FAQs - Portfolio and Investment
Energy storage is the capture of energy produced at one time for use at a later time to reduce imbalances between energy demand and energy production. Energy storage battery owners provide the National Grid with grid balancing services supporting them in dealing with system intermittency; mainly caused by the addition of renewable sources of electricity (like wind and solar).
Main economic reasons to invest in energy storage are:
- High yield
The Company through its investments in energy storage is targeting an annual dividend of 7 per cent. of Net Asset Value per Ordinary Share in each financial year subject to a minimum target of 7 pence per Ordinary Share. The Company intends to hold a diversified portfolio of energy storage projects with target unleveraged IRRs from its portfolio of projects of 10-12 per cent.
- Growth potential in grid flexibility from decarbonising environment
Lithium-ion battery prices have declined by approximately 87 per cent. since 2010, allowing the technology to be a viable part of the grid scale energy mix. Further, there has been a significant increase in the contribution of wind and solar energy sources to total UK power generation, representing 28.2 per cent. of total energy generated in Q2 2020 and expected to grow to meet the UK Government’s target of net zero emissions by 2050.
- Multiple Revenue streams
Energy Storage assets are able to derive revenues from multiple revenue streams that can be stacked on top of each other. This provides flexibility to assets to participate in multiple markets and maximise value to investors.
The battery assets benefit from multiple revenues streams which can be stacked on a single battery. Revenues are currently derived from: (a) frequency response contracts; (b) the balancing mechanism; (c) capacity market contracts; (d) Triad contracts; (e) wholesale trading within Great Britain; (f) through the I-SEM programme; and (g) through the DS3 programme in Ireland which bundles multiple flexibility services within it. They are defined below:
Firm Frequency Response: FFR and DC. Instantaneous (second by second) balancing of demand and supply of electricity based on grid frequency. Fixed price availability contracts with National Grid.
Capacity Market: Payment for generators to secure back up capacity to support peak electricity demand. Up to 15 years of inflation linked fixed price contracts with UK Government.
Triads: Saves electricity users transmission charges through shifting timing of electricity consumption to non-peak periods. Long term contract with the electricity users to receive a part of the saving.
Wholesale Market Arbitrage: Purchase/charge electricity when wholesale electricity price is low and sell/discharge when the price is higher. Contract with electricity supplier which manages trading activities.
Balancing Mechanism: Participate in the platform that National Grid uses to make adjustments to generation output in real time. National Grid newly organised a dedicated team focusing on battery technology.
DS3 Uncapped Market: A form of frequency response. Service providers are paid a regulated tariff. Use of 'scalars' in remuneration, where a higher scalar value translates to higher DS3 system service payments. Five-year term up to 30 April 2023, with an option for the TSOs to extend by up to three years. TSO can terminate early on 12 months’ notice.
DS3 Capped Market: Frequency and other services are procured as bundle. Six-year fixed price: from operation date to 31 August 2027 .
The Manager’s fees consist of:
- The Advisory Fee: The Investment Manager is entitled to receive from the Company an advisory fee payable quarterly in arrear calculated at the rate of one-fourth of one per cent. of Adjusted Net Asset Value (the “Advisory Fee”). For these purposes “Adjusted Net Asset Value” means Net Asset Value, minus cash on the Company balance sheet
- The Performance fee: If eligible, the Investment Manager will receive a sum equal to ten per cent. of such amount (if positive) by which Net Asset Value (before subtracting any accrued performance fee) at the end of a Calculation Period exceeds the Benchmark of 7 per cent. provided always that in respect of any financial period of the Company (being 1 April to 31 March each year) the performance fee payable to the Investment Manager shall never exceed an amount equal to 50 per cent. of the Advisory Fee in respect of that period.
- Administrator Expense: The Administrator is entitled to a fee of between £51,000 and £71,000 per annum, depending on the market capitalisation of the Company, and a fee of between £6,000 and £6,500 per subsidiary of the Company per annum.
- Company secretary Expense: The Company Secretary is entitled to receive an annual fee of between £50,000 and £70,000, depending on the market capitalisation of the Company, and a fee of £1,700 per subsidiary of the Company.
- Registrar Expense: Under the terms of the Registrar Agreement, the Registrar is entitled to a monthly maintenance fee per Shareholder account, subject to a minimum fee of £333.33. The fee is subject to increase in line with the consumer price index.
- Depositary Expense: Under the terms of the Depositary Agreement, the Depositary is entitled to receive a fee equal to 0.04 per cent. of Net Asset Value per annum up to £150 million; 0.02 per cent. of Net Asset Value per annum on Net Asset Value between £150 million and £250 million; and 0.015 per cent. of Net Asset Value per annum in excess of £250 million, subject to a minimum fee of £1,667 per month, exclusive of VAT. Additional fees may be agreed between the Company and the Depositary for the custody of any financial instruments held by the Company.
- Directors Expense: Each of the Directors is entitled to receive a fee from the Company at such rate as may be determined in accordance with the Articles. Save for the Chairman of the Board and the Chairman of the Audit Committee, the fee is currently £21,000 for each Director per annum. The Chairman’s current fee is £37,000 per annum and the fee for the Chairman of the Audit Committee is currently £25,000 per annum. The Company does not award any other remuneration or benefits to the Chairman or the Directors. The Company has no bonus schemes, pension schemes, share option or long-term incentive schemes in place for the Directors.
The Company supports the UN’s Sustainable Development Goals and believe our investments in energy storage contributes to the following four goals out of the seventeen SDG goals: (i) Affordable and clean energy, (ii) Industry innovation and infrastructure, (iii) Sustainable cities and communities; and (iv) Climate action. The company has also been awarded the London Stock Exchange’s Green Economy Mark, acknowledging that it derives greater than 50% of its revenues from environmentally friendly sources and continues to optimize its portfolio to drive an increasing amount of revenue from green sources. The company has further joined GIIN (The Global Impact Investing Network) to enable it to effectively measure and contribute to the growing knowledge base of impact investors worldwide that would enable it maximise impact across the target UN SDG principles.
The Company is ultimately agnostic as to which energy storage technology is used by its projects and will monitor projects with all kinds of technologies. For an updated list of the manufacturers for each portfolio asset, please refer to the portfolio
page on the website:
The unaudited Net Asset Value per Ordinary Share is calculated in sterling by the Administrator on a quarterly basis. Such calculations are published through a Regulatory Information Service and made available through the Company’s website. The Net Asset Value is the value of all assets of the Company less its liabilities to creditors (including provisions for such liabilities) determined in accordance with the Association of Investment Companies’ valuation guidelines and in accordance with applicable accounting standards under IFRS.