Monday, 2 December 2019

Gresham House Energy Storage - Portfolio Addition


For the past year I have been building my climate-friendly 'green' portfolio. This includes a mix of renewable energy infrastructure trusts such as TRIG and Bluefield Solar and more recently, several individual companies such as Orsted and AFC Energy. The UK is moving quickly to replace its dependence on fossil fuels and embrace clean energy alternatives such as solar and wind.

However, the national grid system needs to match supply with demand. This is easier to do with coal and gas but with intermittent solar and wind, it becomes more unpredictable and it's therefore important to introduce forms of storage to smooth supply throughout the national grid system. The greater the proportion of wind/solar renewable energy, the greater the need for storage to balance the grid.

We are now at the stage where generation from renewables is matching fossil fuel so I expect the demand for storage solutions to increase from here. Coal is due to be phased out completely by 2025 and there is increasing pressure on policy makers to reduce our generation from gas due to climate change emissions. Our government have legislated for net zero emissions by 2050 which means that gas needs to be replaced by clean energy over the coming 30 years - maybe sooner. We need utility-scale storage back-up to make this a reality.

In the past year planning applications for battery storage have increased by 50% from 6,900MW to 10,500MW today according to a report from RenewableUK. This has prompted me to take another look at investing into this fast-growing sector of the clean energy revolution.

Gresham House Energy Storage (GRID)

This investment trust came to the market in 2018 and it has been on a back burner as a possibility for my portfolio since reading an excellent article last year by IT Investor. It currently owns seven utility-scale energy storage systems around the UK with a combined capacity of 124MW. The most recent addition was the largest - a 49MW project at Red Scar near Preston which should be operational later this month.

The company released half year results in August (link via Investegate) which suggested a strong share price performance to end June - up 5.4% and confirmed dividend of 4.5p for 2019.

Commenting on the Fund's results, John Leggate CBE, Chairman of Gresham House Energy Storage Fund PLC said:
"The UK needs more grid-scale batteries. The growth in renewables demands this and recent events including the recent National Grid outage on 9 August provide confirmatory evidence that batteries can make a difference. The Fund is very well-positioned to build on its initial premise and to grow to significant scale and materiality. The Board and the Gresham House Team have the bench strength, capabilities and experience to create an impactful portfolio of high-performing assets in this sector which is becoming of critical national importance."

Shortly after these results, GRID completed a further placing of new shares raising an additional £42m which brings the total raised since launch to £200m which makes it the leading player in the UK grid-level energy storage field. The company have three further projects totalling 105MW which are due to be completed by March 2020 which will increase capacity to 229MW.

National Grid Control Room

Conclusion

In October, the government (BEIS) announced a consultation on relaxation of planning regulations for utility scale storage which should be a significant boost for this sector as it will mean larger projects over 50MW will be cheaper to progress. The consultation period ends on 10th December so it will be interesting to see what they decide.

The company is due to go XD for a quarterly dividend payment of 1.0p later this week and has a target pay-out of 7.0p for the coming year.

We are due to host the UN climate change COP26 next year and the government will be keen to demonstrate its climate credentials to the world so I am hoping this will give a boost to all things related to renewable clean energy including storage.

This acquisition is not without a degree of risk. The energy market is complex with many players and subject to government policy changes as well as competition from some of the larger energy companies likely to be looking at the increasing attractiveness of this sector. However, the company appears to have established itself over the past year so, as I like to maintain a diverse portfolio, hence the reason for adding this trust to my 'green' collection. My initial purchase was 105p in my ISA.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

8 comments:

  1. Welcome to the GRID club and thanks for the link.

    I think you're right to highlight the risks. GRID and Gore Street Energy Storage are the first retail funds of this type in the UK, so it's an untested business model.

    A Labour-led government renationalising National Grid could also throw a spanner in the works. When I saw GRID present at Mello earlier this year they seemed fairly sanguine about this, saying that the need for energy storage should be largely unaffected and may even increse. But you never know what might happen when the politicians get involved.

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    1. "I wouldn't want to be a member of any club that would accept me as a member"...Graucho Marx!

      If the country was foolish enough to elect a Corbyn-led government next week then holding shares in an energy storage company would be the least of our problems. But it's not going to happen so I am relaxed on the politics front.

