Following its recent trading update on 18 April 2024, Gresham House Energy Storage Fund plc (LSE: GRID), the UK's largest fund investing in utility-scale battery energy storage systems (BESS), is pleased to share a further supplemental update on recent BESS portfolio revenue performance.
After a challenging start to the year for the BESS market, the Company has seen a meaningful improvement in the revenues of its underlying BESS portfolio from March 2024.
Portfolio revenues include Capacity Market revenues and reflect an operational portfolio with a weighted average duration of c.1.2 hours. The duration for the operational portfolio is projected to increase to c.1.6 hours by the end of 2024. Grendon, the portfolio's only operational 2-hour project currently, has outperformed the other portfolio assets, as well as other 2-hour projects in the market for which there is publicly available information, on a £ per MW basis.
49% of the operational BESS portfolio is not registered in the Balancing Mechanism (BM) today and has outperformed the BM registered portion of the portfolio. Performance of non-BM assets is not publicly available and so does not appear on market "leaderboards". BM registered assets have publicly available information disclosed relating to BM trades (but not wholesale market trades) which is published by Elexon.
The Manager believes that, in due course, the revenue opportunity in the BM may be more attractive as reductions in previously mentioned 'skip rates' come down as the Electricity System Operator's (ESO) Balancing Programme is concluded. As such, the Manager will continue to monitor performance of its non-BM and BM registered assets and may register more projects in the BM as value emerges.
Revenues since 11 March 2024 have improved due to:
1) The launch of Balancing Reserve (BR), a new reserve product which has launched initially with a small volume of 400MW. Reserve requirements in Great Britain are for several gigawatts (GW) every day and this level will grow as renewable generation increases (as this drives up the volatility of supply). As the ESO launches a new suite of reserve products through 2024, including Quick Reserve (QR) in summer 2024, we expect to see the Reserve volume that BESS can compete for increase.
2) The ESO changing the '15-minute rule' for BESS, whereby the maximum duration of any BESS trade in the BM was limited to 15 minutes, to a '30-minute rule'. This change was required to deliver BR but is also leading to a greater use of BESS assets, although to date it has not led to a meaningful reduction in skip rates.
3) Improvements in wholesale markets, driven largely by a return of negative prices. This has led to increased trading spreads and the return of a second cycle opportunity in most days. Flat daytime prices over the winter mostly limited BESS assets to lower cycling. The rise of solar generation in warmer months means negative prices in the middle of the day, as well as overnight, creates two distinct trading cycles, in turn leading to improved revenue opportunities. Negative prices occur when renewable generation needs to be curtailed. Through mid-April 2024, GB has experienced more than three times the number of negative prices than at the same point in any of the prior four years. The trend of increasing negative prices is expected to continue as renewable penetration increases.
In summary, merchant revenues are inherently volatile, and the portfolio will experience periods of higher and lower revenues. The Company is pleased to see the recovery in trading opportunity since March 2024 and is encouraged by the progress being made by the ESO through its Balancing Programme to drive further utilisation of BESS assets. Whilst recent revenue improvements are promising, overall revenues remain below long-term third-party forecasts and the Company anticipates further recovery as the ESO progresses through its Balancing Programme in 2024 and 2025.
