I am substantially overweight GSF (vs. my usual allocation to individual ITs). Far too cheap based on installed capacity and the % of revenues that are fixed. Too much pearl-clutching from the market about historically uncovered dividends, when much of the portfolio was still under construction. (but with GSF in a net cash position, what would be better? Leaving it in the bank?) Once 750MW is fully operational and the US tax credit is in the bank, investors will look back and wonder how it ever traded at 50p.
"Battery energy storage systems costs are plunging."
That seems like a negative to me. The batteries that we're investing in now may be undercut by competition from cheaper ones in the future. This is what has put me off owning battery funds in the past, though I do now own some GSF. (It's also why I own a lot more wind than solar, as wind turbines are not likely to fall in price as fast as solar panels.)
When your capex costs are falling it sounds like a positive to me. There are barriers to entry particularly around grid connection wait times and planning permission times so the cheaper competition argument doesn't greatly concern me.... besides the growth of demand exceeds the growth of supply as we see in the data!
Hi, I'm wondering what "Resource Adequacy" refers to in the above table on revenues listed in the profit model - I can't see definition in the text. Thanks in advance.
Ah Thank you ... a good move entering the market in California. Ireland was down considerably for GSF along with Texas, as predicted. HEIT were upbeat about the UK market but I'm assuming this is down to storage duration as you mentioned on the other notes tied to GSF. Players in the sector are being hammered post the Trump win - not pretty - time to play possum.
It's partially a process of elimination. I think that HEIT will manage to sell itself in the 80p+ range, so that's 30+% in a couple of months. GSF is also far cheaper per MW installed than GRID - with much less debt - so again there's more upside if the stock market re-rates BESS funds after a successful HEIT sale. GRID seems to want to muddle through with its current growth strategy and hope the stock market comes back around. Some of its assets need duration extension but GRID already has a bit too much debt for comfort. They can't raise more equity and don't seem willing to try a genuine asset sale to a 3rd party.
I have to admit my big blind spot is I do not understand very well the capital structure of GRID with the Midco and therefore fail to read correctly what is their precise debt situation (do you have ball park ranges for both GRID and Gore St of the debt please ?)
In term of market cap/MW installed I see GRID quite cheaper than Gore St though.
And I have strong view on earnings evolution of the UK market hence the projected P/E ratio 3 years out seems ridiculously low to me in both cases hence I have taken stake in both.
Also have to admit I failed to analyse HEIT so far so glad I came across this post and will look into it.
One key aspect for me which is not in the post above is that there was a Private Equity transaction last year that reflected much higher market cap/MW installed value than those 3 trusts.
I look at Enterprise Value / MW. GSF had net cash at the end of June. But even if you assume that they spent much of their cash since then building assets, you are still at roughly £50m from a project finance loan in California and another £50m from the RCF. Market cap is £270m - so £370m EV against 750 MW of operational (or nearly) assets. 370/750 = £500k / MW. But potentially lower depending on actual net debt position today. I don't know if GRID has any hidden debt, but they claimed to have £110m of net debt recently. Add £290m of market cap and you're at £400m EV against 845 MW. However, I believe that GRID's assets are substantially shorter duration than GSF's, so there's an adjustment to be made there as well. (although now that I've done my maths again "far cheaper" isn't quite right)
given all elements on those 3 it's worth having diversified stake in each.
I personally listened to investor day webcast of Gresham and the team and strategy appeared sound.
I also calculated my own forward revenues and get revenues of a projected P/E ratio of 3.6-4.75 for Gore St and 3.93-5.5 for Gresham.
Not done that calculation for HEIT.
Based on published debt/cash/NAV figures I get quite higher NAV and or EV/MW for Gresham though
To be followed.
Again, after big consolidation on everything renewables in last 2 years I expect cycle to turn in next 12 months (not just on BESS) and current entry points seems quite reasonable to me.
Statera as per their site had 500 MW installed at time ... hence my comment that private deal (not surprisingly) value those assets at potentially much higher multiple (although as correctly noted by other persons here the construction value having fallen in 12 months make the whole portfolios less valuable).
I also know for a fact that a number of large instits are actively looking at real assets of this kind in Europe on a private basis and there are not many so, eventually those discounts to NAV will close one way or another (sounds obvious but I think the PE way could be a realistic option for those deeply discounted public equities that are in "no touch" industries like BESS or renewables in general, at the moment ...)
