to 31 December 2021)
Ordinary Share Price Total Return since IPO: 51.5% (IPO to 31
December 2020: 23.1%)
(for the period from IPO to 31 December 2021)
NAV per Ordinary Share Total Return (unlevered): 20.3% (IPO to
31 December 2020: 8.4%)
(total return for the year to 31 December 2021)
Performance highlights
Net Asset Value (NAV) as at 31 December 2021 rose to GBP511.7mn
or 116.86p per share (HY 2021: 109.89p / FY 2020: 102.96p).
Increase in NAV per share (excluding dividends paid) of 13.5% for
2021 was driven by
- Stronger than expected cash generation from underlying projects
- upward revaluation of investments (including eight assets
under construction at the end of the year of which three have been
revalued),
- improving trading forecasts
- a decrease in the discount rate for merchant income from 11.1% to 10.85%
This resulted in an unlevered NAV Total Return2 of 20.3% for the
year exceeding the 8% annual target set at the IPO.
Fully Operationally Covered Dividend of 7.0p for the year,
equivalent to a 5.4% dividend yield based on the closing share
price of 130.5p on 31 December 2021.
The Board reaffirms a target dividend of 7.0p for 2022 and
expects full Operational Dividend Cover from underlying earnings in
the portfolio again in 2022. The Company will balance future
targeted dividends with increases in Operational Dividend
Cover.
GBP100mn equity raised in July 2021 taking total share issuance
under the Prospectus published in November 2020 to GBP220mn gross
proceeds. Deployment of the equity is progressing well with 415MW
of Battery Energy Storage Systems (BESS) under construction as at
31 December 2021 .
Debt process successfully completed in September 2021 unlocking
a GBP180mn total debt facility made up of GBP150mn capex facility
and an additional GBP30mn working capital facility significantly
improving the Company's future cost of capital when drawn down.
Operational highlights
The underlying investment portfolio generated revenues of
GBP51.4mn (2020: GBP16.1mn) and EBITDA of GBP42.5mn, an increase of
172% over 2020 (2020: GBP15.6mn).
With 425MW of operational capacity and a market share of 30% as
of 31 December 2021, GRID remains the UK's largest operational
battery energy storage portfolio. Share Purchase Agreements (SPAs)
relating to a further 425MW were signed during the year, of which
375MW were under construction as at 31 December 2021. The total in
construction is 415MW. This includes the Stairfoot project which is
not yet subject to a signed SPA. Total operational portfolio,
assets in construction and future pipeline together currently stand
at 1,557MW.
Underlying investment portfolio revenues were predominantly
generated from Frequency Response services, particularly Dynamic
Containment and Enhanced Frequency Response, which together
contributed 82.2% of revenues, while trading opportunities (11.5%)
were taken advantage of as they arose.
During Q4 2021, the investment portfolio's daily operations
became more trading-focused as Frequency Response services started
to commoditise, as the Investment Manager has expected for some
time. The investment portfolio performed well in this environment,
benefiting from batteries with one hour or longer durations. In Q4,
trading revenues comprised 22.1% of the total while the
contribution of Frequency Response services reduced to 71.7%.
The backdrop and outlook for trading remains very favourable, as
evidenced in the volatility of power prices in Q1 2022, which
reflects trading revenue potential. The pace of UK total BESS
installations continues to lag the growth of renewable generation,
where intermittency is a major driver of intraday power price
volatility, a key driver of trading revenues for BESS.
2. CHAIR'S STATEMENT
Summary
On behalf of the Board, I am delighted to present the audited
Report and Accounts of the Gresham House Energy Storage Fund plc
(GRID, the Fund or the Company) for the year ended 31 December
2021.
Invasion of Ukraine
Firstly, the Board and the Investment Manager are closely
following the global response to Russia's invasion of Ukraine and
considering the potential impact on energy markets and the
Company's business. For the moment, the indications are pointing to
an increased penetration of renewable energy globally with an
associated growing demand for energy storage projects.
The Board and Investment Manager are closely following the
global response to Russia's military intervention in Ukraine, and
the ensuing humanitarian crisis, as well as considering the
potential impact on financial markets, energy security
considerations, power price volatility and the Company's business
model. In terms of impact on the Company's longer-term outlook, for
the moment, the indications are pointing towards a much faster
rollout of renewable energy globally with an associated increasing
demand for energy storage projects.
Performance Update
2021, our third full calendar year since IPO in November 2018,
has seen GRID delivering key milestones and gain significant
momentum. Financially, the Investment Portfolio has performed well,
with Operational Dividend Cover[2] improving to 1.32x (2020: 0.77x)
as EBITDA from the underlying investment portfolio reached
GBP42.5mn on revenues of GBP51.4mn, driving an EBITDA margin of
83%.
Throughout 2021, the NAV rose steadily (an increase of 13.5% for
the accounting period), driven mostly by gains from the revaluation
of projects as they become part of the operational fleet of
investments, reflecting the attractive cost of the projects the
Manager has sourced compared with the weighted average discount
rate.
Investor demand has rewarded the Company's achievements with a
further gain in the Share Price Total Return since IPO which has
reached 51.5% through to 31 December 2021, which in turn equates to
an annual compound return of 14.2%. The Company's share price
continues to trade at a premium to NAV and still demonstrates good
value, particularly given the growth in value anticipated through
2023, from the increase in operational MWs and the benefit expected
from additional Capacity Market contracts awarded in February.
These were announced on 28 February 2022 and are therefore not
included in the NAV as at 31 December 2021.
Complementing this revenue growth, the Investment Portfolio
maintained strong growth momentum, with operational capacity[3] of
the portfolio rising by 110MW to 425MW during 2021 and signing SPAs
relating to a further 425MW, of which 375MW[4] were under
construction by the end of the year.
The total UK BESS market has grown to c.1.4GW and is expected to
grow substantially in the next three to five years. It is the
Board's ambition to maintain a leadership role in the sector. While
deployment of the existing pipeline is key to delivering the
Company's ambitions over the next 18 months, the Board expects to
utilise the debt capital secured in 2021 as well as the potential
further accordion facility during 2022, in order to acquire the
additional pipeline necessary to establish a further significant
growth path in 2023 and beyond.
Securing debt of GBP180mn[5], attractively priced at 300bps over
SONIA, with an uncommitted accordion finance facility of up to
GBP200mn in September was a significant milestone, demonstrating
how the industry has matured since IPO. It reinforces GRID's place
as a leader in this market, being the first battery energy storage
fund to unlock a significant term-debt facility. These funds are
allowing the Company to bring down its cost of capital as they are
drawn down.
The Irish and other international markets are also burgeoning
and another first for the Company has been to secure a 180MW
pipeline in the Republic of Ireland, which is expected to
commission in 2024.
Portfolio, transactions, and pipeline
As reported in the 2021 Interim Results, the Company added 110MW
of operational capacity to its investment portfolio in the first
half of 2021, concluding transactions initiated in 2020.
Throughout the year, the Investment Manager has also focused on
completing due diligence on projects in its exclusive pipeline,
signing SPAs on 425MW in order to launch its next phase of growth.
Of these 425MW, 375MW[6] were already under construction at the end
of 2021. Additional projects will be put into construction during
2022.
As indicated in the Company's Trading Update released on 6
January 2022, the Company intends to invest in portfolio projects
with at least a 2-hour battery life. In recent weeks, the Board has
agreed to upgrade all existing EFR projects (which see their
contracts expire in HY1 2022 and currently have sub-1-hour duration
systems) to 2 hours as well as building much of the pipeline out to
2 hours. The transition to 2 hours reflects that the investment
portfolio 's revenue mix is shifting to trading (as opposed to
Frequency Response), justifying projects with longer durations in
general
More specifically, increased EBITDA from 2-hour projects should
result in an improved return on capital employed. Given the
substantial slate of investment projects in construction as well as
additional pipeline, the Investment Manager's focus during 2022 is
on deployment and pipeline execution. This is particularly
important as supply chain challenges reported across the economy
are impacting the Company in various ways. All challenges so far
have proved surmountable and within budget, but occasionally
causing an incremental delay. Most of these delays were reflected
in the updated pipeline table in the January 2022 trading
statement; however, the Company has encountered further potential
delays on a subset of projects. The updated commissioning
timetables are reflected in the portfolio and pipeline summary
tables in the Investment Manager's report on page 9.
In addition, to continue to drive growth, the Investment Manager
will press on with its pipeline for deployment in 2023 and
beyond.
Fundraising and Investment Pipeline
During the period, the Company raised GBP100mn equity from share
issuance under the Prospectus published in November 2020. The
equity issue was significantly oversubscribed. However, the Company
stuck to its GBP100mn target to ensure the Company maintains
capital discipline and minimises cash drag: put simply, it raises
the amount needed when it is needed.
In the second half of 2021, the Company's wholly owned
intermediate holding company, Gresham House Energy Storage Holdings
plc, agreed a five-year debt facility for GBP180mn with a syndicate
of banks including Commonwealth Bank of Australia, Lloyds Bank,
NatWest, and Santander. By obtaining this facility for the Group,
the Company is taking a measured approach to leverage and
optimising the future capital structure on attractive terms.
The debt facility secures finance for the pipeline investments
currently under construction and for a portion of the future
investment pipeline. The Company also has an uncommitted accordion
facility for up to GBP200mn which will be explored in order to
execute on the full pipeline tabled in the Investment Manager's
Report and any additional pipeline secured.
Investment performance
The Company performed strongly during the year. The investment
portfolio generated EBITDA from the underlying assets of GBP42.5mn,
from net operating revenues of GBP51.4mn, both ahead of the
valuation model assumptions, supporting the payment of dividends by
the Company and valuation of investments.
In the period, the investment portfolio underlying revenues were
generated mostly from Frequency Response (FR) contracts (82.2%),
while the remainder came from trading (11.5%), Capacity Market (CM)
contracts (5.8%) and a small contribution from TRIAD income
(0.5%).
It is worth highlighting how the investment portfolio revenue
mix in the investment portfolio changed in Q4 2021, when FR
represented 71.7%, trading 22.1% and CM 6.2%. This change was
anticipated in the Company's interim report, as the Investment
Manager had expected, for some time, that the FR market would
become saturated.
As the market shifted, the Investment Manager was able to
combine trading and FR services to earn higher returns than from
either alone. It is pleasing to see the Company being a first mover
once again, adapting and transitioning to new opportunities as they
appear (as was also shown when Dynamic Containment was first
launched back in October 2020).
The commoditisation of the FR market has revealed the underlying
attractiveness of trading, where the revenue potential, as
expected, is not significantly lower than what has been achievable
from FR (and DC in particular). Nonetheless, revenues from trading
are expected to be lower than DC in 2022. As such, the Company's
financial forecasting has embedded a like for like decline in
forecasted revenues per MW in 2022, as it transitions to a
trading-centric business model.
Offsetting this potential for lower revenues per MW, is the
commissioning of investment projects under construction, which have
been developed for a lower cost per MW than the pre-existing
portfolio. Combined with the lower cost of capital supporting the
future pipeline, due to a significant proportion of lower-cost debt
in the future capital mix, this is reducing the revenue hurdle per
MW which the Company needs to generate to cover the 7.0p annual
targeted dividend. The Investment Manager expects that this will be
reflected in improvements in Operational Dividend Cover over the
medium term. The Company will balance future targeted dividends
with increases in Operational Dividend Cover.
Net asset value and results
During the period, the NAV per Ordinary Share[7] rose from
102.96p on 31 December 2020 to 116.86p on 31 December 2021. This
increase was primarily driven by cash generation in excess of
dividends, upward revaluation of projects (acquired and owned for
at least 60 days) and by projects acquired pre-construction and
expected to commission within nine months (see further explanation
below). Improving trading forecasts and a reduction in the discount
rate for merchant income from 11.1% to 10.85% also contributed to
the increase.
These upward drivers more than offset a negative impact of
c.1.5p from changes to the corporation tax regime (whereby taxes on
UK companies will increase from 19% to 25% from FY 2023) prior to
modelling of additional tax efficiencies, which was reported in the
Company's Interim results in 2020.
The Board, in conjunction with the Company's appointed
independent valuer, Grant Thornton, reviewed the discount rates
used to calculate the weighted average discount rate ahead of the
Q3 NAV announcement in October. While the 5% discount rate remains
unchanged for CM revenues, the Board determined that the discount
rate for all other revenue streams could be reduced from 11.1% to
10.85%. A further change was also agreed: to revalue acquired
assets under construction sooner, provided they are within nine
months of commissioning. To reflect the increased risk profile, a
higher discount rate, of 5.5% and 11.35% respectively, is used to
calculate the NPV of these projects. The Board and Investment
Manager are comfortable that the discount rates used are both
conservative and appropriate for the risk profile of BESS and will
continue to monitor performance against forecasts before making any
further changes to discount rates.
These changes have reduced the weighted average discount rate on
operational sites to 10.57% at the end of 2021 (2020: 10.80%) and
on in-construction assets to 11.35% (2020: n/a). The weighted
average discount rate for the overall investment portfolio for the
year ended 31 December 2021 was 10.77% (2020: 10.80%).
Dividends
Operational Dividend Cover ([8]) in 2021 was 1.32x. It is
gratifying that the existing operational portfolio achieved
Operational Dividend Cover despite uninvested cash on the balance
sheet. Thus, we expect the commissioning of additional projects to
see Operational Dividend Cover, on the current shares outstanding,
to improve further in the medium term. The Board intends that full
Operational Dividend Cover is maintained across any calendar year,
with sufficient operating cash reserves set aside in the event of
excess Operational Dividend Cover.
As noted above, the deployment of the equity capital raised in
2021 and the secured debt facility, will take place during 2022.
This is expected to lower the revenue per MW from the underlying
investment portfolio which is required for the Company to meet its
target dividend of 7.0p per share. Accordingly, the Board remains
confident that the current level of dividend is well supported and
will continue to monitor dividend commitments in line with
commissioning of projects and resulting growth of earnings from the
Company's underlying investments.
Climate Change
The Company has considered climate change risks and our
response. These are outlined on page 26. The Company is in an
excellent position to underpin the transition to Net Zero.
Investment policy and growth ambitions
A supportive UK market backdrop and continued deployment of
capital into a large and attractively-priced pipeline using a lower
cost of capital bodes well for improving Operational Dividend Cover
and NAV growth. After a hiatus of sorts in 2020, when installations
of renewables rose by c.900MW in 2020, 2021 was expected to add at
least 1.5GW and further strong growth is expected as offshore wind
projects from 2017 and 2019 contract for difference (CfD) auction
rounds are commissioned. The potential easing of planning
restrictions for renewables projects in response to reducing
reliance on Russian gas would further drive the rollout of
renewables. Beyond these business-as-usual elements, there are two
sources of value that the Company would like to pursue which would
require amendments to the Company's Investment Policy, for which
shareholder approval will be sought. These amendments are laid out
below and will be communicated formally, including details of
other, less material, proposed changes, via a circular which is to
be published shortly.
The first of these proposals is that the Company be authorised
to take development risk (i.e. acquire investments in the
pre-construction stage) up to 10% of GAV[9]. This proposal would
extend only to ready-to-build projects and not to riskier,
greenfield project development. To date, project rights have been
acquired on behalf of the Company by Gresham House DevCo Limited
(Gresham House DevCo), an affiliate of the Investment Manager, with
the developed project being subsequently acquired by the Company.
The Board believes that moving past this arrangement would offer
the Company some key benefits, including an approximately 5-7%
lower total cost of acquisition going forward and the potential to
generate stronger growth.
The second of the proposals relates to international expansion.
The Board intends to propose an amendment to the Company's
investment policy to extend the current permission to make
investments in Ireland to enable the Company to invest
internationally in similar markets up to an exposure of 30% of GAV.
As part of this amendment, certain attractive international
investment opportunities may be designed to include some solar
generation equipment, either to make them possible, or to optimise
the design. It may therefore be proposed that up to 20% of the
international investment allocation (i.e. 6% of total GAV) could be
allocated to solar photovoltaic (PV) equipment. There is no
intention to invest in what could be thought of as solar projects
with collocated batteries; solar PV equipment would always be the
minority element.
The Board and Investment Manager are acutely aware of how
quickly renewable energy penetration is increasing abroad as
countries all over the world aim for Net Zero. This naturally
unlocks a need for BESS expansion in those markets and represents a
significant opportunity for the Company to leverage its
demonstrated capabilities. While the UK remains a market with
plenty of opportunity, the Board believes that geographic diversity
is also a potential benefit for shareholders. Since GRID's IPO, the
Investment Manager has demonstrated both its expertise in managing
and commercialisation of BESS and the opportunity for further
growth in this area, and both the Board and Investment Manager
believe that now is the time to build on this early success and to
enter new geographic markets, which are most attractive in the
early stages. The intention is to pursue a disciplined focus,
limiting the range of new markets to those with comparable market
dynamics in the United States, Canada, the European Union, and
Australia. The scale of the opportunity in these markets is large.
While the UK only currently represents about 1% of global
electricity consumption; by comparison, the United States and
European Union markets are among the world's largest electricity
markets, each being at least ten times the size of the UK
electricity market.
Finally, on a more administrative note, the current split of
equipment and construction loans into separate limits within the
Investment Policy is to be combined into a single limit to ensure
alignment with the pipeline.
Over the last three years, the Company has developed a positive
track record and has established its credentials, therefore the
Board now supports these proposed strategic changes, appreciating
the advantage of being able to invest in project rights directly
and international expansion reflects a unique opportunity for the
Company to leverage its know-how to compete effectively in specific
overseas markets. These changes will drive significant scale,
diversify risks, and propel the growth momentum of the Company over
the years to come.
John S. Leggate CBE, FREng
Chair
Date: 5 April 2022
3. INVESTMENT MANAGER'S REPORT
Gresham House Asset Management Limited (GHAM) is wholly owned by
Gresham House plc (Gresham House), an AIM-quoted specialist
alternative asset manager with a market capitalisation of
c.GBP340mn as at 31 December 2021. Gresham House provides funds,
direct investments, and tailored investment solutions, including
co-investment across a range of highly differentiated alternative
strategies. GHAM's expertise includes strategic public equity,
private equity, forestry, housing, new energy &
infrastructure.
Portfolio and pipeline overview
The Company grew its operational investment portfolio
significantly in 2021, ending the year with 17 operational projects
totalling 425MW.
During the year, the Company acquired five operational projects
adding 110MW to the portfolio. These projects are items 13 to 17 in
Table 1 on page 9. Of these, 70MW (Tynemouth, Nevendon and Port of
Tyne) were acquired with Enhanced Frequency Response (EFR)
contracts, adding to the Glassenbury and Cleator EFR projects
(together 50MW) acquired in 2019. The remaining additions were a
10MW extension to the Glassenbury project and the 30MW Byers Brae
project near Livingston in Scotland.
The Company also signed SPAs representing a further 425MW across
seven ready to build projects, of which 375MW were under
construction by the end of 2021. In addition, Stairfoot (40MW), for
which an SPA has not been signed, but is exclusive to the Company,
is under construction, taking the total figure for MW under
construction to 415MW as at 31 December 2021.
As at 31 December 2021, the valuation of the portfolio was
GBP389mn (FY 2020: GBP249mn) representing a 56% increase. The
valuation primarily reflects the 425MW in operational projects (FY
2020: 315MW), 150MW of the 375MW of in construction projects (which
are revalued as they were expected to commission within nine months
of the year end) and cash in hand.
The total portfolio size is set to increase to 850MW once
projects subject to signed SPAs have been commissioned.
The pipeline consists of a further 707MW across eight projects
which would take total portfolio capacity to 1,557MW once acquired
and commissioned.
The Company has significantly increased the average size of
projects over the last 12 months, with the average pipeline project
currently at 88MW. Acquisition of larger projects is more cost
effective and an efficient way to drive scale. This also typically
reduces costs once projects are operational.
The portfolio is also increasing its average duration, with
pipeline projects of an average target duration of over 1.6
hours.
As shown in the chart to the right, the Company owns the largest
BESS portfolio in the UK with a c.30% market share.
We aim to have all acquired projects and Stairfoot connected and
generating income in 2022, with pipeline projects expected to be
connected during 2023 and 2024.
The GBP220mn in equity raised since November 2020, alongside the
GBP180mn debt facility secured in September 2021, will provide the
capital for the acquired pipeline and some of the additional
pipeline. Additional debt or equity fund raising will be sought as
appropriate.
It is expected that the acquisition cost per MW/MWh of projects
under construction and of the pipeline (on a like for like duration
basis) will be materially lower on average than for projects
acquired and built prior to the granting of the change in
Investment Policy in November 2020, which granted the Company
permission to take construction risk with capital equivalent to 10%
of the Company's Gross Asset Value (GAV)[10]. We are pleased to see
this policy change has delivered value for shareholders as
anticipated.
As reflected in the Chair's Statement above, we are also
confident of adding value if the Investment Policy were to be
amended, with shareholder approval, to allow the direct acquisition
of 'shovel-ready' projects up to 10% of GAV. In terms of pipeline
for later in 2023 and beyond, we remain confident of our ability to
add pipeline to underpin the continued growth of the Company, such
that it maintains its market share in the UK and Ireland. We are
also confident of our ability to execute successfully in
international markets, should shareholder approval be granted to
target carefully chosen international markets.
Table 1: Company portfolio
Map Asset Name Location Capacity Battery Battery Site type Operational Ownership
Ref. (MW) size duration Status status
(MWh) (hours)
Battery &
generators,
1 Staunch Staffordshire 20 2.9 0.20 0.5MW import Operational 100% owned
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Battery and
generators,
2 Rufford Nottinghamshire 7 9.5 1.35 symmetrical Operational 100% owned
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Battery,
3 Lockleaze Bristol 15 22.1 1.45 symmetrical Operational 100% owned
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Battery,
4 Littlebrook Kent 8 6.3 0.80 symmetrical Operational 100% owned
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Battery &
generators,
5 Roundponds Wiltshire 20 25.8 1.30 16MW import Operational 100% owned
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Battery,
6 Wolves West Midlands 5 7.8 1.55 symmetrical Operational 100% owned
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Battery,
7 Glassenbury Kent 40 28.2 0.70 symmetrical Operational 100% owned
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Battery,
8 Cleator Cumbria 10 7.1 0.70 symmetrical Operational 100% owned
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Battery,
9 Red Scar Lancashire 49 74.3 1.50 symmetrical Operational 100% owned
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Battery,
10 Bloxwich West Midlands 41 46.6 1.15 symmetrical Operational 100% owned
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Battery,
11 Thurcroft South Yorkshire 50 75.0 1.50 symmetrical Operational 100% owned
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Battery,
40MW
12 Wickham Suffolk 50 74.0 1.50 import Operational 100% owned
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Tyne and Battery,
13 Tynemouth Wear 25 17.4 0.70 symmetrical Operational 100% owned
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Glassenbury Battery,
14 Extension Kent 10 10.1 1.00 symmetrical Operational 100% owned
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Battery,
15 Nevendon Basildon 10 7.1 0.70 symmetrical Operational 100% owned
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Port of Tyne and Battery,
16 Tyne Wear 35 28.0 0.80 symmetrical Operational 100% owned
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Battery,
17 Byers Brae West Lothian 30 30.5 1.00 symmetrical Operational 100% owned
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Battery, Target COD:
18 Enderby Leicester 50 50.0 1.00 symmetrical Q2 2022 100% owned
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Battery, Target COD:
19 West Didsbury Manchester 50 50.0 1.00 symmetrical Q3 2022 100% owned
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Battery, Target COD:
20 Melksham Wiltshire 100 100.0 1.00 symmetrical Q4 2022 100% owned
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
100% acquired
subject to
Battery, Target COD: satisfaction
21 Couper Angus Scotland 40 40.0 1.00 symmetrical Q2 2022 of conditions
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
100% acquired
subject to
Battery, Target COD: satisfaction
22 Arbroath Scotland 35 35.0 1.00 symmetrical Q2 2022 of conditions
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Battery, Target COD:
23 Penwortham Preston 50 50.0 1.00 symmetrical Q3 2022 100% owned
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Battery, Target COD:
24 Grendon Northampton 100 200.0 2.00 symmetrical Q1 2023 100% owned
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Total
acquired
portfolio 850 997.7 1.17
-------------- ---------------- --------- -------- ---------- ------------- ------------ --------------
Table 2: Pipeline summary
Map Asset Name Location Capacity Battery Duration Site type Commissioning/
Ref. (MW) size (hours) Completion
(MWh) status
Battery, Target COD:
25 Stairfoot North Yorkshire 40 40.0 1.00 symmetrical Q2 2022
----------------- ---------------- --------- -------- --------- ------------- ---------------
Battery, Target COD:
26 Project York York 50 50.0 1.00 symmetrical Q4 2022
----------------- ---------------- --------- -------- --------- ------------- ---------------
Project Bradford Battery, Target COD:
27 West West Yorkshire 87 174.0 2.00 symmetrical Q1 2023
----------------- ---------------- --------- -------- --------- ------------- ---------------
Battery, Target COD:
28 Project Elland West Yorkshire 150 300.0 2.00 symmetrical Q1 2023
----------------- ---------------- --------- -------- --------- ------------- ---------------
Battery, Target COD:
29 Monet's Garden North Yorkshire 50 100 2.00 symmetrical Q2 2023
----------------- ---------------- --------- -------- --------- ------------- ---------------
Battery, Target COD:
30 Lister Drive Merseyside 50 100 2.00 symmetrical Q2 2023
----------------- ---------------- --------- -------- --------- ------------- ---------------
Project Bradford Battery, Target COD:
31 West 2 West Yorkshire 100 200 2.00 symmetrical H2 2023
----------------- ---------------- --------- -------- --------- ------------- ---------------
Rep. of Battery, Target COD:
32 Project Monvalet Ireland 180 180 1.00 symmetrical 2024
----------------- ---------------- --------- -------- --------- ------------- ---------------
Total Pipeline: 707 1,144 1.62
----------------- ---------------- --------- -------- --------- ------------- ---------------
Total Portfolio: 1,557 2,142 1.38
----------------- ---------------- --------- -------- --------- ------------- ---------------
Fund and portfolio performance
2021 was an exceptional year for the Company's investments as
projects benefited from a prolonged period (starting in October
2020) of high pricing of Frequency Response services due to the
undersupply of MW capacity available to deliver Dynamic Containment
(DC) and Firm Frequency Response (FFR) services at the level
required by National Grid for most of the year. In addition, rule
changes which allowed the Company's portfolio to trade while
running batteries in DC meant the portfolio could both demonstrate
its trading capabilities and confirm that revenues from trading
were also at very attractive levels.
As such, the Company's underlying investment portfolio generated
EBITDA of GBP42.5mn for the period, resulting in net earnings for
Operational Dividend Cover[11] of GBP36.3mn and Operational
Dividend Cover of 1.32x for the 7.0p dividend paid in relation to
the period. Operational Dividend Cover at this level was achieved
in spite of a large amount of uninvested cash being held for
investment into pre-operational projects laid out in Tables 1 and 2
on page 9.
The Ongoing Charges Figure (OCF )[12] for the Fund for the
period to 31 December 2021 was 1.23 % based on the weighted average
Net Asset Value (NAV) for 2021 (2020: 1.26%), which, we believe, is
among the lowest of the comparable listed funds in the market. The
OCF is expected to decline marginally over time, mainly driven by a
rising NAV which then drives a drop in incremental management fees.
As the NAV has now reached over GBP500mn, any incremental growth in
the NAV will attract fees at the reduced rate of 0.8%, down from
0.9% above GBP250mn and 1% for the first GBP250mn.
As a result of NAV growth and a consistent dividend policy in
the year, the Company extended its track record of strong NAV Total
Return[13] performance achieving an NAV Total Return of 20.3% in
2021 and takes the annualised NAV Total Return since IPO to 11.0%,
demonstrating consistent returns in excess of the target of 8% set
at IPO.
As noted above, the Company's underlying assets generated EBITDA
of GBP42.5mn, an increase of more than 172% from GBP15.6mn in 2020.
This growth is underpinned by a 220% increase in revenues in the
period from GBP16.1mn in 2020 to GBP51.4mn in 2021. This was driven
by like for like growth as well as acquisitions, with average
revenue per weighted average MW increasing by 64% to GBP126.7k per
MW.
FR was again the largest revenue source making up 82.2% of the
revenue generated by the underlying investment portfolio for the
whole of 2021. This has been largely dominated by DC, a service
launched in October 2020, in which the Company's underlying assets
were the only participants in at launch. Through to October 2021 DC
prices were buoyed by the undersupply referred to above which
allowed for the pricing to be consistently set at National Grid's
price cap of GBP17MWh.
During this period, the investment portfolio maintained a strong
market position, holding on average 37% of the contracted capacity
in the service, whilst also enhancing returns through trading. From
1 November 2021, National Grid updated its DC volume requirements,
with volume no longer procured on a daily basis but in four-hourly
blocks, allowing for lower demand and therefore prices in certain
blocks and in general, sharply decreasing average daily
requirements. This has also led to the already limited FR market
becoming saturated towards the end of the year. We, alongside our
asset optimisers, were ready for these changes having predicted
this development since our IPO in November 2018 and had been
prepared to stack trading with any FR service to maintain optimal
performance of the portfolio.
Since these changes, we have seen an increasingly volatile DC
price which has on occasion presented opportunities for the
portfolio. Despite a brief increase in FFR prices over the winter
for those asset owners alive to the changes in DC, with the overall
battery capacity in Great Britain growing significantly, it is
clear that FR pricing (across all FFR, DC etc) is likely to now
reset permanently at a lower level, which increases our focus on
trading performance and effective stacking of other services.
With a greater focus on trading in Q4, this area accounted for
11.5% of underlying investment portfolio revenue in 2021, up from
9.9% in 2020 helped by an increase in Q4 when trading represented
22.1%. In full, the fourth quarter saw revenues from FR at 71.7%,
Trading at 22.1% and CM at 6.2%.
The trading opportunity was not just limited to the final
quarter of the year. Since the start of the year assets have been
able to use Day Ahead prices to inform decisions between Trading
and DC ahead of submitting volume into DC. This led to a number of
days in January 2021 when projects stepped out of DC to trade for
high Day Ahead and imbalance prices and deliver higher returns than
possible from FR. Since the change in the DC procurement rules in
September to 4-hour blocks (previously the service was for 24-hour
blocks), the opportunity to step out of DC to trade has increased
significantly with evening peaks presenting several opportunities
to earn more than the DC price cap of GBP17MWh.
We are pleased with the pace at which our Operations Team is
adapting to changing market conditions and that the Company's
assets are consistently the first movers in markets and
optimisation innovators when it comes to stacking of revenue
streams. We are confident that this track record bodes well for
ongoing returns from the portfolio as the market begins
transitioning to a more trading focused revenue make up.
As shown in Table 3, CM revenues also grew in 2021, with the
portfolio earning 262% more CM revenue in 2021 (GBP2.97mn) than in
2020 (GBP0.82mn) as 60MW of T-4 contracts came into force in
October 2020, 35MW of T-4 contracts from acquired assets enjoyed a
full year in 2021 and 52MW of T-4 contracts came into force in
October 2021 supporting the final quarter contribution. Due to the
exceptional revenues earned through other sources in 2021, CM
revenues represented only 5.8% of underlying investment portfolio
revenues for the year, a modest uplift from 5.1% in 2020. We expect
the CM share of revenues to continue increasing over time as
additional contracts, beginning in October each year, come into
force and as revenues on a per MW basis begin to fall from the
record levels seen from DC in 2021.
As at 31 December 2021, the Portfolio had 166MW of active T-4 CM
contracts and this is set to increase to 207MW in October 2022. In
addition, as announced on 28 February 2022, 32 5 MW of T-1 CM
contracts and 463MW of T-4 CM contracts have been awarded for the
portfolio in the 2022 auctions in February 2022 and are expected to
deliver over GBP108mn of additional revenue over the life of the
contracts. Both auctions cleared at record prices of GBP75,000 per
MW for T-1 and GBP30,590 per MW for the T-4 auction. As such, the
portfolio is expected to enjoy an additional GBP8.4mn in revenues
in the year from October 2021 on the T-1 contracts and over
GBP100mn in the 15 years from October 2025, assuming CPI at 2%, on
the T-4 contracts. As the auctions were not formally completed at
the year end, this is not factored into valuations as at 31
December 2021.
TRIADs are no longer a significant part of the revenue mix for
the portfolio assets (0.5% for 2021) and we expect this to remain
low. Most TRIAD income now is earned as an additional benefit on
top of trading peak demand periods as opposed to TRIAD specific
export runs as done just a couple of years ago.
Table 3: Underlying investment portfolio revenue breakdown for
2021 and 2020
Investment portfolio revenue 2021 revenue Share of 2020 revenue Share of
(GBPmn) 2021 revenue (GBPmn) 2020 revenue
Firm Frequency Response FFR 2.00 3.9% 3.20 19.9%
============= ============== ============= ==============
Enhanced Frequency Response
EFR 9.63 18.7% 3.59 22.3%
============= ============== ============= ==============
Dynamic Containment DC 30.64 59.6% 5.35 33.3%
============= ============== ============= ==============
Frequency Response Total 42.27 82.2% 12.14 75.5%
============= ============== ============= ==============
Trading 5.91 11.5% 1.59 9.9%
============= ============== ============= ==============
Capacity Market CM 2.97 5.8% 0.82 5.1%
============= ============== ============= ==============
TRIADs 0.28 0.5% 1.52 9.5%
============= ============== ============= ==============
Operating revenues from assets
owned 51.43 100.0% 16.07[14] 100.0%
================================ ============= ============== ============= ==============
Investment portfolio operational performance
Average availability of assets in contracted services was 99.2%
for the year (2020: 98.8%), demonstrating ongoing strong delivery
from the Company's portfolio.
