TIDMGRID
RNS Number : 7035A
Gresham House Energy Storage Fund
27 September 2022
27 September 2022
Gresham House Energy Storage Fund plc
("GRID" the "Company" or the "Fund")
Half-year results to 30 June 2022
Gresham House Energy Storage Fund plc, the UK's largest fund
investing in utility-scale battery energy storage systems (BESS) to
power the renewable energy transition, announces its half-year
results for the period ending 30 June 2022.
Performance highlights in H1 2022
-- Net Asset Value (NAV) up 53.5% to GBP785.4mn (31 December 2021: GBP511.7mn)
-- NAV total return of 27.2% with NAV per share rising to 145.11p (31 Dec 2021 :116.86p)
-- Share price total return of 23.3% vs FTSE All Share Index
total return of -4.6% in H1 22. Since IPO, returns have been 86.9%
and 15.8% respectively
-- Dividends of 3.5p per share paid in H1 22, with Operational Dividend Cover at 1.18x
-- Underlying Operational Portfolio Revenue rose 20.6% to
GBP30.1mn (H1 21: GBP24.9mn) and EBITDA stood at GBP22.7mn (H1 21:
GBP22.4mn)
-- Weighted average discount rate of 10.79% for assets valued on
a discounted cash flow basis (31 December 2021: 10.77%)
Deployment, Fundraising
-- 425MW across 17 operational projects as at 30 June 2022,
which has risen to 500MW across 19 operational projects as at 31
August 2022
-- 602MW across 11 projects under construction as at 30 June
2022, 527MW as at 30 August 2022, and a further 90MW (Enderby and
Coupar Angus) due to commission in the coming days
-- Total operating capacity of over 1GW / 1.2GWh(1) targeted by
end Q1 23. All projects 100%-owned
-- Target portfolio of 1.6GW by mid-2024 with a duration of 2.1GWh [1]
-- GBP150mn raised in oversubscribed equity placing in May 2022
-- Significant additional pipeline in progress in GB as well as
Overseas following recent Investment Policy changes
-- Timely commissioning of projects is our key focus by
resolving connection bottlenecks in the industry
Market environment and outlook
-- UK renewable penetration reached a record 45.5% [2] in Q1 22 driven by offshore wind
-- 11GW of renewable capacity contracted in latest Contracts for
Difference (CfD) subsidy auctions , which could drive renewable
penetration above 65% within 5 years, underpinning the need for
BESS
-- Power price volatility primarily driven by renewables as well
as shortfalls in generation capacity and gas supply constraints in
Europe in the near term
Other highlights
-- NAV per share increase in H1 22 assisted by upward
revaluations of projects as they go from being valued at cost to a
fair value using a net present value basis, reflecting the
attractive underlying internal rates of return (IRRs) of our
projects at the time they are acquired. Discount rate assumptions
have remained unchanged during the period
-- Revenues have remained high, supported by elevated frequency
response pricing and a strong trading backdrop. Frequency response
pricing is beginning to drop as additional BESS capacity becomes
operational
-- The very recent announcement by the Chancellor of the
Exchequer of the cancellation of the previously planned Corporation
Tax increase to 25% from April 2023, is expected to contribute
positively to the Q3 2023 NAV, and NAV per share. In addition, we
are still assessing the potential impact over time of FOREX
movements
-- Awarded Best Sustainable Specialist Fund at the Investment
Week Sustainable Investment Awards for the second year in
succession
John Leggate CBE, Chair of Gresham House Energy Storage Fund
plc, said:
"We are pleased with GRID's performance in the first half of the
year as we continue to deploy essential battery energy storage
infrastructure and deliver above-target total returns to
shareholders. We have started to draw down on our debt facilities
as expected. Combined with the GBP150 million equity we raised from
shareholders, we expect these funds to deliver most of the existing
pipeline, taking GRID to over 1GW of capacity, currently expected
by the end of Q1 2023.
"We are ambitious to scale up GRID, both in the UK and beyond,
enabling a cost-effective transition to net zero, supporting
near-term energy security as gas supplies continue to be unreliable
while helping maximise the output from low-cost renewable energy
sources."
Ben Guest, Fund Manager of Gresham House Energy Storage Fund plc
and Managing Director of Gresham House New Energy, said:
"It has been gratifying to see an increase in our operational
capacity, with lots more expected, which is expected to drive
growth proportionately in revenues, EBITDA and dividend cover, all
things being equal.
"Our next batch of projects is in advanced stages of
construction; as of today, a further 527MW across 9 projects are
anticipated to commission in the next six months, going into 2023.
Beyond that, our project pipeline into 2024 is also strong, with
over 500MW planned for the 12-18 months that follow.
"GB needs at least 20GW of BESS by 2030, demonstrating its
critical importance to the energy transition. We are working on
additional pipeline both in GB and Overseas, and we look forward to
providing updates as this work progresses.
"The rate of deployment of BESS continues to lag the deployment
of renewables in GB and this will continue to underpin revenues for
the sector for years to come. However, while this backdrop is
positive it is important for the industry to acknowledge the need
for the rate of deployment of BESS to accelerate. While lockdowns
and supply chain issues caused constraints in recent times, the
main bottleneck today is in the slow rate of grid connection
activity, impacting the industrywide deployment of BESS. We invite
Ofgem, grid companies and other stakeholders to act to solve this
issue. It is not in anyone's interest to see the unnecessary
curtailment of incremental renewable generation and for associated
balancing costs to increase exponentially due to a lack of flexible
generation."
The Company's Interim Report and Financial Statements for the
period ending 30 June 2022 are included in this announcement
http://www.rns-pdf.londonstockexchange.com/rns/7035A_1-2022-9-26.pdf
, available on the Company's website
https://greshamhouse.com/real-assets/new-energy-sustainable-infrastructure/gresham-house-energy-storage-fund-plc/
and also on the National Storage Mechanism
https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
A webinar and Q&A session for investors, to discuss the
results, will be held at 11am (BST) today, Tuesday 27 September
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 at
https://greshamhouse.zoom.us/webinar/register/WN_aiAZNNgPTWOYT0J3lR3bwQ
or via the GRID website
https://greshamhouse.com/real-assets/new-energy-sustainable-infrastructure/gresham-house-energy-storage-fund-plc/
.
For further information, please contact:
Gresham House New Energy
Ben Guest
Rupert Robinson +44 (0)20 3837 6270
Jefferies International Limited
Stuart Klein
Gaudi Le Roux +44 (0)20 7029 8000
KL Communications
Charles Gorman
Charlotte Francis
Millie Steyn +44 (0)20 3995 6673
JTC (UK) Limited as Company Secretary
Christopher Gibbons +44 (0)20 3846 9774
About the Company and the Manager:
Gresham House Energy Storage Fund plc seeks to provide investors
with an attractive and sustainable dividend over the long term by
investing in a diversified portfolio of utility-scale battery
energy storage systems (known as BESS) located in Great Britain,
Northern Ireland, and the Republic of Ireland. In addition, the
Company seeks to provide investors with the prospect of capital
growth through the re-investment of net cash generated in excess of
the target dividend in accordance with the Company's investment
policy.
The Company targets an unlevered Net Asset Value total return of
8% per annum, calculated net of the Company's costs and
expenses.
Gresham House Asset Management Limited is the FCA authorised
operating business of Gresham House plc, a London Stock Exchange
quoted specialist alternative asset manager. Gresham House is
committed to operating responsibly and sustainably, taking the long
view in delivering sustainable investment solutions.
www.greshamhouse.com
Definition of utility-scale battery energy storage systems
(BESS)
Utility-scale battery energy storage systems (BESS) are the
enabling infrastructure that will support the continued growth of
renewable energy sources such as wind and solar, essential to the
UK's stated target to reduce carbon emissions. They store excess
energy generated by renewable energy sources and then release that
stored energy back into the grid during peak hours when there is
increased demand. BESS also provide Frequency Response services to
National Grid whereby batteries import and export power with the
aim to keep real-time supply and demand in near-perfect balance
while also protecting against unexpected outages of major power
plants.
1. HIGHLIGHTS
Company Financial Highlights
-- NAV per share (pence): 145.11p (31 December 2021: 116.86p)
(as at 30 June 2022)
-- Company profit and total comprehensive income: up 291% to
GBP141.9mn (30 June 2021: GBP36.3mn)
(for the six months to 30 June 2022)
-- Total gross equity funds raised: GBP150mn (30 June 2021: GBPnil)
(for the six months to 30 June 2022)
-- EBITDA of underlying investment portfolio [3] : GBP22.7mn (30 June 2021: GBP22.4mn)
(for the six months to 30 June 2022)
-- Dividend per Ordinary Share (pence): 3.5p (30 June 2021: 3.5p)
(for the six months to 30 June 2022)
-- Ordinary Share Price Total Return since IPO: +86.9%
(IPO to 31 December 2021: +51.5%)
(for the period from IPO to 30 June 2022)
-- NAV per Ordinary Share Total Return : +27.2%
(six months to 30 June 2021: +10.0%)
(total return for the six months to 30 June 2022)
-- Operational portfolio reached 500MW (425MW as of 31 December 2021)
(as of 31 August 2022)
Performance Highlights
Net Asset Value (NAV) as of 30 June 2022 rose to GBP785.4mn or 145.11p per share (vs. 116.86p
as at 31 December 2021 and 109.89p as at 30 June 2021).
Full Operational Dividend Cover (1) of 3.5 pence dividend was achieved in H1 2022. This is
equivalent to a 4.5% annualised dividend yield based on the closing share price on 30 June
2022.
The Board reaffirms a target dividend of 7.0p for 2022 and expects full Operational Dividend
Cover for the full year. The Company will balance future dividend target levels with increases
in Operational Dividend Cover.
A new Prospectus was published in May 2022 with an initial equity raise of GBP150mn which
was oversubscribed. The share capital raised, combined with the debt facilities both available
and anticipated in the form of the accordion, will allow the Company to execute on the deployment
of most of its pipeline of Battery Energy Storage Systems, (BESS) which is expected to see
total operating capacity reach 1,597MW.
A first drawdown of GBP10mn was made from the GBP180mn total debt facility [4] in May 2022,
as deployment into BESS under construction progressed in the period. The Company expects to
fully utilise th e existing GBP150mn capex facility by Q 1 2023 and has begun looking at extending
the facility in the second half of 2022 through the uncommitted accordion already in place.
Operational Highlights
The underlying investment portfolio generated revenues [5] of GBP30.1mn (June 2021: GBP24.9mn)
and EBITDA of GBP22.7mn (June 2021: GBP22.4mn).
While Operational Capacity remained unchanged at 425MW in the six months ended 30 June 2022,
the Company is pleased to report that as of 31 August 2022 two additional projects have been
commissioned: the 35MW project at Arbroath and the 40MW Stairfoot project .
As flagged in the full year results, assets under construction have continued to experience
delays with equipment deliveries and grid connections being experienced industry-wide. The
future projections of the pipeline later in this report include these impacts.
The Company also expects the commissioning of the 50MW Enderby project and the 40MW Coupar
Angus project in the coming days which will increase Operational Capacity further. In addition,
further capacity currently under construction is expected to become fully operational in the
coming months. Total Operational Capacity is expected to reach 690MW by the end of 2022.
During the first half of 2022 four out of five, or 85MW out of 120MW, of the projects contracted
in Enhanced Frequency Response (EFR) reached the end of their 4-year contracts. These projects
have subsequently entered Dynamic frequency response services, resulting in a like for like
increase in revenues. The remaining 35MW project saw its EFR contract end in July 2022 and
was also successfully submitted into the newer services.
Work has begun to increase the duration of each of the EFR projects, most to two hours, with
construction completion planned for between Q4 2022 and Q1 2023, as detailed in the Investment
Manager's report.
2. CHAIR'S STATEMENT
On behalf of the Board, I am pleased to present the Interim
Report and Accounts of Gresham House Energy Storage Fund plc (the
"Fund" or the "Company") for the six-month period ending 30 June
2022.
Summary
The Board is delighted that the Fund continues to thrive and
scale up.
Strong share price performance has been underpinned by
significant uplifts in the Fund's NAV per share which have largely
been driven by upward revaluations of projects as they go from
being fair valued at cost to a fair value using a net present value
basis in accordance with the Company's valuation policy. These
valuation uplifts reflect the attractive underlying internal rates
of return (IRRs) of our projects at the time they are acquired. We
look forward to this theme continuing to drive value as the current
pipeline is built out over the coming quarters.
Following shareholder approval of changes to the Company's
Investment Policy, the Company is now permitted to invest up to 30%
of its gross assets internationally. This important change allows
the Manager to pursue opportunities beyond British shores as the
BESS market opportunity expands globally with energy security high
on the agenda. Exciting as it is, this expansion will be approached
in measured steps, to ensure that the risks of different
geographies are well understood. The other changes to the
Investment Policy approved by our shareholders will provide the
Manager with welcome flexibility and ability to operate and execute
transactions in a more streamlined and efficient manner.
The Fund's projects also continue to generate above budget cash
returns as market fundamentals remain healthy. The key factor
driving the revenue generation potential of batteries continues to
be the rising penetration of renewables, combined with the falling
contribution from gas-fired and coal-fired generation. In this
vein, it has been positive to see renewables reach a new record
share of electricity generation in the UK in Q1 2022 of 45.5%. The
new UK Government is expected to continue to support renewables and
decarbonisation in order to reduce reliance on fossil fuels and
accelerate the UK's strategic agenda towards energy
self-sufficiency.
Meanwhile a record 11GW of renewable capacity has been
contracted in the fourth Contracts for Difference (CfD) subsidy
regime's Allocation Round (known as AR4). 7.6GW of this capacity
will be offshore and remote island wind which was contracted at a
new record low price of GBP37/MWh (in 2012 real prices). This,
along with other capacity already contracted in AR3, could take UK
renewable penetration above two-thirds within the next five years,
which might drive significant increases in required BESS
capacity.
Whilst market fundamentals remain healthy, the markets are
clearly becoming more volatile as inflation grips economies, as
interest rates rise and as the geopolitical backdrop turns more
unstable. In addition, supply chain challenges remain following two
years of COVID-19 related lockdowns and other restrictions,
including increased transport costs. The Manager is working hard to
build resilience against future disruptions by taking advantage of
our scale and expertise and by extracting maximum value from our
operational portfolio and construction activities.
It is clear that Energy Storage is a business strongly driven by
the use of data. The Manager's team continues to build on its
digital platform, first mentioned at our Capital Markets Day in May
2022, to take advantage of this by combining the huge amounts of
market, commercial, technical and other information to which it has
access to optimise project designs and revenue generating
operations. We look forward to sharing more on this topic
shortly.
Last but not least, the Manager continues to progress its ESG
(environmental, social and governance) considerations. The Company
is committed to reporting against Diversity & Inclusion
(D&I) standards and Task Force on Climate-related Financial
Disclosures (TCFD) at the next annual report, as well as
progressing internally motivated initiatives, with a current focus
on a battery supply chain audit and the long-term recycling of
batteries.
