TIDMGRID
RNS Number : 5295X
Gresham House Energy Storage Fund
01 September 2020
1 September 2020
Gresham House Energy Storage Fund plc
(the "Company" or the "Fund")
Half-year results to 30 June 2020 and Dividend Announcement
Gresham House Energy Storage Fund plc (LSE: GRID) (the "Fund" or
"GRID"), the UK's largest listed battery storage fund, announces
its half-year results for the period ending 30 June 2020.
Dividend Declaration
The Board is pleased to announce a dividend of 1.75p per
Ordinary Share for the period from 1 April to 30 June 2020. The
dividend will be paid on 25 September 2020 to Shareholders on the
register as at the close of business on 11 September 2020. The
ex-dividend date is 10 September 2020.
Financial and operational highlights
-- Net Asset Value (NAV) of GBP230.0m, or 98.16 pence per share, flat on a total return basis
-- Share price total return for the period of 4.0% and 15.6% since inception
-- NAV per share decline of 2.6p due to downward revisions to
forward curves in the wake of the COVID-19 pandemic and partially
uncovered dividend due to cash weighting
-- Weighted average discount rate at 11.1% remains unchanged
-- Total dividends paid or declared of 3.5p for the period, up from 2.5p for H1 2019
-- Dividend expected to be fully cash covered in 2021
-- GBP31m raised during period, with total funds raised to date
of GBP238m with the first Series of the GRID Power Bond
underway
-- Expect to be fully invested by year end with 350MW of operational capacity
-- Investment Manager awarded highest score (A+ PRI) for
infrastructure strategies reinforcing GRID's strong ESG
credentials
Market Environment and Outlook
-- COVID-19 impact on GRID's operations remains low, despite
slowdown in connections by Distribution Network Operators which
partly impacted commissioning dates of Wickham Market and
Thurcroft
-- System balancing costs for National Grid ballooned 39% to
GBP718m between March and July due to the drop in UK power demand
and higher renewable generation and the need to curtail excess
renewable generation
-- Electricity generation from renewables reached 47% in Q1 2020
and rose further in Q2 2020. This reinforces the Investment
Manager's conviction that c.10GW of energy storage is required by
2025
-- Recent UK planning deregulation for facilities over 50MW,
likely to increase scale and efficiency of projects
-- On 4 March 2020 the system price spiked to GBP2,242/MWh, the
highest price in 19 years, catalysed by a wind forecasting error,
within which each of our available sites was able to capture
significant value
-- National Grid recognises the importance of battery storage
following the COVID-19 pandemic and plan to launch Dynamic
Containment on 1 October 2020 which will double the Frequency
Response capacity. Battery storage is moving nearer to being the
balancing technology of choice in the UK
-- During August 2020, National Grid announced a large-scale,
3-week trial for energy storage to test its potential in the
gigawatt-scale Balancing Mechanism Reserve service. This service
has been the sole purview of large-scale, gas-fired generation to
date. Using batteries unlocks lower-cost, zero-carbon grid
balancing and will benefit GRID
-- From September 2020, National Grid will publish 'skip rates'
in the Balancing Mechanism, i.e. the times when it under-utilises
batteries. This is a public commitment to the increased use of
batteries to balance the system
Commenting on the Fund's results, John Leggate CBE, Chair of
Gresham House Energy Storage Fund plc said:
"We are meeting the UK's challenge to rapidly expand storage
capacity over the next few years. Our first wave of operational
projects is now delivering revenues and system flexibility, and we
remain on track to double our capacity by the end of 2020.
"The COVID-19 pandemic highlighted significant operational
strain on the electricity network and ultimate potential expense to
consumers if battery storage is not rolled out at an accelerating
pace. While the national infrastructure and the country's power
system both remained resilient, the lockdown period reduced energy
demand and pushed a higher proportion of renewable energy onto the
power grid. This unexpected step-up in the mix placed demands on
system stability which the industry only expected to be experienced
in a few years' time."
Ben Guest, Fund Manager of Gresham House Energy Storage Fund plc
& Managing Director of Gresham House New Energy said:
"I'm delighted that our operational portfolio has now grown to
215MW, helped in part by the Bloxwich acquisition from Arenko in
July. Overall, that represents an increase in capacity of 24% from
174MW at 31 December 2019. We are on track to grow to 350MW during
2020 with Thurcroft (50MW) and Wickham (50MW) due to the join the
portfolio very shortly. Crucially, portfolio capacity availability
recovered sharply to 97% following successful site upgrades at the
end of 2019 which facilitate transition to full asset
optimisation.
"Looking to the future, we're pleased that National Grid is
increasing its demand for services from batteries, demonstrating
their competitiveness and environmental credentials. The launch of
Dynamic Containment and the trial of batteries in Balancing
Mechanism Reserve are particularly exciting developments and we
look forward to participating in the provision of these
services.
"We expect the market for energy storage to grow substantially
in the next 5 years and we are positioning the fund to participate
strongly. Today we have a pipeline that is either exclusive or
under negotiation that could see the portfolio at least double in
size over the next eighteen months".
The Company's Interim Report and Initial Financial Statements
for the period ending 30 June 2020 are included in this
announcement
http://www.rns-pdf.londonstockexchange.com/rns/5295X_1-2020-8-29.pdf
available on the Company's website at:
https://greshamhouse.com/real-assets/new-energy/gresham-house-energy-storage-fund-plc/
and can be found at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
For further information, please contact:
Gresham House New Energy
Ben Guest +44 (0)20 3837 6270
Jefferies International Limited
Stuart Klein
Gaudi Le Roux
Neil Winward +44 (0)20 7029 8000
KL Communications
Charles Gorman
Camilla Esmund
Alex Hogan +44 (0)20 3995 6673
JTC (UK) Limited as Company Secretary
Christopher Gibbons +44 (0)203 846 9774
About the Company and the Manager:
Gresham House Energy Storage Fund plc owns a portfolio of
utility-scale operational energy storage systems (known as ESS)
located in Great Britain. The current portfolio has a total
capacity of 215MW. The Company is managed by Gresham House Asset
Management Limited under the leadership of Ben Guest. The Company
was admitted to trading on the London Stock Exchange (Specialist
Fund Segment) on 13 November 2018 having raised GBP100 million of
gross proceeds from investors. Including issuance under the Placing
Programme, it has now raised a total of approximately GBP238
million of gross proceeds from investors.
The Gresham House New Energy team has a proven track record in
developing and operating energy storage and other renewable assets
having developed 124MW of Energy Storage Systems and approximately
290MW of predominantly ground-mounted solar projects. Gresham House
Asset Management currently manages 207MW of solar and wind energy
projects.
Gresham House Asset Management is the FCA authorised operating
business of Gresham House plc, a London Stock Exchange quoted
specialist alternative asset manager. Gresham House is committed to
operating responsibly and sustainably, taking the long view in
delivering sustainable investment solutions.
www.greshamhouse.com
Definition of Utility-scale battery Storage Systems
Utility-scale battery storage systems are the enabling
infrastructure that will support the continued growth of renewable
energy sources such as wind and solar, essential to the UK's stated
target to reduce carbon emissions. They store excess energy
generated by renewable energy sources and then release that stored
energy back into the grid during peak hours when there is increased
demand.
1. HIGHLIGHTS
Performance highlights
-- Net Asset Value (NAV) of GBP230.0m or 98.16 pence per share. Reduction in the NAV per share
of 2.6p due downward revisions to forward curves in the wake of the COVID-19 pandemic and
partially uncovered dividend due to cash weighting. Weighted average cost of capital remains
unchanged at 11.1%
-- Flat NAV total return of minus 0.02% for the six-month period as NAV per share reduction of
2.6p offset by dividends of 2.75p paid in the six-month period
-- Strong share price performance since inception: Ordinary Share price total return was 15.6%
to the end June 2020, with shares consistently trading at a premium to NAV reflecting strong
investor demand: apart from initial volatility during the COVID period. The Ordinary Share
Price total return for the six-month period ended June 2020 was 4.0%
-- Announcement of 2020 dividend of 1.75 pence per Ordinary Share for the period from 1 April
2020 to 30 June 2020, bringing total dividends of 3.5p for the six-month period. The Board
reaffirms expectations of 7.0 pence dividends for 2020 and expects full dividend cover in
2021
-- GBP31 million raised in the six-month period with total gross funds raised to date of GBP238
million. These funds will be fully deployed by the end of year with 350MW of operational capacity.
In addition, the GRID Power Bond offering is underway.
-- Gresham House Asset Management, the Investment Manager of the Company, has achieved the highest
A+ score in relation to Principles for Responsible Investment demonstrating a strong commitment
to Environmental, Social and Governance matters: reinforcing the Company's ESG credentials
Operational highlights
-- COVID-19 impact on GRID's operations remains low, despite slowdown in connections by Distribution
Network Operators which partly impacted commissioning dates of Wickham Market and Thurcroft
-- The Company has 215MW of operational projects as at the date of this report, including the
acquisition of the 41MW Bloxwich project on 3 July 2020 from Arenko Group
-- Thurcroft and Wickham projects will commission in Q3 2020 / early Q4 2020 respectively adding
another 100MW
-- A further project of c.25MW (Project River), not previously contemplated, is in advanced stages
of due diligence and is expected to complete in September. Including the 10MW Glassenbury
extension, the portfolio will total 350MW by the end of 2020
-- On 4 March 2020 the system price spiked to GBP2,242/MWh, the highest price in 19 years, catalysed
by a wind forecasting error, and each of our available sites were able to capture significant
value
2. CHAIR'S STATEMENT
Summary
On behalf of the Board, I am delighted to present the Interim
Report and Accounts of Gresham House Energy Storage Fund plc for
the period ending 30 June 2020.
Portfolio Description, Transactions and Pipeline
This has been an eventful period leading to significant growth
in our contracted portfolio of battery storage assets.
The pace of new project acquisition and integration continues to
cement our industry lead and allows us to leverage our scale and
sector "know how" in the market.
We are pleased to note that the Company's pipeline continues to
build strongly, as identified in the Portfolio Section of the
Investment Manager's report.
At end 2019 the portfolio was 174MW. On 3 July 2020, the 41MW
Bloxwich project was acquired. In addition, a further 75MW is
expected to be added to the portfolio by the end of September 2020
and another 50MW in early Q4. Including the Glassenbury extension
of 10MW. This will double the portfolio to 350MW by the end of
2020.
These projects include Project River (c.25MW), an operational
project in advanced stages of due diligence and the Thurcroft
(50MW) and Wickham (50MW) projects. In addition, exclusivity has
been secured for a c.40MW project in the Republic of Ireland
(Project Emerald), which will be our first outside of the UK. None
of these deals contributed to the period ending 30 June 2020; we
look forward to their positive contribution in H2 2020 and full
contribution during 2021.
Project Emerald reflects our recognition of the unique
opportunity to generate better than average returns in the "volume-
uncapped with tariff" regulated Irish market for frequency response
and related services over the next few years, and the
identification of a specific project to take advantage of this. The
Manager sees the Irish market as providing excellent investment
opportunities for the Fund and provides the ability to secure
operational cash flows to provide dividend cover and diversify
revenue streams. This deal was possible following the amendment to
the Company's Investment Policy, which now permits investment of up
to 10% of NAV in the Republic of Ireland and Northern Ireland and
was overwhelmingly approved by Shareholders at the AGM on 30 June
2020.
Of the deals the Manager has worked on in the year 2020 to date,
two were already operational; Bloxwich, the energy storage system
acquired from Arenko Group and Project River - see further details
in the Investment Manager's report. Such assets demonstrate a
diversification of our deal sourcing strategy.
The Byers Brae 30MW project near Edinburgh (which is in the
Company's exclusivity pipeline) is likely to be commissioned in H1
2021, a little later than previously expected, but remains exciting
as our first Scottish deal and will take advantage of the
opportunity to help National Grid manage the growing output from
wind energy in Scotland, and in particular, to minimise curtailment
when generation is strong.
In our Annual Report, we highlighted that 22% of the portfolio's
capacity was still ramping up following an upgrade or experiencing
some degree of technical challenges. I am pleased to say that this
has now fallen to under 4% of the 215MW in operation today.
Further, given all the portfolio growth, it has been important for
the Investment Manager to add further highly experienced and well
qualified operational resources.
Last and by no means least, the Investment Manager has worked to
make sure that potential risks and opportunities resulting from the
COVID-19 pandemic have been well understood and, where possible,
have been mitigated.
Results and Outlook
During the first half, the Company has been in a transition
towards full deployment of funds raised to date and expects to be
fully invested before the year end.
In terms of revenue sources and mix, the Manager has skewed
battery operations to frequency response, in particular since
lockdown, as this has offered higher revenues than trading in the
wholesale market or the Balancing Mechanism.
Meanwhile, in terms of wholesale trading, lower national
electricity demand has consequently led to lower available trading
revenues during the lockdown period of the second quarter. However,
it is noteworthy that there has been some recovery of demand since
the lows of May and June, and that has helped wholesale market
trading returns recover. In normal market environments there would
be very limited correlation to power prices, however when
electricity demand collapses as it did during the initial COVID-19
impact period, the Manager has, in hindsight, observed that
temporary excess generation plays a part in dampening trading
spreads.
Similar dynamics apply in the Balancing Mechanism (or "BM", the
mechanism by which National Grid uses generation assets, at prices
offered by their operators, to balance supply and demand on a
rolling half-hourly basis) and this remains one of our most
important areas of revenues. However, having started the year in a
very promising way, the BM became less profitable than the
wholesale market during the lockdown as National Grid needed to
take decisions to protect the stability of the system. This had an
adverse impact on intraday pricing, as well as on the utilisation
of batteries.
National Grid are only too aware of their under-use of
batteries, given their promise to be able to operate a zero-carbon
grid by 2025. In this context, from September National Grid will
start to publish the times they do not use batteries when they
could have done (known as "skip rates"). These skip rates will be
monitored by Ofgem under the upcoming RIIO2 framework, which is
designed to improve value for customers, and should lead to further
demand for battery services from National Grid.
Separately, earlier in 2020, National Grid made a request to
industry stakeholders asking for ways they might be able to better
utilise batteries. Arenko (from whom the Company acquired the
Bloxwich asset) proposed a trial using processes currently used to
make gas turbine generators available for system balancing by
providing payments for availability. This concept of
payment-for-availability which Arenko has proposed is an ideal way
to make batteries available via contract several hours in
advance.
There have been two trials so far and a third is planned for
September. We are therefore hopeful that National Grid will
introduce this as a revenue generating service in coming months. In
our view, this could transform the use of batteries, and put them
on the path to mainstream adoption.
Fundraising
During the period, the Company raised a further GBP31 million in
equity, immediately prior to the commencement of the UK lockdown
period.
The Company launched, through its 100% owned subsidiary Gresham
House Energy Storage Holdings plc, a bond raise (GRID Power Bonds)
on 7 July 2020 seeking up to GBP40 million of funding over a
12-month period. The first series targeting up to GBP15 million
will be closing in the coming weeks. This funding is allocated to
fund projects within the current pipeline.
Net Asset Value ("NAV")
Through the period, the NAV has fallen from 100.79p to 98.16p
This has come mainly from a more cautious set of volatility and
revenue stream forecasts from our new third-party industry
consultants (we are no longer using Cornwall Insight). In addition,
0.7p of the reduction is from a cash shortfall from the dividend
not being fully covered in the first half of the year.
Industry consultants have reacted to recent events by making
fairly significant reductions to their forecast curves of average
daily power prices, linked to a lower demand outlook, a growing
amount of near-zero marginal cost renewables and much lower natural
gas prices. The net impact of these changes has resulted in lower
power pricing forecasts. We have adopted this new and more
conservative regime.
While we have reflected these forecasts in the NAV, we are
cautiously optimistic about the future prospects of the portfolio
because of its scale and its capability to operationally flex our
assets.
The Board have decided to review discount rates and will
consider the outcome in future NAV updates.
COVID-19
The impact of COVID-19 on our business was outlined in our 2019
Annual Report in April 2020.
We have been pleased and relieved that, as expected, day to day
operations and maintenance have not been affected thanks to the
diligence of our O&M contractors and sub-contractors. However,
as noted in the Market Update Section, the portfolio has
experienced some flattening of volatility curves which have
impacted on income opportunities available; the flexibility of the
portfolio has been utilised to minimise the impact of this on asset
optimisation income.
The impact of the lockdown on deployment has impacted the
timings of the commissioning of new projects. Specifically, the
Wickham and Thurcroft commissioning dates were pushed back by a few
months due in part to a pause in connections by Distribution
Network Operators during the lockdown as well as certain
contractors employing, specialist staff who had a need to
self-isolate. Fortunately, there has been no financial impact as
the lost income due to late commissioning will be mitigated through
agreed compensation from the sellers and EPC contractors at a level
that will fully replace operating cash flows.
In our view, COVID-19 has had the effect of highlighting the
importance of the ESG agenda and the extent to which integrating
additional battery storage deeper into the UK power grid can play a
more valuable role in emergency situations.
The high percentage of demand being met by renewables in Q2
2020, caused by the lockdown-induced drop in demand, has offered a
glimpse of a future where there is not sufficient battery capacity
installed. The UK renewables fleet, combined with low amounts of
battery storage, requires the use of more gas fired generation to
balance the system. Indeed, balancing costs to the UK power grid
reached GBP718 million for the period March to July 2020 according
to Ofgem, a 41% increase on 2019.
Thus, installing batteries in the right quantities achieved two
things at once; lower CO2 emissions by using less gas, and avoiding
unnecessary curtailment of renewable power thereby lowering
balancing costs to the UK power grid which are reaching
unacceptable levels.
