Gore Street Energy Storage Fund H1 2025 Earnings Call Transcript

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Provided by Quartr
December 12, 2024

Key Takeaways

  • Capacity growth with 421 MW energized ramping up to over 753 MW by early next year as the final three construction projects near completion.
  • NAV per share declined from 107p to 100.5p this half, driven by downward updates to GB and US revenue curves (-5.2p) and lower inflation assumptions (-1.6p).
  • A new 12-year resource adequacy contract in California at $16/MWh secures 40-45% of Big Rock’s revenue and boosts the portfolio’s contractual income share.
  • Launch of in-house GB trading via Wall Street Energy Trading has already delivered a 20% uplift in performance over third-party optimization.
  • Expected monetization of $60–80 million in US Investment Tax Credits for Big Rock and Dogfish assets by Q2 2025 will enhance liquidity and support debt reduction.
AI Generated. May Contain Errors.
Earnings Conference Call
Gore Street Energy Storage Fund H1 2025
00:00 / 00:00

Transcript Sections

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Operator

Good morning. You're welcome to the Gore Street Energy Storage Fund plc Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time, displayed in the Q&A tab, situated in the right corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself; however, the company can review the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll, and now that I'll hand you over to Alex O'Cinneide, CEO. Good morning, Sir.

Alex O'Cinneide
Alex O'Cinneide
CEO at Gore Street Energy Storage Fund plc

Thank you. And thank you, everybody, for joining here for the Gore Street Energy Storage Fund plc Interim Results Presentation. Next slide, please. Four of us here from Gore Street. I'm joined by three of my colleagues. This is Alex O'Cinneide speaking, the CEO, joined by Sumi, our Chief Investment Officer, Paula, Principal on the Corporate Development side and Investor Relations, and Alicja, Principal on the Technical side. We'll run through the presentation today, and as our host just mentioned, we'll look to take questions there at the end of this presentation. Next slide, please. One of the financial highlights. First of all, I would say we're very happy with the portfolio performance, portfolio in terms of revenue, portfolio in terms of construction, and we can see some of these numbers highlighted here. Overall, energized capacity is now at 421 MW.

Alex O'Cinneide
Alex O'Cinneide
CEO at Gore Street Energy Storage Fund plc

That will go to over 750 MW by early next year in a total portfolio of 1.25 GW. Dividend yield, obviously a high dividend yield of 12.3%. NAV per share 100.5, so a slight decline quarter on quarter. We've avoided volatility in the NAV, so I think we're very happy in terms of how our assumptions have looked in terms of the progression of the portfolio, but we do see pressure in some of the GB curves and the Texas curves going forward. Overall, NAV total return 42.7%. All of these numbers are supported by a strong focus on operational excellence. What does operational excellence mean for us? It means adherence to minimization of CapEx in terms of construction. It means strong focus on asset availability. If our assets are not up, we cannot make money.

Alex O'Cinneide
Alex O'Cinneide
CEO at Gore Street Energy Storage Fund plc

A strong focus on the monetization of those assets in a diversified revenue situation as well as a geographical one. We also operate a very strong balance sheet. We have completed two new upsizes of debt facilities, but our debt remains as a market-leading number, very appropriately low, and one that we'll be utilizing to build out the 753 MW while leaving excess capacity for new opportunities post that. Overall, as we sit here today, we have a rapidly growing operational capacity. We have three projects left in construction out of a total projects of near 27 projects, so at the end of a long journey to build out a well-diversified portfolio, multi-geographical portfolio, and multiple revenue opportunity portfolio, we're coming now to 753 MW, a steady-state business. Next slide, please. Balance portfolio.

Alex O'Cinneide
Alex O'Cinneide
CEO at Gore Street Energy Storage Fund plc

As I mentioned, we are in multiple markets, so we have multiple different types of revenue in different markets: GB, Ireland, Germany, Texas, and California. These markets are all weakly correlated in terms of revenue opportunities, so revenues we will receive in the Irish market are uncorrelated to revenues we'll receive in the GB market even at the same time of the year. They are correlated, though, by our energy transition, so the rise of solar and wind and the decline of base load power, but uncorrelated in terms of actual day-to-day revenue, which allows us then to build a well-diversified portfolio not subject to one market's movements. Overall, revenue is also diversified. We're active in ancillary services, wholesale trading, and Capacity Market contracts, and that balance from our commercial and trading team allows us to generate best-in-class revenue per megawatt.

