GSF Gore Street Energy Storage Fund Plc

   21 May 2024

Gore Street Energy Storage Fund plc 

(the "Company" or "GSF") 

Full-Year Trading Update

Continued Growth in Revenue, EBITDA and Capacity

Gore Street Energy Storage Fund plc ("the Company" or "GSF") is pleased to provide the following trading update for the 12 months ended 31 March 2024. The Company again reports a high consolidated estimated average revenue of £15.1 per MW/hr (c.£133,000 per MW/yr) and an estimated weighted average operational EBITDA margin of c.69%. These strong results highlight the benefits of the Company's unique portfolio, diversified by geography, revenue streams and regulatory regimes.

During the period the Company raised capital via both equity and debt, enabling continued focus on key portfolio objectives. The last 12 months' growth in operational capacity, estimated revenue, and EBITDA demonstrates the Company's continued positive trajectory even in the face of UK revenue headwinds.

FY24 Operational Highlights:

   YoY increase in revenue and EBITDA. The portfolio generated an estimated £41.4 million of revenue during the fiscal year (31 March 2023: £39.3 million) and an estimated £28.4 million in operational EBITDA (31 March 2023: £27.8m).

o  Stable revenue profile: Estimated average revenue of £15.1/MW/hr, highlighting the benefits of the diversification strategy.

o  Outperformance vs GB: The Company's estimated non-Great Britain (GB) revenue average of £19.6 per MW/hr over the period, 2.2x the GB portfolio's average of £8.8[3] per MW/hr, inclusive of Liquidated Damages payments.

o  Increasing dividend cover: The Company's dividend cover continued to trend upward, with the estimated operational dividend cover being 0.78x and an estimated fund-level dividend cover of 0.56x, achieved from the average operational capacity during the period of 311.5MW. As the prioritised portfolio is built out, the Company expects a material increase in dividend cover.

o  Growing operational asset base: 45% increase in energised capacity achieved by year-end, with the successful energisation of Stony (79.9MW) and Ferrymuir (49.9MW).

o  Positive trajectory: Energised capacity is scheduled to nearly double over the coming quarters based on the build-out of the prioritised portfolio. Upcoming projects where construction is mobilised include 57MW in GB and 275MW of assets in the US, including the 200MW Big Rock asset in California.

   Appropriate liquidity management: As of 31 March 2024, the Company had £60.7 million in cash or cash equivalents and £58.6 million in headroom on its existing debt facilities. During the reporting period:

o  The revolving credit facility ("RCF") with Santander was upsized from £15 million to £50 million.

o  A $60 million loan financing from First Citizens Bank at project level secured against the Company's 200MW / 400MWh Big Rock asset in California.

o  Share issuances at NAV: During the year, the Company issued a total of 23,700,000 new Ordinary Shares to strategic partners, Nidec and Low Carbon. The shares were issued at the prevailing Net Asset Value on the date of issuance. 

   Continued growth: The Company acquired a 75MW pre-construction asset during the year, located in the Republic of Ireland. The Company also acquired the remaining 49% stake in two of its existing Irish projects, Porterstown, a 90MW[4] asset, and Kilmannock, a 120MW[5] pre-construction asset.

Estimated revenue for the 12-month period ended 31 March 2024

Market Update

Great Britain:

The GB market witnessed a prolonged period of suppressed pricing during the financial year due to increased competition in ancillary services markets and reduced volatility in the wholesale market. The introduction of the Enduring Auction Capability platform (EAC) further diminished dynamic services pricing, while trading opportunities did not materialise for BESS under lower energy prices. The introduction of the Open Balancing Platform partially reduced the skip rate for batteries by automating part of the BM process. Further changes came in the market for Balancing Mechanism-registered sites, with the introduction of Balancing Reserve (BR) and the 30-minute rule, increasing the potential duration of bids and offers for battery energy storage systems.