BESS assets don't seem to start commercial operation until about three months after energisation. So if Big Rock energises in December it's perfectly reasonable to assume it earns zero until three months later. If I'm right, are your figures correct for Enderby, Big Rock and Dogfish? You've got Enderby listed as Operational. That's an error.
I'm not sure what that Ofgem document means. Stony has one dated 1 October 2019 - but Stony only started commercial operation last year. Also BESS companies sometimes share sites so a licence at a GSF location may not be GSF's licence.
"Never before in the field of energy storage was so much owed by so many to so few."
The fees "extracted" as you put it are 1% of adjusted NAV (circa £500m) = £5m + £75k + £6700 per filing + 10% of the outperformance above 7% with a high water mark.
Means £5m + £0.075m + £1.5m on a 10% NAV return (3% of £500m x 10%) = less than £7m.
The issue (as with a lot of Investment Trusts) is the fees are based on NAV and not the share price. Most are trading on a significant discount so the manager incentives are not aligned with the shareholders. Those fees would be around £4M if it wasn't based on NAV which would be £3M more for the shareholders.
I am substantially overweight GSF (vs. my usual allocation to individual ITs). Far too cheap based on installed capacity and the % of revenues that are fixed. Too much pearl-clutching from the market about historically uncovered dividends, when much of the portfolio was still under construction. (but with GSF in a net cash position, what would be better? Leaving it in the bank?) Once 750MW is fully operational and the US tax credit is in the bank, investors will look back and wonder how it ever traded at 50p.
"Battery energy storage systems costs are plunging."
That seems like a negative to me. The batteries that we're investing in now may be undercut by competition from cheaper ones in the future. This is what has put me off owning battery funds in the past, though I do now own some GSF. (It's also why I own a lot more wind than solar, as wind turbines are not likely to fall in price as fast as solar panels.)
And just like that, Invinity pops on the release of new battery storage technology...
https://www.lse.co.uk/rns/IES/launch-of-next-generation-vanadium-flow-battery-9hgo8e6742v96dx.html
When your capex costs are falling it sounds like a positive to me. There are barriers to entry particularly around grid connection wait times and planning permission times so the cheaper competition argument doesn't greatly concern me.... besides the growth of demand exceeds the growth of supply as we see in the data!
Hi, I'm wondering what "Resource Adequacy" refers to in the above table on revenues listed in the profit model - I can't see definition in the text. Thanks in advance.
Hi Keith, California pays to ensure that a certain level of resource is available - it's what is called "Capacity Market" in the UK. See: https://en.wikipedia.org/wiki/Electricity_market#Capacity_market
OB
Ah Thank you ... a good move entering the market in California. Ireland was down considerably for GSF along with Texas, as predicted. HEIT were upbeat about the UK market but I'm assuming this is down to storage duration as you mentioned on the other notes tied to GSF. Players in the sector are being hammered post the Trump win - not pretty - time to play possum.
Any view on main competitor Gresham House’ GRID ?
GRID is the worst of the 3 UK listed BESS funds. HEIT is a very intriguing M&A play, as I assume OB will write about soon.
Already did!
See https://theoakbloke.substack.com/p/battery-store-bore-claw-or-war
And:
https://theoakbloke.substack.com/p/you-cant-heit-me-no-matter-how-hard
OB
Why do you think it's the worst (I have done my own in depth DD and have a view but curious to hear the counter arguments) ?
It's partially a process of elimination. I think that HEIT will manage to sell itself in the 80p+ range, so that's 30+% in a couple of months. GSF is also far cheaper per MW installed than GRID - with much less debt - so again there's more upside if the stock market re-rates BESS funds after a successful HEIT sale. GRID seems to want to muddle through with its current growth strategy and hope the stock market comes back around. Some of its assets need duration extension but GRID already has a bit too much debt for comfort. They can't raise more equity and don't seem willing to try a genuine asset sale to a 3rd party.
Thanks for reply Craig.
I have to admit my big blind spot is I do not understand very well the capital structure of GRID with the Midco and therefore fail to read correctly what is their precise debt situation (do you have ball park ranges for both GRID and Gore St of the debt please ?)
