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 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 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.
Results
The company have today released results for the full year to end December 2021 (link via Investegate). Net Assets have increased by 13.5% per share over the year on a total return basis to 116.8p (last year 102.9p) and share price return is up 23.0% compared to FTSE All Share Index of 18.3%.
Operational revenues increased by 170%
to £51.4m compared to £19m for the previous year. The company is forecasting
growth of at least 15% in the coming year.
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. Over the past
year, revenues have increased due to the introduction of National Grid's Dynamic
Containment (DC) service in 2020. This aims to provide more resilience to the
grid supply and reduce volatility to provide a better balancing mechanism.
Operational capacity increased from
315MW to 425MW by the end of the year with a further 375MW under construction.
The total UK energy storage capacity has increased to 1.4GW and is expected to
grow substantially over the coming 3 to 5 years. GRID continue to be the market
leader with around a 30% share.
Looking forward, the management are
looking to expand overseas and will seek authorisation to invest up to 30% of
assets internationally.
Chair John Leggate "The Board and Investment Manager are closely following the global response to Russia's military intervention in Ukraine, and the ensuing humanitarian crisis, as well as considering the potential impact on financial markets, energy security considerations, power price volatility and the Company's business model. In terms of impact on the Company's longer-term outlook, for the moment, the indications are pointing towards a much faster rollout of renewable energy globally with an associated increasing demand for energy storage projects."
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| GRID 3 yr share price/NAV |
The company has paid a total dividend of 7.0p over the past year as promised and has maintained this target for 2022. This gives a forward yield of 4.9%.
I added this trust to my green
portfolio in December 2019 at the price of 105p...its currently 143p and continues
to trade at a 10% premium to net assets. The shares account for around 5% of my green portfolio with a further 4% invested in Gore St Energy Storage.
The focus so far has been batteries
but they are now looking at the potential from solar PV and 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.
So, one to put back in the bottom
drawer pending further developments.
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!