National Grid has just added more recognition to the importance
of battery storage by launching Dynamic Containment, a new
frequency response service which will add significantly to
procurement of such services from battery projects. The service is
being launched on 1 October 2020 to include 500MW of demand. This
approximately doubles the total demand for Frequency Response
services; a further sign that battery storage is becoming
increasingly integral to the UK power grid.
Finally, before I discuss dividends, I am pleased to announce
that Gresham House Asset Management Limited, the Investment Manager
of the Company, has achieved an A+ score in relation to Principles
for Responsible Investment demonstrating a strong commitment to
Environmental, Social and Governance matters in relation to
infrastructure investment. The Board pass on their congratulations
and look forward to taking the "ESG" agenda further forward as the
Company grows.
Dividend
Although dividends were not yet fully covered in this period,
the Company continues to target a dividend policy totalling 7.0p
per Ordinary Share in the 2020 calendar year.
Whilst COVID-19 has temporarily impacted revenues at the margin,
the positive medium and long term outlook combined with the
strategic imperative and vital role which batteries will play in
the energy transition supported by a growing range of new monetary
opportunities to leverage the flexibility of battery storage, gives
the Board confidence that the current level of dividend is
sustainable.
John Leggate CBE, Chair
Date: 28 August 2020
3. INVESTMENT MANAGER'S REPORT
1. Information about the Manager
Gresham House Asset Management Limited (GHAM) is wholly owned by
Gresham House plc (GH), an AIM-quoted specialist alternative asset
manager with a market capitalisation of GBP267m as at 24 August
2020. GH provides funds, direct investments and tailored investment
solutions, including co-investment across a range of highly
differentiated alternative strategies. GHAM's expertise includes
strategic public equity, private equity, forestry, housing, new
energy & infrastructure.
Investment Portfolio
Existing Location Capacity Battery Battery Site type* Acquisition
assets (MW) size duration date
(MWh) (c.hours)
--------------
Battery and generators 14 November
Staunch Staffordshire 20 4.0 0.25 0.5MW import 2018
----------------- --------- -------- ----------- ------------------------ --------------
Battery and generators, 14 November
Rufford Nottinghamshire 7 9.5 1.40 symmetrical 2018
----------------- --------- -------- ----------- ------------------------ --------------
Battery 14 November
Lockleaze Bristol 15 22.1 1.50 symmetrical 2018
----------------- --------- -------- ----------- ------------------------ --------------
Battery 14 November
Littlebrook Kent 8 7.5 0.90 symmetrical 2018
----------------- --------- -------- ----------- ------------------------ --------------
Battery and generators 14 November
Roundponds Wiltshire 20 27.8 1.30 10MW import 2018
----------------- --------- -------- ----------- ------------------------ --------------
Battery
Wolverhampton West Midlands 5 7.7 1.55 symmetrical 1 August 2019
----------------- --------- -------- ----------- ------------------------ --------------
Battery 13 December
Glassenbury Kent 40 22.1 0.55 symmetrical 2019
----------------- --------- -------- ----------- ------------------------ --------------
Battery 13 December
Cleator Cumbria 10 5.9 0.60 symmetrical 2019
----------------- --------- -------- ----------- ------------------------ --------------
Battery 31 December
Red Scar Lancashire 49 73.0 1.50 symmetrical 2019
----------------- --------- -------- ----------- ------------------------ --------------
Total 174 179.6
================================== ========= ======== =========== ======================== ==============
*Note: a symmetrical battery system has equal import and expect
capability to the grid; this allows quicker discharge and recharge
cycles and increases the level of services the site is able to
operate.
Following the acquisition of 99MW across three projects in
December 2019, there were no new additions to the operational
portfolio in H1 2020. However, the Company completed the
acquisition of the 41MW Bloxwich project, just after the period
end, on 3 July 2020 from Arenko Group.
The Company is expecting to complete the acquisitions of
Thurcroft (50MW) and Wickham Market (50MW) by the end of September
2020/early Q4 2020 respectively as these projects are very close to
commissioning. The transactions complete upon issuance of a
Provisional Acceptance Certificate (PAC) to the EPC contractor.
A further project of 25MW, codenamed Project River, and not
previously contemplated, is in advanced stages of due diligence and
is expected to complete in September 2020. Altogether, combined
with the extension of Glassenbury, these projects add 176MW to the
portfolio, almost doubling operational capacity to 350MW. We
estimate that this gives the Company a c.25% market share in the
UK.
The pipeline as at 30 June 2020 is set out below. This reflects
the projects discussed above which had not yet been acquired by 30
June 2020.
In addition to the projects mentioned above, there are two new
50MW pipeline projects (Monet's Garden and Lister Drive) acquired
for construction and commissioning in the second half of 2021.
These will be the Company's first transmission-connected
projects.
Also, in this table, is a project based in the Republic of
Ireland, codenamed Project Emerald. This is the Company's first
Irish project since it received Shareholder approval to invest in
Ireland at the AGM in June 2020. The details of the project are
currently confidential, and the project's capacity is shown rounded
to the nearest 10MW.
Pipeline Summary (as at 30 June 2020)
Pipeline projects Location Capacity Battery Site type Commissioning
(MW) size (MWh) timeframe (1.)
----------------------
Battery
Bloxwich West Midlands 41 41 Symmetrical July 2020 (completed)
------------------ --------- ------------ ------------- ----------------------
Project River North c.25 c.20 Battery Q3 2020
Symmetrical
------------------ --------- ------------ ------------- ----------------------
Battery
Wickham Market Suffolk 50 75 40MW import Early Q4 2020
------------------ --------- ------------ ------------- ----------------------
Battery
Thurcroft South Yorkshire 50 75 Symmetrical Q3 2020
------------------ --------- ------------ ------------- ----------------------
Glassenbury Extension Battery
(2.) Kent 10 15 Symmetrical Q3 2020
------------------ --------- ------------ ------------- ----------------------
Battery
Byers Brae (3.) Scotland 30 45 Symmetrical Q1 2021
------------------ --------- ------------ ------------- ----------------------
Battery
Monet's Garden North Yorkshire. 50 50 Symmetrical Q4 2021
------------------ --------- ------------ ------------- ----------------------
Battery
Lister Drive Merseyside 50 50 Symmetrical Q4 2021
------------------ --------- ------------ ------------- ----------------------
Project Emerald Republic of c.40 c.25 Battery Q4 2021
Ireland Symmetrical
------------------ --------- ------------ ------------- ----------------------
Other project North of England c.190 c.190 Battery 2021
in due diligence Symmetrical
with GHAM for
addition to exclusivity
pipeline
------------------ --------- ------------ ------------- ----------------------
Total c.536 c.579
--------- ------------ ------------- ----------------------
In addition to the above the Manager has identified over 300MW
of additional pipeline
==============================================================================================================
(1.) Expected commissioning dates are indicative and based on
most recent conversations with relevant Distribution Network
Operators (DNOs)
(2.) Remains subject to planning consent
(3.) Formerly known as Exclusivity Pipeline Project 2
The Company's Investment Policy states that it cannot take
construction or development risks and so is only able, at this
time, to acquire operational projects. As this is an emerging
sector there are few operational projects available to acquire
outside the Exclusivity Projects communicated in the IPO
Prospectus. However, the Company is pleased to have identified and
completed the acquisition of Bloxwich, Glassenbury and Cleator and
it expects to be able to acquire other such projects over time.
Including Bloxwich, which completed on 3 July 2020, the Company
has 215MW of operational projects. Following the integration of
Wickham and Thurcroft and the other near-term transactions the
Company will have 350MW in operational projects by the end of Q3
2020. The Company does not anticipate completing any other
transactions in 2020 but it will be working on the pipeline for
2021, including having Byers Brae under construction. This project,
which had been in the pipeline for Q4 2020 is now expected in Q1
2021.
While some existing storage facilities use gas engines or other
generation technologies, all current pipeline projects are
intentionally designed as large-scale symmetrical, battery-only
projects which do not use generation technologies. This approach is
designed to maximise efficiency and minimise the impact on carbon
emissions and the environment.
We expect to take advantage of new planning legislation which
allows projects larger than 50MW to have planning permissions
granted and determined by local planning authorities. Before this
change, which was announced by BEIS in July 2020, projects larger
than 50MW had to be approved by the Planning Inspectorate, the
agency responsible for approving Nationally Significant
Infrastructure Projects (NSIPs). This may reduce the barriers to
development of larger storage facilities (>50MW) which would
enhance our ability to maximise operational efficiencies.
The Investment Manager is confident of its ability to grow its
pipeline and to maintain the growth of the Company as the
requirement for batteries burgeons.
PROJECT DESCRIPTIONS
Staunch
Staunch, which is situated in Newcastle-Under-Lyme,
Staffordshire, was commissioned in March 2017 and has an asymmetric
grid connection capacity of 20MW export, 0.5MW import.
This project is located within a secure compound on the Holditch
House Industrial Estate, a brownfield site previously used for
waste collection and sorting. The industrial activity in the
surrounding area is of a significant size; the neighbouring foundry
has 24-hour operation. The site itself is approximately 200 metres
from the nearest residential area which is well screened by
industrial buildings and the acoustic fence surrounding the
compound.
Staunch following its upgrade in Q4 2019 consists of
utility-scale batteries plus generators with a capacity currently
split as follows: 16MW gas reciprocating generators and 4MW of
diesel engine capacity and a battery system which comprises 4MW
(3MWh) of lithium-ion batteries and 16MW (3MWh) of VRLA (lead acid)
batteries. The diesel engines are typically not used but remain
installed to meet the requirements of the CM contract belonging to
this site.
Littlebrook
The Littlebrook project is an 8MW import and export battery-only
project. This project is located near the site of the old
Littlebrook power station near the Dartford river crossing on the
south side of the Thames on less than 0.5 acres of land. It is
located within the existing Littlebrook Industrial Estate. The site
was formerly an isolated patch of scrub vegetation.
This project was commissioned in December 2017.
Lockleaze
The Lockleaze project is a 15MW import and export battery-only
project located in the Lockleaze area of Bristol beside a railway
line and a substantial Western Power Distribution (WPD) substation,
on approximately 0.5 acres of land leased from WPD. The site
battery capacity was increased from 11.4MWh to 22.1MWh in 2019
The Lockleaze project was commissioned in July 2017.
Rufford
The Rufford project is a 7MW import and export battery (and
reciprocating generator) project located on land previously used
for coal stocking within the former Rufford Colliery in
Nottinghamshire.
The former colliery site is currently undergoing remediation.
The project sits adjacent to an existing electrical substation and
is positioned within its own secure compound built on approximately
0.5 acres of land. The nearest residential premises are
approximately 1.3 kilometres south of the site.
The Rufford project was commissioned in July 2017.
The battery capacity was increased significantly during upgrade
work in Q4 2019 taking battery size from 3.25MWh to 9.5MWh better
equipping the site for adoption of the Asset Optimisation business
model described in the IPO Prospectus. As a result of this, the
generators are no longer expected to be used for the vast majority
of the time but are necessary to meet the requirements of the
site's CM contract and will therefore remain installed.
Roundponds
The Roundponds Project, which is situated in Melksham,
Wiltshire, has an asymmetric grid-connection capacity of 20MW
export, 16MW import. The import grid connection was increased in Q1
2020 from 10MW to 16MW making the site more symmetrical and
increasing revenue opportunities. The site is made up of batteries
and generators although commercially only the batteries are used
today.
The project is on approximately 0.5 acres of land located by
farm buildings at Roundponds Farm, which is off the Bath Road, 1.3
kilometres north west of Melksham. The site borders open
countryside on its far side and is approximately 150 metres from
the nearest residential building.
The project was commissioned and started commercial operations
in April 2018. During the upgrade work in 2019 the battery size was
increased from 12.7MWh to 27.8MWh. The 10MW of generators remain in
place to meet the requirements of one of the two 10MW CM contracts
belonging to this project.
Wolverhampton
Wolverhampton was the first project acquired following the
Fund's IPO. The project has a symmetrical 5MW grid connection and
7.7MWh of battery capacity. It was acquired by the Fund in August
2019. The site is situated in an urban environment c.1 kilometre
from the centre of Wolverhampton. The site is surrounded by a mix
of major roads, commercial, industrial activity, and, several
residential dwellings to the north west.
The Wolverhampton project was commissioned in April 2019.
Glassenbury
Glassenbury is a symmetrical 40MW battery-only project (with a
50MW grid connection, i.e. 10MW is currently unutilised) and was
acquired by the Fund along with Cleator in December 2019.The
Glassenbury site is in a greenfield location near Cranbrook in
Kent. This project benefits from a long term EFR (Enhanced
Frequency Response) contract running until January 2022 at an
enhanced rate compared to standard month ahead frequency response
contracts. EFR is a service under which storage assets are able to
provide frequency response within one second. Glassenbury and
Cleator combined represent a quarter of the National Grid's EFR
capacity. EFR and FFR, which is more common, are similar services
provided to the National Grid.
This project was constructed by NEC Energy Solutions and
commissioned in September 2017.
This project is to undergo an initial upgrade to take advantage
of an excess of 10MW of grid connection capacity using battery
capacity initially designated for the Littlebrook project.
In 2022, the project may be further upgraded for the adoption of
the Asset Optimisation business model, which includes the trading
of electricity.
Cleator
Cleator is a symmetrical 10MW battery-only project acquired by
the Fund in December 2019. The site is situated in a greenfield
location along the river Ehen near to Cleator Moor in Cumbria. This
project also benefits from a long term EFR contract running until
January 2022.
This project was constructed by NEC Energy Solutions and
commissioned in October 2017.
This project is also expected to undergo a battery capacity
increase prior to the EFR contract terminating in readiness for
Asset Optimisation.
Red Scar
Red Scar is a symmetric 49MW project with a 73MWh battery and is
the largest capacity project in the portfolio to date.
The project is located near Preston on an area of waste land
located to the south of the Red Scar Industrial Estate which
accommodates a variety of industrial and commercial enterprises.
The wider site was formerly a large manufacturing facility and
included an on-site own power station (now demolished).
The Red Scar project was constructed by Metka-EGN Limited and
was commissioned in December 2019.
Bloxwich
Bloxwich is a 41MW/41MWh battery project constructed indoors.
The project also has a 52MW
(summer) and 60MW (winter) symmetrical, accepted connection
offer which may be used to augment the project's frequency response
capability, in due course.
The project is near Walsall in the West Midlands in one of a row
of large warehouses.
The Bloxwich project was constructed by GE and was commissioned
in February 2019. It was acquired by the Company in July 2020.
This project is operated by Arenko Group (Arenko). Arenko has
been leading the initiative with National Grid to trial BM reserve
services.
2. Fund and Portfolio Performance
The Fund has performed well in the first half of 2020 and
remains on track to distribute 7.0p per Ordinary Share in 2020 and
anticipates that this dividend level is fully covered in 2021. As
stated in the 2019 Annual Report, there was a substantial amount of
cash left to deploy at the start of 2020 and this will be deployed
in the coming weeks.
The Company is pleased to announce a dividend of 1.75p for the
period from 1 April 2020 to 30 June 2020 to be paid on 25 September
2020. Combined with the 1.75p dividend paid on 12 June 2020, the
Fund will pay dividends of 3.5p in relation to H1 2020 in line with
the 2020 dividend target stated above.
The Ongoing Charges Figure (OCF) for the Fund for the period to
31 December 2019 was 1.43%. For the six month period ended 30 June
2020 the Ongoing Charges Figure reduced to an annualised rate of
around 1.3% representing economies of scale as the fund has
expanded.
Upgraded sites returned to full operations in H1 2020 with some
sites taking longer than others but all are operational now and
with under 4% of the 215MW in operation today (measured in MW)
having a degree of technical downtime issues at the time of
writing. This compares with 22% at the time that the Annual Report
was published, and the Manager expects to further reduce technical
unavailability by the year end.
Operational capability broadened to full asset optimisation from
the end of 2019. This allowed projects to trade in the wholesale
market as well as offering frequency response services, following
the upgrades to both battery capacity and grid connections.
Application Programming Interface (API) software upgrades now allow
the sites to be remotely controlled by the asset optimisers
(traders) appointed to trade the sites.
Trading was anticipated to be the main activity from the start
of 2020, but, due to favourable pricing available in ancillary
services, the sites have benefited from winning contracts in the
monthly and weekly Firm Frequency Response (FFR) auctions.
The trading capability continues to expand among our traders.
Most traded in either the wholesale market or in the Balancing
Mechanism until recently. However, via one of a couple of
mechanisms offered by National Grid, projects are now able to trade
in the Balancing Mechanism as well as trade in the wholesale market
in a complementary fashion. We expect this to have a positive
impact on trading performance going forward.
We were encouraged by the evidence to date in the portfolio's
ability to capture value during system pricing events. On 4 March
2020 the system price spiked to GBP2,242/MWh, the highest price in
19 years, catalysed by a wind forecasting error. Each of our
available sites was able to export into and capture significant
value with this event representing our best single day of trading
performance to date.
The Manager believes such pricing events will become more
frequent with the increase in renewables generation. Over the short
term, peak prices have also fallen, offsetting the benefitting of
lower intraday lows. The Manager views these lower peaks as a
function of overcapacity in generating capacity, particularly in
the form of gas-fired power stations (CCGTs) which, due to low
demand, have tended to be the marginal supplier of power and have
found themselves setting the price at a time when gas prices were
also significantly down.