The annual Capacity Market auctions cleared at a high price, driven by increasing requirements set by The Department for Energy Security and Net Zero (DESNZ) and limited existing capacity. The Company secured a combined 251.5MW of non-derated Capacity Market contracts across both the T-4 CM auction which cleared at a price of £65/kW/year and the T-1 CM auction which cleared at £35.79/kW/year. These agreements will provide an additional c.£1.7 million in two delivery years, alongside existing Capacity Market commitments. All GB assets, therefore, continue to have ongoing CM contracts.

Ireland:

During the period, the capacity of renewables generation in Ireland continued to increase. The substantial increase in wind generation led to a c.27% increase in SNSP (System Non-Synchronous Penetration) compared with the previous year and a c.40% year-on-year surge in DS3 (Delivering a Secure Sustainable Electricity System) revenue as high temporal scalars[6] were applied to the upper thresholds of SNSP. Assets maintained high availability (>99%) throughout the year, resulting in fewer frequency events.

Wholesale trading, or energy arbitrage, continued to play a role in Ireland's electricity market, where trading opportunities were capitalised upon during periods of high demand and low wind generation, resulting in spikes in the Day-Ahead and Intra-Day prices.

The Company also secured, with 130 MW of capacity (before de-rating), lucrative Capacity Market contracts at £100/kW/year for the T-4 27/28 auction and £128/kW/year for the T-1 24/25.

Wind volatility will shape Ireland's dynamic electricity market structure and battery energy storage will continue to play a crucial role in maintaining grid security and stability, supporting the increase in SNSP to 95% by 2030 from the current 75% as part of Ireland's 2050 net-zero goals.

Germany:

The Company's German asset adopted an innovative trading-centric strategy following engagement of a new Route to Market partner offering algorithmic trading methods. High-frequency trading was a key source of revenue during the period due to the liquidity in the wholesale market, which contrasts with the relatively less liquid wholesale market in GB.

This trading-focused approach, supported by improved analytics and additional services, allowed the equivalent capacity from the Company's German asset to surpass the revenue achievable from a strategy focused solely on the Frequency Containment Reserve (FCR) service by 38%. The German asset has also been pre-qualified for both aFRR-energy and capacity and, post-period, is active across all available revenue streams in this market.

Improving access to a wider range of revenue streams positions the Company to capitalise on upcoming opportunities as Germany broadens its ambitions towards energy storage. In December 2023, the Federal Ministry for Economic Affairs and Climate Protection (BMWK) published an electricity storage strategy designed to remove barriers for the asset class to support Germany's renewable energy targets for 2035. This was followed by the announcement of a Capacity Market mechanism, set to launch in 2028, similar to those used in other markets to secure long-term contracted revenue for energy storage systems.

Following a period of exceptionally high returns attributed to geopolitical events, the German asset has reverted to a more normalised revenue level, aligning with initial underwriting and disclosed third-party forecasts.

Texas:

The Texan market saw a year-on-year increase in revenue, driven by high volatility during the 2023 summer months. Demand on the ERCOT grid continued to increase year-on-year, with the 2023 summer peak being 5 GW higher than the 2022 equivalent. This led to low available headroom on the grid, increasing reserve prices and scarcity pricing. The grid operator introduced the ERCOT Contingency Reserve Service (ECRS) in June 2023, which had more stringent requirements than the Responsive Reserve Service (RRS) and carried a significant premium throughout the summer. The operational Texan portfolio delivered the majority of its revenue (72%) during the summer (FYQ2), driven by the high summer heat and subsequent demands on the grid.

Renewable energy penetration increased in autumn, leading to high price volatility, while high levels of wind generation in West Texas provided strong trading opportunities. Texas did not face the same impact from winter storms as in previous years except in January 2024 when winter storm Heather brought freezing temperatures for multiple days, leading to increased reserve prices. Overall, the Texan portfolio is estimated to have outperformed the previous year by 57%, with RRS having an average price increase of 22%.

Texas continues to be among the fastest growing renewables markets globally and, therefore, remains an important location for the Company to gain further operational exposure within a balanced portfolio.

