Further Portfolio and Trading Update
05 February 2024
Gore Street Energy Storage Fund plc ("the Company" or "GSF") notes the turbulence in the market and reconfirms its strong liquidity and its commitment to the current dividend policy. The Company also reconfirms its commitment to a diversification strategy, which has insulated it from the current dynamics of the GB market.
- GSF reaffirms its dividend target of 7% of NAV for the fiscal year. It has met its dividend target since listing.
- The Company's dividend cover has been trending upward and was fully covered in the last reported quarter (September-end 2023).
- Further to the Company's update on 10 January (link here), the reported portfolio average revenue across all assets for the fiscal year-to-date stands at £15.1 per MW/hr (H1 & Q3), given its effective diversification strategy.
- The Company maintains a healthy balance sheet with low debt. As previously disclosed, the Company had £66 million in cash or cash equivalents as of 31 December 2023. Of the available $60 million in the Big Rock Facility, approximately $15.8 million had been drawn down as of 31 December 2023, and there were no draws on the Company's £50 million RCF with Santander.
- The Company's construction program is progressing per the schedule outlined on page 11 of its Interim Report (link here).
- The Company's operational fleet is on track to more than double by the end of 2024.
- Based on the build-out schedule, by the end of 2024, the Company's US assets will account for 55% of total operational capacity, while GB will account for less than 30% on a MWh basis.
The Company has been at the forefront of the energy storage sector since becoming the first energy storage fund to list on the Premium Segment of the London Stock Exchange in May 2018.
From inception, the Company's strategy prioritised diversification as a critical pillar of success. This led the Company to expand its portfolio into the Irish market in 2019, followed by expansion into mainland Europe, Texas, and California in the United States. This unique portfolio composition across five uncorrelated markets significantly reduces reliance on any single revenue stream, market dynamic, or regulatory regime, positioning the Company to achieve its long-term investment objective of sustainable growth and consistent dividend payments.
The Company has maintained strict control over capital expenditure to achieve a competitive build cost per MW. Through a comprehensive understanding of each market, each system is currently optimally sized for the market in which it operates. Augmentation has also been built into the design assumptions, allowing for upsizing when revenue signals (and capex pricing) dictate an increase in duration. This efficient deployment, including around duration, is a key variable in capex costs and ultimately a determining factor in the IRR of an asset.
Storage investors have relied on forward-looking revenue curves to make capital deployment decisions and determine asset values. The revenue curves employed in valuing GSF's assets have proven to be the closest to actuals amongst those disclosed in the market, avoiding Net Asset Value volatility.
Liquidity and Dividends:
The Board seeks to reassure shareholders and address any potential concerns on liquidity management and dividends. While these are recognised as valid in light of recent sector news, the Board wishes to provide comfort to investors. The Company maintains a strong balance sheet, with sufficient cash to meet its contractual obligations and undrawn lines of credit totalling c.£83 million. In line with its prudent investment policy on leverage, the Company has a low debt burden and, consequently, a low refinancing risk. The Company also continues to generate a healthy operational cash flow and fully covered its dividend during the last reported quarter (September-end 2023).
The Company continues to follow its mandate to deliver sustainable long-term returns for its investors. Based on the current year's performance, GSF reaffirms its commitment to a dividend target of 7% of NAV for the fiscal year.
The Board and Investment Manager of the Company share the concerns expressed regarding the current challenges posed by low revenue generation in the GB market. The Company's portfolio diversification serves as the primary driver of the Company's stable revenue and profit profile and has allowed the Company's portfolio to generate a consistent revenue profile on a consolidated basis. The Company's active management strategy continually adapts to navigate the cyclical fluctuations in the GB market while taking full advantage of the portfolio's broad exposure to much higher growth markets that are able to deliver increased profitability.
Pat Cox, Chair of Gore Street Energy Storage Fund, commented:
"In this challenging period for the GB energy storage industry, it is crucial to acknowledge the resilience and fundamentally differentiated strategy employed by our Company. The GB market's cyclical nature has posed significant hurdles, yet we remain well-positioned to navigate these challenges - largely thanks to our investment policy and Investment Manager's foresight and strategic understanding.
"Fundamentally, the importance of energy storage as a critical asset in driving the energy transition and ensuring the sustainability of the grid remains true. The current headwinds the sector faces in GB highlight some of the more complex aspects unique to this asset class, which require long-term planning and experienced management. We have long recognised the cyclical dynamics of the energy storage sector in GB, which is why we took proactive measures beginning in 2019 to diversify our portfolio across five grids to mitigate consolidated cash flow volatility.
"Today, we can see that this differentiated strategy has proven effective and contributed significant resilience. Our unique portfolio structure allows us to access a diverse selection of revenue streams, including highly contracted ones, such as the Resource Adequacy Contract currently being negotiated for our largest asset to date, which will provide further consistency to portfolio income. Even during periods of low revenue generation, such as the current downturn in the GB market, our portfolio has demonstrated resilience thanks to the far-sighted decisions made five years ago.
"Looking ahead to the coming quarters and years, it is evident that effective capital allocation and our unique diversification strategy have shielded us from the severe impacts others in the industry face. The Company remains well-positioned to weather the current challenges and continue to lead the sector."
Alex O'Cinneide, CEO of Gore Street Capital, the Investment Manager of the Company, commented:
"Energy storage is and will remain a critical asset for our transition to a low-carbon society and, I believe, an essential part of every investor's portfolio. The asset class does, however, require expert knowledge of multiple energy markets, renewables construction and management experience, clear investment execution around capital allocation, correct use of leverage, and, essentially, revenue diversity across multiple geographies. Without that skill set, experience and discipline, energy storage is a challenging asset class.
"We have raised the correct amount of capital when appropriate to do so at a fair price. The GSF portfolio has been built up over multiple years, with the careful addition of new markets and new revenue streams whilst keeping capital expenditure low and leverage correctly managed. This has led to our growing dividend coverage and increasing cash flow, and that consistency will see us through valid concerns over the sector's performance.
"We continue to be well positioned to capitalise on this growing sector and will benefit as the market leader."
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)
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.