This backdrop is not sustainable, and it is likely that very low
load factors in the gas-fired power plant fleet will lead to
capacity dropping off the system. We have, in June, seen the
insolvency of Calon Energy which owns a portfolio of CCGTs
totalling 2.3GW (out of a fleet of c.30GW in the UK). The Manager
expects to see many further examples of this, with the end result
being that the market will experience lower lows and higher highs
as more renewable capacity is added to the system. Such an outlook
on volatility would reaffirm the Fund's investment thesis and its
plans to focus future efforts towards trading, over time.
Elsewhere, the 2019/20 TRIADs have been confirmed during this
financial period with all three occurring in 2019. The portfolio
achieved its targets of hitting at least two of the three
TRIADs.
In May, the planned import increase at Roundponds to 16MW was
completed ahead of schedule. This increased import allows the site
to compete for larger capacity Frequency Response contracts as well
as improving cycling opportunity when trading.
Finally, the Manager has experienced delays to construction as a
result of COVID-19 with Thurcroft and Wickham commissioning being
delayed to the end of Q3 2020/early Q4 2020 respectively.
Fortunately, the delays are coming to an end with both projects due
to be energised shortly. The Sale and Purchase Agreements signed
for the projects protect the Fund from being adversely impacted as
a result of the delays in commissioning, thereby protecting the
forecasted portfolio earnings and resulting dividend cover.
3. Market Update
2020 so far has been an extraordinary period for electricity
markets, and as discussed further in the Outlook section below, is
likely to be a catalyst for major changes which we expect to favour
energy storage going forward.
The market has been impacted by several factors as detailed
below.
i) Lower electricity demand and lower levels of peak demand.
The year started with a continuation of the trend which started
during the 2008 recession of gradually falling demand and of lower
absolute annual peak levels of demand.
The latter, combined with mild weather translated, this year, in
the unusual result of there being no TRIADs crystallising during
January or February which are the last two months of the TRIAD
season (November to February).
After a brief uptick in demand at the start of March as cold
weather created stronger demand, at the start of lockdown, the
decline accelerated into a collapse of up to 20% year on year. This
equates to a multi-decade low in electricity demand.
In August, so far, demand has recovered to being down c.3% year
on year.
ii) Large increase in instances of negative pricing and huge
Balancing Services Use of System (BSUoS) costs.
The exceptionally low demand levels seen since March have
resulted in regular negative pricing as National Grid paid
renewable generation to curtail output. This was only exacerbated
by the extraordinarily sunny weather we have seen since April,
injecting even more renewable power into the system.
The chart above shows the total half-hourly negative price
events by quarter over the last 3 years.
Low electricity demand and strong renewable energy generation
created a headache for National Grid as it reduced, sharply, the
amount of generation from large rotating turbines (such as
gas-fired turbines) which inherently provide stability to the
system as a result of their "spinning inertia". Thus, during this
extraordinary period, National Grid needed to curtail more
renewable generation than just the amount over-provided by this
technology, purely to increase the inertia on the system, to keep
the lights on.
The need to balance a more unstable system is expected to lead
to a national bill for balancing the system during the lockdown of
GBP1 billion. This is far in excess of what we have seen in the
past and will show up in electricity bills.
iii) Weak Gas prices, Combined Cycle Gas Turbine (CCGT)
overcapacity and the impact on Spreads.
Gas prices have fallen sharply in 2020. Combined with lower
demand during the lockdown and the fact there is too much CCGT
capacity on the system (which operated at load factors of under 20%
at one stage), this has resulted in peak daily power prices not
reaching the levels we have become accustomed to. Therefore,
despite the lower lows driven by increased curtailment, the net
effect was lower intraday volatility in power prices and reduced
revenues in trading in the short term. This is a temporary effect
and we are already seeing both higher demand and higher gas prices
and thus higher returns from trading compared with the lows.
Gas prices are famously volatile and having fallen over 75% have
now doubled from their lows but are still at less than half their
5-year average price level, and so are likely to bounce further; as
gas producers are not making money at these levels they are
therefore holding back production.
COVID-19
The Manager responded quickly to the lockdown restrictions
enforced in the UK since March 2020 as a result of the COVID-19
pandemic and all employees were able to continue to work remotely
from their homes in a largely uninterrupted manner. The Manager
continues to support staff working remotely and recognises the
efforts of all staff during the pandemic.
The Manager has experienced very few operational disruptions
since restrictions were put in place and is pleased with the
professional response shown by both O&M contractors on the
ground and by optimisation partners. As mentioned earlier in this
Interim Report, there have been some commissioning delays to
certain projects; these projects are due to be commissioned in Q3
2020.
4. Outlook
Reinforcing our optimism on prospects for the sector, there are
three promising initiatives at National Grid to attempt to increase
the use, and therefore profitability, of batteries in the Balancing
Mechanism. At the core of these efforts is the recognition that
batteries are fundamentally more environmentally friendly and more
cost-effective than any other alternative.
First, there is a trial to use batteries in 'Reserve' services
in the same way that CCGTs are used to run for hours to be able to
be up or down 'regulated' (i.e. their outputs varied) to balance
the market, for which they receive payments to warm up, to be
available and for their utilisation. Naturally batteries do not
need 'warming up' and they do not need to be exporting power to be
available, which therefore reduces curtailment of renewables, they
can just be utilised when required. This trial is proving promising
as it is both technically and operationally feasible, without new
systems at National Grid, financially attractive to National Grid
and environmentally positive as it reduces carbon based emissions.
For batteries, if it turns into a permanent service, it is likely
to lead to significantly higher revenues for the fleet.
The second, more established, but evolving, initiative is to
drive the use of batteries alongside, or instead of, more
established alternatives like pumped storage, peaking plants and
interconnectors which are simply instructed when needed. One
challenge has been too few batteries in the BM to date, even adding
all batteries together, to provide the required power most of the
time, leading to larger alternatives being favoured and batteries
being under used. Recognising this issue, National Grid have taken
the decision to operate batteries even if they lead to over
procurement in the BM, taking the long term view that doing this
will lead to a lower cost system over time, as batteries are
fundamentally more competitive.
The third initiative is Dynamic Containment, a new frequency
response service which will add significantly to procurement of
such services from battery projects. The service is being launched
on 1 October 2020 to include 500MW of demand. This approximately
doubles the total demand for Frequency Response services.
These initiatives are not factored into the forecast or NPVs as
at 30 June 2020 but fundamentally the batteries owned by the
Company are able to target the revenue streams which offer the best
returns for the Fund, including the above schemes.
Taking the comments above together with those in the Market
Update Section, we note that, there is a very positive message
which can be taken from the unprecedented recent events during
lockdown; in particular the fact that National Grid has had to use
gas much more extensively and over curtail renewables to achieve
this (as the gas plant needs to run to be available and provide
system inertia). This confirms the need for batteries which can
better balance the intermittent supply from renewables, given that
they can do so without any curtailment of renewables due to their
ability to meet demand immediately.
Crucially, batteries can offer their services at a dramatically
lower cost than gas-fired generation and are therefore much cheaper
for National Grid to utilise for system balancing. Additionally,
they emit no CO2 at the point of use; as the recharging of
batteries will be from a grid dominated by renewable generation,
the CO2 impact will be substantially less than burning gas. The one
issue, at the current time, is that there are not enough
operational batteries yet for National Grid to use the technology
effectively in a scalable manner. This will change as more
batteries are commissioned and become the overwhelmingly compelling
option for system balancing.
5. Valuation
NAV per share has fallen from 100.79p per Ordinary Share at 31
December 2019 to 98.16p per Ordinary Share at 30 June 2020. This
equates to a NAV Total Return of (0.02%) in the six month
period.
Most of the reduction in NAV per share has come from a fall in
the NPV of future project cash flows due to more conservative
revenue forecasts from our third-party providers in the wake of the
reduced volatility curves during the COVID-19 pandemic. This can be
seen in the valuations bridge below for H1 2020.
The revenue forecasts used for valuations reflect the pricing
and volatility observed during the low demand and low volatility
environment during the pandemic lockdown in the UK. The Manager
recommends valuing the portfolio conservatively at this time but,
as noted, in the market update, there have been positive signs of
recovery since the easing of lockdown. This suggests improvements
are achievable versus the forecasts.
The current forecasts used do not include any upside from the
introduction of Dynamic Containment or from the potential success
of the ongoing BM trial with National Grid. The Manager is
therefore confident that the current conservative valuations
reflect a prudent view of the value of the portfolio in the light
of COVID-19.
4. PRINCIPAL AND EMERGING RISKS
Principal and Emerging Risks
The Board operates a regular risk review process to identify
both current and emerging risks and operates a Risk Register as a
"live document" to ensure Board discussions are focused on key
areas of risk and appropriate mitigations. The Investment Manager
reports progress on mitigations and new risks regularly at Board
meetings. In addition, the Board have undertaken a workshop to
highlight key risks and undertake "deep dives" into areas of
concern.
The key risks to the Company are both the ability of the assets
within the underlying investments to provide cash flow to the
Company in order for the Company to pay a dividend to Shareholders
and the valuation of these investments. In consequence, the main
risks to the Company flow from the underlying investments held
within SPVs.
The key risks in these SPVs can be summarised in several main
areas; emerging business model, regulation, technical performance,
environmental social governance (ESG), corporate governance and
related parties (including performance of the Investment
Manager).
The following emerging risks, principal risks and uncertainties
to the Company have been identified.
A. Emerging business model
The Company's investment model is reliant on the underlying
performance of the SPVs within which the Company invests. If the
performance of these SPVs does not meet expectations, then the
investment income from the SPVs will be insufficient for the
Company to meet its dividend targets and adversely affect the
valuation of the Company's investments.
These SPVs, in turn, have developed business models which rely
on several sources of income; National Grid based Firm Frequency
Response, CM payments, TRIAD income and merchant trading income or
"Asset Optimisation" outside of the relationship with National
Grid.
National Grid income streams have been important to sponsor
initial investments in energy storage and enable short term cash
flow and these income streams have contributed a large portion of
the income to the underlying operating assets invested in by the
Company in the period from IPO to date. However, the future
business model for the Company's investments will seek less
reliance on these income streams in future as Firm Frequency
Response contracts expire and are replaced with other income
streams. The Company's investments will therefore become more
reliant on Asset Optimisation over time and the Investment Manager
will ensure the underlying asset portfolio is fully enabled to
ensure remote access and import and export of electricity to
support trading activity within the SPVs.
As this Interim Report illustrates, the trading activity within
the SPVs is not based on the absolute level of power prices but is
primarily based on volatility within the power market. This creates
arbitrage opportunity within which trading opportunities emerge and
can be rapidly exploited. However, the level of power prices can
have an indirect impact as behaviour of other market participants
alters which may reduce arbitrage opportunities as noted in the
Investment Manager's report.
As the business models within the SPVs evolve, it is important
that the asset portfolio is configured to enable successful
trading/Asset Optimisation which would mean the targeted level of
trading profits are captured and cash flows are available to the
Company to cover the level of dividends targeted to Shareholders.
This risk is in relation to configuration of the asset portfolio
(i.e. it is set up correctly) and not whether or not the asset
portfolio performs to expected technical standards, this technical
performance risk is dealt with later.
The Investment Manager has undertaken and will undertake many
activities to mitigate the asset configuration risk both over the
period and in the future. These include:
-- Further investment has been undertaken in the Seed Assets to
ensure grid connection capacity and battery capacity have been
expanded in both absolute levels and export/import symmetry created
where possible to maximise opportunities. This has included
replacement of diesel generation sets with further expansion of
battery capacity and gas turbines;
-- Improvement of control systems and dispatch technologies to
"iron-out" and test before full scale Asset Optimisation is
launched;
-- Testing of relationships with Asset Optimisation partners and
models to ensure Asset Optimisation is successful, The Company has
begun Asset Optimisation and expects 2020 to be a year when this
model is fully proven;
-- Therefore, it is important that the Company and the
Investment Manager look through the investment company structure to
ensure the underlying operating assets are able to generate income
to meet the Investment Objectives of the Company; and
-- The aim of the Company is to be the leader in this field. As
the business continues to develop other entrants will seek to
participate and the Company will continually seek to optimise the
business model of its investments to gain competitive
advantage.
B. Risk relating to regulation
As in any emerging market, regulation can often take time to
catch up. However, there are already extensive rules and
regulations in the energy storage market.
These mostly include existing regulations in the electricity,
planning and construction sectors including rules and/or laws
relating to the Health & Safety Executive, the Environmental
Agency laws, Construction, Design and Management Regulations (CDM),
the National Planning Framework, the National Grid Market
Framework, and Ofgem's areas of oversight (including the conduct of
market operators and government subsidy & incentive mechanisms
such as the ROO-FIT and CfD regimes). Whilst not a risk to the
Company as it lies within the operational SPVs, the Company works
to ensure its investments comply with these.
C. Risks relating to technical performance
The Company's assets are treated as investments. The valuation
of these are established using assumptions which rely on the assets
performing technically to the standards expected of the Asset
Optimisation business model into which these assets are
deployed.
Whilst this business is developing and evolving over time, from
a largely National Grid contractual revenue base, to an Asset
Optimisation revenue model what is required of the underlying
assets is the same, availability and reliability of import and
export of electricity, in conjunction with reliable control
systems, are a crucial underlying requirement of these assets. The
Company ensures the technical performance risks of the SPV within
which it invests are constantly under scrutiny:
-- The provision of batteries and other critical assets are
sourced from "top tier" suppliers with accompanying warranty and
performance guarantees;
-- Robust commissioning and acceptance testing are undertaken to
ensure assets perform to these standards;
-- Regular monitoring of performance indicators (i.e. battery
health, cycle reporting and degradation) is undertaken to ensure
the assets are available to operate when required;
-- By the use of skilled and trusted partners to both operate
and construct the assets.
The Investment Manager and the Company also assess the level of
asset utilisation within the SPVs and the impact of this on
manufacturer warranties to ensure a balance of income from
"sweating" the assets on the one hand, and on the other, the cost
of associated asset depletion from high levels of activity is
considered in short and long term plans.
D. Risks relating to environmental social governance
The Company seeks to ensure that the activities of the SPVs
asset portfolio into which it invests are beneficial to society as
a whole.
Whilst not an immediate risk for the Company itself as these
matters are mainly evolving, the Company will continue to review
the issues of supply chain governance and recycling of battery
materials and other components are considered and built into the
risk management programme of the Company as a whole.
E. Risks relating to corporate governance and related parties
As the asset portfolio and associated trading model develops,
the Company is reliant on certain key partners to deliver progress
in relation to both investment in new SPVs and assets and the
successful operation of existing SPV owned assets. These key
partners include key individuals within Gresham House and outside
partners including Noriker Power Limited. The Company has ensured
alignment of goals between the Company and these partners. These
alignment measures include:
-- Certain individuals in Gresham House are large shareholders
in the Company and thus have a direct stake in ensuring successful
rollout of the business plan;
-- Noriker Power Limited is a large shareholder in the Company
and therefore has a direct incentive in the same manner;
-- Gresham House plc owns 30% of Noriker Power Limited and has a
Director on the Board of Noriker Power Limited; and
-- The Company will be taking a stake in Noriker Power Limited
to further align incentives and strengthen long term relationships;
this is expected to complete imminently.
In relation to Corporate Governance, the Directors consider the
performance of the Investment Manager and the Administrator at
regular intervals.
This includes overall performance and continual improvement of
internal controls and processes as the Company grows. The
Investment Manager has implemented both the ISO 9001 standard in
the period and implemented new workflow management tools to
continually improve performance.
F. Other risks
In addition to the above themes, there are a number of other
risks which are important for the Company to manage at an
acceptable level within its SPV investments. These include:
-- Counterparty risk: as the SPV income streams move away from
the National Grid to trading platforms it is important that strong
creditworthy partners, including trading counterparties, are in
place to ensure any credit risk is managed and financial loss is
not incurred by the Company;
-- Technology risk: the asset portfolio within the SPVs is based
on the latest technology available. There is a risk that new
technologies develop which are either cheaper than the SPV asset
portfolio or have another technological advantage. These newer
technologies may impact on the income opportunities available to
the SPVs. The Company and the Investment Manager continue to
monitor technologies to ensure latest developments are built into
the strategy of the Company and its investments;
-- Neither the Company nor the underlying assets within SPVs are
currently exposed to the risk of borrowing or leverage although
this will alter when the GRID Power Bonds are issued and there are
some financial covenants which apply to these GRID Power Bonds;
and
-- The Company has advanced interest-bearing loans to
non-subsidiaries. These are secured against the assets purchased
with these loans. The Company continues to monitor these
investments. The intention remains that these subsidiaries are
acquired by the Company. The current balance on these loans is
GBP27.1 million of which GBP25.2 million relates to Wickham and
Thurcroft and will be repaid on acquisition.
A fuller list of risks was included in the IPO Prospectus and
this is not intended to be repeated here.
The Coronavirus Pandemic (COVID-19)
Finally, as mentioned in the Chair's Report, the Company
continues to monitor closely the COVID-19 pandemic. The main risks
the Company relate to operations within the investment SPVs but
could affect the ability of the Company to deliver income and
capital returns to Shareholders. These risks include:
-- Inability to operate existing assets; The SPVs operate with
supply chain partners with strong business continuity arrangements
and the assets are operated by remote monitoring and dispatching.
