UK battery investor Gresham House Energy Storage Fund has announced that fourteen of its projects, representing 568MW/920MWh, have secured fixed price contracts with a subsidiary of Octopus Energy.
The agreement provides “attractively priced”, two-year fixed-price contracts for approximately half of the company’s 1072MW target portfolio starting in a phased manner from 1 July 2024, Gresham said.
For the term of these arrangements, Octopus will pay a fixed fee per MW on these projects in return for the use of each project’s batteries.
The fixed fee rate is determined by the duration of the asset (expressed in hours) and excludes capacity market payments which the projects will continue to receive separately.
Including the company’s capacity market revenues across its full portfolio, the majority of which are for 15 years index-linked to CPI, the company expects to have annual contracted revenues of c.£43m during the tolling arrangement.
This contract underpins the Fund’s revenues and provides a greater degree of certainty over the company’s cash flows, Gresham said.
For the portion of the portfolio contracted with Octopus, the company has secured a higher price than recent weak performance at the start of the year, and at a competitive price for underlying battery economics, it added.
Following this agreement, which allows time for assets to be onboarded by Octopus and allows Gresham to complete the construction and/or augmentation of certain projects, the end-of-2024 portfolio is expected to be c.50% hedged.
Around 568MW/920MWh of the target portfolio will be contracted under the agreement while 504MW/776MWh will continue to operate under existing optimisation agreements.
These fixed price contracts will provide greater confidence in restarting a dividend at the appropriate stage in 2025, according to the Fund.
Kieron Stopforth, head of flexibility at Octopus Energy, said: “Every year we’re letting hundreds of gigawatt-hours of clean energy go to waste because our system isn’t flexible enough – not only that, we also have to pay for this senseless waste.
“Batteries play a key role in unlocking the clean and cheap energy system, storing green energy when it’s plentiful and providing it to the grid when energy is expensive.
“Through this landmark deal with Gresham House we’re not only increasing the size of our virtual power plant to over 1.5GW, we’re also unlocking the power of flexibility to drive down costs for consumers across the country.”
John Leggate, chair of Gresham House Energy Storage Fund, added: “The Board and Manager firmly believe that the rebalanced mix of contractual and merchant revenues offers shareholders a superior risk adjusted target return and material risk mitigation, particularly in a revenue environment that remains uncertain in the near term, by reducing direct exposure to the Electricity System Operator (ESO) as the principal counterparty in Great Britain.”