Gresham House Energy Storage (GRID ), the £844m battery fund that is the renewables sector’s best performer this year, has reported an ‘exceptional’ half-year result just as its shares are caught up in the post-Budget selloff of stocks exposed to rising interest rates.

GRID, which impressed investors in April when it reported a 20% return for last year, has benefited more than most renewables funds from the surge in power prices by providing a valuable balancing service when the grid faces outages of wind and solar power.

The company, which runs a portfolio of 28 battery storage projects in the UK, had already guided investors to expect a profitable first half. Yesterday it duly reported a 27.2% total investment return, including dividends, with net asset value (NAV) jumping 28.25p to 145.11p, just above the top of its forecast range.

The biggest contributor to this return was a £61.2m, or 12.12p per share, uplift in the value of construction projects previously held at cost. New capacity market contracts where GRID is paid to be a reliable source of energy added £30.6m, or 6.68p per share.

Higher forecasts for trading revenues brought in £30.9m, or 6.06p per share, while updated inflation assumptions provided a 3.88p-per-share boost.

GRID shares have risen 22.5% this year, the best of any listed renewables fund, but like other renewables funds have been hit by the spike in interest rate expectations after last Friday’s Budget, falling nearly 12% in the past five days.

Despite this, the 4.5%-yielder retains a premium rating. At 157.5p, up 1% today, the shares stand 7% above GRID’s broker Jefferies’ latest NAV-per-share estimate of 146.8p.

Investors are concerned that the discount rates that infrastructure funds use to value their cashflows will have to rise in response to the leap in UK government bonds, depressing their NAVs.

Analysts pointed out that inflation linkage and investor demand for the underlying assets can offset some of this pressure.

GRID, which is managed by Ben Guest at Gresham House Asset Management, did not comment on the recent rise in government bond yields but said it had edged the portfolio’s weighted average discount rate slightly higher to 10.79% from 10.77% in the half-year period.

The interim report did not state what the sensitivity of its NAV is to rising discount rates, but the high level could provide enough ‘headroom’ above gilt yields of around 4.5% to mean that it does not have to ratchet them much higher.

Stifel analyst Sachin Saggar said the results were good with 89% of revenues coming from frequency response services, although he noted Guest’s comment that pricing here will fall as more supply comes on stream in the second half.

Nevertheless, he was optimistic that energy trading through the winter could provide a boost for dividends where GRID is on track to meet a 7p-per-share target for the year after paying 3.5p in the first half, 1.18 times covered by earnings.

‘Gresham House has the largest portfolio of operational batteries and is best placed to take advantage if we do see a marked shift to trading. If higher revenues are realised there is also scope for a special dividend in 2023,’ said Saggar.

Although two more of GRID’s battery energy storage systems (BESS) have become operational since the end of June, Guest (pictured above) expressed concern that the national rollout continued to lag the expansion of renewable energy supply.

‘While lockdowns and supply chain issues caused constraints in recent times, the main bottleneck today is in the slow rate of grid connection activity, impacting the industrywide deployment of BESS,’ he said.

‘We invite [energy regulator] Ofgem, grid companies and other stakeholders to act to solve this issue. It is not in anyone’s interest to see the unnecessary curtailment of incremental renewable generation and for associated balancing costs to increase exponentially due to a lack of flexible generation.’