Alex O'Cinneide
Alex O'Cinneide
CEO at Gore Street Energy Storage Fund plc

We've also had a very strong focus on how big to build each of these assets. Duration, how long you can produce electricity for is a key component of an energy storage system, and one that has to be built on fundamentals in the market we're operating. Right now, we have one hour systems in GB, 20 minutes in Northern Ireland, one hour going to two hours in the Republic of Ireland, two hours in Texas, four hours availability in California, and 90 minutes in Germany. And each of those decisions was based on what the market would pay to us for that incremental CapEx. It also allows us very strong optionality if and when we choose to extend duration, for instance, in the GB market if we saw more opportunities in wholesale trading, for instance. Next slide, please.

Alex O'Cinneide
Alex O'Cinneide
CEO at Gore Street Energy Storage Fund plc

We have produced this slide over the last few quarters, really talking about where the portfolio is at. It's a materially de-risked. We identified several aspects at the start of the year of the points we wanted to de-risk. The first one, RA contracts. This is the large contracted revenue contracts we now have in place in California. We'll produce revenue for us starting from June next year over the next 12 years. Accounts for nearly 40%-45% of the revenue of that asset and brings the overall portfolio a much higher percentage of contractual revenue. So really de-risking of the portfolio as we have that baseline of revenue across the portfolio that we can then look to build on in the merchant activities we're engaged in. We, of course, are building out our portfolio. We have three projects left. I won't steal Alicja's thunder.

Alex O'Cinneide
Alex O'Cinneide
CEO at Gore Street Energy Storage Fund plc

She will go through these in detail, but Enderby, Big Rock, and Dogfish. And I'm very happy to report we're very pleased with the progress of all of those. That then gives, in the end, a well-diversified, low-leverage portfolio producing strong revenues, much stronger than we would have had if we, for instance, stayed as a GB-only player. Next slide, please. Sumi.

Sumi Arima
Sumi Arima
Chief Investment Officer at Gore Street Energy Storage Fund plc

Thank you, Alex. So this is the usual NAV bridge of this half-year period. As Alex explained, NAV changed from GBP 1.07-GBP 1.005 in this half-year period. So I will go through some of the detail in the next slides, but in summary, larger changes are first, dividend payment of GBP 0.035, which is consistent with our dividend policy, and also macroeconomic drivers' impact, such as revenue curve update, which resulted in GBP -0.052, and inflation rate update of the 1.6 pence negative. Also, discount rate change had an impact of the GBP +0.013, which I can explain in detail. Under the active management category, operating asset generated GBP 0.023 of the cash flow in this six-month period. The biggest positive contributor is the GBP 0.03 of additional value of RA contract signed post period.

Sumi Arima
Sumi Arima
Chief Investment Officer at Gore Street Energy Storage Fund plc

RA pricing resulted in a much better price than we originally modeled for net asset value model in the previous periods. And also, this pricing is reflecting the anticipated final pricing at that time, at the end of September, but the actual contract signed in October is reflecting this price assumption, so it is consistent with the actual RA price. We also updated carrying value of multiple pre-construction assets by reflecting asset-specific factors such as proven measures, for example, updated COD, and then also the change discount rate. This resulted in overall weighted average discount rates of our portfolio increased to 10.3% in this period. Next one, please. Thank you. This is a bit of more details of the NAV changes. Firstly, inflation adjustment. This resulted in GBP 0.016 negative NAV as a result of U.S. and EU inflation assumption changes.

Sumi Arima
Sumi Arima
Chief Investment Officer at Gore Street Energy Storage Fund plc

We adjusted down these inflation rate assumptions by 25 basis points in line with the decrease in core inflation rate in these regions. In terms of GB, we kept the inflation assumptions unchanged. Next one, in terms of the discount rates, the result of that is the positive NAV impact of GBP 0.013 per share. Although there were recent BoE's rate cuts, we made no change in overall discount rate assumption. What has changed is the reflection of the construction progress of Enderby, Dogfish, Big Rock, and that is de-risking the project status and resulted in the applied discount rate changes. Lastly, net portfolio returns of 2.5%. This is as a result of cash generation of GBP 0.023 and also fund OpEx and DCF updates. Also, this includes what I mentioned already, GBP 0.03 of contribution of RA contract and updated carrying value of the pre-construction asset. Next section, please.

Sumi Arima
Sumi Arima
Chief Investment Officer at Gore Street Energy Storage Fund plc

Thank you. So this is a market forecast we included in the NAV assumptions, NAV calculations. So overall impact of GBP 0.052 negative impact on NAV, which I explained earlier, is because of the downward adjustment of GB and U.S. forecast coming from the third-party research houses, which reflecting recent prevailing pricing levels and gas prices. Based on that new forecasted amount, forecasted pricing, we expect gradual increase of GB revenue from 2027 towards 2030 and stabilizes at that level after 2030. So this curve presented in here is based on weighted average captured price of our asset. So this is coming from two aspects. One is the gradual increase of the GB market price due to the contribution of the, sorry, due to the market overall price increase, and secondly, increase in the average duration of our GB asset.

