This article was written before the latest statement from RM Funds responding to Gore Street Energy Storage’s board. 

While Citywire has already covered Gore Street Energy Storage’s (GSF) rejection of the RM Funds requisition, I couldn’t resist adding my two pennyworth.

I also talked to manager Alex O’Cinneide in the wake of GSF’s announcement of the conclusions of its strategic review. His sense of frustration with the requisition was evident.

All the battery storage players have had a difficult couple of years. The general selloff in renewables, the savage falls in UK revenues on the back of problems at National Grid ESO and associated dividend cuts/suspensions, and the inability to raise funds to build out pipelines of new projects have been a common problem.

GSF has also had to contend with concerns about its US exposure against a context of an increasingly anti-renewables White House, and a weather-related sharp fall in income from its Texan assets.

All the battery storage funds ended up on big discounts, but then Harmony Energy Income bucked the trend by being taken out by energy investment firm Foresight Group at NAV (after a bidding war with Drax), which highlighted the undervaluation of these companies.

All the way through this period, GSF’s management team has been busy executing on its plan to drive value within the business. Big projects were brought online – the energised capacity rose from 291.6MW in March 2023, to 421.4MW in March 2024, and to 753.4MW in March 2025 – tax credits for the US assets were secured, and a portfolio of 495MW of pre-construction assets assembled.

For its part, the GSF board has now, arguably belatedly, talked to shareholders, agreed a management fee cut, and conducted a strategic review with the aid of an independent consultant.

I bought my shares in three tranches, in April and July last year and then on the day of the results announcement a couple of weeks ago, after the share price dropped on news of the latest dividend cut. I am more or less breaking even on the overall position.

Final straw

It is clear that for many investors the dividend cuts have been the final straw. At launch, GSF promised a minimum 3p dividend in its first year, and a minimum of 7p in subsequent years.

The prospectus implied that dividends might be higher than that as the target dividend would be 3% and then 7% of NAV.

Uplifts in the NAV, largely on the back of the successful development of new projects, mean that the company has achieved a positive NAV total return since launch. Over five years, it is ahead of Gresham House Energy Storage (GRID), with an 8% annualised return versus 6.8% for GRID.

However, the financial year ended 31 March 2022 was the only period when GSF’s dividends were covered by operational cash flow. In other words, much of the dividend has been paid from capital profits.

In July 2024, GSF cut the dividend to 1p per quarter. The board also promised an additional 3p dividend when the tax credits were received. It is honouring that, but I think it would have been a more effective use of funds if it had instead been used to fund share buybacks. The money could have bought back almost 5% of GSF’s shares at the current share price.

Now the dividend will be just 0.75p per quarter. However, there is a top up payment promised alongside the fourth-quarter dividend that will absorb the balance of the free cash flow generated each year. If GSF could get its average revenue per MWh above £12 (from £9.85 for the year ended March 2025) then the full year dividend would get back towards the 7p level.

That is potentially good news but maybe too unpredictable for income investors. That undermines support for the company, and again, I wonder whether that top up amount would not be better deployed to fund share buybacks while the discount is wide.

Apart from the dividend cut, some disgruntled investors (and RM) have questioned the wisdom of diversifying the portfolio outside the UK. I find that hard to understand, given that GSF’s Irish and German assets were significantly more profitable than its UK ones last year.

Yes, Texas was poor, but when weather conditions are more normal, GSF’s revenues there can be spectacular.

In the UK, the government’s decision not to proceed with zonal pricing for electricity has been welcomed by generators, who could have seen falls in revenue from some power plants.

However, it means that the problem with the mismatch of generation and demand will persist. Part of the answer to this is more energy storage, which is good news for UK energy storage assets. However, wherever renewable energy is part of the generation mix, storage is needed. Even in Texas, Trump’s One Big Beautiful Bill kept tax credits for battery storage projects.

‘Smash and grab’

The timing of the RM requisition was weird, coming as it did before GSF published its year end accounts and the results of the strategic review. It seemed especially odd to demand a change of board to institute a strategic review when one was already underway.

Shareholders in GSF (me included) are now asked to choose between a detailed plan outlined by the existing board or an unknown future that feels to me a bit like a smash and grab raid.

GSF’s plan prioritises enhancing cash flow from operations by selling or developing the assets in the pipeline. It will explore bringing in outside partners to achieve this. That part of the portfolio is 8% of the NAV and is not contributing to GSF’s revenue, so this seems sensible.

The fund manager, O’Cinneide, has also articulated a plan to enhance the storage capacity of some UK assets to two hours. He says this is something GSF has been waiting to do until the price of batteries fell to a point where the payback was sufficiently attractive (O’Cinneide suggests a mid-teens cash return is achievable).

GSF’s hope is that if it can demonstrate that profitability is improving, the shares will re-rate. The missing ingredient in GSF’s plan is buybacks.

My feeling is that I will make money whichever way this goes. However, the lack of a detailed plan from RM about the way forward, the proposed directors’ lack of experience in the sector (which makes me worry about whether they would achieve best prices for any disposals), and a sense that the energy storage market is still in recovery mode from the events of 2023/24, makes me lean towards backing the incumbent board and manager.

James Carthew is head of investment company research at QuotedData.

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