Energy storage refers to the capture of energy for the purposes of using it when needed to reduce imbalances between energy demand and supply. Battery energy storage owners provide grid operators with balancing services to support them in dealing with system intermittency, largely caused by the addition of renewable sources of electricity like wind turbines and solar farms. The technology is well established as a means of regulating power security, ensuring power quality and balancing electricity demand.

Main economic reasons to invest in energy storage are:

1. High yield
   The Company utilises energy storage to target dividends in each financial year based on a 7% yield on the average NAV per Ordinary Share, subject to a minimum target of 7p per Ordinary Share in each financial year. The Company holds a diversified portfolio of energy storage projects with target unleveraged IRRs of 10-12%.


2. Growth potential in grid flexibility from decarbonising environment
   As the dominant technology for fast-acting, short-duration response incentivised by grid operators, lithium-ion battery energy storage prices have declined by over 80% in the last decade, allowing the technology to become a viable part of large-scale grid infrastructure. This has occurred as the contribution of wind and solar energy sources to total power generation has increased drastically, with renewables representing 43% of UK electricity supplies in 2023. This has increased demand for stable flexibility resources, which are expected to grow further internationally in the coming years as more markets focus on decarbonisation.


3. Multiple Revenue streams
   Energy storage assets are able to access multiple revenue streams that can be stacked on top of each other. These are broadly separated into grid balancing services, peak shifting to ensure sufficient capacity is available, and energy trading. This combination provides flexibility to assets to participate in multiple markets and maximise value to investors.

The battery energy storage assets in the Company’s portfolio benefit from several revenue streams across multiple, uncorrelated markets which can be divided into three general areas of activity

Grid-balancing ancillary services respond to fluctuations in supply and demand in real-time to ensure grid operators are able to effectivity balance power flows across the energy system. These services compensate for voltage and frequency fluctuations that affect grid stability.

Peak shifting ensures sufficient capacity is available on a grid and is secured through long-term contracts on which the prevailing ancillary and/or wholesale merchant strategy can be stacked.

Wholesale energy trading activity involves purchasing electricity when the price is low to be stored and sold, or discharged, when prices are higher during periods of peak demand.

This combination of revenue streams is accessed by the Company across different geographies to protect revenues from any potential downturn in a single market, providing improved stability to the Company’s performance.

Further explanation of how the Company earns revenues from these activities can be found in the latest Half yearly Report for the six months to 30 September 2023:

https://www.gsenergystoragefund.com/docs/librariesprovider22/archive/results/interims-2023.pdf?v=2

The Company made a choice early on to acquire ready-to-build projects – those with land rights, planning permission and a grid connection all secured – where possible to manage the buildout process leveraging the Investment Manager’s in-house technical teams. This ultimately leads to higher returns compared to an operational asset purchase strategy due to the successful management of the higher risk profile of construction projects, which can be built at cost without a markup included in the purchase price. The Company’s strategy also ensures the best quality operational assets due to the tight controls in place from start to finish while continually bolstering the knowledge and expertise kept in the Investment Manager to be applied to future projects.

As the Company’s presence continues to grow in scale, it can leverage its experience as an international owner to select favourable markets and projects whilst also evaluating any potentially advantageous capital recycling programs. The international portfolio's composition is continuously evaluated to ensure all capacity remains wedded to the Company’s goals.

The Company typically reports revenue on a "MW per hour" basis. This includes every hour of the reporting period, including nights, weekends, and bank holidays

The total is calculated by multiplying the estimated average revenue by operational capacity and the hours in the period. For the December-end period: £15.1 x 291.6 MW x 2208 hours* = c.£9.7 million in estimated revenue for the quarter.
*2208 is the number of hours in the quarter.

The revenue generated during these three quarters was from a consistent operational capacity of 291.6 MW. Over the next 11 months, the Company’s operational capacity is scheduled to grow significantly to over 800 MW.

Please refer to the Investment Objective and Policy section of the prospectus, which can be found here: Prospectus 29 March 2022.pdf (gsenergystoragefund.com)

Absolutely. While the Company’s investment policy requires 40% of assets to be located in GB and Ireland, the Company can adjust capital allocation based on market conditions, given its presence across five markets. The Investment Manager is actively exploring and considering the sale of certain assets and reallocating that capital.

Although the Company does not provide dividend forecasts, it maintains a progressive dividend target of 7% of the average Net Asset Value (NAV) for the period. This is subject to a target minimum of 7p.

