Gore Street Energy Storage (GSF ) has offloaded the US tax credits linked to its Texan asset, providing hope for its next sale in California despite the political uncertainty surrounding the energy sector.

Shares in the £526m portfolio of energy storage assets climbed 7.4% to 56p on Monday afternoon after manager Gore Street Capital confirmed the agreed sale of investment tax credits (ITCs) linked to its ‘Dogfish’ project, with gross proceeds expected to be between £18m and £19m.

The sale is expected to close by the end of June with cash received in one payment soon after by the listed battery fund. 

According to a market announcement, the sale price is in line with the $60-80m combined total the fund expected to raise from the sale of both Dogfish ITCs and those linked to its Californian asset ‘Big Rock’.

Lead fund managr Alex O’Cinneide said the sale of the Big Rock ITCs ‘continues to progress well’ while the Dogfish deal marked a ‘significant milestone’ for the fund, ‘underscored by the strong pricing and favourable commercial terms we have secured’.

The manager said the Dogfish ITC sale continues progress towards targets set out last year, also including the energisation of over 530 megawatts (MWh) of capacity.

Under the Biden administration’s Inflation Reduction Act, that promised further investment in renewables, the 200MWh Big Rock and 75MWh Dogfish projects were eligible for tax credits of between $60-80m.

However, there were concerns about a reversal of the tax credit rules as Donald Trump entered the White House.

While O’Cinneide said the asset class remains robust and there is a ‘favourable policy environment that reinforces the long-term need for energy storage across the multiple markets in which we operate’, the fund has also hedged its dollar exposure. 

‘Given the recent significant geopolitical volatility, we are also pleased to report that a month ago, we hedged our US dollar income until the end of 2030, whilst we continue to have hedged our euro income,’ he said.

The board of the trust is currently deciding how to allocate the cash that is flowing in, with O’Cinneide stating that it enhances an ‘already strong balance sheet’.

‘The strong cash position, low-leverage and disciplined capital allocation, affords the company multiple options to increase long-term shareholder value,’ he said.

‘Among those attractive options are increasing the capacity and duration of existing assets and constructing our pre-construction assets which would benefit from rapidly declining capex costs.’

Jefferies analyst Fiona Huang said the Gore Street sale ‘demonstrates the market for the US Inflation Reduction Act’s ITCs remains intact despite the change in administration’.

‘In turn, this should offer investors confidence in the pricing of the ongoing Big Rock ITC sale, expected to be $37m to $55m,’ she said.

‘Moreover, comparing the capacity between Dogfish and Big Rock and assuming pricing remains similar highlights this guidance is likely to be conservative.’

Peel Hunt’s Markuz Jaffe said the sales ‘come at a crucial time for GSF, particularly where dividends have remained uncovered, and the company’s existing cash balance is likely to be extinguished’ by the upcoming payment of a 4p final dividend, in order to meet dividend guidance for the year. 

Jaffe added: ‘We remain cautious around the risk of dividend disappointment with respect to GSF, and we look forward to the board providing further clarity on capital allocation given the deep discount the shares continue to trade at (circa 47% to an end-December 2024 NAV).’