During the year, all assets except EFR contracted assets were
offering DC for a large percentage of time. This involves
significantly lower cycling of batteries (approximately 0.3 cycles
per day for a 1-hour battery) versus our base case for valuation
modelling (of over two cycles per day). As a consequence, the
degradation of batteries in the portfolio has been very light with
average State of Health (SOH) falling to only 97.5% (2020: 97.7%).
The move to longer duration assets, on average, should also result
in less degradation.
There are two incidents to note across the portfolio. The first
involved vandalism at the DNO connection for Rufford in May, which
left the site offline for six months. The incident was reported to
the police and all damaged equipment has since been replaced. The
site has been online and performing at full capacity since the DNO
connection was reinstated in November. The lost earnings for this
outage plus equipment costs to rectify the connection are being
claimed under an existing insurance policy. We currently expect
full reimbursement and this is factored into the valuations.
The second incident involved trespassing and theft of materials
at another site in September. Due to the nature of the materials
taken and the damage to the perimeter fencing, manned guarding was
installed around the perimeter of the site until remedial works
were carried out and the site could be deemed safe: safety for
workers and the general public are paramount for the Investment
Manager. We are grateful for the collaborative effort from all
concerned to ensure a swift and safe resolution. Despite being
offline for half of the month, the asset was still able to deliver
returns higher than achievable in DC for the full month, thanks to
effective trading of the September energy price volatility before
the incident. No insurance claim was made for this incident.
These two incidents tested and proved the effectiveness of the
team's Health, Safety and Security procedures, while also offering
learning opportunities. As such, the Investment Manager will look
to implement new ideas across the portfolio to further enhance site
security and safety.
In terms of project delivery, we have previously reported some
slippage to timescales and unfortunately a few more have developed
since 10 January 2022, the date of the Company's Trading Update
announcement. Almost all issues relate to unexpected procurement
challenges. Examples include: a high voltage cable being in short
supply in one project; concrete being in short supply at another;
delays to the delivery of key components due to shipping delays; or
component shortages at suppliers affecting other projects, to name
a few. These challenges are being addressed with a wholehearted
effort from our construction management team. All problems are
being resolved without any material impact on cost, but they are
affecting commissioning dates. The team will attempt to compress
commissioning timeframes to counter some of the delays during
construction.
Market Update
The market backdrop for BESS projects in the UK and Ireland has
improved significantly during 2021 as long-expected high power
price volatility has continued, having first emerged in late 2020.
This volatility has emerged as renewable penetration has risen to
levels at which existing sources of flexibility, and in particular
gas-fired generation, have reached their limits in terms of dealing
with the rising intermittency of renewables. And indeed, as
renewables gain market share, baseload gas is losing share and will
probably be gradually decommissioned, reducing a source of
flexibility - further reinforcing the need for batteries. Recent
sharp price increases in global energy prices have further
supported the investment and energy security cases for a global
acceleration of renewable energy development, and thus continuing
to favour the global rollout of battery storage.
Past CfD auctions offering a guaranteed offtake for offshore
wind projects (in 2015: 2.2GW, 2017: 3.3GW and 2019: 5.5GW) and the
most recent auction for offshore and onshore wind and solar
(expected to catalyse a further 12GW of capacity according to the
Department for Business, Energy and Industrial Strategy ( BEIS))
provide near term visibility for the energy storage business model.
With only 1.4GW of energy storage commissioned in the UK to date,
albeit with further significant rollout expected in the next few
years, energy storage still lags the pace of renewable project
installations, which are running at over 2GW per annum and
rising.
There are three key factors we believe will drive the investment
portfolio and performance in the BESS market over the short to
medium term:
i) FR market
The FR services market currently consists of DC and FFR. As of
November 2021, saturation of these markets began and with
continuing growth of BESS assets in the market, further pressure on
pricing is anticipated.
In addition to DC and FFR, Dynamic Modulation (DM) and Dynamic
Regulation (DR) are set to launch in 2022, currently expected by
the end of the summer. However, we do not expect a long-term
increase in the overall volume as National Grid plans to phase out
FFR once these two products are launched.
The ability to stack trading revenues on to these services and
the reduced 4-hourly contract periods increases our confidence that
value will continue to be extracted from FR despite its reduced
attractiveness on its own.
Furthermore, while the FR markets are becoming saturated, the
volume requirement from National Grid ESO on a seasonal basis is
expected to rise as we head into summer, as additional capacity is
required when renewable (solar) generation is higher. This may
provide a short-term reprieve to the downward trend in prices but
is noteworthy, nonetheless. The higher summer and lower winter
requirement for FR services should manifest in the Company's
revenue split going forward.
ii) Reserve from Storage
Aside from FR services and increasing volume requirements,
National Grid have long promised more demand for storage as a
source of reserve capacity. We expect more news on this in 2022
after a lengthy design phase following the successful Reserve from
Storage trial in September 2020, which demonstrated the value of
BESS assets versus CCGTs used in Balancing Mechanism (DM)
Reserve.
iii) Electricity prices and Trading
2021 saw further increases in Trading opportunities for the
portfolio, with increasing volatility over previous years and more
frequent pricing events. Some of this opportunity remained
uncaptured by batteries as DC pricing remained significantly above
average daily returns from Trading. As prices for FR services have
fallen, and electricity price volatility continues to increase,
Trading is becoming key to profit maximisation.
As shown in the chart below, the daily average system price
trebled in 2021 from GBP81/MWh in 2020 to GBP242/MWh in 2021. There
were also 136 days with an average system price of at least
GBP200/MWh versus just 11 days in 2020 (2018: 4, 2019: 1). We have
also seen record numbers of extremely high prices with 36 half
hours at prices of GBP1,000/MWh and above in 2021 (2020: 2). Prior
to this year, the previous system price high in recent years was in
March 2020 at GBP2,242/MWh. From the start of 2021 through to
January 2022, there have been 28 instances of prices higher than
this, with seven instances of prices being at least GBP4,000/MWh.
The Company's assets have been capturing this upside in the
intraday market as well as in the Day ahead markets which has
offered significant spread opportunities more valuable than DC.
This volatility is expected to remain as more renewables are
commissioned.
These exceptional prices are occurring more frequently, but in
addition to this, we are also seeing more occurrences of
consecutive settlement periods at extreme prices. Since the start
of January 2021, we have seen seven days with prices above
GBP1,000/MWh for at least three consecutive settlement periods (1.5
hours).
To illustrate the potential for building larger batteries to
capture this, on 9 September 2021, a 1-hour asset could have earned
the equivalent of 8.8days' worth of DC revenue at the GBP17MWh cap
whereas a 3.5-hour asset could have achieved a full month of DC
revenue from a single cycle of the battery.
We are therefore committed to steadily expanding duration
towards 2-hours. The current EFR assets, which come to the end of
their contracts in 2022, will be the first to be expanded to 2-hour
durations with some of the pipeline assets being commissioned as
2-hour sites as well.
Russian invasion of Ukraine
The Russian invasion of Ukraine, which occurred after the year
end, has had significant geopolitical ramifications for the UK
energy markets in which the Company's investments operate. The
Investment Manager strongly opposes the invasion and we believe
there is no place in the modern world for actions such as those
undertaken by Russia in Ukraine. Whilst the Company has no
investments in Russia and is not engaged with any sanctioned
entities, we understand our obligations to our stakeholders to
assess the potential impacts on the Company. We are closely
following the global response to the Russian invasion and its
impact on energy markets. We will continue to review our
counterparties and to reduce any exposure to potential future
sanctions.
To date, there has been no impact on development projects in
terms of either delays or costs as Russian entities are currently
neither counterparties to the Company nor its investments. The
increasing and volatile gas prices at the start of March 2022,
however, have had an impact on energy prices in the UK. This has
led to an increase in volatility in the electricity markets. If
energy prices remain high for longer periods, we may start to see
cost of construction for pipeline assets increase if parts and
material costs increase.
Across Europe, we are starting to see a push to reduce reliance
on Russian gas with an increased focus on driving growth in
renewables. At the time of this report, the UK Government is
considering plans to ease planning restrictions for on-shore wind
to reduce the lead time for new projects. The likely increase in
renewable generation is expected to further increase the demand for
BESS.
Valuations and NAV
NAV per share[15] has risen from 102.96p per Ordinary Share at
31 December 2020 to 116.86p per Ordinary Share at 31 December 2021.
This equates to a NAV Total Return[16] of 20.3% for the period.
Most of the increase in the NAV per share is driven by the
revaluation of projects previously held at cost (GBP38.0mn),
including assets under construction at the year end. A net
improvement in forecasts, driven by a recovery in revenue
assumptions following a drop in 2020 (+GBP5.8mn), as well as
significant cash generation from underlying asset performance in
excess of value losses on model roll forwards (+GBP31.2mn), also
contributed positively.
The discount rate for CM revenues remains at 5% whilst the
discount rate for all other revenues has decreased marginally from
11.1% to 10.85%. The reduction to the discount rate reflects a
longer track record of delivery and increased confidence in returns
from BESS projects, which is echoed by the confidence in the
Company's forecasts, and ability to deliver against them.
Confidence in delivering against forecasts is perhaps best
demonstrated by the willingness of well-established, blue-chip
institutions to provide debt finance for the growth of BESS, as
shown by the debt facility agreed in the period. Following a
revision to the Company's Valuation Policy, a further 0.5% is added
to discount rates for construction assets revalued in the period,
to reflect additional risk mainly on timing of cash flows and full
commissioning of assets. It is worth noting that the impact of
revaluing three construction assets, totalling 150MW, in the period
was 4.72p.
A lower capex per MW on projects in construction (compared with
previously acquired operational projects) has presented
opportunities for larger positive revaluations upon acquisition
into the Fund. As the Company continues to acquire the outlined
pipeline and begins to revalue these in line with the revised
Valuation Policy, which allows for certain construction projects to
be revalued with an additional premium of 0.5%, we expect to see
further growth in valuations and NAV similar to those seen in HY2
2021. The removal of the extra 0.5% to discount rates on the
construction assets as they become operational will further have a
positive impact in future quarters as these assets are
commissioned.
While the Investment Manager develops its own views on the
market, revenue forecasts for the Company's projects are provided
by an independent consultant. These revenue forecasts are driven
from the independent consultant's view on the future volatility in
the market. These revenue forecasts can have a meaningful impact on
the valuations of the Company's investments and NAV. More
conservative assumptions have the impact of reducing the overall
valuation of investments due to reducing future cash generation
expectations of the investments. Further information on the
valuation process and sensitivities can be found in Note 18 on
pages 80 and 83.
Outlook
We remain very confident that opportunities in the UK and Irish
markets will remain healthy for many years as the deployment of
renewables continues apace and electricity demand starts to rise in
the UK, particularly driven by an increase in electric vehicle
uptake and the beginning of an electric heat pump rollout
(replacing natural gas-fired domestic and commercial boilers). We
intend to increase scale to take advantage of our leading position,
to drive down operational costs as well as the cost of capital
across the industry. As such, efforts will continue in sourcing
additional pipeline for later in 2023 and beyond.
As we look ahead to 2022, we anticipate Operational Dividend
Cover to increase progressively in line with projects commissioning
through the year and expect full Operational Dividend Cover for the
year. In addition, we anticipate achieving NAV growth towards the
upper end of the target range of 8% to 15% and continuing to be the
leading owner of operational BESS in the UK. We do not anticipate
the Russian invasion of Ukraine to detract from these aims for the
year, however we will continue to monitor and assess the potential
impact for our portfolio and work with our supply chains and
counterparties to reduce exposure to any potential future
sanctions.
Expected shareholder proposals to change the Investment Policy,
outlined in the Chair's Statement relating to development risk
(into shovel-ready projects), will lower acquisition costs (all
else being equal) and potentially help in facilitating a migration
to the premium segment of the London Stock Exchange in due course
(hopefully driving down the cash cost of equity), while improving
liquidity in the Company's shares. Similarly, while the UK
opportunity remains strong, our plans for international expansion,
subject to shareholder approval, are timely and could further
accelerate the Company's growth while creating diversification. We
continue to ensure that the team's size and experience
appropriately matches the opportunity ahead.
GRID 2021 Annual Report - Sustainability Report
The Investment Manager's sustainable investment approach
Battery energy storage systems (BESS) play an essential role
supporting the shift from a world powered by hydrocarbon resources
to a new energy world powered by intermittent renewables in what is
a rapidly changing energy landscape.
The Investment Manager is committed to increasing BESS capacity
to support the decarbonisation and electrification of the UK's
energy system. The Fund, in this way, contributes positively to
climate change mitigation and the UK's Net Zero Strategy, which
explicitly recognises and supports the need to improve and increase
the supply of storage to the National Grid to decarbonise the UK
power system by 2035 ([17]) .
The Investment Manager also recognises the importance of
environmental, social and governance (ESG) considerations and
incorporating them into the investment process to deliver
long-term, sustainable growth, and consistent positive outcomes
across local and national communities.
Positive contributions
The Investment Manager has identified two material positive
contributions of GRID:
Environment: Climate change and pollution
1. BESS plays a key role in the UK's pathway to net zero emissions
BESS plays a key role in decarbonising the UK's electricity grid
by enabling further deployment and production of renewable energy.
This will in turn reduce reliance on carbon intensive energy
generation, such as coal and gas, as renewables form a greater
proportion of the UK's energy mix due to the availability of
battery storage capacity, supporting reductions in carbon
emissions. Therefore, to support the UK's net zero ambitions and
renewable energy targets, battery storage capacity across the grid
must increase.
Social: Marketplace responsibility
2. BESS helps stabilise the energy network reducing consumer energy costs
BESS supports the production of renewable energy on a large
scale by balancing and stabilising the electricity grid. The
imbalances in supply and demand of electricity are currently
expensive for National Grid to manage. For example, National Grid
has to pay to generate more electricity from gas fired power
stations when renewable supply falls short and must also pay owners
of wind and solar farms to stop generating when supply is greater
than anticipated. Additional costs are then passed on to consumers,
increasing energy bills, and in some cases contributing to the
problem of fuel poverty.
The use of BESS in the electricity grid may help reduce consumer
energy costs over time in two ways, to:
1. Avoid National Grid having to 'turn on' expensive gas fired
power generators and instead requesting the energy stored in the
batteries to be released; and to
2. Prevent National Grid from paying renewable energy generators
from curtailing generation and instead requesting batteries store
the additional energy produced until it is needed.
The UK Government estimates that the cumulative value (from
2020-2050) from reduced costs driven by increased system
flexibility could be between GBP30-70bn ([18]) meaning BESS is an
important solution to help reduce National Grid's costs and
therefore consumer costs ([19]) .
Key 2021 statistics
425MW total battery energy storage operational capacity provided
to the UK National Grid ([20])
- An increase in operational capacity of 110MW from 2020
415MW of BESS capacity under construction
2(nd) year of GRID being awarded the LSE Green Economy Mark
BESS plays a key role in the UK's pathway to Net Zero
emissions
The introduction of BESS into the UK's electricity grid is
fundamental to the UK's ambition of achieving Net Zero carbon by
2050 and combating climate change.
Whilst the falling costs of renewable power generation have led
to rapid deployment over the past few years, the chart below shows
that we still rely heavily on carbon intensive gas-fired
generation:
Electricity generation mix in the UK
To achieve the UK's net zero ambitions, electricity and
renewables in particular, will need to become a much larger part of
the UK energy mix as more industries move towards electrification
(e.g. transportation and heating).
Considerations of renewable energy generation
Renewable electricity penetration rose from 9.6% in 2011 and is
expected to rise to c.53% in 2023 (Source: BEIS)
Generating energy from solar and wind relies on solar
irradiation and the wind blowing. This means renewable energy
generation is intermittent, varying continuously. This inflexible
generation is the opposite of what is required by National Grid who
need to balance electricity supply and demand all the time, and in
near real time, without exception.
Introducing BESS into the electricity grid can support the use
of renewable energy generation and help balance the intermittent
electricity supply from renewable sources. They can store energy at
times of oversupply and release it back to the grid when there is
increased demand, stabilising the network and enabling further
renewable deployment.
The tables below summarise the actions that National Grid take
to meet energy supply and demand with and without BESS.
Without BESS
Energy National Grid action Outcome
balance
Renewables Over supply Pay renewable energy Renewable energy that
produce too power plant owners could have replaced other
much energy to 'switch-off' carbon intensive energy
generation (known sources is lost and additional
as curtailment) costs passed to consumers
------------ ---------------------- --------------------------------
Renewables Shortfall 'Switch-on' gas Increased emissions as
produce too turbines to increase the electricity grid
little energy supply needs to use a carbon
intensive energy source.
Need to build backup
gas capacity with low
load factors
------------ ---------------------- --------------------------------
With BESS
Energy National Grid action Outcome
balance
Renewables Over supply Request BESS providers Renewable energy producers
produce too to store the excess do not need to 'switch
much energy energy available off' their wind or solar
in the electricity farms and the renewable
grid for use at energy can then be used
another time later, avoiding carbon
intensive energy generation
------------ ----------------------- -----------------------------
Renewables Shortfall Call on BESS providers No need to 'switch on'
produce too to discharge energy carbon intensive energy
little energy they have stored generation, therefore
directly avoiding emissions
------------ ----------------------- -----------------------------
The chart below outlines the electricity capacity flexibility
requirements (gigawatts) and the technologies needed to achieve
this in the government's "High flexibility, High demand" 2050
Scenario ([21]) . "Other Storage" refers to short-term storage and
includes existing battery projects and other new deployments
including new pumped hydro projects. "Flexible demand" refers to
mechanisms that reduce demand for energy such as smart charging of
electric vehicles and heat pumps with combined heat storage.
Finally, "Interconnection" refers to the use of electricity or gas
from suppliers outside of the UK to support flexibility
requirements.
Technology deployment for a flexible electricity system by
2050
As such, BESS has a central role to play in decarbonising the
UK's energy system and its achievement of its net zero strategy and
GRID is already contributing materially.
BESS helps stabilise the energy network reducing consumer energy
costs
BESS supports the production of renewable energy on a large
scale by stabilising and balancing the electricity grid. The
services provided by BESS systems include;
- Supporting National Grid's ability to balance the electricity
grid and meet electricity supply and demand.
- Helping to regulate supply and demand through "merchant"
activities whereby power is drawn and stored when there is a
surplus in the system with the purpose of discharging it into the
electricity grid when there is a shortage.
UK wind energy generation was curtailed on 275 days in 2020,
losing energy which could have powered over a million homes for a
whole year ([22]) . The 2021 figure was expected to be lower due to
the less windy conditions throughout the year. National Grid must
pay renewable energy generators to 'switch-off' their generation.
Without the increasing use of BESS, increasing deployment of wind
power will likely result in a higher bill for curtailment.
The use of BESS in the electricity grid therefore may help
reduce consumer energy costs, an important aspect to be considered
as part of a Just Transition.
The UK Government estimates that the cumulative value (from
2020-2050) from reduced costs driven by increased system
flexibility could be between GBP30-70bn ([23]) .
Sustainable investment process
The Investment Manager has developed and published an
overarching Sustainable Investing Policy along with a New Energy
Sustainable Investment Policy which is specific to the Fund's asset
division. These policies describe the Investment Manager's approach
to sustainable investment and highlight the Investment Manager's
commitments to investing sustainably while meeting its overall
investment objectives. The Investment Manager has also integrated
sustainability across all asset divisions, including that of the
Fund, which starts with the completion of its proprietary ESG
Decision Tools.
Sustainable Investment Framework and ESG Decision Tool
The Investment Manager's Sustainable Investment Framework (SIF)
consists of ten core themes and is used to structure analysis,
monitor, and report on a broad range of ESG risks which may
materially impact proposed transactions, as well as directing focus
towards more sustainable outcomes.
The ESG Decision Tool (the Tool), first applied by the
Investment Manager in 2020, supports the identification of
potential, material ESG risks that need to be managed and mitigated
and which helps shape the due diligence process prior to investment
into a new battery site. The Tool aims to provide a rational and
replicable assessment of key ESG risks prior to an investment
decision being made.
The Tool is based on the ten themes in the SIF and several
sub-factors are considered under each broader theme. It is used
across the various stages of the investment and management process:
pre-acquisition, preconstruction, construction, and operation.
The Investment Manager has identified six ESG factors across the
SIF that are most material to the Company's operations and
investments. These are carbon emissions and pollution, natural
capital, waste management, employment, health, safety and
well-being, supply chain management, and governance and ethics. The
specifics of each of these factors are addressed in more detail as
part of the sustainability objectives discussed in the tables
below.
Wider sustainability considerations
While BESS support the decarbonisation and stability of the
electricity grid, the Investment Manager recognises that the
production, transportation, use, and end of life treatment of
batteries have environmental and social implications.
The Investment Manager applies a robust sustainable investment
process to fully incorporate all ESG considerations, positive and
negative, into the investment process. The integration of ESG
factors ensures the Investment Manager both assesses risks and
opportunities to investments, and delivers long-term, sustainable
growth, and positive outcomes for key stakeholders.
The Investment Manager has also set sustainability objectives
for the Fund which aim to enhance the positive sustainability
contributions of BESS and to address ESG risks and minimise or
avoid negative externalities.
Sustainability Objectives
The tables below provide an update on progress made against the
sustainability objectives set for 2021 and ambitions for the period
2022-2025.
Sustainability-related objectives set at the time of the 2021
Annual Report were either met during the year or key milestones to
achieving them were passed.
Since 2020, the Investment Team have updated the objective
categories to be aligned with the Investment Manager's recently
published Corporate Sustainability Strategy (CSS) and priority
topics. The CSS was developed in 2021 to supports the Investment
Manager's 2025 strategic objective '"to become a recognised leader
in sustainable investment, including ESG". More information on the
CSS can be found in the Investment Manager's Sustainable Investment
Report 2021.
G: Commitment to sustainability (previously Strategic
Contribution)
2021 Objective Progress in 2021 Future Objective
Continue to increase capacity under Increased operational capacity by Continue to increase capacity under
management to increase GRID's 110MW, to 425MW as of 31 December management to increase GRID's
contribution to the decarbonisation 2021, through the acquisition contribution to the decarbonisation
of the UK electricity network. of five new BESS projects. of the UK's electricity network and a
Acquired and put into construction reliable, low-cost energy system.
eight new projects with a total
capacity of 375MW[24] .
-------------------------------------- --------------------------------------
S: Supply Chain Management (previously Supply Chain)
2021 Objective Progress Future Objective
Complete a review of key contractors The team engaged with consulting and Update the Supply Chain Policy to
and suppliers to assess their ESG audit firms specialising in supply fully reflect best practice in the
practices and alignment chains to establish market and the commitments
to their ESG policy commitments in how they could help GRID and the of the Investment Manager .
order to identify gaps in application Investment Manager with auditing and
and highlight key continuous monitoring
risks. of the supply chain for batteries.
The Investment Manager devised the
scope for supply chain audit and
regular monitoring.
The Investment Manager conducted a
competitive process to identify two
firms best positioned
to carry out this project, with the
final selection between the two
underway at the time of
writing.
The Fund switched from NMC to LFP
battery chemistry for all projects
entered into construction
from 2021, reducing potential human
rights related risks linked to the
sourcing of Cobalt.
-------------------------------------- --------------------------------------
Carry out, where possible and Have a comprehensive supply chain
appropriate, third-party, external monitoring and management process in
assessments of our battery place to assess ESG
supply chain to identify material risks in the supply chain and to
risks and mitigation actions that ensure the compliance of suppliers
could be incorporated with the Supply Chain
into our investment process. Policy.
Include sustainability criteria into
supplier contract renewal and
supplier selection decisions.
-------------------------------------- --------------------------------------
Increase active engagement with Increased levels of engagement with Have engaged with key suppliers to
suppliers to positively influence key battery suppliers in relation to enhance their sustainability
sustainability practices their environmental processes and reduce the Fund's
and policies. and social practices and standards. ESG risk exposure.
-------------------------------------- --------------------------------------
G: Marketplace Responsibility: Processes, Policies and Education
(previously GHESF Asset Review)
2021 Objective Progress Future Objectives
Assess current operating assets The S ustainable Investment Framework Assess all assets against our SIF
against our SIF and establish plans and ESG Decision Tool was applied to using the ESG Decision Tool and
to rectify any material the screening and establish plans to rectify
risks or create value for acquisition process of all new any material risks t o create and
shareholders. projects in 2021 (seven projects). protect value for shareholders.
Ensure the ESG Decision Tool remains
up to date to reflect any
enhancements to the sustainable
investment processes and
sustainability-related policies.
Finalise ESG KPIs to monitor and
measure sustainability performance of
the Fund and report
these regularly to stakeholders.
-------------------------------------- --------------------------------------
E: Climate Change and Pollution (previously GHESF Asset
Review)
2021 Objective Progress Future Objective
Review the carbon footprint of Carbon footprinting of GRID assets, Report annual carbon footprint to
current operations and set an action as of December 2021, is being carried stakeholders, across all three
plan to reduce emissions out at the time emissions scopes.
of writing of this report with the
support of an expert carbon Set targets and actions to reduce o
consultancy group. Results perational carbon emissions in line
will be reported in the 2022 Annual with science.
Report.
Engage suppliers and contractors to
Control and monitoring software w as reduce Scope 3 emissions.
installed and configured at certain
sites, reducing the Apply full TCFD guidance and report
need for human involvement and travel in line with recommendations.
to and from sites. This offers the
potential to reduce
carbon emissions associated with
travel and enables the identification
of opportunities to
improve energy efficiency on site.
-------------------------------------- --------------------------------------
G: Governance & Ethics: Engaged and active ownership
(previously Engagement)
2021 Objective Progress Future Objective
Continue engagement with key Continued engagement with National Continue engagement with key
counterparties such as National Grid, Grid to establish BESS as a key counterparties to increase BESS
Ofgem, the Department for contributor to the stability capacity and the contribution
Business, Energy and Industrial of t he UK's electricity system. of BESS to a low carbon economy .
Strategy and others, communicating
how the deployment of BESS Identify and work with key industry
is needed to achieve decarbonisation bodies to drive positive industry
goals. outcomes linked to sustainability
topics.
Track and report on engagement
activities and key outcomes.
-------------------------------------- --------------------------------------
Increase community engagement, where Increased levels of engagement with Increase community engagement, where
applicable, continuing to educate the local communities in relation to applicable, continuing to educate the
public on the role landscaping and biodiversity. public on the role
of BESS in the UK's decarbonisation of BESS in the UK's decarbonisation
ambitions. ambitions.
-------------------------------------- --------------------------------------
Solicit, where practical, feedback Continued dialogue with key investors Solicit, where practical, feedback
from key stakeholders who are in a and brokers in this area to from key stakeholders who are in a
position to contribute. understand their sustainability position to contribute.
requirements.
-------------------------------------- --------------------------------------
E: Natural Capital
2021 Objective Progress Future Objective
n/a Recruitment of an experienced Project Manager to Measure and report on key natural capital impacts
manage Safety, Health, and Environment for and dependencies.
each new project.
Enhance policies and processes to reduce, restore
The Project Manager sits on a Biodiversity and enhance biodiversity and other key ecosystem
Sub-Committee of the Investment Manager. The services at asset sites.
Sub-Committee
aims to enhance biodiversity-related processes
and outcomes for all New Energy assets,
including
those in the Fund.
Environmental Plans and ecological surveys for
all new projects completed or underway.
------------------------------------------------- --------------------------------------------------
E: Waste Management
2021 Objective Progress Future Objective
n/a n/a Work with contractors to incorporate full lifecycle analysis into BESS design to maximise
asset life, reduce the overall carbon footprint of constructing and operating projects,
and
consider end-of-life use to reduce negative environmental and social impacts of battery
production
and the battery components including raw materials.
Engage with contractors/suppliers on their end-of-life process development and
technology.
--------- ------------------------------------------------------------------------------------------
Further updates on sustainability initiatives in 2021
S: Supply Chain Management
Supply chain sustainability was one of the big themes in 2021,
both in terms of availability and pricing, but also in terms of ESG
considerations. The demand for batteries from the electric vehicle
and energy storage industries increased throughout the year, and
this coincided with the ongoing tightening of supply chains
affecting raw material pricing and transportation costs. The
increased leverage suppliers therefore gained at the expense of
purchasers, including GRID and its contractors, this did not divert
the Investment Manager from the focus of managing ESG risk in the
supply chain.
Supply Chain Policy Implementation
The Investment Manager published its first Supply Chain Policy
in 2020. The Supply Chain Policy covers material ESG topics and
places obligations on suppliers (including contractors) to ensure
their own compliance, as well as the compliance of their
subcontractors, with the Policy. It also requires suppliers to
monitor and report any non-compliance to the Investment
Manager.
The Supply Chain Policy was covered in detail in the 2020 Annual
Report. It has now been in place for a year and the Investment
Manager will be updating the Policy requirements with guidance from
the appointed supply chain audit consultant and in line with new
information from our own understanding of our key supply
chains.
GRID obtained the approval of its investors in November 2020 to
take a limited amount of construction risk. This provided it with
more flexibility to engage directly with equipment suppliers and
sub-contractors. Five of the projects sourced in 2021 were put into
construction after negotiating individual contracts with key
equipment suppliers and subcontractors. This meant that the Supply
Chain Policy was applied across to all five new contracts.
Supply Chain Risk Assessment
While BESS support the decarbonisation of the electricity grid
using battery-based storage systems, the Investment Manager
recognises that the production, transportation, use, and end of
life treatment of batteries may have environmental and social
implications.
The Investment Manager is aware of the need to carefully monitor
suppliers of Lithium-Ion batteries due to the long and complex
supply chains and manufacturing processes associated with their
production. The supply chains for the batteries have a global
footprint and include resources that are sourced from parts of the
world with heightened sustainability-related risks, particularly in
relation to labour practices, environmental impact, and business
conduct.
Therefore, one of the focus areas for the Investment Manager's
sustainability work over the next few years is on Stakeholder and
Supply Chain Engagement.
The Investment Manager is committed to demonstrating best
practice regarding sustainability in the deployment and operation
of BESS projects. A key step in this process was the commissioning
of an audit of the supply
chain for batteries in 2021 . This project will be continued in 2022.
E: Natural Capital
Natural capital relates to the natural assets which exist on
BESS sites such as geology, soil, water and living things. In the
period, where eight new projects were put into construction, the
Investment Manager stepped up its efforts in the management of
project environmental impact, and engagement with local communities
in this context to protect natural capital on BESS sites.
Biodiversity Sub-Committee
An experienced Project Manager was recruited to manage Safety,
Health, and Environment for each new project. The Project Manager
sits on the Investment Manager's internal Biodiversity
Sub-Committee for the New Energy division to enhance the Fund's
processes and biodiversity outcomes for all projects.
Biodiversity Sub-Committee Objectives
-- Educate the team and key stakeholders (contractors,
landowners, and investors) on the role that New Energy can play in
enhancing biodiversity
-- Develop a clear framework on how to implement biodiversity
considerations into the full investment lifecycle
-- Clearly define core expectations for biodiversity for all New
Energy projects, including expectations for suppliers (contractors
included)
-- Create a process to measure and assess baseline biodiversity,
monitor progress over time, and work to enhance biodiversity where
possible
Environmental plans
The process for the granting of new planning permissions in the
UK incorporates stringent screening for and assessment of the
environmental impact of projects. It imposes conditions, pre and
post construction phase, for eliminating and mitigating
environmental impact be that visual, pollution related (including
noise), or more general impact on local communities.
The Investment Manager has ambitions to go beyond these
requirements, and where feasible, do more to assist local
communities and bring biodiversity benefits.
Each of the new projects going into construction has an
Environmental Plan to ensure there are Risk Assessments and Method
Statements in place to reduce risk of negative environmental
impact.
Examples of actions taken to reduce risk of negative
environmental impact
- Spill kit available at each site. These are used if there is
spillage of fuel from equipment to build and commission the project
and allow contractors a quick means of limiting pollution
- Traffic Management Plan ensuring contractors and suppliers
know the shortest and most efficient routes to site, highways they
are not to use, and off-site holding areas to regulate large
deliveries
- Noise monitoring
Every project is subject to an ecological survey to ensure the
Investment Manager manages the existing flora and fauna,
appropriately deals with Sites of Special Scientific Interest,
existing water courses, and other habitat areas such as woodlands
with Tree Preservation Orders. Fenced-off battery storage plants
may sometimes provide safe refuge for birds, reptiles and small
mammals protecting them from larger predators.
The Investment Manager attends one on one, online and in person
consultations with residents, planning officers and local
politicians to ensure our projects are sympathetic to the local
communities wishes.
Examples of actions to protect or enhance biodiversity on
site
- Attenuation ponds designed into site plans
- Actions to enhance the local flora and fauna are investigated
- Upgraded planting schedules to include mature trees that
quickly hide the project from the local community
- Expansion of local beehives onto project sites
Implementation of nesting bird boxes and bat boxes
E: Waste Management
The recycling of Lithium-Ion batteries is another key
consideration battery purchasers and owners need to account for
from a sustainability perspective.
Despite the rapid growth in the electrical vehicle and
grid-connected battery markets, battery suppliers and waste
management/recycling companies are still developing large scale
alternatives for battery recycling at the end of its useful
life.
The oldest batteries in GRID's fleet were purchased in late 2016
but have been used in applications that cause little degradation.
Considering a useful life of at least eight years based on the way
batteries have been operated, there is still time for end-of-life
use options to emerge for GRID's assets.
