The UK’s largest utility-scale battery energy storage fund Gresham House is pinning its hopes on future growth after seeing earning plunge in its audited annual results for the year ended 31 December 2023.
The figures revealed EBITDA of the underlying portfolio of £25.8m (31 December 2022: £48.8m), was down 47% year over year, reflecting a decreasing revenue environment for battery operators in 2023.
Meanwhile, its NAV per share stood at 129.07p, down 17% compared to the prior year period’s 155.5p. This fall reflected “the application of significant reductions to 2024 to 2026 revenue forecasts from third parties as the revenue environment is expected to improve gradually”, said the fund.
It added it would pay a dividend of 5.51p per share in 2023, but no dividend would be paid in 2024, adding “from 2025 onwards, the company aims to deliver an attractive dividend from distributable cash-flow after debt covenant testing”.
Gresham House said the challenging trading environment in January and February 2024 has improved with revenue rates increasing 33% and 97% for the operational portfolio since February for March and the first half of April respectively.
“This reflects improving utilisation of BESS by the GB Electricity System Operator (ESO) and improving wholesale market spreads as renewable penetration increases,” it said.
“Merchant revenues are inherently volatile, and the portfolio is likely to experience periods of higher and lower revenues.
“Whilst the recent revenue improvement is promising, revenues remain below long-term third-party forecasts. The company anticipates further recovery as ESO progresses through its Balancing Programme in 2024 and 2025.”
It said the completion of remaining projects (new schemes and extensions) will take the operational portfolio to 1072MW 1696MWh
“2023 and early 2024 revenues for the GB BESS sector declined steadily, reaching a low in February,” said chair of Gresham House Energy Storage Fund plc John Leggate.
“The board and the manager are acutely aware that this period has been disappointing and has required patience from our investors.
“We appreciate our intention not to pay dividends for 2024 is very unwelcome news.
“However, given the competing priorities for the Company, the Board and the Manager believe this is the right decision: using cash generation from the portfolio, along with available financing, towards completing the current project pipeline and duration extensions is key in order to maximise shareholder value.
“Encouragingly, we have since seen a marked recovery on the back of improving market fundamentals in recent weeks and the continued rapid deployment of new renewable generation, particularly offshore wind, drives a commensurate increase in demand for battery energy storage.
“In brief, the long-term commercial attractions of BESS remain as true as ever.
“We look forward to reaching 1GW of operational capacity in 2024.
“The expanded grid capacity and duration of the portfolio will allow the Company to roughly double its EBITDA generation potential which means that as long as revenues remain at recently improved levels, or indeed improve further, the Company will seek to return to dividend payments in 2025.”
Fund manager of Gresham House Energy Storage Fund and managing director of Gresham House New Energy Ben Guest added: “We are focusing deployment of capital where it has the largest cash generation impact.
“The completion of our construction programme will give the Company the scale to significantly increase its earnings base even in a reduced revenue environment enabling the Company to return to dividend coverage as soon as possible.
“The fundamental business case remains strong. Underpinning this is rising renewable penetration which we expect to increase from c.45% today to 70% within the next four years leading to an even more volatile and intermittent electricity supply, in turn resulting in greater power price volatility.
“By way of example, in the year to April 2024 we have seen the most negative price points ever for the time of year, tripling over previous years. The trend of negative prices is likely to increase as renewable generation grows.
“BESS are the most efficient technology for reserve and half-hourly market balancing as they simply enable the greatest percentage of renewable energy to be used, by far.
“We are pleased to see ESO’s gradual progress is leading to batteries being utilised a little more each month. There is a long way to go, and we look forward to continued improvements through 2024 and 2025.”