Sumi Arima
Sumi Arima
Chief Investment Officer at Gore Street Energy Storage Fund plc

In terms of Northern Ireland price, this is forecasted to drop because of the expected change in DS3 program in 2026. Also, we included Texas price drop as well from the expected new entry of the more and more battery project in this region. At the bottom, separated from these uncontracted revenue I just mentioned, we have also contracted revenue streams in GB, ROI, Northern Ireland, and California. These will be expected to generate stable revenue streams. Next, please. Next slide, please. Thank you. This is a summary of the financing. As announced, we have increased U.S. Big Rock loan and then also Santander debt facility size in this actually post period. Santander increased from GBP 50 million to GBP 100 million of facility size. This is a drawdown facility size, so not the, to make sure this is not a drawn amount, so it's a facility size.

Sumi Arima
Sumi Arima
Chief Investment Officer at Gore Street Energy Storage Fund plc

In terms of the U.S. construction finance, Big Rock is from First Citizens Bank, and the amount is increased from $60 million to $90 million. We expect to draw down this incremental $30 million for Big Rock project. We don't need to draw down, on the other hand, the additional Santander facility size of $50 million to complete our target of the 753 MW of operational portfolio, even before we consider ITC proceeds. At the bottom, we summarized gross asset value percent, sorry, debt percentage among the gross asset value based on new debt sizing. So it will be 15%-20% considering debt amount at peak before ITC receipt. So this level is considering only additional amount we need to draw down to complete 753 MW of operating portfolio.

Sumi Arima
Sumi Arima
Chief Investment Officer at Gore Street Energy Storage Fund plc

This as a numerator, and then also as a denominator, we divide that by the current NAV, plus the expected total debt drawdown amount. That concludes my section. Alicja, next one, please. Thank you.

Alicja Kowalewska-Montfort
Alicja Kowalewska-Montfort
Principal of Technical at Gore Street Energy Storage Fund plc

Thank you, Sumi. And good morning. Good morning, everyone. So first, a summary of where we are on the portfolio with respect to different phases of projects within. So currently, we have 421 MW of energized assets, and that now includes Ferrymuir project in Scotland that has been energized earlier this year and is now fully participating in all available revenue streams. So it's participating in ancillary services, wholesale market, balancing market, and also has started participating in the recently released Quick Reserve, which we're closely observing. And it's a very interesting new revenue stream from NGESO, but positive news there. In terms of construction, that's 332 MW that constitutes Dogfish project in Texas, 75 MW, Big Rock 200 MW in California, and also Enderby, 57 MW, which is connecting in GB to transmission network with National Grid.

Alicja Kowalewska-Montfort
Alicja Kowalewska-Montfort
Principal of Technical at Gore Street Energy Storage Fund plc

I will go through more detail and update on each of those projects on the next slide. Also, 494 MW in pre-construction, which we're actively managing to maintain an investability status and looking after grid connections and other stakeholders to make sure those assets are ready to deploy. Next slide, please. Just an update on the sort of key three assets still actively in construction. The Enderby asset is now, in terms of the project deployment and battery deployment, complete. Fluence's battery is now all mechanically complete and pre-commissioned, and all our ICT works are also now complete. We are awaiting National Grid's outage window, which we have now indicatively secured, a January window. This is obviously subject to weather events, and winter is always a little bit more tricky to achieve that.

Alicja Kowalewska-Montfort
Alicja Kowalewska-Montfort
Principal of Technical at Gore Street Energy Storage Fund plc

Just a small background drop to connect the previous announcements around Enderby, where we have explained the impact of some of the changes that National Grid had to do around removing Chinese supplier of control and protection processes and software within their network, and that meant that Enderby had to completely redesign and remanufacture its control protection and effectively all the interconnecting facilities. That took a big part of 2024 for National Grid to facilitate within their own design and their own manufacturing processes, and we only were able to secure the final interfaces with National Grid around September, and since then, we're looking to actively facilitate an outage window with National Grid. I expect that this is going to be now energized in January, as discussed. Big Rock, really good progress there.

Alicja Kowalewska-Montfort
Alicja Kowalewska-Montfort
Principal of Technical at Gore Street Energy Storage Fund plc

We are happy to report now that we were able to energize all the interconnecting facilities for that asset. Our customer switchyard and the substation, which contains our two large transformers, are now fully energized. That's a very big milestone in terms of de-risking the asset construction progress. It allows us to move independently now from interconnecting parties that no longer stay on our risk register. We look to complete all the battery installation first week of January, and we will be moving to hot commissioning tests in January and then an all-capacity test looking to secure final sign-offs in time for RA kickoff in June 2025. Dogfish, progressing very well indeed since the beginning. It's on track to meet energization in February 2025. The project has been seeing a very steady state construction progression with no setbacks.