Fund performance update
The NAV rose significantly in the six months to 30 June 2022 to
GBP785.4mn up from GBP511.7mn at 31 December 2021. NAV per share
increased by 24% to 145.11p, driven mostly by gains from the
revaluation of projects previously held at cost now being valued
based on the Net Present Value of future cashflows in accordance
with the Company's Valuation Policy. This valuation uplift
primarily reflects the attractive IRR of projects relative to the
Company's weighted average discount rate as well as the benefit of
funding incremental projects with debt financing.
The Fund has continued the strong financial performance of 2021
into the first six months of 2022, achieving Operational Dividend
Cover [6] of 1.18x (FY 2021: 1.32x). This has been achieved despite
an increase in gross dividends paid (due to the increased share
count following the Company's equity issuance in May 2022) and
while not yet benefitting from operational earnings from the
projects that this equity capital has funded. The latter is set to
change with operational capacity of the underlying portfolio
increasing by 75 MW to 500MW since the period end, as of 31 August
2022. Further capacity of 240MW is expected to be added in the
remainder of 2022, bringing the anticipated operational capacity of
the portfolio to 690MW by the end of 2022.
Performance has been underpinned by high prices earned from
frequency response services, and from Dynamic Containment (DC) in
particular. The volume procured by National Grid ESO has exceeded
their forecast levels at the start of 2022, while delays in
commissioning new BESS projects in general has resulted in a tight
supply and thus high prices. We do expect the frequency response
market to become saturated across all contract periods (each 4
hours long) on most days in H2 2022 as our own and other capacity
edges the market into oversupply for this service, as the Manager
has long expected and predicted.
Commissioning of our pipeline projects, combined with battery
duration extensions at the projects that were previously in EFR
contracts, is increasing the revenue-generating potential of the
portfolio over the second half of 2022. This is expected to offset
expected declines in frequency response service market revenues.
Importantly, the Manager is confident that the portfolio will earn
revenues at or above the level assumed in our valuation models
which underpins the Company's NAV.
Fund strategy and market positioning
In Q2 2022 the Company received shareholder approval for
amendments to its Investment Policy. The purpose of these
amendments is to carefully position the Company to capture the
growth emerging in Overseas Jurisdictions [7] and to drive
incremental value for shareholders, by seeking permission to:
-- Invest in Ready-to-Build Projects (up to 10% of GAV [8] )
-- Invest in BESS projects in Overseas Jurisdictions (up to 30%
of GAV) with or without co-location arrangements [9]
-- Acquire land in connection with BESS projects in the portfolio, and
-- Combine equipment and construction loan buckets into one (combined limit up to 25% of GAV)
The Investment Policy changes will allow the Manager to deploy
incremental capital into exciting opportunities in new markets,
diversifying revenues and risks whilst maintaining the same focus
on the fundamental wholesale market dynamics enjoyed by our BESS
projects in the UK. The ability to buy land gives the Manager the
opportunity to improve long-term project returns, while the other
changes above give the Manager a greater degree of flexibility to
execute projects as efficiently as possible.
Capital Markets Day
On 4 May 2022, the Manager hosted its inaugural Capital Markets
Day. Over 200 participants registered for the event, which was
hosted online and recorded. We appreciate the support of our
growing investor base and deepening analyst interest as we continue
to provide insights into the Company's business model and how the
Company creates shareholder value.
Fundraising
The Company issued a Prospectus in May 2022 for the issue of up
to 400 million new shares. Following the publication of the
Prospectus, the Company raised GBP150mn through the issue of 103
million shares at a valuation of 145p per share.
The Board and Manager were encouraged by the strong uptake of
the Company's shares with demand significantly exceeding the share
issuance, and we are thankful to our shareholders for their support
of the share offer.
Share price performance
During a turbulent time for the UK and global economy, it has
been gratifying to see the continuing appreciation in the Company's
share price, in particular the continuing premium to NAV per share.
We would like to think this might be in part because of our
operational track record, the Manager's prudent management of
capital and acquisition strategy and the sector's return
characteristics which are uncorrelated to broader markets.
The Share Price Total Return since IPO reached 86.9% through to
30 June 2022 (FY 2021: 51.5%) and 23.3% for the six months to 30
June 2022. By contrast, the FTSE all share index Total Return was
-4.6% for the six months to 30 June 2022.
ESG - Sustainability
The Manager is working hard on its commitments to integrate
sustainability metrics into its project evaluation and operations.
The Manager has committed to seven core areas of focus which are
highlighted in the Sustainability Report on page 15.
It is worth drawing out the highlights:
- a commitment to comply with all applicable standards starting
with Task Force on Climate-Related Financial Disclosures (TCFD)
(which include emissions) and Diversity, Equity & Inclusion
disclosures in the next Annual Report and compliance with SDR (and
potentially SFDR, the EU equivalent) once the UK standards have
been finalised
- a commitment to proactivity and integrating guidance and feedback from our investors
- completion of a third-party supply chain audit of the battery market
- commitment to developing a working policy on battery recycling
The Board is clear on the importance of aligning the ESG
activities and measures with the Company's purpose, and that is an
active area of discussion between the Board and the Manager.
Outlook
The outlook for the Company remains exciting and the Manager
remains focused on future growth opportunities. International
markets are starting to open up for BESS investment, with
regulatory changes and growing renewable penetration echoing the
development seen in the UK, and the Fund is ready to take advantage
of this opportunity. However, over the next two years, the Manager
will primarily deliver against its UK and Ireland pipeline. Despite
some delays, our ambitions are broadly on track. In summary, the
Manager fully expects to continue to build on the pipeline, both
domestically and abroad.
Our scale remains a competitive advantage that we continue to
exploit. It allows the Manager to continue investing in its team,
to extract synergies and to capture the interest and attention of
even the largest battery and other critical equipment suppliers.
That in turn allows the Manager to secure timely supplies, even in
the current tight market for batteries.
Staying focused on near term delivery goals, the Company looks
forward to the commissioning of the next suite of investment
projects and markedly increasing the revenue generating potential
of this portfolio as the MWs and MWh scale up.
Even in the face of the impact of the geopolitical tensions
impacting the global energy markets, the Company remains in a
strategic sweet spot of opportunity.
John S. Leggate CBE, FREng
Chair
Date: 26 September 2022
3. INVESTMENT MANAGER'S REPORT
Gresham House Asset Management Limited (GHAM) is wholly owned by
Gresham House plc (GH), an AIM-quoted specialist alternative asset
manager with a market capitalisation of GBP 302mn as at 30 June
2022 . 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 and infrastructure.
Portfolio and pipeline overview
In the first six months of 2022 the Company grew its overall
portfolio through the acquisition of the project rights relating to
Elland (50MW), York (50MW) and West Bradford (87MW) taking the
total portfolio capacity to over 1GW as of June 2022 (December
2021: 850MW).
The average battery duration has also increased. New projects
will be built with at least 1.5 hour batteries, and in addition,
duration extensions are underway for 120MW of assets previously
contracted in EFR, which will take the duration for most of those
projects to c.2 hours.
The operational capacity of the Company's investment portfolio
remained at 425MW across 17 projects as of 30 June 2022 (31
December 2021: 17 projects and 425MW) , although it increased to
500MW as of 31 August 2022 with the energisation of Arbroath and
Stairfoot. Coupar Angus (40MW) and Enderby (50MW) are expected to
be energised in the coming days taking total operational capacity
to 590MW . Delays in both equipment availability and connection
dates have caused a number of delays to commissioning dates meaning
several projects which were originally planned for H1 2022 are now
expected in H2 2022.
By the end of 2022, the Company is expected to have 690 MW of
operational capacity as West Didsbury (50MW), and Penwortham (50MW)
commission, resulting in a 62% increase in o perational c apacity
from the half-year stage.
Planning and EPC agreements for the project extensions on the
assets previously contracted in EFR (Glassenbury, Cleator,
Tynemouth, Port of Tyne and Nevendon) have progressed well and
planned outages are expected around the end of the year. Batteries
for these project extensions are also ordered. Large total battery
orders from the Fund in the last 12 months have resulted in
favourable pricing from our suppliers considering the underlying
increase in raw material costs . This is a good example of how the
Fund is able to benefit from its scale.
In addition to the portfolio and pipeline shown in tables 1 and
2 below, there is a large yet-to-be-announced pipeline of projects
at various stages of negotiations and/or development both in the UK
and overseas. Further updates on this incremental pipeline will be
announced in due course.
As at 30 June 2022 , the valuation of the portfolio was GBP 565
mn (FY 2021: GBP389mn, HY 2021: GBP 323mn), a 45% increase since
the beginning of the year. The valuation primarily reflects 425MW
in operational projects (FY21: 425MW), 487MW of assets
in-construction (FY21: 150MW) and cash in hand. The assets
in-construction are expected to commission within nine months of 30
June 2022. The MW capacity of projects valued above cost has
increased by 337MW in the last six months, made up of the three
acquired projects in the period (Elland, York and West Bradford
totalling 187MW), plus Grendon 1 (50MW) and Melksham (100MW).
Table 1. Company portfolio
Operational
Battery Battery Status
Map Asset Capacity size duration on 30 Ownership
Ref. Name Location (MW) (MWh) (hrs) Site type* June 2022 %
============== ================ ========= ======== ========== ============== ============
Battery and
generators,
1 Staunch Staffordshire 20 2.9 0.20 0.5MW import Operational 100%
============== ================ ========= ======== ========== ============== ============
Battery and
generators,
2 Rufford Nottinghamshire 7 9.5 1.35 symmetrical Operational 100%
============== ================ ========= ======== ========== ============== ============
Battery,
3 Lockleaze Bristol 15 22.1 1.45 symmetrical Operational 100%
============== ================ ========= ======== ========== ============== ============
Battery,
4 Littlebrook Kent 8 6.3 0.80 symmetrical Operational 100%
============== ================ ========= ======== ========== ============== ============
Battery and
generators,
5 Roundponds Wiltshire 20 25.8 1.30 16MW import Operational 100%
============== ================ ========= ======== ========== ============== ============
West Battery,
6 Wolves Midlands 5 7.8 1.55 symmetrical Operational 100%
============== ================ ========= ======== ========== ============== ============
Battery,
7 Glassenbury Kent 40 28.2* 0.70 symmetrical Operational 100%
============== ================ ========= ======== ========== ============== ============
Battery,
8 Cleator Cumbria 10 7.1* 0.70 symmetrical Operational 100%
============== ================ ========= ======== ========== ============== ============
Battery,
9 Red Scar Lancashire 49 74.3 1.50 symmetrical Operational 100%
============== ================ ========= ======== ========== ============== ============
West Battery,
10 Bloxwich Midlands 41 46.6 1.15 symmetrical Operational 100%
============== ================ ========= ======== ========== ============== ============
South Battery,
11 Thurcroft Yorkshire 50 75.0 1.50 symmetrical Operational 100%
============== ================ ========= ======== ========== ============== ============
Battery,
12 Wickham Suffolk 50 74.0 1.50 40MW import Operational 100%
==============
Tyne
and Battery,
13 Tynemouth Wear 25 17.4* 0.70 symmetrical Operational 100%
==============
Glassenbury Battery,
14 Ext. Kent 10 10.1 1.00 symmetrical Operational 100%
==============
Battery,
15 Nevendon Basildon 10* 7.1* 0.70 symmetrical Operational 100%
==============
Tyne
Port of and Battery,
16 Tyne Wear 35 28.0* 0.80 symmetrical Operational 100%
==============
Byers West Battery,
17 Brae Lothian 30 30.5 1.00 symmetrical Operational 100%
==============
Total operational 425 473 1.14
================================
Target
Battery, COD: Q3
18 Enderby Leicester 50 50.0 1.00 symmetrical 2022 100%
==============
Target
Battery, COD: Q4
19 West Didsbury Manchester 50 50.0 1.00 symmetrical 2022 100%
==============
Target
Battery, COD: Q1
20 Melksham Wiltshire 100 100.0 1.00 symmetrical 2023 100%
==============
Target
Coupar Battery, COD: Q3
21 Angus Scotland 40 40.0 1.00 symmetrical 2022 100%**
==============
Target
Battery, COD: Q3
22 Arbroath Scotland 35 35.0 1.00 symmetrical 2022 100%**
==============
Target
Battery, COD: Q4
23 Penwortham Preston 50 50.0 1.00 symmetrical 2022 100%
==============
Target
Battery, COD: Q1
24 Grendon*** Northampton 100 200.0 2.00 symmetrical 2023*** 100%
==============
Target
Battery, COD: Q1
25 York York 50 75.0 1.50 symmetrical 2023 100%
==============
Target
Bradford West Battery, COD: Q1
26 West Yorkshire 87 174.0 2.00 symmetrical 2023 100%
==============
Target
West Battery, COD: Q1
27 Elland Yorkshire 50 100.0 2.00 symmetrical 2023 100%
==============
Target
North Battery, COD: Q3
28 Stairfoot Yorkshire 40 40 1.00 symmetrical 2022 100%**
============== ============
Total portfolio
owned by the
Company 1,077 1,387 1.29
================================ ========= ======== ==========
* Current size prior to increases expected from the planned
upgrades
** Acquired subject to satisfaction of conditions
*** The commissioning date reflects the 50MW Grendon 1 project,
a further 50MW known as Grendon 2 is expected to begin construction
shortly with a commissioning date in H2 2023. Only 50MW for Grendon
1 is included in valuations at this stage.
Table 2. Pipeline summary
Battery Commissioning/
Map Asset Capacity size Duration Site Completion Ownership
Ref. Name Location (MW) (MWh) (hrs) type status %
========= ================ ========= ======== ========= ============= ===============
Elland Battery, Target COD:
29 2 West Yorkshire 100 200.0 2.00 symmetrical Q3 2023 100%
========= ================ ========= ======== ============= =============== ==========
Monet's Battery, Target COD:
30 Garden North Yorkshire 50 50.0 1.00 symmetrical Q4 2023 100%
========= ================ ========= ======== ============= =============== ==========
Lister Battery, Target COD:
31 Drive Merseyside 50 50.0 1.00 symmetrical Q4 2023 100%
========= ================ ========= ======== ============= =============== ==========
Bradford Battery, Target COD:
32 West 2 West Yorkshire 100 200.0 2.00 symmetrical H2 2023 100%
========= ================ ========= ======== ============= =============== ==========
Rep. of Battery, Target COD:
33 Monvalet Ireland 180 180.0 1.00 symmetrical H1 2024 100%
========= ================ ========= ======== ============= =============== ==========
Shilton Battery, Target COD:
34 Lane Scotland 40 40.0 1.00 symmetrical H1 2024 100%
========= ================ ========= ======== ============= =============== ==========
Total pipeline not
owned by the Company 520 720 1.38
=========================== ========= ======== =========
Total portfolio
and pipeline: 1,597 2,107 1.32
=========================== ========= ======== =========
Fund performance
The first half of 2022 has been another exceptional period for
the Company's investments as they continued to benefit from high
pricing in Frequency Response services driven by National Grid's
demand for these services continuing to exceed the supply (in MW)
of BESS capacity.