There is a residual risk that suitable specialist personnel are
unable to attend site when required to ensure these assets are
operating to their full potential. This has not been experienced to
date and the Company is confident appropriate arrangements are in
place;
-- Inability to construct or commission pipeline assets within
SPVs; 100MW of pipeline assets are in the advanced stages of
construction and commissioning. Whilst the key equipment to deliver
these projects are secure there has been a commissioning delay due
to travel restrictions impacting on the availability of certain
personnel and associated impact on project delivery; and
-- Dysfunctional markets affecting trading operations within
SPVs. The Investment Manager notes that the energy markets into
which the assets operate are operating as expected although the
behaviour of "gas peakers" has negatively impacted on volatility
and reduced revenue. However, the Investment Manager and the
trading partners will continually monitor these markets to ensure
the assets are trading as expected.
In addition, the Company manages risk exposure via the review of
a comprehensive risk register. This is an iterative process and
drives the focus of discussions with the Investment Manager.
Environmental, Social and Governance
Gresham House Energy Storage Fund's projects fundamentally
enable a cost-effective energy transition which, we believe, is
both a social and environmental good as well as being
cost-effective for the UK power grid.
To date, the UK electricity system has been world-leading in
terms of the reduction of CO2 emissions it has achieved. However,
intermittent generation cannot continue to grow without a counter
balancing stabilising influence, or the transition will become
increasingly challenging and costly; the risk of costly curtailment
or outages when renewables cannot provide will be significant.
Already an estimated 6% of all wind generation is curtailed.
This is due to generation being in excess of demand. Energy storage
can make a material impact to reducing this curtailment if present
at the right scale. At the present time there is insufficient
energy storage capacity to deal with this. Therefore, there is
growth in demand for grid level battery storage. This removes a
loss of available renewable power, removes a cost of both
curtailment (generators have to be paid to get off the system and
thus for not generating) and the dialling up of alternative
generation. Today, Combined Cycle Gas Turbines (CCGTs) need to be
used as the balancing force most of the time. A greater share of
this balancing undertaken by battery storage is more cost effective
and boasts a lower level of emissions if the stored power is
generated from renewable sources.
It is also worth noting the positive influence of the energy
transition in terms of energy security.
By decarbonising electricity and electrifying "everything", the
UK also reduces its dependence on imported fuel supplies.
This means that from both an environmental and people
perspective our, ESS projects have a positive impact for the
following reasons:
-- Supporting infrastructure that enables further investment
into renewable
-- Transition in power generation which took carbon emissions
from 242.2MtCO2e in 1990 to 106.0MtCO2e in 2017 and 98.3MtCO2e in
2018 (source BEIS)
-- However, there is still a significant challenge reducing
emissions by over 90% to meet the goal of 10g CO2/KWhr by 2050 set
by the Committee on Climate Change(5)
-- Increasing the security of energy supply where currently 36%
of the UK's energy needs are imported in the form of oil and
natural gas for the most part
-- We estimate significant numbers of jobs will be created as
c.30GW of ESS capacity will be required, equivalent to c.1,000
projects in the next decade(7)
Supply chain
Our project components are sourced from top tier suppliers, such
as LG Chem and Samsung SDI, both global leaders in lithium-ion
battery manufacturing. These are highly reputable businesses each
of which has their own publicly available ESG reports which the
Investment Manager has reviewed.
We are conscious of the fact that lithium, nickel and cobalt are
all mined and have varying reputations in terms of the labour
sourced and other issues. We intend to increasingly scrutinise our
manufacturers so that they provide increasing transparency,
particularly as the use of these mined materials is likely to grow
significantly due to continuing demand for batteries over the
coming years.
Disposal of batteries
It cannot be avoided that ESS projects still require substantial
materials used in their manufacture.
To share the benefits first, a battery project can import and
export power many thousands of times over many years before seeing
a meaningful reduction in performance. If this is renewable power,
then there is no meaningful incremental mineral extraction every
time this charging and discharging occurs.
By comparison, fossil-fuel powered generation plants only gets
to use the fuel that has been extracted, processed and transported
once.
At their end of life, battery disposal is an obligation of the
EPC contractor who imports a battery or the original manufacturer.
Over time, it is expected that recycling technologies will be
developed to ensure environmentally sustainable disposal and reuse
of these raw materials.
Environmental standards at sites
All projects are developed with demanding environmental
standards in mind. Historically some projects have included
elements of diesel and natural gas generation capacity but with an
expectation that they would be used very rarely. This remains the
case. Many of the legacy diesel installations have now been
decommissioned - and are now planned to be used in "force majeure"
situations only. Gas generation may be used more frequently.
All new projects are being built with only battery capacity.
This is now possible as the cost of batteries has fallen.
All our sites comply with all standards set either by the local
councils or by DEFRA.
Gresham House supports the UN's Sustainable Development Goals
and we believe our New Energy strategy contributes to the following
four goals:
5. BOARD OF DIRECTORS
Board and Investment Team
The Company has a Board of four Independent Non-Executive
Directors. The Company has no Chief Executive.
The Board has 25% female representation. The Board has also
adopted a formal diversity policy and considers diversity on the
Company's Board as an important supplement to the Boards existing
skills, experience and knowledge.
All appointments to the Board are, and will continue to be,
subject to a formal, rigorous and transparent procedure as required
by the AIC Code.
The Board's requirements for vacancies on the Board are set with
reference to objective criteria and promote diversity of gender,
social and ethnic backgrounds, cognitive and personal
strengths.
Further, the Board reviews, at least annually, its effectiveness
and its combination of skills, experience and knowledge.
The Board has been in situ for approximately 16 months and
considers succession planning for existing Directors to be
premature at this stage.
However, the Board is aware of the tenure limits prescribed by
the AIC Code and, supported by its Remuneration and Nomination
Committee, the Board annually assesses the need for long term
succession planning to support the Company's growth.
Board
John Leggate, CBE FREng (Chair and Independent Non-Executive
Director)
John is highly experienced as an energy sector executive and is
a venture investor in the "clean tech" and digital
technologies.
John has significant board experience and is currently on the
Board of cyber security firm Global Integrity in Washington DC and
is a senior advisor to an international strategic advisory
consultancy specialising in the energy sector.
John was appointed to the Board on 24 August 2018.
Significant interests: John is a Director of Flamant
Technologies and Global Integrity Inc.
Catherine Pitt (Independent Non-Executive Director)
Cathy is a legal adviser who has specialised in the investment
company sector for over 20 years. Cathy is currently a partner at
CMS, a top ten global law firm. Prior to joining CMS, Cathy worked
in the Asset Management Practice of another top ten global law firm
for almost 20 years, for eight of which she was a partner. Cathy's
work has encompassed investment fund structuring and fund raisings
for domestic and international investment funds. Since September
2018, Cathy has been a member of the Law Society Company Law
Committee. She also sits on the Regulatory and Governance
Committees of Listed Private Capital (LPeC), the industry
association for listed private capital funds.
Cathy was appointed to the Board on 1 March 2019.
Significant interests: Cathy is a former Partner at CMS Cameron
McKenna Nabarro Olswang LLP.
David Stevenson (Independent Non-Executive Director)
David is a financial journalist and commentator for a number of
leading publications including The Financial Times (the Adventurous
Investor), Money Week and the Investors Chronicle. He is also
Executive Director of the world's leading alternative finance news
and events service www.altfi.com , which focuses on covering major
trends in marketplace lending, crowdfunding and working capital
provision for small to medium sized enterprises.
David was appointed to the Board on 24 August 2018.
Significant interests: David is a Director of Aurora Investment
Trust plc; 321 Publishing and TV Limited; Altfi Limited; Altfi Data
Limited; Bramshaw Holdings Limited; ETF Stream Limited; Planet
Sports Rights Limited; Rocket Media LP; SQN Secured Income Fund
plc; Stockmarkets Digest Limited; and Windhorse Aerospace
Limited.
Duncan Neale (Audit Committee Chair and Independent
Non-Executive Director)
Duncan is a CFO and Finance Director with over 20 years of
commercial experience working for both publicly listed and
privately owned companies.
Duncan is a Fellow of the Institute of Chartered Accountants and
qualified with Price Waterhouse in London.
Duncan was appointed to the Board on 24 August 2018.
Significant interests: Duncan is a trustee of the Cambodian
Children's Fund UK and a Director of DJN Consultancy Limited.
Investment Team
Ben Guest (Managing Director, New Energy)
Ben has 26 years of investment experience, Ben's expertise spans
the investment spectrum, across infrastructure, public equities and
venture capital.
Ben is responsible for the origination and execution of
investment opportunities at Gresham House, alongside ongoing
portfolio management.
Ben currently serves as a Director of over 40 companies and
until recently was the Non-Executive Chairman of Oxis Energy, a UK
advanced battery power company.
Bozkurt Aydinoglu (Investment Director, New Energy)
Bozkurt dedicated the early part of his career to funding and
advising companies in the telecommunications and technology
industries, whilst in roles at Nomura, Salomon Brothers, Bowman
Capital and Deloitte & Touche.
In 2002, Bozkurt cofounded and built New Energy Finance (NEF),
which became the leading provider of data, research and analysis to
investors in the global cleantech industry. NEF was acquired by
Bloomberg in December 2009.
Gareth Owen (Investment Director, New Energy)
Gareth was a Partner at Hazel Capital (now Gresham House New
Energy) and has over 18 years experience executing structured
transactions across a variety of sectors.
Before Hazel Capital, Gareth worked at Barclays Natural Resource
Investments, a captive private equity fund investing in the natural
resource and renewable energy sectors.
Prior to this, Gareth worked in the Structured Capital Markets
divisions of Barclays Capital and Deutsche Bank, handling the
acquisition and disposal of various asset-based companies.
Rupert Robinson (Managing Director, Gresham House Asset
Management Limited)
Rupert is the Managing Director of Gresham House Asset
Management Limited and has 30 years experience in asset management
and wealth management, focused on product innovation, investment
management, business development, banking and wealth
structuring.
Rupert was previously CEO and CIO of Schroders (UK) Private Bank
and head of private clients at Rothschild Asset Management
Limited.
Stephen Beck (Finance Director, Real Assets)
Stephen has 24 years of industry experience and is a law
graduate and Barrister and was called to the Bar in 1996. He is
also a Fellow of the Institute of Charted Accountants of England
and Wales and qualified with PricewaterhouseCoopers.
He leads an inhouse finance team managing; New Energy,
Renewables, Commercial Forestry and Housing sectors.
Prior to this, Stephen worked at E.ON from 2000, where he held a
variety of financial and commercial roles, ranging from leading
large finance teams, developing power station projects, M&A
transactions and working with HM Government delivering low carbon
solutions.
6. DIRECTORS' REPORT
The Directors present their interim report for the period from 1
January 2020 to 30 June 2020.
Principal activity and business review
The Company was incorporated in England and Wales on 24 August
2018 with company number 11535957 as a closed-ended investment
company. On 13 November 2018, the Company's Ordinary Shares were
admitted to the Specialist Fund Segment and commenced dealings on
the Main Market of the London Stock Exchange (LSE). The Company has
subsequent to its launch, entered the Investment Trust Company
(ITC) regime for the purposes of UK taxation. The Company is a
Member of the Association of Investment Companies (AIC).
The Company's investment objective is to provide investors with
an attractive and sustainable dividend over the long term by
investing in a diversified portfolio of utility-scale Energy
Storage Systems (ESS), which utilise batteries and may also utilise
generators. The ESS projects comprising the portfolio are located
in diverse locations across Great Britain.
Fundraising and GRID Power Bonds
On 6 February 2020, the Company announced its intention to seek
Shareholder authority to issue up to 30,000,000 new Ordinary Shares
to acquire an identified new asset, extend an existing asset and to
provide increased general working capital. The Company's
Shareholders granted this authority at a General Meeting held on 27
February 2020.
On 3 March 2020, the Company announced that it had raised gross
proceeds of GBP31.2 million though the issue of 30,000,000 Placing
Shares at a Placing Price of 104 pence per Placing Share.
As at 30 June 2020 the Company had no external gearing, although
the IPO allows gearing up to 30% of Gross Asset Value to be
utilised. The Company believes that the injection of some gearing
at historically low interest rates is appropriate.
In consequence, subsequent to the end of the Period, on 7 July
2020, the Company announced that a private debt offer of GRID Power
Bonds was being made by the Company's wholly owned subsidiary,
Gresham House Energy Storage Holdings PLC.
This private offer is targeting a raise of a maximum of c.GBP15
million through an initial series of 5.0% per annum fixed rate
bonds, equivalent to a coupon of approximately 4% after tax. These
GRID Power Bonds are expected to be issued in one or more series,
with each series having a term of five years from its issue date,
redeemable by the Issuer with no penalty after two years. The GRID
Power Bonds will pay interest semi-annually, in arrears, in equal
instalments and have a maximum, aggregate subscription amount of
GBP40 million.
The offer period will be open for 12 months to July 2021 to,
among other things, assist with the acquisition of further battery
storage projects. The first series will close soon.
Acquisitions
On 2 January 2020, the Company announced the closing of a 49MW
battery-only project (Red Scar). Red Scar is located on the Red
Scar Business Park, by the Longridge Road and the M6 outside
Preston, and was acquired for a total enterprise value of
approximately GBP32.8 million (inclusive of GBP1.0 million of
deferred consideration, payable in 12 months, subject to the
Project achieving EBITDA targets).
On 20 March 2020, the Company announced that it had
conditionally agreed to acquire a 50MW battery project located near
Thurcroft, to the east of Rotherham (Thurcroft). Thurcroft will be
GRID's largest project to date.
Finally, on 14 April 2020, the Company announced that it had
conditionally agreed to acquire a 50MW battery project located near
Wickham Market, Suffolk (Wickham).
Thurcroft and Wickham were all part of the exclusivity pipeline
identified in the Company's October 2018 IPO prospectus. They are
expected to complete in September/October 2020.
After the period end, on 3 July 2020, the Company completed the
acquisition of a 41MW operational energy storage facility known as
Bloxwich from a group of investors led by Arenko Cleantech. The
acquisition increased the total capacity of operational utility
scale battery storage projects in the Company's investment
portfolio to 215MW.
Gresham House Asset Management Limited, the Alternative
Investment Fund Manager (AIFM) of the Company has been appointed as
manager under the AIFM Agreement and is authorised and regulated by
the Financial Conduct Authority (FCA).
The registered office of the Company is The Scalpel,18th Floor,
52 Lime Street, London, EC3M 7AF.
Results
The results of the Company for the period are disclosed on page
29.
Dividends
During the period, the Company has declared and paid two
dividends; 1p per Ordinary Share for the period from 1 October to
31 December 2019, paid on 20 March 2020, and 1.75p per Ordinary
Share for the period from 1 January 2020 to 31 March 2020, paid on
12 June 2020.
Subject to market conditions and the Company's performance, it
is intended that dividends will be payable quarterly hereafter. The
Company's dividend target remains 7.0p per Ordinary share in
relation to the financial year ending 31 December 2020.
The Directors recommend that a second interim dividend of 1.75p
per share be paid in respect of the period ended 30 June 2020.
The Company is currently reviewing the dividends paid and
whether these should be treated as interest distributions under the
Investment Trusts (Dividends) (Optional Treatment of Interest
Distributions) 2009. The Registrar will contact Shareholders in due
course in relation to this.
Share capital
As at 30 June 2020, 234,270,650 Ordinary Shares were in issue
and no other classes of shares were in issue at that date.
Risk management and internal control
The Board is responsible for financial reporting and controls,
including the approval of the Interim Report and Accounts, the
dividend policy, any significant changes in accounting policies or
practices, and treasury policies including the use of derivative
financial instruments. During the period the Manager has carried
out an assessment of the principal risks and uncertainties facing
the Company and how they are being mitigated, as described on pages
25-27.
In light of the Company's current position and principal risks
and uncertainties, the Board has assessed the prospects of the
Company for a period of 12 months from the date of this report,
reviewing the Company's liquidity position, compliance with any
loan covenants and the financial strength of its energy contracts,
together with forecasts of the Company's future performance under
various scenarios. The Board has concluded there is a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities over that period.
The Board has oversight of the internal controls of the Company,
including operational and compliance controls and risk management
systems, which are documented in a Board memorandum. As with any
risk management system, the Company's internal control framework is
designed to manage risk but cannot give absolute assurance that
there will never be any material misstatement or loss. The Board
has reviewed the risk management and internal control framework in
the period and believes it to be working effectively. The Board has
considered the appropriateness of establishing an internal audit
function and, having regard to the relatively simple nature of the
Company's operations and the likely cost of such a function, has
concluded that it is not necessary at this stage.
The Board meets at least every quarter to review the Company's
performance against its strategic aims, objectives, business plans
and budgets and ensures that any corrective action considered
necessary is taken. Additional meetings are held as required to
deal with the business of the Company in a timely manner. Directors
are expected to attend all meetings of the Board and all meetings
of those committees on which they sit, as well as the Annual
General Meeting (AGM). Meetings called outside the scheduled
quarterly Board meetings may need to be convened at relatively
short notice and therefore at times when not every director is
available. Every meeting during the period has however been
correctly convened with an appropriate quorum and with the
Directors independent of the Investment Manager.
Directors
All Directors are independent Non-Executive Directors. In terms
of the AIC Code of Corporate Governance (2019), all Directors are
required to retire and seek re-election at the AGM. All four
Directors were re-elected at the Company's AGM held on 30 June
2020.
The Non-Executive Directors who served during the period and to
the date of this report are:
John Leggate
Duncan Neale
David Stevenson
Catherine Pitt
The Company maintains GBP20 million of Directors' and Officers'
Liability Insurance cover for the benefit of the Directors, which
was in place throughout the period and which continues in effect at
the date of this report.
Details of the gross fees paid to Directors in the period are
set out below.