Alicja Kowalewska-Montfort
Alicja Kowalewska-Montfort
Principal of Technical at Gore Street Energy Storage Fund plc

Now that the project is materially de-risked as well, with all battery equipment now on site, inverters, batteries installed and mechanically complete, and also the DNO work, so interconnection works, have been completed. We consider this now a very de-risked position for that project, and we expect to hit the February energization date as communicated. Next slide, please. In terms of overview of the revenues and what has been happening in the last six months, so the portfolio weighted average has been 10 GBP per megawatt per hour. The key highlights in terms of the markets have been definitely Germany, where we have seen a very strong impact of solar penetration, solar generation in Germany that affected demands that conventional generation such as gas peakers in Germany were recovering the running costs by bidding into ancillary services at high prices, and that allowed batteries to capture those prices.

Alicja Kowalewska-Montfort
Alicja Kowalewska-Montfort
Principal of Technical at Gore Street Energy Storage Fund plc

We expect a similar trend as the fundamental should continue as long as gas peakers are also still operating in the German wholesale and ancillary services market. In Great Britain, generally consistent performance compared to the previous reporting period. We expect a slight uptick of revenues that will be really driven by more rational bidding from players in the ancillary market by correlating wholesale revenues with ancillary bids as we see more volatility in the wholesale markets driven by increasing renewable generation on the mix. In terms of Texas, so Texas has seen a quite unusual, unseasonal performance this year. It's been a very mild summer, rather an outlier in the typical summer behavior in that part of the world. And that has led to driving lower scarcity on the grid and fewer outages from thermal generators.

Alicja Kowalewska-Montfort
Alicja Kowalewska-Montfort
Principal of Technical at Gore Street Energy Storage Fund plc

That translated itself into lower revenues in the previous period last year. As mentioned, we expect this to be an outlier and generally the seasonal trend of summer revenues should return going forward. In terms of Ireland, generally still strong steady state performance. Revenues are still in the teens per megawatt per hour. We have seen now the reduction temporary scarcity scalar that has happened from October this year. Overall, we expect EirGrid to continue the DS3 program a little bit longer than what they communicated as the progress of deploying the new future services system is slower than what EirGrid communicated in the past. Potentially an expected extension is something that we anticipate to see. Please, can I have the next slide? Just to round up the numbers and the overall performance in each of those markets. As discussed, Germany was strong performance.

Alicja Kowalewska-Montfort
Alicja Kowalewska-Montfort
Principal of Technical at Gore Street Energy Storage Fund plc

We also have pre-qualified our asset into AFRR in our active management approach. We always look to secure new revenue streams to be able to maximize the available pool of income for the projects. GB, we've been actively also deciding whether to keep some of the assets in BM. And we have chosen not to register one of recent assets in the BM, which allowed us to capture a premium. And we're constantly evaluating those kind of decisions with our optimization strategy. Ireland, strong performance as indicated on the screen with 13.55%. And we expect to see still an increasing number of trading participation also in Ireland. This is still a very small slice of a stack, but it's increasing as the market is becoming more and more mature.

Alicja Kowalewska-Montfort
Alicja Kowalewska-Montfort
Principal of Technical at Gore Street Energy Storage Fund plc

Texas, that performance as discussed, lower than the same time last year, but it has been an outlier from our analysis of previous historical trends in weather. Next slide, please. This is just to highlight the point about our efforts to increase the contracted share of revenues in our portfolio. The team has worked very hard to secure the Resource Adequacy contract in California. This is a contract which can be compared to Capacity Market contract in GB and Ireland, which we're all now familiar with. It's a guaranteed revenue stream that also kind of has a very fixed term for providing predictable revenue streams. Similarly to Capacity Market, it's fully stackable and allows us to maintain control over an asset. It's not a tolling agreement.

Alicja Kowalewska-Montfort
Alicja Kowalewska-Montfort
Principal of Technical at Gore Street Energy Storage Fund plc

We expect to keep control and we expect to stack revenue streams from RA on top of ancillary services and wholesale revenues as per other markets in which we operate batteries. Thank you.

Paula Travesso
Paula Travesso
Principal of Corporate Development and Investor Relations at Gore Street Energy Storage Fund plc

Thanks, Alicja. We'll now go through key milestones completed after the reported period. First being the commencement of the in-house trading activities. Gore Street Energy Trading, part of Gore Street Capital, has been appointed as the RTM for some of GSF GB assets. The synergy is about having a dedicated RTM team that has as itself focused to maximize GSF portfolio of energy storage assets independently of any other asset owner or having different assets in balance sheet. All respecting the unique technical characteristics of each one of those individual asset systems and also joining forces with the asset management team responsible for this portfolio. The software was fully developed in-house by the GST team, which is led by Alan Smallwood, you can see here on the slide, who has decades' worth of energy trading experience. You will definitely be seeing more of Alan going forward.