This has enabled the portfolio to achieve record cash generation
and Operational Dividend Cover of 1.18x [10] .
In May 2022, the Company raised GBP150mn in equity to fund new
projects moving into construction. The placing was significantly
oversubscribed but the Company exercised capital discipline by not
accepting more funds than currently required. This placing ,
together with the available debt facility (GBP180mn plus up to
GBP200mn in an uncommitted accordion facility ), will now provide
the capital for the majority of the existing pipeline shown in
Table 2 above.
The Company's share price has continued to outperform equity
markets with the Share Price Total Return for the six months to 30
June 2022 reaching 23.3% compared with -4.6% for the FTSE All Share
Index, supported by the historic and anticipated NAV growth as
pipeline sites are acquired and commissioned.
NAV per share growth in the first half of 2022 was 24.2% to
145.11p (FY 2021: 116.86p) and was itself largely driven by the
revaluation of in-construction assets previously held at cost, as
well as strong cash generation from operational assets. We continue
to focus on accretive acquisitions with returns above the weighted
average discount rate to drive future shareholder value creation
via NAV Total Return.
With the growth in NAV, AIFM fees are reducing as a percentage
of NAV due to the tiered fee structure (fees on incremental NAVare
lower above certain thresholds) helping to keep costs down .
Annualised ongoing charges in the period were 1. 16 % based on the
weighted average NAV for the six months to 30 June 2022 (FY 2021:
1.23%, FY 2020: 1.26%), which is among the lowest compared to other
listed funds in the market.
Portfolio performance
The portfolio continued to deliver exceptional returns in H1
2022, following a strong year in 2021. Revenue from underlying
assets for the period was GBP30.1mn , up 20.6% on H1 2021
(GBP24.9mn) and up 13.6% versus H2 2021 (GBP26.5mn). EBITDA from
underlying assets was GBP22.7mn (H1 2021: GBP22.4mn, FY 2021:
GBP42.5mn)
Revenues have remained high on the back of high Frequency
Response service pricing due to the continued undersupply of MW
capacity delivering Dynamic Containment (DC) during the period,
compared with the amount procured by National Grid ESO. We expect
Frequency Response pricing to begin to drop in the second half of
the year as additional BESS capacity becomes operational - see the
Market update section for further details.
Frequency Response services
In total, Frequency Response (FFR, EFR, DC, DM and DR) made up
88.6% of total revenues with DC contributing over half of the
revenues at 52.8% of total revenues (2021: 59.6%).
The contribution from EFR fell during the period due to assets
coming to the end of their contracts, with only Port of Tyne
remaining in EFR at the period end and this contract came to an end
in July. Each of the former EFR assets (Glassenbury, Cleator,
Tynemouth, Nevendon and Port of Tyne) have now moved into the
available services with DC and Firm Frequency Response (FFR) being
the focus, delivering an uplift in revenue per MW for the
portfolio. These assets will undergo a duration extension to allow
them to be better equipped for the trading environment that the
sector is moving towards.
Due to the growth in UK BESS capacity and limited overall
Frequency Response requirement from National Grid, we had expected
that the market would reach oversupply during the first half of
2022. However, delays to construction across the sector and higher
demand than forecast have meant this anticipated saturation has not
yet occurred but is naturally expected to happen soon as projects
do commission.
The Manager has also made the most of relative opportunities in
FFR and DC (the two largest end market in Frequency Response),
maintaining a greater exposure to FFR in H1 2022 (26.2% of
revenues) than in H1 2021 (3.9%), as it has offered better
returns.
The higher procurement by National Grid ESO of DC, in particular
over the spring/summer versus their own forecasts has meant
saturation has been delayed and pricing has therefore remained high
during the period. The Manager is particularly pleased to have been
able to maximise upside by being in the DC service at times of peak
pricing only and generating better revenues in FFR and trading the
remainder of the time.
Also supporting strong DC revenues at peak times was a further
change in National Grid ESO's pricing and procurement methodology
for DC in April 2022 (following the change to 4-hourly contracts in
Q4 2021) in allowing for higher price caps in DC (previously
limited at GBP17/MWh) which then led to increased pricing
volatility and higher peak prices.
This higher pricing manifested most impressively in June 2022
when National Grid ESO required significantly higher volume than
planned, translating into over GBP7mn of revenues for the month for
the underlying portfolio , as shown in the chart on page 8 . High
prices have continued through July and into August; however, we are
now seeing more periods of low DC prices. Based on current project
commissioning timelines we are anticipating significantly higher o
perational c apacity by the end of the year which will drive more
market saturation and our transition to trading as this begins to
offer better returns .
Capacity Market (CM) contracts
As announced on 28 February 2022, the portfolio secured a
significant volume of record high-priced CM contracts in the
auction held in February 2022. Initial expectations for these
contracts were for them to add over GBP108mn of revenue over the
life of the assets. As these contracts are CPI linked for 15 years,
this amount is now likely to be much higher given recent inflation
figures. The first of these contracts to start will be 112MW of
1-year contracts starting October 2022 which cleared at GBP75,000
per MW, driving a further source of additional revenues in H2
2022.
Cost focus
In addition to maximising revenues, we have been focused on cost
savings throughout the construction and operational phases of these
assets. The size of the Gresham House team has grown significantly
over the past 12 months as we look to bring more resource for key
functions from transaction execution, asset management, operations
and maintenance and project delivery in particular.
The limited pool of insurers to date has meant insurance for
projects remains relatively expensive across the sector. To combat
this, we have been implementing additional safety measures across
our sites where possible and are working with insurers to cover off
areas of perceived risk. The work is also feeding into site design
for new assets to ensure reduced risk and lower insurance premiums.
We are hopeful of reducing rates as the latest safety measures can
be demonstrated to reduce risk to insurers.
Market update
The following section provides insights from the Manager on the
recent performance and outlook for the end markets the Fund
participates in, rather than a report on its own performance.
i) Frequency Response services
Frequency Response has been dominated by Dynamic Containment
since its launch in October 2020; however, additional services have
been launched during 2022 completing the suite of services known as
Dynamic Frequency Response services first anticipated in National
Grid ESO SNAPS plans established in 2017.
These services consist of Dynamic Containment (DC), Dynamic
Moderation (DM) and Dynamic Regulation (DR), each of which provides
a different power response for a given frequency deviation - see
the RH chart. Each of these services is now procured separately for
Low (export) and High (import) - each type of service is therefore
further denoted by an L or H respectively after the service
name.
DCL was the first to launch in October 2020 with DCH arriving in
November 2021, DRH and DRL began in April 2022 with DMH and DML
completing the set in May 2022. It is expected that Firm Frequency
Response (FFR) will eventually be phased out, most likely in early
2023.
Each of the new services has different operating parameters
resulting in a different level of battery cycling. DC is the least
onerous and DR the most . L onger duration batte ries benefit
further as they are less stressed in this service . DR actually has
a longer duration design requirement due to the high level of
cycling required of the batteries and as such is not feasible for
<1 hour BESS. Due to the relatively low volume requirement from
National Grid ESO for DM and DR to date (each c.10% of DC) DC has
remained the primary service of interest.
D emand has been greatest in DCL . The higher requirement for
the Low service reflects the fact that the primary need from
National Grid ESO is on the export side i.e. for protection from "
loss of load " such as the unplanned outage of a generator at which
time the frequency collapses if not mitigated .
The DCL service has evolved in three key phases since launch in
October 2020 (as depicted in the charts below) . The first of these
represented the initial design of the service, procured in 24 hour
blocks day ahead with a price ca p of c.GBP17/MWh and flat volume
requirement of 1,100MW each day. During this time, the market
participants all enjoyed consistent revenues at GBP17/MWh due to
the market being undersaturated.
Phase 2 began in November 2021 when procurement was changed to
4-hourly blocks (EFA blocks) on a day ahead basis. Along with this
came varied intraday volume requirements by EFA blocks. This drove
greater volatility in DC revenues with volume requirements
generally falling in many EFA blocks leaving some periods
saturated, even clearing at GBP0/MWh in some instances where no
volume was required. This also brought greater upside with price
caps in some periods moving up to GBP48/MWh. These changes
generally resulted in marginally lower average pricing than in
Phase 1 but if combined successfully with FFR, it could lead to an
increase in revenues overall as we prove d in February 2022 when
the portfolio had a new record month.
Phase 3 began in April 2022 when National Grid ESO announced
procurement of MWs against a continually changing "buy curve",
driven by volume requirements from National Grid ESO's modelling.
The result of this was to add volatility of price caps (now
changing dependent on volume available) alongside the previously
added procurement volume volatility. This period saw National Grid
ESO's DCL volume requirements begin to increase as the UK headed
towards spring and summer and, with it, higher solar renewable
generation. Higher solar generation results in less gas generation
which makes frequency prone to dropping more quickly if a power
station comes offline unexpectedly, hence requiring more batteries
to respond.
The net result of all the above is a much more merchant
Frequency Response market. Prices have been able to reach
>GBP100/MWh during this phase, and on occasion have also fallen
as low as GBP0.5/MWh. The increased volatility can be seen by the
frequency and magnitude of the spikes occurring from April 2022 in
the charts. Through the six months to June 2022, overall National
Grid ESO has procured higher volumes in DC than forecast at the
start of the year, and this allowed pricing to remain extremely
high on most days as the service remained undersaturated for longer
despite a growing number of MWs competing for the service.
The Manager analyses " headroom ", the difference between
maximum volume required versus volume actually procured, as the
best indicator for how close to saturation the market is. This data
is from National Grid ESO. In June 2022, headroom was 122MW in DCL
with EFA 5 highest at 254MW. This has fallen in July 2022 to 72MW
on average, with EFA 5 highest at 138MW of headroom.
As more BESS projects commission across the industry, the
headroom will continue to shrink until it is disappears and the
market is oversubscribed the majority of the time. The Fund's own
pipeline is likely to cause this market to become oversubscribed in
2022 given the volumes set to commission.
Once the DC market is saturated, contract prices will be
influenced by the next best revenue opportunity which is likely to
be trading i.e. batteries will step away from offering DC and just
trade once pricing falls .
This will support DC prices as supply comes out but alternative
revenues from trading will primarily vary with battery duration.
Longer duration assets can generate much greater revenues from
trading . For example , a half hour battery looking to trade may
need to position itself at half its MW-capacity to emulate a 1-hour
battery, to overcome potential overheating when operating as a 30
minute battery, limiting its trading revenues materially.
As we get closer to the point of saturation in Frequency
Response markets, we will begin to see greater emphasis on trading
either through setting of Frequency Response prices or by moving to
trading in the wholesale market and Balancing Market (BM) instead .
This is why understanding, and being ready for trading, is key to
any investment .
ii) Trading/Merchant markets
Despite the limited exposure to trading from the portfolio in
the period, due to the focus being on high Frequency Response,
there have been continuing developments which have contributed to a
strengthening trading environment for BESS.
Gas prices reached record levels in December 2021, on the back
of high demand, low storage levels and fears around disruptions of
Russian gas supplies before Russia invaded Ukraine in February
2022. After the invasion gas prices rose further reaching a record
high.
Gas prices have remain ed high and are having a direct impact on
electricity prices and volatility, with the price of gas generation
often setting the electricity price - a topic capturing the
public's and politicians' attention due to high cost of
electricity, as t he uncertainty of gas supply across Europe
remains.
In the longer term we expect for this to return to more 'normal'
levels as higher levels of renewables and alternative supplies
bring supply and demand back into balance at lower price levels,
but in the short term we may experience more extreme pricing,
particularly over the winter during higher demand periods.
This, in part, has led the UK Government to launch the Review of
Electricity Market Arrangements (REMA) looking to reduce the cost
of electricity to consumers, with further information provided
later in this report. The wider political response to the rising
gas costs has been to focus efforts on the rollout of renewable
energy which supports the case for increased demand for BESS.
However, while BESS is a much cheaper alternative power to
fossil fuel generation in providing flexibility to manage
intermittency, there is simply insufficient BESS capacity to manage
current levels of renewable generation and so to meaningfully
reduce our reliance on gas . It is therefore likely that, no matter
where gas prices head, volatility from renewable generation will
continue.
Availability of Russian gas across Europe has driven concerns
over energy security, particularly looking forward to the winter.
To make matters worse, France has an increasingly unreliable
Nuclear fleet. Given the reliance on Nuclear in France the loss of
generation has led to the need to import power from other
countries. This resulted in April 2022 being the first month of net
export through interconnectors in Great Britain (GB) since 2017.
Average interconnector imports in GB were 2.9GW in February 2022
and have since fallen to 2.5GW export in June 2022 effectively
creating a c.5GW additional demand requirement to be covered by
National Grid ESO.
The combination of high gas prices with increased demand has led
to high peak energy prices, whilst high renewable output through
the summer has also created negative prices at times, resulting in
much greater daily energy price spreads than typically seen during
a summer.
The system price chart demonstrates the growing spread between
low and high prices with the current spreads in July and August
2022 significantly above previous norms for that time of year and
more aligned with the high winter volatility we have seen in the
last two winters.
All taken together this presents a favourable trading
environment for BESS assets. As system demand increases, and as we
head closer to winter, the current market drivers of gas prices and
interconnector exports are likely to open up the potential for
extreme pricing on particularly high demand days. With prices for
Frequency Response services (ignoring any uplift from trading
opportunity) expected to begin falling, trading is likely to become
the main area of focus for the portfolio.
iii) International markets
Consistent with the investment methodology used for UK and
Ireland assets, the core focus for international investments will
be on the evaluation of each market's underlying wholesale market
dynamics. We will also be looking for markets with high renewable
penetration and/or growth with present or expected wholesale
volatility which offers returns in line with stated ranges. Any
ancillary services, subsidies or ' locational ' opportunities at
different locations within any given market will be treated as an
additional but short-term benefit, aligning how we think about
investments abroad with how we think about them in the UK .
Our team are working hard to evaluate new opportunities overseas
and review the available markets to focus on the right areas for
investment. There are a number of deals in progress already and we
hope to notify shareholders in due course of additional pipeline
sites to be added. The scale of opportunity overseas is
significantly bigger than the UK market and whilst we remain
committed to investment in the UK, and indeed have a considerable
pipeline of assets in the UK already, now is the right time to be
looking for opportunities to enter international markets ,
relatively early , in the same way we did in the UK.
