Gore Street Energy Storage (GSF ) has demonstrated that it is possible to smooth out volatile battery revenues after an update showed the average revenue achieved in the third quarter was in line with the previous six months.

Strong winds drove performance across the Northern Irish assets over the three months to January in a continuation of the summer trend, while revenues from the Texas asset plummeted as warmer weather and low demand reduced the need for ancillary services, with the whole portfolio generating £15.1 megawatt hours.

The Great Britain batteries, which exclude Northern Ireland, continued to struggle, with reforms to the balancing mechanism that began in December yet to have an impact on revenues, which remain at £6.1 megawatt hours.

The electricity system operator uses the balancing mechanism to balance demand and supply on the GB network and plans to include battery energy storage systems (BESS) in the reform. JPMorgan Cazenove’s Chris Brown noted that the size of the opportunity for BESS was still unclear.

A warmer start to the winter softened German revenues from the sole asset making up 6% of the portfolio, dropping to £10.9 megawatt hours.

Portfolio manager Alex O’Cinneide (pictured below recording a podcast at Citywire last month) said the £557m fund would increase its use of trading in European markets in 2024, which offers opportunities ‘scales above’ what is possible in GB.

Anticipating the ‘most pivotal year yet’, he reiterated a possible asset sale to redeploy capital and ease investors’ concerns over valuations and expanding operational capacity to more than 800MW, as well as strengthening the dividend.

‘Given the grid connection delays and other supply chain challenges that we have seen across the battery storage sector to date, delivering 440MW of additional operating capacity by the end of the year would appear an ambitious target, but if the company is able to execute on this it stands to meaningfully improve revenue generation and dividend cover, while also underpinning NAV progression,’ said Deutsche Numis’ Andrew Rees.

Battery funds have derated heavily over the last 12 months as investors question valuations, given the essentially merchant revenue stream and small number of long-term fixed contracts, putting them at the mercy of seasonality and saturation levels in their chosen markets, Brown said.

While the prospect of interest rate cuts drove a wider renewable infrastructure sector rally, lifting shares in the 9% yielder by 23% over the last three months, investors remain sceptical, with the shares at a 27% discount to the September NAV of 112.9p per share.

Performance since launch 

Source: Morningstar