Paula Travesso
Paula Travesso
Principal of Corporate Development and Investor Relations at Gore Street Energy Storage Fund plc

Actually, as a matter of fact, he introduced the function on our Capital Markets Day a month ago. And you can check the presentation slides and watch the recording in full on GSF website. This commercial arrangement started in October, so like I said, after the reported period. And it now includes a portfolio of five assets, all located in GB, circa 80 MW in aggregate. It's really another step of GSF strategy to take control of the value creation functions of energy storage on a holistic manner. It's still early days to share details of performance, but we look forward in reporting further details of this initiative and its outcome, its results. Next slide. Slide 19, yes. Another important milestone completed towards diversification buildup was the resource adequacy contract for the 200 MW, 400 MWh Big Rock asset, which is located in California.

Paula Travesso
Paula Travesso
Principal of Corporate Development and Investor Relations at Gore Street Energy Storage Fund plc

Alicja already covered this, but just sort of to state its characteristics. This is a 12-year contract secured and announced in mid-October after reported period. This contract is expected to commence in the summer, June of next year, and it was secured at a $16 per megawatt per hour above the investment case expected price. As Sumi demonstrated on the NAV bridge a couple of slides ago, the price that actually secured exceeded the estimated and the reflected one in the March end NAV. So again, a recap, fixed price contracts, Capacity Market equivalent, not a tolling arrangement in any shape or form. This means that RA is a fully stackable revenue stream. Big Rock is able to participate in other pools or other market pools, and it's also expected to secure further revenue streams. Next slide, please. Thank you.

Paula Travesso
Paula Travesso
Principal of Corporate Development and Investor Relations at Gore Street Energy Storage Fund plc

The 2024 ESG and sustainability report was released in August, and it includes the relevant disclosures for the company as an Article 8 product of SFDR. As we have done in previous years, the report also includes the voluntary TCFD disclosures as well, and a general summary of the company's engagements with different parts of the battery investment value chain. Now, after the reported period, after September ends, and as part of the FCA Sustainability Disclosure Regulations, SDR, the company's IM has chosen to adopt the Sustainability Focus label. All the relevant disclosures now can be found on the investment manager's website, and also GSF website would have links for those appropriate disclosures. Back to you, Alex.

Alex O'Cinneide
Alex O'Cinneide
CEO at Gore Street Energy Storage Fund plc

Thank you, Paula. I wanted to touch on the investment tax credit and kind of bring folks through how this will work. Some of it's quite technical. Obviously, the fundamental is we need to bring our assets in the states which are eligible for ITC through to this term of placed in service. For us, that in essence means full operational capacity. As Alicja went through, we have de-risked materially both all the three assets which are in construction. We expect them all to be completed in the very near term. But as it relates to Big Rock and Dogfish, we are looking at a Q1 event for what we will term the placed in service. At that point, then the credit is available and then able to be monetized. We will monetize the credit. What does that mean?

Alex O'Cinneide
Alex O'Cinneide
CEO at Gore Street Energy Storage Fund plc

That means we will sell the credit to the market for companies which have a use for shielding earnings through a tax credit. Obviously, and I can see some of the questions that are coming through from my colleagues, there has been a change in administration in the United States. Our viewpoint on the viability of the tax credit remains unchanged. It would be extremely difficult and unique for Congress, not the incoming president, but Congress to retroactively change a tax credit. This is an overall market tax credit that has been operating for 50+ years. So we don't foresee any material risk to the tax credit through legislation. We are also encouraged by the fact that since the election, we've received multiple term sheets from market counterparties to monetize those tax credits.

Alex O'Cinneide
Alex O'Cinneide
CEO at Gore Street Energy Storage Fund plc

So we will be going ahead as the assets come through out of construction to monetize those tax credits, and we look forward to receiving them through Q2. And those in terms of where they sit, they are in our NAV, but we have not included them in kind of cash flow projections going forward. So we're available for multiple purposes, whether that be paying down debt or other activities for shareholder value. Next slide, please. As I've mentioned, and as Alicja explained wonderfully, a significantly de-risked portfolio to 750 MW. Enderby, we are a little frustrated, but are awaiting National Grid, which we have been promised very early in the new year, but the project is ready to go. Big Rock, materially de-risked with critical parts of the infrastructure energized, and that continues the pace and cells are nearing completion. And Dogfish, a construction project which is going very well.