Construction update
The Manager has experienced challenges energising new BESS
projects, in common with other BESS players . A summary of the most
significant issues and their current status is shown below:
i) High overall demand for renewables and BESS: Impact is ongoing
There continues to be huge demand for new projects as a function
of the investment appetite of both institutional investors and
major corporations (such as the oil majors who are increasingly
involved). In the context of BESS, this is creating tight supply
chains for inverters, lithium-ion batteries and other electrical
components as well as longer lead times. This means contractors are
worried about potential higher prices during construction and are
increasing their " risk" margins (essentially charging a higher
profit margin to protect against unexpected cost increases). Our
key mitigation is scale which ensures we have access to equipment
and a stronger negotiating position than our competitors which
allows us to manage price increases. We are also increasingly
procuring components directly , which reduces the impact of
"margins being charged on margins" by contractors.
ii) General inflation and weakening sterling : Impact is ongoing
Higher general inflation and a weak pound is leading to higher
labour costs and costs of components sourced abroad. This is also
driving higher 'risk' margins from suppliers. Here, our mitigation
is to increasingly source works on an EPCm basis to split out costs
in controllable and transparent work packages and proactively
manage each of these to minimise risks.
iii) Commodity prices : Negative impact turning positive
While we have yet to see significant benefits from this, various
commodities and other costs have fallen sharply in recent months.
This includes prices for iron-based products, concrete and copper
as well as shipping costs. Debottlenecking of ports, all time high
investment in new containers and other shipping and a sharp
slowdown in China's housing market are likely to be among the
drivers.
iv) Grid connection challenges : Impact is ongoing
The large number of new grid connections is creating challenges
for the grid companies which feeds into our portfolio projects.
Capacity is now tight and therefore new capacity has to wait for
reinforcements elsewhere in the network. This does not affect
projects already in construction as the ability of a new project to
connect is studied carefully before a grid connection offer is
made.
The challenge for projects in construction is more practically
linked to a lack of adequately experienced engineers at the
Distribution Network Operators (DNOs) and in all likelihood
impacting National Grid as well. Mitigation here is challenging:
engaging positively with the counterparty on the one hand or making
complaints (including to Ofgem) are limited remedies for late
construction programmes . Further, regulations do not help much :
DNOs and National Grid have next to no liability for delays to
connections and have a huge amount of time to turn around grid
connection offers (pre-construction) or design submissions (during
construction). This, combined with the intrinsically intricate
nature of the work, the need for safety and a workforce which has
retired many of their best staffers and recruited too few over the
COVID -19 lockdowns is leaving the industry in a challenging
position. Fortunately, some pragmatism is rising to the surface
unlocking some delays.
We are factoring in these delays, which are affecting all
participants in the market, into new construction programmes and
are hopeful that further significant delays at most projects can be
avoided.
The Manager does have two key mitigants but as these are
commercially sensitive, they cannot be disclosed here.
Valuations and NAV
NAV per share [11] has risen from 116.86p on 31 December 2021 to
145.11p on 30 June 2022. This equates to a NAV Total Return of
27.2% over the last six month interim period.
The largest contribution to NAV growth came from the revaluation
of projects previously held at cost, representing GBP61.2mn (FY
2021: GBP38.0mn) or 12.12p per share gain. The portfolio valued on
a Discounted Cash Flow ( DCF) basis consists of 425MW of
operational projects as per Table 1 on page 6 and 487MW of
in-construction assets. 115MW of projects are held at cost, these
projects are under construction with Share Purchase Agreements
signed but with completion subject to Provisional Acceptance
Certificate issuance. These projects are Coupar Angus (40MW),
Arbroath (35MW) and Stairfoot (40MW) with the latter two being
operational and Coupar Angus expected to commission very shortly
.
The value of the new CM contracts awarded to the Company's
projects in the February 2022 auction has also benefited the NAV
with a 6.68p per share (GBP30.6mn) contribution during H1 2022. The
remaining uplift from the new CM contracts will come through the
revaluation of remaining assets in H2 and once the construction
premium is removed from discount rates when assets become
operational.
Net issuance from equity raised above NAV in May 2022
contributed 2.32p per share to NAV, whilst working capital after
deduction of fund costs, transaction costs, debt costs and
dividends paid added 0.10p per share to valuations.
Third party revenue forecasts increased substantially in the
period following relatively low forecasts at the year-end (which
reflected the expectation that DC prices would fall to very low
levels). The latest curves reflect the current market conditions of
high DC prices on the back of higher volume procurement from the
ESO as well as greater trading opportunities heading into the next
winter. These therefore provide a short-term uplift in revenues
forecasted, whereas the longer term projections remain consistent
with previous quarters. The total impact of third party revenue
forecast changes in the period was GBP30.9mn or 6.06p per
share.
There have been no changes to the discount rate methodology in
the period . The weighted average discount rate is 10.79% for the
portfolio (December 2021: 10.77%). The w eighted average discount
rate for operational assets was 10.55% (2021: 10.57%) whilst
in-construction assets had a weighted average discount rate of
11.00% (2021: 11.35%) having fallen due to the addition of CM
revenues to the model.
The main assumption changes for valuations came from updating
the inflation rates, with a short-term increase in inflation to
7.5% in 2022, 4.5% in 2023 and falling to 2.5% from 2025. The
impact of the update was an increase in valuations of 3.88p per
share. We believe our current inflation assumptions are
conservative. We will continue to monitor developments in the UK
and potentially revisit inflation assumptions ahead of the year
end. An increase in inflation rates is expected to increase
valuations further.
Valuations by asset can be found in the notes to the financial
statements in Note 9 with sensitivities performed on the discounted
cash flow modelling for the portfolio shown in Note 15.
Regulatory update
On 18 July 2022 we saw the release of two significant energy
market reports, the first being the launch of the government's
Review of Electricity Market Arrangements (REMA) and the second
being National Grid's Future Energy Scenarios (FES) Report for
2022.
REMA is a major review into the GB electricity market design
with the aim to ensure cost benefits to customers in the long term.
There are several proposals being considered in the review with the
key areas of focus for BESS being:
-- Wholesale Markets: first, the introduction of Locational
Marginal Pricing (LMP) or 'Nodal' pricing; second, the potential
decoupling of the cost of electricity from fossil fuels; and third,
changes to the design of the Balancing Mechanism
-- Reforms to the Capacity Market to support low-carbon,
flexible technologies which contribute to energy security
-- Review of Contracts for Difference (CfD) and how to
incentivise the deployment of renewable generation
REMA is likely to take several years to be fully completed. The
deadline for consultation submissions is 10 October 2022 and we are
in communication with the relevant parties to get further clarity
and feedback on the proposals including ongoing conversations with
National Grid ESO on more specific topics coming from REMA.
Given that the build - out of cheap renewables and batteries is
a key target for the UK Government and National Grid ESO, and the
acknowledgement for the need to encourage more low carbon
flexibility to cope with this, we anticipate the net impact of
changes to be neutral to positive for the BESS industry. The move
to Nodal pricing (which will in any case be at least five years)
may present opportunities for greater locational volatility and
pricing opportunities for well positioned assets and any changes to
CM auctions aimed to encourage BESS, should also be positive.
The Future Energy Scenarios (FES) report for 2022 released by
National Grid ESO, was released in tandem with the REMA report. FES
2022 aimed to provide a roadmap for decarbonising energy usage in
GB. In each scenario there is a heavy reliance on the further
rollout of renewable generation. In all scenarios the ESO
significantly increased the amount of storage they expect to see
and how early it is deployed. BESS is expected to become the
largest share of storage capacity in all scenarios by 2050. The ESO
forecasts growth in BESS requirements from 1.6GW in 2021 to 20GW in
2030 and 35GW by 2050 under their 'Leading the way ' scenario. In
addition to this they also note the need for policy, regulatory and
market environments to change for storage assets in order to bring
forward the levels of energy storage expected to be needed on the
system with particular consideration for developing revenue streams
and stacking of services to support business cases for storage
projects.
Outlook
Through the remainder of 2022 the core focus of the Manager is
to increase the operational capacity and revenue potential of the
portfolio by commissioning projects due , with the Company
targeting 690 MW operational capacity in the portfolio by the year
end and over 1GW of operational capacity by the end of H 1
2023.
This growing operational portfolio should ensure greater cash
generation and support Operational Dividend Cover. We anticipate
Operational Dividend Cover to increase progressively in line with
projects commissioning and expect full Operational Dividend Cover
for the year. Dividend levels will continue to be monitored against
the level of Operational Dividend Cover.
NAV growth is expected to continue through the end of the year
driven largely by revaluation of projects with Coupar Angus,
Arbroath and Stairfoot in particular set to be revalued later in
the year once they are operational and fully acquired.
As assets under construction commission, and others in the
market also come online, we expect to see the remaining headroom
for DC disappear, leading to falling Frequency Response service
pricing. This should see longer duration assets focus increasingly
on the trading potential available to them. The coming winter may
see even greater volatility than in previous years, offering
significant trading upside from those assets able to trade. We look
forward to seeing our portfolio demonstrate their capabilities in
this increasingly merchant environment.
The upcoming upgrades to our previous EFR portfolio will
increase the duration of these legacy assets allowing them to trade
more freely alongside the remainder of our portfolio and ensuring
they are capable of earning the revenue opportunity expected over
the short to medium term.
The GB electricity market is likely to experience large scale
changes over the medium to long term as plans from REMA begin to be
put in place. Overall, we believe the UK Government and the ESO
remain supportive of BESS and we look forward to ongoing engagement
with them to ensure the full benefit of BESS can be felt by the
market and by consumers. We remain confident in the opportunity for
BESS in the UK markets and are excited by further opportunities
open to the Company overseas following the change to the investment
policy during the period.
We are seeing comparable market drivers in numerous overseas
markets presenting expectations for growing volatility in merchant
markets and a solid revenue base. We remain committed to the
investment thesis of the fund and hope to have further information
on overseas projects in due course. We continue to develop the
expertise and size of the team to appropriately match the
opportunities ahead.
4. GRID 2022 Interim Report - Sustainability Report
In the 2021 Annual Report and Accounts the Sustainability Report
detailed the Company's approach to Sustainability including its
focus areas. Having reported on 2021 achievements, the report also
pointed to our "Future Objectives" which span the period 2022-2025.
The aim of this Sustainability Report is to update our shareholders
on the Company's progress on these Future Objectives, listed below
as "Objectives" as follows.
1. Commitment to sustainability (Environment)
Objective
Continue to increase capacity under management to increase
GRID's contribution to the decarbonisation of the UK's electricity
network and a reliable, low-cost energy system.
Update : This is reported on extensively in this Interim Report.
In alignment with the Fund's commercial aims, the Manager remains
fully focused on growing grid-connected MW and MWh capacity to make
a valuable contribution to Net Zero and related goals.
2. Supply chain management (Social)
Objectives
a. Update the Supply Chain Policy to fully reflect best practice
in the market and the commitments of the Investment Manager.
b. Have a comprehensive supply chain monitoring and management
process in place to assess ESG risks in the supply chain and to
ensure the compliance of suppliers with the Supply Chain
Policy.
c. Include sustainability criteria into supplier contract
renewal and supplier selection decisions.
d. Engage with key suppliers to enhance their sustainability
processes and reduce the Fund's ESG risk exposure.
Update : The Manager is awaiting the completion of an audit of
the BESS supply chain, from raw material production to the final
product, commissioned earlier this year which is due in Q4. This
will inform the actions required for each of the objectives listed
above.
3. Marketplace responsibility: processes, policies and education (Governance)
Objectives
a. Assess all assets against our Sustainable Infrastructure
Framework using the ESG Decision Tool and establish plans to
rectify any material risks to create and protect value for
shareholders.
b. Ensure the ESG Decision Tool remains up to date to reflect
any enhancements to the sustainable investment processes and
sustainability related policies.
c. Finalise ESG KPIs to monitor and measure sustainability
performance of the Fund and report these regularly to
stakeholders.
Update : These Objectives are ongoing. There is no significant
change to report on this occasion. The ESG tool continues to be a
valuable tool to focus the Manager on ESG topics.
4. Climate change and pollution (Environment)
Objectives
a. Report annual carbon footprint to stakeholders.
b. Set targets and actions to reduce operational carbon emissions.
c. Apply full TCFD guidance and report in line with recommendations.
Update : The 2022 Annual Report will report against TCFD and the
Manager, Board and our auditors are all preparing for this.
The Manager is also taking active steps to measure energy
losses, through on-site energy consumption or losses through heat
as the BESS charges and discharges. The Manager is considering
alternative designs to reduce such inefficiencies on future sites.
As with Objective 1, there is complete alignment between
commercial, operational and ESG goals on the subject of carbon
emissions.
5. Governance & ethics: engaged and active ownership (Governance)
Objectives
a. Identify and work with key industry bodies to drive positive
industry outcomes linked to sustainability topics.
b. Track and report on engagement activities and key outcomes.
c. Increase community engagement, where applicable, continuing
to educate the public on the role of BESS in the UK's
decarbonisation ambitions.
d. Solicit, where practical, feedback from key stakeholders who are in a position to contribute.
Update : The Manager is working with industry bodies as well as
key industry stakeholders to communicate on various topics. At the
top of the agenda at the moment is the Reform of Electricity Market
Arrangements, a consultation launched by the Department for
Business, Energy and Industrial Strategy (BEIS). This consultation
aims to address the challenges the electricity system faces as the
energy transition progresses, as well as exploring various ways of
addressing the 'cost of living crisis'. Consultation responses are
due in October and the Manager is involved in submitting a set of
responses.
In the last period we have also shared a questionnaire with our
largest shareholders to identify their own priorities, so that in
addition to complying with all reporting standards, we also take on
board our investors' insights.
6. Natural capital (Environment)
Objectives
a. Measure and report on key natural capital impacts and dependencies.
b. Enhance policies and processes to reduce, restore and enhance
biodiversity and other key ecosystem services at asset sites.
Update : The Manager is monitoring developments following
passing of the Environment Act which will require all developments
to create a biodiversity 'net gain' (currently expected from Q4
2022).
7. Waste management (Environment)
Objectives
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.
b. Engage with contractors/suppliers on their end-of-life process development and technology.
Update : The Manager is working to fully understand the
responsibilities resting with the importer of the batteries, whose
obligation it is to recycle batteries at the end of their life. Due
to how the construction of the projects has been contracted, this
has generally fallen on the EPC contractor. Nevertheless, the
Manager is working to understand these obligations too, in order to
understand any indirect impacts on the Fund, as well as the
implications of being the importer going forward.
5. Principal Risks 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.
Existing risks
Risk area Gross impact Mitigation Net impact
Availability Inability of the The Company's investments This will remain
of batteries Company to deploy are within SPVs and an issue in the
and other critical capital raised these are subject future, although
components. into investments to a battery order the size and scale
due to incomplete with a Tier 1 supplier of the Company
Residual risk: or lengthening which has been secured. provides the ability
high project timescales. Due to the size of to secure key
(2021 FY: N/A) this order, advantageous components.
Price increases terms have been secured.
for components
making investments
less attractive
------------------------- ------------------------------ ---------------------------
Emerging business Adverse changes The Company's investments Battery energy
model and impact by National Grid enjoy several different storage is a versatile
on revenue in relation to income streams ranging asset, and it
streams sourced services contracted from BM, Capacity can perform a
from National by them may reduce Payments, FFR, TRIADs, variety of roles
Grid mechanisms. the size/scope and DC as contracted to manage risk.
of income earning services to National
Residual risk: opportunities Grid; the Company's There is also
medium to the Company's investments are able the potential
(2021 FY: high) investments and to change which income to "revenue stack"
potential impact streams are contracted and gain multiple
on valuation. and ascertain the revenue streams
most advantageous from different
HM Government on any given time services.
