Wednesday, 28 April 2021

Gresham House Energy Storage - Full Yr Results


Since its launch in December 2018, Gresham House Energy Storage (GRID) has developed the largest energy storage portfolio in the country. It operates 16 utility-scale energy storage systems with a total combined capacity of 425MW.

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 there's not much solar in the Winter months. Currently we use gas fired generation to fill the gap but we have legislated for net zero carbon emissions by 2050 (78% reduction by 2035) so the ability to store excess energy from an ever increasing renewables sector will be essential. As renewable capacity expands, gas-fired power stations will be required less frequently and so they become less profitable to run. This means that renewables are forcing fossil fuels off the grid.

As recently as 2014, coal was our main source of electricity generation. It is still used in the winter months but currently accounts for just 2% of  generation and is due to be completely retired by 2024.

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. 

50MW Thurcroft Facility

Results

The company have this week released results for the full year to end December 2020 (link via Investegate). Net Assets have increased by 8.4% over the year on a total return basis to 102.9p and share price return is up 10.8% compared to FTSE All Share Index fall of -9.8%.

Over the year, the company has acquired three more storage projects with a total capacity of 141MW. This additional capacity has boosted annual revenues from £10m in 2019 to 19m. In recent months, these revenues have increased due to the introduction of National Grid's Dynamic Containment (DC) service last October. This aims to provide more resilience to the grid supply and reduce volatility to provide a better balancing mechanism. Despite only starting in October, DC has accounted for 33% of GRID's revenues for this year.

National Grid are starting to appreciate the value of battery storage to balance the national system and in January 2021 announced an increase in DC to 1.4GW by May 2021 compared to just 500MW in December 2020. Recent trials with batteries have shown that they can provide back-up in the same way as gas turbines are used to balance the system and reduce the curtailment of renewable energy. If National Grid decide to make this a permanent feature following further trials, it is likely to lead to significant revenue opportunities for GRID.

Construction is due to start soon on a further 275MW of storage capacity and looking further ahead, the manager has identified a further 527MW of additional pipeline projects.

Commenting on the results, lead investment manager Ben Guest said:

"The UK's global leadership in renewable generation and in its setting of ambitious decarbonisation targets, continues to make it one of the world's most attractive markets for deployment of utility-scale battery storage technology. We are encouraged by the system operator, National Grid, continuing to test and facilitate new ways for battery storage to contribute to system balancing.

"More renewable energy on the system will inevitably lead to more intraday power price volatility, driving the improved revenues and profit from trading which GRID is best positioned to capture. We are intent on driving shareholder value by maximising project returns through our portfolio scale as well as operational and cost leadership, while striving to reduce our cost of capital, including through a potential new debt facility."

The company has paid a total dividend of 7.0p over the past year as promised and has maintained this target for 2021. This gives an attractive yield of 6.1% to those investors looking for income.

GRID 1 Yr Share Price
(click to enlarge)

I added this trust to my green portfolio in December 2019 at the price of 105p...its currently 115p and continues to trade at a significant premium to net assets.

Obviously this is still early days for this relatively new venture. The UK only has around 1.5GW of storage but this is expected increase to 10GW 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 other energy storage solutions such as flow batteries or green hydrogen as these also has lots of potential.

The reality is that fossil fuel generation will gradually be replaced by renewables as we move towards our net zero target by 2050. This means increasing intermittency which will require ways to store energy to bridge the gaps and provide a constant supply.

In the past few months I have been scaling back my exposure to the UK renewable infrastructure sector but will retain my holding in GRID as it does not appear to be so affected by power prices. So, one to put back in the bottom drawer pending further developments.

The shares account for 3% of my green portfolio.

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!

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