The Investment Manager has, in the vast majority of cases,
deliberately passed on the recycling obligations to the EPC
contractors who have built the sites. The likely port of call for
EPC contractors will be the manufacturers themselves who will face
demand for recycling from several other purchasers.
The Investment Manager is of the opinion that multiple
alternatives will emerge for end-of-life use going forward as
recycling becomes profitable due to the high metal and mineral
content of the batteries. Specialist metal and electronics
recycling firms are likely to compete.
Prior to recycling, it is anticipated that there will be a
market giving batteries a "second life" as batteries used in BESS
systems are planned to be replaced once cumulative degradation
exceeds 40% of the initial capacity.
The Investment Manager is closely monitoring developments in the
recycling area so that it is up-to-date on which technologies and
processes have the best potential for limiting negative
sustainability-related externalities associated with the disposal
of batteries. It is also investigating options for the offloading
any commercial risk associated with these recycling
obligations.
The Investment Manager has set an objective to identify
end-of-life opportunities that reduce and minimise negative impacts
and support circular economies.
Climate Change
The Company's investment portfolio is front and centre of the
race to Net Zero: the roll-out of utility scale BESS is seen as
crucial to enable development of intermittent renewable energy
generation and displace fossil fuels from the UK energy grid. This
creates both risk and opportunity:
Issue Opportunity Risks
UK
Government * Continuing rollout of renewable generation at scale * Co-located batteries on sites reduce the need for
policy to which require battery energy storage to balance the "centralised" battery storage.
achieve system.
Net Zero and
European * Utilisation of ageing fossil plant as an alternative
government form of system balancing: whilst not viable in the
policies to long term such plant can operate at incremental cost
decarbonise. as investment costs are sunk.
------------------------------------------------------------ ------------------------------------------------------------
* European governments remain committed to decarbonise * Risks from flooding or increasing AC requirements.
and reduce reliance on imported gas: this creates
additional opportunities for battery energy storage.
* The production of hydrogen (both green and blue) by
use of renewable generation is likely to be a
long-term solution: however, the time-scales and
investment required to achieve this are very long.
------------------------------------------------------------ ------------------------------------------------------------
Electric
vehicle * This may create opportunities for the Company to * Decentralised batteries being used, particularly
rollout become an "aggregator" of batteries and trade them in overnight, may reduce income earning opportunities
future. for utility scale centralised battery energy storage.
------------------------------------------------------------ ------------------------------------------------------------
Task Force on Climate-related Financial Disclosure (TCFD)
The recommendations of the Task Force on Climate-Related
Financial Disclosures are supported by the Company. This will
establish a framework for consistent, comparable, and clear
reporting on a company's approach to climate change and assessing
its potential impact on the Company.
The Company is working towards a full disclosure in relation to
these areas in 2023 onwards: a preliminary assessment against all
eleven of the TCFD recommendations is undertaken below on a
voluntary basis:
Governance
Recommendation Disclosure
-------------------------------------------------------------------------------------
1. Describe the Board's The Board has overall responsibility for the Company's
oversight of climate-related sustainability risks and opportunities, including
risks and opportunities. climate change. The Gresham House Sustainability
Policy is on the website:
https://greshamhouse.com/wp-content/uploads/2020/09/Sustainable-Investment-Policy-fi
nal-update-190920.pdf
The Board and Investment Manager meet on a quarterly
basis and as part of this meeting cycle, review
the risks facing the Company. In future this will
include risks and opportunities related to climate
change. The Company's investment strategy is embedded
within the race to Net Zero. The impact of the physical
consequences of climate change features in these
meetings and in the Company's Risk Management Framework.
The Board's management Engagement Committee reviews
the Investment Manager's performance annually, including
their adherence to the Company's Sustainability
Policy. The Board's Audit Committee considers the
Company's climate-related disclosures.
-------------------------------------------------------------------------------------
2. Describe management's The Gresham House Sustainability Policy, including
role in assessing and climate change considerations, applies when making
managing climate-related new investments and running of the Company's existing
risks and opportunities. investments by its Investment Manager.
The Investment Manager monitors climate-related
government policy, to inform the application of
the Company's strategy and assessment of the risks
faced by the Company. The Investment Manager also
ensures that climate change related risks are considered
for individual investment projects.
-------------------------------------------------------------------------------------
Strategy
Recommendation Disclosure
-------------------------------------------------------------------------------------
3. Describe the The Company's investments are specifically designed
climate-related to take advantage of the investment opportunities
risks and opportunities arising from the decarbonisation of energy usage:
the organisation has the pace of decarbonisation is driving the size
identified over the of the investment opportunities for the Company.
short, medium, and
long term. The Climate Change risks section on page 26 details
these risks further.
-------------------------------------------------------------------------------------
4. Describe the impact The Climate Change risks section on page 26 details
of climate-related these risks further. The Investment Manager ensures
risks and opportunities that all investments are reviewed under the Gresham
on the organisation's House Sustainable Investment Policy: this will also
businesses, strategy, include local planning for the impact of climate
and financial planning. change on flood risks and cooling requirements for
the battery storage assets.
-------------------------------------------------------------------------------------
5. Describe the resilience The Board and Investment Manager have identified
of the organisation's three major risks in this area:
strategy, taking into
consideration different * Confidence of renewable generation to be built based
future climate scenarios, on power price forecasts: power price forecasts for a
including a 2degC or 2degC or lower scenario are variable: energy demand
lower scenario. is expected to increase as transport and heating move
away from fossil fuels but, as gas prices have less
impact on setting the prevailing market price, power
prices might reduce, although higher carbon pricing
is expected to offset this - in this scenario it is
expected that renewable generation remains an
attractive investment and therefore demand for
battery energy storage remains robust.
* Alternative technologies replace battery energy
storage: over time a move to a hydrogen-based energy
system is likely to be required to achieve Net Zero:
most likely this will utilise renewable energy
generation to create "green" hydrogen. This
transition requires a complete refresh of the UK's
national gas grid and huge investment which will take
time. In this scenario, battery energy storage
systems are still required to secure electricity
supplies for the production of hydrogen.
* Increased infrastructure costs: the increase in
temperature will require additional cooling capital
expenditure and operating costs: this is not
anticipated to be material.
-------------------------------------------------------------------------------------
6. Describe the organisation's The Company's business model is specifically designed
processes for identifying to take advantage of the investment opportunities
and assessing climate-related arising from the decarbonisation of the energy system.
risk. However, climate change risks remain and are assessed
as part of the Sustainable Investment Framework
review process and ongoing asset management activities.
-------------------------------------------------------------------------------------
7. Describe the organisation's The Company's risk register includes climate-related
processes for managing risks. They are identified at several stages:
climate-related risks.
* During the acquisition process such risks are managed
via the business plan and appropriate costs for
mitigation measures.
* Risks identified as part of the running of the
Company's investments are managed through mitigating
action proposed by the Investment Manager. Management
activities are discussed by the Management Engagement
Committee.
-------------------------------------------------------------------------------------
8. Describe how processes Climate-related risks are integrated into the Company's
for identifying, risk management framework through the investment
assessing, process and reported quarterly to the Board. The
and managing Board considers the risks recognised and the proposed
climate-related mitigations.
risks are integrated
into the organisation's
overall risk management.
-------------------------------------------------------------------------------------
Metrics
Recommendation Disclosure
-------------------------------------------------------------------------------------
9. Disclose the metrics The Company's investments mitigate against climate
used by the organisation related risks by allowing for the balancing of the
to assess climate-related UK electricity grid and the reduction of renewable
risks and opportunities. energy being "spilled" from the system, and potentially
benefiting the energy curb of the end users.
The Company estimates the CO(2) reducing impact
of this by calculating the net energy exported and
assuming that this energy removes an equivalent
amount of gas generation from the system.
In addition, the Company also monitors the energy
efficiency of the battery cells and their degradation/impact
on useful life based on the services being operated
by the batteries.
-------------------------------------------------------------------------------------
10. Disclose Scope Scope 1 and Scope 2 emissions are disclosed on page
1, Scope 2, and if 43.
appropriate, Scope
3 greenhouse gas emissions,
and the related risks.
-------------------------------------------------------------------------------------
11. Describe the targets The Company monitors its investments via a monthly
used by the organisation dashboard which shows the level of utilisation of
to manage climate related each energy storage asset and the income achieved
risks and opportunities from each of the main services offered. The level
and performance against of utilisation and the optimisation of the battery
targets. assets (i.e. moving to a 2-hour battery model) will
improve the level of CO(2) abated.
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STRATEGIC REPORT
The Directors present their Strategic Report for the period
ended 31 December 2021. Details of the Directors who held office
during the period and as at the date of this report are given on
page 39 of the Annual Report and Financial Statements. This
Strategic Report has been prepared in accordance with the
requirements of Section 414 of the Companies Act 2006 and best
practice. Its purpose is to inform the members of the Company and
help them to assess how the Directors have performed their duty to
promote the success of the Company, in accordance with Section 172
of the Companies Act 2006.
The Board has 25% female representation. The Board has also
adopted a formal diversity policy and considers diversity on the
Company's Board as an important supplement to the Board's existing
skills, experience, and knowledge.
Business review and future outlook
A detailed discussion of individual asset performance and a
review of the business in the period together with future outlook
are covered in the Investment Manager's Report on pages 7 to
16.
The Directors are of the view that the investment strategy,
incorporating both additional acquisitions and the existing
portfolio is performing well. The Company has a strong portfolio of
investments which are well positioned to take advantage of a
growing opportunity. The equity fundraising at the end of 2021
demonstrates strong investor support for the Company's growth
strategy and the resilience of the Company's income. One of the
Board's key objectives for 2022 is to ensure an effective and
efficient deployment of the capital raised at the end of 2021,
augmented by a drawdown of the debt facility, into a portfolio of
accretive assets that are in line with the Company's Investment
Policy. The Board is also reviewing the current Investment Policy
and is expected to recommend, to shareholders, proposals for
amending the policy as described in more detail in the Chair's
Statement .
Key Performance Indicators
The Board believes that the key performance indicators detailed
in the Highlights section on page 2 and the Investment Manager's
Report, which include profit, project revenues, dividend, NAV,
total return, project capacities and battery sizes, provide
shareholders with balanced information to assess how the Company is
performing against its investment objectives. The Board monitors
these key metrics on an ongoing basis and is pleased by performance
in the year: the capacity of the batteries has increased; the
pipeline of new batteries is substantial; and the revenue earning
opportunities for these batteries are continually developing in
line with expectations. Further discussion of the KPIs and results
are included in the Chair's Statement on page 3 and in the
Investment Manager's Report.
The Company has generated GBP80.4mn of profit in the year ended
31 December 2021, including interest receivable from subsidiaries.
Total dividends in respect of 2021 were GBP27.5mn (including the
dividend paid on 25 March 2022). The Board maintains a focus on
operating profit and Operational Dividend Cover to ensure
underlying profits from the Company's investments are available to
cover dividends. As the capital raised is fully deployed and
underlying assets upgraded, the Board will continue to ensure this
is monitored closely.
Grid connection capacity (in MW) and the capacity of the
batteries (in MWh) are also crucial to ensure the underlying
investments are able to operate at full capacity: the Investment
Manager has ensured grid capacities (both import and export) are
optimised and symmetrical wherever possible. Finally, as the
Company has undertaken several fundraisings following IPO, the
Board monitors the project pipeline to ensure quality projects are
available to meet investor demand to ensure funds raised are
deployed in a reasonable timeframe.
Investment Policy: diversification of assets and revenues
The Company invests in BESS projects using Lithium-Ion batteries
as such technology is considered by the Company to offer the best
risk/return profile. However, the Company is agnostic as to which
specific battery energy storage technology is used by the projects
over the longer term and will monitor projects and may invest in
projects with alternative battery technologies and will consider
such investments (including combinations thereof), where they meet
the Company's investment objective and policy.
The Company intends to invest with a view to holding assets
until the end of their useful life. BESS projects may also be
disposed of, or otherwise realised, where the Investment Manager
determines in its discretion that such realisation is in the
interests of the Company. Such circumstances may include (without
limitation) disposals for the purposes of realising or preserving
value, portfolio management or of realising cash resources for
reinvestment or otherwise.
The Company intends that the BESS projects in which it invests
will primarily generate revenue from in-front-of meter services but
may also provide behind-the-meter (BTM) services.
BESS projects will be selected with a view to achieving
appropriate diversification in respect of the portfolio.
First, diversification will be sought by geographical location
of the BESS projects in which the Company invests across Great
Britain, the Republic of Ireland and Northern Ireland, provided
that no more than 10% of Gross Asset Value (calculated at the time
of investment) may be invested in the Republic of Ireland and
Northern Ireland.
Second, it is the Company's intention that at the point at which
any new investment is made, no single project (or interest in any
project) will have an acquisition price (or, if an additional
interest in an existing investment is being acquired, the combined
value of the Company's existing investment and the additional
interest acquired shall not be) greater than 20% of Gross Asset
Value (calculated at the time of investment).
However, in order to retain flexibility, the Company will be
permitted to invest in a single project (or interest in a project)
that has an acquisition price of up to a maximum of 30% of Gross
Asset Value (calculated at the time of acquisition). The Company
targets a diversified exposure with the aim of holding interests in
not less than five separate projects at any one time.
Third, the Company intends to achieve diversification by
securing multiple and varied revenue sources throughout the
portfolio by investing in BESS projects which benefit from a number
of different income streams with different contract lengths and
return profiles through individual BESS projects, as well as by
enabling the BESS projects in which the Company invests to take
advantage of a number of different revenue sources. It is intended
that the main revenue sources will be:
In Great Britain:
-- Firm Frequency Response (FFR) - the Company invests in BESS
projects that generate firm FR revenues including from FFR
contracts through which the Company and/or its subsidiaries will
provide, on a firm basis, dynamic or non-dynamic response services
to changes in frequency, to help balance the grid and avoid power
outages. Third parties provide electricity trading services to
project companies on a commercial basis for an arm's-length
fee.
-- Asset optimisation - the Company invests in BESS projects
that generate revenues from importing and exporting or generating
and exporting in the case of BESS projects including generators,
power in the wholesale market and the National Grid-administered
BM.
-- Capacity Market (CM) - the Company invests in BESS projects
that generate revenues by access to the benefit of contracts, or
through entering into new contracts, to provide back-up capacity
power to the Electricity Market Reform delivery body via 1-year and
15-year CM contracts.
-- TRIADS and other National Grid related income - the Company
invests in BESS projects that generate revenues from the three
half-hour periods of highest system demand on Great Britain's
electricity transmission system between November and February each
year, separated by at least ten clear days and other National Grid
related income including Generator Distribution Use of System,
through which benefits are paid by DNOs to suppliers, which are
passed through to electricity generators in their power purchase
agreements and the National Grid's Balancing Use of System (BSUoS),
which recovers costs through charges levied on electricity
generators and suppliers. In addition, the balancing system
produces small half-hourly residual cash flows that are generally
negative (a disbenefit to distributed generators) but can be
positive (a benefit) and are allocated to suppliers in the same way
as BSUoS charges.
In the Republic of Ireland and Northern Ireland, the key source
of revenue for storage is through DS3 System Services contracts,
both volume uncapped, and volume capped. If successful in a
procurement exercise for a volume uncapped contract, a service
provider is paid a regulated tariff approved by the relevant
regulatory authorities. Some fast-responding battery energy storage
projects were awarded volume capped contracts (with a fixed term of
six years) in the 2019 auction. Revenue may also be possible
through the Capacity Payment Mechanism (which involves an auction
for capacity revenues) or wholesale trading revenues.
BESS projects in which the Company invests may diversify their
revenue sources further by collaborating with renewable generators
or large users of power in close proximity to a BESS project or
providing availability-based services to restore electric power
stations or parts of electric grids to operation.
In such circumstances, the proportion of revenues coming from
electricity sales may materially increase from that indicated
above. BESS projects in which the Company may invest in Great
Britain may also be able to enter into FFR contracts with
Distribution System Operators (DSO) and provide reactive power
services to National Grid, the timing of which is according to the
current evolving DSO model.
Fourth, the Company aims to achieve diversification within the
portfolio through the use of a range of third-party providers, in
so far as appropriate, in respect of each battery energy storage
project such as developers, EPC contractors, battery manufacturers
and landlords.
Finally, each BESS project internally mitigates operational risk
because each project will contain a battery system with a number of
battery modules in each stack, each of which is independent and can
be replaced separately, thereby reducing the impact on the project,
as a whole, of the failure of one or more battery modules. This
includes appropriate systems to suppress fire risk and other
operational risks.
Other investment restrictions
The Company will generally acquire BESS projects within SPVs,
where construction is substantially complete and where BESS
projects are capable of commercial operations (Operational
Projects). Operational Projects will need to have in place a
completed lease on satisfactory terms in relation to the land where
that BESS project is situated, an executed grid connection
agreement and completion of relevant commissioning tests (in Great
Britain, a G99 Certificate confirming commissioning completion).
Once an Operational Project is acquired, the Company may invest in
upgrades by providing loan or equity financing to the SPV. The SPV
may enter into new lease arrangements to increase the size of the
site, new planning permissions enabling construction of an
increased capacity BESS project on that land, a new and/or amended
grid connection agreement which provides for increased capacity,
and/or an EPC contract or EPCm contract suite to undertake
construction of the relevant upgrades.
The Company may also acquire BESS projects or rights to acquire
BESS projects which are ready to build that as a minimum have in
place a completed lease, lease option, or agreement for lease, on
satisfactory terms in relation to the land where that BESS project
is situated, full planning permission enabling the construction of
a suitable BESS project on that land, a grid connection offer, and
an agreed form EPC contract or EPCm contract suite (Ready to Build
Projects). The Company may acquire such Ready to Build Projects for
a nominal upfront consideration provided that (i) any remaining
consideration is paid by the Company only where construction is
substantially complete and where such BESS projects are capable of
commercial operations and (ii) the Company has an option to
transfer back the Ready to Build Project to the seller in certain
circumstances.
The Company may provide loan finance to BESS project companies
so that the BESS project companies can acquire equipment prior to
construction, provided that no more than 15% of Gross Asset Value
(calculated at the time that finance is provided based on the
latest available valuations) may be exposed in aggregate to any
such loans. The Company may also provide loan finance to Ready to
Build Projects for payments under the EPC contract or EPCm contract
suite which cannot be classed as being for equipment, provided that
no more than 10% of Gross Asset Value (calculated at the time that
finance is provided based on the latest available valuations) may
be exposed in aggregate to any such loans.
The Company does not intend to invest in listed closed-ended
investment funds or in any other investment fund (other than,
potentially, in money market funds as cash equivalents) and in any
event shall not invest any more than 15% of its total assets in
listed closed-ended investment funds or in any other investment
fund.
Investment in developers
The Company may invest in one or more developers of BESS
projects through equity issued by the relevant developer, provided
that investment in developers (calculated at the time of
investment) shall be capped at GBP1mn in aggregate.
Cash management
Uninvested cash or surplus capital may be invested on a
temporary basis in:
-- cash or cash equivalents, money market instruments, money
market funds, bonds, commercial paper or other debt obligations
with banks or other counterparties having a "single A" or higher
credit rating as determined by any internationally recognised
rating agency selected by the Board which, may or may not be
registered in the EU; and
-- any UK "government and public securities" as defined for the
purposes of the Financial Conduct Authority (FCA) rules.
Leverage and derivatives
The Company (via MidCo) has raised a debt facility in September
2021 comprising a GBP150mn capex term facility and a GBP30mn
revolving credit facility. There is also an uncommitted accordion
of GBP200mn which brings total available debt to GBP380mn. The
interest rate is 300bps over SONIA (before hedging). This debt is
expected to start to be drawn down in Q2 2022.
The Directors will restrict borrowing to an amount not exceeding
50% of the Company's NAV at the time of drawdown. There will be no
cross collateralisation between the BESS projects.
Derivatives may be used for currency, interest rate or hedging
purposes as set out below and for efficient portfolio management.
However, the Directors do not anticipate that extensive use of
derivatives will be necessary.
Efficient portfolio management
Efficient portfolio management techniques may be employed by the
Company, and this may include (as relevant) currency hedging,
interest rate hedging and power price hedging.
Bribery and Corruption Policy
The Investment Manager has an Anti-Bribery and Corruption Policy
and the Company is working on its own Anti-Bribery and Corruption
Policy.
Dividend policy
The Board expects that dividends will constitute the principal
element of the return to the holders of Ordinary Shares. On the
basis of current market conditions, the Company will target
dividend payments of 7.0p per Ordinary Share in the financial year
ending 31 December 2022 and in financial periods thereafter ([25])
.
It is intended that dividends on the shares will be payable
quarterly for the quarters ending in March, June, September, and
December, all in the form of interim dividends (the Company does
not intend to pay any final dividends). The Board reserves the
right to retain, within a revenue reserve, a proportion of the
Company's net income in any financial year, such reserve then being
available at the Board's absolute discretion for subsequent
distribution to shareholders, subject to the requirements of the
Investment Trust Regulations
The dividend policy will be subject to an annual vote at each
Annual General Meeting (AGM). The Company may, at the discretion of
the Board, and to the extent possible, pay all or part of any
future dividend out of capital.
Share buybacks
The Company may purchase Ordinary Shares in the market at prices
which represent a discount to the prevailing NAV per Ordinary Share
of that class so as to enhance the NAV per Ordinary Share for the
remaining holders of Ordinary Shares of the same class. The Company
is authorised to make market purchases of up to 35,117,170 Ordinary
Shares. The Board intends to seek shareholder approval to renew its
authority to make market purchases of its own issued Ordinary
Shares once its existing authority has expired or at subsequent
AGMs.
Purchases of shares will be made within guidelines established
from time to time by the Board and only in accordance with the
Statutes and the Disclosure Guidance and Transparency Rules. Any
purchase of shares may be satisfied by the available cash or cash
equivalent resources of the Company, from borrowings, the
realisation of the Company's assets or any combination of these
sources of liquidity, at the Directors' discretion.
Ordinary Shares bought back by the Company may be held in
treasury or cancelled. Such shares may (subject to there being in
force a resolution of shareholders to disapply the rights of
pre-emption that would otherwise apply) be resold by the Company. C
Shares bought back by the Company will be cancelled.
At the date of this Annual Report, the Company does not hold any
shares in treasury and has no intention to buy back shares at the
present time.
Continuation Votes
Shareholders will have the opportunity to vote on an ordinary
resolution on the continuation of the Company at the AGM of the
Company to be held in 2023, and every fifth AGM thereafter. If any
such ordinary resolution is not passed, the Directors shall draw up
proposals for the voluntary liquidation, unitisation,
reorganisation, or reconstruction of the Company for consideration
by the shareholders at a general meeting to be convened by the
Directors for a date not more than six months after the date of the
meeting at which such ordinary resolution was not passed.
Going concern and viability
The Strategic Report describes the Company's business
activities, together with factors likely to affect its future
performance and development and an assessment of the principal
risks and uncertainties facing the Company.
The key risks facing the Company include, but are not limited
to, the risks mentioned on pages 33 to 36. The Board notes that it
is difficult to foresee the viability of any business over the long
term given the inherent uncertainty involved and that the risks
associated with investments within the infrastructure sector could
result in a material adverse effect on the Company's
performance.
Going concern
As at 31 December 2021, the Company had net current assets and
net cash balances of GBP122mn (excluding cash balances within
investee companies) and no debt. The Company is a guarantor to the
GBP180mn debt facility (GBP150mn capex facility and GBP30mn
revolving credit facility) entered into by the MidCo in September
2021 which was undrawn at the year end. It is anticipated that the
capex facility will be utilised during 2022 to purchase equipment
for pipeline projects as previously announced.
In January 2022, the Company provided letters of credit to a
supplier for an amount of GBP30mn in respect of the purchase of
batteries that are being used in projects under construction in the
Company portfolio and which are expected to commission during
2022.
As set-out in the Chair's Statement, the Company has also
decided to build certain projects to a 2-hour duration and to
upgrade all existing EFR projects to 2-hours. The cost of the
2-hour projects and upgrades is likely to require additional
funding and the Directors note that the existing debt facility
includes provision for an incremental facility of up to GBP200mn.
Alternatively, the Directors could take the decision to seek an
additional placement of shares, pause certain projects and/or
dispose of surplus batteries.
As described in the viability statement, financial models have
been prepared on a conservative base case and on a severe but
plausible downside case, which show that sufficient cash is
expected to be available to the Company to meet current obligations
and commitments as they fall due and that the debt covenants of
MidCo's debt facility are expected to be met.
The Directors confirm they have a reasonable expectation that
the Company has adequate resources to continue its operations for
at least 12 months from the date of signing these financial
statements. As such, the Directors have adopted the going concern
basis in preparing the Annual Report and Financial Statements.
Viability statement
The Directors have assessed the prospects of the Company for the
period to March 2025. Although the Company maintains cash flow
models which extend well beyond this period, there is less
certainty over the later cash flows as the profitability of the
underlying investment portfolio (and therefore available dividends
to the Fund) is driven by future pricing volatility in the
electricity market. We therefore limit the review to three and a
half years to reduce this uncertainty in forecasting and which also
reflects the current investment strategy and cash deployment. The
Company's MidCo includes a financing facility which expires in
September 2026, the viability statement assumes this is refinanced
by March 2025.
An uncertainty in the Company's viability is the continuation
vote which will be held in 2023 in line with the Company's Articles
of Association. We believe the Company will continue on the basis
of the growth seen since IPO and the continued development to drive
valuation growth.
Financial models have been prepared for the viability period
which consider liquidity at the start of the period and key
financial assumptions at the Company level as well as at the
operational project level. These financial assumptions include
expected cash, generated and distributed by the portfolio
companies, available to be distributed to the Company, this
includes inflows and outflows in relation to the external debt and
interest payments expected within the MidCo, the availability of
new external debt facilities, committed expenditure for investments
and expected dividends as well as the ongoing administrative costs
of the Company. It is also assumed that there is no vote to
terminate the Company in 2023. The Directors have applied two
scenarios to their viability assessment:
1. A base case assessment to consider the Company's ability to
continue in operation under the current planned strategy to fund
and acquire the currently committed Exclusivity Pipeline; and
2. A severe but plausible downside case scenario which assumes a
reduction in underlying portfolio EBITDA of 25% to the base case.
The downside case also takes account of the availability of
mitigating actions available to the Directors, such as reducing
discretionary spend and pausing the roll-out of projects.
The principal risks are as set out on pages 33 to 36 and
management have considered the mitigation to those risks when
setting the downside case scenario, which, given the revenue
opportunities available to the portfolio companies, the critical
nature of the services provided by the portfolio companies to the
National Grid and the continued volatility of power prices, is
considered unlikely. The Directors have considered the impact of
the Russian invasion of Ukraine and believe that there is no
significant impact.
The financial models show that the debt covenants in relation to
the debt entered into by the MidCo are expected to be met
throughout the period and the viability assessment considers the
Company/MidCo is able to refinance any external debt when it
becomes due.
As set out in the going concern statement, the Company has
provided letters of credit and parental guarantees to suppliers in
respect of advance orders of batteries for which additional funding
is likely to be required. The Directors are confident the
additional funds will be available to the Company, either through
an incremental facility to the capex facility or an additional
placement of shares. Other alternative measures could include the
decision to pause the projects and/or dispose of surplus
batteries.
The Directors believe that the Company is well placed to manage
its business risks successfully over both the short and medium term
and accordingly, the Board has a reasonable expectation that the
Company will be able to continue in operation and to meet its
liabilities as they fall due for a period of at least three
years.
Based on the assessment of the Company's financial position,
after assessing the risks and significant assumptions together with
the existing high level of cash held by the Company and the
forecasts of the Company's future performance under the various
scenarios, the Board has a reasonable expectation that the Company
is well positioned to continue to operate and meet its liabilities
as they fall due over the period to March 2025.
Principal risk and uncertainties
Risk management approach
The Company continues to recognise that effective risk
management is critical to enable it to meet its strategic
objectives. The Company has a clear framework for identifying and
managing risk, at both an operational and strategic level. Its risk
identification and mitigation processes have been designed to
respond to the changing environment in which it operates. The
impact of emerging risks on the Company's business model are also
considered and used to make informed decisions, including as to the
delivery and evolution of the Company's strategy. The table below
captures those risks that would have the most significant adverse
impact on the Company (and the underlying investments), based on
their impact and/or likelihood. In addition, climate change risks
are considered separately on page 26.
Existing Risks
Risk area Gross impact Mitigation Net impact
Emerging business Adverse changes The Company's investments Battery energy storage
model and impact by National Grid enjoy several different is a versatile asset,
on revenue in relation to income streams ranging and it can perform
streams. services contracted from BM, Capacity Payments, a variety of roles
Residual risk: by them may reduce FFR, TRIADs, and DC as to manage risk.
high the size/scope contracted services to There is also the
(2020: high) of income earning National Grid; the Company's potential to "revenue
opportunities investments are able to stack" and gain multiple
to the Company's change which income streams revenue streams from
investments and are contracted and ascertain different services.
potential impact the most advantageous The income stream
on valuation. on any given time period: opportunities and
this is continuously monitored usage of battery
by the Investment Manager energy storage systems
and optimisation partners. is expected to evolve
Due to the progressive over time.
decommissioning of other
carbon intensive options
available to National
Grid for managing these
services, and the need
to support the security
of this critical national
infrastructure, BESS is
expected to form an integral
part of transforming the
electricity sector in
the UK.
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Environmental, BESS are manufactured, The supply for battery Some aspects of this
Social and installed, and manufacture relies on are still evolving
Governance: operated with high quality global partners over time, especially
production the intention who ensure their supply the end use/recycling
and recycling of driving the chain does not involve of BESS.
of batteries transformation the use of illegally or The ability of the
creates risk. to a low carbon unethically sourced "rare BESS market to drive
Residual risk: energy supply earth" materials or inadequate a low carbon electricity
medium in the UK. However, labour standards. This system needs to be
(2020: medium) the lifecycle could be mitigated by considered versus
ESG impact of undertaking reviews of the other, mainly
the batteries the supply chain. fossil fuelled, options
needs to be considered The recycling of the BESS when considering
and minimised. systems is subject to the overall ESG impact
constant development and of BESS. Work will
research; the importer continue to minimise
of these batteries (not this over time.
the Company or SPV companies)
is responsible for their
disposal, but the Company
will facilitate this to
ensure low environmental
impact.
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Valuation risk. The Company's The Company's investments The Company utilises
investments are are impaired if income a modelling methodology
Residual risk: valued using discounted streams are not as profitable which ensures income
medium cash flows and as expected or costs are streams are discounted
(2020: medium) assessment of higher than expected. using appropriate
future income discount rates dependent
streams: these Risk adjusted discount on the perceived
valuations may rates drive valuation risks.
be materially along with the external
incorrect or not pricing curves. The weighted average
held at fair value. discount rates are
reviewed regularly
and the Company believes
the valuations are
conservative.
A third-party valuer
reviews valuations
and confirms appropriateness.
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Operational The BESS investments The Company underwent The Investment Manager
and performance do not perform a programme of upgrades has substantial experience
risk in the in the manner to the seed assets to managing BESS assets
underlying expected (i.e. optimise these assets and works with leading
investments degradation in and has ensured that the asset optimisers
leading to performance) or new assets being invested to ensure assets
loss of value. are not optimised into are designed in a are designed and
Residual risk: in the best commercial flexible manner. The battery operated as expected.
low manner to capture duration for the new investments Health and safety
(2020: medium) revenue streams is also considered to performance is rigorously
leading to reduction ensure fullest flexibility tested and reviewed.
in valuations. for future operation.
Performance within Design and commissioning
the SPVs may not testing takes place in
meet planning each investment to ensure
or safety requirements all relevant planning
and result in and HSE conditions are
curtailment of met. Fire risk, in particular,
operations and is carefully assessed
loss of investment and sites are designed
value. and operated to ensure
The portfolio this risk is as low as
will rely on contracts practicable.
with suppliers Cyber security risk is
to maintain certain managed via secure systems
key equipment: used by optimisation partners.
these suppliers The portfolio has a number
may fail to provide of alternative suppliers
adequate support. and optimisers to manage
risk.
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Investment The Company invests The Company does not invest Limited exposure
in development in projects via in speculative project to the Company due
and construction loans before and development. Any investments to careful vetting
projects. after the projects in projects are carefully and management of
are owned by the assessed and vetted by project development
Residual risk: Company. There the Investment Manager: activities and commercial
low is a risk that they will have secured arrangements with
(2020: low) the project does certain minimum requirements the Investment Manager
not complete, and are expected to be to manage construction
and the Company ready to proceed to construction risk.
incurs financial in a relatively short The Company is usually
loss. timescale. investing in the
The Company invests Late delivery of plant advance purchase
in construction items may lead to delay. of equipment which
projects as part has inherent value
of its investment and can be used on
portfolio. There other projects if
is a risk of financial needed.
loss or delay The Company is proposing
of revenue generation. that these current
development and construction
loans are combined
into a limit to ensure
the pipeline of projects
can be balanced.
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Reliance on The Company relies The Company has long-term The Investment Manager
the Investment on the Investment contractual arrangements remains incentivised
Manager. Manager as a key in place with the Investment to continue to grow
Residual risk: supplier. Manager and the Investment the Company and drive
low Manager has confirmed value.
(2020: low) to the Company that the
growth of the Company
is a key focus area of
the Investment Manager.
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Financing risk. Equity or debt The Company does not enter Limited overall impact
financing is not into unfunded commitments: on deployment of
Residual risk: available and all committed pipeline pipeline.
low the Company is can be funded from existing
(2020: low) unable to fund equity finance or the When drawn the debt
its pipeline of existing debt facility. facility will include
assets. appropriate hedging
of interest rates
to manage this risk.