As a real asset investor, the Company’s revenue generation is directly linked to operational megawatts (MW). Once an asset achieves commercial operation, the Company will generate additional revenue immediately.

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.

In addition, the Investment Manager is paid a fee of £75,000 per annum for AIFM services, an annual accounts administration fee of approximately £6,000 per asset and a corporate services fee of £124,596 per annum.

The Company believes the transition to a net zero economy is vital for securing a sustainable, prosperous future for all and is committed to reporting on the impact of its own operations when deploying energy storage systems. It continues to track and disclose a range of ESG metrics through internationally recognised frameworks in an effort to improve the measurement, management and disclosure of environmental and social outcomes. These frameworks include the Sustainable Finance Disclosure Regulation (SFDR) and Task Force on Climate-Related Financial Disclosures (TCFD).

The Company’s approach to sustainability is also informed by the UN Sustainable Development Goals (SDGs) for 2030. The Investment Manager consulted a third-party ESG specialist to assess the Company’s alignment with the SDGs. The Company supports goals 5 (gender equality), 6 (clean water and sanitation), 7 (affordable and clean energy), 8 (decent work and economic growth), 9 (industry, innovation and infrastructure), 12 (responsible consumption and production) and 13 (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 environmental solutions.

The Company has further joined the United Nations Principles for Responsible Investment (UN PRI) to incorporate ESG issues into investment practice as well as the GIIN (The Global Impact Investing Network), which enables it to contribute to the growing knowledge base of impact investors worldwide.

All assets within the Company’s portfolio currently utilise lithium-ion technology. The portfolio includes projects of varying capacity, duration lengths and chemistries, including NMC cells (nickel manganese cobalt) and LFP (lithium iron phosphate) cells. The Company is technology agnostic but, at present, does not see any energy storage technology as a viable alternative to lithium-ion batteries due to its market dominance, pricing, safety, performance track record, and established infrastructure benefit. If technologies arise that are more efficient and cost-competitive, the Company can add these technologies to the portfolio under the existing investment mandate.

For an updated list of the manufacturers for each portfolio asset, please refer to the portfolio page on the website: https://www.gsenergystoragefund.com/content/about/portfolio

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.

The Company’s NAV is calculated and publicly disclosed every quarter. The Company's results undergo semi-annual audits by the Company’s auditor, Ernst and Young, along with valuations by the Company’s external valuer, BDO. These take place during the interim and annual reporting periods.

The Company has a £50m RCF facility with Santander and $60m project-level financing for the Big Rock asset in California. These facilities would constitute c.£99m or c.15% of Gross Asset Value (GAV) if fully drawn. The Board's gearing policy strictly limits all borrowings to no more than 30% of GAV at any given time.

Please refer to the Portfolio section of the website, found here:
https://www.gsenergystoragefund.com/content/about/portfolio

The electricity grids the Company operates in all have different market designs and requirements and, therefore, offer different opportunities.

Ancillary services still dominate GB and Ireland, but they differ in that the Company’s Irish assets are tied directly to the successful integration of wind power, with higher generation contributing to higher revenue levels for the Company’s assets. In Germany, the Cremzow asset provides a critical suite of balancing and frequency services to up to 11 transmission system operators across eight European countries through an interconnected grid system. It also participates in wholesale and intra-day arbitrage, presenting additional revenue-stacking opportunities. The starkest difference can be seen in Texas, where the Company’s operational assets support a grid prone to extreme volatility. The ERCOT electricity market in Texas also includes locational energy prices – unlike GB, Ireland and some mainland European markets – where single wholesale electricity prices apply across an entire grid. Locational energy prices offer diversification opportunities within a grid and interesting trading opportunities.

The Company’s most recent acquisition in California will carry out a similar role, once constructed, in a more regulated market, benefiting from long-term capacity contracts (RA) worth up to 40% of project revenue. This is considerably higher than an equivalent GB Capacity Market contract and allows us to consider raising project-level debt financing.

Projects have an expected lifespan of 25-30 years. Certain maintenance capital expenditures, such as battery replacements, are necessary during this period. Repowering occurs when batteries reach specific degradation thresholds, such as a predefined percentage of their nameplate capacity, to restore them to total capacity. We anticipate a repowering capital expenditure requirement every seven years as a general guideline, although this can vary by geography.

If the Company were to have available funds above the requirements of its construction portfolio, co-investment alongside the Japanese vehicle could be an attractive possibility.