October 2022 Investor Forum

Riding the BESS boom

Despite a sharp share price fall of late, investor interest in Battery Energy Storage Systems (BESS) technology continues to grow, as it addresses many of the intermittency problems caused by rising renewable energy generation. The UK’s two leading BESS players, which supply power grid-related technical services, are Gresham House Energy Storage (GRID) and Gore Street Energy Storage (GSF); they are capitalised at £869m and £500m, respectively. Other Renewable Energy Infrastructure Funds (REIF), 22 of which are now quoted, are moving into the BESS space. Most recently, the turmoil in the UK gas market provides further opportunities for funds with BESS operations.

• Strategy: Since its launch in May 2018, GSF has been assembling a portfolio of BESS plants, mainly in Great Britain (GB) but also in Northern Ireland (NI), and in the Republic of Ireland (RoI), where a pan-European grid – I-SEM – operates. As part of its overseas growth strategy, GSF has recently acquired a 22MW BESS plant in Cremzow, Germany, and three smaller plants in Texas, US.
• Capacity: GSF’s latest figures show that it has 668MW of capacity, although just 291MW of this figure is currently operational. The remaining 377MW is due to come on stream in the next 18 months. Looking forward, further capacity additions in the GB and RoI core markets are expected, along with tuck-in acquisitions in the US and Germany – building on its Cremzow acquisition.
• Valuation: Based on NAV of 108.7p per share, GSF is currently trading at a 4.3% discount to its NAV – calculated according to a weighted 8.3% discount rate. Its prospective dividend yield, based on a projected – depending on NAV movements – 8p per share dividend for 2022/23, is 6.3%.
• Risks: GSF is exposed to various risks, which are somewhat different from those applying to renewable generation funds. They include planning, construction and grid delays, supply interruptions, a lack of contracts, cyber-attacks and heavy dependence upon lithium-ion technology. Major reforms to the GB electricity market could also create challenging issues.
• Investment summary: Unlike most other REIF funds, GSF is very focused on growing its BESS business, as its recent acquisitions demonstrate; its aggressive fund-raising of late underlines this strategy. Over the next 18 months, even without further acquisitions, GSF will commission ca.400MW of new BESS capacity. A sea-change in revenues should be expected, which will push up GSF’s 2021/22 EBITDA return – from its operational plants – of £23.3m.