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COVID-19 pandemic. The pandemic can Energy was, and remains, Limited overall impact
impact adversely a key industry in the expected in the future:
Residual risk: both on delivery UK and the construction shipping costs remain
low of new battery of these assets continues. high but are a modest
(2020: medium) capacity projects Remote commissioning with portion of project
in construction overseas technical experts costs.
through labour, was utilised to ensure
travel restrictions project commissioning The Company is managing
or the inability could continue. access to key plant
to source key Shipping costs and capacity and materials by
materials/parts to deliver equipment for arranging long-term
from overseas new projects remain a supply frameworks
due to shipping concern, as many components with key suppliers.
problems or production are sourced overseas,
shortages. and the Investment Manager
works closely with key
providers to ensure key
components are ordered
in advance.
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Tax compliance. The Company is The Investment Manager None.
registered as undertakes the relevant
Residual risk: an Investment tests each quarter and
low Trust and must the Company's tax advisers
comply with certain review this regularly.
(2020: low) tests.
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Emerging Risks
Risk area Gross impact Mitigation Net impact
Emerging technology The Company invests The Company utilises proven Falling cost of batteries
replaces battery in battery storage technologies with associated may reduce future
energy storage projects: a new Tier 1 supplier warranties income streams if
assets. or disruptive and performance guarantees. new entrants have
Residual risk: technology might Whilst the cost of these significantly lower
low adversely impact batteries is expected marginal costs. However,
(2020: new on the Company's to continue to fall and the Company will also
risk) investments. incremental performance benefit from lower
improvements accrue in costs and the valuation
future, it is currently model assumes continuing
viewed as unlikely that cost reductions for
a completely new reliable replacement assets
and cost competitive technology over time.
will appear during the
lifetime of these batteries
and impact on the lifecycle
of these batteries.
The Company continues
to review available technologies.
---------------------- ----------------------------------- --------------------------
Potential equipment If China invades The Company has relationships The Company ensures
shortages if Taiwan or takes with other non-Chinese it is securing key
China is subject other hostile suppliers, but they are equipment orders in
to sanctions. measures which likely to source components advance.
cause sanctions, from China.
Residual risk: the supply chain
low of crucial equipment The Company ensures payments
(2020: new would be disrupted. are protected via Letters
risk) of Credit to ensure no
financial loss.
---------------------- ----------------------------------- --------------------------
STAKEHOLDER ENGAGEMENT AND STATEMENT UNDER SECTION 172
The Board recognises that the Company should be run for the
benefit of shareholders, but that the long term success of a
business is dependent on maintaining relationships with
stakeholders and considering the external impact of the Company's
activities.
The Company has identified the following key stakeholders:
-- The Company's shareholders and lenders
-- The Company's Investment Manager
-- The communities in which the Company's assets are located
-- The Company's business partners and key service providers
-- Investment trading partners
Engagement with shareholders and lenders
Who they are?
The Company will require further funding to continue the
requirements of the investment strategy and obtain the additional
pipeline investments. As such, existing and prospective equity
investors and existing lenders are vitally important
stakeholders.
Why is it important to engage with this group of
stakeholders?
Through our engagement activities, we strive to obtain investor
buy-in into our strategic objectives and how they are executed.
Since IPO the Company has issued a significant number of shares to
allow the Company to meet the investment strategy of the
Company.
How has the Company engaged with the equity investors and
lenders?
The Company engaged with the stakeholder group in the period
through the following:
-- Interim and full year accounts
-- Company's corporate brokers and Investment Manager are in
regular communication with shareholders and shareholder views are
reported to the Board on at least a quarterly basis
-- One-to-one meetings with the Investment Manager
-- Regular news and quarterly NAV updates
-- A webinar and Q&A session with the Chair and the Investment Manager
What came out of the engagement?
Through these engagement activities, the Company has
successfully carried out a fundraising for an increased pipeline of
investments during 2021, whilst also managing the shareholders'
expectation on the Company's growth. The Company will continue to
engage with shareholders in future as further expansion becomes
necessary.
In addition, the Company's wholly owned subsidiary secured a
GBP180mn debt facility in 2021. This will enable the Company to
manage the debt and equity mix to improve cost of capital and cash
flows for dividends.
Engagement with the Investment Manager
Who they are?
The Investment Manager implements and oversees the investment
strategy of the Company, including acquisition identification, and
manages the value enhancement in the underlying SPVs. The
Investment Manager is crucial for the Company to meet dividend
expectations.
Why is it important to engage with the Investment Manager?
Constructive engagement with the Investment Manager is important
in order to ensure that the expectations of the shareholders are
being met and that the Board is aware of challenges being faced by
the Investment Manager.
How does the Company engage with the Investment Manager?
The Company, supported by its Management Engagement Committee,
conducts both ongoing reviews and an annual review of the
Investment Manager's performance and the terms of engagement of the
Investment Manager. The Board and the Investment Manager maintain
an ongoing open dialogue on key issues facing the Company with a
view to ensuring that key decisions such as investment decisions,
trading partner performance in the SPVs and the Company's strategy
are aligned with achieving long-term shareholder value.
This open dialogue takes the form of a number of ad hoc Board
meetings, as discussed in the Corporate Governance Report, and more
informal contact, as appropriate to the subject matter.
What came out of the engagement?
The Company and Investment Manager have aligned interests to
ensure the future success of the Company. The Investment Manager
sees the growth of the Company as both a key element of its
strategy and a Company which fits well with the ESG strategy of the
Investment Manager.
Through this engagement the Company has been able to carry out
an additional equity raise during the year for an increased
pipeline of investments. With the support of the Investment
Manager, the Board has also reviewed the discount rate for its
operational assets and resolved to approve a 25bp discount rate
reduction.
The Board and the Investment Manager also discussed and
revisited governance arrangements going forward as the Company
grows in size.
Engagement with Communities
During construction of investment projects, the Company ensures
all relevant planning and construction conditions are met. In
addition, the Company remains committed to proactively engaging
with the communities within which the Company operates. The
Investment Manager is part of the Gresham House plc group and is
focused on a sustainability agenda.
Engagement with business partners and key service providers
Who they are?
The Company has various key service providers who provide
management services.
Why is it important to engage with the key service
providers?
The intention of the Company is to maintain long-term and
high-quality business partnerships to ensure stability while the
Company pursues its growth strategy.
How does the Company engage with the key service providers?
The Company, supported by its Management Engagement Committee,
reviews all key service providers to the Company and the terms of
their engagement. During the period, the Company conducted a review
of the terms of all service provider engagements along with their
fee levels to ensure appropriate levels of support to the Company
during the period. The Company seeks two-way engagement between the
Board and key service providers on service delivery expectations
and feedback on important issues experienced by service providers
during the period. The intention of the Company is to maintain
long-term and high-quality business partnerships to ensure
stability while the Company pursues its growth strategy.
What came out of the engagement?
The Company has ensured that the interests of key service
providers are aligned with the Company. The support of the
Company's key service providers was also fundamental in the
successful completion of the Company's equity placing and debt
raise.
Key strategic decisions during 2021
The Company continued its growth phase in the period ended 31
December 2021.
Key strategic decisions included:
-- Investment in future asset pipeline
-- Fund raising decisions to align the investment programme with
available funds (including securing a debt facility)
-- Continuing to upgrade the "bench strength" of the Investment
Manager's team to match the increasing scale of the portfolio
-- Payment and level of dividends to meet expectations
In relation to these key decisions, stakeholders, such as key
contractors, were involved to ensure asset pipeline was available
to the Company on the timescales required. As noted above,
shareholder discussions were held to ensure clear communication was
made in relation to progress and market interest for expansion of
the Company. Finally, the Company worked with the Investment
Manager to ensure the Company's dividend target of 7.0p per
Ordinary Share for 2021 was delivered.
This Strategic Report is approved on behalf of the Board by
John S Leggate CBE, FREng
Chair
5 April 2022
6. BOARD AND INVESTMENT TEAM
Board
The Company has a Board of four Independent Non-Executive
Directors. The Board has 25% female representation. The Board has
also adopted a formal diversity policy and considers diversity on
the Company's Board as an important supplement to the Boards
existing skills, experience and knowledge.
All appointments to the Board are, and will continue to be,
subject to a formal, rigorous and transparent procedure as required
by the AIC Code. The Board's requirements for vacancies on the
Board are set with reference to objective criteria and promote
diversity of gender, social and ethnic backgrounds, cognitive and
personal strengths.
Further, the Board reviews, at least annually, its effectiveness
and its combination of skills, experience and knowledge. The Board
will conduct an externally facilitated effectiveness evaluation
every three years, its first such evaluation took place during
2021.
The Board has been in situ since the Company's IPO in November
2018. While it is too early to be considering formal succession
planning for existing Directors, the Board will focus on this
matter further as part of its annual Board evaluation process from
2021 onwards.
John Leggate CBE, FREng (Chair and Independent Non-Executive
Director) - John is highly experienced as an energy sector
executive and is a venture investor in the "clean tech" and digital
technologies. John has significant Board experience and is
currently on the Board of cyber security rm Global Integrity in
Washington DC and is a senior advisor in the energy sector to a
"blue chip" international consultant. John was appointed to the
Board on 24 August 2018
Significant interests: John is a Director of Flamant
Technologies and Global Integrity, Inc.
Duncan Neale (Audit Committee Chair and Independent
Non-Executive Director) - Duncan is a CFO and Finance Director with
over 20 years of commercial experience working for both publicly
listed and privately-owned companies. Duncan is a Fellow of the
Institute of Chartered Accountants and quali ed with Price
Waterhouse in London. Duncan was appointed to the Board on 24
August 2018.
Significant interests: Duncan is a trustee of the Cambodian
Children's Fund UK and a Director of DJN Consultancy Limited.
Catherine Pitt (Chair of the Nominations Committee and
Independent Non-Executive Director) - Cathy is a legal adviser who
has specialised in the investment company and asset management
sectors for over 20 years, specialising in governance, regulation,
capital markets and mergers & acquisitions.
Significant interests: Cathy is a Consultant and former Partner
at CMS Cameron McKenna Nabarro Olswang LLP, a director of Baillie
Gifford UK Growth Trust plc and a member of the Advisory Council of
Sex Matters, a not-for-profit company limited by guarantee.
David Stevenson (Chair of the Remuneration Committee and
Independent Non-Executive Director) - David is a nancial journalist
and commentator for a number of leading publications including The
Financial Times (the Adventurous Investor), Citywire, and
MoneyWeek. He is also Executive Director of the world's leading
alternative nance news and events service www.alt .com, which
focuses on covering major trends in marketplace lending,
crowdfunding, and working capital provision for small to medium
sized enterprises as well as www.ETFstream.com . David was
appointed to the Board on 24 August 2018.
Significant interests: David is a Director of Aurora Investment
Trust plc; 321 Publishing and TV Limited; Altfi Limited; Altfi Data
Limited; Bramshaw Holdings Limited; ETF Stream Limited; Planet
Sports Rights Limited; Rocket Media LP; The Secured Income Fund
plc; Stockmarkets Digest Limited; and Windhorse Aerospace
Limited.
All directors were re-appointed at the Company's AGM in 2021. As
is the Company's policy, all of the Directors will all stand for
re-election at the Company's AGM every year.
Investment Team
Bozkurt Aydinoglu (Investment Director, New Energy) - Bozkurt
dedicated the early part of his career to funding and advising
companies in the telecommunications and technology industries,
whilst in roles at Nomura, Salomon Brothers, Bowman Capital and
Deloitte & Touche. In 2002, Bozkurt co-founded and built New
Energy Finance (NEF), which became the leading provider of data,
research and analysis to investors in the global cleantech
industry. NEF was acquired by Bloomberg in December 2009.
Stephen Beck (Finance Director, Real Assets) - Stephen has 24
years of industry experience and is a law graduate and Barrister
and was called to the Bar in 1996. He is also a Fellow of the
Institute of Charted Accountants of England and Wales and qualified
with PricewaterhouseCoopers. He leads an inhouse finance team
managing; New Energy, Renewables, Commercial Forestry and Housing
sectors. Prior to this, Stephen worked at E.ON from 2000, where he
held a variety of financial and commercial roles, ranging from
leading large finance teams, developing power station projects,
M&A transactions and working with HM Government delivering low
carbon solutions.
Ben Guest (Managing Director, New Energy) - Ben has over 20
years of investment experience, Ben's expertise spans the
investment spectrum, across infrastructure, public equities and
venture capital. Ben is responsible for the origination and
execution of investment opportunities at Gresham House, alongside
ongoing portfolio management. Ben currently serves as a Director of
over 40 companies and until recently was the Non-Executive Chairman
of Oxis Energy, a UK-advanced battery power company.
Gareth Owen (Investment Director, New Energy) - Gareth was a
Partner at Hazel Capital (now Gresham House New Energy) and has
over 18 years' experience executing structured transactions across
a variety of sectors. Before Hazel Capital, Gareth worked at
Barclays Natural Resource Investments, a captive private equity
fund investing in the natural resource and renewable energy
sectors. Prior to this, Gareth worked in the Structured Capital
Markets divisions of Barclays Capital and Deutsche Bank, handling
the acquisition and disposal of various asset-based companies.
Rupert Robinson (Managing Director, Gresham House Asset
Management Limited) - Rupert is the Managing Director of Gresham
House Asset Management Limited and has 30 years' experience in
asset management and wealth management, focused on product
innovation, investment management, business development, banking
and wealth structuring. Rupert was previously CEO and CIO of
Schroders (UK) Private Bank and head of private clients at
Rothschild Asset Management Limited.
7. DIRECTORS REPORT
The Directors present the Annual Report and Financial Statements
of the Company for the period ended 31 December 2021.
The Company has no employees. The Directors during the period,
including their appointment dates, are set out in the Nomination
Committee Report on page 58.
The Corporate Governance Report on pages 49 to 52 forms part of
this report.
Company performance
The Directors have reviewed the performance of the Company
throughout the period. Details of the performance of each
investment owned by the Company are included in the Investment
Manager's Report on pages 7 to 16 and the Chair's Statement on
pages 3 and 6.
Financial risk management
Details in relation to the Company's use of financial
instruments, financial risk management objectives and policies,
including policies for hedging each major type of forecasted
transaction for which hedge accounting is used; the Company's
exposure to price, credit, liquidity, or cash flow risk can be
found under Note 19 on pages 83 to 85.
Share capital
At the period end, the Company had in issue 437,842,078 Ordinary
Shares. There are no other share classes in issue and the Company
does not own any of its own shares.
All shares have voting rights; each Ordinary Share has one
vote.
Dividends
All Ordinary Shares are entitled to receive dividends and
interim dividends have been paid by the Company as shown in the
table below. No final dividend has been or will be declared, but
the Company's dividend policy of paying four interim dividends will
be tabled for approval at each AGM.
Period in relation Announcement Ex-dividend Payment Amount per Total amount
to which dividend date date date Ordinary
was paid Share
1 January to 31 28 April 2021 13 May 2021 4 June 2021 1.75p GBP6,099,736
March 2021
-------------- ------------- -------------- ----------- -------------
1 April to 30 June 1 July 2021 8 July 2021 30 July 2021 1.75p GBP6,099,736
2021
-------------- ------------- -------------- ----------- -------------
1 July to 30 September 15 November 25 November 17 December 1.75p GBP7,662,236
2021 2021 2021 2021
-------------- ------------- -------------- ----------- -------------
1 October to 31 14 February 3 March 2022 25 March 2022 1.75p GBP7,662,236
December 2021 2022
-------------- ------------- -------------- ----------- -------------
Dividends are not recognised in the financial statements of the
Company until paid, and therefore the dividend in respect of the
final period, from 1 October to 31 December 2021 is not recognised
in the period to 31 December 2021.
On 14 February 2022, the Company announced its interim dividend
for Q4 2021 of 1.75p per Ordinary Share successfully meeting its
dividend target for the 2021 financial year of 7.0p per Ordinary
Share (7.0p per Ordinary Share was paid in 2020). Further, the
Board confirmed its commitment to targeting a 7.0p per Ordinary
Share dividend for 2022.
Substantial interests
As at 31 December 2021, and the date of this report, the Company
had been notified of the following beneficial interests exceeding
3% of the issued share capital, being 437,842,078 Ordinary Shares
(see table on page 42).
Shareholder Number of Percentage Number of Ordinary Percentage
Ordinary of Issued Shares as at of Issued
Shares as Share Capital 31 March 2021 Share Capital
at 31 Dec as at 31 as at 31
2021 Dec 2021 March 2021
Sarasin & Partners 42,976,903 9.82% 34,784,954 9.98%
============= =============== =================== ===============
Schroder Investment Management 28,483,743 6.51% 18,292,152 5.25%
============= =============== =================== ===============
Gresham House plc 26,509,422 6.05% 25,502,737 7.32%
============= =============== =================== ===============
Gravis Capital Management 23,857,210 5.45% 21,062,210 6.04%
============= =============== =================== ===============
CCLA Investment Management 22,356,233 5.11% 22,088,195 6.34%
============= =============== =================== ===============
Close Asset Management Limited 20,815,264 4.75% 18,535,490 5.32%
============= =============== =================== ===============
Newton Investment Management 20,334,378 4.64% 22,809,955 6.54%
============= =============== =================== ===============
East Riding Pension Fund 18,080,757 4.13% 17,253,614 4.95%
============= =============== =================== ===============
Ben Guest 14,383,826 3.29% 14,383,826 4.13%
============= =============== =================== ===============
JM Finn & Co 13,714,525 3.13% 7,958,750 2.28%
============= =============== =================== ===============
The Directors' interests in the ordinary share capital of the
Company are disclosed in the Directors' Remuneration Report on
pages 45 to 47.
Annual General Meeting (AGM)
The Company's AGM was held on 21 June 2021. All resolutions
proposed to the Company's shareholders at this AGM were duly passed
on a poll vote.
The Company's next AGM is expected to be held in June 2022. The
Notice of the AGM and Form of Proxy will be circulated to all
shareholders in advance of this meeting.
Auditor
A resolution proposing the reappointment of BDO LLP will be
submitted at the AGM.
Directors' responsibilities
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
are required to prepare the financial statements and have elected
to prepare the Company financial statements in accordance with UK
adopted international accounting standards. Under company law the
Directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss for the Company
for that period.
In preparing these financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with UK
adopted international accounting standards, subject to any material
departures disclosed and explained in the financial statements;
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business; and
-- prepare a Director's Report, a Strategic Report and
Director's Remuneration Report which comply with the requirements
of the Companies Act 2006.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy, at any time,
the financial position of the Company and enable them to ensure
that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities. The Directors are
responsible for ensuring that the Annual Report and Financial
Statements, taken as a whole, are fair, balanced, and
understandable and provide the information necessary for
shareholders to assess the Company's performance, business model
and strategy.
Website publication
The Directors are responsible for ensuring the annual report and
the financial statements are made available on the Company's
website. Financial statements are published on the Company's
website in accordance with legislation in the UK governing the
preparation and dissemination of financial statements, which may
vary from legislation in other jurisdictions. The maintenance and
integrity of the Company's website is the responsibility of the
Directors. The Directors' responsibility also extends to the
ongoing integrity of the financial statements contained
therein.
Directors' responsibilities pursuant to DTR4
The Directors confirm to the best of their knowledge:
-- The financial statements have been prepared in accordance
with international accounting standards in conformity with the
requirements of the Companies Act 2006 and in accordance with UK
adopted International accounting standards and give a true and fair
view of the assets, liabilities, financial position and profit and
loss of the Company.
-- The annual report includes a fair review of the development
and performance of the business and the financial position of the
Company, together with a description of the principal risks and
uncertainties that they face.
Insurance cover
Directors' and Officers' liability insurance cover is held by
the Company in respect of the Directors.
Corporate governance
The Company's corporate governance statement and compliance with
the 2019 AIC Code of Corporate Governance which has been endorsed
by the Financial Reporting Council (www.frc.org.uk) is shown on
pages 49 to 52
Streamlined energy and carbon Reporting: Quantification and
reporting methodology
We have followed the 2013 UK Government environmental reporting
guidance: associated greenhouse gases have been calculated using
the 2021 conversion factors published by the Department for
Business, Energy & Industrial Strategy.
Boundaries
We have used the equity share approach.
The Company itself is not an emitter of greenhouse gas. However,
the underlying investments within the Company's portfolio companies
import and export electricity which are sourced from either the
grid or from gas or diesel generators at each site. These have been
included in our emissions disclosures. The energy used and produced
by the companies is fully metered and carefully monitored.
UK energy use covers the battery storage activities across all
the portfolio companies owned directly or indirectly by the Company
from the date of ownership. It does not cover energy use of assets
under construction where construction is being carried out by third
parties. All operations are in the UK.
Energy used:
2021 2020
Scope 1 emissions in metric tonnes C0(2) e
------- -------
Gas consumption 1,596 2,541
------- -------
Diesel consumption 64 73
------- -------
Total Scope 1 1,660 2,614
------- -------
Scope 2 emissions in metric tonnes CO(2) e
------- -------
Consumption of electricity (1) 2,891 2,412
------- -------
Total Scope 2 2,891 2,412
------- -------
UK energy consumption used to calculate emissions (MWh) (1)
------- -------
Gas 8,716 13,821
------- -------
Diesel 233 266
------- -------
Electricity (1) 12,509 9,525
------- -------
Total UK energy consumption 21,458 23,612
------- -------
Intensity ratio
CO(2) emissions per weighted average battery capacity (tonnes per MW) 11.1 24.2
------- -------
(1) The figures shown are the net import/(export) of electricity from the grid
Scope 3 emissions
We have identified the following as Scope 3 emissions which have
not been quantified:
- Carbon emissions from end-to-end manufacturing, transport, and
installation at battery energy storage systems
- Investment Manager emissions (i.e. office buildings)
Intensity measurement
The chosen intensity measurement ratio is gross emissions in
metric tonnes CO(2) e per weighted average MW capacity. This is
considered a more appropriate ratio than MWh due to variability in
operation of assets and different service types.
Measures taken to improve energy efficiency
The usage of diesel generators within the operational portfolio
has been significantly reduced. Diesel generators are in place to
meet CM contract requirements and TRIAD operations on three of the
sites but are also available for trading activities. The Company is
not currently making new investments in projects which require
diesel generators.
Going concern
The going concern statement is detailed on page 32 of this
Annual Report.
Future Developments
Future developments in the Company are detailed in the Chair's
Statement, pages 3 to 6.
Engagement with stakeholders
Further information on the Directors' engagement with the
Company's stakeholders can be found on pages 37 to 38.
Post Balance Sheet Events
Post Balance Sheet events are disclosed in Note 25 of the
Accounts on page 88.
Statement as to disclosure of information to the Auditor
The Directors in office at the date of the report have
confirmed, as far as they are aware, that there is no relevant
audit information of which the Auditor is unaware. Each of the
Directors has confirmed that they have taken all the steps that
they ought to have taken as Directors in order to make themselves
aware of any relevant audit information and to establish that it
has been communicated to the Auditor.
This Directors' Report is approved on behalf of the Board by
John Leggate CBE, FREng
Chair
5 April 2022
8. CORPORATE GOVERNANCE REPORT
The Board of Gresham House Energy Storage Fund plc has
considered the Principles and Provisions of the AIC Code of
Corporate Governance (AIC Code). The AIC Code addresses the
Principles and Provisions set out in the UK Corporate Governance
Code (the UK Code), as well as setting out additional Provisions on
issues that are of specific relevance to Gresham House Energy
Storage Fund plc.
The powers to issue the Company's shares and any amendments to
the Company's Articles of Association require approval by
shareholders.
The Board considers that reporting against the Principles and
Provisions of the AIC Code provides relevant information to
shareholders.
The Company has complied with the Principles and Provisions of
the AIC Code.
The AIC Code is available on the AIC website (www.theaic.co.uk).
It includes an explanation of how the AIC Code adapts the
Principles and Provisions set out in the UK Code to make them
relevant for investment companies.
Capital structure and voting rights
Information about the Company's capital structure and voting
rights are set out in Note 21 of the Financial Statements on pages
86 and 87.
Board Leadership and Purpose
The Board views its purpose as supporting the Investment
Manager, including providing constructive challenge, to achieve the
Company's intended acquisition of a portfolio of BESS projects to
take advantage of the significant market opportunity for
battery-based energy storage systems. The Board is also committed
to delivering the Company's targeted dividends and NAV total
return. Further discussion of the Company's strategy has been set
out within the Strategic Report on pages 29 to 38.
The Board seeks to establish a culture of openness and
engagement. The Board considers this culture aligned with the
strategic purpose of the Company through its growth phase. The
Board has met frequently with the Investment Manager throughout the
period in an effort to sustain continuous dialogue on key
issues.
During the year ended 31 December 2021, the Board supported the
Investment Manager with further deployment of the available funds
and in further fundraising by way of both debt and equity.
As set out in the section on Stakeholder Engagement and
Statement under Section 172, pages 37 to 38, the Board seeks to
understand the views of the Company's key stakeholders and to
consider these views in Board discussions and decision-making.
The Board assesses and monitors its own culture, including its
policies, practices, and behaviour to ensure it is aligned with the
Company's purpose, values, and strategy.
The Board remains committed to diversity and further detail on
the Company's Diversity Policy and approach to diversity is set out
in the Nomination Committee Report on pages 57 to 58.
Chair
The Chair, John Leggate, is responsible for the leadership of
the Board and ensuring its effectiveness.
Senior Independent Director
As announced on 3 December 2021, David Stevenson was appointed
as the Senior Independent Director of the Company with effect from
18 November 2021. The Senior Independent Director will be the
alternative contact for shareholders should they have any concerns
in relation to which the contact with the Chair, the Investment
Manager, or the Company Secretary may be inappropriate.
Division of Responsibilities
Matters reserved to the Board
Full Board meetings take place quarterly and the Board meets or
communicates more regularly to address specific issues. The Board
has a formal schedule of matters specifically reserved for its
decision which includes, but is not limited to, considering
proposals from the Investment Manager; making decisions concerning
the acquisition or disposal of investments; and reviewing,
annually, the terms of engagement of all third-party advisers
(including the Investment Manager) and the appointment and removal
of the Company Secretary.
The Board has also established procedures whereby Directors,
wishing to do so in the furtherance of their duties, may take
independent professional advice at the Company's expense.
All Directors have access to the advice and services of the
Company Secretary. The Company Secretary provides the Board with
full information on the Company's assets and liabilities and other
relevant information requested by the Chair, in advance of each
Board meeting.
There is a clear division of responsibilities between the Board
and the Investment Manager. Under the AIFM Agreement, the
Investment Manager acts as discretionary investment manager and
AIFM to the Company within the strategic guidelines set out in the
Investment Policy and subject to the overall supervision of the
Board. The asset management role encompasses the oversight of all
operational and financial management, the placing and managing of
all operational contracts, management of all health and safety
operational risks, advising the Board on the monthly and quarterly
asset/portfolio performance, management of power price/market
exposure, progress with the asset pipeline and reporting to the
Board.
The Company also has a business relationship with Gresham House
DevCo Limited, a related party of the Investment Manager,
which:
- sources, due diligences and acquires pipeline on a speculative
basis exclusively for the Company to ensure the Company's ability
to grow in a burgeoning market with few operational projects;
- manages these projects through construction;
- sells projects to the Company; and
- takes development risk on behalf of the Company, where the
Company's investment mandate prevents taking this risk.
The Management Engagement Committee, on an annual basis, reviews
the Investment Manager's performance during the year along with its
adherence to the terms of the AIFM Agreement. Further details are
contained in the Management Engagement Committee Report on pages 59
to 60.
The capital structure of the Company is disclosed in the
Financial Statements.
Board committees
The Board has four committees: the Audit Committee, Remuneration
Committee, Nomination Committee, and the Management Engagement
Committee (MEC). During the period under review, all the Directors
of the Company were Non - Executive Independent Directors and
served on all committees.
Board and committee meetings
The following table sets out the Directors' attendance at the
Board and committee meetings during the period:
Quarterly Audit MEC Nomination Committee Remuneration
Board Meetings Committee Committee
(4 held) (3 held) (1 held) (1 held) (1 held)
---------------- ----------- --------- --------------------- -------------
John Leggate 4 3 1 1 1
---------------- ----------- --------- --------------------- -------------
Duncan Neale 4 3 1 1 1
---------------- ----------- --------- --------------------- -------------
Catherine Pitt 4 3 1 1 1
---------------- ----------- --------- --------------------- -------------
David Stevenson 4 3 1 1 1
---------------- ----------- --------- --------------------- -------------
During the period the Board held a number of additional ad hoc
Board meetings outside of the regular quarterly Board meetings.
These Board meetings were mainly to discuss the progress of
investments proposed by the Company and completion of such
investments and further fundraising completed by the Company during
the period. Typically, there was attendance by the full Board at
these ad hoc meetings and attendance was in line with the
requirements of the AIC Code.
The primary focus at regular Board meetings is a review of
investment performance, asset allocation, marketing and investor
relations, peer group information and industry issues.
At the Company's quarterly Board meetings, the Board typically
considers the following business:
-- Update from the Investment Manager, including:
o Investment portfolio commentary
o Health & Safety commentary
o Trading data and investment performance, by month
o Analysis of the Company's financial model, including and
updates to key assumptions
o Risk management and risk mitigation
o Review of any recommendations made by the Investment
Manager
-- Update from the Company's Broker; including;
o Market commentary
o Share price performance against the Company's peers
o Sales and trading commentary
-- Report from the Company's Depositary
-- Report from the Administrator and Company Secretary, including;
o Compliance monitoring
o Regulatory and governance updates
The Board has been focused on developing ongoing and positive
communication with the Investment Manager and regular meetings are
one way the Board seeks to encourage open and constructive
engagement on key issues.
Relations with shareholders
Shareholders have the opportunity to meet the Board at the AGM.
The Board is also happy to respond to any written queries made by
shareholders during the course of the period, or to meet with major
shareholders if so requested. The Company's second AGM in 2021 was
unable to be held with shareholders in attendance due to the
restrictions imposed by the Company in response to COVID-19. The
Company will, however, seek to secure appropriate shareholder
engagement as part of its AGM in 2022.
The Board ensured that the Company regularly kept shareholders
informed of investment activities and quarterly financial
performance through appropriate public announcements and the
publication of quarterly factsheets by the Investment Manager that
are available on the Company's website. There were no specific
actions arising from the Company's interactions with shareholders
in the period.
In addition to the formal business of the AGM, representatives
of the Investment Manager and the Board are available to answer any
questions a shareholder may have. If shareholders are not able to
attend the AGM in person, shareholders will be given the
opportunity to ask questions in advance of the AGM, with answers to
any questions received published on the Company's website.
Separate resolutions are proposed at the AGM on each
substantially separate issue. The Registrar collates proxy votes
and the results (together with the proxy forms) are forwarded to
the Company Secretary immediately prior to the AGM. Proxy votes are
announced at the AGM, following each vote on a show of hands,
except in the event of a poll being called. The notice of the first
AGM and proxy form will be circulated with this Annual Report.
Remuneration
The Board is committed to implementing remuneration policies and
practices that are designed to support strategy and promote
long-term sustainable success. This policy is set on in the
Remuneration Report on pages 45 to 47.
This Corporate Governance Report is approved on behalf of the
Board by
John Leggate, CBE, FREng
Chair
5 April 2022
Compliance with the 2019 AIC Code
Board Leadership and Company purpose
Principle A -
A successful company is led by an effective Strategic Report
Board, whose role is to promote the Board Leadership and Company purpose
long-term sustainable success of the
company, generating value for shareholders
and contributing to wider society.
----------------------------------------
Principle B -
The Board should establish the Company's Strategic Report,
purpose, values, and strategy, and Board Leadership and Company purpose,
satisfy itself that these and its culture
are aligned. All Directors must act
with integrity, lead by example, and
promote the desired culture.
----------------------------------------
Principle C -
The Board should ensure that the necessary Principal Risk and Uncertainties,
resources are in place for the Company Stakeholder Engagement and Statement
to meet its objectives and measure Under Section 172,
performance against them. The Board Audit, Risk, and Internal Controls,
should also establish a framework of Audit Committee Report
prudent and effective controls, which
enable risk to be assessed and managed.
----------------------------------------
Principle D -
In order for the Company to meet its Stakeholder Engagement and Statement
responsibilities to shareholders and Under Section 172
stakeholders, the Board should ensure Board Leadership and Company purpose
effective engagement with, and encourage
participation from, these parties.
----------------------------------------
Division of Responsibilities
Principle F -
The Chair leads the Board and is responsible Chair's Statement
for its overall effectiveness in directing Board Leadership and Company purpose
the Company. They should demonstrate Division of responsibilities
objective judgement throughout their
tenure and promote a culture of openness
and debate. In addition, the Chair
facilitates constructive Board relations
and the effective contribution of all
Non-Executive Directors, and ensures
that Directors receive accurate, timely
and clear information.
----------------------------------------
Principle G -
The Board should consist of an appropriate Division of responsibilities
combination of Directors (and, in particular, Directors' Biographies
independent Non-Executive Directors)
such that no one individual or small
group of individuals dominates the
Board's decision making.
----------------------------------------
Principle H -
Non-Executive Board Leadership and Company purpose
Directors should have sufficient time Division of responsibilities
to meet their Board responsibilities. Audit Committee Report
They should provide constructive challenge, Management Engagement Committee
strategic guidance, offer specialist Report
advice and hold third party service
providers to account.
----------------------------------------
Principle I -
The Board, supported by the Company Division of responsibilities
Secretary, should ensure that it has
the policies, processes, information,
time, and resources it needs in order
to function effectively and efficiently.