Director Annual Received
fee in period
(GBP) ended
30 June
2020 (GBP)
----------------- ------- ------------
John Leggate 65,000 32,500
Duncan Neale 45,000 22,500
David Stevenson 40,000 20,000
Catherine
Pitt 40,000 20,000
----------------- ------- ------------
In accordance with FCA Listing Rules 9.8.6(R)(1), Directors'
interest in the shares of the Company (in respect of which
transactions are notifiable to the Company under FCA Disclosure and
Transparency Rule 3.1.2(R)) as at 30 June 2020 are shown below:
Directors' Number Percentage
interest of Ordinary of issued
and beneficial Shares share capital
interest
----------------- ------------- ---------------
John Leggate 28,675 0.01%
Duncan Neale 9,625 0.00%
David Stevenson 9,854 0.00%
Catherine
Pitt 14,660 0.01%
----------------- ------------- ---------------
Significant shareholdings
As at 30 June 2020 the Directors have been notified that the
following shareholders have a disclosable interest of 3% or more in
the Ordinary Shares of the Company:
Shareholder Number Percentage
of Ordinary of issued
Shares share capital
-------------------- ------------- ---------------
Gresham House
Plc, Gresham
House (Nominees)
Limited, and
LF Gresham
Multi Cap Income
Fund 28,658,297 12.23%
Sarasin & Partners
LLP 23,427,065 10.00%
CCLA Investment
Management
Limited 22,429,297 9.57%
Benjamin Guest 14,152,759 6.04%
Schroders plc 12,382,250 5.29%
Close Asset
Management
Limited 10,755,932 4.59%
Newton Investment
Management
Limited 8,660,668 3.70%
-------------------- ------------- ---------------
Going concern
The Company's business activities, together with the factors
likely to affect its future development performance and position,
are set out in the Investment Manager's Report. The Company faces a
number of risks and uncertainties, as set out in the Principal and
Emerging Risk Section. The financial risk management objectives and
policies of the Company, including exposure to price risk, interest
rate risk, credit risk and liquidity risk are discussed in note 19
to the Condensed Financial Statements. The Company continues to
meet day-to-day liquidity needs through its cash resources.
The Directors have considered the impact which the current
economic downturn, triggered by COVID-19, could have on the ability
of the Company to continue as a going concern. A key risk facing
the Company is that investments may not be able to make
distributions or pay interest if they are not able to continue to
operate the assets or dysfunctional markets affect trading
operations. The Company and the Investment Manager have so far been
able to ensure the operational integrity of the projects is
maintained particularly in terms of Operations & Maintenance
and in terms of all planned commercial activities, including Asset
Optimisation and in their view, power generation will remain
essential to the UK's infrastructure.
As at 30 June 2020, the Company had net current assets of GBP79
million and had cash balances of GBP53 million (excluding cash
balances within investee companies), which are sufficient to meet
current obligations as they fall due. The major cash outflows of
the Company are the costs relating to the acquisition of new assets
and payment of dividends, both of which are discretionary. The
Company had no outstanding debt owing as at 30 June 2020.
The Directors have reviewed Company forecasts and projections
which cover a period of not less than 12 months from the date of
this report, taking into account foreseeable changes in investment
and trading performance, which show that the Company has sufficient
financial resources. On the basis of this review, and after making
enquiries, the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational existence
for the foreseeable future. As such the Directors believe that the
Company will continue into the foreseeable future and have adopted
the going concern basis in preparing this Interim Report and
Condensed Financial Statements.
Political contributions
The Company made no political contributions during the
period.
Employees
The Company has no employees and therefore no employees share
scheme or policies for the employment of disabled persons or
employee engagement.
Other disclosures
Disclosures of financial risk management objectives and policies
and exposure to financial risks are included in note 19 to the
Condensed Financial Statements.
Disclosures in relation to the Company's business model and
strategy have been included within the Investment Manager's report.
Disclosures in relation to the main industry trends and factors
that are likely to affect the future performance and position of
the business have been included within the Investment Manager's
report.
Signed by order of the Board,
_______________________
Chair
Date: 28 August 2020
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Interim Report
and Condensed Financial Statements in accordance with applicable
law and regulations.
The Directors confirm that to the best of their knowledge:
-- the Interim Report and Condensed Financial Statements have
been prepared in accordance with International Accounting Standard
34 "Interim Financial Reporting" and give a true and fair view of
the assets, liabilities, financial position and profit or loss of
the Company.
-- the Chair's Statement and Interim Investment Manager's Report
include a fair review of the development, performance and position
of the Company and a description of the principal risks and
uncertainties, that it faces for the next six months as required by
DTR 4.2.7.R of the Disclosure Guidance and Transparency Rules.
-- the Investment Manager's Interim Report and note 23 to the
Condensed Financial Statements include a fair review of related
party transactions and changes therein, as required by DTR 4.2.8.R
of the Disclosure Guidance and Transparency Rules.
Signed by order of the Board,
________________________
Chair
Date: 28 August 2020
7. CONDENSED FINANCIAL STATEMENTS
7.1. Condensed Statement of Comprehensive Income
For the period from 1 January 2020 to 30 June 2020
Company number 11535957
1 January 2020 to 30 June 2020 Notes Revenue Capital Total
(GBP) (GBP) (GBP)
------------------------------------------ ------ ------------ ------------ ------------
Net gain/(loss) on investments at
fair value through the profit and
loss 5 4,631,312 (4,162,440) 468,872
Interest on loans to related parties 6 781,088 - 781,088
Bank interest 23,037 - 23,037
Other income 75,295 - 75,295
------------------------------------------ ------ ------------ ------------ ------------
Total income/(loss) 5,510,732 (4,162,440) 1,348,292
Administrative and other expenses
Transaction fees - (83,376) (83,376)
Legal and professional fees - (306,771) (306,771)
Other administrative expenses 7 (1,413,551) - (1,413,551)
------------------------------------------ ------ ------------ ------------ ------------
Total administrative and other expenses (1,413,551) (390,147) (1,803,698)
Profit/(loss) before tax 4,097,181 (4,552,587) (455,406)
Taxation 8 - - -
------------------------------------------ ------ ------------ ------------ ------------
Profit/(loss) after tax and total
comprehensive income for the period 4,097,181 (4,552,587) (455,406)
------------------------------------------ ------ ------------ ------------ ------------
Profit/(loss) per share (basic and
diluted) - pence per share 9 1.83 (2.03) (0.20)
24 August 2018 (incorporating date) (GBP) (GBP) (GBP)
to 30 June 2019
------------------------------------------ ------ ------------ ------------ ------------
Net gain on investments at fair
value through the profit and loss 5 2,251,254 4,563,921 6,815,175
Interest on loans to related parties 6 4,742 - 4,742
Bank interest 144,838 - 144,838
Total income 2,400,834 4,563,921 6,964,755
Administrative and other expenses
Transaction fees - (1,011,655) (1,011,655)
Legal and professional fees - (136,256) (136,256)
Other administrative expenses 7 (1,376,924) - (1,376,924)
------------------------------------------ ------ ------------ ------------ ------------
Total administrative and other expenses (1,376,924) (1,147,911) (2,524,835)
Profit before tax 1,023,910 3,416,010 4,439,920
Taxation 8 - - -
------------------------------------------ ------ ------------ ------------ ------------
Profit after tax and total comprehensive
income for the period 1,023,910 3,416,010 4,439,920
------------------------------------------ ------ ------------ ------------ ------------
Profit per share (basic and diluted)
- pence per share 9 1.27 4.23 5.50
All items dealt with in arriving at the result for the period
relate to continuing operations.
The notes on pages 33 to 50 form an integral part of these
Condensed Financial Statements.
7.2. Condensed Statement of Financial Position
As at 30 June 2020
Company number 11535957
Notes 30 June 2020 31 December
2019
(GBP) (GBP)
Non-current assets
Investment in subsidiaries at
fair value through profit or loss 10 150,991,956 138,203,407
150,991,956 138,203,407
Current assets
Cash and cash equivalents 12 52,952,749 52,905,852
Restricted cash 13 - 10,843,595
Trade and other receivables 14 110,980 267,001
Loans receivable 11 27,056,065 6,109,952
80,119,794 70,126,400
Total assets 231,111,750 208,329,807
------------------------------------ ------ ------------- ------------
Current liabilities
Trade and other payables 15 (1,140,168) (2,450,447)
------------------------------------ ------ ------------- ------------
(1,140,168) (2,450,447)
Total net assets 229,971,582 205,879,360
------------------------------------ ------ ------------- ------------
Shareholders' equity
Share capital 20 2,342,707 2,042,707
Share premium 20 134,770,179 104,380,109
Capital reduction reserve 20 85,622,108 91,764,550
Capital reserves 22 (428,156) 4,124,431
Revenue reserves 22 7,664,744 3,567,563
------------------------------------ ------ ------------- ------------
229,971,582 205,879,360
Total shareholders' equity 229,971,582 205,879,360
------------------------------------ ------ ------------- ------------
Net asset value per share (pence) 19 98.16 100.79
The Interim Report and Condensed Financial Statements were
approved and authorised for issue by the Board of Directors and are
signed on its behalf by:
________________________
Chair
Date: 28 August 2020
The notes on pages 33 to 50 form an integral part of these
Condensed Financial Statements.
7.3. Condensed Statement of Changes in Equity
For the period from 1 January 2020 to 30 June 2020
Notes Share Share premium Capital Capital Revenue Total shareholders'
capital reserve reduction reserves reserves equity
(GBP) reserve (GBP)
(GBP) (GBP) (GBP) (GBP)
-------------------- ------ ---------- -------------- ------------ ------------ ---------- --------------------
As at 1 January
2020 2,042,707 104,380,109 91,764,550 4,124,431 3,567,563 205,879,360
Comprehensive
income for
the period - - - - - -
(Loss)/profit
for the period - - - (4,552,587) 4,097,181 (455,406)
-------------------- ------ ---------- -------------- ------------ ------------ ---------- --------------------
Total comprehensive
income for
the period - - - (4,552,587) 4,097,181 (455,406)
Transactions with
owners
Ordinary Shares
issued at a
premium during
the period 20 300,000 30,900,000 - - - 31,200,000
Share issue
costs 20 - (509,930) - - - (509,930)
Dividends paid 20 - - (6,142,442) - - (6,142,442)
As at 30 June
2020 20 2,342,707 134,770,179 85,622,108 (428,156) 7,664,744 229,971,582
-------------------- ------ ---------- -------------- ------------ ------------ ---------- --------------------
24 August 2018 (incorporation date) to 30 June 2019
(GBP) (GBP) (GBP) (GBP) (GBP) (GBP)
--------------------- --- ---------- ------------- ------------ ---------- ---------- ------------
As at 24 August
2018 - - - - - -
Comprehensive
income for
the period - - - - - -
Profit for
the period - - - 3,416,010 1,023,910 4,439,920
--------------------- --- ---------- ------------- ------------ ---------- ---------- ------------
Total comprehensive
income for
the period - - - 3,416,010 1,023,910 4,439,920
Transactions with
owners
Ordinary Shares
issued at a
premium during
the period 20 1,492,280 147,837,801 - - - 149,330,081
Share issue
costs 20 - (2,086,886) - - - (2,086,886)
Issue of redeemable
preference
shares 20 12,500 - - - - 12,500
Redemption
of redeemable
preference
shares 20 (12,500) - - - - (12,500)
Transfer to
capital reduction
reserve 20 - (97,009,475) 97,009,475 - - -
Dividends paid 20 - - (1,400,000) - - (1,400,000)
As at 30 June
2019 20 1,492,280 48,741,440 95,609,475 3,416,010 1,023,910 150,283,115
--------------------- --- ---------- ------------- ------------ ---------- ---------- ------------
The notes on pages 33 to 50 form an integral part of these
Condensed Financial Statements
7.4. Condensed Statement of Cash Flows
For the period from 1 January 2020 to 30 June 2020
Note 1 January 24 August
2020 to 2018 to
30 June 30 June
2020 2019
GBP GBP
------------------------------------------- ----- ------------- -------------
Cash flows used in operating activities
(Loss)/profit for the period (455,406) 4,439,920
Net gain on investments at fair
value through profit and loss 10 (468,872) (4,563,921)
Interest income (804,125) (2,400,834)
Increase in trade and other receivables 156,021 -
(Decrease)/increase in trade and
other payables (1,310,279) 1,020,972
------------------------------------------- ----- ------------- -------------
Net cash used in operating activities (2,882,661) (1,503,863)
Cash flows used in investing activities
Loans made to subsidiaries 10 (12,319,675) (23,926,887)
Loans receivable 11 (20,165,028) (18,699,689)
Inflow from restricted cash 10,843,595 -
Bank interest received 23,037 122,285
Net cash used in investing activities (21,618,071) (42,504,291)
Cash flows used in financing activities
Proceeds from issue of Ordinary
Shares at a premium 20 31,200,000 111,168,345
Share issue costs 20 (509,929) (2,086,886)
Issue of redeemable preference
shares - 12,500
Redemption of redeemable preference
shares - (12,500)
Dividends paid (6,142,442) (1,400,000)
Net cash inflow from financing
activities 24,547,629 107,681,459
Net increase in cash and cash equivalents
for the period 46,897 63,673,305
------------------------------------------- ----- ------------- -------------
Cash and cash equivalents at the 52,905,852 -
beginning of the period
------------------------------------------- ----- ------------- -------------
Cash and cash equivalents at the
end of the period 52,952,749 63,673,305
------------------------------------------- ----- ------------- -------------
The notes on pages 33 to 50 form an integral part of these
Condensed Financial Statements.
Condensed Statement of Financial Statements
For the period from 1 January 2020 to 30 June 2020
1. General information
Gresham House Energy Storage Fund plc (the Company) was
incorporated in England and Wales on 24 August 2018 with company
number 11535957 as a closed-ended investment company. The Company's
business is as an investment trust within the meaning of Chapter 4
of Part 24 of the Corporation Tax Act 2010. The registered office
of the Company is The Scalpel, 18th Floor, 52 Lime Street, London,
EC3M 7AF. Its share capital is denominated in Pounds Sterling (GBP
or GBP) and currently consists of Ordinary Shares. The Company's
principal activity is to invest in a diversified portfolio of
operating utility-scale Energy Storage Systems (ESS), which utilise
batteries and may also utilise generators. The ESS projects
comprising the portfolio are located in diverse locations across
Great Britain. These accounts cover the period from 1 January 2020
to 30 June 2020, with a comparative period from incorporation to 30
June 2019.
2. Basis of preparation
Statement of compliance
The Interim Report and Condensed Financial Statements have been
prepared in accordance with International Accounting Standard 34
'Interim Financial Reporting' as adopted by the European Union. The
Condensed Financial Statements have been prepared on a historical
cost basis except for financial assets and liabilities at fair
value through the profit or loss. The accounts have been prepared
on a basis that is consistent with accounting policies applied in
the preparation of the Company's Annual Financial Statements for 31
December 2019.
Where presentational guidance set out in the Statement of
Recommended Practice (SORP) 'Financial Statements of Investment
Trust Companies and Venture Capital Trusts', issued by the
Association of Investment Companies (AIC) is consistent with the
requirements of IFRS, the Directors have prepared the Interim
Condensed Financial Statements on a basis compliant with the
recommendations of SORP. The supplementary information which
analyses the Statement of Comprehensive Income between items of
revenue and a capital nature is presented in accordance with the
SORP.
These Condensed Financial Statements do not include all
information and disclosures required in the Annual Financial
Statements and should be read in conjunction with the Company's
audited financial statements for the year ended 31 December 2019,
which were prepared under full IFRS requirements as adopted by the
EU and the DTRs of the UK FCA. The comparative period for the prior
year is for the period from incorporation date to 30 June 2019.
Functional and presentation currency
The currency of the primary economic environment in which the
Company operates (the functional currency) is Pounds Sterling (GBP
or GBP) which is also the presentation currency.
Going concern
The Directors have considered the impact which the current
economic downturn, triggered by COVID-19, could have on the ability
of the Company to continue as a going concern. A key risk facing
the Company is that investments may not be able to make
distributions or pay interest if they are not able to continue to
operate the assets or dysfunctional markets affect trading
operations.
The Company and the Investment Manager have so far been able to
ensure the operational integrity of the projects is maintained
particularly in terms of Operations & Maintenance and in terms
of all planned commercial activities, including Asset Optimisation
and in their view, power generation will remain essential to the
UK's infrastructure.
As at 30 June 2020, the Company had net current assets of GBP79
million and had cash balances GBP53 million (excluding cash
balances within investee companies), which are sufficient to meet
current obligations as they fall due. The major cash outflows of
the Company are the costs relating to the acquisition of new assets
and payment of dividends, both of which are discretionary. The
Company had no outstanding debt owing as at 30 June 2020.
New standards and amendments to existing standards that are
relevant to the Company, but are not yet effective and have not
been early adopted by the Company:
IAS 1 "Presentation of Financial Statements" sets out the
overall requirements for financial statements, including how they
should be structured, the minimum requirements for their content
and overriding concepts such as going concern, the accrual basis of
accounting and the current/non-current distinction.
7.5 Condensed Statement of Financial Statements (continued)
For the period from 1 January 2020 to 30 June 2020
2. Basis of preparation (continued)
The standard requires a complete set of financial statements to
comprise a statement of financial position, a statement of profit
or loss and other comprehensive income, a statement of changes in
equity and a statement of cash flows. The standard is not expected
to have a material impact on the Company's Condensed Financial
Statements. The amendments are effective for annual reporting
periods beginning on or after 1 January 2022 and are to be applied
retrospectively.
