5%-yielding GRID fund eyes more green growth in 2022

Gresham House Energy Storage (GRID), largest of three listed battery funds, is fully charged for another ‘transformational’ year as it anticipates a further step-up in UK renewable power.

Gresham House Energy Storage (GRID ), the largest of the three battery funds listed on the London Stock Exchange, is fully charged for another ‘transformational’ year as it anticipates a further step-up in UK renewable power.

In a confident trading update before its annual results are published in April, John Leggate, chairman of the £580m investment trust, this week said the outlook for battery storage was ‘very exciting’ following the government’s recent auction of ‘contracts for difference’ (CfD) to subsidise the rollout of renewable energy.   

This was expected to result in a  further 12GW in contracts, mostly for offshore wind, far above the 5.5GW achieved in the previous round in 2019. He said this expansion of an inherently intermittent power supply would require significant additional capacity from industrial-scale batteries around the country to serve as a back-up for when there was not enough wind and sun to meet demand.

‘GRID remains committed to taking the lead in providing this storage capability in the UK and Ireland,’ Leggate said.

GRID enjoyed a successful 2021, with earnings set to more than double to over £40m from £15.6m in 2020, providing full cover for the 7p per share dividend target underpinning its 5% yield.

It said growth in net asset value (NAV) would be at the upper end of its 8%-15% target range. It previously reported a total investment return of 18.4% in the 12 months to 30 September, benefiting from construction gains and trading revenues from selling its energy to the gird.

Batteries under construction rose to 415MW in the fourth quarter, up from 175MW in the previous three months, with a further 280MW added to its pipeline. This leaves the portfolio on track to hit over 1.5GW as the new lithium-ion energy storage systems are connected to the national grid in 2023 and 2024.

Gresham House (GHE) fund manager Ben Guest said: ‘We are excited about the impact that achieving these milestones will have on the prospects for earnings growth and NAV progression in 2022.’

GRID has 15 projects underway. With the frequency response market, which only requires batteries with under an hour’s duration, becoming ‘saturated’, the fund is focusing on storage systems with 1.5-hour and two-hour durations, where Guest said the trading opportunities were more profitable.

The fund manager said acquisition costs continued to fall with the company expecting to pay under £450,000 per MW for one-hour projects and less than £625,000 per MW for two-hour.

However, he cautioned that Covid-related supply delays would delay the construction of some projects but woud have no impact on budgets.

Launched in November 2018, GRID raised £100m from investors last year and borrowed £180m at 3% above Sonia, the replacement for Libor, the inter-bank lending rate. 

Over three years the shares have returned 24% including dividends. At 132.5p on Thursday they stood at an 18% premium above Numis Securities’ estimate of 112.2p per share.

 

 

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