----------------------------------------
Composition Succession and Evaluation
Principle J -
Appointments to the Board should be Directors' Report
subject to a formal, rigorous, and
transparent procedure, and an effective
succession plan should be maintained.
Both appointments and succession plans
should be based on merit and objective
criteria and, within this context,
should promote diversity of gender,
social and ethnic backgrounds, cognitive
and personal strengths.
----------------------------------------
Principle K -
The Board and its committees should Directors' Biographies
have a combination of skills, experience,
and knowledge. Consideration should
be given to the length of service of
the Board as a whole and membership
regularly refreshed.
----------------------------------------
Principle L -
Annual evaluation of the Board should Directors' Report
consider its composition, diversity
and how effectively members work together
to achieve objectives. Individual evaluation
should demonstrate whether each Director
continues to contribute effectively.
----------------------------------------
Audit, Risk, and Internal Control
Principle M -
The Board should establish formal and Audit, risk, and internal control
transparent policies and procedures Audit Committee Report
to ensure the independence and effectiveness
of external audit functions and satisfy
itself on the integrity of financial
and narrative statements.
----------------------------------------
Principle N -
The Board should present a fair, balanced Strategic Report
and understandable assessment of the Audit, risk, and internal control
Company's position and prospects. Audit Committee Report
Independent Auditor's Report
Financial Statements
----------------------------------------
Principle O -
The Board should establish procedures Principal risks and uncertainties
to manage risk, oversee the internal Viability Statement
control framework, and determine the Audit, risk, and internal control
nature and extent of the principal Audit Committee Report
risks the Company is willing to take Directors' Report
in order to achieve its long-term strategic
objectives.
----------------------------------------
Remuneration
Principle P -
Remuneration policies and practices Strategic Report
should be designed to support strategy Board leadership and Company purpose
and promote long-term sustainable success. Remuneration Committee Report
----------------------------------------
Principle Q -
A formal and transparent procedure Director's Remuneration Report
for developing policy on remuneration
should be established. No Director
should be involved in deciding their
own remuneration outcome.
----------------------------------------
Principle R -
Directors should exercise independent Director's Remuneration Report
judgement and discretion when authorising
remuneration outcomes, taking account
of Company and individual performance,
and wider circumstances.
----------------------------------------
9. AUDIT COMMITTE REPORT
Introduction
During the year and since, the Committee has played an integral
role in reviewing and challenging the Company's financial
modelling, financial reporting, key financial controls, and other
risk management topics.
Building on its work during 2020, the Committee continued to
work with the Investment Manager and key service providers in 2021
to ensure that the Company can rely on robust internal financial
controls and clear risk management procedures.
Audit Committee composition
The Audit Committee is chaired by Duncan Neale, who is a
Chartered Accountant, CFO and Finance Director and therefore has
recent and relevant financial experience. Duncan is supported by
the other three independent Non-Executive Directors on this
committee.
The Audit Committee meets at least twice a year and operates
within clearly defined terms of reference. The Committee met three
times during the period. These meetings were also attended by
representatives of the Investment Manager, the Company Secretary
(JTC (UK) Limited) and the Auditor (BDO LLP).
Given the size of the Board and the diverse range of experience
and skills possessed by the Directors, the Board has considered it
appropriate to have all Directors serve on this Committee. The
Board has also considered it appropriate for the Chair of the Board
to serve on the Committee due to the current size of the Board.
Terms of reference
The Committee reviewed its terms of reference to ensure that
they remain in alignment with the pro-forma terms of reference
published by ICSA and the latest version of the AIC Code.
Principal responsibilities
The principal responsibilities which the Board has delegated to
the Audit Committee are:
(i) to monitor the integrity of the Financial Statements of the
Company and any formal announcements relating to the Company's
financial performance;
(ii) reviewing the Company's internal financial controls and
internal control and risk management systems, unless expressly
addressed by a separate Board risk committee composed of
independent Non-Executive Directors, or by the Board itself;
(iii) conducting the tender process and making recommendations
to the Board, about the appointment, reappointment, and removal of
the external Auditor, and approving the remuneration and terms of
engagement of the external Auditor;
(iv) reviewing the effectiveness of the external audit process,
taking into consideration relevant UK professional and regulatory
requirements;
(v) to review and monitor the Auditors' independence and
objectivity and the effectiveness of the audit process; and
(vi) to develop and implement policy on the engagement of the
Auditors to supply non-audit services and considering relevant
guidance regarding the provision of non-audit services by the
Auditors.
The Chair of the Audit Committee is required to report formally
to the Board on the Committee's findings after each meeting on all
matters within its duties and responsibilities.
Financial reporting
The Audit Committee is also responsible for reviewing the
financial reporting and in providing advice to the Board on whether
the Annual Report and Financial Statements, taken as a whole, is
fair, balanced, and understandable, as required under the AIC Code,
and provides the information necessary for shareholders to assess
the Company's position and performance, business model and
strategy.
The Audit Committee considered the detailed reviews undertaken
at various stages of the production process by the Investment
Manager, Administrator and Auditor, which are intended to ensure
consistency and overall balance.
The Committee also sought additional comfort from the Investment
Manager in relation to the conclusion reached by the Board.
As a result of the work performed by the Audit Committee, the
Board is able to conclude that the Annual Report and Financial
Statements for the period ended 31 December 2021, taken as a whole,
is fair, balanced, and understandable and provides the information
necessary for shareholders to assess the Company's performance,
business model and strategy.
The Committee also reviews the significant financial reporting
issues and judgements made in connection with the preparation of
the Company's Financial Statements and considers whether the
accounting policies adopted are appropriate.
Going concern and viability
The Committee considered the Going Concern Statement and
Viability Statement on page 32. The Committee was satisfied that
the Company remained a going concern and was expected to remain
well positioned to continue to operate and meet its liabilities
over the short term and the outlook period.
Key accounting judgements and estimates
The key accounting judgement reviewed by the Audit Committee is
the high level of judgement involved in determining the unquoted
investment valuations. The Investment Manager's fee is based on the
value of the net assets of the Company. The Investment Manager is
responsible for preparing the valuation of investments which are
reviewed by the Audit Committee and approved by the Board.
During the period, the valuation of the Company's investments
has been a focus point for the Audit Committee and the Board. The
Chair of the Audit Committee has worked closely with the Investment
Manager to understand how the Company's investment valuations are
calculated and this has been reported to the Board.
The Board has also carefully considered the discount rates used
by the Investment Manager and considers these rates to be
appropriate given the strategic objectives of the Company and the
commercial risks associated with the Company's Investment
activities.
The Audit Committee has also taken additional comfort from the
opinion of an external independent valuation assessment prepared by
Grant Thornton, which concluded that the Investment Manager's
calculation of valuation is fair and reasonable on a fair value
basis.
Following the detailed and ongoing assessment of investment
valuations, the Audit Committee and the Board are able to conclude
that the Company's investments are valued fairly and
reasonably.
Auditor independence, objectivity and effectiveness
BDO has formally confirmed its independence as part of the
annual reporting process, and the Audit Committee considered and
agreed that BDO, the engagement team and other partners and
Directors conducting the audit had complied with relevant ethical
requirements including the FRC's Ethical Standard and were
considered independent of the Company.
The Audit Committee discussed the effectiveness of BDO as
Auditor and agreed that the Auditor had adhered to high
professional and ethical principles and demonstrated the
appropriate skills and knowledge about the business, industry, and
environment together with the regulatory and legal frameworks in
which the Company operates. The Audit Committee also agreed that
the audit partner demonstrates experience in the energy sector and
is well informed about current topical issues with the FRC. The
Audit Committee concluded that it had no concerns with BDO's
effectiveness.
Marc Reinecke has been BDO's lead audit partner for the Company
since IPO in 2018. This is Mr Reinecke's third annual audit for the
Company. In line with best practice, the Company would under normal
circumstances seek a rotation of the lead audit partner every five
years with an audit firm tender process every ten years and a
mandatory audit firm rotation after 20 years.
The Audit Committee has recommended that a resolution to
reappoint BDO is proposed to shareholders at the next AGM.
Internal controls and risk management systems
The Audit Committee's responsibilities in respect of internal
controls and risk management are to:
(i) review the reports on the internal controls of the Company's
service providers which identify the risk management systems in
place for assessing, managing, and monitoring risks applicable to
such service providers;
(ii) establish a process for identifying, assessing, managing,
and monitoring the risks which may have a financial impact on the
Company;
(iii) review reports on the conclusions of any testing carried out by the Auditors;
(iv) carry out at least annually a robust assessment of the
emerging and principal risks facing the Company; and
(v) review and approve the statements included in the Annual
Report in relation to internal control and the management of
risk.
The Audit Committee reviews the Company's internal controls on
an annual basis with the last review being conducted in November
2021. The Audit Committee obtains evidence of the internal control
frameworks of both the Administrator and Investment Manager to
review. Further, the Company Secretary reports to the Board
quarterly on any potential internal control failures.
The Audit Committee confirms that it has completed its
assessment of the Company's emerging and principal risks and the
details of this assessment are set out in emerging risks, principal
risks, and uncertainties assessment, and going concern assessment
on pages 33 to 36. The Audit Committee considers the Company's risk
matrix on an annual basis with regular risk reporting being
presented to the Board by the Investment Manager on an ongoing
basis. The Audit Committee Chair has engaged with the Investment
Manager during the year to improve the risk reporting to the Board
on an ongoing basis and this improved reporting is expected to
enhance the Board's oversight of principal risks. The Audit
Committee was satisfied with the Investment Manager's overall
assessment of principal risks.
Although the Board is ultimately responsible for safeguarding
the assets of the Company, the Board has delegated, through written
agreements, the day-to-day operation of the Company (including the
financial reporting process) to Gresham House Asset Management
Limited as Investment Manager and JTC (UK) Limited as
Administrator.
Whistleblowing
The Audit Committee has arrangements by which staff of the
Investment Manager and Administrator and other service providers as
the Committee sees fit may, in confidence, raise concerns about
possible improprieties in matters of financial reporting or other
matters and satisfy itself that arrangements are in place for the
proportionate and independent investigation of such matters and for
appropriate follow-up action. These arrangements are embedded into
the Investment Manager and Administrator's internal policies and
are being embedded into a Company focused process at the time of
writing.
The Company focused process (currently being reviewed) is to
allow concerns to be raised with the Audit Committee Chair on a
confidential basis. The Audit Committee Chair is then empowered to
conduct an independent investigation, with the support of
appropriate service providers, including the Company's Auditor. The
Audit Committee Chair, on conclusion of the investigation, will
then report back to the Company's Audit Committee, and external
authorities or regulators, if required, and the Audit Committee
will then make a recommendation, including proposed remedial action
and agreed timetable, to the Board. Any action taken by the Board
or the Audit Committee in this regard, will be reported to the
Company's shareholders in the Annual Report.
There were no instances of whistleblowing during the period.
External audit
The Audit Committee also makes recommendations to the Board in
relation to the appointment of the external Auditors and to ensure
the independence of the external Auditor. It also reviews and
agrees the audit strategy paper, presented by the Auditor in
advance of the audit, which sets out the key risk areas to be
covered during the audit and confirms their status on
independence.
The Audit Committee has reviewed the engagement of the external
Auditor on the supply of non-audit services in order to ensure that
the independence of the external Auditor is maintained, considering
the relevant regulations and ethical guidance in this regard.
The Company's Auditor did not provide any non-audit services
during the period.
The Audit Committee, after taking into consideration comments
from the Investment Manager and Administrator, regarding the
effectiveness of the audit process; immediately before the
conclusion of the annual audit, will recommend to the Board either
the re-appointment or removal of the Auditors.
Internal audit
The Audit Committee discussed the need for an internal audit
function. The debate included input from the Investment Manager and
consideration of the assurance received from third parties under
the risk management framework. In the light of this consideration,
the Audit Committee decided that there was no current requirement
for an internal audit as the internal controls and risk management
were adequate and effective.
Financial reporting
The Directors' responsibilities statement for preparing the
accounts is set out in the Report of the Directors on page 45 to 47
and a statement by the Auditor about their reporting
responsibilities is set out in the Independent Auditor's Report on
pages 61 to 66.
Statement on Investment Manager's risk management and internal
controls
During the period the Audit Committee has reviewed and has
received appropriate evidence of the Investment Manager's risk
management and internal control systems and the Audit Committee is
satisfied that this framework is fit for purpose and appropriately
designed to safeguard the shareholder's investment and the
Company's assets. The Board and the Audit Committee will continue
to review the Investment Manager's risk management and internal
control systems regularly and at least annually.
Audit Committee evaluation
An external evaluation of the Audit Committee was undertaken as
part of the overall Board evaluation in 2021. The evaluation
concluded that the Audit Committee was effectively run by the Chair
with a high degree of scrutiny. The Audit Committee will continue
to concentrate on development and training of committee members, as
the regulatory focus on audit and audit committees increases.
This Audit Committee Report is approved on behalf of the Board
by
Duncan Neale
Chair of the Audit Committee
5 April 2022
10. REMUNERATION COMMITTEE REPORT
Introduction
During the period, the Board was mindful of the requirements
under the AIC Code and the Company's objective of maintaining high
governance standards.
Remuneration Committee composition
The Remuneration Committee is chaired by David Stevenson. David
is supported by the other three independent Non-Executive Directors
on this Committee.
The Remuneration Committee meets at least once a year and
operates within clearly defined terms of reference. The
Remuneration Committee met once during the period. The Remuneration
Committee's meeting was also attended by representatives of the
Company Secretary (JTC (UK) Limited).
Given the size of the Board and the diverse range of experience
and skills possessed by the Directors, the Board has considered it
appropriate to have all Directors serve on this Remuneration
Committee. The Chair of the Board was independent on appointment to
the Board and remains independent and is therefore eligible to
serve on the Remuneration Committee.
Terms of reference
The Remuneration Committee reviewed its terms of reference to
ensure that they were in alignment with the pro-forma terms of
reference published by ICSA and the latest version of the AIC
Code.
Principal responsibilities
The main role and responsibilities of the Remuneration Committee
include:
-- in conjunction with the Chair, setting the Directors' remuneration levels; and
-- considering the need to appoint external remuneration consultants.
Review of Directors' remuneration
The Remuneration Committee considered that the appointment of an
external remuneration consultant was not required for 2021. During
the year, the Remuneration Committee considered the appropriate
level of increases to the Directors' fees for 2022.
The Directors' remuneration was set at launch at a level that
was considered to be appropriate for a Company of its size and
nature at the time, and without knowledge of the level of
commitment that would be involved. Over the past three years, that
commitment has grown as the Company itself has grown.
Following a review, the Remuneration Committee decided to
increase the Directors' remuneration in line with Consumer Price
Inflation (CPI) each year to ensure that Directors fees remain
competitive and in line with inflation.
Director 2021 Fee 2022 Fee
John Leggate GBP80,000 GBP84,080
---------- ----------
Duncan Neale GBP62,500 GBP65,687
---------- ----------
Cathy Pitt GBP45,000 GBP47,295
---------- ----------
David Stevenson GBP45,000 GBP47,295
---------- ----------
The Remuneration Committee considers the increases in Directors'
fees to be in line with the Company's Remuneration Policy approved
by the Company's shareholders at the Company's 2020 AGM. The
Remuneration Committee has delegated authority to set the
remuneration of the Non-Executive Directors, including the
remuneration of the Chair of the Board, under its terms of
reference.
David Stevenson was appointed by the Board as the Senior
Independent Director (SID). David will not receive an additional
remuneration for this role.
Committee evaluation
An external evaluation of the Remuneration Committee was
undertaken as part of the overall Board evaluation in 2021. The
evaluation concluded that there was a good balance of skills
between the four Directors on the Remuneration Committee.
This Remuneration Committee Report is approved on behalf of the
Board by
David Stevenson
Chair of the Remuneration Committee
5 April 2022
11. DIRECTORS REMUNERATION REPORT
Directors' Remuneration Report for the period to 31 December
2021
The Board presents the Directors' Remuneration Report for the
period to 31 December 2021 which has been prepared in accordance
with the requirements of the Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008 (SI2008/410) and the
Companies Act 2006.
Under the requirements of Section 497 of the Companies Act 2006,
the Company's Auditor is required to audit certain disclosures
contained within the report. Where disclosures have been audited,
they are indicated as such. The Auditor's opinion is included in
their report on pages 61 to 66.
The Annual Remuneration Statement
The Chair of the Remuneration Committee has summarised the major
decisions on Directors' remuneration, including the discretion
which has been exercised in the award of Directors' remuneration,
the changes relating to Directors' remuneration made during the
year and the context in which those changes occurred, and decisions
have been taken in the report from the Remuneration Committee on
page 56.
Remuneration Policy
The Company's policy remains unchanged: the remuneration of
Non-Executive Directors should be determined with due regard to the
experience of the Board as a whole, the time commitment required
and to be fair and comparable to that of other Non-Executive
Directors of similar companies. The Company may also periodically
choose to benchmark Directors' fees with an independent review, to
ensure they remain competitive, fair, and reasonable.
This policy has been effective from the date of admission to
trading and was approved at the Company's 2020 AGM and will be put
to shareholders for approval at least every three years thereafter.
There has been no change to the policy.
The fees for the Directors are determined within the limits set
out in the Company's Articles of Association which states that the
Directors' remuneration for their services in the office of
Director shall, in the aggregate not exceed GBP500,000 per annum or
such higher figure as the Company, by ordinary resolution,
determines.
The Directors are entitled only to their annual fee and to be
reimbursed for any expenses properly and reasonably incurred by
them respectively in and about the business of the Company or in
the discharge of his or her duties as a Director.
Any Director who performs services which in the opinion of the
Directors are outside the scope of the ordinary duties of a
Director, may be paid such reasonable additional remuneration to be
determined by the Directors or any committee appointed by the
Directors and such additional remuneration shall be in addition to
any remuneration provided for by way of their annual fee and their
reasonable expenses.
No element of the Directors' remuneration is performance
related, nor does any Director have any entitlement to pensions,
share options or any long-term incentive plans from the
Company.
The Directors hold their office in accordance with the Articles
and their appointment letters. No Director has a service contract
with the Company, nor is any such contract proposed. The Directors'
appointments can be terminated in accordance with the Articles and
without compensation.
In order to avoid conflicts of interest, no Director is involved
in the setting of their own remuneration and remuneration is set by
the Remuneration Committee, in line with the Remuneration Policy
and aggregate remuneration levels are limited under the Company's
Articles of Association.
John Leggate and David Stevenson signed letter of appointments
with the Company dated 14 October 2018. Duncan Neale signed a
letter of appointment with the Company dated 15 October 2018.
Catherine Pitt signed a letter of appointment with the Company
dated 28 February 2019. These agreements are available for
inspection at the Company's registered office and at the AGM. The
agreements are terminable on three months' notice by either side.
The Directors are not entitled to any variable consideration or any
other taxable benefits under these agreements.
The Annual Remuneration Report
The Remuneration Committee considers any change in the
Directors' remuneration policy. The report from the Remuneration
Committee is set out on page 56.
Directors' remuneration and interests (audited)
Directors' remuneration (excluding National Insurance
Contributions) for the Company and dividend received for the period
under review was as follows:
2021 Salary Short term Percentage Total fixed Total variable Total
and fees variable increase remuneration remuneration remuneration
period pay since 01/01/20 period from Period from (fixed
from 01/01/21 period on short 01/01/21 01/01/21 and variable)
to 31/12/21 from term variable to 31/12/21 to 31/12/21 period
GBP 01/01/20 pay GBP GBP from 01/01/21
to to 31/12/21
31/12/20 GBP
GBP
John Leggate 80,000 - - 80,000 - 80,000
--------------- ----------- ---------------- -------------- --------------- ------------------
Duncan Neale 62,500 - - 62,500 - 62,500
--------------- ----------- ---------------- -------------- --------------- ------------------
Catherine
Pitt 45,000 - - 45,000 - 45,000
--------------- ----------- ---------------- -------------- --------------- ------------------
David Stevenson 45,000 - - 45,000 - 45,000
--------------- ----------- ---------------- -------------- --------------- ------------------
Total fixed
remuneration 232,500 - - 232,500 - 232,500
--------------- ----------- ---------------- -------------- --------------- ------------------
2020 Fixed salary Short term Total fixed Total variable
and fees for variable pay remuneration remuneration
period from period from period from period from
01/01/20 to 01/01/20 to 01/01/20 to 01/01/20 to
31/12/20 31/12/20 31/12/20 31/12/20
GBP GBP GBP GBP
John Leggate 65,000 - 65,000 -
-------------- -------------- -------------- ---------------
Duncan Neale(*) 45,000 7,000* 45,000 7,000*
-------------- -------------- -------------- ---------------
Catherine Pitt 40,000 - 40,000 -
-------------- -------------- -------------- ---------------
David Stevenson 40,000 - 40,000 -
-------------- -------------- -------------- ---------------
Total fixed remuneration 190,000 7,000 190,000 7,000
-------------- -------------- -------------- ---------------
* In view of the significant additional work undertaken, the
Board agreed to pay an additional fee of GBP7,000 (2019 - GBP5,000)
to Duncan Neale during 2020
2021 Percentage increase Percentage increase
from 31 December from 31 December 2020
2019 to 31 December to 31 December 2021
2020 on salary annual on salary and annual
fees fees
John Leggate 0% 23%
----------------------- -----------------------
Duncan Neale 0% 38.8%
----------------------- -----------------------
Catherine
Pitt 0% 12.5%
----------------------- -----------------------
David Stevenson 0% 12.5%
----------------------- -----------------------
The Directors of the Company had the following beneficial
interests in the issued Ordinary Shares as at 31 December 2021 and
at the date of this report:
Directors As at the date of this report As at 31 Dec 2021
5 April 2022
John Leggate 46,875 46,875
-------------------------------- --------------------
Duncan Neale 13,425 13,425
-------------------------------- --------------------
Catherine Pitt 23,987 23,093
-------------------------------- --------------------
David Stevenson 18,330 18,330
-------------------------------- --------------------
The Company does not oblige the Directors to hold shares in the
Company, but this is encouraged to ensure the appropriate alignment
of interests.
2020/2021 remuneration
The remuneration levels for the forthcoming year for the
Directors are expected to be at the current annual fee level, as
shown in the table above. The Board reviews Directors' remuneration
at least annually to ensure that it is in line with market
rates.
Consideration of shareholders' views
An ordinary resolution to approve the Remuneration Report will
be put to shareholders at the Company's 2022 AGM and shareholders
will have the opportunity to express their views and raise any
queries in respect of the Remuneration Policy at this meeting.
Statement of voting at the 2021 Annual General Meeting
The Directors' Remuneration Report was subject to an advisory
vote at the 2021 AGM. The voting outcome is shown in the table
below:
Resolution to approve Directors' Votes %
Remuneration Report
Votes for* 164,826,784 89.28
------------ ------
Votes against 19,763,202 10.72
------------ ------
Total votes validly cast 184,589,986
------------ ------
Total votes cast as % of issued
share capital 52.96
------------ ------
Votes withheld** 31,469
------------ ------
* Includes discretionary votes
** A vote withheld is not a vote in law and is not counted in
the calculation of the votes for or against a resolution.
No concerns were noted from the shareholders as part of the
AGM.
Payments to past Directors or for loss of office
There are no payments to disclose. Under the terms of the
Directors' Remuneration Policy there would be no compensation for
loss of office.
Performance graph
The graph below represents the Company's performance during the
period since the Company's Ordinary Shares were first admitted to
trading on the London Stock Exchange on 13 November 2018 and shows
Ordinary Share price total return and NAV total return performance
on a dividends reinvested basis. Both series are rebased to 13
November 2018, being the date the Company's Ordinary Shares were
listed.
This graph has been chosen as a comparison as it is a publicly
available broad equity index which focuses on smaller companies and
is therefore more relevant than most other publicly available
indices.
Relative importance of spend on pay
The difference in actual spend between 31 December 2020 and 31
December 2021 on Directors' remuneration in comparison to
distributions (dividends and share buybacks) and other significant
spending are set out in the table below.
PAYMENTS MADE DURING THE PAYMENTS MADE DURING THE
YEARED 31 DECEMBER YEARED 31 DECEMBER
2021 2020
GBP GBP
Remuneration to Directors 232,500 197,000
------------------------- -------------------------
Dividends paid to shareholders 25,961,445 14,341,916
------------------------- -------------------------
Buy-back of Ordinary Shares - -
------------------------- -------------------------
Total 26,193,945 14,538,916
------------------------- -------------------------
This Directors' Remuneration Report is approved on behalf of the
Board by
David Stevenson
Chair of the Remuneration Committee
5 April 2022
12. NOMINATION COMMITTEE REPORT
Introduction
During the period, the Board, mindful of the requirements of the
AIC Code and the Company's objective of maintaining high governance
standards, constituted the Nomination Committee during 2021.
Nomination Committee composition
The Nomination Committee is chaired by Cathy Pitt. Cathy is
supported by the other three independent Non-Executive Directors on
this Nomination Committee.
The Nomination Committee meets at least once a year and operates
within clearly defined terms of reference. The Nomination Committee
met once during the period. The Nomination Committee's meeting was
also attended by representatives of the Company Secretary, (JTC
(UK) Limited).
Given the size of the Board and the diverse range of experience
and skills possessed by the Directors, the Board has considered it
appropriate to have all Directors serve on this Nomination
Committee.
Terms of reference
The Nomination Committee reviewed its terms of reference to
ensure that they were in alignment with the pro-forma terms of
reference published by ICSA and the latest version of the AIC
Code.
Principal responsibilities
The Nomination Committee's principal responsibilities are:
-- leading the process for appointments;
-- ensuring plans are in place for orderly succession to the Board; and
-- overseeing the development of a diverse pipeline for succession to the Board.
The Nomination Committee is also responsible for supporting the
Chair of the Board in an annual review of the effectiveness of the
Board, its Nomination Committee and each of its Directors.
Composition, succession and evaluation
Composition
The Company has a Board comprising four Non-Executive Directors,
with the Chair being John Leggate. All of the Directors are
independent from the Investment Manager as defined in the AIC Code
and no circumstances have been identified that are likely to
impair, or could appear to impair, a Non-Executive Director's
independence. Further, all Directors' significant interests, as set
out in the Board of Directors summary on page 39, have been
reviewed and no conflicts of interest with the interests of the
Company have been identified. The Board does not consider these
interests to have any significant impact on the Directors' ability
to discharge their duties to the Company.
Biographical details of all Board members (including significant
other commitments) are shown on page 39.
When making new appointments, the Board will consider other
demands on Directors' time. Prior to appointment, significant
commitments will be disclosed with an indication of the time
involved. Additional external appointments should not be undertaken
without prior approval of the Nomination Committee and Board, with
the reasons for permitting significant appointments explained in
the Annual Report.
The Nomination Committee reviewed the size and composition of
the Board having regard to the skills of each Director and the
commitment involved in service on the Board. The Board particularly
considered whether the time was right to appoint a Senior
Independent Director and/or a fifth Director to the Board. The
Committee agreed to appoint David Stevenson as the Senior
Independent Director and to proceed with the recruitment of a fifth
Director to the Board. The recruitment process for a fifth Director
would take place during the course of 2022.
The Nomination Committee also considered the opportunity for
scholarship initiatives and Board apprenticeship programmes. The
Nomination Committee considered that access to experience would be
valuable for disadvantaged individuals and for the Nomination
Committee to support the wider community. The Nomination Committee
resolved to pursue initiatives to support scholarship initiatives
and Board apprenticeship programmes during 2022.
Board evaluation
During the period, the Board undertook its first externally
facilitated Board evaluation conducted by an experienced
independent external consultant, BoardAlpha Limited.
Three proposals from different independent external consultants
were considered by the Board in February 2021. Following a detailed
review by the Board, BoardAlpha Limited was selected to undertake
the Board evaluation for 2021. BoardAlpha Limited were deemed to be
sufficiently experienced given their experience in evaluating
Boards of investment companies, and therefore have the technical
expertise to conduct the evaluation. BoardAlpha Limited had not
provided any other services to the Company in the past.
The focus of the review was to conduct a comprehensive
assessment of the following areas:
- overall strategy of the Company;
- supervision of investment activities;
- risk management;
- shareholder accountability;
- Board composition and process;
- committee structure, composition, and effectiveness;
- corporate governance and regulatory compliance;
- support and relationship with suppliers; and
- performance of the Chair.
The Company Secretary assisted in providing BoardAlpha Limited
access to the key individuals involved in the evaluation process.
The evaluation process was conducted over a five-month period and
it involved one-to-one interviews with each of the four Directors,
including the Chair. A number of discussions and interviews took
place with the Investment Manager's key personnel, the Company
Secretary (JTC), the Company's legal advisers at Eversheds
Sutherland, the independent valuers Grant Thornton, the independent
Board adviser Charles Conner, and the Company's PR agency Kaso Legg
Communications. BoardAlpha Limited also spoke to one of the
Company's shareholders during the process.
BoardAlpha Limited also observed one Board meeting and a
shareholder Q&A held during the year. Furthermore, BoardAlpha
Limited reviewed the Board and committees' meeting packs from all
meetings over the year.
The evaluation process concluded that the Board was highly
engaged in the strategy of the Company, and that the Investment
Manager provided the Board with good and timely information on the
Company's portfolio. The Board's independent adviser has also
played a key role in achieving this. The Board also received good
information with respect of regulatory compliance from the Company
Secretary, its external Auditor BDO, and its legal advisors
Eversheds Sutherland.
Areas for ongoing development included the increase of the
Board's engagement with shareholders, and the appointment of a
Senior Independent Director to act as a secondary point of contact
for shareholders. On 18 November 2021, David Stevenson was
appointed as Senior Independent Director to address this.
Whilst there is a good balance of skills on the Board, the
appointment of a fifth Director would also help to ensure a smooth
succession planning. The recruitment process is underway to
facilitate the appointment of a fifth Director. It is anticipated
that a fifth Director will be appointed in 2022.The Company's
policy is to have an externally facilitated Board evaluation at
least every three years.
During 2022, the Company will monitor its progress against the
recommendations arising from the externally facilitated Board
evaluation.
Re-election and succession
John Leggate, David Stevenson and Duncan Neale were appointed to
the Board on 24 August 2018 and re-elected by the shareholders at
the 2020 AGM. Catherine Pitt was appointed to the Board on 1 March
2019 and duly elected by the shareholders at the 2020 AGM.
In accordance with the AIC Code, all Directors are required to
retire at the forthcoming AGM, and being eligible, offer themselves
for re-election.
Further, in relation to the tenure of the Chair, the Board
considers it appropriate to have no fixed term for the tenure of
the Chair and deems this appropriate given the long term nature of
the Company's investments. However, the Nomination Committee will
review this policy on an annual basis.
Diversity
The Company recognises the benefits of having a diverse Board
and sees increasing diversity at Board level as an essential
element in maintaining an effective Board. The Company has adopted
a formal Diversity Policy, which sets out the Company's approach to
and commitment to diversity. The policy was reviewed by the
Nomination Committee during 2021.
The Company's policy is to ensure that there is broad experience
and diversity on the Board. Diversity includes, and makes good use
of, differences in knowledge and understanding of relevant diverse
geographies, peoples and their backgrounds including race or ethnic
origin, sexual orientation, sex, age, disability, and religion.
Appointments to the Board should be made on merit, in the context
of complimenting and expanding the skills, knowledge and experience
of the Board as a whole (and in accordance with the Equality Act
2010). Accordingly, in view of the recruitment of a fifth Director,
the Board will liaise with external independent recruitment
consultants to ensure a wide pool of candidates from a diverse
background are being considered for the position.
The Nomination Committee will be responsible for the
implementation of the Company's Diversity Policy and for monitoring
progress towards the achievement of its objectives.
This Nomination Committee Report is approved on behalf of the
Board by
Cathy Pitt
Chair of the Nomination Committee
5 April 2022
13. MANAGEMENT ENGAGEMENT COMMITTEE REPORT
Introduction
During the year, the Management Engagement Committee played an
integral role in:
- reviewing the contractual relationship and performance of the Investment Manager; and
- evaluating key service providers, including the Company
Secretary, Depositary, Registrar, and Broker.
Building on its work during 2021, the Management Engagement
Committee continued to work with the Investment Manager and key
service providers to ensure that the Company had a robust system of
internal financial controls and a clear risk management
procedure.
Management Engagement Committee composition
The Management Engagement Committee is chaired by Cathy Pitt.
Cathy is supported by the other three independent Non-Executive
Directors on the Management Engagement Committee.
During 2021, the Board agreed to appoint Cathy Pitt as chair of
the Management Engagement Committee to replace John Leggate. This
decision was intended to provide John with additional time and
capacity to focus on leading the Board.
The Management Engagement Committee meets at least once a year
and operates within clearly defined terms of reference. The
Management Engagement Committee met once during the period. This
meeting was also attended by representatives of the Investment
Manager and the Company Secretary, (JTC (UK) Limited).
Given the size of the Board and the diverse range of experience
and skills possessed by the Directors, the Board has considered it
appropriate to have all Directors serve on the Management
Engagement Committee.
Terms of reference
The Management Engagement Committee reviewed its terms of
reference to ensure that they remain in alignment with the
pro-forma terms of reference published by ICSA and the latest
version of the AIC Code.
Principal responsibilities
The Management Engagement Committee's principal responsibilities
include:
-- monitoring and evaluating the Investment Manager's investment
performance and, if necessary, providing appropriate guidance;
-- putting in place procedures by which the Board regularly
reviews the continued retention of the Investment Manager's
services;
-- considering the merit of obtaining, on a regular basis, an
independent appraisal of the Investment Manager's services;
-- reviewing the level and method of remuneration, the basis of
performance fees (if any) and the notice period; and
-- putting in place processes to review the Company's risk
management and internal control systems designed to safeguard
shareholders' investment and the Company's assets. A review of the
effectiveness of these systems should be made annually by the Board
and reported to shareholders in the annual report.