Energy Strategy period: this is continuously
moves away from monitored by the The income stream
intermittent renewable Investment Manager opportunities
assets which impact and optimisation and usage of battery
on future growth partners. energy storage
of the Company. systems is expected
Due to the progressive to evolve over
decommissioning of time.
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.
------------------------- ------------------------------ ---------------------------
Environmental, BESS are manufactured, The supply for battery Some aspects of
Social and installed, and manufacture relies this are still
Governance: operated with on high quality global evolving over
production the intention partners who ensure time, especially
and recycling of driving the their supply chain the end use/recycling
of batteries transformation does not involve of BESS.
creates risk. to a low carbon the use of illegally
energy supply or unethically sourced The ability of
Residual risk: in the UK. However, "rare earth" materials the BESS market
medium the lifecycle or inadequate labour to drive a low
(2021 FY: medium) ESG impact of standards. This could carbon electricity
the batteries be mitigated by undertaking system needs to
needs to be considered reviews of the supply be considered
and minimised. chain. versus the other,
mainly fossil
The recycling of fuelled, options
the BESS systems when considering
is subject to constant the overall ESG
development and research; impact of BESS.
the importer of these Work will continue
batteries (not the to minimise this
Company or SPV companies) over time.
is responsible for
their disposal, but
the Company will
facilitate this to
ensure low environmental
impact.
------------------------- ------------------------------ ---------------------------
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 which ensures
medium cash flows and profitable as expected income streams
(2021 FY: medium) assessment of or costs are higher are discounted
future income than expected. using appropriate
streams: these discount rates
valuations may Risk adjusted discount dependent on the
be materially rates drive valuation perceived risks.
incorrect or not along with the external
held at fair value. pricing curves. The weighted average
discount rates
The impact of are reviewed regularly
volatile inflation and the Company
and interest rates believes the valuations
may impact upon are conservative.
these valuations.
A third-party
valuer reviews
valuations and
confirms appropriateness.
------------------------- ------------------------------ ---------------------------
Operational The BESS investments The Company underwent The Investment
and performance do not perform a programme of upgrades Manager has substantial
risk in the in the manner to the seed assets experience managing
underlying expected (i.e. to optimise these BESS assets and
investments degradation in assets and has ensured works with leading
leading to performance) or that the new assets asset optimisers
loss of value. are not optimised being invested into to ensure assets
in the best commercial are designed in a are designed and
Residual risk: manner to capture flexible manner. operated as expected.
low revenue streams The battery duration
(2021 FY: low) leading to reduction for the new investments Health and safety
in valuations. is also considered performance is
to ensure fullest rigorously tested
Performance within flexibility for future and reviewed.
the SPVs may not operation.
meet planning
or safety requirements Design and commissioning
and result in testing takes place
curtailment of in each investment
operations and to ensure all relevant
loss of investment planning and HSE
value. conditions are met.
Fire risk, in particular,
The portfolio is carefully assessed
relies on contracts and sites are designed
with suppliers and operated to ensure
to maintain certain this risk is as low
key equipment: as practicable.
these suppliers
may fail to provide Cyber security risk
adequate support. is managed via secure
systems used by optimisation
partners.
The portfolio has
a number of alternative
suppliers and optimisers
to manage risk.
------------------------- ------------------------------ ---------------------------
Investment The Company invests The Company does Limited exposure
in development in projects via not invest in speculative to the Company
and construction loans before and project development. due to careful
projects. after the projects Any investments in vetting and management
are owned by the projects are carefully of project development
Residual risk: Company. There assessed and vetted activities and
low is a risk that by the Investment commercial arrangements
(2021 FY: low) the project does Manager: they will with the Investment
not complete, have secured certain Manager to manage
and the Company minimum requirements construction risk.
incurs financial and are expected
loss. to be ready to proceed The Company is
to construction in usually investing
The Company invests a relatively short in the advance
in construction timescale. purchase of equipment
projects as part which has inherent
of its investment value and can
portfolio. There be used on other
is a risk of financial projects if needed.
loss or delay
of revenue generation.
Late delivery
of plant items
may lead to delay.
------------------------- ------------------------------ ---------------------------
Reliance on The Company relies The Company has long-term The Investment
the Investment on the Investment contractual arrangements Manager remains
Manager. Manager as a key in place with the incentivised to
supplier. Investment Manager, continue to grow
Residual risk: and the Investment the Company and
medium Manager has confirmed drive value.
(2021 FY: low) to the Company that
the growth of the The growth in
Company is a key scale and associated
focus area of the activity supplied
Investment Manager. by the Investment
Manager will tend
to increase this
risk.
------------------------- ------------------------------ ---------------------------
Financing risk. Equity or debt The Company does Limited overall
financing is not not enter into unfunded impact on deployment
Residual risk: available and commitments: all of pipeline.
low the Company is committed pipeline
(2021 FY: low) unable to fund can be funded from As the Company's
its pipeline of existing equity finance investments draw
assets. or the existing debt down more debt
facility. this risk will
The Company's tend to increase.
investments are The banking covenants
subject to banking have been carefully As debt is drawn
covenants which modelled by the Investment the Company enters
could be breached Manager to ensure into interest
if the Company's they are achievable. rate hedging instruments
investments do to manage this
not perform as risk.
expected.
Higher interest
rates will increase
the Company's
cost of debt.
------------------------- ------------------------------ ---------------------------
Tax compliance. The Company is The Investment Manager None.
registered as undertakes the relevant
Residual risk: an Investment tests each quarter
low Trust and must and the Company's
(2021 FY: low) comply with certain tax advisers review
tests. this regularly.
------------------------- ------------------------------ ---------------------------
Emerging Risks
Risk area Gross impact Mitigation Net impact
Emerging technology The Company invests The Company utilises The Company will
replaces battery in battery storage proven technologies also benefit from
energy storage projects: a new with associated Tier lower costs and
assets. or disruptive 1 supplier warranties the valuation
technology might and performance guarantees. model assumes
Residual risk: adversely impact continuing cost
low on the Company's The Company continues reductions for
(2021 FY: low) investments. to review available replacement assets
technologies. It over time.
Future income is currently viewed
streams may be as unlikely that
reduced if new a completely new
entrants have reliable and cost
significantly competitive technology
lower marginal will appear during
costs. the lifetime of these
batteries and impact
on the lifecycle
of these batteries.
---------------------- ------------------------------ ---------------------
Potential equipment If China invades The Company has relationships The Company ensures
shortages if Taiwan or takes with other non-Chinese it is securing
China is subject other hostile suppliers, but they key equipment
to sanctions. measures which are likely to source orders in advance.
cause sanctions, components from China.
Residual risk: the supply chain
low of crucial equipment The Company ensures
(2021 FY: low) would be disrupted. payments are protected
via Letters of Credit
to ensure no financial
loss.
---------------------- ------------------------------ ---------------------
6. BOARD OF DIRECTORS AND INVESTMENT TEAM
The Investment Team
Ben Guest (Managing Director, New Energy); Lead Manager of
Gresham House Energy Storage Fund plc)
Ben was the founder and managing partner of Hazel Capital which
was acquired by Gresham House in 2017. He has 28 years' of
investment experience. Ben's expertise spans the investment
spectrum, across infrastructure, public equities and venture
capital. Today, Ben is Managing Director of Gresham House's New
Energy division, and the Lead Manager of the Company. He is
responsible for the origination and execution of investment
opportunities and is responsible for the overall strategy and
ongoing portfolio management of the Fund.
Ben started his fund management career at Lazard Asset
Management in 1994 before going on to co-found Cantillon Capital
and later founded Hazel Capital in 2007.
Ben currently serves as a Director of over 50, mostly project,
companies.
Bozkurt Aydinoglu (Investment Director, New Energy)
Bozkurt joined Gresham House in 2017 as Investment Director
having previously been at Hazel Capital and has 29 years'
investment, advisory and businesses building experience.
Bozkurt's primary focus is on procurement, contracting, delivery
and evaluation of new energy storage opportunities, in addition
Bozkurt also manages the Gresham House New Energy VCTs containing a
portfolio of solar and wind assets.
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 cofounded and built New Energy Finance (NEF),
which became the leading provider of data, research and analysis to
investors in the global cleantech industry.
Gareth Owen (Investment Director, New Energy)
Gareth was a Partner at Hazel Capital (now Gresham House New
Energy) and has over 20 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 Robinson has been the Managing Director of Gresham House
Asset Management Ltd since September 2015. Before joining Gresham
House, Rupert was CEO and CIO of Schroders (UK) Private Bank for 11
years and prior to that spent 17 years at Rothschild where he was
latterly Head of Private Clients at Rothschild Asset
Management.
Rupert has a proven track record of delivering significant value
to shareholders.
He has over 30 years' of experience in asset management, private
banking and wealth management, focusing on product innovation,
investment management, business development, banking and wealth
structuring. He is a member of the Gresham House Group Management
and Investment Committees.
Stephen Beck (Divisional Finance Director, Real Assets)
Stephen has 26 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 in-house finance team managing New Energy,
Renewables, Commercial Forestry and Housing sectors.
Prior to this, Stephen worked at E.ON, where he held a variety
of financial and commercial roles from 2000 onwards, ranging from
leading large finance teams, developing power station projects,
M&A transactions, and working with HM Government delivering low
carbon solutions.
James Bustin (Investment Manager, New Energy)
James has nine years' of experience across investments, finance
and accounting and joined the team in 2019 having previously worked
on public equities and venture capital in the Gresham House
Ventures team. James' role in the New Energy team covers fund and
portfolio management as well as new investments.
James joined Gresham House in 2018 as part of the acquisition of
Livingbridge VC where he had been working as an analyst since 2016.
Prior to Livingbridge James worked in TMT audit at EY for three
years, qualifying as a chartered accountant.
Charlie von Schmieder (Investment Director, New Energy)
Charlie has over 20 years' experience having started his career
as a commercial solicitor before moving to Investment Management
for the past nine years.
Charlie has extensive experience in the development, funding and
asset management of distributed energy infrastructure projects and
has worked on a wide range of technologies including solar PV,
hydroelectric, anaerobic digestion, thermal heat networks, gas
peaking and battery energy storage.
Charlie's current role began in February 2021, following a year
in the team as a contractor. He is responsible for executing
investments in energy storage systems, whether acquired before
construction or when already operational.
Fernando Casas Garcia (Head of Operations and Asset Management,
New Energy)
Fernando has 15 years' experience in the renewable energy
sector, mostly in solar PV. Since joining the team in May 2021,
Fernando has been focused on the design, development and deployment
of processes and procedures that allow the growth in MWs under
management and improvement in operational performance.
Prior to Gresham House Fernando was Global Head of Technical for
a 2.2GW solar PV portfolio at WiseEnergy focused on the operation
of their solar PV assets and increasing overall revenues.
Paul George (Health and Safety Manager, New Energy)
Paul is responsible for building risk management capabilities,
systems, processes and culture to support the management of health
and safety risks and opportunities in the New Energy team.
Paul has ten years' experience in health and safety risk
management in the construction sector as well as a degree in
occupational health and safety management.
Prior to Gresham House Paul worked at HS2 Ltd in their
infrastructure integrated project team and prior to that worked at
Network Rail.
Nick Vest (Finance Director, Energy Storage)
Nick joined Gresham House in January 2021. He has over 20 years'
accounting and finance experience and is a Chartered Accountant and
Chartered Tax Advisor.
Prior to Gresham House, Nick worked as Finance Director for an
internationally focused property investment group and before that
was Associate Director of Tax at Temenos Group SA in
Switzerland.
The Board
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
Management Engagement 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
and acquisitions. Cathy was appointed to the Board on 1 March
2019.
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; Altfi Limited; Altfi Data Limited; TF Stream Limited;
Planet Sports Rights Limited; Rocket Media LP; The Secured Income
Fund plc; Stockmarkets Digest Limited; and Windhorse Aerospace
Limited.
The Company has a Board of four Independent Non-Executive
Directors.
The Board has 25% female representation. This will rise to 40%
following Isabel Liu's appointment to the Board from 1 October
2022. Ms Liu's appointment will also result in the Board having a
member from a minority ethnic background (as defined in the Listing
Rules). The Board has adopted a formal diversity policy and
strongly believes that diversity in all its forms (whether of
skills, background or characteristic) is an important contributor
to strong decision-making and intends to prioritise diversity in
its ongoing succession planning.
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 sex, 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
conducts an externally facilitated effectiveness evaluation every
three years, with its first such evaluation having taken place dur
ing 2021 and Ms Liu's appointment being made in response to that
evaluation process.
The Directors will all stand for re-election at the Annual
General Meeting of the Company.
DIRECTORS' REPORT
The Directors present the Interim Report and Accounts of the
Company for the period ended 30 June 2022.
The Directors during the period, including their appointment
dates, are set out in the Board of Directors summary on page
23.
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 page 5.
The Directors and Investment Manager have developed several
tools to review ongoing performance. These include ongoing monthly
and quarterly dashboards detailing the performance of each
investment in relation to the individual income streams expected of
each investment and performance against costs. As the Company
deploys capital raised, the Directors have a focus on the
underlying investment model for each new investment to ensure it
meets the Investment Objectives of the Company.
The Directors are satisfied that underlying performance is being
developed in line with expectations: the rollout programme of new
investments and upgrades and extensions of investments acquired at
IPO is continuing to progress well and has ensured an increasing
level of operational performance throughout 2022 so far, which is
summarised within the Chair's Statement on page 3.
Financial risk management
The Board believes that the main financial risks of the Company
relate to the requirement to ensure the capital commitments of the
Company are commensurate with the capital available and the ability
of the underlying investments to generate income to the Company to
ensure the targeted dividend payments can be paid to investors and
total NAV return targets are met. The Board constantly monitors
these financial risks.
The Company has the ability to assume up to 50% of gearing and
may increase gearing in future ensuring any covenants or associated
financial instruments are appropriate for the risk profile of the
Company.
Share capital
At the period end, the Company had in issue 541,290,353 Ordinary
Shares. There are no other share classes in issue. All shares have
voting rights; each Ordinary Share has one vote.
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 annual general meeting.
Period in relation Announcement Ex-dividend Payment Amount Total amount
to which dividend date date date per Ordinary
was paid Share
1 July to 30 15 November 25 November 27 December 1.75 pence GBP7,662,236.36
September 2021 2021 2021 2021
------------- ------------ ------------ -------------- ----------------
1 October to 14 February 3 March 25 March 1.75 pence GBP7,662,236.36
31 December 2022 2022 2022
2021
------------- ------------ ------------ -------------- ----------------
1 January to 4 May 2022 12 May 2022 27 May 2022 1.75 pence GBP7,662,236.36
31 March 2022
------------- ------------ ------------ -------------- ----------------
Dividends are not recognised in the financial statements of the
Company until paid.
