GSFs advantage is it country diversification as British centric operators are struggling in a saturated market and thats despite the delayed commissioning of many BESS. The ESO are using BESS alot more but its trading in the wholesale mkt is where the best income opportunity is.
According to Stifel, the trust is relying on upgrading durations of several UK assets to offset an ‘imminent fall in revenue from its Irish assets once its DS3 contracts expire next year’– in contrast to GRID where upgrades should feed into higher aggregate revenue. The Irish government’s DS3 programme aims to increase the amount of renewable energy on the Irish power system.
"Like GRID, the £326m GSF trust also saw its discount, which was 37% as of yesterday’s close, balloon over 2024 and although it avoided a dividend suspension, it did reduce its annual target from 7.5p to 7p.
‘Even with the newly enlarged asset base, it looks tight whether this can be fully covered on a go-forward basis as an increasing revenue for GB assets post-upgrades is offset by falling revenue elsewhere,’ said Crighton.
However, Crighton was concerned that the trust’s commitment to a 7p dividend creates unnecessary pressure on the portfolio and was therefore more cautious on its recovery. He also noted that ‘duration upgrades are already baked into valuations’ and shared concerns around ‘value derived from pipeline projects which may not be executed’.
With all factors taken into consideration, Crighton downgraded GSF shares to ‘neegative’ from ‘neutral’."
1. DS3 ends 31/12/26 so it's really the year after next it expires - not next year
2. Should a Trust that pays NO dividend be on a smaller discount than one that pays a bumper dividend? That's the reality for GSF and GRID today.
3. GRID has no Ireland, US or Germany exposure. That's good and bad of course, but GSF offers better diversification.
4. What's the implied certainty that revenue WILL fall? Why is that certain? I've read that the take up (supply) of BESS in Ireland is very low while demand remains strong. Basic laws of demand and supply suggest that price don't fall in that scenario
5. Even if the BESS supply picture improves in Ireland, somehow, and even post DS3 there's no certainty that prices will be unattractive. Just like in the UK there will be growing opportunity to tap into balancing mechanism and other revenues.
6. As for the other comments of "already baked into valuations" and "valued derived from pipeline projects which may not be executed" - where are the workings to illustrate these concerns? Those sentences are just vague statements based on who knows what.
7. I see the conclusion is that he downgrades GSF from "neutral" to "neegative".
I agree that GSF will eventually cover a 7p dividend but I think your calculations are a bit out. 311.5 MW average operational capacity FY24. Big Rock might be in commercial operation by end of FY25 but it will contribute zero (or almost zero) to average operational capacity FY25. Stony and Ferrymuir will have been in commercial operation for all/most of FY25 so they will contribute to FY25 average operational capacity.
As you probably know Big Rock is due to be energised over 3 months prior to next year end so for it to contribute zero (or almost zero) would mean an over 3 month delay. There's no sign of that today unless you know otherwise? I think you are making some pretty severe assumptions (and further assuming there are no recoverable penalties in the case of delay). I've set out my assumptions of MW pro rated for their energisation in the article to make this clearer. I also note past UK delays in FY23 due to National Grid's ESO outage and grid connection problems, but don't think these necessarily apply to the US, again unless you know otherwise? Also note GSF managed to energise and grow nearly 30% of its 291MW FY2023 base in FY2024 so have a good track record of hitting energisation targets other than when Acts of God occur (if we can put NG's issues in this category).
Comparing the state of play July 2023 to July 2024 I see some 2 month delays but largely assets are operational on time.
I've also assumed reduced other income.
I've also assumed just a pro rated increase of income when in reality the proportion from the USA which has been at much higher rates should be higher than just pro rated. Big Rock is having an application for a Resource Adequacy Contract, which will give favourable rates for example.
I'm assuming Porterstown Phase (60MW) doesn't come on stream in FY25 even though it could as is built just not energised.
I'm assuming no extraordinary (IRA) income.
So I actually think the actuals will be at or above my estimates for all the above reasons, or if below my estimate it will only be by a small amount (and refer to my margin of safety comment).
It's unclear what timescale "eventual" is in your thinking but again it seems a very pessimistic analysis, what are the specific reasons for this view?
Going by the company's estimates in around 6 months or so from today, once run rate hits close to 700MW, ceterus paribus, a fully covered dividend (and more) almost feels inevitable.
Another point to bear in mind is that Stony, Ferrymuir and Enderby are all Great Britain assets, which currently get much lower rates than the Irish and Texas assets, so their contribution to FY25 revenue will be relatively small. The Californian rates will hopefully match the Texas rates but the Californian assets will contribute zero (or almost zero) in FY25.
Hi OB, I'm certainly not an expert in all things BESS! There seems to be a three month delay between energisation and commercial operation. I suggest you assume an asset earns nothing in that period (unless a BESS expert tells us otherwise). According to the GSF website Enderby isnt energised yet. I believe Ferrymuir started commercial operation in May. In calculating average operational capacity FY25 I suggest you use average operational capacity FY24 + 100% Stony + 90% Ferrymuir + 20% Enderby +0% Big Rock = 311.5 + 79.9 + 44.9 + 11.4 = 447.7MW. Have I missed out any assets due to energise in FY25? Regards, Chris.
For all things GSF => https://podcasts.apple.com/gb/podcast/transmission/id1613338951?i=1000655005027
YET ANOTHER Enviro / Green theme reco from The Oak Bloke.
It's time we found a new moniker for our resident substacker....
The Woke Bloke 😁
That's brilliant, rofl.
