Positive Portfolio Update and Share Price Commentary
12 October 2023
Positive revenue trends continue, driven by the international assets. The consolidated portfolio outperformed the GB fleet by circa 3x during the quarter
Gore Street Energy Storage Fund plc, the internationally diversified energy storage fund, is pleased to share an update for FY Q2 ending 30 September 2023. This quarter again highlights the benefits of the Company's early diversification strategy, with the consolidated portfolio outperforming the Company's GB fleet by c.3x, based on average revenue per MW during the period. The portfolio build-out continues to progress following September's energisation of 79.9 MW of additional capacity.
The Board continues to monitor the current GSF share price volatility. The Board and the Investment Manager confirm that they are not aware of any portfolio-specific factors that have led to the recent sharp decline in the share price. The Board believes that the discount to Net Asset Value at which the Company's share price currently trades materially undervalues the Company and its portfolio. The Board maintains confidence in the quality of the assets across the five international energy markets, which continue to perform strongly, underpinning the dividend.
Key FYQ2 Highlights:
- International Diversification: The Company's non-GB portfolio spans four uncorrelated international energy markets, including the integrated Irish grid, Germany, Texas, and California. The operational international fleet now accounts for over 62% of the Company's operational capacity. This diversification insulates the Company from the current GB market saturation, which at some stage will ameliorate as is typical of capital-intensive industries, and enables the pursuit of diverse revenue streams.
- Market-Specific Strategies: Tailored system durations, ranging from 26 minutes in Northern Ireland to two hours in Texas; optimised revenue streams based on weather patterns, renewables penetration, and flexibility needs. This adaptability minimises revenue variability, ensuring stability.
- Market Success: In August, the Company's assets in the ERCOT market in Texas generated record revenue of approximately £150/MW/hr, marking the highest monthly revenue per MW ever achieved by the Company in a single grid. This was achieved through strategic prequalification of new revenue streams and collaboration with a new route-to-market partner. This achievement highlights the advantages of having complete, in-house technical resources, from construction to asset management and commercialisation.
Operational & Portfolio Update:
The operational fleet demonstrated strong performance, generating an estimated weighted average revenue of £18.9/MW/hr during the September-end quarter. Performance is broken down by grid below:
- Ireland: Unseasonably high wind penetration led to estimated revenues of over £20.2/MW/hr during the three months. This is especially pleasing for the Company given that these months have historically been "off-season", yielding lower revenues.
- Texas: Record-breaking monthly revenue was generated in August following the Company's prequalification for the new ECRS ancillary service, aligning with historical trends of high summer revenue due to heatwaves and grid scarcity. The Portfolio generated an estimated average of £65.2/MW/hr during the three months in this market.
- Great Britain (GB): Revenue in GB remains subdued and remains the Company's lowest revenue market, which we believe will continue. The estimated average revenue for the GB portfolio was £6.6/MW/hr for the three months.
- Germany: Stable revenue was maintained despite declining ancillary service prices due to sufficient spreads that allow energy storage to profit from energy arbitrage. The estimated average revenue for the three-month period was £10.4/MW/hr.
- The Company remains well-capitalised, with c.£75m in cash or cash equivalents as of 30 September 2023 without any outstanding debt. Of the 187 MW scheduled to come online in GB over the next 9 months, c.85% of the required capex has already been paid. The Company currently remains undrawn on its existing £50m RCF. In addition, the Company continues to progress towards securing USD denominated project-level debt for its Big Rock asset in California.
The Company remains on track to bring its operational portfolio to 813.4MW by the end of 2024. A breakdown of progress is detailed below:
- GB: Significant strides have been made in completing assets, with Stony (79.9 MW) energised in September 2023 and Ferrymuir (49.9 MW) awaiting confirmation from the grid operator to bring it to energisation with all energy storage package work complete and ready to be energised. Enderby is still on track for and targeting energisation in June 2024.
- California: The Big Rock asset (200.0 MW) construction is proceeding well, with key equipment procured and on-site works scheduled to commence this year. The project remains within budget and on track to meet its energisation date in 2024.
- Texas: Contracts for advanced engineering and procurement of HV equipment for Dogfish (75.0 MW) have been signed, with further agreements in progress. The project remains on track for its energisation in 2024.
- Ireland: Engineering and procurement for Porterstown Phase II (60.0 MW) are underway and are on track for energisation in October 2024.
Alex O'Cinneide, CEO of Gore Street Capital, the Investment Manager of the Company, commented:
"I wish to address fellow shareholders directly regarding the recent performance of the Company's share price, which has been disappointing, particularly considering the Company's continued impressive operating performance. In light of this, the Investment Manager, Gore Street Capital has purchased shares, as announced on 3 October.
Energy storage faces the same challenges as the rest of renewable infrastructure in a high-interest environment. It is important to recognise, however, that despite these difficulties, our commitment to the Company's objectives remains unchanged. We are successfully executing against the strategy laid out to investors and delivering on the commitments made, including those regarding dividend distributions to our Shareholders. Our dividend coverage is the highest amongst peers and will continue to increase and be underpinned as significant new capacity comes on stream over the next 12 months.
In terms of operational progress, we have achieved significant milestones. Stony has been energised, and we remain confident of reaching our goal of 813.4 MW operational capacity by the close of 2024.
In our sector, there have been higher assumptions over future revenue opportunities than we foresaw, and those assumptions have had to be unwound. This has given the impression that volatility over energy storage revenues is higher, and therefore, investors are placing a higher risk premium on funds like ours. What that view fails to consider is the difference in strategy enacted by those funds.
The Company's unique diversification strategy, which has seen the deployment of operational assets across four uncorrelated markets, has reduced revenue volatility by c.50%. The Company's balance sheet reflects prudent management, with the lowest debt levels amongst our peers.
While markets remain turbulent, our team is more determined than ever to navigate these challenges successfully. We remain focused on our objectives and are fully committed to delivering value for shareholders."
Pat Cox, Chair of the Company, commented:
"The Board notes the recent weakness in share price, which, in our view, significantly underrates the best-in-class performance of our portfolio.
Our operational assets have consistently met and often exceeded expectations, especially in our international markets, where recent revenue generation has surpassed projections.
It is important to emphasise that our operating portfolio demonstrates strong performance on the international stage and reinforces our confidence in the strategic choices we have made.
We would like to reassure shareholders that despite the recent market conditions, the Company's balance sheet remains strong, it continues to perform particularly well operationally, and we remain committed to delivering value for our Shareholders."
For further information:
Gore Street Capital Limited
Alex O'Cinneide / Paula Travesso Tel: +44 (0) 20 3826 0290
Shore Capital (Joint Corporate Broker)
Anita Ghanekar / Rose Ramsden / Iain Sexton (Corporate Advisory) Tel: +44 (0) 20 7408 4090
Fiona Conroy (Corporate Broking)
J.P. Morgan Cazenove (Joint Corporate Broker) Tel: +44 203 493 8000
William Simmonds / Jérémie Birnbaum (Corporate Finance) Tel: +44 (0) 20 3493 8000
Buchanan (Media Enquiries)
Charles Ryland / Henry Wilson / George Beale Tel: +44 (0) 20 7466 5000
Email: [email protected]
Notes to Editors
About Gore Street Energy Storage Fund plc
Gore Street is London's first listed and internationally diversified energy storage fund dedicated to the low-carbon transition. It seeks to provide Shareholders with sustainable returns from their investment in a diversified portfolio of utility-scale energy storage projects. In addition to growth through increasing operational capacity and a considerable pipeline, the Company aims to deliver consistent and robust dividend yield as income distributions to its Shareholders.