Alex O'Cinneide
Alex O'Cinneide
CEO at Gore Street Energy Storage Fund plc

Why is this 750 MW important to us? That's a steady state business as we look at it. I can also see some questions coming in on how does this relate to dividend cover. What we can say is we look at our full year, our last full year, where we generated approximately GBP 15 per megawatt for every hour in operation, a really good number, especially in comparison to GB revenue. If we can replicate that at the 750 MW, we will be able to fully cover our dividend plus fund expenses. That said, obviously, we're operating in a merchant marketplace where individual markets move up and down, absolutely reinforcing the importance of diversification. Those that we look out into our markets, Ireland having a good period now, and we believe we'll have a strong period over the next few months. GB, very interesting.

Alex O'Cinneide
Alex O'Cinneide
CEO at Gore Street Energy Storage Fund plc

We've always said that we see growth, but incremental growth in the GB market. That is absolutely what's happening, and we see some good signs of recovery in terms of pricing in the GB market. Texas, a market which is very dependent on weather events, but as one which has had a huge buildout of solar and wind, and that does support the need for our storage facilities very heavily. And then finally, California, with a significant portion of our revenue contracted, giving this baseline revenue across the portfolio, supporting our activities on the more merchant side. So 750, very important milestone for the portfolio. It's very close, only three projects left out of multiple tens of projects, and with construction projects, guidance from us going very, very well, and expect near-term completion. Next slide, please.

Alex O'Cinneide
Alex O'Cinneide
CEO at Gore Street Energy Storage Fund plc

So in conclusion then, a de-risked portfolio, a de-risked portfolio, well situated in multiple markets, uncorrelated by revenue activities, but correlated by the energy transition and correlated by climate change. Strong focus in the organization on competitive cost per megawatt fully installed. So we spend the least amount of money to build the best systems. We also have a very close eye on when to add in extra duration. I think our colleagues here in Gore Street were exactly right in terms of the duration questions. What we've seen is credible reductions in sale pricing. Anybody who added duration over the last few years has done so at the highest possible cost points. And so return on capital employed would be very difficult. Here we now are in a very good situation if and when we choose to extend duration given the massive CapEx decrease.

Alex O'Cinneide
Alex O'Cinneide
CEO at Gore Street Energy Storage Fund plc

Also, best-in-class generation. Our portfolio always achieving over what GB revenues would be. And now with our in-house function, which Paula touched on, we have limited data to date, but the limited data to date is showing a 20% increase over the Modo baseline, so that's very encouraging, but it is only short-term data so far. Overall then, the portfolio, which is consistently delivered against targets. We're very excited to bring it to the 750 MW, which you should expect to hear around in Q1. We're very excited by the diversified revenue portfolio that we've built, and we're very happy with the potential we see in each of the markets given the continued growth of solar and wind. Thank you.

Operator

Perfect. Thanks very much for your presentation. Ladies and gentlemen, please do continue to submit your questions. You can do that just by using the Q&A tab that's situated on the right-hand corner of your screen. But just while the company takes a few moments to read the questions that have been submitted today, I'd like to remind you that the recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your Investor Dashboard. As you can see, we have received a large number of questions throughout today's presentation, and Ben, at this point, if I could hand over to you to share the Q&A, that'd be great, and then I'll pick up from you at the end.

Ben Paulden
Ben Paulden
Manager of Investor Relations at Gore Street Energy Storage Fund plc

Absolutely. We've had a lot of questions which are sort of similar topics, so I'll try to summarize those into one question. So we have quite a few questions on the Trump election, which I believe Alex has covered, but we've also had questions on the ITC range that we've included in the report as $60 million-$80 million. And what is the reason for this range?

Alex O'Cinneide
Alex O'Cinneide
CEO at Gore Street Energy Storage Fund plc

Alex, let me jump in, but first, it is to my point, we are monetizing that. So we ourselves, this portfolio doesn't have a need for the tax credit, whereas multiple companies in the U.S. have the need for that tax credit, so we will sell it into that market. That market trades at anywhere between 90%-95% of face value, and really that's where you see then the guidance in 60-80. Sumi?

Sumi Arima
Sumi Arima
Chief Investment Officer at Gore Street Energy Storage Fund plc

Yep. And in addition to that, there is the applicable valuation of the asset. So that valuation is for the ITC credit calculation. So that valuation is not fully fixed yet. That is also another variability of the total final proceeds.

Ben Paulden
Ben Paulden
Manager of Investor Relations at Gore Street Energy Storage Fund plc

Thank you. Next, onto the resource adequacy contract which was secured. Could you talk to how this compares to other long-term contracts like tolling?

