I attended the results webinar for Gresham House Energy Storage Fund (GRID) this morning as I hold a few shares in the company. This is in fact not a fund in the normal sense but an investment company (i.e. an investment trust). It invests in a portfolio of utility-scale operational battery energy storage systems (BESS) via operating companies, mainly in the UK.
The accounts of this company are tricky for the same reason that I explained in a previous blog post about TRIG – see https://roliscon.blog/2022/03/14/accounting-in-alternative-energy-suppliers/ . The valuation of its assets depends on an estimate of future cash flows and the discount rate that is used. It was noted that the discount rate has not been changed as a result of the recent rise in inflation and interest rates.
However at face value the results for the year announced today were very good. Net Asset Value per share was up 13.5% and Share Price Total Return was 23%. The shares now trade at a premium to NAV and were up another 5% today at the time of writing.
The company’s batteries, which typically provide for 2 hours of service, enables the National Grid to manage the demands on their network and maintain the frequency. This is getting more difficult as more renewable energy services are being added which are unreliable. Base load provision from nuclear, coal and gas is falling due to Government pressure to decarbonise the economy with older nuclear stations also being shut down.
The batteries used are mainly lithium-ion ones which prompted a question from the audience about the impact of rising battery prices. They are rising because lithium mining capacity has not grown with demand but it could also be a speculative cycle and the consistent downtrend in prices is still expected to continue. It was noted that battery degradation was at 97.5%, i.e. very low.
The company clearly intends to scale up with new projects to increase capacity including possibly in overseas markets.
The investment manager currently expects NAV per share to be in the range of 140-145p by the 30th June 2022. The board has a target dividend of 7p per share for 2022 and in response to a question it was said that dividends will be raised as the cover goes up.
It is clear that the move to electrify everything while supply from generating operations becomes uncertain will raise demand for managing network frequency and other services so the future looks bright.
But note that the Government is planning to take over the grid management operations currently provided by National Grid Plc, i.e. nationalise them. See the article in today’s FT for more on that. It might affect the future of Gresham House Energy Storage.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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