The rapid development of renewable energy is creating a new income investment opportunity with the planned flotation of the UK’s first energy storage fund.
The Gore Street Energy Storage Fund (GSF) is looking to raise £100 million in a stock market flotation next month. The investment company will use the money to roll out a network of lithium batteries in which renewable power from the grid can be stored.
Technical advances means large lithium batteries can quickly take and release power from the grid, allowing them to be used to regulate the supply of clean but intermittent electricity generated from the wind and sun.
With ‘dirty’ but more reliable nuclear and coal plants being shut down, the risk of blackouts during peak times is seen as a major risk as the country adopts fossil-free fuels to meet its international obligations.
The closed-end fund, the brain-child of renewable private equity specialist Gore Street Capital, believes it can generate multiple, long-term contractual revenues from servicing the grid or corporate energy users to ensure they have back-up power sources and the means to access their power efficiently.
These could provie a total annual return of 10-12% before costs and without the use of debt, according to the company.
The initial public offer (IPO) of shares is firmly aimed at income investors. In year one the company will target a 3% quarterly dividend yield, but hopes to more than double this to 7% in its second year. This would exceed the current 6% average yield from the existing band of listed renewables funds such as Bluefield, Foresight and Greencoat.
Alex O’Cinneide, chief executive of Gore Street Capital, said: ‘The cash flows available from the energy storage assets that Gore Street Energy Storage Fund invests in, will allow a large, well-covered target 7% cash dividend, which is well suited to investors searching for yield.’
The fund has two Japanese partners: NEC Energy Solutions, a leading battery supplier and subsidiary of NEC Corporation, and Nippon Koei, an engineer, which have committed to invest £14 million if a minimum of £75 million is raised from professional and private investors. Gore Street Capital management are subscribing for £2 million of shares.
The company has attracted several figures from the investment trust sector for its board. Max King, a former fund manager at Investec Asset Management and a non-executive director on Henderson Opportunities Trust (HOT) and Ecofin Global Utilities & Infrastructure Trust (EGL), will perform the same role at the energy storage fund.
He will sit alongside Caroline Banszky, former chief executive of Law Debenture (LWDB), the global investment trust and fiduciary business; and Thomas Murley, a former director of HgCapital who established the private equity group’s renewable energy business and who until last year served on the board of the Green Investment Bank.
Kind commented: ‘What I like about it [the new fund] is that it is essential to the provision of alternative energy power generation. With the growth in that a given, this is a service which adds only modestly to the cost yet provides an essential service.
‘I like the fact that contracts are relatively short as this will deter competition, particularly debt financed. This is likely to keep contract prices up,’ he said in an email to Investment Trust Insider.
An £11 million seed portfolio of three projects in North Yorkshire, Swansea and Essex using batteries from NEC and Tesla, the electric car pioneer, has been set up with a further 60 in the pipeline should the launch succeed. This was eight times more than the fund required in its first stage, said O’Cinneide.
He stressed that the revenues generated by the batteries would not be linked to energy prices or government subsidy, reducing political risk.
GSC will charge an annual management fee of 1% of net assets plus a performance fee of 10% of returns above 7% a year, capped at 0.5% of net assets. It hopes to keep overall ongoing charges below 2% a year and the 100p shares will start with a minimum net asset value of 98p.
There will be a five-year continuation vote and the board will have powers to buy back up to 15% of the shares to manage any share price discount.
Broker Stockdale Securities is running the subscription and intermediaries offers. A prospectus is available on the company’s website.