Sumi Arima
Sumi Arima
Chief Investment Officer at Gore Street Energy Storage Fund plc

Maybe Alicja or I can do that. Okay. Let me take it. So RA contract is more similar to Capacity Market contract, which is basically stackable with the other revenue. That's a key point. So we take the RA contract or Capacity Market revenue on top of the merchant revenue we can generate trading the storage facilities such as the wholesale trading or ancillary services. If it's tolling, that is fully taken control by the counterparty only. So if they will generate a single amount of revenue, that's theirs. If they underperform, that's their problem. We just receive the fixed revenue only, and that is only agreed at the time of a contract price. So there's, in a sense, no volatility. We saw various tolling contract offers. We concluded their pricing level is not attractive considering what we can expect from the merchant revenue stream.

Sumi Arima
Sumi Arima
Chief Investment Officer at Gore Street Energy Storage Fund plc

It also, even without considering the possible impact of the long-term fixed contract, for example, you can leverage the project with the external third-party debt and then increase the equity value. Even with that, given the current level of the debt capital market, we don't think that can give us significantly more value at all. For that purpose, we chose not to take a tolling arrangement, but we continue to look for, I mean, any kind of positive movement, but so far it's not in our range.

Ben Paulden
Ben Paulden
Manager of Investor Relations at Gore Street Energy Storage Fund plc

Thank you. Next, we've had quite a few questions on Texas as we've seen lower revenue generation over this period. Can you talk to why that is?

Alicja Kowalewska-Montfort
Alicja Kowalewska-Montfort
Principal of Technical at Gore Street Energy Storage Fund plc

I can take that. So overall, I think Texas is. I touched upon it a little bit earlier, but really what the focus points are is that first, it's been a very, very mild summer. Generally, revenues in Texas are strongly correlated to weather, similarly to Ireland, but let's say reversely positioning themselves to it. So in summer, Texas generally experiences very high temperatures, and that drives conventional generators, thermal generators out of operation, and temperature goes around 38 degrees. When that happens, effectively, thermal generators drop off, and ERCOT is obligated to procure effectively in a sort of distressed manner quite a lot of contingency generation. They do it on ancillary services mostly. And that has happened previously in the previous years. And this year, we have seen very few events of above 38 degrees Celsius, and that has driven just fewer events that provide that uplift.

Alicja Kowalewska-Montfort
Alicja Kowalewska-Montfort
Principal of Technical at Gore Street Energy Storage Fund plc

Going forward, we expect, and we've been looking at historical trends, that this summer, 2024, has been unusual. It has been an outlier. Generally, Texas has got an increasing temperature projections, also driven by climate change, and it has an increasing number of load, effectively buildout of demand in ERCOT, which will be driving as well the need for rapid procurement of generation in times of scarcity. So that is one of the trends going forward, but the mild summer is what we attribute to this year's decrease, and there has been also a buildout of batteries in Texas. In times when there isn't scarcity on the network and batteries are bidding into ancillary services, we do see increased competition from additional 3GW growers. Going forward, we do expect that batteries and effectively similar flexible generators will be participating more in wholesale, so similar trends as we observe in GB.

Alicja Kowalewska-Montfort
Alicja Kowalewska-Montfort
Principal of Technical at Gore Street Energy Storage Fund plc

It will mean that the saturation and increased battery buildout will have a smaller effect on revenues.

Ben Paulden
Ben Paulden
Manager of Investor Relations at Gore Street Energy Storage Fund plc

Thank you. Next, the fundamentals look good to me. So what is the reason for the heavy discount? I think this is a question on the share price.

Alex O'Cinneide
Alex O'Cinneide
CEO at Gore Street Energy Storage Fund plc

Yeah. Absolutely. We're very disappointed with the share price performance. I speak that as obviously CEO of the manager, but also as a personal significant holder in the stock. It is hard for us to really understand where we are trading as we look at the fundamentals. What we have here today is a de-risked portfolio of 750 MW near-term, right, in the next weeks, months. A portfolio which has consistently delivered best-in-class revenues in a diversified and correlated fashion. A portfolio which has been built at a cost per megawatt, which we think is market-leading, and the utilization of debt in a very conservative but appropriate way. At fully 750 MW built out, we still have a very low percentage of debt to GAV. So the share price performance in that context we find dislocated and disappointing. We are cognizant of the broader macro environment in the sector.

Alex O'Cinneide
Alex O'Cinneide
CEO at Gore Street Energy Storage Fund plc

We see two of our peers in distress and unable to pay dividends, obviously weighing across the sector. From our perspective, what has our approach been to date? Our approach to date has been build out our portfolio at the right price in the right markets to deliver consistent cash flow and dividend stream to our investors. We believe we are very close to that. I would also note that post the 750 MW, the steady state portfolio, and given potentially large cash inflows, for instance, from the ITC, potentially looking at disposals and markets where we might have a higher percentage of our portfolio than we would naturally have in a balanced portfolio, we will look at mechanisms to deliver shareholder value, whatever those mechanisms might be. We have done our job to get to the 750 to a steady state.