GSFs advantage is it country diversification as British centric operators are struggling in a saturated market and thats despite the delayed commissioning of many BESS. The ESO are using BESS alot more but its trading in the wholesale mkt is where the best income opportunity is.
https://citywire.com/investment-trust-insider/news/stifel-picks-the-battery-storage-fund-that-can-electrify-returns/a2467105
According to Stifel, the trust is relying on upgrading durations of several UK assets to offset an ‘imminent fall in revenue from its Irish assets once its DS3 contracts expire next year’– in contrast to GRID where upgrades should feed into higher aggregate revenue. The Irish government’s DS3 programme aims to increase the amount of renewable energy on the Irish power system.
"Like GRID, the £326m GSF trust also saw its discount, which was 37% as of yesterday’s close, balloon over 2024 and although it avoided a dividend suspension, it did reduce its annual target from 7.5p to 7p.
‘Even with the newly enlarged asset base, it looks tight whether this can be fully covered on a go-forward basis as an increasing revenue for GB assets post-upgrades is offset by falling revenue elsewhere,’ said Crighton.
However, Crighton was concerned that the trust’s commitment to a 7p dividend creates unnecessary pressure on the portfolio and was therefore more cautious on its recovery. He also noted that ‘duration upgrades are already baked into valuations’ and shared concerns around ‘value derived from pipeline projects which may not be executed’.
With all factors taken into consideration, Crighton downgraded GSF shares to ‘neegative’ from ‘neutral’."
Hi team
I think Crighton is quite misinformed.
1. DS3 ends 31/12/26 so it's really the year after next it expires - not next year
2. Should a Trust that pays NO dividend be on a smaller discount than one that pays a bumper dividend? That's the reality for GSF and GRID today.
3. GRID has no Ireland, US or Germany exposure. That's good and bad of course, but GSF offers better diversification.
4. What's the implied certainty that revenue WILL fall? Why is that certain? I've read that the take up (supply) of BESS in Ireland is very low while demand remains strong. Basic laws of demand and supply suggest that price don't fall in that scenario
Refer to: https://www.ess-news.com/2025/04/28/ireland-10-gigawatt-energy-storage-pipeline-bess-market-changes/
5. Even if the BESS supply picture improves in Ireland, somehow, and even post DS3 there's no certainty that prices will be unattractive. Just like in the UK there will be growing opportunity to tap into balancing mechanism and other revenues.
6. As for the other comments of "already baked into valuations" and "valued derived from pipeline projects which may not be executed" - where are the workings to illustrate these concerns? Those sentences are just vague statements based on who knows what.
7. I see the conclusion is that he downgrades GSF from "neutral" to "neegative".
https://www.theaic.co.uk/aic/news/industry-news/stifel-picks-the-battery-storage-fund-that-can-electrify-returns
8. The performance of Crighton's 2024 predictions weren't great. See:
https://citywire.com/investment-trust-insider/news/stifel-reveals-hits-and-the-one-that-got-away/a2444972
OB
I agree that GSF will eventually cover a 7p dividend but I think your calculations are a bit out. 311.5 MW average operational capacity FY24. Big Rock might be in commercial operation by end of FY25 but it will contribute zero (or almost zero) to average operational capacity FY25. Stony and Ferrymuir will have been in commercial operation for all/most of FY25 so they will contribute to FY25 average operational capacity.
Hi Chris
As you probably know Big Rock is due to be energised over 3 months prior to next year end so for it to contribute zero (or almost zero) would mean an over 3 month delay. There's no sign of that today unless you know otherwise? I think you are making some pretty severe assumptions (and further assuming there are no recoverable penalties in the case of delay). I've set out my assumptions of MW pro rated for their energisation in the article to make this clearer. I also note past UK delays in FY23 due to National Grid's ESO outage and grid connection problems, but don't think these necessarily apply to the US, again unless you know otherwise? Also note GSF managed to energise and grow nearly 30% of its 291MW FY2023 base in FY2024 so have a good track record of hitting energisation targets other than when Acts of God occur (if we can put NG's issues in this category).
Comparing the state of play July 2023 to July 2024 I see some 2 month delays but largely assets are operational on time.
I've also assumed reduced other income.
I've also assumed just a pro rated increase of income when in reality the proportion from the USA which has been at much higher rates should be higher than just pro rated. Big Rock is having an application for a Resource Adequacy Contract, which will give favourable rates for example.
I'm assuming Porterstown Phase (60MW) doesn't come on stream in FY25 even though it could as is built just not energised.
I'm assuming no extraordinary (IRA) income.
So I actually think the actuals will be at or above my estimates for all the above reasons, or if below my estimate it will only be by a small amount (and refer to my margin of safety comment).
It's unclear what timescale "eventual" is in your thinking but again it seems a very pessimistic analysis, what are the specific reasons for this view?
Going by the company's estimates in around 6 months or so from today, once run rate hits close to 700MW, ceterus paribus, a fully covered dividend (and more) almost feels inevitable.
OB
Another point to bear in mind is that Stony, Ferrymuir and Enderby are all Great Britain assets, which currently get much lower rates than the Irish and Texas assets, so their contribution to FY25 revenue will be relatively small. The Californian rates will hopefully match the Texas rates but the Californian assets will contribute zero (or almost zero) in FY25.
Hi OB, I'm certainly not an expert in all things BESS! There seems to be a three month delay between energisation and commercial operation. I suggest you assume an asset earns nothing in that period (unless a BESS expert tells us otherwise). According to the GSF website Enderby isnt energised yet. I believe Ferrymuir started commercial operation in May. In calculating average operational capacity FY25 I suggest you use average operational capacity FY24 + 100% Stony + 90% Ferrymuir + 20% Enderby +0% Big Rock = 311.5 + 79.9 + 44.9 + 11.4 = 447.7MW. Have I missed out any assets due to energise in FY25? Regards, Chris.