The Management Engagement Committee also reviews the performance
of other service providers to the Company and makes recommendation
to the Board, including by:
-- reviewing and considering the appointment and remuneration of
service providers to the Company; and
-- considering any points of conflict which may arise between
the providers of services to the Company.
Performance of the Investment Manager
The Management Engagement Committee reviewed the performance of
the Investment Manager and the Management Engagement Committee was
generally satisfied that the Investment Manager had performed well
during the period with the Company completing a number of
acquisitions during the period, driving the performance of the
operating assets, successfully deploying the capital raised during
2020 and conducting a further successful fundraising during
2021.
The Management Engagement Committee noted that information flow
to the Board had improved during 2021. The Management Engagement
Committee continues to collaborate with the Investment Manager to
improve reporting and information flow to the Board and its
committees.
The Management Engagement Committee reviewed the size of the
Investment Manager's workload, key-person policies and resources to
handle the anticipated workload. The Management Engagement
Committee also noted the additional resources added to the
Investment Manager's team, in particular the additional capacity to
support the Company's financial modelling.
The Management Engagement Committee reviewed the remuneration of
the Investment Manager and found these fees to be in line with
market rates for the services delivered to the Company during the
period.
The Management Engagement Committee is satisfied that the
Investment Manager has performed well under the terms of the AIFM
Agreement and is of the view that the continued engagement of the
Investment Manager is in the best interests of the Company and
would support the Company's long-term sustainable success.
Performance of key service providers
The Management Engagement Committee undertook at review of all
key service providers to the Company and there were no issues to
report.
The Management Engagement Committee specifically discussed the
performance of JTC (UK) Limited appointed by the Company both as
Administrator and as Company Secretary and concluded that the
performance as Administrator and Company Secretary remained
satisfactory. JTC (UK) Limited continue to work with the Investment
Manager and Board on a process of continuous improvement around
financial information, internal controls, and corporate governance.
The Company are responsible for the appointment or removal of the
Company Secretary.
Committee evaluation
An externally facilitated evaluation of the Management
Engagement Committee was undertaken as part of the overall Board
evaluation. The Management Engagement Committee was found to be
working well and the skills and experience of the members was found
to be appropriate for their roles. The evaluation report
recommended that the Management Engagement Committee be chaired by
a different Director and Cathy Pitt took over as the Management
Engagement Committee's Chair.
This Management Engagement Committee Report is approved on
behalf of the Board by
Cathy Pitt
Chair of the Management Engagement Committee
5 April 2022
14. Independent Auditor's report to the members of Gresham House
Energy Storage Fund plc
Opinion on the financial statements
In our opinion the financial statements:
-- give a true and fair view of the state of the Company's
affairs as at 31 December 2021 and of its profit f or the year then
ended;
-- have been properly prepared in accordance with UK adopted
international accounting standards; and
-- have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements of Gresham House Energy
Storage Fund plc (the 'Company') for the year ended 31 December
2021, which comprise the statement of comprehensive income, the
statement of financial position, the statement of changes in
equity, the statement of cash flows and notes to the financial
statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in their
preparation is applicable law and UK adopted international
accounting standards .
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion. Our audit opinion is consistent with the
additional report to the audit committee .
Independence
Following the recommendation of the Audit Committee, we were
appointed by the Board of Directors in December 2019 to audit the
financial statements for the year ending 31 December 2019 and
subsequent financial periods. The period of total uninterrupted
engagement including retenders and reappointments is three years,
covering the years ending 31 December 2019 to 31 December 2021. We
remain independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the FRC's Ethical Standard as
applied to listed public interest entities, and we have fulfilled
our other ethical responsibilities in accordance with these
requirements. The non-audit services prohibited by that standard
were not provided to the Company.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
Directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our
evaluation of the Directors' assessment of the Company's ability to
continue to adopt the going concern basis of accounting
included:
-- assessing the reasonableness of the Company's cash flow
forecast by comparing the expected cash flows to contractual
obligations and that these are covered by the available cash
reserves for the period of 12 months from the date of approval of
the financial statements;
-- considering the appropriateness of the approach and model used by the Directors;
-- assessing the reasonableness of the stress test performed by
the Directors which assumed that there would be a 25% reduction in
inflows and no further dividends are paid in the period and all
existing funding obligations towards the investments would still be
met over the next 12 months;
-- evaluating the appropriateness of the Directors consideration of the impact of the current Russia/Ukraine crisis on going concern based on our knowledge of the entity; and
-- reviewing the adequacy and consistency of the disclosure in
line with the Directors' assessment.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Company's ability to continue as a going concern for a period of at
least 12 months from when the financial statements are authorised
for issue.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report.
Overview
2021 2020
Valuation
of unquoted
investments
Key audit matters ----- -----
Financial statements as a whole
Materiality
GBP7.6mn (2020:GBP5.3mn) based on 1.5%
of net assets
Specific materiality
GBP870k (2020:GBP500k based on 3% of
profit before tax) based on 5% of profit
before tax less fair value gains
------------------------------------------
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the
Company and its environment, including the Company's system of
internal control, and assessing the risks of material misstatement
in the financial statements. We also addressed the risk of
management override of internal controls, including assessing
whether there was evidence of bias by the Directors that may have
represented a risk of material misstatement.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified, including those which had the greatest
effect on: the overall audit strategy; the allocation of resources
in the audit; and directing the efforts of the engagement team.
This matter was addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on this
matter.
Key audit matter How the scope of our audit addressed
the key audit matter
Valuation As detailed in Note 12, the Our procedures in relation to
of unquoted Company owns an investment management's valuation of the
investments portfolio of unquoted equity unquoted investments included:
and loan investments which,
Refer to as described in the accounting * We assessed the competency, qualification,
Note 3 and policies in Note 5, are held independence and objectivity of the independent
5 on pages at fair value in the financial external valuer engaged by the Company and reviewed
71 and 73 statements. the terms of their engagement for any unusual
and Note arrangements or limitation on the scope of their
12 on page The valuations of the investments work.
77 of the make use of judgemental assumptions
financial where there is an inherent
statements risk of management override
arising from investment valuations * We discussed the key assumptions with the independent
being prepared by the Investment external valuer and with the assistance of our
Manager, who is remunerated internal valuation experts, we challenged the
based on the NAV of the Company. appropriateness of the selection and application of
key estimates in the discounted cash flow model
The Company has engaged an including discount rate, net revenue yield, annual
independent external valuer generation, inflation rate, underlying costs and
to help mitigate the risk. asset life by benchmarking these to available
industry data and actual results in the year.
The fair value was determined
through the use of a discounted
cash flow model. The valuation
involved significant judgements * Agreed net revenue yield and annual generation used
and estimates from management in the discounted cash flow model to net revenue
including, but not limited yield provided by management's independent
to discount rates, changes third-party expert. We held discussions with them to
in net revenue yield and changes understand the model assumptions and how the models
in energy production. Changes are produced.
to the estimates and/or judgements
can result, either on an individual
or aggregate basis, in a material
change to the valuation of For new investments, we obtained
unquoted investments. and reviewed the sale and purchase
agreements and loan contracts
and checked if they were accurately
reflected in the valuation model.
* For investments where the battery asset is under
construction, we have challenged the policy applied
to fair value these investments through obtaining an
understanding of the status of each project and the
risks of the projects. For the construction risk
premium applied, we benchmarked this against other
companies and considered the risks in the projects.
We discussed the premium with the management's
independent external valuer and involved our internal
valuations experts in assessing the appropriateness
of the premium.
* Agreed period end working capital adjustments in
determining the fair value of the portfolio companies
to the working capital recognised in the management
accounts of the portfolio companies as well as bank
statements, invoices and VAT returns.
* Agreed the movements in loans provided to the
portfolio companies including interest rates to
underlying loan agreements, vouched cash movements to
bank statements and re-performed the calculation of
interest.
Key observations:
Based on the audit procedures
performed, we found the assumptions
made by the management in relation
to the valuation of the unquoted
investments to be appropriate.
------------------------------------- ---------------------------------------------------------------
Our application of materiality
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which
misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the
financial statements.
In order to reduce to an appropriately low level the probability
that any misstatements exceed materiality, we use a lower
materiality level, performance materiality, to determine the extent
of testing needed. Importantly, misstatements below these levels
will not necessarily be evaluated as immaterial as we also take
account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole and performance materiality
as follows:
Company financial statements
2021 2020
------------------------------------ ------------------------------------
Materiality GBP7,600,000 GBP5,300,000
------------------------------------ ------------------------------------
Basis for determining 1.5% of net assets
materiality
--------------------------------------------------------------------------
Rationale for We considered that net assets is the most relevant performance
the benchmark measure for users of the financial statements.
applied
--------------------------------------------------------------------------
Performance GBP5,110,000 GBP3,445,000
materiality
------------------------------------ ------------------------------------
Basis for determining 70% of materiality based on 65% of materiality based on
performance consideration of factors including consideration of factors including
materiality the level of historical errors the level of historical errors
and nature of activities, and nature of activities.
which resulted in an increase
in the performance materiality
benchmark.
------------------------------------ ------------------------------------
Specific materiality
We also determined that for transactions and balances that
impact on the Company's realised return other than the valuation of
the unlisted investment portfolio, a misstatement of less than
materiality for the financial statements as a whole, specific
materiality, could influence the economic decisions of users. As a
result, we determined materiality for these items based to be
GBP0.87mn (2020:GBP0.5mn) based on 5% of profit before tax less
fair value gains. We further applied a performance materiality
level of 70% of specific materiality to ensure that the risk of
errors exceeding specific materiality was appropriately
mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them,
all individual audit differences in excess GBP43,500 (2020:
GBP25,000). We also agreed to report differences below this
threshold that, in our view, warranted reporting on qualitative
grounds.
Other information
The Directors are responsible for the other information. The
other information comprises the information included in the Annual
Report and Financial Statements other than the financial statements
and our Auditor's Report thereon. Our opinion on the financial
statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express
any form of assurance conclusion thereon. Our responsibility is to
read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial
statements, or our knowledge obtained in the course of the audit,
or otherwise appears to be materially misstated. If we identify
such material inconsistencies or apparent material misstatements,
we are required to determine whether this gives rise to a material
misstatement in the financial statements themselves. If, based on
the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact.
We have nothing to report in this regard.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work
performed during the course of the audit, we are required by the
Companies Act 2006 and ISAs (UK) to report on certain opinions and
matters as described below.
Strategic In our opinion, based on the work undertaken in the course
Report and of the audit:
Directors' * the information given in the Strategic Report and the
Report Directors' Report for the financial year for which
the financial statements are prepared is consistent
with the financial statements; and
* the Strategic Report and the Directors' Report have
been prepared in accordance with applicable legal
requirements.
In the light of the knowledge and understanding of the Company
and its environment obtained in the course of the audit,
we have not identified material misstatements in the Strategic
Report or the Directors' Report.
Directors' In our opinion, the part of the Directors' Remuneration
remuneration Report to be audited has been properly prepared in accordance
with the Companies Act 2006.
---------------------------------------------------------------------------
Matters on We have nothing to report in respect of the following matters
which we in relation to which the Companies Act 2006 requires us
are required to report to you if, in our opinion:
to report
by exception * adequate accounting records have not been kept, or
returns adequate for our audit have not been received
from branches not visited by us; or
* the financial statements and the part of the
Directors' Remuneration Report to be audited are not
in agreement with the accounting records and returns;
or
* certain disclosures of Directors' remuneration
specified by law are not made; or
* we have not received all the information and
explanations we require for our audit.
---------------------------------------------------------------------------
Responsibilities of Directors
As explained more fully in the Directors' responsibilities
statement , the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a
true and fair view, and for such internal control as the Directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements, as a whole, are free from material
misstatement, whether due to fraud or error, and to issue an
Auditor's Report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Extent to which the audit was capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below:
-- We obtained an understanding of the legal and regulatory
framework that is applicable to the Company and determined that the
relevant laws and regulations related to the elements of the
Company Act 2006 and tax legislation, and the financial reporting
framework.
-- Our considerations of the other laws and regulations that may
have a significant effect on the financial statements included the
supervisory requirements of LSE Listing and Disclosure Rules,
Financial Conduct Rule 'FCA' Listing rules applicable to the
Company, and the Association of Investment Companies 'AIC'
SORP.
-- We understood how the Company is complying with these laws
and regulations by making enquiries of the investment manager, the
management service provider, the Board of Directors and those
responsible for legal and compliance matters. We reviewed
correspondence between the Company and regulated bodies and
reviewed minutes of the Board of Directors and committee meetings,
gaining an understanding of the Company's approach to
governance.
-- We assessed the susceptibility of the financial statements to
material misstatement, including fraud and made enquiries of the
investment manager, the management service provider and the Board
of Directors of any known or suspected instances of fraud. The key
area for fraud and manipulation is around the unquoted investment
valuation (see related key audit matter) and management override of
controls.
-- We challenged the assumptions made by the investment manager
in their significant accounting estimates, in particular, in
relation to valuation of unquoted investments (see related key
audit matter).
-- In response to the risk of management override of controls,
we identified and tested journal entries, in particular any journal
entries posted with unusual account combinations and low value
recurring items, journals posted by the investment manager and
journals posted and reviewed by the same individual by agreeing to
supporting documentation.
-- We communicated relevant identified laws and regulations and
potential fraud risks to all engagement team members and remained
alert to any indications of fraud or non-compliance with laws and
regulations throughout the audit.
The engagement partner has assessed that the engagement team
collectively had the appropriate competence and capabilities to
identify or recognise non-compliance with laws and regulations.
Our audit procedures were designed to respond to risks of
material misstatement in the financial statements, recognising that
the risk of not detecting a material misstatement due to fraud is
higher than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example, forgery,
misrepresentations or through collusion. There are inherent
limitations in the audit procedures performed and the further
removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less
likely we are to become aware of it.
A further description of our responsibilities is available on
the Financial Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities . This description forms part of our Auditor's Report.
Use of our report
This report is made solely to the Company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company's members those matters we are required to state to them in
an Auditor's Report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Marc Reinecke (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
United Kingdom
5 April 2022
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127)
15. FINANCIAL STATEMENTS
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2021
Company number 11535957
For the year ended 31 December 2021 Notes Revenue Capital Total
(GBP) (GBP) (GBP)
----------------------------------------------- ------ ------------ ----------- ------------
Net gain on investments at fair value through
profit and loss 7 22,470,837 63,058,528 85,529,365
Other income 298,500 - 298,500
----------------------------------------------- ------ ------------ ----------- ------------
Total income 22,769,337 63,058,528 85,827,865
Administrative and other expenses:
Transaction fees - 56,539 56,539
( 560,589
Legal and professional fees - ) (560,589)
Other administrative expenses 9 (4,932,056) - (4,932,056)
----------------------------------------------- ------ ------------ ----------- ------------
Total administrative and other expenses (4,932,056) (504,050) (5,436,106)
----------------------------------------------- ------ ------------ ----------- ------------
Profit before tax 17,837,281 62,554,478 80,391,759
Taxation 10 - - -
----------------------------------------------- ------ ------------ ----------- ------------
Profit and total comprehensive income for
the year 17,837,281 62,554,478 80,391,759
----------------------------------------------- ------ ------------ ----------- ------------
Earnings per share (basic and diluted)
- pence 11 4.57 16.02 20.59
For the year ended 31 December 2020 Notes Revenue Capital Total
(GBP) (GBP) (GBP)
----------------------------------------------- ------ ------------ ------------ ------------
Net gain on investments at fair value through
profit and loss 7 12,346,913 10,055,692 22,402,605
Interest on loans to affiliated entities
of the Investment Manager 8 761,169 - 761,169
Other income 188,236 - 188,236
----------------------------------------------- ------ ------------ ------------ ------------
Total income 13,296,318 10,055,692 23,352,010
Administrative and other expenses:
Transaction fees - (309,778) (309,778)
Legal and professional fees - (1,002,983) (1,002,983)
Other administrative expenses 9 (3,329,721) - (3,329,721)
----------------------------------------------- ------ ------------ ------------ ------------
Total administrative and other expenses (3,329,721) (1,312,761) (4,642,482)
Profit before tax 9,966,597 8,742,931 18,709,528
Taxation 10 (20,570) - (20,570)
----------------------------------------------- ------ ------------ ------------ ------------
Profit and total comprehensive income for
the year 9,946,027 8,742,931 18,688,958
----------------------------------------------- ------ ------------ ------------ ------------
Earnings per s hare (basic and diluted)
- pence 11 4.15 3.64 7.79
The total column of this statement is the Statement of
Comprehensive Income of the Company prepared in accordance with
International Financial Reporting Standards (IFRS). The
supplementary revenue return and capital columns have been prepared
in accordance with the Association of Investment Companies
Statement of Recommended Practice (AIC SORP).
All results are derived from continuing operations. The notes on
pages 71 to 88 form an integral part of these Financial Statements
.
STATEMENT OF FINANCIAL POSITION
For the year ended 31 December 2021
Company number 11535957
Notes 31 December 31 December
2021 2020
(GBP) (GBP)
Non-current assets
Investments in subsidiaries at fair
value through profit or loss 12 389,346,748 248,964,175
-------------------------------------------- ------ ------------ ------------
389,346,748 248,964,175
Current assets
Cash and cash equivalents 14 122,175,081 110,967,025
Trade and other receivables 15 359,467 274,427
122,534,548 111,241,452
Total assets 511,881,296 360,205,627
-------------------------------------------- ------ ------------ ------------
Current liabilities
Trade and other payables 16 (210,255) (1,315,217)
-------------------------------------------- ------ ------------ ------------
(210,255) (1,315,217)
Total net assets 511,671,041 358,890,410
-------------------------------------------- ------ ------------ ------------
Shareholders' equity
Share capital 21 4,378,421 3,485,564
Share premium 21 349,058,720 251,601,260
Merger relief reserve 13,299,017 13,299,017
Capital reduction reserve 38,162,172 64,123,617
Capital reserves 75,421,840 12,867,362
Revenue reserves 31,350,871 13,513,590
-------------------------------------------- ------ ------------ ------------
Total shareholders' equity 511,671,041 358,890,410
-------------------------------------------- ------ ------------ ------------
Net Asset Value per Ordinary Share (pence) 20 116.86 102.96
The Financial Statements were approved and authorised for issue
by the Board of Directors and were signed on its behalf by:
_________________________
John Leggate CBE, FREng
Chair
Date: 5 April 2022
The notes on pages 71 to 88 form an integral part of these
Financial Statements.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2021
Note Share Share Merger Capital Capital Revenue Total
capital premium relief reduction reserves reserves shareholders'
reserve reserve equity
(GBP) (GBP) (GBP) (GBP) (GBP) (GBP) (GBP)
--------------- ----- ---------- -------------- ----------- ------------- ----------- ------------ --------------
Shareholders'
equity at 1
January
2021 3,485,564 251,601,260 13,299,017 64,123,617 12,867,362 13,513,590 358,890,410
Profit for the
year - - - - 62,554,478 17,837,281 80,391,759
--------------- ----- ---------- -------------- ----------- ------------- ----------- ------------ --------------
Total
comprehensive
income for
the
year - - - 62,554,478 17,837,281 80,391,759
--------------- ----- ---------- -------------- ----------- ------------- ----------- ------------ --------------
Transactions with
owners
Ordinary
Shares
issued at a
premium
during the
year 21 892,857 99,107,143 - - - - 100,000,000
Share issue
costs 21 - (1,649,683) - - - - (1,649,683)
Dividends paid 21 - - - (25,961,445) - - (25,961,445)
Shareholders'
equity at 31
December 2021 4,378,421 349,058,720 13,299,017 38,162,172 75,421,840 31,350,871 511,671,041
--------------- ----- ---------- -------------- ----------- ------------- ----------- ------------ --------------
Note Share Share premium Merger Capital Capital Revenue Total
capital relief reduction reserves reserves shareholders'
(GBP) reserve reserve equity
(GBP) (GBP) (GBP) (GBP) (GBP) (GBP)
--------------- ----- ---------- -------------- ----------- ------------- ----------- ----------- --------------
Shareholders'
equity at 1
January
2020 2,042,707 104,380,109 13,299,017 78,465,533 4,124,431 3,567,563 205,879,360
Profit for the
period - - - - 8,742,931 9,946,027 18,688,958
--------------- ----- ---------- -------------- ----------- ------------- ----------- ----------- --------------
Total
comprehensive
income for
the
year - - - - 8,742,931 9,946,027 18,688,958
--------------- ----- ---------- -------------- ----------- ------------- ----------- ----------- --------------
Transactions with
owners
Ordinary
Shares
issued at a
premium
during the
year 21 1,442,857 149,757,143 - - - - 151,200,000
Share issue
costs 21 - (2,535,992) - - - - (2,535,992)
Dividends paid 21 - - - (14,341,916) - - (14,341,916)
Shareholders'
equity at 31
December 2020 3,485,564 251,601,260 13,299,017 64,123,617 12,867,362 13,513,590 358,890,410
--------------- ----- ---------- -------------- ----------- ------------- ----------- ----------- --------------
The total distributable reserves available at 31 December 2021
are GBP69,513,043 (2020: GBP77,637,207). Distributable reserves are
made up of the capital reduction reserve and revenue reserve.
The notes on pages 71 to 88 form an integral part of these
Financial Statements.
STATEMENT OF CASH FLOWS
For the year ended 31 December 2021
Note 31 December 31 December
2021 2020
GBP GBP
-------------------------------------------- ----- ------------- -------------
Cash flows used in operating activities
Profit for the year 80,391,759 18,688,958
Net gain on investments at fair value
through profit and loss 7 (85,529,365) (22,402,605)
Interest income - (784,206)
Taxation - 20,570
Increase in trade and other receivables (85,040) (7,425)
Decrease in trade and other payables (74,431) (1,155,801)
-------------------------------------------- ----- ------------- -------------
Net cash used in operating activities (5,297,077) (5,640,509)
Cash flows used in investing activities
Acquisition of equity in subsidiaries - (238,095)
Deferred consideration paid (1,030,530) -
Disposal of investments 458,331 -
Loans made to subsidiaries (55,730,831) (76,155,352)
Loans repaid by investments 419,291 5,750,000
Bank interest received - 23,037
Net cash used in investing activities (55,883,739) (70,620,410)
Cash flows used in financing activities
Proceeds from issue of Ordinary Share
s at a premium 21 100,000,000 151,200,000
Share issue costs 21 (1,649,683) (2,535,992)
Dividends paid 21 (25,961,445) (14,341,916)
Net cash inflow from financing activities 72,388,872 134,322,092
Net increase in cash and cash equivalents
for the year 11,208,056 58,061,173
-------------------------------------------- ----- ------------- -------------
Cash and cash equivalents at the beginning
of the year 110,967,025 52,905,852
-------------------------------------------- ----- ------------- -------------
Cash and cash equivalents at the end
of the year 122,175,081 110,967,025
-------------------------------------------- ----- ------------- -------------
The notes on pages 71 to 88 form an integral part of these
Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
1. General information
Gresham House Energy Storage Fund plc (the Company) was
incorporated in England and Wales on 24 August 2018 with Company
number 11535957 as a closed-ended investment company. The Company's
business is as an investment trust within the meaning of Chapter 4
of Part 24 of the Corporation Tax Act 2010. The registered office
of the Company is The Scalpel, 18(th) Floor, 52 Lime Street,
London, EC3M 7AF. Its share capital is denominated in Pounds
Sterling (GBP or GBP) and currently consists of Ordinary Shares.
Through its subsidiaries, the Company's principal activity is to
invest in SPVs which operate a diversified portfolio of operating
utility-scale Battery Energy Storage Systems (BESS), which utilise
batteries and may also utilise generators. The BESS projects
comprising the investment portfolio are located in diverse
locations across Great Britain.
These Annual Financial Statements cover the year ended 31
December 2021 with comparatives for the year ended 31 December 2020
and comprise only the results of the Company as all its
subsidiaries are measured at fair value.
2. Basis of preparation
Statement of compliance
The Annual Report and Financial Statements have been prepared in
accordance with UK adopted international accounting standards. The
accounts have been prepared on a historical cost basis except for
financial assets at fair value through profit or loss. All
accounting policies have been applied consistently in these
financial statements.
Where presentational guidance set out in the Statement of
Recommended Practice (the SORP) 'Financial Statements of Investment
Trust Companies and Venture Capital Trusts', issued by the
Association of Investment Companies (AIC) is consistent with the
requirements of IFRS, the Directors have prepared the annual
Financial Statements on a basis compliant with the recommendations
of the SORP. The supplementary information which analyses the
Statement of Comprehensive Income between items of revenue and a
capital nature is presented in accordance with the SORP.
Functional and presentation currency
The currency of the primary economic environment in which the
Company operates (the functional currency) is Pound Sterling (GBP
or GBP) which is also the presentation currency.
Going concern
As noted in the Strategic Report, as at 31 December 2021, the
Company had net current assets of GBP122mn including cash balances
of GBP122mn (excluding cash balances within investee companies),
which are sufficient to meet current obligations as they fall due.
The major cash outflows of the Company are the costs relating to
the acquisition of new assets and payment of dividends, both of
which are discretionary (other than committed transactions). All
committed acquisitions at the end of the year and subsequent to
year end are sufficiently covered through current cash reserves.
The Company had no outstanding debt owing as at 31 December 2021.
The Company is an obligor to the debt facility entered into by the
MidCo in 2021, but which was undrawn as at 31 December 2021.
As such, the Directors have adopted the going concern basis in
preparing the Annual Report and Financial Statements.
3.Significant accounting judgements, estimates and
assumptions
The preparation of the Financial Statements requires management
to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amount of
assets, liabilities, income, and expenses. Estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to the
accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
During the year the Directors considered the following
significant judgements and assumptions:
Assessment as an investment entity
Entities that meet the definition of an investment entity within
IFRS 10 are required to measure their subsidiaries at fair value
through profit or loss rather than consolidate them unless they
provided investment related services to the Company and are not
themselves investment entities. To determine that the Company
continues to meet the definition of an investment entity, the
Company is required to satisfy the following three criteria:
a) the Company obtains funds from one or more investors for the
purpose of providing those investors with investment management
services;
b) the Company commits to its investors that its business
purpose is to invest funds solely for returns from capital
appreciation, investment income, or both; and
c) the Company measures and evaluates the performance of its investments on a fair value basis.
The Company meets the criteria as follows:
-- the stated strategy of the Company is to deliver stable
returns to shareholders through a mix of battery energy storage
investments;
-- the Company provides investment management services and has
several investors who pool their funds to gain access to
infrastructure related investment opportunities that they might not
have had access to individually; and
-- the Company has elected to measure and evaluate the
performance of all of its investments on a fair value basis. The
fair value method is used to represent the Company's performance in
its communication to the market, including investor presentations.
In addition, the Company reports fair value information internally
to Directors, who use fair value as the primary measurement
attribute to evaluate performance.
An indicator of whether a Company is an investment entity is the
existence of a formal exit strategy. Although there is currently no
documented exit strategy the assets have a limited life and are not
expected to be held indefinitely.
A further indicator of whether a Company is an investment entity
is the expectation they hold more than one asset. Following the
re-organisation in 2020 and the sale of Noriker Power in the year,
the Company holds one investment directly but several indirectly,
as there is a portfolio of assets within the MidCo.
The Directors believe the Company meets the business purpose
criteria to invest for capital appreciation and/or income
generation and note that the Company is not required to hold its
investments indefinitely.
The Directors are of the opinion that the Company meets the
characteristics of an investment entity and will reassess this
conclusion on an annual basis.
Assessment of the MidCo as an investment entity
The MidCo (see Note 12) is not consolidated as the MidCo is also
considered to be an investment entity. The Board of the MidCo have
considered the requirements of IFRS 10 as per above and confirm the
MidCo meets these criteria. If the MidCo was not considered to meet
the definition of an investment entity, then the Company would be
required to consolidate the entity. The net assets of the MidCo
have been set out in Note 12. The impact of consolidating the MidCo
would be to increase the investment value to GBP401,115,427 (2020:
GBP264,393,793) and recognise the Bond loan of nil (2020:
GBP15,088,825) and additional net working capital of GBP11,768,679
(2020: GBP340,794).
Note 12 includes an overview of the balances within the MidCo
and what would be included in the accounts of the Company if the
Company was required to consolidate the entity.
Investment Manager not a related party:
The AIFM is not disclosed as key management personal in the
financial statements. To meet the key management personal
definition the AIFM would need to have authority and responsibility
for planning, directing, and controlling the activities of the
entity. The Directors are of the opinion that the AIFM does not
meet these criteria as the Board has to approve key decisions.
Valuation of investments in subsidiaries
Significant estimates in the Company's Financial Statements
include the amounts recorded for the fair value of the investments.
By their nature, these estimates and assumptions are subject to
measurement uncertainty and the effect on the Company's Financial
Statements of changes in estimates in future periods could be
significant. See Note 18 for further details.
Interest revenue
The interest revenue generated by the Company on the loan paid
to the MidCo. The interest is capitalised annually and is charged
at the rate of 8% per annum.
4. New and revised standards and interpretations
There are no new standards, amendments or interpretations at the
reporting date which have been issued but are not yet effective,
which could impact the Financial Statements of the Company and
which are deemed to be material for the Company.
5. Summary of significant accounting policies
The principal accounting policies applied in the preparation of
these Financial Statements are set out below:
Segmental information
The Board is of the opinion that the Company is engaged in a
single segment business, being the investment in the United Kingdom
in battery energy storage assets.
Income and expenses (excluding investments)
Income and expenses are accounted for on an accruals basis. The
Company's income and expenses are charged to the Statement of
Comprehensive Income. Costs directly relating to the issue of
Ordinary Shares are charged to share premium.
Net gain or loss on investments at fair value through profit and
loss
The Company recognises movements in the fair value of
investments in subsidiaries through profit and loss.
Other income
Other income consists of bank interest and management fee income
which are accounted for on an accruals basis.
Taxation
The Company is approved as an Investment Trust Company (ITC)
under sections 1158 and 1159 of the Corporation Taxes Act 2010 and
Part 2 Chapter 1 Statutory Instrument 2011/2999 for accounting
periods commencing on or after 25 May 2018. The approval is subject
to the Company continuing to meet the eligibility conditions of the
Corporations Tax Act 2010 and the Statutory Instrument 2011/2999.
The Company intends to ensure that it complies with the ITC
regulations on an ongoing basis and regularly monitors the
conditions required to maintain ITC status.
From 1 April 2015 there is a single corporation tax rate of 19%.
Tax is recognised in the profit and loss except to the extent that
it relates to the items recognised as direct movements in equity,
in which case it is similarly recognised as a direct movement in
equity. Current tax is the expected tax payable on any taxable
income for the period, using tax rates enacted or substantively
enacted at the end of the relevant period. The Company may use
taxable losses from within the Group to relieve taxable profits in
the Company.
Investment in subsidiaries
Investments in subsidiaries are held at fair value through
profit and loss.
Subsidiaries are entities controlled by the Company. Control
exists when the Company is exposed, or has rights, to variable
returns from its involvement with the subsidiary entity and has the
ability to affect those returns through its power over the
subsidiary entity. In accordance with the exemption under IFRS 10
Consolidated Financial Statements, the Company is an investment
entity.
The Company does not have any subsidiaries that provide
investment management services and which are not themselves
investment entities. As a result, the Company does not consolidate
any of its subsidiaries.
Financial Instruments
In accordance with IFRS 9, the Company classifies its financial
assets and financial liabilities at initial recognition into the
categories of amortised cost or fair value through profit or
loss.
Financial assets
The Company classifies its financial assets at amortised cost or
fair value through profit or loss on the basis of both:
-- the entity's business model for managing the financial assets; and
-- the contractual cash flow characteristics of the financial asset.
Financial assets measured at amortised cost
A financial asset is measured at amortised cost if it is held
within a business model whose objective is to hold financial assets
in order to collect contractual cash flows and its contractual
terms give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount
outstanding. The Company includes in this category loans receivable
and short-term non-financing receivables which include cash and
trade and other receivables.
Loans receivable to affiliated entities of the Investment
Manager
Loans receivable to affiliated entities of the Investment
Manager are recognised initially at fair value and subsequently
stated at amortised cost less impairment. These are held at
amortised cost due to the short-term nature of the loans: these
loans are to project companies owned by Gresham House plc which are
included in the exclusivity portfolio. Once these are acquired
these will be held at fair value.
Impairment provisions for receivables from affiliated entities
of the Investment Manager are recognised based on a forward-looking
expected credit loss model. The methodology used to determine the
amount of the provision is based on whether there has been a
significant increase in credit risk since initial recognition of
the financial asset. For those where the credit risk has not
increased significantly since initial recognition of the financial
asset, twelve month expected credit losses along with gross
interest income are recognised. For those for which credit risk has
increased significantly, lifetime expected credit losses along with
the gross interest income are recognised. For those that are
determined to be credit impaired, lifetime expected credit losses
along with interest income on a net basis are recognised.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and Treasury
fixed term deposits held with the bank with maturities of up to
three months which can be readily converted to cash.
Trade and other receivables
Trade and other receivables are recognised initially at fair
value and subsequently stated at amortised cost which is calculated
using the provision matrix of the expected credit loss model.
Financial liabilities measured at amortised cost
This category includes all financial liabilities, other than
those measured at fair value through profit or loss, including
short-term payables.