Alex O'Cinneide
Alex O'Cinneide
CEO at Gore Street Energy Storage Fund plc

After that, we need to absolutely look at shareholder value here and how we get recovery back in our share price, and you should be sure that is an ongoing conversation between the manager and the board.

Ben Paulden
Ben Paulden
Manager of Investor Relations at Gore Street Energy Storage Fund plc

Thank you. Next, moving to debt facilities, could you speak to the two debt facilities that the company has and what these are expected to be used for?

Sumi Arima
Sumi Arima
Chief Investment Officer at Gore Street Energy Storage Fund plc

Sure. So as I went through in a slide, so we have upgraded the Santander facility size from GBP 50 million to GBP 100 million. And then also Big Rock facility size from $60 million to $90 million. So incremental Big Rock facility size, $30 million incremental amount, will be purely used for the Big Rock construction CapEx. Santander $50 million additional capacity, we don't need to draw down for any of the achieving 750 MW of a steady state portfolio, but this can offer ability to, for example, consider duration extension or increase the flexibility of working capital. But for steady state, we only need this Big Rock incremental $30 million dollars of the facility.

Ben Paulden
Ben Paulden
Manager of Investor Relations at Gore Street Energy Storage Fund plc

Thank you. Thank you. I think we have touched on this, but there's a few more questions come in on dividend cover and what does a 750 MW operational portfolio mean for that?

Alex O'Cinneide
Alex O'Cinneide
CEO at Gore Street Energy Storage Fund plc

I think I've covered before. If we look at our last financial year at that GBP 15 per megawatt for every hour in operation across the portfolio, we forecast that at 750 MW would produce a fully covered dividend, 7p plus cost. Again, I would say, of course, those markets move, they're merchant markets, but if we look back at prior performance, that's our guidance for going forward as we complete out this large portfolio increase.

Ben Paulden
Ben Paulden
Manager of Investor Relations at Gore Street Energy Storage Fund plc

Thank you. Next, the company has spoken a lot about the 750 MW target. What are the next steps for the remaining pre-construction assets?

Alex O'Cinneide
Alex O'Cinneide
CEO at Gore Street Energy Storage Fund plc

I think I refer back to kind of my other answer around shareholder value, around, of course, the share price, the discount to NAV. We do have facilities in place. I think we have utilized them judiciously, and we will continue to do so. We will have a cash inflow coming through from the ITC. What is then the best levers for shareholder value? Is that paying down debt, for instance, right, which is at this present level of debt? It's a near 7% risk-free return to do so. Is it to look at other mechanisms, for instance, investing in our own portfolio through shares? Is it to continue to look at building out more of the assets?

Alex O'Cinneide
Alex O'Cinneide
CEO at Gore Street Energy Storage Fund plc

What I would say is we want to get to the portfolio of 750 in conversation with shareholders and the board to then understand what the best route forward is, given we do have a large portfolio of pre-construction assets. They have significant value. What is the right time to build those out? Are they best situated in this portfolio or at some other ownership? And what should we look to do with cash over the course of 2025? But what I would say is that shareholder value is first and foremost on our mind as we look at that, given we will achieve the buildout of this portfolio to what we believe is a steady state.

Ben Paulden
Ben Paulden
Manager of Investor Relations at Gore Street Energy Storage Fund plc

Thank you very much. I'm sorry, Paula, you're not on mute.

Operator

Go ahead, Ben.

Ben Paulden
Ben Paulden
Manager of Investor Relations at Gore Street Energy Storage Fund plc

So I'll pass over to Alex for any closing remarks that you may have. Thank you.

Alex O'Cinneide
Alex O'Cinneide
CEO at Gore Street Energy Storage Fund plc

No, thank you all. As we sit here today, I think the key message is coming through here. Three projects, final advanced stages of construction, materially de-risked, strong revenue potential across the portfolio and demonstrated in our results, good logical use of leverage, and well situated then for a strong 2025.

Operator

Perfect. I'd just like to thank you all for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations? This will then take a few moments to complete. Submissions will be greatly valued by the company. On behalf of the management team of Gore Street Energy Storage Fund plc, we'd like to thank you for attending today's presentation. Good afternoon to you all.

Executives
    • Ben Paulden
      Ben Paulden
      Manager of Investor Relations
    • Sumi Arima
      Sumi Arima
      Chief Investment Officer
    • Alicja Kowalewska-Montfort
      Alicja Kowalewska-Montfort
      Principal of Technical
    • Alex O'Cinneide
      Alex O'Cinneide
      CEO
    • Paula Travesso
      Paula Travesso
      Principal of Corporate Development and Investor Relations
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