Harmony Energy Income Trust (HEIT ) has become the second battery fund in two days to cut its dividend after reporting an alarming slump in UK revenues.

A day after rival Gresham House Energy Storage (GRID ) axed its fourth quarter dividend and said it would review the level of future payouts, Harmony said it had decided to postpone its first quarter payment of 2p per share due to be declared this month.

However, unlike the Gresham House fund, Harmony remains committed to distributing 8p per share a year and said it would take steps to sell one or more assets to cut debt, generate cash for future dividends and possible share buybacks.

Having crashed over a third in the past week after GRID’s broker Jefferies flagged the danger of uncovered dividends in the sector, Harmony shares slumped another 7.4p, or over 17%, to 34.5p today, exacerbating their already extremely wide discount of 63% to net asset value (NAV).

Jefferies analyst Matthew Hose downgraded the stock to ‘underperform’ yesterday. Other analysts believe the company could attract bids at this level. 

GRID slid another 4.7% to GBX 49.1p, down 55% this year.

Gore Street Energy Storage (GSF ), whose international portfolio is less exposed to the UK but has big operations in Ireland, rose 2.2% to 68.7p, down 22% this year.

Like GRID, Harmony said while it had anticipated a reduction in revenues from the ‘remarkable highs’ of 2022 when power prices soared after Russia’s invasion of Ukraine, ‘the scale and the speed of the reduction has exceeded market expectations’.

It said an oversupply of battery energy storage systems (Bess) in the ancillary services market combined with the grid’s lack of use of them in its balancing mechanism, had driven the revenue decline. It added this was exacerbated by falls in wholesale power prices coupled with less volatile energy trading.

Another factor was problems with new National Grid software designed to boost the role of battery systems, which Harmony said had led to intermittent demand last month that made it difficult for its algorithms to calculate how much daily capacity to offer the grid, further depressing revenues.

‘While the reasons for the recent low revenue environment are understood, and the market conditions are expected to improve, the short-term outlook remains uncertain. If these conditions do continue for an extended period, this will impact on the ability of the company to declare and make distributions. It is well understood that Bess revenues can vary across the course of a year and therefore prudent cash management is required,’ the company said.

Harmony said despite the pressure on revenues, valuations of its operational and construction assets continued to be supported by stable discount rates and transactions. In September, the company sold its Rye Common project at a 1.5% premium above carrying value.

It cited Modo Energy data showing each of its five operating two-hour battery assets appeared in Bess sector’s top 10 leaderboard last month. It said operational free cash flow was forecast to increase this year giving the company sufficient resources to complete construction of its remaining three projects that make up 30% of the portfolio.

Sachin Saggar, analyst at Stifel, a corporate broker to GRID, said Harmony had the best quality UK assets of the three listed batter funds and he did not have concerns it could fall insolvent as it was generating enough cash to pay interest and fund costs.

He said the main difference in its approach from GRID was lowering leverage through asset sales. ‘It’s unclear how the sudden change in the revenue backdrop over the past couple of months will be viewed by buyers, but it will certainly shift the balance of power in a negotiation. If a sale anywhere close to prior valuation is possible, it will go someway in validating the thesis for longer duration batteries.

‘The flipside is that if buyers are willing to pay close to NAV, then there is enough capital in the sector that someone could bid for the trust materially below NAV, but above today’s share price to take the entire portfolio private,’ he added.

Harmony plans to publish its annual results and first quarter NAV at the end of this month.