TIDMGRID
RNS Number : 6709H
Gresham House Energy Storage Fund
16 November 2018
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Gresham House Energy Storage Fund Plc (the "Company")
16 November 2018
Acquisition of Seed Portfolio
Gresham House Energy Storage Fund plc (LSE: GRID) is pleased to
announce that it has completed the acquisition of the Seed
Portfolio, as set out in the prospectus published by the Company on
17 October 2018 and the supplementary prospectus published by the
Company on 6 November 2018.
The Seed Portfolio, comprising five operational ESS Projects
totalling 70MW: Staunch in Staffordshire, Lockleaze in Bristol,
Littlebrook in Kent, Rufford in Nottinghamshire and Roundponds in
Wiltshire, was acquired on 13 November 2018 for a total acquisition
price of GBP57,220,000.* The Seed Projects support the Target
Dividend and Target Total Return.
The Seed Portfolio was developed by the Gresham House Group and
Noriker Power Ltd.
Announcement by the ECJ regarding the UK Capacity Market
Scheme
The Company notes the decision of the European Court of Justice
on 15 November 2017 annulling the European Commission's decision
not to raise objections to the aid scheme establishing a capacity
market in the UK. In effect, the ruling states that the Commission
should have done more to investigate whether the UK Capacity Market
was in breach of State Aid rules when first introduced in 2014.
This ruling is pursuant to a case brought by Tempus Energy against
the Commission in 2012. The case was specifically in the context of
Demand Side Response installations, which Tempus Energy claimed
were unfairly disadvantaged under Capacity Market Rules.
In the context of this news, the Company would like to reiterate
its dividend targets of 4.5p in the first full year and 7.0p
thereafter and its target return net asset value total return of 8%
per annum unlevered and 15% levered.
The UK government will now seek State Aid approval from the EC
for the current or a modified scheme, according to a statement made
by BEIS, affirming its commitment to the CM. The statement is
available at
https://www.gov.uk/government/collections/electricity-market-reform-capacity-market.
The immediate impact is that the all Capacity Market (CM)
contracts are suspended; no further payments will be made under
existing contracts and future auctions have also been
suspended.
The Investment Manager is of the opinion that the most likely
outcome is that current contracts remain and that the matter is
resolved prior to the commencement of the contracts. This is
because the Capacity Mechanism is an important product for National
Grid in terms of assuring a stable electricity supply by providing
reserve power at times of extreme demand.
It is also the case that several other EU countries, including
Ireland, Italy and Poland, have successfully applied for and gained
State Aid approval for capacity market schemes similar to the UK
scheme in the last 12 months, increasing the probability that the
outcome is favourable for the UK government, even if amendments are
required.
The vast majority of CM payments today are received by thermal
generation projects, including large-scale coal and gas-fired
plants as well as smaller diesel and gas "peakers".
The projects comprised in the Seed Portfolio all have CM
contracts. The first contract commences in October 2019 for Staunch
and the others all commence in October 2021, save for one contract,
beginning in October 2020, for half of the capacity at the
Roundponds project.
In percentage terms, the CM contracts on the Seed Portfolio are
expected to represent c.1% of Seed Portfolio revenues in the
extended first year between the IPO date and 31 December 2019,
approximately 7% of revenues in 2020, and approximately 11% in
2021.
In the opinion of the Investment Manager, should the Capacity
Mechanism not be reinstated or replaced with a similar product, it
would accelerate the shift away from baseload generation to an
electricity market dominated by renewable energy and flexible
generation. This would result in higher and more volatile intraday
electricity prices. Such greater volatility would provide an
opportunity for owners of ESS projects to generate higher revenues
under the asset optimisation model, which in the opinion of the
Investment Manager could fully offset any loss of income associated
from the withdrawal of the Capacity Mechanism.
In summary, in the Investment Manager's opinion, an electricity
market driven more by market forces and less by regulatory
mechanisms is likely to reinforce the Company's business model.
The Company will notify the market of further updates as
appropriate.
For further information, please contact:
Gresham House New Energy
Ben Guest +44 (0) 20 3837 6270
Cantor Fitzgerald Europe
Richard Harris +44 (0) 20 7894 8229
Robert Peel +44 (0) 20 7894 7719
Alan Ray +44 (0) 20 7894 8590
Montfort Communications greshamhouse@montfort.london
Gay Collins / +44 (0) 779 862 6282
Louis Supple /
+44 (0) 203 770 7907
Notes to Editors:
Gresham House Energy Storage Fund PLC is a specialist investment
company that was established to take advantage of the significant
market opportunity for battery-based energy storage systems
("ESS"). It was launched and admitted to trading on the London
Stock Exchange in November 2018, having raised equity proceeds
GBP100 million. The invested portfolio comprises five ESS projects,
with a total grid connection capacity of 70MW, and is valued at
GBP57.2 million.
The Company has appointed Gresham House Asset Management Limited
as its investment manager and AIFM.
The Company is targeting dividend payments of 4.5p per Ordinary
Share in respect of the financial year ending 31 December 2019 and
7.0p per Ordinary Share in financial periods thereafter combined
with capital growth that, once the portfolio is fully invested,
results in an unlevered Net Asset Value total return of 8 per cent.
per annum, calculated net of the Company's costs and
expenses.**
The Company expects, once the portfolio is fully invested and
certain further asset management activities are completed in
respect of the ESS projects it holds, to introduce leverage to the
portfolio. The Company may borrow an amount not exceeding 50 per
cent. of the Company's Net Asset Value at the time of drawdown. The
target levered Net Asset Value total return, taking into account
the asset management activities, is 15 per cent. per annum,
calculated net of the Company's costs and expenses.**
* Not taking into account any debt owed, working capital
balances or cash held by any of the Seed Project Companies.
** This is a target only and is based on current market
conditions as at the date of the prospectus published by the
Company on 17 October 2018 and is not a profit forecast. There can
be no assurance that this target will be met or that the Company
will make any distributions at all. This target should not be taken
as an indication of the Company's expected or actual current or
future results. The Company's actual return will depend upon a
number of factors, including but not limited to the size of the
Issue, the Company's net income and the Company's ongoing charges
figure. Potential investors should decide for themselves whether or
not the return is reasonable and achievable in deciding whether to
invest in the Company. References to leverage refer to the ratio of
borrowings to Net Assets.
Unless otherwise stated, capitalised terms used in this
announcement but not defined have the same meaning as set out in
the prospectus published by the Company on 17 October 2018
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END
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