Trade and other payables
Trade and other payables are recognised initially at fair value
and subsequently stated at amortised cost.
Deferred consideration
Deferred consideration relates to consideration payable in terms
of the purchase price stated in the Share Purchase Agreement (SPA)
and are recognised initially at fair value and subsequently stated
at amortised cost.
Financial asset measured at fair value through profit or loss
(FVPL)
A financial asset is measured at fair value through profit or
loss if:
a) its contractual terms do not give rise to cash flows on
specified dates that are solely payments of principal and interest
(SPPI) on the principal amount outstanding; or
b) it is not held within a business model whose objective is
either to collect contractual cash flows, or to both collect
contractual cash flows and sell; or
c) it is classified as held for trading (derivative contracts in an asset position).
The Company's investment in subsidiaries (which comprises both
debt and equity) is held at fair value through profit or loss under
IFRS 9 as the equity portion of the investment does not meet the
SPPI test nor will the Company elect to designate the investments
at fair value through other comprehensive income. The debt
investment forms part of a group of assets that are managed, and
the performance evaluated on a fair value basis.
The Company includes in this category equity instruments
including investments in subsidiaries (which comprises both debt
and equity). There are no consolidated subsidiaries.
Recognition and derecognition
Financial assets are derecognised on the date on which the
Company commits to purchase or sell an asset. A financial asset is
derecognised where the rights to receive cash flows from the asset
have expired, or the Company has transferred its rights to receive
cash flows from the asset. The Company derecognises a financial
liability when the obligation under the liability is discharged,
cancelled, or expired.
Impairment of other financial assets
While cash and cash equivalents are also subject to the
impairment requirements of IFRS 9, there has been no impairment
loss identified. Investments held at fair value through profit or
loss are not subject to IFRS 9 impairment requirements.
Dividends
Dividends are recognised as a reduction in equity when they
become legally payable. In the case of interim dividends this is
when they are paid. Final equity dividends will be recognised when
approved by the shareholders.
Equity
Equity instruments issued by the Company are recorded at the
amount of the proceeds received, net of directly attributable issue
costs. Costs not directly attributable to the issue are immediately
expensed in the Statement of Comprehensive Income.
Fair value measurement and hierarchy
Fair value is the price that would be received on the sale of an
asset, or paid to transfer a liability, in an orderly transaction
between market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction takes
place either in the principal market for the asset or liability, or
in the absence of a principal market, in the most advantageous
market. It is based on the assumptions that market participants
would use when pricing the asset or liability, assuming they act in
their economic best interest. A fair value measurement of a
non-financial asset takes considers the best and highest value use
for that asset.
The fair value hierarchy to be applied under IFRS 13 is as
follows:
Level 1: Quoted (unadjusted) market prices in active markets for
identical assets or liabilities.
Level 2: Valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable.
Level 3: Valuation techniques for which the lowest level input
that is significant to the fair value measurement is
unobservable.
For assets and liabilities that are carried at fair value and
which will be recorded in the financial information on a recurring
basis, the Company will determine whether transfers have occurred
between levels in the hierarchy by reassessing categorisation at
the end of each reporting period.
6. Fees and expenses
Accounting, secretarial and Directors
JTC (UK) Limited has been appointed to act as Secretary and
Administrator for the Company through the Administration and
Company Secretarial Agreement. JTC (UK) Limited is entitled to a
GBP60,000 annual fee for the provision of Company Secretarial
services and a GBP55,000 annual fee for the provision of fund
accounting and administration services, based on a Company Net
Asset Value of up to GBP200mn. An ad valorem fee based on total
assets of the Company which exceed GBP200mn will be applied as
follows:
- 0.04% on the Net Asset Value of the Company in excess of GBP200mn
During the year, expenses incurred with JTC (UK) Limited for
administrative and secretarial services amounted to GBP235,934
(2020: GBP126,356) with GBP29,210 (2020: GBP57,500) being
outstanding and payable at the year end.
AIFM
The AIFM, Gresham House Asset Management Limited (the Investment
Manager), is entitled to receive from the Company, in respect of
its services provided under the AIFM agreement, a fee as
follows:
- 1% on the first GBP250mn of the NAV of the Company
- 0.9% on the NAV of the Company in excess of GBP250mn and up to and including GBP500mn
0.8% on the NAV of the Company in excess of GBP500mn
During the year Investment Manager fees amounted to GBP4,052,956
(2020: GBP2,400,485) with no outstanding payables at the year-end
(2020: nil).
The Investment Manager is a wholly owned subsidiary of Gresham
House plc, a significant shareholder in the Company (6.05% (2020:
12.23%) of total issued Ordinary Shares). Ben Guest (a Director of
the Investment Manager), Bozkurt Aydinoglu (0.28% (2020: 0.57%) of
total issued Ordinary Shares) and Gareth Owen (0.05% of total
issued Ordinary Shares) are also significant shareholders in the
Company. Ben Guest also holds, via a wholly owned vehicle Lux
Energy Limited, a significant financial interest in the Company
(Ben's total holdings are 3.29% (2020: 5.74%) of total issued
Ordinary Shares, including direct and indirect holdings).
7. Net gain on investments at fair value through the profit and
loss
31 December 31 December
2021 2020
(GBP) (GBP)
---------------------------------------------- ---- ------------ ------------
Unrealised gain on investments at fair value
through the profit and loss 62,838,290 10,055,692
Realised gain on investments at fair value
through the profit and loss 220,238 -
Interest on loans to subsidiaries 22,470,837 12,346,913
85,529,365 22,402,605
--------------------------------------------------- ------------ ------------
During the year the Company disposed of its interest in Noriker
Power Limited, realising a net gain of GBP220,238.
8. Interest on loans to affiliated entities of the Investment
Manager
31 December 31 December
2021 2020
(GBP) (GBP)
------------------------------------------- ---- ------------- ------------
Interest on loans to affiliated entity of
the Investment Manager - 761,169
- 761,169
-------------------------------------------------------------- ------------
9. Administrative and other expenses
31 December 31 December
2021 2020
(GBP) (GBP)
------------------------------------------------------- ---- ------------ ------------
Administration and secretarial fees 235,934 126,356
Remuneration received by the Company's Auditor
for the audit of these financial statements 144,400 106,000
Remuneration received by the Company's Auditor
for the audit of the prior year financial
statements 34,400 18,911
Remuneration received by the Company's Auditor
for the audit of the subsidiary accounts 15,600 *15,000
Depositary fees 54,949 36,081
Directors' remuneration salary 232,500 197,000
Directors' remuneration social security contributions
and similar taxes 23,209 19,073
Investment Manager fees 4,052,956 2,400,486
Sundry expenses 138,108 410,814
4,932,056 3,329,721
------------------------------------------------------------ ------------ ------------
There were no non-audit fees payable to the Company's Auditor in
the year
*In the prior year this fee was included within the total audit
fees which amounted to GBP121,000
10. Taxation
The Company is recognised as an Investment Trust Company (ITC)
and is taxed at the main rate of 19%.
For the year ended 31 December 2021 the Company may utilise
group relief or make interest distributions to reduce taxable
profits to nil. There is no corporation tax charge for the year
(2020: GBP20,570).
31 December 31 December
2021 2020
(GBP) (GBP)
------------------------------------------------ ------- -------------- ------------
(a) Tax charge in profit or loss
Current tax on profits for the year - -
Adjustments for current tax of prior periods - 20,570
-------------- ------------
- 20,570
(b) Reconciliation of the tax charge for
the year
Profit before tax 80,391,759 18,709,528
-------------- ------------
Tax at UK main rate of 19% 19.00% 15,274,434 3,554,810
Tax effect of:
Non-taxable income (11,981,120) (1,914,490)
Non-deductible expenses 31,350 249,425
Subject to group relief/designated as interest
distributions (3,324,664) (1,889,745)
Adjustments for current tax of prior periods - 20,570
------- -------------- ------------
Tax charge for the year - 20,570
------------------------------------------------ ------- -------------- ------------
11. Earnings per Ordinary Share
Earnings per Ordinary Share (EPS) amounts are calculated by
dividing the profit or loss for the period attributable to ordinary
equity holders of the Company by the weighted average number of
Ordinary Shares in issue during the period. As there are no
dilutive instruments outstanding, basic, and diluted EPS are
identical.
31 December
2021
Total
Revenue Capital
-------------------------------------------------- ------------ ------------ ------------
Net profit attributable to ordinary shareholders
(GBP) 17,837,281 62,554,478 80,391,759
Weighted average number of Ordinary Shares
for the year 390,386,109 390,386,109 390,386,109
------------ ------------
Profit per share (basic and diluted) -
pence 4.57 16.02 20.59
------------ ------------ ------------
31 December
2020
Revenue Capital Total
-------------------------------------------------- ------------ ------------ --------------
Net profit attributable to ordinary shareholders
(GBP) 9,946,027 8,742,931 18,688,958
Weighted average number of Ordinary Shares
for the period 239,953,710 239,953,710 239,953,710
------------ ------------
Profit per share (basic and diluted) -
pence 4.15 3.64 7.79
------------ ------------ --------------
12. Investments in subsidiaries
The Company meets the definition of an investment entity.
Therefore, it does not consolidate its subsidiaries but, rather,
recognises them as investments at fair value through profit or
loss. The Company is not contractually obligated to provide
financial support to the subsidiaries, except as a guarantor to the
debt facility entered into by the MidCo, and there are no
restrictions in place in passing monies up the structure.
Immediate Projects Place Registered office Percentage Ownership
parent of business ownership
-------------- ------------ --------- ------------- ------------------ ----------- -------------
Gresham The Company MidCo The Scalpel, Gresham House 100% Wholly owned
House Energy 18(th) Asset Management
Storage Floor, Limited, 5 New
Holdings 52 Lime Street Square,
plc Street, London, England,
London, EC4A 3TW
EC3M 7AF
Refer to Note 18 for valuation disclosures relating to the
investments in subsidiaries. In the year, the Company disposed of
its interest in Noriker Power Limited.
The Directors evaluate the performance of the portfolio of
energy storage investments through its subsidiary companies on a
fair value basis. The income approach is used to value investments
as it indicates value based on the sum of the economic income that
a project, or group of projects, is anticipated to earn in the
future. Where projects are acquired within the quarter to the
valuation date, the cost approach is used to determine the fair
value.
The Company engaged with Grant Thornton as independent and
qualified valuers to assess the fair value of the Company's
investments and have provided their opinion on the reasonableness
of the valuation of the Company's investment portfolio.
Therefore, the investments in subsidiaries are measured at FVTPL
under IFRS 9, as these financial assets are managed and their
performance evaluated on a fair value basis.
Reconciliation 31 December 2021 31 December
2020
------------------------------------------------- ----------------- ------------
(GBP) (GBP)
Opening balance 248,964,175 138,203,407
Add: purchases during the year - 238,095
Less: disposals during the year (238,095) -
Add: loans advanced 5 5,730,831 76,155,352
Less: Loan repayments (419,290) (5,750,000)
Add: Loans to affiliated entities of
the Investment Manager converted to investment - 6,871,121
Add: Escrow release to investment (non-cash) - 10,843,595
Add: accrued interest on loans 22,470,837 12,346,913
Total fair value movement through the
profit or loss 6 2,838,290 10,055,692
-------------------------------------------------- ----------------- ------------
Closing balance 389,346,748 248,964,175
-------------------------------------------------- ----------------- ------------
Equity Loans Total equity
and loans
(GBP) (GBP) (GBP)
------------------------ ----------- ------------ -------------
As at 31 December 2021 69,124,138 320,222,610 389,346,748
------------------------ ----------- ------------ -------------
As at 31 December 2020 6,285,848 242,678,327 248,964,175
------------------------ ----------- ------------ -------------
The loan attracts an interest rate of 8% per annum from the date
of advance. Interest compounds on 31 December of each period and
the loan is unsecured.
Unless otherwise agreed, the loan principal and any interest
accrued shall be repayable on the earlier of (i) written demand
from the Company, or (ii) 31 December 2030.
Further analysis
The Company owns 100% of the Ordinary Shares in Gresham House
Energy Storage Holdings plc (the MidCo) which itself holds a number
of 100% owned subsidiaries. The investment in the MidCo of
GBP389,346,748 (2020: GBP248,964,175) comprises underlying
investments as follows:
An example of what the Company would look like if the MidCo was
consolidated is included in Note 3.
Location Percentage ownership Total investment
31 December 31 December 31 December 31 December
2021 2020 2021 2020
(GBP) (GBP)
---------- --------------------- ------------ ------------- -------------
Noriker Staunch Ltd UK 100% 100% 17,342,193 15,758,538
---------- --------------------- ------------ ------------- -------------
HC ESS2 Ltd UK 100% 100% 23,881,200 24,156,127
---------- --------------------- ------------ ------------- -------------
HC ESS3 Ltd UK 100% 100% 20,066,324 19,262,407
---------- --------------------- ------------ ------------- -------------
West Midlands Grid
Storage Ltd UK 100% 100% 3,961,609 3,746,322
---------- --------------------- ------------ ------------- -------------
Cleator Battery Storage
Ltd UK 100% 100% 7,612,741 7,448,425
---------- --------------------- ------------ ------------- -------------
Glassenbury Battery
Storage Ltd UK 100% 100% 38,507,279 36,471,706
---------- --------------------- ------------ ------------- -------------
HC ESS4 Ltd UK 100% 100% 46,118,825 45,615,597
---------- --------------------- ------------ ------------- -------------
Bloxwich Energy Storage
Ltd UK 100% 100% 25,088,436 22,397,138
---------- --------------------- ------------ ------------- -------------
HC ESS6 Ltd UK 100% 100% 44,737,484 38,238,323
---------- --------------------- ------------ ------------- -------------
HC ESS7 Ltd UK 100% 100% 46,055,369 47,058,902
---------- --------------------- ------------ ------------- -------------
Tynemouth Energy Storage
Ltd UK 100% - 15,956,108 -
---------- --------------------- ------------ ------------- -------------
Gridreserve Ltd UK 100% - 19,569,973 -
---------- --------------------- ------------ ------------- -------------
Nevendon Energy Storage
Ltd UK 100% - 5,028,954 -
---------- --------------------- ------------ ------------- -------------
Port of Tyne Energy
Storage Ltd UK 100% - 17,551,881 -
---------- --------------------- ------------ ------------- -------------
Enderby Storage Ltd UK 100% - 19,189,475 -
---------- --------------------- ------------ ------------- -------------
West Didsbury Storage
Ltd UK 100% - 14,917,971 -
---------- --------------------- ------------ ------------- -------------
Penwortham Storage
Ltd UK 100% - 15,073,790 -
---------- --------------------- ------------ ------------- -------------
Grendon Storage Ltd UK 100% - 2,943,599 -
---------- --------------------- ------------ ------------- -------------
Melksham East Storage
Ltd UK 100% - 8,110,637 -
---------- --------------------- ------------ ------------- -------------
Melksham West Storage
Ltd UK 100% - 1,955,602 -
---------- --------------------- ------------ ------------- -------------
Investments in subsidiaries
- subtotal 393,669,450 260,153,485
--------------------- ------------ ----------------------------
Noriker Power Ltd UK - 4% - 238,095
---------- --------------------- ------------ ------------- -------------
Biggerbrook Ltd UK - - - 1,951,194
---------- --------------------- ------------ ------------- -------------
Gridreserve Ltd (prior
to acquisition) UK - - - 2,051,020
---------- --------------------- ------------ ------------- -------------
Coupar Ltd UK - - 3,519,729 -
---------- --------------------- ------------ ------------- -------------
Arbroath Ltd UK - - 3,926,248 -
---------- --------------------- ------------ ------------- -------------
Total investments 401,115,427 264,393,794
--------------------- ------------ ------------- -------------
Bonds issued by MidCo - (15,088,825)
--------------------- ------------ ------------- -------------
Working capital in
MidCo (11,768,679) (340,794)
--------------------- ------------ ------------- -------------
Total investment in
MidCo 389,346,748 248,964,175
--------------------- ------------ ------------- -------------
The place of business for all the investments is 5 New Street
Square, London, England, EC4A 3TW.
13. Loans receivable
The only loans receivable at 31 December 2021 are loans to the
MidCo, which are accounted for as investments in subsidiaries - see
Note 12.
14. Cash and cash equivalents
31 December 31 December
2021 2020
(GBP) (GBP)
-------------- ---- ------------ ------------
Cash at bank 122,175,081 110,967,025
122,175,081 110,967,025
------------------- ------------ ------------
15. Trade and other receivables
31 December 31 December
2021 2020
(GBP) (GBP)
---------------- ---- ------------ ------------
Prepayments 88,666 13,995
Accrued income 41,397 89,902
VAT receivable 229,404 170,530
359,467 274,427
--------------------- ------------ ------------
16. Trade and other payables
31 December 31 December
2021 2020
(GBP) (GBP)
---------------------------------------- ---- ------------ ------------
Administration and secretarial fees 29,210 57,500
Audit fee accrual 95,804 121,000
Other accruals 85,241 85,617
Deferred consideration for HC ESS4 Ltd
(Red Scar) * - 1,030,530
Taxation payable - 20,570
210,255 1,315,217
--------------------------------------------- ------------ ------------
* This related to the outstanding portion payable for the
acquisition of the subsidiary based on meeting certain performance
targets, the amount was subsequently paid in 2021. These
performance targets are not disclosed as they are commercially
sensitive.
17. Categories of financial instruments
31 December 31 December
2021 2020
(GBP) (GBP)
------------------------------------------ ---- ------------ ------------
Financial assets
Financial assets at amortised cost:
Cash and cash equivalents 122,175,081 110,967,025
Trade and other receivables 130,063 103,897
Fair value through profit or loss:
Investment in subsidiaries 389,346,748 248,964,175
Total financial assets 511,651,892 360,035,097
------------------------------------------------ ------------ ------------
Financial liabilities
Financial liabilities at amortised cost:
Trade and other payables (210,255) (1,315,217)
Net financial assets 511,441,637 358,719,880
------------------------------------------------ ------------ ------------
As at 31 December 2021, the Company had an outstanding charge
with Santander UK plc in respect of its position as guarantor to
the debt facility, held against all the assets and undertakings of
the Company. Since the year end the Company has also provided
letters of credit in respect of equipment purchases for the benefit
of certain subsidiaries for which a charge is held by Barclays Bank
plc over a bank account belonging to the Company.
At the balance sheet date, all financial assets and liabilities
were measured at amortised cost except for the investment in
subsidiaries which are measured at fair value.
18. Fair Value measurement
Valuation approach and methodology
The Company, via the MidCo, used the income approach to value
its underlying investments. The income approach indicates value
based on the sum of the economic income that an asset, or group of
assets, is anticipated to produce in the future. Therefore, the
income approach is typically applied to an asset that is expected
to generate future economic income, such as a business that is
considered a going concern. Free cash flow to total invested
capital is typically the appropriate measure of economic income.
The income approach is the DCF approach and the method discounts
free cash flows using an estimated discount rate.
Valuation process
The Company, via the MidCo, held a portfolio of energy storage
investments with a capacity of 425 Megawatt (MW) operational and
375MW[26] in construction (together the investments). The
investments comprise 24 projects held in 22 special project
vehicles.
All of the investments are based in the UK. The Directors review
and approve the valuations of these assets following appropriate
challenge and examination. The current portfolio consists of
non-market traded investments, and valuations are analysed using
forecasted cash flows of the assets and use the discounted cash
flow approach for valuation purposes. The Company engages external,
independent, and qualified valuers to determine the fair value of
the Company's investments or valuations are produced by the
Investment Manager. As at 31 December 2021, the fair value of the
portfolio of investments has been determined by the Investment
Manager and reviewed by Grant Thornton UK LLP.
The valuations have been determined using discounted cash flow
methodology, whereby the estimated future cash flows relating to
the Company's equity investment in each project have been
discounted to 31 December 2021, using discount rates reflecting the
risks associated with each investment project and the time value of
money. The valuations are based on the expected future cash flows,
using reasonable assumptions and forecasts for revenues, operating
costs, macro-level factors and an appropriate discount rate.
New operational projects acquired are initially held at cost,
which is deemed to be fair value, and are revalued once the
performance of the assets has been verified. The valuation of these
assets, after the initial period, is performed on the same basis as
the remainder of the portfolio. Assets in the course of
construction are also held initially at cost, but are revalued,
with a construction risk premium of 0.5%, once certain criteria are
met including the timescale to expected commercial operations and
the signing of certain contracts.
The determination of the discount rate applicable to each
individual investment project considers various factors, including,
but not limited to, the stage reached by each project, the period
of operation, the historical track record, the terms of the project
agreements and the market conditions in which the project
operates.
The Investment Manager exercises its judgement in assessing the
expected future cash flows from each investment. The Investment
Manager produces detailed financial models for each underlying
project. The Investment Manager makes amendments where appropriate
to:
a) discount rates (i) implied in the price at which comparable
transactions have been announced or completed in the UK energy
storage sector (if available); (ii) publicly disclosed by the
Company's peers in the UK energy storage sector (if available); and
(iii) discount rates applicable for other comparable infrastructure
asset classes and regulated energy sectors;
b) changes in power market forecasts from leading market forecasters;
c) changes in the economic, legal, taxation or regulatory
environment, including changes in retail
price index expectations;
d) technical performance based on evidence derived from project performance to date;
e) the terms of any power purchase agreement arrangements;
f) accounting policies;
g) the terms of any debt financing at project level;
h) claims or other disputes or contractual uncertainties; and
i) changes to revenue, cost, or other key assumptions (may
include an assessment of future cost trends, as appropriate).
Valuation assumptions include consideration of climate related
matters such as expected levels of renewable energy entering the
grid system, demand patterns and current regulatory policy. These
are factored into the pricing assumptions which are prepared by an
independent consultancy.
The Board reviews the operating and financial assumptions,
including the discount rates, used in the valuation of the
Company's underlying portfolio and approves them based on the
recommendation of the Investment Manager.
31 December 2021 31 December 2020
Key valuation input Range Weighted average Range Weighted average
------------- ----------------- ------------- -----------------
WACC / WADR 9.9 - 11.4% 10.8% 10.3 - 11.1% 10.8%
------------- ----------------- ------------- -----------------
RPI 2.8 - 2.9% 2.8% 3% 3%
------------- ----------------- ------------- -----------------
Another key assumption in the valuation models is the volatility
of power prices. Due to the Asset Optimisation strategy, the
investments are able to benefit from a range of revenue streams
including arbitrage on power price volatility or FFR and other
similar income streams. Due to the nature of the assets owned by
the investments, should one revenue stream be impacted the asset is
able to switch to alternative sources of revenue to seek to
maintain total revenue targets.
Sensitivity analysis
The below table reflects the range of sensitivities in respect
of the fair value movements of the Company's investments, via the
MidCo.
The sensitivity analysis does not include an assessment of the
fall in the power price as underlying power information is provided
on a net revenue basis as the investment portfolio generates value
through maximising on the volatility in the market, therefore
adjusting revenue as a total is a more relevant measure. Therefore,
we have therefore provided a sensitivity based on percentage
changes in revenue overall.
Investment Project Valuation Significant Sensitivity Estimated Estimated
Technique Inputs effect on effect on
Description fair value fair value
31 December 31 December
2021 2020
(GBP) (GBP)
Noriker Staunch Discount
Ltd Staunch DCF rate +1% (1,188,112) (1,224,113)
-1% 1,346,462 1,401,859
----------------------------------------------------------------- ------------ ------------- ---------------
Revenue +10% 1,307,467 1,157,930
-10% (1,321,450) (1,176,750)
----------------------------------------------------------------- ------------ ------------- ---------------
Rufford,
Lockleaze, Discount
HC ESS2 Ltd Littlebrook DCF rate +1% (1,622,287) (1,666,859)
-1% 1,844,065 1,906,534
----------------------------------------------------------------- ------------ ------------- ---------------
Revenue +10% 1,594,147 1,233,342
-10% (1,947,003) (1,455,996)
----------------------------------------------------------------- ------------ ------------- ---------------
Discount
HC ESS3 Ltd Roundponds DCF rate +1% (1,504,951) (1,494,752)
-1% 1,744,638 1,751,979
----------------------------------------------------------------- ------------ ------------- ---------------
Revenue +10% 1,475,139 1,163,309
-10% (1,505,125) (1,125,303)
----------------------------------------------------------------- ------------ ------------- ---------------
West Midlands
Grid Storage Discount
Two Ltd Wolverhampton DCF rate +1% (271,807) (263,187)
-1% 308,750 300,777
----------------------------------------------------------------- ------------ ------------- ---------------
Revenue +10% 399,734 361,590
-10% (435,547) (340,677)
----------------------------------------------------------------- ------------ ------------- ---------------
Cleator Battery Discount
Storage Ltd Cleator DCF rate +1% (743,633) (648,290)
-1% 851,165 750,802
----------------------------------------------------------------- ------------ ------------- ---------------
Revenue +10% 883,206 524,510
-10% (886,715) (529,040)
----------------------------------------------------------------- ------------ ------------- ---------------
Glassenbury Battery Glassenbury DCF N/A N/A N/A N/A
Storage Ltd
--------------- ------------ -------------- ------------ ------------- ---------------
Glassenbury Discount
B DCF rate +1% (3,576,483) (3,302,809)
-1% 4,092,515 3,819,262
----------------------------------------------------------------- ------------ ------------- ---------------
Revenue +10% 4,201,276 2,608,817
-10% (4,216,089) (2,606,621)
----------------------------------------------------------------- ------------ ------------- ---------------
Discount
HC ESS4 Ltd Red Scar DCF rate +1% (3,751,022) (3,840,242)
-1% 4,416,962 4,546,579
----------------------------------------------------------------- ------------ ------------- ---------------
Revenue +10% 4,393,203 3,019,526
-10% (4,420,195) (3,819,002)
----------------------------------------------------------------- ------------ ------------- ---------------
Bloxwich Energy Discount
Storage Ltd Bloxwich DCF rate +1% (1,822,905) (1,629,444)
-1% 2,074,137 1,861,700
----------------------------------------------------------------- ------------ ------------- ---------------
Revenue +10% 2,690,591 2,138,010
-10% (2,719,548) (2,017,161)
----------------------------------------------------------------- ------------ ------------- ---------------
Discount
HC ESS7 Ltd Thurcroft DCF rate +1% (3,605,403) (3,530,887)
-1% 4,203,128 4,123,953
----------------------------------------------------------------- ------------ ------------- ---------------
Revenue +10% 4,234,266 2,945,498
-10% (4,284,189) (3,666,454)
----------------------------------------------------------------- ------------ ------------- ---------------
Discount
HC ESS6 Ltd Wickham DCF rate +1% (3,207,419) -
-1% 3,680,717 -
----------------------------------------------------------------- ------------ ------------- ---------------
Revenue +10% 4,004,174 -
-10% (4,060,406) -
----------------------------------------------------------------- ------------ ------------- ---------------
Tynemouth Battery Discount
Storage Ltd Tynemouth DCF rate +1% (1,661,999) -
-1% 1,956,686 -
----------------------------------------------------------------- ------------ ------------- ---------------
Revenue +10% 2,037,818 -
-10% (2,044,741) -
----------------------------------------------------------------- ------------ ------------- ---------------
Discount
Gridreserve Ltd Byers Brae DCF rate +1% (1,436,577) -
-1% 1,638,084 -
----------------------------------------------------------------- ------------ ------------- ---------------
Revenue +10% 2,013,383 -
-10% (2,048,092) -
----------------------------------------------------------------- ------------ ------------- ---------------
Nevendon Energy Discount
Storage Ltd Nevendon DCF rate +1% (646,090) -
-1% 729,222 -
----------------------------------------------------------------- ------------ ------------- ---------------
Revenue +10% 1,097,594 -
-10% (1,104,807) -
----------------------------------------------------------------- ------------ ------------- ---------------
Port of Tyne
Energy Storage Discount
Ltd Port of Tyne DCF rate +1% (1,377,801) -
-1% 1,510,192 -
----------------------------------------------------------------- ------------ ------------- ---------------
Revenue +10% 2,248,320 -
-10% (2,243,005) -
----------------------------------------------------------------- ------------ ------------- ---------------
Enderby Storage Discount
Ltd Enderby DCF rate +1% (2,598,696) -
-1% 3,026,012 -
----------------------------------------------------------------- ------------ ------------- ---------------
Revenue +10% 3,466,831 -
(3,516,511) -
-10%
----------------------------------------------------------------- ------------ ------------- ---------------
West Didsbury Discount
Storage Ltd West Didsbury DCF rate +1% (2,605,119) -
-1% 3,035,333 -
----------------------------------------------------------------- ------------ ------------- ---------------
Revenue +10% 3,426,385 -
-10% (3,472,099) -
----------------------------------------------------------------- ------------ ------------- ---------------
Penwortham Storage Discount
Ltd Penwortham DCF rate +1% (2,640,548) -
-1% 3,079,486 -
----------------------------------------------------------------- ------------ ------------- ---------------
Revenue +10% 3,361,519 -
-10% (3,402,072) -
----------------------------------------------------------------- ------------ ------------- ---------------
The Coupar, Arbroath, Melksham and Grendon projects are held at
cost
Portfolio Sensitivity of RPI Sensitivity Estimated effect Estimated
on fair value effect on
31 December fair value
2021 31 December
(GBP) 2020
(GBP)
Inflation +0.25% 9,733,718 4,828,487
-0.25% (9,417,405) (4,661,569)
------------ ----------------- -------------
The level in the fair value hierarchy within which the fair
value measurement is categorised is determined on the basis of the
lowest level input that is significant to the fair value
measurement in its entirety. For this purpose, significance of the
inputs is assessed against the fair value measurement in its
entirety. Assessing the significance of a particular input to the
fair value measurement in its entirety requires judgement,
considering factors specific to the asset or liability. If a fair
value measurement uses observable inputs that require significant
adjustment based on unobservable inputs or any other significant
unobservable inputs, that measurement is a Level 3 measurement.
The fair value hierarchy of financial instruments measured at
fair value is provided below.
31 December 2021 Level 1 Level 2 Level 3
(GBP) (GBP) (GBP)
---------------------------- ---------- ---------- ------------
Investment in subsidiaries - - 389,346,748
- - 389,346,748
---------- --------------------------------------- ------------
31 December 2020 Level 1 Level 2 Level 3
(GBP) (GBP) (GBP)
---------------------------- ---------- ---------- ------------
Investment in subsidiaries - - 248,964,175
- - 248,964,175
---------- --------------------------------------- ------------
Valuation of financial instruments
The investment at fair value through profit or loss is a Level 3
in the fair value hierarchy and the reconciliation in the movement
of this Level 3 investment is presented in Note 12. No transfers
between levels took place during the period.
19. Financial risk management
The Company is exposed to certain risk through the ordinary
course of business and the Company's financial risk management
objective is to minimise the effect of these risks. The management
of risks is performed by the Directors of the Company and the
exposure to each financial risk considered potentially material to
the Company, how it arises and the policy for managing it is
summarised below:
-- Counterparty risk
The Company is exposed to third party credit risk in several
instances and the possibility that counterparties with which the
Company and its subsidiaries, together the Group, contracts may
default by failing to pay for services received from the Company or
its subsidiaries or fail to perform their obligations in the manner
anticipated by the Group. Such counterparties may include (but are
not limited to) manufacturers who have provided warranties in
relation to the supply of any equipment or plant, EPC contractors
who have constructed the Company's plants, who may then be engaged
to operate assets held by the Company, property owners or tenants
who are leasing ground space and/or grid connection to the Company
for the locating of the assets, contractual counterparties who
acquire services from the Company underpinning revenue generated by
each project or the energy suppliers, demand aggregators, insurance
companies who may provide coverage against various risks applicable
to the Company's assets (including the risk of terrorism or natural
disasters affecting the assets) and other third parties who may owe
sums to the Company. In the event that such credit risk
crystallises, in one or more instances, and the Company is, for
example, unable to recover sums owed to it, make claims in relation
to any contractual agreements or performance of obligations (e.g.
warranty claims) or unable to identify alternative counterparties,
this may materially adversely impact the investment returns.
Management has completed a high-level analysis which considers both
historical and forward-looking qualitative and quantitative
information, to assess the credit risk of these loan receivables
and has determined that the credit risk of these loans as at 31
December 2021 is low due to the financial position of the borrowers
as a result of the value of these underlying project
investments.
Further, the projects in which the Company may invest will not
always benefit from a turnkey contract with a single contractor and
so will be reliant on the performance of several suppliers.
Therefore, the key risks during battery installation in connection
with such projects are the counterparty risk of the suppliers and
successful project integration.
The Investment Manager regularly assesses the creditworthiness
of its counterparties and enters into counterparty arrangements
which are financially sound and ensures, where necessary, the
sourcing of alternative arrangements in the event of changes in the
creditworthiness of its present counterparties.
-- Concentration risk
The Company's investment policy is limited to investment (via
its subsidiary) in battery energy storage infrastructure, which
will principally operate in the UK. This means that the Company has
a significant concentration risk relating to the UK battery energy
storage infrastructure sector. Significant concentration of
investments in any one sector may result in greater volatility in
the value of the Company's investments via its subsidiary, and
consequently the NAV and may materially and adversely affect the
performance of the Company and returns to shareholders.
The Fund's BESS projects generate revenues primarily from Firm
Frequency Response (FFR), Asset Optimisation, Capacity Market (CM)
and other grid connection-related charges, including TRIADs and
Dynamic Containment. Revenues from the portfolio's seed BESS
projects have historically been skewed to FFR revenues, FFR being
the provision to the National Grid of a dynamic response service to
maintain the grid's electrical frequency at 50Hz. In 2021,
operations were increasingly targeted towards Asset Optimisation,
as this becomes the more profitable business activity. There are
several additional revenue opportunities emerging for the portfolio
as a series of regulatory changes are implemented.