The results of the Company are disclosed in the Investment
Manager's Report on page 5 of this Report.
Substantial interests
As at 30 June 2022, and the date of this Interim Report and
Accounts, the Company had been notified the following beneficial
interests exceeding 3% of the issued share capital, being
541,290,353 Ordinary Shares.
Shareholder Number of Ordinary Percentage
Shares to date of Issued
Share
Capital
Sarasin & Partners (London) 51,964,886 9.60%
=========================================== =================== ===========
Border to Coast Pensions Partnership
(Leeds) 33,583,839 6.20%
=========================================== =================== ===========
Gresham House (London) 28,928,388 5.34%
=========================================== =================== ===========
Close Asset Mgt (London) 26,463,865 4.89%
=========================================== =================== ===========
Gravis Capital Mgt (London) 24,492,210 4.52%
=========================================== =================== ===========
Schroder Investment Mgt (London) 24,207,069 4.47%
=========================================== =================== ===========
Newton Investment Mgt (London) 19,759,575 3.65%
=========================================== =================== ===========
BlackRock Investment Mgt - Index (London) 19,713,218 3.64%
=========================================== =================== ===========
CCLA Investment Mgt (London) 18,363,884 3.39%
=========================================== =================== ===========
JM Finn & Co (London) 18,208,842 3.36%
=========================================== =================== ===========
Annual General Meeting
The Company's second Annual General Meeting (AGM) was held on 30
June 2022. All resolutions proposed to the Company's shareholders
at this AGM were duly passed on a poll vote.
Directors remuneration and interests
Details of the gross fees paid to Directors in the period are
set out below.
Fixed Salary Short term Total fixed Total variable
and fees for variable pay remuneration remuneration
period from period from period from period from
1 Jan 2022 1 Jan 2022 01/01/22 01/01/22 to
to 30 June to 30 June to 30/06/22 30/06/22
2022 2022
GBP GBP
Catherine Pitt 23,648 - 23,648 -
-------------- -------------- -------------- ---------------
David Stevenson** 23,648 - 23,648 -
-------------- -------------- -------------- ---------------
Duncan Neale(*) 32,844 - 32,844 -
-------------- -------------- -------------- ---------------
John Leggate 42,040 - 42,040 -
-------------- -------------- -------------- ---------------
Total fixed
remuneration 122,180 - 122,180 -
-------------- -------------- -------------- ---------------
In accordance with FCA Listing Rules 9.8.6(R)(1), Directors'
interest in the shares of the Company (in respect of which
transactions are notifiable to the Company under FCA Disclosure and
Transparency Rule 3.1.2(R)) as at 30 June 2022 are shown below:
Director No. of Ordinary Percentage
Shares of total issued
share capital
Catherine Pitt 30,615 0.0057%
---------------- -----------------
David Stevenson 22,330 0.0041%
---------------- -----------------
Duncan Neale 20,375 0.0038%
---------------- -----------------
John Leggate 101,170 0.0187%
---------------- -----------------
Total Shares 174,490
---------------- -----------------
Going concern
The Interim 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 17 to
20.
As at 30 June 2022, the Company had net cash and cash equivalent
balances of GBP222mn (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
partially drawn at the period end. It is anticipated that the capex
facility will be fully drawn during 2022 and 2023 to purchase
equipment and make payments under EPC contracts for pipeline
projects.
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
base case assessment considers the Company's ability to continue in
operation under the current planned strategy to fund and acquire
the currently committed Exclusivity Pipeline. The severe but
plausible downside case scenario 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 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 Interim Report.
Directors' responsibilities
The Directors confirm to the best of their knowledge:
-- the Interim Report and Accounts have been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" and give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company,
as required by DTR 4.2.4 R of the Disclosure Guidance and
Transparency Rules;
-- the Chair's Statement and Interim Investment Manager's Report
include a fair review of the development, performance and position
of the Company and a description of the principal risks and
uncertainties, that it faces for the next six months as required by
DTR 4.2.7.R of the Disclosure Guidance and Transparency Rules;
and
-- the Investment Manager's Interim Report and Note 20 to the
Condensed Financial Statements include a fair review of related
party transactions and changes therein, as required by DTR 4.2.8.R
of the Disclosure Guidance and Transparency Rules.
John Leggate CBE, FREng.
Chair
26 September 2022
Unaudited Condensed Statement of Comprehensive Income
Six months ended 30 June 2022 Notes Revenue Capital Total
(unaudited) (unaudited) (unaudited)
(GBP) (GBP) (GBP)
------------------------------------------ ------- -------------- -------------- --------------
Net gain on investments at fair
value through the profit and loss 5 13,584,083 131,571,872 145,155,955
Bank interest income 60,037 - 60,037
Other income 199,500 - 199,500
------------------------------------------ ------- -------------- -------------- --------------
Total income 13,843,620 131,571,872 145,415,492
Administrative and other expenses 6 (3,527,579) - (3,527,579)
Profit before tax 10,316,041 131,571,872 141,887,913
Taxation 7 - - -
Profit after tax and total comprehensive
income for the period 10,316,041 131,571,872 141,887,913
------------------------------------------ ------- -------------- -------------- --------------
Profit per share (basic and diluted)
- pence per share 8 2.26 28.88 31.15
Six months ended 30 June 2021 Notes Revenue Capital Total
(unaudited)
(unaudited) (unaudited) (GBP)
(GBP) (GBP)
Net gain on investments at fair
value through the profit and loss 5 10,670,174 27,891,255 38,561,429
Other income 90,000 - 90,000
Total income 10,760,174 27,891,255 38,651,429
Administrative and other expenses 6 (2,153,981) (172,546) (2,326,527)
Profit before tax 8,606,193 27,718,709 36,324,902
Taxation 7 - - -
Profit after tax and total comprehensive
income for the period 8,606,193 27,718,709 36,324,902
Profit per share (basic and diluted)
- pence per share 8 2.47 7.95 10.42
All items dealt with in arriving at the result for the period
relate to continuing operations.
The notes on pages 31 to 44 form an integral part of these
Condensed Financial Statements.
There are no other items of comprehensive income or expense
apart from those disclosed above and consequently a separate
statement of comprehensive income has not been prepared.
Unaudited Condensed Statement of Financial Position
As at 30 June 2022
Company number 11535957
Notes 30 June 31 December
2022 2021
unaudited audited
(GBP)
(GBP)
Non-current assets
Investment in subsidiaries at fair value
through profit or loss 9 564,696,989 389,346,748
------------------------------------------ ------ ------------ ------------
Total non-current assets 564,696,989 389,346,748
------------------------------------------ ------ ------------ ------------
Current assets
Cash and cash equivalents 11 222,179,880 122,175,081
Trade and other receivables 12 431,582 359,467
Total current assets 222,611,462 122,534,548
Total assets 787,308,451 511,881,296
------------------------------------------ ------ ------------ ------------
Current liabilities
Trade and other payables 13 (1,867,214) (210,255)
------------------------------------------ ------ ------------ ------------
Total current liabilities (1,867,214) (210,255)
Total net assets 785,441,237 511,671,041
------------------------------------------ ------ ------------ ------------
Shareholders' equity
Share capital 18 5,412,904 4,378,421
Share premium 18 495,230,992 349,058,720
Merger relief reserve 19 13,299,017 13,299,017
Capital reduction reserve 19 22,837,700 38,162,172
Capital reserves 19 206,993,712 75,421,840
Revenue reserves 19 41,666,912 31,350,871
------------------------------------------ ------ ------------ ------------
Total shareholders' equity 785,441,237 511,671,041
------------------------------------------ ------ ------------ ------------
Net asset value per share (pence) 17 145.11 116.86
The Interim Report and Accounts were approved and authorised for
issue by the Board of Directors and are signed on its behalf
by:
________________________
Chair
Date: 26 September 2022
The notes on pages 31 to 44 form an integral part of these
Condensed Financial Statements.
Unaudited Condensed Statement of Changes in Equity
Six months ended 30 June 2022
Notes Share Share Merger Capital Capital Revenue Total
capital premium relief reduction reserves reserves shareholders'
reserve reserve reserve equity
(GBP) (GBP) (GBP) (GBP) (GBP) (GBP) (GBP)
--------------- ------ ---------- ------------ ----------- ------------- ------------ ----------- --------------
As at 1
January
2022 4,378,421 349,058,720 13,299,017 38,162,172 75,421,840 31,350,871 511,671,041
Profit after
tax and total
comprehensive
income for
the period - - - - 131,571,872 10,316,041 141,887,913
Transactions
with owners
Ordinary
shares
issued 18 1,034,483 148,965,516 - - - - 149,999,999
Costs of
Ordinary
shares issued - (2,793,244) - - - - (2,793,244)
Dividends
paid 18 - - - (15,324,472) - - (15,324,472)
As at 30
June 2022 18 5,412,904 495,230,992 13,299,017 22,837,699 206,993,712 41,666,912 785,441,237
--------------- ------ ---------- ------------ ----------- ------------- ------------ ----------- --------------
Six months ended 30 June 2021
Notes Share Share Merger Capital Capital Revenue Total
capital premium relief reduction reserves reserves shareholders'
reserve reserve reserve equity
(GBP) (GBP) (GBP) (GBP) (GBP) (GBP) (GBP)
-------------------- ---------- ------------ ----------- ------------- ----------- ----------- --------------
As 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 after
tax and total
comprehensive
income for
the period - - - - 27,718,709 8,606,193 36,324,902
Transactions
with owners
Dividends
paid 18 - - - (12,199,472) - - (12,199,472)
As at 30
June 2021 18 3,485,564 251,601,260 13,299,017 51,924,145 40,586,071 22,119,783 383,015,840
---------------- --- ---------- ------------ ----------- ------------- ----------- ----------- --------------
The notes on pages 31 to 44 form an integral part of these
Condensed Financial Statements
Unaudited Condensed Statement of Cash Flow
Note Six months Six months
ended 30 June ended 30 June
2022 2021
(Unaudited) (Unaudited)
(GBP) (GBP)
----------------------------------------- ----- --------------- ---------------
Cash flows from operating activities
Profit for the period 141,887,913 36,324,902
Net gain on investments at fair
value through profit and loss 5 (131,571,872) (27,891,255)
Interest income (13,584,083) (10,670,174)
Increase in trade and other receivables (72,115) (146,300)
Increase/(decrease) in trade and
other payables 1,656,959 (246,973)
----------------------------------------- ----- --------------- ---------------
Net cash used in operating activities (1,683,198) (2,629,800)
Cash flows from investing activities
Loans made to subsidiaries 9 (30,194,286) (34,744,684)
Disposal of investments - (238,095)
Net cash used in investing activities (30,194,286) (34,982,779)
Cash flows from financing activities
Proceeds from issue of Ordinary
shares at a premium 18 149,999,999 -
Share issue costs 18 (2,793,244) -
Dividends paid (15,324,472) (12,199,472)
Net cash from/(used in) financing
activities 131,882,283 (12,199,472)
Net increase/(decrease) in cash
and cash equivalents for the period 100,004,799 (49,812,051)
----------------------------------------- ----- --------------- ---------------
Cash and cash equivalents at the
beginning of the period 122,175,081 110,967,025
----------------------------------------- ----- --------------- ---------------
Cash and cash equivalents at
the end of the period 222,179,880 61,154,974
----------------------------------------- ----- --------------- ---------------
The notes on pages 31 to 44 form an integral part of these
Condensed Financial Statements
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, 18th Floor, 52 Lime Street, London,
EC3M 7AF. Its share capital is denominated in Pounds Sterling (GBP
or GBP) and currently consists of Ordinary Shares. The Company's
principal activity is to invest in 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 portfolio are located in diverse locations
across Great Britain.
These interim financial statements cover the period from 1
January 2022 to 30 June 2022, with a comparative period from 1
January 2021 to 30 June 2021, and comprise only the results of the
Company as all of its subsidiaries are measured at fair value.
2. Basis of preparation
Statement of compliance
The Interim Report and Accounts have been prepared in accordance
with International Accounting Standard 34 'Interim Financial
Reporting'. The Condensed Financial Statements have been prepared
on a historical cost basis except for financial assets and
liabilities at fair value through the profit or loss. The accounts
have been prepared on a basis that is consistent with accounting
policies applied in the preparation of the Company's Annual
Financial Statements for 31 December 2021.
Where presentational guidance set out in the Statement of
Recommended Practice (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 Interim
Condensed Financial Statements on a basis compliant with the
recommendations of 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.
These Condensed Financial Statements do not include all
information and disclosures required in the Annual Financial
Statements and should be read in conjunction with the Company's
audited financial statements for the year ended 31 December 2021,
which were prepared in accordance with UK adopted international
accounting standards.
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 Interim Report and Condensed Financial
Statements of the Company and which are deemed to be material for
the Company.
Functional and presentation currency
The currency of the primary economic environment in which the
Company operates (the functional currency) is Pounds Sterling (GBP
or GBP) which is also the presentation currency.
Going concern
As at 30 June 2022, the Company had net current assets of
GBP221mn and had cash balances GBP222mn (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 period are sufficiently covered through current cash reserves
and debt facilities. The Company had no outstanding debt owing as
at 30 June 2022. The Company is an obligor to the debt facility
entered into by Gresham House Energy Storage Holdings (the Midco),
which was partially drawn at 30 June 2022.
As such, the directors have adopted the going concern basis in
preparing the Interim Report and Condensed Financial
Statements.
3. Significant accounting judgements, estimates and assumptions
The preparation of the Condensed 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 period 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 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
sale of the investment in Noriker Power in the year to 31 December
2021 the Company holds one investment directly but many investments
indirectly, as there is a portfolio of investments 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
typical 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 9) is not consolidated as it is considered
to be an investment entity. The Board of the Midco have co nsidered
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 impact of consolidating the
Midco would be to increase the investment value to GBP577,228,493
(31 December 2021: GBP401,115,427) and net working capital would
decrease by GBP12,513,504 (31 December 2021: GBP11,768,679).
Investment Manager not a related party
The AIFM is not disclosed as key management personnel in the
financial statements. To meet the key management personnel
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 Condensed Financial
Statements include the amounts recorded for the fair value of the
instruments. By their nature, these estimates and assumptions are
subject to measurement uncertainty and the effect on the Company's
Condensed Financial Statements of changes in estimates in future
periods could be significant. See note 15 for further details.
4. Fees and expenses
Accounting, secretarial and directors
JTC (UK) Limited acts 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 period, expenses incurred with JTC (UK) Limited for
administrative and secretarial services amounted to GBP143,194
(2021: GBP88,312) with GBP35,784 (2021: GBP29,210) being
outstanding and payable at the period 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 Net Asset Value of the
Company
-- 0.9% on the Net Asset Value of the Company in excess of
GBP250mn and up to and including GBP500mn
-- 0.8% on the Net Asset Value of the Company in excess of
GBP500mn
During the period, Investment Manager fees recognised in these
Condensed Financial Statements amounted to GBP2,633,215 (2021:
GBP1,754,677) with GBP1,438,960 (2021: GBP896,591) being
outstanding and payable at the period end.
