I’m sure the recent heat waves and wildfires throughout Europe combined with the energy security issues resulting from the Ukraine war will act as a wake-up call to push ahead with the transition from fossil fuels to renewable energy.
Here in the UK, renewables currently provide over 40% of our grid energy - up from just 5% a decade ago - and this will only increase as we move to electric vehicles and heat our homes and offices with heat pumps.
There are several ways of storing energy...battery, pumped hydro, flow and hydrogen. National Grid estimate that we will need 50GW of energy storage capacity if we are to achieve net zero emissions by 2050 so quite an increase from the current 1.6GW (link).
Surprisingly there are still only the three energy storage plays in the UK renewable infrastructure sector - Gresham House (GRID) which joined my portfolio two years ago, Gore St Energy Storage which was added last year and newcomer Harmony Energy Income (HEIT) launched last November.
The fund invests in a portfolio of utility scale energy storage facilities located throughout the UK (296 MW) and Ireland (310 MW). The fund will have a combined stored capacity of 669MW when the latest acquisitions come on stream later this year. This is rapid growth compared to the 29 MW capacity at launch back in 2018. The majority of operations are in the UK/Ireland but the company has recently moved into Germany (22 MW) and the Texas, US (40 MW).
The biggest drawback of wind and solar is intermittency which is a big problem for the Grid which has to provide constant and predictable power output throughout the nation. These facilities provide energy storage for the National Grid and help to provide more stability and flexibility for the entire grid system. The majority of revenues are from frequency response services to the grid. This is mainly dynamic containment which is designed to give a rapid response to significant frequency deviations and then balancing mechanism which is the energy platform used by the grid to buy and sell electricity and manage the system in real time.
As we have witnessed this year following the war in Ukraine, wholesale energy prices have been volatile with gas increasing five-fold due to increased global demand and a reduction in supply from Russia which has weaponised energy in retaliation for sanctions imposed by Europe and the US. This volatility has resulted in a boost to normal revenues for the energy storage sector. This volatility is likely to continue for some time due to the conflict in Ukraine so it will be interesting to see the effect for the energy storage market.
The company have today released results for the full year to end March 2022 (link via Investegate).
Net assets have increased by 6% per share to 107.1p and share price total return is up 11% over the past year.
Alex O'Cinneide, CEO of Gore Street Capital, the Company's Investment Manager, commented:
"I am pleased to report that the Company continues to enjoy a sustained period of rapid growth, responding to the pressing and global increasing need to enable the energy transition to a low carbon society through energy storage solutions and in the process, further diversifying our portfolio for shareholders. We have achieved this through a mixture of financial and operational success, raising additional capital via highly successful, oversubscribed fundraises, from both institutional and retail investors; as well as delivering on our strategy, first laid out in our IPO of 2018 when we defined this category of investing, of building the industry-leading international portfolio of energy storage assets, now totalling 628.5 MW.
The global transition to clean and renewable energy generation continues to be a dominant priority for governments both domestically and internationally, and our assets play an important role in supporting energy security and the transition to a low-carbon society, as well as creating substantial value for shareholders”.
The company recently raised £74m from a share placing (107p) which will be used to expand the operation with an expected 1GW of capacity in the US and Western Europe.
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The trust is attractive to those seeking income and pays 7.0p in annual dividends (paid quarterly) which gives a yield of 5.7% at the current price of 123p.
The global transition to clean energy is now becoming a priority for governments in the UK, Ireland and globally. This has become even more urgent following the invasion of Ukraine and the threats to European energy security with Putin weaponising the supply of oil and gas. Energy storage is likely to expand rapidly over the coming decade and will play a pivotal role in the green transition.
One of the factors to be aware of are charges which are relatively high - 1.7% last year (which included 0.4% performance fees) compared to 2.0% in 2021. I hope it will continue to become a lower percentage as the company grows. The share price currently trades at a premium to NAV of around 14% which seems to be par for the renewables sector.
The trust is not as sensitive to power prices compared to the likes of the wind/solar infrastructure trusts but benefit more from price volatility which is likely to increase as we continue to reduce our dependence on fossil fuels. The shares were purchased at 115p last year and I took advantage of the offer/placing in April to top up at 110p. They currently account for 5% 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!