California:

California continued its shift towards a renewable powered grid, particularly through deployment of solar power. This transition has resulted in a "duck curve", a reference to the sharp ramps in load on the grid, causing suppressed energy pricing during peak solar generation hours and high pricing during solar output reductions as the sun sets. As a result, BESS trading spreads have seen an upward trend. Additionally, the implementation of a mid-term reliability program by grid operator CAISO and regulator CPUC has been approved, leading to an increase in Resource Adequacy contract values. These long-term contracts are expected to account for a significant proportion of revenue (up to 40%), presenting a valuable opportunity for eligible battery projects, including the Company's 200MW/ 400MWh Big Rock asset, which remains on track for energisation by the end of this calendar year.

EBITDA:

The Company generated an estimated £28.4 million in operational EBITDA during FY24, of which only 17% was contributed by the Company's GB fleet, with the remaining coming from the Company's international portfolio.

Based on the above, the Company's estimated GB EBITDA margin was 49%, compared to 75% for the Company's international portfolio, resulting in a total weighted average of 69%.

Dividend Cover:

Due to the Company's diversified portfolio which has been delivering a consistent average revenue per MW, and the portfolio's ongoing increase in operational capacity, the Company's dividend cover has continued to trend upward.

As previously highlighted, the Company reaffirms its dividend target of 7% of NAV for the reported period.

During the Period, the Company achieved an estimated operational dividend cover of 0.78x and an estimated portfolio-level dividend cover of 0.56x. This dividend cover was achieved from an average operational capacity of 311.5MW, achieving an estimated average per MW/hr revenue of £15.1.

CEO of Gore Street Capital, the investment manager to the Company, Alex O'Cinneide, commented:

"I'm proud to present a strong set of operational results. The performance highlights ongoing year-on-year growth across the key industry metrics and revenue stability through the clear success of the Company's strategy. Despite the turbulence seen in the sector, the Company achieved continued growth while demonstrating leadership and resilience.

"Across the sector, it is increasingly apparent that the range of strategies employed by asset owners are yielding increasingly different financial outcomes, with Gore Street producing revenues c.3x of our peers and lowering the volatility of those revenues by 50%. In the GB market, participants largely act as price takers, resulting in similar revenue generation across asset owners. However, it is clear that the impact of capital allocation strategies, whether based on gearing levels, geography concentrations or capital expenditure, is a key component of a company's long-term viability. Within the sector, we have seen reports of a resurgence in GB revenue based on annualising a very limited data set of revenue over a 15-day period in April. It should be noted that GSF's estimated average revenue of £15.1 / MW / hr (or £133k / MW / year) for the past 12 months is almost double that of what peers considered as an annualised highlight based on 15 days of trading in GB in April (equating to c.£70k / MW / year). GSF's consistent outperformance is a testament to our prudent approach to capital allocation and operational excellence. We are the first asset owner to stack revenues in the Irish and German markets, and this control of the optimisation of our portfolio, we believe will continue to produce superior returns.

"The case for energy storage remains strong around the globe, with rising levels of renewable penetration creating an increased system need for flexibility assets. We are also seeing policy drivers emerge to promote the use of assets like those in the Company's portfolio. The US assets continue to benefit from Investment Tax Credits under the Inflation Reduction Act while new energy storage mandates and potentially even support schemes are expected under new legislation agreed by the European Parliament.

"The combination of positive policy environments, falling technology costs and financial expertise held in-house at the Investment Manager ensures the Company remains well-positioned to deliver sustainable value to our shareholders."

For further information:  

Gore Street Capital Limited           

Alex O'Cinneide / Paula Travesso  

Email: ir@gorestreetcap.com                                                                                Tel: +44 (0) 20 3826 0290  

Shore Capital (Joint Corporate Broker)    

Anita Ghanekar / Rose Ramsden                                                                           Tel: +44 (0) 20 7408 4090  

Fiona Conroy (Corporate Broking)              

J.P. Morgan Cazenove (Joint Corporate Broker)                                                               

William Simmonds / Jeremie 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: gorestreet@buchanan.uk.com  

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.  

https://www.gsenergystoragefund.com