5. Net gain on investments at fair value through the profit and loss
Six months Six months
ended 30 ended 30
June 2022 June 2021
(GBP) (GBP)
---------------------------------------------- ------------ ------------
Unrealised gain on investments at fair value
through the profit and loss 131,571,872 27,891,255
Interest on loans to subsidiaries 13,584,083 10,670,174
145,155,955 38,561,429
---------------------------------------------- ------------ ------------
6. Administrative and other expenses
Six months Six months
ended 30 ended 30
June 2022 June 2021
(GBP) (GBP)
------------------------- ------------ ------------
Administration fees 112,714 88,312
Audit fees paid 94,303 76,250
Depositary fees 17,921 22,369
Directors' remuneration 146,845 125,858
Management fees 2,633,215 1,754,677
Sundry expenses 203,631 86,515
Transaction fees - (57,355)
Legal and professional 318,950 229,901
3,527,579 2,326,527
------------------------- ------------ ------------
7. Taxation
The Company is recognised as an Investment Trust Company (ITC)
for the accounting period and is taxed at the main rate of 19%.
The Company may utilise group relief or make interest
distributions to reduce taxable profits for the period to 30 June
2022, therefore, no corporation tax charge has been recognised for
the Company for the period.
Six months Six months
ended 30 ended 30
June 2022 June 2021
(GBP) (GBP)
--------------------------------------- ---- ------------- ------------
(a) Tax charge in profit or loss
UK corporation tax - -
------------- ------------
(b) Reconciliation of the tax charge
for the period
Profit/ before tax 141,887,913 36,324,902
------------- ------------
Tax at UK main rate of 19% 26,958,703 6,901,731
Tax effect of:
Net gain on investments at fair value
through the profit and loss (24,998,656) (5,299,338)
Non-deductible expenses (12,509) (54,579)
Subject to group relief/designated
as interest distributions (1,947,538) (1,547,814)
------------- ------------
Tax charge for the period - -
--------------------------------------------- ------------- ------------
8. 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 Earnings per
Ordinary Share are identical.
Six months ended
30 June 2022
Revenue Capital Total
(GBP) (GBP) (GBP)
-------------------------------------- ------------ ------------ ------------
Net profit attributable to ordinary
shareholders 10,316,041 131,571,872 141,887,913
Weighted average number of Ordinary
Shares for the period 455,559,738 455,559,738 455,559,738
------------ ------------
Profit per Ordinary Share (basic and
diluted) - pence per Ordinary Share 2.26 28.88 31.15
------------ ------------ ------------
Six months ended
30 June 2021
Revenue Capital Total
(GBP) (GBP) (GBP)
-------------------------------------- ------------ ------------ ------------
Net profit attributable to ordinary
shareholders 8,606,193 27,718,709 36,324,902
Weighted average number of Ordinary
Shares for the period 348,556,364 348,556,364 348,556,364
------------ ------------
Profit per Ordinary Share (basic and
diluted) - pence per Ordinary Share 2.47 7.95 10.42
------------ ------------ ------------
9. Investment 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 and there are no restrictions
in place in passing monies up the structure.
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.
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.
Immediate Place Registered Office Percentage
Parent of business ownership
---------------------- ------------- -------------- ------------------------- -----------
Gresham House Energy The Scalpel, 18th
Storage Holdings England Floor, 52 Lime Street,
PLC The Company & Wales London, EC3M 7AF 100%
Equity Loans Total
equity and
loans
(GBP) (GBP) (GBP)
------------------------ ------------ ------------ ------------
As at 30 June 2022 200,696,010 364,000,979 564,696,989
------------------------ ------------ ------------ ------------
As at 31 December 2021 69,124,138 320,222,610 389,346,748
------------------------ ------------ ------------ ------------
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. 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.
Reconciliation 30 June 31 December
2022 2021
(GBP)
(GBP)
---------------------------------------------- ------------ -------------
Opening balance 389,346,748 248,964,175
Add: loans advanced 30,194,286 55,730,831
Less: loan repayments - (419,290)
Less: disposals during the year - (238,095)
Add: accrued interest on loans (see note 5) 13,584,083 22,470,837
Total fair value movement through the profit
or loss (see note 5) 131,571,872 62,838,290
Closing balance 564,696,989 389,346,748
---------------------------------------------- ------------ -------------
Further analysis
The Company owns 100% of the ordinary shares in Gresham House
Energy Storage Holdings plc (the Midco) which holds the investments
in the underlying subsidiaries. The investment totalling
GBP564,696,989 (31 December 2021: GBP389,346,748) in the Midco
comprises underlying investments in the following companies:
Location Percentage ownership Total investment
Investment 30 June 31 December 30 June 31 December
2022 2021 2022 2021
(GBP)
(GBP)
Noriker Staunch Limited UK 100% 100% 19,427,900 17,342,193
HC ESS2 Limited UK 100% 100% 25,317,764 23,881,200
HC ESS3 Limited UK 100% 100% 22,722,829 20,066,324
West Midlands Grid
Storage Two Limited UK 100% 100% 4,371,266 3,961,609
Cleator Battery Storage
Limited UK 100% 100% 6,512,416 7,612,741
Glassenbury Battery
Storage Limited UK 100% 100% 34,712,435 38,507,279
HC ESS4 Limited UK 100% 100% 50,318,757 46,118,825
Bloxwich Energy Storage
Limited UK 100% 100% 29,943,664 25,088,436
HC ESS6 Limited UK 100% 100% 48,148,235 44,737,484
HC ESS7 Limited UK 100% 100% 49,870,043 46,055,369
Tynemouth Battery
Storage Limited UK 100% 100% 15,538,309 15,956,108
Gridreserve Limited UK 100% 100% 22,959,209 19,569,973
Nevendon Energy Storage
Limited UK 100% 100% 5,455,003 5,028,954
Port of Tyne Energy
Storage Limited UK 100% 100% 13,824,905 17,551,881
Enderby Limited UK 100% 100% 30,346,496 19,189,475
West Didsbury Limited UK 100% 100% 29,706,072 14,917,971
Penwortham Limited UK 100% 100% 28,591,476 15,073,790
Grendon Storage Limited UK 100% 100% 18,632,772 2,943,599
Melksham East Storage
Limited and Melksham
West Storage Limited UK 100% 100% 55,583,038 10,066,239
UK Battery Storage
Limited UK 100% - 54,295,488 -
------------- -------------
Investments in subsidiaries
- subtotal 566,278,077 393,669,450
Coupar Limited 3,940,514 3,519,729
Arbroath Limited 4,202,579 3,926,248
Stairfoot Generation 2,807,323 -
Limited
------------- -------------
Total investments 577,228,493 401,115,427
Working capital in
MidCo (12,531,504) (11,768,679)
------------- -------------
Total investment
in Midco 564,696,989 389,346,748
------------- -------------
Refer to Note 15 for valuation disclosures relating to the
investments in subsidiaries.
10. Loan s receivable
The only loans receivable at 30 June 2022 and 31 December 2021
are loans to the Midco, which is accounted for as an Investment
subsidiary.
11. Cash and cash equivalents
30 June 31 December
2022 2021
(GBP)
(GBP)
--------------------- ------------ -------------
Cash at bank 119,179,880 122,175,081
Short term deposits 103,000,000 -
--------------------- ------------ -------------
222,179,880 122,175,081
--------------------- ------------ -------------
12. Trade and other receivables
30 June 31 December
2022 2021
(GBP)
(GBP)
------------------ --------- -------------
Management fees 41,985 41,397
Prepaid expenses 60,433 88,666
VAT receivable 329,164 229,404
431,582 359,467
------------------ --------- -------------
13. Trade and other payables
30 June 31 December
2022 2021
(GBP)
(GBP)
--------------------- ---------- -------------
Administration fees 29,211 29,210
Audit fees 86,500 95,804
Other accruals 1,751,503 85,241
1,867,214 210,255
--------------------- ---------- -------------
14. Categories of financial instruments
30 June 31 December
2022 2021
(GBP)
(GBP)
---------------------------------------- ------------ -------------
Financial assets
Financial assets at amortised cost:
Cash and cash equivalents 222,179,880 122,175,081
Trade and other receivables (excluding
VAT) 102,418 130,063
Fair value through profit or loss:
Investment in subsidiaries 564,696,989 389,346,748
Total financial assets 786,979,287 511,651,892
---------------------------------------- ------------ -------------
Financial liabilities
Financial liabilities at amortised cost
Trade and other payables (1,867,214) (210,255)
Net financial assets 785,112,073 511,441,637
----------------------------------------- ------------ ------------
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.
15. Fair value measurement
Valuation approach and methodology
The same valuation methodology and process is followed in these
Condensed Financial Statements as was applied in the preparation of
the Company's Annual Financial Statements for the year ended 31
December 2021. The Company used the income approach to value its
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 (WACC).
Valuation process
The Company, via the Midco, held a portfolio of energy storage
investments with a capacity of 425 Megawatt ("MW") operational (the
Investments). The Investments comprise 28 projects held in 24
special project vehicles.
All of these investments are based in the UK. 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 30 June 2022 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 post-tax future cash flows
relating to the Company's equity investment in each project have
been discounted to 30 June 2022, using post-tax discount rates
reflecting the risks associated with each investment project and
the time value of money. The Investment Manager believes that use
of post-tax discount rates is most appropriate methodology to
determine fair values.
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 takes into account 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.
30 June 2022 31 December 2021
Key valuation Range Weighted Range Weighted
input (project) average (project) average
average average
---------------------------- ------------ --------- -------------- ---------
9.99%
WACC / WADR - 11.35% 10.79% 9.99% -11.40% 10.77%
RPI (see assumption below) 2.7%-2.8% 2.7% 2.8%-2.9% 2.8%
----------------------------- ------------ --------- -------------- ---------
RPI assumptions include 7.5% for 2022, 4.5% for 2023 and 2.5%
from 2025.
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,
either 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 provided a sensitivity based on percentage changes in
revenue overall.
Investment Project Valuation Significant Sensitivity Estimated Estimated
technique inputs effect on effect on
fair value fair value
30 June 31 December
2022 2021
(GBP) (GBP)
------------------ -------------------- ------------ ------------- ------------ ------------- -------------
Noriker Staunch Discount
Ltd Staunch DCF rate +1% (1,253,032) (1,188,112)
-1% 1,412,873 1,346,462
Revenue +10% 1,449,587 1,307,467
-10% (1,461,687) (1,321,450)
Rufford,
Lockleaze, Discount
HC ESS2 Ltd Littlebrook DCF rate +1% (1,456,122) (1,622,287)
-1% 1,643,637 1,844,065
Revenue +10% 1,544,893 1,594,147
-10% (1,671,904) (1,947,003)
------------------------------------------------------------------ ------------ ------------- ---------------
Discount
HC ESS3 Ltd Roundponds DCF rate +1% (1,434,104) (1,504,951)
-1% 1,654,650 1,744,638
Revenue +10% 1,618,914 1,475,139
-10% (1,617,950) (1,505,125)
------------------------------------------------------------------ ------------ ------------- ---------------
West Midlands
Grid Storage Discount
Two Ltd Wolverhampton DCF rate +1% (236,691) (271,807)
-1% 266,431 308,750
Revenue +10% 416,429 399,734
-10% (427,599) (435,547)
------------------------------------------------------------------ ------------ ------------- ---------------
Cleator Battery Discount
Storage Ltd Cleator DCF rate +1% (723,772) (743,633)
-1% 822,252 851,165
Revenue +10% 978,070 883,206
-10% (982,821) (886,715)
------------------------------------------------------------------ ------------ ------------- ---------------
Glassenbury Glassenbury
Battery Storage A and Glassenbury Discount
Ltd B DCF rate +1% (3,490,830) (3,576,483)
-1% 3,966,367 4,092,515
Revenue +10% 4,655,027 4,201,276
-10% (4,674,406) (4,216,089)
--------------------------------------------------------------------- ------------ ------------- ---------------
Discount
HC ESS4 Ltd Red Scar DCF rate +1% (3,406,653) (3,751,022)
-1% 3,985,911 4,416,962
Revenue +10% 4,480,141 4,393,203
-10% (4,441,518) (4,420,195)
------------------------------------------------------------------ ------------ ------------- ---------------
Bloxwich
Energy Storage Discount
Ltd Bloxwich DCF rate +1% (1,685,810) (1,822,905)
-1% 1,909,995 2,074,137
Revenue +10% 2,872,364 2,690,591
-10% (2,898,708) (2,719,548)
------------------------------------------------------------------ ------------ ------------- ---------------
Discount
HC ESS7 Ltd Thurcroft DCF rate +1% (3,333,169) (3,605,403)
-1% 3,863,604 4,203,128
Revenue +10% 4,635,319 4,234,266
-10% (4,495,812) (4,284,189)
------------------------------------------------------------------ ------------ ------------- ---------------
Discount
HC ESS6 Ltd Wickham DCF rate +1% (2,935,199) (3,207,419)
-1% 3,349,866 3,680,717
Revenue +10% 4,204,014 4,004,174
-10% (4,125,033) (4,060,406)
------------------------------------------------------------------ ------------ ------------- ---------------
Tynemouth
Battery Storage Discount
Ltd Tynemouth DCF rate +1% (1,532,915) (1,661,999)
-1% 1,792,801 1,956,686
Revenue +10% 2,199,245 2,037,818
-10% (2,211,050) (2,044,741)
------------------------------------------------------------------ ------------ ------------- ---------------
Gridreserve Discount
Ltd Byers Brae DCF rate +1% (1,413,615) (1,436,577)
-1% 1,603,077 1,638,084
Revenue +10% 2,261,484 2,013,383
-10% (2,263,998) (2,048,092)
------------------------------------------------------------------ ------------ ------------- ---------------
Nevendon
Energy Storage Discount
Ltd Nevendon DCF rate +1% (691,947) (646,090)
-1% 774,931 729,222
Revenue +10% 1,260,925 1,097,594
-10% (1,267,204) (1,104,807)
------------------------------------------------------------------ ------------ ------------- ---------------
Port of Tyne
Energy Storage Port of Discount
Ltd Tyne DCF rate +1% (1,333,953) (1,377,801)
-1% 1,450,442 1,510,192
Revenue +10% 2,614,900 2,248,320
-10% (2,628,516) (2,243,005)
------------------------------------------------------------------ ------------ ------------- ---------------
Enderby Storage Discount
Ltd Enderby DCF rate +1% (2,867,644) (2,598,696)
-1% 3,305,444 3,026,012
Revenue +10% 3,846,162 3,466,831
-10% (3,873,764) (3,516,511)
------------------------------------------------------------------ ------------ ------------- ---------------
West Didsbury Discount
Storage Ltd West Didsbury DCF rate +1% (2,859,544) (2,605,119)
-1% 3,296,741 3,035,333
Revenue +10% 3,805,776 3,426,385
-10% (3,833,194) (3,472,099)
------------------------------------------------------------------ ------------ ------------- ---------------
Penwortham Discount
Storage Ltd Penwortham DCF rate +1% (2,560,294) (2,640,548)
-1% 2,910,373 3,079,486
Revenue +10% 3,601,039 3,361,519
-10% (3,627,128) (3,402,072)
------------------------------------------------------------------ ------------ ------------- ---------------
Grendon Storage Discount
Ltd Grendon DCF rate +1% (3,326,590) -
-1% 3,842,652
Revenue +10% 4,663,979 -
-10% (4,713,881)
------------------------------------------------------------------ ------------ ------------- ---------------
Melksham
East Ltd
and Melksham Discount
West Ltd Melksham DCF rate +1% (5,835,801) -
-1% 6,740,567
Revenue +10% 7,245,918 -
-10% (7,298,895)
------------------------------------------------------------------ ------------ ------------- ---------------
UK Battery Discount
Storage Ltd Elland DCF rate +1% (3,140,661) -
-1% 3,557,220
Revenue +10% 4,529,277 -
-10% (4,623,746)
------------------------------------------------------------------ ------------ ------------- ---------------
UK Battery Discount
Storage Ltd York DCF rate +1% (2,698,525) -
-1% 3,063,555
Revenue +10% 4,125,004 -
-10% (4,187,657)
------------------------------------------------------------------ ------------ ------------- ---------------
UK Battery Bradford Discount
Storage Ltd West DCF rate +1% (5,309,534) -
-1% 6,018,033
Revenue +10% 7,770,385 -
-10% (7,860,356)
------------------------------------------------------------------ ------------ ------------- ---------------
The Coupar, Arbroath, and Stairfoot projects are held at
cost.
