Wednesday, 29 April 2020

Gresham House Energy Storage - 2019 Results


Since its launch in December 2018, Gresham House Energy Storage (GRID) has developed the largest energy storage portfolio in the country. As we transition from fossil fuel generation to renewables such as wind and solar, we will increasingly need energy storage solutions due to the intermittent nature of renewable energy - the wind doesn't always blow and the sun doesn't shine at night. Currently we use gas fired generation to fill the gap but we have legislated for net zero carbon emissions by 2050 so the ability to store excess energy from an ever increasing capacity from renewables will be essential. As renewable capacity expands, gas-fired power stations will be required less frequently and they become less profitable to run. This means that renewables are forcing fossil fuels off the grid.


Interestingly, we have just passed a record of 19 days without coal generation - it is only 3 years that we had our first coal-free day in the UK. Coal is still used more in the winter months but currently accounts for just 2% of electricity generation and is due to be completely retired by 2024.

Results

The company have this week released results for the full year to end December 2019 (link via Investegate). Net Assets have increased by 6.5% on a total return basis to 100.8p and share price return is up 11% as the shares moved to a small premium.

Over the year, the company has acquired nine storage projects with a total capacity of 174MW. They have a further five projects in the pipeline with potential additional capacity of 190MW and looking further ahead, the manager has identified 250MW of additional pipeline projects.

50MW Thurcroft Project, S. Yorkshire

Lead investment manager Ben Guest outlines the storage imperative in the report:

"The disappearance of consistent baseload energy is increasing the need for flexible generation - made possible through battery storage. As the market share of renewable energy grows, the amount of temporary excess generation will get worse. By our estimates, instances of more than 10GW of excess power from renewables will occur frequently within the next four years - requiring 10GW of energy storage. In ten years, this could reach 30GW.

Industry forecasters are expecting the rise of renewables will lead to a surge in the volatility of power prices. With the current penetration of intermittent carbon-free generation in the UK energy market, we have already reached a tipping point whereby wholesale energy prices increasingly reach zero or negative levels when their intermittent generation creates supply in excess of demand. Nuclear power, whilst carbon-free, is not flexible and cannot provide a mechanism to balance the system in real time.

This is an excellent backdrop and financial incentive for energy storage operators to 'buy low' at times of overgeneration and 'sell high' when demand outstrips supply; either through participation in the wholesale market or by offering the available battery capacity to the National Grid through the Balancing Mechanism.

As GB's largest battery storage business, GRID is exceptionally well positioned to profit from the expected surge in energy storage demand. By investing in large-scale projects, the fund benefits from substantial economies of scale. This allows GRID to invest in large, operational batteries and run sites more efficiently at a lower cost.

We expect the deployment of battery storage and intermittent renewable energy generation to evolve in a complementary way.  Now that renewables have reached the tipping point we refer to above, every additional unit of power generation will cause an increasing oversupply at certain times while also reducing the market available for baseload, forcing this type of generation out of existence and creating a deeper trough in generation when renewables do not generate. Thus, there is an urgent need for battery storage capacity to catch up to and keep up with renewable generation installations".



GRID has several streams of revenue which include the wholesale market and National Grid balancing mechanism, Firm Frequency Response based on small-scale changes to the grid's electrical frequency, fixed fees for being on call to deliver power at times of extreme need and Triad payments from National Grid when there is peak demand.

The company has paid a total dividend of 4.5p over the past year as promised and has a target of 7.0p for 2020 but subject to review in relation to Covid-19.

I added this trust to my green portfolio last December, just before the general election, at the price of 105p. The current price is 97p.

Obviously this is early days for this relatively new venture. The UK only has around 1GW of storage but this is expected to grow ten-fold over the next 4 years so there should be plenty of opportunities for GRID to expand it's business. The focus so far has been batteries but I am wondering whether they have considered green hydrogen as another option as this also has lots of storage potential.

Finally, they say the business has not been too affected by Covid-19 so far however there will be some delays to the commissioning of projects currently under construction. The share price has dipped 10% to 97p and now trades at around par to NAV.

So far, so good it seems and one to put back in the bottom drawer pending further developments and possible new placings later in the year.

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!

4 comments:

  1. Nice summary as usual. In case you haven't seen it yet, the webcast they did a few days after the results were released is useful for fleshing out the story a bit more.
    https://greshamhouse.com/webinar-gresham-house-energy-storage-fund-plc-annual-results-and-live-update/

    As you say, very early days so still treading carefully here as well.

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    1. Thanks ITI.

      Yes, although they seem to have a significant share of the current market, this could change very quickly if some of the large energy companies start to move into renewables and storage. It's likely to be an interesting couple of years following the dramatic collapse of the oil prices and the growing pressure to 'build back better' following Covid.

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  2. I know you can invest it pretty much anything- but I hadn't really considered energy storage for the grid. Makes sense though- might be a little too risky for me, since I really don't know enough about it- though its going to be massively required in the future. Or, least, the technology is- as I can see electric cars when parked being used for some of this? Or least, local delivery perhaps. I have some investments in wind/solar, and they just seem like pretty safe- if not high flying investments etc.

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    1. Yes, we will need to ramp up storage capacity significantly to transition to a system where most of our electricity comes from renewables. Storage will be essential for balancing supply and demand. This may be convenstional battery or hydro dams or green hydrogen or zinc/air...probably a mix and I am sure there will be many new entrants to this market so it will be interesting to see who comes out on top.

      Good luck with your journey to FI!

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