ENERGY STORAGE

Gore Street Capital CEO: ‘GB BESS revenue decline was no surprise’

Alex O’Cinneide, CEO of Gore Street Capital – which manages Gore Street Energy Storage Fund – says the fund had always presumed there would be a drop in GB battery energy storage revenues and consequently portfolio diversification was a priority

 

BEN COOK

April 24, 2024

  • 2024 has been a challenging year for energy storage funds
  • Gore Street Energy Storage Fund prepared for GB revenue drop by diversifying into the US, Irish and German markets
  • GB well prepared for the energy transition, says Gore Street CEO Alex O’Cinneide 

Battery energy storage system [BESS] revenues from ancillary services in Great Britain have plummeted in recent times. For the uninitiated, ancillary services refer to functions that help grid operators maintain a reliable electricity system, that is the proper flow and direction of electricity, and can involve addressing imbalances between supply and demand, and helping the system recover after a power system event.

But such services are not providing as significant revenues for BESS asset owners as they have in the past. As Gore Street Energy Storage Fund (GSF) acknowledged in a statement in February, “2024 has been a challenging year for the renewable energy infrastructure sector, with even the largest funds trading at significant discounts.” The statement added: “This has been felt most acutely in the energy storage segment, where Great Britain’s (GB) expanding battery capacity has increased market saturation and caused revenues from ancillary services to fall to historic lows”.

Tough period for storage firms

It has indeed been a tough period for storage funds and Gore Street has not been immune. As of the 2 April 2024, Gore Street’s share price stood at 64.50p. By way of contrast, in September 2022, the fund’s share price was almost twice that, standing at 123.60p.

However, in an exclusive interview with Tamarindo Finance Quarterly, Alex O’Cinneide, CEO of Gore Street Capital – which manages GSF – says the fund has been preparing for the decline in revenues from GB ancillary services for some time. “We presumed revenues in GB would decline – if you look at GSF’s NAV [net asset value], it has been very stable because we were looking at our GB revenues and assuming from way back that actually they would decline because it was an attractive market and economically rational actors would build more energy storage and compete with our assets in the marketplace,” he explains. “So it was not a surprise to us that revenues would decline – I think we were a bit surprised they declined as fast as they did and that’s probably because we were a bit surprised that people kept building [BESS] as fast as they did.”

Portfolio diversification was key

So how did Gore Street prepare for the decline in GB revenues? A strategy involving the diversification of the fund’s portfolio was key. Ireland was one of the markets Gore Street targeted and it now owns three operational systems that have become some of the most lucrative assets in its portfolio. To illustrate the point, the GB market delivered average estimated revenue of £6.1/MW/hr in the three months to the end of December 2023. Contrast this with Gore Street’s Irish portfolio, which generated an estimated £25.8/MW/hr during Q3 2023, for example.

In addition to the Irish market foray, Gore Street expanded into Germany and Texas in early 2022, while the fund has also completed the 200 MW/400 MWh Big Rock project in California. These moves proved to be shrewd ones and have had the desired effect of offsetting low GB revenues – in contrast to the £6.1/MW/ hr delivered by the GB market in the last three months of 2023, Gore Street’s entire portfolio generated £15.1/MW/hr.

GB well-prepared for energy transition

“We diversified very heavily away from the GB market,” says O’Cinneide. “Others took a position where they wanted to continue the high level of concentration. So it really is a supply-demand situation and I think one should take the positive and that is that GB has proved itself a very attractive market for owners of batteries, the critical asset class for our transition to a low carbon society. The GB market now has a very considerable fleet of energy storage facilities which are helping to balance the grid and therefore helping to drive bigger renewable penetration.”

The extent to which GSF has diversified its portfolio is illustrated by the fact that, by the end of this year, only 30 per cent of its revenues are scheduled to be GB-related. The remaining share will be “non-GB, whether that be Ireland, Texas, California or Germany,” O’Cinneide says. While some in the GB storage sector say BESS has been “overbuilt”, O’Cinneide’s view is that we should be glad that GB is well-prepared for the energy transition. He adds that the situation needs to be placed in context and consideration needs to be given to the timescales involved. “From the moment you make your investment decision, it’s probably 18 months before you have your system up and running,” he says. “If you decided you wanted to invest in GB energy storage in 2022 when revenues were £21 to £22 per megawatt for every hour you’ve been in operation and you start building a system that comes online in mid to late 2023 when revenues are £4 to £5, it is what it is. You’ve made an investment decision and it turns out that revenues are a lot lower now.”

But O’Cinneide argues that, in the longer term, the numbers make sense. “Will revenues be a lot lower over the 20-year horizon that you need to own this asset for? I think it’ll average out. So as long as investors have taken an appropriately mature attitude to how capital should work, how leverage should work, how diversification should work, we as citizens and participants in the energy society should welcome there being a big stable of energy storage facilities in GB.”

  • This is an abridged version of an article that appears in the latest issue of Tamarindo Finance Quarterly, which deep-dives into the latest trends in the world of renewables finance. To download a copy, click here