3. Significant accounting judgements, estimates and assumptions
The preparation of the Condensed Financial Statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amount of assets, liabilities, income and expenses. Estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions
to the accounting estimates are recognised in the period in which
the estimates are revised and in any future periods affected.
During the period the Directors considered the following
significant judgements and assumptions:
Assessment as an investment entity
Entities that meet the definition of an investment entity within
IFRS 10 are required to measure their subsidiaries at fair value
through profit or loss rather than consolidate them unless they
provided investment related services to the Company and are not
themselves investment entities. To determine that the Company
continues to meet the definition of an investment entity, the
Company is required to satisfy the following three criteria:
a. the Company obtains funds from one or more investors for the
purpose of providing those investors with investment management
services;
b. the Company commits to its investors that its business
purpose is to invest funds solely for returns from capital
appreciation, investment income, or both; and
c. the Company measures and evaluates the performance of
substantially all of its investments on a fair value basis.
The Company meets the criteria as follows:
-- the stated strategy of the Company is to deliver stable
returns to shareholders through a mix of energy storage
investments;
-- the Company provides investment management services and has
several investors who pool their funds to gain access to
infrastructure related investment opportunities that they might not
have had access to individually;
-- the Company has elected to measure and evaluate the
performance of all of its investments on a fair-value basis. The
fair-value method is used to represent the Company's performance in
its communication to the market, including investor presentations.
In addition, the Company reports fair value information internally
to Directors, who use fair value as the primary measurement
attribute to evaluate performance; and
-- A key indicator of whether a Company is an investment entity
is the existence of a formal exit strategy. Although there is
currently no documented exit strategy, the loans and equity are
held on the basis that they will be repaid, and value will be
transferred in the form of equity. The assets have a limited life
and are not expected to be held indefinitely and the investments
including the equity is held at fair value. The Directors consider
that there is a clear exit strategy from these investments.
The Directors believe the Company meets the business purpose
criteria to invest for capital appreciation and/or income
generation and note that the Company is not required to hold its
investments indefinitely.
The Directors are of the opinion that the Company has all the
typical characteristics of an investment entity and continues to
meet the definition in the standard. This conclusion will be
reassessed on an annual basis.
7.5 Notes to the Condensed Financial Statements (continued)
For the period from 1 January 2020 to 30 June 2020
3. Significant accounting judgements, estimates and assumptions (continued)
During the period the Directors considered the following
significant estimates:
Valuation of investments in subsidiaries
Significant estimates in the Company's Condensed Financial
Statements include the amounts recorded for the fair value of the
instruments. By their nature, these estimates and assumptions are
subject to measurement uncertainty and the effect on the Company's
Condensed Financial Statements of changes in estimates in future
periods could be significant. See note 17 for further details.
4. Fees and expenses
Accounting, secretarial and directors
JTC (UK) Limited acts as secretary and administrator for the
Company through the Administration and Company Secretarial
Agreement. JTC (UK) Limited is entitled to a GBP60,000 annual fee
for the provision of Company Secretarial services and a GBP55,000
annual fee for the provision of fund accounting and administration
services, based on a Company Net Asset Value of up to GBP200
million. An ad valorem fee based on total assets of the Company
which exceed GBP200 million will be applied as follows:
-- 0.04% on the Net Asset Value of the Company in excess of
GBP200 million.
During the period, expenses incurred with JTC (UK) Limited for
administrative and secretarial services amounted to GBP61,855
(2019: GBP84,221) with GBP28,750 (2019: GBP28,671) being
outstanding and payable at the period end.
AIFM
The AIFM, Gresham House Asset Management Limited (the Investment
Manager), is entitled to receive from the Company, in respect of
its services provided under the AIFM agreement, a fee as
follows:
-- 1% on the first GBP250 million of the Net Asset Value of the
Company
-- 0.9% on the Net Asset Value of the Company in excess of
GBP250 million and up to and including GBP500 million
-- 0.8% on the Net Asset Value of the Company in excess of
GBP500 million
During the period, Investment Manager fees recognised in these
Condensed Financial Statements amounted to GBP1,126,012 (2019:
GBP952,994) with GBPnil (2019: GBP657,232) being outstanding and
payable at the period end.
5. Net gain on investments at fair value through the profit and loss
1 January 24 August
2020 to 2018 to
30 June 30 June
2020 2019
(GBP) (GBP)
--------------------------------------- ---- ------------ ----------
Unrealised (loss)/gain on investments
at fair value through the profit and
loss (4,162,440) 4,563,921
Interest on loans to subsidiaries 4,631,312 2,231,856
468,872 6,795,777
-------------------------------------------- ------------ ----------
6. Interest on loans to related parties
1 January 24 August
2020 to 2018 to
30 June 30 June
2020 2019
(GBP) (GBP)
-------------------------------------- ---- ---------- ----------
Interest on loans to related parties 781,088 24,140
781,088 24,140
------------------------------------------- ---------- ----------
7.5 Notes to the Condensed Financial Statements (continued)
For the period from 1 January 2020 to 30 June 2020
7. Administrative and other expenses
1 January 24 August
2020 to 2018 to
30 June 30 June
2020 2019
(GBP) (GBP)
------------------------- ---- ---------- ----------
Administration fees 61,855 84,221
Audit fees paid 48,141 59,040
Depositary fees 16,596 22,775
Directors' remuneration 105,970 159,221
Management fees 1,126,012 952,994
Sundry expenses 54,977 98,673
1,413,551 1,376,924
------------------------------ ---------- ----------
8. Taxation
The Company is recognised as an Investment Trust Company (ITC)
for accounting periods and is taxed at the main rate of 19%.
The Company may make interest distributions to reduce taxable
profits to nil due to the taxable profits for the period to 30 June
2020 being below the Company's Qualifying Net Interest Income.
Therefore, no corporation tax charge has been recognised for the
Company for the period to 30 June 2020.
1 January 24 August
2020 to 2018 to
30 June 30 June
2020 2019
(GBP) (GBP)
-------------------------------------- --------- ---------- ----------
(a) Tax charge in profit or loss
UK corporation tax - -
---------- ----------
(b) Reconciliation of the tax charge
for the period
(Loss)/profit before tax (455,406) 4,439,920
---------- ----------
Tax at UK main rate of 19% 19.00% (86,527) 843,585
Tax effect of:
Net gain/(loss) on investments
at fair value through the profit
and loss (6.27%) 790,863 (867,145)
Non-deductible expenses 1.40% 74,128 218,103
Subject to group relief/designated
as interest distributions (14.13%) (778,464) (194,543)
--------- ---------- ----------
Tax charge for the period -% - -
-------------------------------------- --------- ---------- ----------
9. Earnings per Ordinary Share
Earnings per Ordinary Share (EPS) amounts are calculated by
dividing the profit or loss for the period attributable to ordinary
equity holders of the Company by the weighted average number of
Ordinary Shares in issue during the period. As there are no
dilutive instruments outstanding, basic and diluted Earnings per
Ordinary Share are identical.
1 January
2020 to
30 June
Revenue Capital 2020
(GBP) (GBP) Total
(GBP)
------------------------------------------- ------------ ------------ ------------
Net profit/(loss) attributable to
ordinary shareholders 4,097,181 (4,552,587) (455,406)
Weighted average number of Ordinary
Shares for the period 223,721,199 223,721,199 223,721,199
------------ ------------
Profit/(loss) per Ordinary Share
(basic and diluted) - pence per Ordinary
Share 1.83 (2.03) (0.20)
------------ ------------ ------------
24 August
2018
to
Revenue Capital 30 June 2019
(GBP) (GBP) Total
(GBP)
------------------------------------- ----------- ----------- --------------
Net profit attributable to ordinary
shareholders 1,023,910 3,416,010 4,439,920
Weighted average number of Ordinary
Shares for the period 80,724,271 80,724,271 80,724,271
----------- -----------
Profit per Ordinary Share (basic
and diluted) - pence per Ordinary
Share 1.27 4.23 5.50
----------- ----------- --------------
9. Investment in subsidiaries
As at 30 June 2020
Place Percentage Opening Equity Loans Net fair Closing
of business ownership balances movement movement value balance:
movement equity
and loans
(GBP) (GBP) (GBP) (GBP) (GBP)
---------------- -------------- ----------- ------------ ---------- -------------- -------------- ------------
Noriker Staunch England
Ltd (NSL) & Wales 100% 27,003,352 - - (5,204,529) 21,798,823
HC ESS2 Holdco
Limited England
(HCESS2) & Wales 100% 27,616,588 - - (1,230,461) 26,386,127
HC ESS3 Limited England
(HCESS3) & Wales 100% 19,898,159 - - (3,188,587) 16,709,572
West Midlands
Grid Storage
Two Limited England
(WMGS) & Wales 100% 4,070,589 - 30,000 56,771 4,157,360
Cleator Battery
Storage
Limited England
(Cleator) & Wales 100% 6,691,989 - - 192,467 6,884,456
Glassenbury
Battery
Storage
Limited England
(Glassenbury) & Wales 100% 30,642,513 - - 1,685,594 32,328,107
HC ESS4 Limited England
(HCESS4)* & Wales 100% 22,280,217 - 12,289,675 8,157,618 42,727,511
138,203,407 - 12,319,675 (468,874) 150,991,956
------------ ---------- -------------- -------------- ------------
7.5 Notes to the Condensed Financial Statements (continued)
For the period from 1 January 2020 to 30 June 2020
10. Investment in subsidiaries (continued)
As at 31 December 2019
Place Percentage Equity Loans: Equity and Net fair Closing
of business ownership principal loans value balance:
advanced movement equity and
loans
(GBP) (GBP) (GBP) (GBP)
(GBP)
------------------- -------------- ----------- ----------- ----------- ------------ ------------ ------------
Noriker Staunch England
Ltd (NSL) & Wales 100% 7,150,538 15,895,774 23,046,312 3,957,040 27,003,352
HC ESS2 Holdco England
Limited (HCESS2) & Wales 100% 4,634,116 25,025,110 29,659,226 (2,042,637) 27,616,588
HC ESS3 Limited England
(HCESS3) & Wales 100% 1,648,697 15,539,520 17,188,217 2,709,942 19,898,159
West Midlands
Grid Storage
Two Limited England
(WMGS) & Wales 100% 37,701 4,052,749 4,090,450 (19,861) 4,070,589
Cleator Battery
Storage Limited England
(Cleator) & Wales 100% 1,954,436 4,596,159 6,550,595 141,394 6,691,989
Glassenbury
Battery Storage
Limited England
(Glassenbury) & Wales 100% 7,817,744 16,729,612 24,547,356 6,095,156 30,642,513
HC ESS4 Limited England
(HCESS4)* & Wales 100% 3,800,399 17,787,731 21,588,130 692,087 22,280,217
27,043,631 99,626,655 126,670,286 11,533,121 138,203,407
----------- ----------- ------------ ------------ ------------
* A loan advance of GBP8,453,092 was made to HCESS4 Limited on 2
January 2020 on acquisition to repay its debts.
A further loan of GBP735,000 was made on 9 January 2020 to fund
trading accounts and an amount of GBP3,101,583 was made on 6 March
2020 to pay final amounts due under EPC contracts.
The loans attract an interest rate of 8% per annum from the date
of advance. Interest compounds on 31 December of each period and
the loans are unsecured, with the borrowers not able to create any
form of security interest over any of its assets without prior
written consent of the Company.
Unless otherwise agreed, the loan principal and any interest
accrued shall be repayable on the earlier of (i) written demand
from the Company, or (ii) 31 December 2030.
There are no committed uncalled loan amounts or other
commitments made to these entities except for contingent
consideration payable as provided in these accounts. The repayment
of the loans (including the annual compound interest which will be
rolled up into the loans) will be made based on operational cash
flow requirements of these entities. There is no intention for the
Company to recall the loans within the next year.
The Company meets the definition of an investment entity.
Therefore, it does not consolidate its subsidiaries but, rather,
recognises them as investments at fair value through profit or
loss. The Company is not contractually obligated to provide
financial support to the subsidiaries and there are no restrictions
in place in passing monies up the structure.
7.5 Notes to the Condensed Financial Statements (continued)
For the period from 1 January 2020 to 30 June 2020
10. Investment in subsidiaries (continued)
Immediate Projects Place Registered Percentage Ownership
Parent of business Office ownership
---------------- ------------ -------------- ------------- ------------------ ----------- -------------
Noriker The Company Staunch England Gresham House 100% Wholly owned
Staunch & Wales Asset Management
Ltd (NSL) Limited, 5
New Street
Square, London,
England, EC4A
3TW
HCESS2* HCESS2 England Gresham House 100% Wholly owned
Holdco & Wales Asset Management
Limited, 5
New Street
Square, London,
England, EC4A
3TW
South West HCESS2 Littlebrook, England Gresham House 100% Wholly owned
Grid Storage Lockleaze, & Wales Asset Management
One Limited* Rufford Limited, 5
New Street
Square, London,
England, EC4A
3TW
Roundponds HCESS3 Roundponds England Gresham House 100% Wholly owned
Energy Limited & Wales Asset Management
Limited, 5
New Street
Square, London,
England, EC4A
3TW
WMGS The Company Wolverhampton England Gresham House 100% Wholly owned
& Wales Asset Management
Limited, 5
New Street
Square, London,
England, EC4A
3TW
Glassenbury The Company Glassenbury England Gresham House 100% Wholly owned
& Wales Asset Management
Limited, 5
New Street
Square, London,
England, EC4A
3TW
Cleator The Company Cleator England Gresham House 100% Wholly owned
& Wales Asset Management
Limited, 5
New Street
Square, London,
England, EC4A
3TW
*HCESS2 Holdco controls HCESS2 which in turn hold an interest in
South West Grid Storage One Limited as disclosed in the in table
above. HCESS2 holds the Littlebrook, Lockleaze and Rufford
projects.
The registered office address for all projects is Gresham House
Asset Management Limited, 5 New Street Square, London, England,
EC4A 3TW.
Refer to Note 17 for valuation disclosures relating to the
investments in subsidiaries.
7.5 Notes to the Condensed Financial Statements (continued)
For the period from 1 January 2020 to 30 June 2020
11. Loans receivable
Loans: opening Loans: principal Loans: 30 June 2020
balance advanced interest Closing balance:
(GBP) (GBP) accrued loans
(GBP) (GBP)
--------------------------- --------------- ----------------- ---------- ------------------
HC ESS 6 Limited (HCESS6) 3,756,187 11,643,319 384,616 15,784,122
Biggerbrook Limited
(Biggerbrook) 1,806,295 - 72,053 1,878,348
HC ESS 7 Limited (HCRSS7) 547,470 8,521,708 324,417 9,393,595
--------------- ----------------- ---------- ------------------
6,109,952 20,165,027 781,086 27,056,065
--------------- ----------------- ---------- ------------------
Loans: principal Loans: 31 December 2019
advanced Interest Closing balance:
(GBP) accrued loans
(GBP) (GBP)
--------------------------- ----------------- ---------- ------------------
HC ESS 6 Limited (HCESS6) 3,606,018 150,169 3,756,187
Biggerbrook Limited
(Biggerbrook)
(being the extension
of Littlebrook) 1,762,070 44,225 1,806,295
HC ESS 7 Limited (HCRSS7) 538,500 8,970 547,470
----------------- ---------- ------------------
5,906,588 203,364 6,109,952
----------------- ---------- ------------------
The above loans relate to funds provided by the Company to
finance ESS Projects prior to acquisition thereof, so that these
Projects can acquire equipment prior to construction. These assets
are therefore still under development at the period end. The loans
are expected to be converted into shareholder loans during the
course of 2020 (HCESS6 and HCESS7 targeted in September 2020).
These loans have been classified as current assets on the Statement
of Financial Position at the period end.
The loans attract an interest rate of 8% per annum from the date
of advance, which is 25 June 2019 for HCESS6; 2 September 2019 and
17 October 2019 for Biggerbrook; and 17 October 2019 for HCESS7.
The loan principal and any interest accrued shall be repayable on
the earlier of (i) written demand from the Company, or (ii) 31
December 2030. Interest compounds on 31 December of each period and
the loans are secured over the various assets in these companies.
HCESS6 Limited and HCESS7 Limited are ultimately owned by Gresham
House plc and Noriker Power Limited. Biggerbrook Limited is owned
by Corylus Capital LLP.
12. Cash and cash equivalents
30 June 2020 31 December
2019
(GBP) (GBP)
----------------------------------------------- ------------- ------------
Cash at bank 27,927,614 13,705,853
Treasury fixed term deposits held at Barclays
Bank plc 25,025,135 39,200,000
52,952,749 52,905,852
----------------------------------------------- ------------- ------------
13. Restricted cash
30 June 2020 31 December
2019
(GBP) (GBP)
----------------- -------------- ------------
Restricted cash - 10,843,595
- 10,843,595
-------------------------------- ------------
7.5 Notes to the Condensed Financial Statements (continued)
For the period from 1 January 2020 to 30 June 2020
14. Trade and other receivables
30 June 31 December
2020 2019
(GBP) (GBP)
------------------ -------- ------------
Management fees 40,500 52,386
Prepaid expenses 20,833 -
VAT receivable 49,647 214,615
110,980 267,001
------------------ -------- ------------
15. Trade and other payables
30 June 2020 31 December
2019
(GBP) (GBP)
---------------------------------------- ------------- ------------
Administration fees 28,750 28,750
Advisor and broker fees - 30,248
Audit fees 29,230 58,000
Depositary fees 2,974 3,000
Accrued IPO costs 14,000 14,000
Professional fees - 274,918
Other accruals 30,214 270,476
Other creditor: Corylus - 79,158
Other creditor: Gresham House plc - 656,899
Deferred consideration for HCESS4 (Red
Scar)*(Note 22) 1,035,000 1,035,000
1,140,168 2,450,447
---------------------------------------- ------------- ------------
16. Categories of financial instruments
30 June 2020 31 December
2019
(GBP) (GBP)
----------------------------------------- ------------- ------------
Financial assets
Financial assets at amortised cost:
Cash and cash equivalents 52,952,749 52,905,852
Restricted cash - 10,843,595
Trade and other receivables 40,500 52,386
Loans receivable 27,056,065 6,109,952
Fair value through profit or loss:
Investment in subsidiaries 150,991,956 138,203,407
Total financial assets 231,041,270 208,115,192
----------------------------------------- ------------- ------------
Financial liabilities
Financial liabilities at amortised cost
Trade and other payables (1,140,168) (2,450,447)
Net financial assets 229,971,582 205,664,745
----------------------------------------- ------------- ------------
At the balance sheet date, all financial assets and liabilities
were measured at amortised cost except for the investment in
subsidiaries which are measured at fair value.