Portfolio Sensitivity of RPI Sensitivity Estimated Estimated
effect on fair effect on
value fair value
30 June 2022 31 December
(GBP) 2021
(GBP)
------------------------------ ------------ ---------------- -------------
Inflation +0.25% 16,525,365 9,733,718
-0.25% (16,016,559) (9,417,405)
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.
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 below. No transfers between
levels took place during the period.
16. Financial risk management
As at 30 June 2022 there have been no changes to the financial
instruments risk identified in the Annual Financial Statements of
31 December 2021.
The Company is exposed to certain risks 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 in the Annual Financial Statements of 31 December
2021.
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 year 1 to 2 to > 5 years Total
(GBP) 2 5 (GBP) (GBP)
As at 30 Years years
June 2022 (GBP) (GBP)
-------------- --------------------------------------------------------- ------ ------ ------------- ------------
Financial
assets
Cash and cash
equivalents 222,179,880 - - - 222,179,880
Trade and
other
receivables
(note 12)** 102,418** - - - 102,418
Investments - - - -
Fair value
through
profit or
loss:
Investment in
subsidiaries - - - 564,696,989* 564,696,989
Total
financial
assets 222,282,298 - - 564,696,989 786,979,287
-------------- --------------------------------------------------------- ------ ------ ------------- ------------
Financial
liabilities
Financial
liabilities
at amortised
cost
Trade and
other
payables
(note 13) 1,867,214 - - - 1,867,214
Total
financial
liabilities 1,867,214 - - - 1,867,214
-------------- --------------------------------------------------------- ------ ------ ------------- ------------
< 1 1 to 2 to > 5 years Total
year 2 years 5 years
As at 31 December (GBP) (GBP) (GBP) (GBP) (GBP)
2021
----------------------------- ------------ --------- --------- ------------ ------------
Financial assets
Cash and cash equivalents 122,175,081 - - - 122,175,081
Trade and other receivables
(note 12) 41,397** - - - 41,397
Investments - - - - -
Fair value through
profit or loss:
389,346,748
Investment in subsidiaries - - - * 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
(note 13) 210,255 - - - 210,255
Total financial liabilities 210,255 - - - 210,255
----------------------------- ------------ --------- --------- ------------ ------------
*excludes the equity portion of the investment in
subsidiaries
**excludes VAT
17. Net asset value 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.
30 June 31 December
2022 2021
(GBP) (GBP)
------------------------------------------------ ------------ -------------
Net assets per Statement of Financial Position 785,441,239 511,671,041
Ordinary Shares in issue 541,290,353 437,842,078
NAV per Ordinary Share - Basic and diluted
(pence) 145.11 116.86
------------------------------------------------ ------------ -------------
18. Share capital
Ordinary Share capital
Shares number (GBP)
----------------------------------- --------------- --------------
Allotted and issued share capital
As at 30 June 2022 541,290,353 5,412,904
----------------------------------- --------------- --------------
As at 31 December 2021 437,842,078 4,378,421
----------------------------------- --------------- --------------
Share capital and share premium account
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 25 May 2022, the Company announced the successful raise of
gross proceeds of GBP150mn through the issue of 103,448,275 new
Ordinary Shares at an issue price of 145p per share.
Dividends
An interim dividend of 1.75p per Ordinary Share for the period
from 1 October 2021 to 31 December 2021 was announced on 14
February 2022. The dividend of GBP7,662,236 was paid on 25 March
2022 to shareholders on the register as at the close of business on
4 March 2022. The ex-dividend date was 3 March 2022.
An interim dividend of 1.75p per Ordinary Share for the period
from 1 January 2022 to 31 March 2022 was announced on 4 May 2022.
The dividend of GBP7,662,236 was paid on 27 May 2022 to
shareholders on the register as at the close of business on 13 May
2022. The ex-dividend date was 12 May 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 Share s carry equal voting rights.
19. Reserves
The nature and purpose of each of the reserves included within
equity at 30 June 2022 are as follows:
-- Merger relief reserve relates to the premium on shares which
were issued in exchange for shares as part of the IPO.
-- Capital reduction reserve represents a distributable reserve
created following a Court approved reduction in capital.
-- Revenue reserves represent cumulative revenue net profits
recognised in the Condensed Statement of Comprehensive Income.
-- Capital reserves represent cumulative net gains and losses on
investments and cumulative capital expenses recognised in the
interim Condensed Statement of Comprehensive Income.
The only movements in these reserves during the period are
disclosed in the Condensed Statement of Changes in Equity.
20. 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
Six months Six months
ended 30 ended 30
June 2022 June 2021
(GBP) (GBP)
Directors' remuneration 122,180 116,250
------------ ------------
Employer's NI 15,037 13,608
------------ ------------
Total Key management personnel 137,217 129,858
------------ ------------
All directors' remuneration is short term salary.
No dividend amounts were payable as at 30 June 2022 (2021:
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 to subsidiaries represent amounts due to the Company and
are disclosed in Note 9.
21. Capital commitments
As at 30 June 2022 the Company is a guarantor to the Midco debt
facility but otherwise has no significant binding or conditional
future capital commitments.
22. Post balance sheet events
There were no significant post balance sheet events that need to
be disclosed in the financial statements.
9. Alternative Performance Measures
1) Dividend per Ordinary share
Dividend per Ordinary share is a measure to show the distributions
made to shareholders during the year.
Dividend period: 6 months to 30 June Dividend Number of Total dividend
2022 paid per shares on (GBP)
share (GBP) dividend
payment
date
Q1 2022 (declared 4 May 2022) 0.0175 437,842,078 7,662,236
Q2 2022 0.0175 541,290,353 9,472,581
-----------------------
0.0350 17,134,817
-----------------------
Dividend period: 6 months to 30 June Dividend Number of Total dividend
2021 paid per shares on (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
-----------------------
0.0350 12,199,472
-----------------------
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.
6 months 6 months
to 30 June to 30 June
2022 2021
pence pence
Share price at end of period 157.00 120.75
Dividends paid from inception to end of period 18.50 13.25
Dividend reinvestment impact 11.35 2.25
Share price at initial public offering (100.00) (100.00)
------------ ------------
Ordinary share price total return since inception 86.85 36.25
------------ ------------
Ordinary share price total return since inception
% 86.9% 36.3%
------------ ------------
3) Net asset value (NAV) per Ordinary share
30 June 2022 30 June 2021
NAV at end of period GBP785,441,237 GBP383,015,839
Ordinary shares in issue 541,290,353 348,556,364
NAV per Ordinary share (pence) 145.11 109.89
------------------- -------------------
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, taking into account
both capital returns and dividends paid to shareholders.
Six months Six months
to 30 June to 30 June
2022 2021
pence pence
NAV per Ordinary share at end of period 145.11 109.89
Dividends paid from inception to end of period 18.50 13.25
Dividend reinvestment impact 9.58 1.34
------------ ------------
NAV per Ordinary share at end of period including
dividend reinvestment 173.19 124.48
NAV per Ordinary share at beginning of period
including dividend reinvestment (136.12) (113.13)
------------ ------------
NAV total return for the period 37.07 11.35
------------ ------------
NAV per Ordinary share total return for the
period 27.2% 10.0%
------------ ------------
5) Gross asset value (GAV)
GAV is a measure of the total value of the
Company's assets.
30 June 2022 30 June 2021
(GBP'000) (GBP'000)
Total assets reported in the Company at end
of period 787,308 384,084
External debt held by the MidCo 10,000 -
GAV 797,308 384,084
------------- -------------
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 period.
Six months Six months
to 30 June to 30 June
2022 2021
(GBP'000) (GBP'000)
Fees to Investment Manager 2,633 1,755
Legal and professional fees 319 230
Other transaction fees - (57)
Administration fees 197 159
Directors' remuneration 147 126
Audit fees 94 76
Other ongoing expenses 138 38
------------ ------------
Total expenses 3,528 2,327
Non-recurring expenses not in OCF calculation (66) 9
------------ ------------
Total ongoing expenses 3,462 2,336
------------ ------------
Weighted Average NAV for the period 601,601 371,411
Number of days in period 181 181
Ongoing charges for the period (annualised) 1.16% 1.27%
7) Operational dividend cover
Operational dividend cover is a measure to demonstrate the Company's
ability to pay dividends from the earnings of its underlying
investments, including interest earned on construction capital
deployed to non-operational SPVs, and after accounting for external
interest costs and administrative costs of the Company, but excluding
transaction costs and debt arrangement fees.
Six months Six months
to 30 June to 30 June
2022 2021
(GBP'000) (GBP'000)
EBITDA generated by subsidiaries 22,723 22,438
Bank interest received 60 -
Ongoing costs in the Company (3,462) (2,336)
Debt service costs in subsidiaries (966) (451)
Interest income on construction capital deployed
to SPVs 1,913 66
------------ ------------
Net earnings for dividend cover 20,268 19,717
------------ ------------
Dividends declared by the Company 17,135 12,199
------------ ------------
Dividend cover 1.18x 1.62x
------------ ------------
8) Dividend yield
Dividend yield is a measure to show the dividend return received
by shareholders for the year.
Six months Six months
to 30 June to 30 June
2022 2021
Dividend per share declared in respect of
the period (pence) 7.00 7.00
Share price at end of period (pence) 157.00 120.75
Dividend yield 4.5% 5.8%
------------ ------------
10. COMPANY INFORMATION
Non-Executive Directors: Catherine Pitt
David Stevenson
Duncan Neale
John Leggate - Chair
Registered Office The Scalpel
18th Floor
52 Lime Street
London
EC3M 7AF
---------------------------------
Manager and AIFM Gresham House Asset Management
Limited
5 New Street Square
London
EC4A 3TW
---------------------------------
Corporate Broker and Financial Jefferies International Limited
Adviser Vintners Place
68 Upper Thames Street
London
EC4V 3BJ
---------------------------------
Tax Advisor Blick Rothenberg Limited
16 Great Queen Street
Covent Garden
London
WC2B 5AH
---------------------------------
Independent Auditor BDO LLP
55 Baker Street
London
W1U 7EU
---------------------------------
Administrator and Secretary JTC (UK) Limited
The Scalpel
18th Floorgoing
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 Services INDOS Financial Limited
54 Fenchurch Street
London
EC3M 3JY
---------------------------------
Investment Valuer Grant Thornton LLP
30 Finsbury Square
London
EC2A 1AG
---------------------------------
Ticker: GRID
---------------------------------
11. GLOSSARY
Asset optimisation
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".
Asymmetric
An asymmetrical grid connection is where the import and export
capacities are different.
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
-- Enhanced frequency response (EFR)
-- Firm frequency response (FFR)
-- Short term operating reserve (STOR)
https://www.nationalgrideso.com/balancing-services
C-rate
A unit to measure the speed at which a battery is charged or
discharged.1C reflects a charge of 0% to 100% (or discharge of 100%
to 0%) in one hour, a C-rate greater than 1 means a faster charge
(or discharge) and less than 1 means a slower charge (or
discharge). The C-rate can be calculated as 1 divided by the time
it would take for the charge (or discharge) in hours. Therefore, 2C
is a half hour charge (or discharge), and 0.5C is a 2-hour charge
(or discharge). A BESS max C-rate is calculated as 1 divided by the
Battery duration in hours.
Capacity Market
The income received by generators to ensure generation capacity
is available to meet shortfalls.
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
Dynamic Frequency Services:
Consists of three services Dynamic Containment (DC), Dynamic
Moderation (DM) and Dynamic Regulation (DR). Each of these services
focuses on a different frequency deviation however all have a
response power linked to a frequency deviation profile.
Dynamic Regulation is a pre-fault service designed to slowly
correct continuous but small deviations in frequency with the aim
of regulating frequency around 50Hz. Dynamic Moderation is designed
to help manage sudden large imbalances between supply and demand to
ensure frequency is maintained within operational limits. Dynamic
Containment acts post-fault and is designed to quickly cover lost
supply or demand and to help return frequency to within operational
limits as quickly as possible.
More information can be found here:
https://www.nationalgrideso.com/industry-information/balancing-services/frequency-response-services
EPCm
Contracts for Engineering, Construction and Procurement
Management.
NAV
Net Asset Value being the total Net Assets in the Company
divided by the total number of Ordinary Shares in issue as at 30
June 2022.
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 1 penny.
Symmetrical
A symmetrical grid connection is where the import and export
capacities are the same.
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 GB 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 10 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
[1] GWh capacity figures exclude additional capacity being
installed at our five, previously EFR-contracted sites which are
being upgraded from their current sub-1 hour capacity levels to be
able to be traded in a similar way to the portfolio's other
operational projects
[2] Department for Business, Energy and Industrial Strategy
Statistical Release 30 June 2022
[3] Alternative Performance Measures, including Operational
Dividend Cover, are defined and calculated on pages 45 to 48
[4] Facility held by the wholly owned subsidiary, Gresham House
Energy Storage Holdings PLC
[5] 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
[7] Overseas Jurisdictions as defined in the Company's Circular
on 22 April 2022 consists of United States, Canada, Australia,
Northern Ireland and any EEA Member Country (including Republic of
Ireland)
6 GAV is defined and calculated on pages 45 to 48
[9] Collocation project investments and with solar panels
limited to 6% of GAV
[10] Alternative Performance Measures are defined and calculated
on page 45 to 48 of the Interim Report
[11] Alternative Performance Measures are defined and calculated
on page 45 to 48 of the Interim Report
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END
IR SEWFWMEESESU
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