The Investment Manager is of the view that the UK's exposure to
renewable energy generation has increased significantly over the
last few years and the pace has not lessened despite the removal of
legacy subsidies to onshore wind and solar. This is largely because
the development of offshore wind installations has continued apace.
As a result, generation from wind is having a growing impact on the
grid, generating a volatile supply of energy which underpins the
opportunity for BESS.
-- Credit risk
Cash and other assets that are required to be held in custody
will be held at bank. Cash and other assets may not be treated as
segregated assets and will therefore not be segregated from the
bank's own assets in the event of the insolvency of a custodian.
Cash held with the bank will not be treated as client money subject
to the rules of the FCA and may be used by the bank in the ordinary
course of its own business. The Company will therefore be subject
to the creditworthiness of the bank. In the event of the insolvency
of the bank, the Company will rank as a general creditor in
relation thereto and may not be able to recover such cash in full,
or at all.
The Investment Manager regularly assesses its credit exposure
and considers the creditworthiness of its customers and
counterparties. Cash and bank deposits are held with Barclays Bank
plc, a reputable financial institution with a Moody's credit rating
Baa2.
Investments held at fair value through profit or loss are not
subject to IFRS 9 impairment requirements.
For interest receivables on cash balances and loans receivable,
the Company uses a 12-month expected loss allowance.
The Company has completed some high-level analysis and forward
looking qualitative and quantitative information to determine if
the interest and receivables are low credit risk. Based on this
analysis the expected credit loss on interest and receivables are
not material and therefore no impairment adjustments were accounted
for.
-- Liquidity risk
The objective of liquidity management is to ensure that all
commitments made by the Company which are required to be funded can
be met out of readily available and secure sources of funding. As
noted below, this includes debt funding.
BESS projects have limited liquidity and may not be readily
realisable or may only be realisable at a value less than their
book value. There may be additional restrictions on divestment in
the terms and conditions of any sale agreement in relation to a
particular BESS project.
The Company has assessed its ability to raise debt after
sufficient assets were acquired and to the extent funding was
available on acceptable terms. Accordingly, the MidCo has entered
into a debt facility during the year.
The Company is permitted to provide security to lenders in order
to borrow money, which may be by way of mortgages, charges, or
other security interests or by way of outright transfer of title to
the Company's assets. The Directors will restrict borrowing to an
amount not exceeding 50% of the Company's NAV at the time of
drawdown.
The Company's only financial liabilities are trade and other
payables. The Company has sufficient cash reserves to cover these
in the short to medium term. The Company's cash flow forecasts are
monitored regularly to ensure the Company is able to meet its
obligations when they fall due.
The following table reflects the maturity analysis of financial
assets and liabilities.
< 1 1 to 2 to > 5 years Total
year 2 years 5 years
As at 31 December 2021 (GBP) (GBP) (GBP) (GBP) (GBP)
----------------------------- ------------ --------- --------- ------------ ------------
Financial assets
Cash and cash equivalents
(see Note 14) 122,175,081 - - - 122,175,081
Trade and other receivables
(see Note 15) ** 41,397 - - - 41,397
Fair value through profit
or loss:
Investment in subsidiaries* - - - 389,346,748 389,346,748
Total financial assets 122,216,478 - - 389,346,748 511,563,226
----------------------------- ------------ --------- --------- ------------ ------------
Financial liabilities
Financial liabilities
at amortised cost
Trade and other payables
(see Note 16) 210,255 - - - 210,255
Total financial liabilities 210,255 - - - 210,255
----------------------------- ------------ --------- --------- ------------ ------------
< 1 1 to 2 to > 5 years Total
year 2 years 5 years
As at 31 December 2020 (GBP) (GBP) (GBP) (GBP) (GBP)
------------------------------------ ------------ --------- --------- ------------ ------------
Financial assets
Cash and cash equivalents (see
Note 14) 110,967,025 - - - 110,967,025
Trade and other receivables (see
Note 15)** 89,902 - - - 89,902
Fair value through profit or
loss:
Investment in subsidiaries* - - - 248,964,175 248,964,175
Total financial assets 111,056,927 - - 248,964,175 360,021,102
------------------------------------ ------------ --------- --------- ------------ ------------
Financial liabilities
Financial liabilities at amortised
cost
Trade and other payables (see
Note 16) 1,315,217 - - - 1,315,217
Total financial liabilities 1,315,217 - - - 1,315,217
------------------------------------ ------------ --------- --------- ------------ ------------
*excludes the equity portion of the investment in subsidiaries
(in 2020 equity investments were included within due within one
year, these are now included in due more than 5 years as there is
no set maturity date)
** excludes prepayments and VAT
-- Market risk
Market risk is the risk that the fair value or cash flows of a
financial instrument will fluctuate due to changes in market
prices. Market risk reflects interest rate risk, currency risk and
other price risks. The objective is to minimise market risk through
managing and controlling these risks to acceptable parameters,
while optimising returns. The Company uses financial instruments in
the ordinary course of business, and also incurs financial
liabilities, in order to manage market risks.
Price risk is the risk that the fair value or cash flows of a
financial instrument will fluctuate due to changes in market
prices. At 31 December 2021, the valuation basis of the Company's
investments was valued at market value. This investment is driven
by market factors and is therefore sensitive to movements in the
market. The Company relies on market knowledge of the Investment
Manager, the valuation expertise of the third-party valuer and the
use of third-party market forecast information to provide comfort
with regard to fair market values of investments reflected in the
Financial Statements. Refer to Note 18 for trading revenue
sensitivities.
-- Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows or the fair values of
financial instruments. The Company is exposed to interest rate risk
on its cash balances held with counterparties, bank deposits, loans
receivable, advances to counterparties and through loans to
subsidiaries. Loans to subsidiaries carry a fixed rate of interest
until repayment at the earlier of written demand from the lender or
31 December 2030. The Company may be exposed to changes in variable
market rates of interest as this could impact the discount rate and
therefore the valuation of the projects as well as the fair value
of the loan receivables.
-- Currency risk
All transactions and investments during the current year were
denominated in Pounds Sterling, thus no foreign exchange
differences arose. The Company does not hold any financial
instruments at year end which are not denominated in Pounds
Sterling and is therefore not exposed to any significant currency
risk. Subsidiary entities may, from time to time, incur expenditure
in currencies other than Pounds Sterling.
-- Capital risk management
The capital structure of the Company at year end consists of
equity attributable to equity holders of the Company, comprising
issued capital and reserves. The Board continues to monitor the
balance of the overall capital structure so as to maintain investor
and market confidence. The Company is not subject to any external
capital requirements.
20. Net Asset Value (NAV) per Ordinary Share
Basic NAV per Ordinary Share is calculated by dividing the
Company's net assets as shown in the statement of financial
position that are attributable to the ordinary equity holders of
the Company by the number of Ordinary Shares outstanding at the end
of the period. As there are no dilutive instruments outstanding,
basic, and diluted NAV per Ordinary Share are identical.
31 December 31 December
2021 2020
------------------------------------------------ ------------ ------------
Net assets per statement of financial position
(GBP) 511,671,041 358,890,410
Ordinary Shares in issue 437,842,078 348,556,364
NAV per Ordinary Share - Basic and diluted
(pence) 116.86 102.96
------------------------------------------------- ------------ ------------
21. Share capital
Ordinary Share Share premium Merger Capital Total
Shares capital relief reduction
(GBP) reserve reserve
number (GBP) (GBP) (GBP) (GBP)
--------------------- ------------ ---------- -------------- ----------- ------------- -------------
Allotted and issued
share capital
As at 31 December
2020 348,556,364 3,485,564 251,601,260 13,299,017 64,123,617 332,509,458
Issue of Ordinary
Shares of GBP0.01
and fully paid at
GBP1.12 - 14 July
2021 89,285,714 892,857 99,107,143 - - 100,000,000
437,842,078 4,378,421 350,708,403 13,299,017 64,123,617 432,509,458
--------------------- ------------ ---------- -------------- ----------- ------------- -------------
Share issue costs - - (1,649,683) - - (1,649,683)
Dividends paid - - - - (25,961,445) (25,961,445)
As at 31 December
2021 437,842,078 4,378,421 349,058,720 13,299,017 38,162,172 404,898,330
--------------------- ------------ ---------- -------------- ----------- ------------- -------------
Ordinary Share Share premium Merger Capital Total
Shares capital relief reduction
(GBP) reserve reserve
number (GBP) (GBP) (GBP) (GBP)
------------------------ ------------ ---------- -------------- ----------- ------------- -------------
Allotted and issued
share capital
As at 31 December
2019 (restated) 204,270,650 2,042,707 104,380,109 13,299,017 78,465,533 198,187,366
Issue of Ordinary
Shares of GBP0.01
and fully paid at
GBP1.04 - 5 March
2020 30,000,000 300,000 30,900,000 - - 31,200,000
Issue of Ordinary
Shares of GBP0.01
and fully paid at
GBP1.05 - 27 November
2020 114,285,714 1,142,857 118,857,143 - - 120,000,000
348,556,364 3,485,564 254,137,252 13,299,017 78,465,533 349,387,366
------------------------ ------------ ---------- -------------- ----------- ------------- -------------
Share issue costs - - (2,535,992) - - (2,535,992)
Dividends paid - - - - (14,341,916) (14,341,916)
As at 31 December
2020 348,556,364 3,485,564 251,601,260 13,299,017 64,123,617 332,509,458
------------------------ ------------ ---------- -------------- ----------- ------------- -------------
Share capital
The Company's capital is represented by the Ordinary Shares,
Share premium (until cancellation), Merger relief reserve, Capital
reduction reserve, Revenue reserves and Capital reserves.
Share premium
The surplus of net proceeds received from the issuance of new
shares over their par value is credited to this account and the
related issue costs are deducted from this account. The reserve is
non-distributable.
Merger relief reserve
The Merger reserve relates to shares issued for shares to
acquire investments. This reserve is not distributable.
Revenue reserves
The Revenue net profit arising in the Statement of Comprehensive
Income is added to or deducted from this reserve which is a
distributable reserve.
Capital reserves
The Capital reserve comprises of increases and decreases in the
fair value of investments held at the period end, gains, and losses
on the disposal of investments, transaction, and legal fees. The
capital reserves are not distributable.
Capital reduction reserve
Following a successful application to the High Court and
lodgement of the Company's statement of capital with the Registrar
of Companies in a prior period the Company was permitted to cancel
its Share premium account. This was completed on 13 February 2019
by a transfer of the balance of GBP97,009,475 from the Share
premium account to the Capital reduction reserve. The Capital
reduction reserve is classed as a distributable reserve and
dividends to be paid by the Company may be offset against this
reserve.
Share capital and Share premium account and Capital reduction
reserve
On incorporation the Company issued 1 Ordinary Share of GBP0.01
which was fully paid up and 50,000 redeemable preference shares of
GBP1 each which were paid up to one quarter of their nominal value.
These 50,000 redeemable preference shares were subsequently
redeemed.
On 17 February 2020, the Board announced a non-pre-emptive
placing of new Ordinary Shares at an issue price of 104.0p per
Placing Share to fund further pipeline acquisitions and provide
increased general working capital. Further to that announcement,
the Company announced on 3 March 2020, the issue of 30,000,000
Ordinary Shares raising gross proceeds of GBP31.2mn.
On 10 November 2020, the Company announced and published a
prospectus in respect of, a share issuance programme for up to
250mn new Ordinary Shares and on 25 November 2020 announced the
successful raise of gross proceeds of GBP120mn through the issue of
an initial tranche of 114,285,714 new Ordinary Shares at an issue
price of 105p per share.
14 July 2021, the Company announced the successful raise of
gross proceeds of GBP100mn through the issue of 89,285,714 new
Ordinary Shares at an issue price of 112 pence per Ordinary
Share.
Dividends
Period in relation Announcement Ex-dividend Payment Amount per Total amount
to which dividend date date date Ordinary
was paid Share
1 January to 31 28 April 2021 13 May 2021 4 June 2021 1.75 pence GBP6,099,736
March 2021
-------------- ------------- ------------- ----------- -------------
1 April to 30 June 1 July 2021 8 July 2021 30 July 2021 1.75 pence GBP6,099,736
2021
-------------- ------------- ------------- ----------- -------------
1 July to 30 September 15 November 25 November 17 December 1.75 pence GBP7,662,236
2021 2021 2021 2021
-------------- ------------- ------------- ----------- -------------
1 October to 31 14 February 3 March 2022 25 March 1.75 pence GBP7,662,236
December 2021 2022 2022
-------------- ------------- ------------- ----------- -------------
Ordinary shareholders are entitled to all dividends declared by
the Company and, in a winding up, to all of the Company's assets
after repayment of its borrowings and ordinary creditors. Ordinary
shareholders have the right to vote at meetings of the Company. All
Ordinary Shares carry equal voting rights.
22. Cash and non-cash flow items
The non-cash movements for the year ended 31 December 2021
relate to movement in the investments, these non-cash movements are
reconciled and discussed in Note 12.
23. Transactions with related parties and other significant
contracts
The Company and the Directors are not aware of any person who,
directly or indirectly, jointly, or severally, exercises or could
exercise control over the Company. The Company does not have an
ultimate controlling party.
Details of related parties are set out below:
Directors
31 December 31 December
2021 2020
Directors' remuneration 232,500 197,000
------------ ------------
Employers NI 23,209 19,073
------------ ------------
Total Key management personnel 255,709 216,073
------------ ------------
All directors' remuneration is short term salary.
The remuneration arrangements of Directors are disclosed in the
Director's Remuneration Report on pages 45 to 47.
Dividends paid by the Company to the Directors are disclosed in
the Director's Remuneration Report on pages 45 to 47. No dividend
amounts were payable as at 31 December 2021 (2020: none).
The aggregate fees of the Directors will not exceed GBP500,000
per annum. There are no performance conditions attaching to the
remuneration of the Directors as the Board does not believe that
this is appropriate for Non-Executive Directors. The Directors are
not eligible for bonuses, pension benefits, share options,
long-term incentive schemes or other benefits.
Loans to related parties
Loans receivable represent amounts due to the Company from its
subsidiary and are disclosed in Note 12.
Principal Interest Total loans
advanced accrued (GBP)
(GBP) (GBP)
------------------------ ------------ ----------- ------------
As at 31 December 2021 297,751,771 22,470,837 320,222,608
------------------------ ------------ ----------- ------------
As at 31 December 2020 230,033,724 12,644,603 242,678,327
------------------------ ------------ ----------- ------------
24. Capital commitments
As at 31 December 2021 the Company has no significant binding or
conditional future capital commitments (2020: none).
25. Post balance sheet events
The Board of Directors announced the following:
-- On 14 February 2022, the Board approved the payment of an
interim dividend in respect of Q4 2021 of 1.75 pence per Ordinary
Share. It was proposed that the Dividend would be paid on 25 March
2022 to the members whose names appeared on the Company's register
of members on 4 March 2022, with an ex-dividend date of 3 March
2022.
-- In January 2022, the Company issued a Letter of Credit to
Sungrow Power UK Limited for an amount of GBP30,769,589 in relation
to battery purchases made by subsidiaries of MidCo.
-- On 24 February 2022, Russia began an unlawful invasion of
Ukraine : this has caused significant volatility within the UK
power market within which the Company's investments operate.
There were no further events after the reporting date which
require disclosure.
16. ALTERNATIVE PERFORMANCE MEASURES
For the period from 1 January 2021 to 31 December 2021
1) Dividend per Ordinary Share
Dividend per Ordinary Share is a measure to show the distributions
made to shareholders during the year.
Dividend period: 12 months to 31 December Dividend Number of Total dividend
2021 paid per shares on paid (GBP)
share (GBP) dividend
payment
date
Q1 2021 (declared 28 April 2021) 0.0175 348,556,364 6,099,736
Q2 2021 (declared 1 July 2021) 0.0175 348,556,364 6,099,736
Q3 2021 (declared 15 November 2021) 0.0175 437,842,078 7,662,236
Q4 2021 (declared 14 February 2022) 0.0175 437,842,078 7,662,236
------------- ---------------
0.0700 27,523,944
------------- ---------------
Dividend period: 12 months to 31 December Dividend Number of Total dividend
2020 paid per shares on paid (GBP)
share (GBP) dividend
payment
date
Q1 2020 (declared 11 May 2020) 0.0175 234,270,650 4,099,736
Q2 2020 (declared 1 September 2020) 0.0175 234,270,650 4,099,736
Q3 2020 (declared 27 October 2020) 0.0175 234,270,650 4,099,736
Q4 2020 (declared 19 February 2021) 0.0175 348,556,364 6,099,736
------------- ---------------
0.0700 18,398,944
------------- ---------------
2) Ordinary Share price total return
Ordinary Share price total return is a measure of the return that
could have been obtained by holding a share over the reporting period.
12 months 12 months to
to 31 December 31 December
2021 2020
pence pence
Share price at end of the year 130.50 112.50
Dividends paid from inception to end of the year 16.75 9.75
Dividend reinvestment impact 4.26 0.88
Share price at initial public offering (100.00) (100.00)
----------------- -------------
Ordinary Share price total return since inception 51.51 23.13
----------------- -------------
Ordinary Share price total return since inception
% 51.5% 23.1%
----------------- -------------
3) Net asset value (NAV) per Ordinary Share
12 months 12 months
to 31 December to 31 December
2021 2020
NAV at end of the year GBP511,671,041 GBP358,890,410
Ordinary Shares in issue 437,842,078 348,556,364
---------------- ----------------
NAV per share (pence) - Basic and diluted 116.86 102.96
---------------- ----------------
4) NAV per Ordinary Share total return for the
period
NAV per Ordinary Share total return is a measure of the success of
the Investment Manager's strategy to grow the NAV, showing how the
NAV has changed over a period of time, considering both capital returns
and dividends paid to shareholders.
12 months 12 months
to 31 December to 31 December
2021 2020
pence pence
NAV per Ordinary Share at end of the year 116.86 102.96
Dividends paid from inception to end of the year 16.75 9.75
Dividend reinvestment impact 2.51 0.42
----------------- ----------------
NAV per Ordinary Share at end of the year including
dividend reinvestment 136.12 113.13
NAV per Ordinary Share at beginning of the year
including dividend reinvestment (113.13) (104.36)
----------------- ----------------
NAV Total Return for the year 22.99 8.77
----------------- ----------------
NAV per Ordinary Share total return for the year 20.3% 8.4%
----------------- ----------------
5) Gross asset value (GAV)
GAV is a measure of the total
value of the Company's assets.
Year end Year ended
31 December 31 December
2021 2020
(GBP'000) (GBP'000)
Total assets reported in the
Company at end of period 511,881 360,206
Debt held by intermediate
holding company (A) - 14,935
GAV (B) 511,881 375,141
================= ==================
Gearing as defined by the
Company (A / B) 0.0% 4.0%
----------------- ------------------
6) Ongoing charges figure (OCF)
OCF measures the Company's recurring fund management costs incurred
during the year expressed as a percentage of the average of the net
assets at the end of each quarter during the year.
12 months 12 months
to 31 December to 31 December
2021 2020
(GBP'000) (GBP'000)
Fees to Investment Manager 4,053 2,400
Legal and professional fees 561 1,003
Other transaction fees (57) 310
Administration fees 312 237
Directors' remuneration 256 216
Audit fees 194 140
Other ongoing expenses 117 336
---------------- ----------------
Total expenses 5,436 4,642
Non-recurring expenses not in OCF calculation (165) (1,608)
---------------- ----------------
Total ongoing expenses 5,271 3,034
---------------- ----------------
Average NAV for the year 429,192 240,820
Ongoing charges for the year 1.23% 1.26%
---------------- ----------------
7) Operational Dividend Cover
Operational Dividend Cover is a measure to demonstrate the Company's
ability to pay dividends from the underlying operating cash earnings
of its investments after accounting for external interest costs and
operational costs of the Company but excluding transaction costs and
debt arrangement fees.
12 months 12 months
to 31 December to 31 December
2021 2020
(GBP'000) (GBP'000)
EBITDA of underlying group companies 42,522 15,615
Ongoing costs in the Company (5,271) (3,034)
External interest costs (1,405) (154)
Interest income 405 1,671
---------------- ----------------
Net earnings for Operational Dividend Cover 36,251 14,098
---------------- ----------------
Dividends declared by the Company for the year 27,524 18,399
---------------- ----------------
Operational Dividend Cover 1.32x 0.77x
---------------- ----------------
8) Dividend yield
Dividend yield is a measure to show the dividend return received by
shareholders for the year.
12 months 12 months
to 31 December2021 to 31 December
2020
Dividend per share declared in respect of the period
(pence) 7.00 7.00
Share price at end of period (pence) 130.50 112.50
Dividend yield for the period 5.4% 6.2%
-------------------- ----------------
17. COMPANY INFORMATION
Non-Executive Directors
John Leggate - Chair
Duncan Neale
Catherine Pitt
David Stevenson
Registered office
The Scalpel
18(th) Floor
52 Lime Street
London
EC3M 7AF
Investment Manager and AIFM
Gresham House Asset Management Limited
5 New Street Square
London
EC4A 3TW
Corporate Broker and Financial Advisor
Jefferies International Limited
100 Bishopsgate
London
EC2N 4JL
Tax Advisor
Blick Rothenberg Chartered Accountants
16 Great Queen Street
London
EC4V 6BW
Independent Auditor
BDO LLP
55 Baker Street
London
Administrator and Secretary
JTC (UK) Limited
The Scalpel
18(th) Floor
52 Lime Street
London
EC3M 7AF
Registrar and Receiving Agent
Computershare Investor Services plc
The Pavilions
Bridgewater Road
Bristol
BS13 8AE
Legal Adviser
Eversheds LLP
1 Wood Street
London
EC2V 7WS
Depositary
INDOS Financial Limited
54 Fenchurch Street
London
EC3M 3JY
Investment Valuer
Grant Thornton LLP
30 Finsbury Square
London
EC2A 1AG
Ticker: GRID
W1U 7EU
18. GLOSSARY
Asset Optimisation (Trading)
Asset Optimisation involves buying and selling electricity in
order to capture a spread between the high and low electricity
prices on any given day. This can be done via one or more market
mechanisms, hence the expression "Asset Optimisation" and includes
trading in the wholesale market and offering the battery to
National Grid via the Balancing Mechanism.
Asymmetric
An asymmetrical grid connection is where the import and export
capacities are different.
AUM
Assets Under Management: the total net assets of the
Company.
Balancing Mechanism (BM)
A tool used by the ESO to balance the electricity supply and
demand close to real time. The BM is used to balance supply and
demand in each half hour trading period of every day. Where the ESO
predicts that there will be a discrepancy between the amount of
electricity produced and the level of demand during a certain
period, they may accept a 'bid' or 'offer' to either increase or
decrease generation (or even increase consumption in the case of
storage assets). Sites must be registered in the BM to receive such
actions but once registered they are able to set their own prices
for being used.
Balancing services
National Grid procure services to balance demand and supply and
to ensure the security and quality of electricity supply across
Britain's transmission system. These include:
-- Black Start
-- Demand side response
-- Dynamic Containment (DC)
-- Enhanced Frequency Response (EFR)
-- Firm Frequency Response (FFR)
-- Optional Downward Flexibility Management (ODFM)
-- Short Term Operating Reserve (STOR)
https://www.nationalgrideso.com/balancing-services
Black start
A total or partial shutdown of the national electricity
transmission system (NETS) is an unlikely event. However, if it
happens, National Grid are obliged to make sure there are
contingency arrangements in place to ensure electricity supplies
can be restored in a timely and orderly way. Black start is a
procedure to recover from such a shutdown.
https://www.nationalgrideso.com/balancing-services/system-security-services/black-start/
Capacity Market (CM)
The income received by generators to ensure generation capacity
is available to meet short falls.
Combined Cycle Gas Turbine (CCGT)
Energy generation technology that combines a gas-fired turbine
with a steam turbine. The design uses a gas turbine to create
electricity and then captures the resulting waste heat to create
steam, which in turn drives a steam turbine.
Curtailment
Large wind farms are connected to the UK's high-voltage network
and National Grid balances electricity supply and demand. As demand
rises and falls during the day, electricity supply mirrors these
peaks and troughs.
National Grid accepts bids and offers from electricity
generators to increase or decrease electricity generation as and
when required. As such it may mean that there are times when
generators are paid to curtail their output (constraint
payments).
https://www.nationalgrideso.com/news/grounds-constraint
Operational Dividend Cover
Operational Dividend Cover for the purpose of this report refers
to a calculation for the ratio between net earnings of the
underlying investment portfolio in the review period and dividends
paid in respect of the same review period.
This measure aims to add clarity on the Company's ability to pay
dividends from the earnings and cash generation of its underlying
investments after deducting Company costs.
This measure includes the EBITDA of underlying group companies
less Company and holding company costs (excluding capital related
costs and debt arrangement fees but including external interest
expense).
Dividend Yield
The annual dividends expressed as a percentage of the current
share price.
EBITDA of underlying group companies
EBITDA includes earnings before interest, tax, depreciation and
amortisation and includes liquidated damages earnt by SPVs.
Earnings are calculated on an accruals basis and therefore only
SPVs which were owned in the accounting period have their earnings
included here. Transactions completing after the period will have
locked box income recognised once the transaction is completed.
Electricity System Operator (ESO)
Refers to National Grid ESO. The ESO is responsible for ensuring
Great Britain has the essential energy it needs so that supply
meets demand on the electricity system every second of every
day.
https://www.nationalgrideso.com/
Frequency Response services (FR)
A subset of Balancing Services which relate to services
performed by batteries to manage the frequency on the electricity
system. This includes the following services:
-- Dynamic Containment (DC)
-- Enhanced Frequency Response (EFR)
-- Firm Frequency Response (FFR)
-- Optional Downward Flexibility Management (ODFM)
https://www.nationalgrideso.com/balancing-services
Gross Asset Value (GAV)
Gross Asset Value is the total value of the investments and cash
under the management of the Company including debt held by the
MidCo.
International Financial Reporting Standards (IFRS)
International Financial Reporting Standards are accounting
standards issued by the International Accounting Standards Board
(IASB) and have been applied by the Company in the preparation of
the financial statements.
Liquidated Damages (LD)
Liquidated damages are presented in certain legal contracts as
an estimate of losses to one of the parties. It is a provision that
allows for the payment of a specified sum should one of the parties
be in breach of contract. Liquidated damages are meant as a fair
representation of losses in situations where actual damages are
difficult to ascertain.
Liquidated damages are often included in specific contract
clauses to cover circumstances where a party faces a loss from an
asset. The Company typically uses these in EPC arrangements to
protect earnings from an asset in the result of delays to
construction but are also common in other contracts such as for
O&M arrangements.
Load Factors
The load factor is usually expressed as the percentage of the
actual output of a generator compared to its theoretical maximum
output in a year.
Locked box income
On some acquisitions the Company agrees a date at which the
benefit of any subsequent earnings then flow to the acquirer. This
date agreed is referred to as the Locked box date. Earnings flowing
to the acquirer are referred to as the Locked box income. This
mechanism is often used by the Company and aims to prevent the
Company losing out on value as a result of delays to transactions
completing. The period to which Locked box income is earnt varies
between transactions. Each of the new acquisitions in January 2021
had a Locked box date in 2020 meaning the Company achieved benefits
of earnings related to 2020 (through higher working capital in the
SPVs) once the acquisitions completed in 2021.
Net Asset Value (NAV) per Ordinary Share
The total net assets in the Company divided by the total number
of Ordinary Shares in issue as at 31 December 2021.
NAV Total Return
A measure showing how the NAV per share has performed over a
period of time, considering both capital returns and dividends paid
to shareholders.
NAV Total Return is shown as a percentage change from the start
of the period. It assumes that dividends paid to shareholders are
reinvested at NAV at the time the shares are quoted
ex-dividend.
NAV Total Return shows performance which is not affected by
movements in discounts and premiums (share prices). It also
considers the fact that different investment companies pay out
different levels of dividends.
Ongoing Charges Figure (OCF)
The Ongoing Charges Figure includes all charges and costs
incurred by the Company which relate to the ongoing operation of
the Company. This includes management fees, administration fees,
audit fees, Director's remuneration, depositary services costs and
other similar costs. It excludes capital costs and costs of raising
new capital. The Ongoing Charges are then divided by the weighted
average NAV and annualised.
Ordinary Share
Share in the Company with a nominal value of 1p.
Ordinary Share price total return
A measure showing how the share price has performed over a
period of time, considering both capital returns and dividends paid
to shareholders.
Share price total return is shown as a percentage change from
the start of the period. It assumes that dividends paid to
shareholders are reinvested in the shares at the time the shares
are quoted ex dividend.
Share price total return shows performance which is affected by
movements in discounts and premiums. It also considers the fact
that different investment companies pay out different levels of
dividends.
Seed Assets
The assets acquired at IPO known as Staunch, Littlebrook,
Lockleaze, Rufford and Roundponds.
Site uptime
Calculation for the average level of availability in the
portfolio or for an asset in Frequency Response Services. This is
calculated by taking the average MWs available in each period as a
percentage of total capacity contracted.
Symmetrical
A symmetrical grid connection is where the import and export
capacities are the same.
System inertia
Inertia works to keep the electricity system running at the
right frequency by using the kinetic energy in spinning parts in
power plant generator turbines. When needed, the spinning parts in
generator turbines can rotate slightly faster or slower to help
balance out supply and demand. The more turbines you have, the more
energy there is in the system and the greater the system inertia,
which helps to stabilise the frequency.
https://www.nationalgrideso.com/information-about-great-britains-energy-system-and-electricity-system-operator-eso/technical-terms-explained
TRIADs
TRIADs are defined as the three half-hours of highest demand on
the Great Britain electricity transmission system between November
and February each year, the TRIADs are part of a charge-setting
process. This identifies peak electricity demand at three points
during the winter in order to minimise energy consumption.
However, TRIADs must be at least ten days apart. This is to
avoid all three potentially falling in consecutive hours on the
same day, for example during a particularly cold spell of
weather.
https://www.nationalgrideso.com/news/triads-why-three-magic-number
UNDERLYING PROJECT REVENUES
The revenue earned by the operational SPVs ultimately earned by
the Company from commercial operations from all sources. If
liquidated damages are payable to this SPV then these are
included.
VRLA
Valve-Regulated Lead-Acid
[1] Financial performance of the underlying investment portfolio
contributes to the valuation of investments through growth in
working capital balances. Earnings greater than forecasted in prior
valuations will increase valuations and hence NAV
[2] "Operational Dividend Cover" is one of the Alternative
Performance Measures, which are defined and calculated on pages 89
to 91 of the Annual Report
[3] The Company considers the operational performance and future
opportunities of the underlying investment portfolio to be of
importance to understanding the performance of the Company in the
year, as underlying performance supports the flow of cash earnings
to pay dividends to investors and provides evidence of the
investment portfolio business model and valuation of the Company's
investments
[4] Total in construction is 415MW including Stairfoot (which is
not yet subject to an SPA)
[5] Debt facility raised through the Company's wholly owned
subsidiary Gresham House Energy Storage Holdings plc (MidCo)
[6] Total in construction is 415MW including Stairfoot (which is
not yet subject to an SPA)
[7] Alternative Performance Measures are defined and calculated
on pages 89 to 91 of the Annual Report
[8] Alternative Performance Measures are defined and calculated
on pages 89 to 91 of the Annual Report
[9] GAV is defined in Alternative Performance Measures: it
includes debt within MidCo as well as Gross Assets in the
Company
[10] GAV is defined in Alternative Performance Measures: it
includes debt within MidCo as well as Gross Assets in the
Company
[11] Alternative Performance Measures are defined and calculated
on pages 89 to 91 of the Annual Report.
[12] Alternative Performance Measures are defined and calculated
on pages 89 to 91 of the Annual Report.
[13] Alternative Performance Measures are defined and calculated
on pages 89 to 91 of the Annual Report.
[14] 2020 revenue also included GBP2.97mn of liquidated damages:
these have been excluded on the table above
[15] Alternate performance measures are defined and calculated
on pages 89 to 91 of the Annual Report.
[16] Alternate performance measures are defined and calculated
on pages 89 to 91 of the Annual Report.
[17] BEIS, Net Zero Strategy, October 2021
[18] Transitioning to a Net Zero Energy System: Smart Systems
and Flexibility Plan, BEIS, July 2021
[19] The Just Transition reflects the idea that seeks to ensure
that no-one is unfairly disadvantaged by the transition to a low
carbon economy
[20] Cumulative capacity of BESS fleet (MW) using end of year
(31 December 2021) data
[21] High flexibility, High demand 2050 Scenario, Transitioning
to a Net Zero Energy System: Smart Systems and Flexibility Plan,
BEIS, July 2021
[22] LCP, energy sector consultants
[23] Transitioning to a Net Zero Energy System: Smart Systems
and Flexibility Plan, BEIS, July 2021
[24] Total in construction is 415MW including Stairfoot (which
is not yet subject to an SPA)
[25] This is a target only and is based on current market
conditions as at the date of this document and is not a profit
forecast. There can be no assurance that this target will be met or
that the Company will make any distributions at all. This target
should not be taken as an indication of the Company's expected or
actual current or future results. The Company's actual return will
depend upon a number of factors, including the Company's net income
and the Company's ongoing charges figure. Accordingly, investors
should not place any reliance on these targets in deciding whether
to invest or assume that the Company will make any distributions at
all.
[26] Total in construction is 415MW including Stairfoot (which
is not yet subject to an SPA)
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