7.5 Notes to the Condensed Financial Statements (continued)
For the period from 1 January 2020 to 30 June 2020
17. Fair value measurement
Valuation approach and methodology
The same valuation methodology and process is followed in these
Condensed Financial Statements as was applied in the preparation of
the Company's Annual Financial Statements for the year ended 31
December 2019. The Company used the income approach to value its
investments. The income approach indicates value based on the sum
of the economic income that an asset, or group of assets, is
anticipated to produce in the future. Therefore, the income
approach is typically applied to an asset that is expected to
generate future economic income, such as a business that is
considered a going concern. Free cash flow to total invested
capital is typically the appropriate measure of economic income.
The income approach is the DCF approach and the method discounts
free cash flows using an estimated discount rate (WACC).
Valuation process
The Company held a portfolio of energy storage investments with
a capacity of 174 Megawatt (MW) operational (the Investments). The
Investments comprise nine projects held in six special project
vehicles: the Staunch Project, the Littlebrook Project, the
Lockleaze Project, the Rufford Project, the Roundponds Project, the
Wolverhampton Project, the Glassenbury, the Cleator Project and the
Red Scar Project.
All of these investments are based in the UK. The Directors
review and approve the valuations of these assets following
appropriate challenge and examination. The current portfolio
consists of non-market traded investments, and valuations are
analysed using forecasted cash flows of the assets and use the
discounted cash flow approach for valuation purposes. For period
end and interim report and Condensed Financial Statements the
Company engages external, independent and qualified valuers to
determine the fair value of the Company's investments or are
produced by the office of the Investment Manager. The Company
engages external, independent and qualified valuers to determine
the fair value of the Company's investments or are produced by the
office of the Investment Advisor. As at 30 June 2020, the fair
value of the portfolio of investments has been determined
(presented by the Investment Advisor). All other investments are
valued by the Investment Advisor.
The valuations have been determined using discounted cash flow
methodology, whereby the estimated future cash flows relating to
the Company's equity investment in each project have been
discounted to 30 June 2020, using discount rates reflecting the
risks associated with each investment project and the time value of
money. The valuations are based on the expected future cash flows,
using reasonable assumptions and forecasts for revenues, operating
costs, macro-level factors and an appropriate discount rate.
As at the period end, the Company uses discount rates to value
the expected future cash flows of each investment project. From
these discount rates a blended discount rate of 11.1% is
calculated. The determination of the discount rate applicable to
each individual investment project takes into account various
factors, including, but not limited to, the stage reached by each
project, the period of operation, the historical track record, the
terms of the project agreements and the market conditions in which
the project operates.
It is intended that this blended discount rate will also be
applied in respect of the expected future cash flows of projects
acquired by the Company in the future. The Investment Manager
exercises its judgement in assessing the expected future cash flows
from each investment. The Investment Manager produces, for each
underlying project, detailed financial models and the Investment
Manager takes into account, amongst other things, in its review of
such models, and make amendments where appropriate to:
a) discount rates (i) implied in the price at which comparable
transactions have been announced or completed in the UK energy
storage sector (if available); (ii) publicly disclosed by the
Company's peers in the UK energy storage sector (if available); and
(iii) discount rates applicable for other comparable infrastructure
asset classes and regulated energy sectors;
b) changes in power market forecasts from leading market forecasters;
c) changes in the economic, legal, taxation or regulatory
environment, including changes in retail
price index expectations;
d) technical performance based on evidence derived from project performance to date;
e) the terms of any power purchase agreement arrangements;
f) accounting policies;
g) the terms of any debt financing at project level;
h) claims or other disputes or contractual uncertainties; and
7.5 Notes to the Condensed Financial Statements (continued)
For the period from 1 January 2020 to 30 June 2020
17. Fair value measurement (continued)
Valuation process (process)
i) changes to revenue, cost or other key assumptions (may include an assessment of future
cost trends, as appropriate).
The Board reviews the operating and financial assumptions,
including the discount rates, used in the valuation of the
Company's underlying portfolio and approves them based on the
recommendation of the Manager.
The Company used the income approach to value its investments.
The income approach indicates value based on the sum of the
economic income that an asset, or group of assets, is anticipated
to produce in the future. Therefore, the income approach is
typically applied to an asset that is expected to generate future
economic income, such as a business that is considered a going
concern. Free cash flow to total invested capital is typically the
appropriate measure of economic income. The income approach is the
DCF approach and the method discounts free cash flows using an
estimated discount rate (WACC).
Key valuation input Range Weighted
average
--------------------- -------------- ---------
WACC 8.3% - 11.4% 11.1%
Another key assumption in the valuation models is the volatility
of power prices. Due to the Asset Optimisation strategy, the
investments are able to benefit from a range of revenue streams,
either arbitrage on power price volatility or FFR and other similar
income streams. Due to the nature of the assets owned by the
investments, should one revenue stream be impacted the asset is
able to switch to alternative sources of revenue to seek to
maintain total revenue targets.
Valuation of financial instruments
The investment at fair value through profit or loss is a Level 3
in the fair-value hierarchy and the reconciliation in the movement
of this Level 3 investment is presented below. No transfers between
levels took place during the period.
Reconciliation 30 June 31 December
2020 2019
(GBP) (GBP)
------------------------------------------ ------------ ------------
Opening balance 138,203,407 -
Add: purchases during the year (see note
11) - 27,043,631
Add: loans advanced (see note 11) 12,319,675 99,626,655
Add: accrued interest on loans (see note
6) 4,631,313 5,306,389
Total fair value movement through the
profit or loss (see note 6) (4,162,439) 6,226,732
Closing balance 150,991,956 138,203,407
------------------------------------------ ------------ ------------
7.5 Notes to the Condensed Financial Statements (continued)
For the period from 1 January 2020 to 30 June 2020
18. Financial risk management
As at 30 June 2020 there have been no changes to the financial
instruments risk identified in the Annual Financial Statements of
31 December 2019.
The Company is exposed to certain risks through the ordinary
course of business and the Company's financial risk management
objective is to minimise the effect of these risks. The management
of risks is performed by the Directors of the Company and the
exposure to each financial risk considered potentially material to
the Company, how it arises and the policy for managing it is
summarised below:
-- Counterparty risk
The Company is exposed to third-party credit risk in several
instances and the possibility that counterparties with which the
Company and its subsidiaries, together the Group, contracts may
default or fail to perform their obligations in the manner
anticipated by the Group. Such counterparties may include (but are
not limited to) manufacturers who have provided warranties in
relation to the supply of any equipment or plant, EPC contractors
who have constructed the Company's plants, who may then be engaged
to operate assets held by the Company, property owners or tenants
who are leasing ground space and/or grid connection to the Company
for the locating of the assets, contractual counterparties who
acquire services from the Company underpinning revenue generated by
each project or the energy suppliers, or demand aggregators,
insurance companies who may provide coverage against various risks
applicable to the Company's assets (including the risk of terrorism
or natural disasters affecting the assets) and other third parties
who may owe sums to the Company. In the event that such credit risk
crystallises, in one or more instances, and the Company is, for
example, unable to recover sums owed to it, make claims in relation
to any contractual agreements or performance of obligations (e.g.
warranty claims) or require the Company to seek alternative
counterparties, this may materially adversely impact the investment
returns. Further, the projects in which the Company may invest will
not always benefit from a turnkey contract with a single contractor
and so will be reliant on the performance of several suppliers.
Therefore, the key risks during battery installation in connection
with such projects are the counterparty risk of the suppliers and
successful project integration.
The Manager regularly assesses the creditworthiness of its
counterparties and enters into counterparty arrangements which are
financially sound and ensures, where necessary, the sourcing of
alternative arrangements in the event of changes in the
creditworthiness of its present counterparties.
-- Concentration risk
The Company's investment policy is limited to investment in
energy storage infrastructure, which will principally operate in
the UK. This means that the Company has a significant concentration
risk relating to the UK energy storage infrastructure sector.
Significant concentration of investments in any one sector may
result in greater volatility in the value of the Company's
investments and consequently the Net Asset Value and may materially
and adversely affect the performance of the Company and returns to
Shareholders.
The Fund's ESS projects generate revenues primarily from Firm
Frequency Response (FFR), Asset Optimisation (Trading), Capacity
Market (CM) and other grid connection-related charges, including
TRIADs. Revenues from the portfolio's ESS projects are currently
skewed to FFR revenues, FFR being the provision to the National
Grid of a dynamic response service to maintain the grid's
electrical frequency at 50Hz. In 2020, operations are expected to
be increasingly targeted towards Asset Optimisation, as this
becomes the more profitable business activity. There are several
additional revenue opportunities emerging for the portfolio as a
series of regulatory changes are implemented.
The Manager is of the view that the UK's exposure to renewable
energy generation has increased significantly over the last few
years and the pace has not lessened despite the removal of legacy
subsidies to onshore wind and solar. This is largely because the
development of offshore wind installations has continued apace. As
a result, generation from wind is having a growing impact on the
grid, generating a volatile supply of energy which underpins the
opportunity for ESS.
-- Credit risk
Cash and other assets that are required to be held in custody
will be held at bank. Cash and other assets may not be treated as
segregated assets and will therefore not be segregated from the
bank's own assets in the event of the insolvency of a custodian.
Cash held with the bank will not be treated as client money subject
to the rules of the FCA and may be used by the bank in the ordinary
course of its own business. The Company will therefore be subject
to the creditworthiness of the bank. In the event of the insolvency
of the bank, the Company will rank as a general creditor in
relation thereto and may not be able to recover such cash in full,
or at all.
7.5 Notes to the Condensed Financial Statements (continued)
For the period from 1 January 2020 to 30 June 2020
18. Financial risk management (continued)
-- Credit risk (continued)
The Manager regularly assesses its credit exposure and considers
the creditworthiness of its customers and counterparties. Cash and
bank deposits are held with Barclays Bank plc, a reputable
financial institution with a Moody's credit rating Baa2.
Investments held at fair value through profit or loss are not
subject to IFRS 9 impairment requirements.
For interest receivables on cash balances and loans receivable,
the Company uses a 12-month expected loss allowance.
The Company has completed some high-level analysis and forward
looking qualitative and quantitative information, to determine if
the interest and receivables are low credit risk. Based on this
analysis the expected credit loss on interest and receivables are
not material and therefore no impairment adjustments were accounted
for.
-- Liquidity risk
The objective of liquidity management is to ensure that all
commitments which are required to be funded can be met out of
readily available and secure sources of funding.
ESS projects have limited liquidity and may not be readily
realisable or may only be realisable at a value less than their
book value. There may be additional restrictions on divestment in
the terms and conditions of any sale agreement in relation to a
particular ESS project.
The Company does intend to assess its ability to raise debt and
is expected to introduce leverage (at the Company level and/or the
ESS project Company level) once sufficient assets have been
acquired and to the extent funding is available on acceptable
terms. In addition, it may from time to time use borrowing for
short term liquidity purposes which could be achieved through a
loan facility or other types of collateralised borrowing
instruments. The Company is permitted to provide security to
lenders in order to borrow money, which may be by way of mortgages,
charges or other security interests or by way of outright transfer
of title to the Company's assets. The Directors will restrict
borrowing to an amount not exceeding 50% of the Company's Net Asset
Value at the time of drawdown. There will be no cross
collateralization between the projects.
The Company's only financial liabilities are trade and other
payables. The Company has sufficient cash reserves to cover these
in the short to medium term. The Company's cash flow forecasts are
monitored regularly to ensure the Company is able to meet its
obligations when they fall due.
The following table reflects the maturity analysis of financial
assets and liabilities.
< 1 year 1 to 2 2 to > 5 years Total
(GBP) Years 5 years (GBP) (GBP)
As at 30 June 2020 (GBP) (GBP)
----------------------------- ----------- ------- --------- ------------- ------------
Financial assets
Cash and cash equivalents 52,952,749 - - - 52,952,749
Trade and other receivables 40,500 - - - 40,500
Loans receivable (see
note 12) 27,056,065 - - - 27,056,065
Fair value through
profit or loss:
Investment in subsidiaries - - - 121,884,032* 121,884,032
Total financial assets 80,049,314 - - 121,884,032 201,933,346
----------------------------- ----------- ------- --------- ------------- ------------
Financial liabilities
Financial liabilities
at amortised cost
Trade and other payables 1,140,168 - - - 1,140,168
Total financial liabilities 1,140,168 - - - 1,140,168
----------------------------- ----------- ------- --------- ------------- ------------
*excludes the equity portion of the investment in
subsidiaries
7.5 Notes to the Condensed Financial Statements (continued)
For the period from 1 January 2020 to 30 June 2020
18. Financial risk management (continued)
The following table reflects the maturity analysis of financial
assets and liabilities.
< 1 year 1 to 2 2 to > 5 years Total
years 5 years
As at 31 December (GBP) (GBP) (GBP) (GBP) (GBP)
2019
----------------------------- ------------- ------- --------- ------------- ------------
Financial assets
Cash and cash equivalents
(see Note 14) 52,905,852 - - - 52,905,852
Restricted cash (see
Note 15) 10,843,595 - - - 10,843,595
Trade and other receivables
(see Note 16) 52,386** - - - 52,386
Loans receivable 6,304,087*** - - - 6,304,087
Fair value through
profit or loss:
Investment in subsidiaries - - - 104,933,044* 104,933,044
Total financial assets 70,105,920 - - 104,933,044 175,038,964
----------------------------- ------------- ------- --------- ------------- ------------
Financial liabilities
Financial liabilities
at amortised cost
Trade and other payables
(see Note 16) 2,450,447 - - - 2,450,447
Total financial liabilities 2,450,447 - - - 2,450,447
----------------------------- ------------- ------- --------- ------------- ------------
*excludes the equity portion of the investment in
subsidiaries
**excludes VAT
***calculated maturity amount
-- Market risk
Market risk is the risk that the fair value or cash flows of a
financial instrument will fluctuate due to changes in market
prices. Market risk reflects interest rate risk, currency risk and
other price risks. The objective is to minimise market risk through
managing and controlling these risks to acceptable parameters,
while optimising returns. The Company uses financial instruments in
the ordinary course of business, and also incurs financial
liabilities, in order to manage market risks.
Price risk is the risk that the fair value or cash flows of a
financial instrument will fluctuate due to changes in market
prices. At 30 June 2020, the valuation basis of the Company's
investments was valued at market value. This investment is driven
by market factors and is therefore sensitive to movements in the
market.
-- Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows or the fair values of
financial instruments. The Company is exposed to interest rate risk
on its cash balances held with counterparties, bank deposits, loans
receivable, advances to counterparties and through loans to
subsidiaries. Bank deposits and Treasury fixed-term deposits carry
a fixed rate of interest for a definite period and loans receivable
and loans to subsidiaries carry a fixed rate of interest until
repayment at the earlier of written demand from the lender or 31
December 2030. The Company may be exposed to changes in variable
market rates of interest as this could impact the discount rate and
therefore the valuation of the projects as well as the fair value
of the loans to subsidiaries.
7.5 Notes to the Condensed Financial Statements (continued)
For the period from 1 January 2020 to 30 June 2020
-- Currency risk
All transactions and investments during the current period were
denominated in Pounds Sterling, thus no foreign exchange
differences arose. The Company does not hold any financial
instruments at period end which are not denominated in Pounds
Sterling and is therefore not exposed to any significant currency
risk. Subsidiary entities may, from time to time, incur expenditure
in currencies other than Pounds Sterling.
-- Capital risk management
The capital structure of the Company at Year-End consists of
equity attributable to equity holders of the Company, comprising
issued capital and reserves. The Board continues to monitor the
balance of the overall capital structure so as to maintain investor
and market confidence. The Company is not subject to any external
capital requirements.
18. Financial risk management (continued)
-- Other risks
The Company is exposed to other risks as set out in the
Prospectus dated 17 October 2018. Principal and emerging risks and
uncertainties are disclosed on earlier in the Interim Report.
19. Net asset value per Ordinary Share
Basic NAV per Ordinary Share is calculated by dividing the
Company's net assets as shown in the statement of financial
position that are attributable to the ordinary equity holders of
the Company by the number of Ordinary Shares outstanding at the end
of the period. As there are no dilutive instruments outstanding,
basic and diluted NAV per Ordinary Share are identical.
