BY RICHARD HEAP:
Is energy storage an attractive investment proposition for fund managers?
In my debut piece for Energy Storage Report last week I touched on comments by Greencoat Capital’s managing partner Richard Nourse at a drinks event that I hosted in March. Greencoat has been a prominent investor in wind and solar in the UK and the Republic of Ireland in recent years, including through its fund Greencoat UK Wind.
However, Nourse told us he wouldn’t yet be investing in storage, because he didn’t see how it was an investable proposition: “The cashflows don’t feel infrastructure-like,” he said, before saying he’d love to be proved wrong.
Pioneering energy storage fund
That role could be fulfilled by Gore Street Capital.
In March, the private equity house announced a plan to set up the world’s first listed energy storage fund – GoreStreet Energy Storage Fund – with a £100m listing on the London Stock Exchange. It would also be the UK’s first pure-play energy storage fund.
The firm said it would invest those funds in large lithium battery schemes linked to renewables, and deliver double-digit returns from storing and supplying power.
But things didn’t go that smoothly. The company was planning to conclude its initial public offering in April, but extended it by three weeks to May in order to bring in the level of interest it needed. It also revised down its fundraising target from £100m to £35m, and cut the minimum level it needed to proceed from £35m to £30m.
In May, Gore Street concluded the £35m fundraising, but the challenges it faced in getting to that stage suggests that stock market investors are wary of backing funds in this emerging investment sector. Perhaps Nourse is correct to be so sceptical, as he is clearly not the only one hesitant about buying operational storage projects.
Then again, it is easy to be critical – but the fact is that Gore Street was able to hit its revised target, and clearly still sees the attraction in energy storage.
Gore Street’s chief executive Alex O’Cinneide told Bloomberg in March that its fund would give it a “first-mover advantage” in the growing renewables storage sector, and that its deals would be for a “high-yielding asset class” for which there is a growing need.
Fair enough. In general, we’re ambivalent about the advantages of being a first mover. Yes, it can give the chance to profit in a new market, but it can also give the chance to make mistakes that yields knowledge that rivals can capitalise on. We’ll have to see.
Where is the fund now?
In the six months since it was announced, the fund has now invested in four storage assets with total headline capacity of 29MW. It bought its first seed assets in June the 6MW Boulby project, co-located with an industrial mining complex in Yorkshire in the UK and using batteries from NEC Energy Solutions; and 49% of a 4MW Cenin Renewables site in Wales, which is linked to the mixed-renewables Parc Stormy.
In addition, Gore Street last week followed up with its first deals since the launch, as it concluded a transaction with Origami Energy for two projects in southeast UK: the 10MW Lower Road and 9MW Port of Tilbury projects in Essex. Both projects are in the development stage but with all grid and land rights, and planning consents.
The projects also have revenue streams for the first six months, including supporting the National Grid, and then 15- and 12-year contracts for Lower Road and Tilbury respectively as part of the UK Government and National Grid’s T-4 capacity market auction for demand-side response. This should help them deliver returns.
This means the fund Is now 50% invested, and O’Cinneide said he is “delighted” with the progress in deploying the funds used in the IPO. He said this would “provide a reliable and robust income opportunity and grant investors access to a nascent and rapidly-growing infrastructure sub-sector”, and is looking for new deals.
Clearly, there is a long way to go before storage becomes a mainstream investment proposition, but it is good to see someone seeking to make this work. If Gore Street can deliver its promised returns then interest from fund buyers will only grow – and, whatever happens, it will provide a good case study for the likes of Nourse.