Gore Street Energy Storage Fund H2 Earnings Call Highlights

Key Points

• Net asset value fell sharply to 74.9p from 102.8p, driven mainly by revised revenue forecasts in Great Britain and the U.S., lower actual revenues, and more conservative cost assumptions.
• Performance was uneven across markets: Ireland and Germany were the strongest contributors, while Great Britain and Texas lagged due to weaker spreads, policy changes, and softer demand growth.
• Strategy now emphasizes shareholder returns and selective growth, with the fund targeting a 7p-per-share dividend, pursuing asset sales, and continuing augmentation projects that are expected to add capacity later this year.

Gore Street Energy Storage Fund LON: GSF said its net asset value fell sharply over the year to March, as lower actual revenues, revised third-party revenue forecasts and more conservative cost assumptions weighed on the valuation of its battery storage portfolio.

In an annual results presentation, Chair Angus Gordon Lennox said the board, which has been in place since Feb. 1, had completed a strategy review and taken “significant action.” He said the NAV announced with the results was, in the board’s view, “a realistic NAV,” and that the dividend was “entirely in line” with the strategy announced in March.

Alex O’Cinneide, CEO of Gore Street Capital, the fund’s investment manager, said the headline issue was the decline in NAV to “just under GBP 0.75.” He attributed the move to third-party revenue forecasts that reflected volatility in the energy storage asset class and changes in supply-demand dynamics in key markets.

“We are surprised at the build-out of storage,” O’Cinneide said. “We always knew this would be a large asset class and one that was critical to the energy transition, but in some of the markets where we operate, the build-out of storage has been more than our expectations, and that supply-demand dynamic has led to an underperformance against revenue.”

NAV falls to 74.9p as revenue forecasts are revised

Sumi Arima, Chief Investment Officer at Gore Street Capital, said NAV fell from 102.8p to 74.9p over the period. She said the largest single driver was a 19p negative impact from revised revenue curves, with the biggest revisions coming from Great Britain and the U.S.

Arima said the fund uses a blended mid-case average from multiple third-party providers. Updated forecasts for Great Britain and the U.S. reduced the valuation by 17.2p in aggregate, while an additional 1.8p adjustment was directed by the audit committee. That adjustment applied the last 12 months of revenue performance to the 2026 and 2027 forecasts to bring near-term projections closer to recent actual results.

Other factors in the NAV bridge included:

• A 9.3p positive contribution from the DCF rollover.
• A 6.1p negative impact from actual revenue falling below prior forecasts.
• A 5.6p negative impact from operating expenditure assumptions.
• A 2.3p negative impact from fund-level expenses.
• A 4.2p reduction from dividends paid.
• A 1.1p positive contribution from inflation assumptions.

Arima said the new board and audit committee reviewed valuation inputs in detail and took a “consciously prudent approach.” The weighted average discount rate was 10.25%, broadly flat with 10.22% the prior year.

Portfolio remains diversified, with Ireland and Germany strongest

O’Cinneide said the fund operates across five markets and has just under 650 megawatts of operational capacity, equal to nearly 1 gigawatt-hour. He said the portfolio’s diversification had reduced volatility and generated higher revenue than if the company had remained concentrated in one market.

The portfolio generated average revenue of GBP 7.3 per megawatt-hour during the period, according to Alicja Kowalewska-Montfort, Commercial Managing Director at Gore Street Capital. She said Ireland and Germany were the strongest markets in the portfolio.

In Ireland, Kowalewska-Montfort said performance was driven by the DS3 policy framework, which is tailored to batteries and correlated with renewable penetration. She said availability in the Irish market was above 98%.

Germany also delivered strong performance, she said, supported by renewable penetration and balancing needs related to solar output. The Cremzow asset remained a strong performer, with AFRR becoming a predominant revenue stream.

Great Britain and Texas were weaker markets. Kowalewska-Montfort said Great Britain saw a stronger first half compared with the prior financial year, but a milder winter led to a 48% decrease in day-ahead spreads. She also cited the impact of policy changes, including changes to the ABSVD methodology. In Texas, she pointed to lower-than-anticipated demand growth and stronger renewable growth, though she said data center demand could change the outlook over time.

California’s revenue profile was largely contracted, with Resource Adequacy making up about 76% of the revenue stack. However, Kowalewska-Montfort said the merchant component in California declined 40% year over year.

Earnings decline as costs rise with new assets

Arima said top-line revenue was GBP 36.3 million, with total adjusted fund earnings of GBP 5.96 million, down from GBP 9.8 million last year. She said revenue remained flat despite new assets becoming operational, while operating and debt costs increased.

Revenue-related costs were GBP 3.5 million, while other operating costs totaled GBP 10.8 million. Holdco and PLC expenses were GBP 7 million. Arima said the investment manager fee fell 16% year over year, from GBP 5.1 million to GBP 4.3 million, under a revised fee structure effective from October.

Debt costs rose to GBP 7.8 million, mainly due to Big Rock interest and principal payments and a higher Santander loan balance. The fund’s aggregate group debt was GBP 105.82 million against gross asset value of GBP 484 million, for gearing of 22%, up from 18% last year. Arima said the fund maintained a deliberately low gearing profile compared with peers.

Strategy focuses on distributions, disposals and selective investment

Gordon Lennox said the strategy announced in March is to use operational income and capital from disposals to return capital to shareholders, while retaining capital for value creation through augmentation and selective investment.

“We are absolutely laser-focused on not reducing value for shareholders,” Gordon Lennox said. “We want to increase value for shareholders, and we want to return some of that capital to shareholders while we are doing that.”

O’Cinneide said sales processes are underway for Irish pre-construction assets and Cremzow, and that those processes are “going well.” He said the fund has 417 megawatts in sales processes and 130 megawatt-hours in augmentation.

The company is targeting a dividend of 7p per share for the year, or 1.75p per quarter. In response to a question on whether the dividend implies a wind-up, Gordon Lennox said the fund is “certainly not in wind down,” adding that selective sales are needed to execute the strategy and that the strategy includes future investment as well as shareholder distributions.

Augmentation projects remain on track

Kowalewska-Montfort said two-hour duration extension projects at Stony and Ferrymuir are progressing well and are expected to complete by the end of the calendar year. She said the process is ahead of schedule and should add 130 megawatt-hours, with assets coming online sequentially in October, November and December.

O’Cinneide said the fund chose an attractive point in the capital expenditure cycle to extend duration in the U.K., adding that augmentation costs are about 50% lower than two years ago. He said the fund may also consider duration extensions in Ireland as the market evolves to recognize more merchant trading opportunities.

On share buybacks, Gordon Lennox said the company is currently returning capital and revenue through dividends, which he described as fair and equal for all shareholders. He said buybacks could be considered in the future if the company has excess capital and if buying shares at a discount offers better returns than new developments or other investments.

Gordon Lennox closed the presentation by saying the board is focused on achieving “best value in the medium to long term” for shareholders and remains committed to executing the strategy without moving too quickly in a way that could damage value.

About Gore Street Energy Storage Fund LON: GSF

About Us: Gore Street Energy Storage Fund plc is London's first listed energy storage fund, launched in 2018. The Company is the only UK-listed energy storage fund with a diversified portfolio across five grid networks. The Company is one of the principal owners and operators of battery storage facilities in Great Britain and Ireland and owns and operates facilities in Western Mainland Europe and the US. It is listed on the Premium Segment of the London Stock Exchange and included in the FTSE All-Share Index. Energy storage technologies enhance power system stability and flexibility and are key tools for balancing out variability in renewable energy generation, facilitating the integration of more renewable energy supply into power grids.

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