30 June 31 December
2020 2019
-------------------------------------------- --------------- ---------------
Net assets per Statement of Financial
Position GBP229,971,582 GBP205,879,360
Ordinary Shares in issue 234,270,650 204,270,650
NAV per Ordinary Share - Basic and diluted
(pence) 98.16 100.79
-------------------------------------------- --------------- ---------------
20. Share capital
Ordinary Share Share Capital Total shareholders'
Shares capital premium reduction equity
number reserve reserve ( GBP)
(GBP) (GBP) (GBP)
-------------------------- ------------ ---------- ------------ ------------ --------------------
Allotted and issued
share capital
As at 31 December 2019 204,270,650 2,042,707 104,380,109 91,764,550 198,187,366
Issue of Ordinary Shares
of GBP0.01 and fully
paid at GBP1.00 - 5
March 2020 30,000,000 300,000 30,900,000 - 31,200,000
234,270,650 2,342,707 135,280,109 91,764,550 229,387,366
-------------------------- ------------ ---------- ------------ ------------ --------------------
Share issue costs - - (509,930) - (509,930)
Dividends paid - - - (6,142,443) (6,142,443)
As at 30 June 2020 234,570,650 2,342,707 134,770,179 85,622,107 222,734,993
-------------------------- ------------ ---------- ------------ ------------ --------------------
7.5 Notes to the Condensed Financial Statements (continued)
For the period from 1 January 2020 to 30 June 2020
20. Share capital (continued)
Ordinary Share Share premium Capital Total shareholders'
Shares capital reserve reduction equity
Number reserve ( GBP)
(GBP) (GBP) (GBP)
------------------------ ------------ ---------- -------------- ------------ --------------------
Allotted and issued
share capital
Issue of 50,000
redeemable preference
shares - one quarter
paid up - 12,500 - - 12,500
Redemption and
cancellation of
50,000 redeemable
preference shares - (12,500) - - (12,500)
Issue of Ordinary
Shares of GBP0.01
and fully paid
at GBP1 - 13 November
2018 100,000,000 1,000,000 99,000,000 - 100,000,000*
Issue of Ordinary
Shares of GBP0.01
and fully paid
at GBP1 - 31 May
2019 49,228,000 492,280 49,228,000 - 49,720,280
Issue of Ordinary
Shares of GBP0.01
and fully paid
at GBP1 - 17 July
2019 14,610,000 146,100 15,194,400 - 15,340,500
Issue of Ordinary
Shares of GBP0.01
and fully paid
at GBP1 - 17 October
2019 40,432,650 404,327 41,241,303 - 41,645,630
204,270,650 2,042,707 204,663,703 - 206,706,410
------------------------ ------------ ---------- -------------- ------------ --------------------
Share issue costs - - (3,274,119) - (3,274,119)
Transfer to capital
reduction reserve - - (97,009,475) 97,009,475 -
Dividends paid - - - (5,244,925) (5,244,925)
As at 31 December
2019 204,270,650 2,042,707 104,380,109 91,764,550 198,187,366
------------------------ ------------ ---------- -------------- ------------ --------------------
*Please refer to note 21 for the non-cash flow portion of the
share issue.
Share capital and share premium account and capital reduction
reserve
The Board of Directors announced the following on 17 February
2020:
-- A non-pre-emptive placing of new Ordinary Shares at an issue
price of 104.0p per Placing Share are used for further pipeline
acquisitions and provide increased general working capital. The
Placing Shares will not rank for the dividend of 1.0p per Ordinary
Share declared by the Company but will otherwise rank pari passu
with the Company's existing Ordinary Shares in issue. Further to
the placing announcement of 17 February 2020, the Company issued
30,000,000 Ordinary Shares as announced on 3 March 2020, raising
gross proceeds of GBP31.2 million
Dividends
On 17 February 2020, a dividend of 1.0p per Ordinary Share for
the period from 1 October 2019 to 31 December 2019 was announced.
The dividend of GBP2,042,707 was paid on 20 March 2020 to
shareholders on the register as at the close of business on 28
February 2020. The ex-dividend date was 27 February 2020.
An interim dividend of 1.75p per Ordinary Share for the period
from inception to 31 March 2020 was announced on 11 May 2020. The
dividend of GBP4,099,736 was paid on 10 June 2020 to shareholders
on the register as at the close of business on 22 May 2020. The
ex-dividend date was 21 May 2020.
Ordinary shareholders are entitled to all dividends declared by
the Company and, in a winding up, to all of the Company's assets
after repayment of its borrowings and ordinary creditors. Ordinary
shareholders have the right to vote at meetings of the Company. All
Ordinary Share s carry equal voting rights.
7.5 Notes to the Condensed Financial Statements (continued)
For the period from 1 January 2020 to 30 June 2020
21. Non-cash flow items
The following table discloses non-cash flow items which are
excluded from the statement of cash flow items relating to
investing and financing activities:
1 January 2020 24 August 2018
to to
30 June 2020 30 June 2019
(GBP) (GBP)
---------------------------------- ---------------- ---------------
Non-cash flows used in investing
activities
Purchase of investments - 13,433,351
Loans made to subsidiaries - 24,728,385
----------------- ---------------
- 38,161,736
-----------------
Non-cash flows used in financing
activities
Proceeds from issue of Ordinary
Shares at a premium - 38,161,736
----------------- ---------------
- 38,161,736
----------------- ---------------
These non-cash flow transactions were in respect of the shares
issued at IPO in order to acquire the Seed Assets.
22. Reserves
The nature and purpose of each of the reserves included within
equity at 30 June 2020 are as follows:
-- Capital reduction reserve; represents a distributable reserve
created following a Court approved reduction in capital
-- Revenue reserves represent cumulative revenue net profits
recognised in the Condensed Statement of Comprehensive Income.
-- Capital reserves represent cumulative net gains and losses on
investments and cumulative capital expenses recognised in the
interim Condensed Statement of Comprehensive Income.
The only movements in these reserves during the period are
disclosed in the Condensed Statement of Changes in Equity.
23. Transactions with related parties and other significant
contracts
Following admission of the Ordinary Shares, the Company and the
Directors are not aware of any person who, directly or indirectly,
jointly or severally, exercises or could exercise control over the
Company. The Company does not have an ultimate controlling
party.
Details of related parties are set out below:
Directors
John Leggate, Chair of the Board of Directors of the Company, is
paid Directors' remuneration of GBP65,000 per annum, Duncan Neale
is paid Directors' remuneration of GBP45,000 per annum, with the
remaining Directors being paid Directors' remuneration of GBP40,000
per annum.
Key management personnel include the Directors. Total Directors'
remuneration of GBP105,970 was incurred in respect of the period
and includes short-term employee benefits of GBP24,413. There was
no Directors' remuneration outstanding and payable at the period
end.
7.5 Notes to the Condensed Financial Statements (continued)
For the period from 1 January 2020 to 30 June 2020
23. Transactions with related parties and other significant
contracts (continued)
Directors (continued)
Dividends paid by the Company to the Directors during the period
were as follows. No dividend amounts were payable as at 30 June
2020.
2020 Dividends
Dividend in p/share (GBP) 1.00 1.75 2.75
20 March 2020 12 June 2020 Total
John Leggate Shares 18,875 28,675 28,675
Dividend 188.75 501.81 690.56
Duncan Neale Shares 9,625 9,625 9,625
Dividend 96.25 168.44 264.69
David Stevenson Shares 9,854 9,854 9,854
Dividend 98.54 172.45 270.99
Catherine Pitt Shares 5,000 14,660 14,660
Dividend 50.00 256.35 306.55
The aggregate fees of the Directors will not exceed GBP500,000
per annum. There are no performance conditions attaching to the
remuneration of the Directors as the Board does not believe that
this is appropriate for non-executive Directors. The Directors are
not eligible for bonuses, pension benefits, share options, long
term incentive schemes or other benefits.
AIFM
The AIFM, Gresham House Asset Management Limited (the AIFM), is
entitled to receive from the Company, in respect of its services
provided under the AIFM agreement, a fee as follows:
-- 1% on the first GBP250 million of the Net Asset Value of the
Company
-- 0.9% on the Net Asset Value of the Company in excess of
GBP250 million and up to and including GBP500 million
-- 0.8% on the Net Asset Value of the Company in excess of
GBP500 million
During the period, AIFM fees amounted to GBP1,126,012 (2019:
GBP952,994) with GBPnil (2019: GBP657,232) outstanding and payable
at the period end.
The Investment Manager is a wholly owned subsidiary of Gresham
House plc, a significant shareholder in the Company (12.23% of
total issued Ordinary Shares). Ben Guest (a Director of the
Investment Manager), Bozkurt Aydinoglu (0.57% of total issued
Ordinary Shares) and Gareth Owen (0.49% of total issued Ordinary
Shares) are also significant shareholders in the Company. These
parties have entered into a Lock-up and Orderly Market Deed dated
16 October 2018 that regulates their ability to deal in the
Company's Ordinary Shares. Ben Guest also holds, via a wholly owned
vehicle Lux Energy Limited, a significant financial interest in the
Company (Ben's total holdings are 5.74% of total issued Ordinary
Shares, including direct and indirect holdings).
7.5 Notes to the Condensed Financial Statements (continued)
For the period from 1 January 2020 to 30 June 2020
23. Transactions with related parties (continued)
Loans to related parties
Loans to subsidiaries represent amounts due to the Company from
its direct subsidiary undertakings, NSL, HCESS3, HCESS4 , WMGS,
Glassenbury and Cleator as well its indirect subsidiary, HCESS2 ,
as follows:
Subsidiary Outstanding loan Interest receivable Total
GBP GBP GBP
Noriker Staunch
Ltd 16,973,082 677,063 17,650,145
HC ESS2 Limited 27,006,649 1,079,700 28,146,349
HC ESS3 Limited 16,886,111 672,796 17,538,907
HC ESS4 Limited 30,769,493 1,180,079 31,949,572
WMGS 4,198,752 167,437 4,366,189
Creator 4,615,299 184,106 4,799,405
Glassenbury 16,799,281 670,130 17,469,411
------------
121,919,978
============
Loans receivable
Loans receivable represent amounts due to the Company from its
affiliated parties, Biggerbrook, HC ESS6 Limited and HC ESS7
Limited, as follows:
Affiliated party Outstanding loan Interest receivable Total
GBP GBP GBP
Biggerbrook 1,806,294 72,054 1,878,348
HC ESS6 Limited 15,399,505 384,616 15,784,121
HC ESS7 Limited 9,069,178 324,418 9,393,596
-----------
27,056,065
===========
24. Capital commitments
As at 30 June 2020 the Company has no significant binding or
conditional future capital commitments.
25. Post balance sheet events
On 3 July 2020, the Company acquired the 41MW Bloxwich battery
storage project from Arenko Group.
On 6 July 2020, an additional loan of GBP720,000 was advanced to
HC ESS3 Limited.
On 7 July 2020,the Company launched a private offer of secured
power bonds (the GRID Power Bonds) to facilitate the acquisition of
additional battery storage projects in accordance with GRID's
investment policy, to advance loans to ESS projects and/or to
refinance existing shareholder loans to ESS projects.
The private offer is being made by GRID's wholly owned
subsidiary, Gresham House Energy Storage Holdings plc (the Issuer)
and is targeting an initial raise of a maximum of GBP15 million
through an initial Series of 5.0% per annum fixed rate bonds
(equivalent to a coupon of approximately 4% after tax). The GRID
Power Bonds may be issued in one or more series (each a Series),
with each Series having a term of five years from its issue date,
redeemable by the Issuer with no penalty after two years. The first
Series will close soon.
It is intended that the proceeds of the initial Series will be
used, among other things, to acquire an operating asset which is at
an advanced stage of due diligence. The addition of this project to
the Company's existing portfolio of operational assets is expected
to be accretive to the Fund's cash flow and NAV per share.
The GRID Power Bonds provide the Company's group with
attractive, flexible fixed rate financing terms with low
arrangement, legal and other ancillary fees as compared to a
typical revolving credit facility or project finance.
The GRID Power Bonds will pay interest semi-annually, in
arrears, in equal instalments and have a maximum, aggregate
subscription amount of GBP40 million. The offer period will be open
for 12 months to July 2021 to, among other things, assist with the
acquisition of further battery storage projects.
In addition, the impact of COVID-19 is regarded as a
non-adjusting event under IAS 10 and it does not have any impact on
the valuation of the Company's assets and liabilities at the year
end and we do not expect any significant changes to the valuation
of the Company's assets and liabilities after the period end.
On 19 August 2020 the Board approved a loan to Grid Reserve
Limited (which owns the Byers Brae project). This loan totalled
GBP2.05m. There were no further events after the reporting date
which require disclosure.
8. COMPANY INFORMATION
Non-Executive Directors: John Leggate - Chair
Duncan Neale
David Stevenson
Catherine Pitt
Registered Office The Scalpel
18th Floor
52 Lime Street
London
EC3M 7AF
---------------------------------
Manager and AIFM Gresham House Asset Management
Limited
5 New Street Square
London
EC4A 3TW
---------------------------------
Sole Bookrunner and Financial Cantor Fitzgerald Europe
Adviser (to 2 June 2020) One Churchill Place
Canary Wharf
London
E14 5RB
---------------------------------
Corporate Broker and Financial Jefferies International Limited
Adviser (appointed 3 June 2020) Vintners Place
68 Upper Thames Street
London
EC4V 3BJ
---------------------------------
Tax Advisor Blick Rothenberg Limited
16 Great Queen Street
Covent Garden
London
WC2B 5AH
---------------------------------
Independent Auditor BDO LLP
55 Baker Street
London
W1U 7EU
---------------------------------
Administrator and Secretary JTC (UK) Limited
The Scalpel
18th Floor
52 Lime Street
London
EC3M 7AF
---------------------------------
Registrar and Receiving Agent Computershare Investor Services
plc
The Pavilions
Bridgewater Road
Bristol
BS13 8AE
---------------------------------
Legal Adviser Eversheds LLP
1 Wood Street
London
EC2V 7WS
---------------------------------
Depositary Services INDOS Financial Limited
54 Fenchurch Street
London
EC3M 3JY
---------------------------------
Investment Valuer Grant Thornton LLP
30 Finsbury Square
London
EC2A 1AG
---------------------------------
Ticker: GRID
---------------------------------
9. GLOSSARY
Asset optimisation
Asset optimisation involves buying and selling electricity in
order to capture a spread between the high and low electricity
prices on any given day. This can be done via one or more market
mechanisms, hence the expression "Asset Optimisation".
Asymmetric
An asymmetrical grid connection is where the import and export
capacities are different.
AUM / Assets Under Management
The total Net Assets of the Company.
Balancing Services
National Grid procure services to balance demand and supply and
to ensure the security and quality of electricity supply across
Britain's transmission system. These include:
-- Black Start
-- Demand side response
-- Enhanced frequency response (EFR)
-- Firm frequency response (FFR)
-- Short term operating reserve (STOR)
In order to provide balancing services a Balancing Services use
of System charge (BSUOS) is payable.
https://www.nationalgrideso.com/balancing-services
Black Start
A total or partial shutdown of the national electricity
transmission system (NETS) is an unlikely event. However, if it
happens, National Grid are obliged to make sure there are
contingency arrangements in place to ensure electricity supplies
can be restored in a timely and orderly way. Black Start is a
procedure to recover from such a shutdown.
https://www.nationalgrideso.com/balancing-services/system-security-services/black-start/
Capacity Market
The income received by generators to ensure generation capacity
is available to meet shortfalls.
Curtailment
Large wind farms are connected to the UK's high-voltage network
and National Grid balances electricity supply and demand. As demand
rises and falls during the day, electricity supply mirrors these
peaks and troughs.
National Grid accepts bids and offers from electricity
generators to increase or decrease electricity generation as and
when required. As such it may mean that there are times when
generators are paid to curtail their output (constraint
payments).
https://www.nationalgrideso.com/news/grounds-constraint
Load factors
The load factor is usually expressed as the percentage of the
actual output of a generator compared to its theoretical maximum
output in a year.
NAV
Net Asset Value being the total Net Assets in the Company
divided by the total number of Ordinary Shares in issue as at 30
June 2020.
Ongoing Charges Figure / OCF
The Ongoing Charges Figure includes all charges and costs
incurred by the Company which relate to the ongoing operation of
the Company. This includes management fees, administration fees,
audit fees, Director's remuneration, depositary services costs and
other similar costs. It excludes capital costs and costs of raising
new capital. The Ongoing Charges are then divided by the weighted
average NAV and annualised.
Ordinary Share
Share in the Company with a nominal value of 1 pence.
Symmetrical
A symmetrical grid connection is where the import and export
capacities are the same.
Seed Assets
The assets acquired for GBP70 million at IPO known as Staunch,
Littlebrook, Lockleaze, Rufford and Roundponds.
System inertia
Inertia works to keep the electricity system running at the
right frequency by using the kinetic energy in spinning parts in
power plant generator turbines. When needed, the spinning parts in
generator turbines can rotate slightly faster or slower to help
balance out supply and demand. The more turbines you have, the more
energy there is in the system and the greater the system inertia,
which helps to stabilise the frequency.
https://www.nationalgrideso.com/information-about-great-britains-energy-system-and-electricity-system-operator-eso/technical-terms-explained
TRIADs
Triads are defined as the three half-hours of highest demand on
the GB electricity transmission system between November and
February each year, the Triads are part of a charge-setting
process. This identifies peak electricity demand at three points
during the winter in order to minimise energy consumption.
However, Triads must be at least 10 days apart. This is to avoid
all three potentially falling in consecutive hours on the same day,
for example during a particularly cold spell of weather.
https://www.nationalgrideso.com/news/triads-why-three-magic-number
VLC
VLC Energy: the seller of the Glassenbury and Cleator projects
to the Company as announced in the RNS dated 16 December 2019.
VRLA
Valve-Regulated Lead-Acid
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END
IR BBGDIUSDDGGC
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