Gresham House Energy Storage (GRID ) has cancelled dividends for the rest of the year and scrapped a short-lived share buyback programme as the battery fund scrambles to reduce debts in response to a slump in revenues.

In a full-year trading update, chair John Leggate said this was the ‘most challenging operating environment’ since the fund’s launch in 2018 and the board was taking steps to put the company on a ‘stable footing in a volatile market’. 

With GB battery revenues plummeting and cover for payouts close to zero, the board had already suspended the fourth-quarter dividend, but has now cancelled dividends for the rest of the year.

The directors are also U-turning on the share buybacks announced on 1 February. So far £2m has been spent in share repurchases but to no effect, with the wide discount ballooning from 57% to 71%.

The board has cancelled the £110m revolving debt facility, reducing its total borrowing capacity to £225m, of which £110m is currently drawn at a cost of 3.7% a year.

The facility has been restated giving the fund permission to draw up to £65m to complete GRID’s construction pipeline, while the interest cover and net debt covenants have been amended for 2024 and 2025 to provide the company with more headroom.

Debt was 13% of gross assets at 31 December and is not expected to exceed 20% by the time construction completes next year.

‘The board is prioritising deleveraging and cash preservation given the volatile trading environment,’ Leggate said. ‘This has led to the difficult decision to suspend dividend payments and share buybacks for the balance of 2024 but will enable us to complete our ongoing construction programme which will drive our near-term cash flow potential and inform our future dividend policy.’

The drop in third-party revenue forecasts to factor in the under-utilisation of battery assets on the national grid has hit the fund, with net asset value (NAV) falling 11.6%, or 17.01p, in the last three months of 2023 to 129.07p per share at 31 December.

Cautious that the revenue outlook is uncertain, the board has set its forecasts at 55% of the level suggested by external consultants.

Despite revenues improving ‘meaningfully’ in March and April, an alleviation that rival Harmony Energy Income (HEIT ) reported yesterday, they still remain well below forecasts.

The capacity of GRID’s assets is growing, however. A 50-megawatt battery in York was commissioned and the duration of a 35MW Scottish battery in Abroath extended from one to 1.4 hours. Penwortham, a 50MW asset in Preston, and Scotland-sited Shilton Lane, a 40MW battery, are expected to be energised at the end of the month.

This will increase the operational portfolio to 740MW in Great Britain, although grid connection delays have slowed other energisations.

Project Iliad, the US expansion for which GRID raised £50m from investors when its shares traded at a premium last May, has been postponed until the market improves.

Matt Hose, the analyst at GRID broker Jefferies whose January note on dividend cover sparked the wider sector selloff, said the improving trading environment from a very low base would be helpful from a cash perspective, but noted that the first quarter would likely remain below the level of the revised revenue assumptions.

‘More pertinently, there is no update regarding potential disposal activity, which we expect remains challenging given the circular issue of limited near-term revenue from the assets,’ Hose said.

Stifel’s Sachin Saggar believed the NAV writedown was insufficient, with his revenue estimates indicating a £97m haircut, or 100p per share valuation.

GRID shares have fallen 8.8% to 37.58% since the announcement yesterday afternoon, extending losses to 77% over the last 12 months.