A new battery storage fund is teaming up with Tesla to try to exploit increasingly volatile energy prices, an issue thrown into the limelight by the recent gas price crisis.
Harmony Energy Income is seeking to raise £230m to invest in a portfolio of five ‘shovel-ready’ projects and another advanced project located in Britain using the Californian company’s battery technology.
The investment company is targeting an 8% dividend yield from 2023, rising from an initial 2% in the year after launch, as part of a targeted 10% annual return once fully invested.
Despite the investor interest the Tesla association might create, the closed-end fund’s shares will be listed on London’s Special Fund Segment, initially barring private investors.
The attraction of using Tesla batteries comes from their relatively longer duration to competitors and Autobidder software, both of which can optimise revenues from the assets.
Harmony Energy, the investment adviser, said it had a significant track record of developing renewable energy generation assets and more recently battery storage projects, which make their money mostly from balancing contracts with National Grid or by buying energy at low cost when there is over-supply and selling at higher prices when demand peaks.
The firm has developed battery energy storage in the UK with just under 240MW of capacity, with around a sixth of that currently operational and the rest under construction.
That compares to around 1.2GW built and operating today, with regulatory documents accompanying the filing touting a potential of up to 43GW by 2050, underscoring the growth opportunity in the coming decades.
Payment for the 312.5MW seed portfolio will be partly satisfied by issuing about 23.5m shares in consideration to Harmony Energy, while key investment advisers will buy another 2.5m shares. The fund also has exclusive rights to acquire a further pipeline of projects with another 687.5MW of capacity already within the manager’s control.
Harmony Energy will charge a 0.9% management fee on the lower of the portfolio’s net asset value (NAV) or market capitalisation, falling to 0.8% a year on assets over £250m.
If it gets off the ground, Harmony will become the third player in London’s nascent battery storage sector, swelling the peer group to over £1bn in size. The £565m Gresham House Energy Storage (GRID ) is currently the sector leader, followed by the £392m Gore Street Energy Efficiency (GSF ). Both launched in 2018. The latter hauled in £74m in an oversubscribed share issue last month, while GRID raised £100m in July, indicating high demand for the sector.
The launch comes against a backdrop of an energy crisis in the UK as gas prices soar, partly exacerbated by the increasing reliance of the energy system on intermittent renewable sources like wind and solar.
‘The nation is becoming increasingly aware of the need to have the right infrastructure in place to secure our energy supplies. As we increase our reliance on renewable power, battery storage will have a crucial role to play,’ said prospective chairman Norman Crighton, who chairs three other investment trusts including £155m AVI Japan Opportunity (AJOT ).
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