      Of course, there's no guarantee that battery storage will dominate - there's hydrogen and other technologies to compete. And there will be more players entering this sector, some of whom may have a better business model so it will be interesting to see how this all unfolds over time. I think for me, the main thing is these storage solutions are supporting the advance of the transition to renewable energy.

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  2. Just out of interest - did you pick these shares up on the secondary market or through a placing (IPO)?

    I ask because I was tempted to invest in Gore Street but when I was interested I didn't have the funds and when I had the funds I couldn't find it (these ITs do start to sound the same after a while...) + not too many people are talking about it.

    In my view;
    the technology exists for energy storage - and it's maybe better to use the (scarce?) materials used in the batteries for industrial battery banks like these ones than in lightly used commuter cars because these batteries banks will be repeatedly charged/discharged in such a manner as to compliment low CO2 energy requirements instead of drivers requirements.
    So the technology exists, the low CO2 generation exists (ample wind/solar and more coming) but storage requires money to invest in projects like this.
    Back of the fag packet calcs here: if 2.5m cars are sold in the UK each year and 1% are electric that's 25,000 cars. If the battery/electics cost an extra £4000 that would be £100m a year just on the batteries. At 1% market penetration - it's a big number.
    The cost of the infrastructure is worth thinking about but I'll not do any sums

    From how I see it, that £100m would be better spent on commercial scale energy storage - easy to tie into existing infrastructure and all that.

    So, I'll be looking to put some money into any upcoming IPOs (possibly into Octopus Renewables as well).

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    1. That's an interesting analysis GFF. There is an urgent need to remove ICE vehicles from our roads and EV battery has the advantage over hydrogen for the time being so I expect the roll out of EVs to continue to grow exponentially. But the materials for these batteries is limited so green hydrogen may well be a more realistic solution for the longer term. That could apply to grid storage as well as EVs so it will be interesting to see how we progress from here. I suspect the next two or three years will see some major breakthroughs.

      Yes, I purchased my shares via the everyday market but may top up if there are future placings - which is very likely. I believe the offer for Octopus closes today so should hear something next week.

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  3. Certainly we need to remove not only ICE vehicles from our roads but cars in general.
    My thinking and it's not based on full facts but most EVs will not be driven extensively and it'll be a waste.
    Where I live, many of the taxis are taxis (Nissan Leafs - or Leaves are popular) and they work all day everyday. But most drivers don't use their car for 23h a day.

    The big push is for EVs - which I can understand but it's a bit of a greenwash.
    I'm a pragmatist and not a car lover.

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    1. I agree it would be good to have less cars generally, especially as most people live in or near cities and large towns with decent public transport links. However, I whilst I can see people ready to give up their cars for EVs, I just cannot see many of them giving up their cars altogether, however little they use them each day. I think its more psychological then rational.

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  4. If I understand it correctly, the Nissan Leaf supports the V2G interface whereby its battery can be directly included in the national grid smoothing process (and the owner make some profit).

    Of course, it cannot do this while the vehicle is doing its job as transport so, in a way, the proposition that its likely lack of use as a car is a dis-benefit does not stand; it can only do its job for grid smoothing when it is not operating as a car.

    Not only can it support the national grid but it can act to absorb surplus power from any PV panels that the owner might also have installed. In the spring/summer/autumn this will enable the typical owner to not require any power from the grid at all. Unfortunately, winter in the UK is too gloomy.

    In my own personal case, if only I could store the surplus PV power that is produced in the spring/summer/autumn, I would have more than sufficient power to be completely independent of the grid throughout the year; the only way that I can envision that this can be done by me locally is by electrolysis and thence hydrogen storage and thence by fuel cell back to electricity, but nobody seems to be supporting this for the individual user as yet.

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    1. Provided there are enough EV batteries linked to the grid via a smart meter then I believe it is very feasible to link them up for smoothing purposes and I'm sure this is something the National Grid people are working on.

      As for hydrogen and the individual, I'm confident the operations from the likes of AFC Energy and ITM Power could be easily scaled down to suit hydrogen storage from excess electricity from the likes of solar panels. This sort of thing is already operating in The Orkney's for example.

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