In this week’s Monday Manager, Ben Guest, portfolio manager of Gresham House Energy Storage fund (GRID) discusses the growing demand for battery storage, volatility in the asset class, and the investment case for renewables.
What is the fund trying to achieve and who is it aimed at?
GRID is an investment trust and the UK’s largest investor in utility-scale battery energy storage systems (BESS). BESS is a vital enabler for the energy transition, addressing the intermittency of renewables by storing energy when there is excess supply and dispatching it to the grid when there is excess demand.
BESS sites can generate multiple revenue streams by both trading – buying and selling power to take advantage of fluctuating prices – and providing contracted services to the grid. These services include frequency response – providing second-by-second balancing to maintain the constant electrical frequency of the grid – and the capacity market, whereby batteries enter into long-term contractual arrangements to provide capacity to the system where there is the greatest need at a fixed fee. GRID is aimed at institutional, highly knowledgeable or professionally advised investors.
See also: Green Dream with Olly Hughes of Gresham House
What are some typical investments in the fund?
GRID invests directly in utility-scale BESS and currently owns 29 operational sites around Great Britain, with six further sites in the pipeline. BESS is the most competitive balancing technology on the market, requiring no government subsidies. Our sites are diversified geographically around the UK. In August, GRID announced it had passed the milestone of 1GW of operational capacity, the first company to do so.
What do investors need to know about investing in this asset class?
While there is growing demand for battery storage, revenues from battery storage can be volatile and the sector has been through a difficult period in recent years, with legacy issues at the UK’s National Energy System Operator (NESO) – which operates the UK’s electricity network – resulting in batteries being skipped in favour of gas, despite being the most competitive balancing technology, which has impacted industry revenue levels. However, this issue is now being addressed – skip rates are beginning to fall, and the clear direction of travel from the government towards the 2030 clean power deadline is bringing renewed confidence and investment. GRID has recently taken steps to contract revenues and protect against downside through tolling and, more recently, long-term floor agreements, which provide minimum revenue levels, on 88% of its assets. We expect these to underpin consistent cashflow to support improved financing terms and an updated dividend policy, which will be announced shortly.
See also: Gresham House Energy Storage fund lowers management fee
How has performance been amid the market turmoil?
Our revenue is largely uncorrelated to traditional markets, so macroeconomic factors like tariffs have not weighed on sentiment in the battery storage sector. Against this backdrop, as industry issues become addressed, our share price performance has recovered, and is currently up more than 70% year-to-date.
Performance has been driven by several factors. First, the ongoing increase in the penetration of renewables contributes to greater volatility in power prices, improving the revenue environment for battery storage. At the same time, we have continued to expand our operational portfolio with new projects and augmentations to existing sites, giving us more capacity to take advantage of power price volatility.
What’s been a career highlight for you?
Being at the forefront of a technology that’s essential to the renewables transition continually delivers new highlights. The latest one is that despite the challenges in the industry, we recently reached the milestone of 1GW of operational capacity, the UK’s largest operational battery storage portfolio.
And a lesson you have learned?
As a regulated, essential service, the energy transition means huge vested interests and strong opinions, particularly from legacy fossil fuel businesses. As a result, not all those opinions are grounded in objective facts. As well as continually engaging with our shareholders, being successful also means we need to continually engage with policymakers and industry bodies to make the case for battery storage as the most cost-effective solution for the energy transition.
What’s your outlook for sustainable investment?
Despite the political noise around net zero, sustainable investment is a trend that is here to stay. In the UK, the political will is clearly in place to deliver a more sustainable energy system, and this is only strengthening the long-term case for competitive solutions that can play their part in the transition to clean power. Battery storage is a critical technology that will ultimately enable a more resilient supply of electricity and bring down costs for consumers and businesses, and the investment case will only grow stronger as more renewables come online.
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