In term of market cap/MW installed I see GRID quite cheaper than Gore St though.
And I have strong view on earnings evolution of the UK market hence the projected P/E ratio 3 years out seems ridiculously low to me in both cases hence I have taken stake in both.
Also have to admit I failed to analyse HEIT so far so glad I came across this post and will look into it.
One key aspect for me which is not in the post above is that there was a Private Equity transaction last year that reflected much higher market cap/MW installed value than those 3 trusts.
I look at Enterprise Value / MW. GSF had net cash at the end of June. But even if you assume that they spent much of their cash since then building assets, you are still at roughly £50m from a project finance loan in California and another £50m from the RCF. Market cap is £270m - so £370m EV against 750 MW of operational (or nearly) assets. 370/750 = £500k / MW. But potentially lower depending on actual net debt position today. I don't know if GRID has any hidden debt, but they claimed to have £110m of net debt recently. Add £290m of market cap and you're at £400m EV against 845 MW. However, I believe that GRID's assets are substantially shorter duration than GSF's, so there's an adjustment to be made there as well. (although now that I've done my maths again "far cheaper" isn't quite right)
given all elements on those 3 it's worth having diversified stake in each.
I personally listened to investor day webcast of Gresham and the team and strategy appeared sound.
I also calculated my own forward revenues and get revenues of a projected P/E ratio of 3.6-4.75 for Gore St and 3.93-5.5 for Gresham.
Not done that calculation for HEIT.
Based on published debt/cash/NAV figures I get quite higher NAV and or EV/MW for Gresham though
To be followed.
Again, after big consolidation on everything renewables in last 2 years I expect cycle to turn in next 12 months (not just on BESS) and current entry points seems quite reasonable to me.
between, in their own report it seems Gore St as of 1/1/25 would be at 750 MW installed and Gresham 1000 roughly.
Thanks Craig. Will revisit my files with those above quotes trying to make sense of all.
My issue was in annual report GRID mention no debt but there are some debt facility between them and the Midco.
On valuation perspective, give all you share let me draw your attention to that deal
https://www.infrastructureinvestor.com/eqt-clinches-500m-first-uk-deal-in-very-large-battery-space/
Statera as per their site had 500 MW installed at time ... hence my comment that private deal (not surprisingly) value those assets at potentially much higher multiple (although as correctly noted by other persons here the construction value having fallen in 12 months make the whole portfolios less valuable).
I also know for a fact that a number of large instits are actively looking at real assets of this kind in Europe on a private basis and there are not many so, eventually those discounts to NAV will close one way or another (sounds obvious but I think the PE way could be a realistic option for those deeply discounted public equities that are in "no touch" industries like BESS or renewables in general, at the moment ...)
Please change "Gore Street Finance" in your first paragraph to "Gore Street Energy Storage Fund".
BESS assets don't seem to start commercial operation until about three months after energisation. So if Big Rock energises in December it's perfectly reasonable to assume it earns zero until three months later. If I'm right, are your figures correct for Enderby, Big Rock and Dogfish? You've got Enderby listed as Operational. That's an error.
It is operational according to Ofgem - there is a hyperlink in the article - try clicking it.
I'm not sure what that Ofgem document means. Stony has one dated 1 October 2019 - but Stony only started commercial operation last year. Also BESS companies sometimes share sites so a licence at a GSF location may not be GSF's licence.
You're confusing energised and operational.
Any comment on the level of management fees being extracted?
"Never before in the field of energy storage was so much owed by so many to so few."
The fees "extracted" as you put it are 1% of adjusted NAV (circa £500m) = £5m + £75k + £6700 per filing + 10% of the outperformance above 7% with a high water mark.
Means £5m + £0.075m + £1.5m on a 10% NAV return (3% of £500m x 10%) = less than £7m.
Gresham's GRID charged £10m last year.
So GSF seems reasonable to me
OB
The issue (as with a lot of Investment Trusts) is the fees are based on NAV and not the share price. Most are trading on a significant discount so the manager incentives are not aligned with the shareholders. Those fees would be around £4M if it wasn't based on NAV which would be £3M more for the shareholders.
There's a performance fee too. I see that no performance fee was paid last year but the previous year it was £2.46M (rounded).