Important information

Gore Street Energy Storage Fund plc (ticker: GSF), London's first listed energy storage fund investing in income producing assets in the UK and internationally, is pleased to announce interim results for the six months ended 30 September 2019.

Download To view a full version of the results in  PDF format click here

Operational Highlights

• Substantial AUM Growth during the period and year to date - Our asset portfolio increased to 189 MW of UK and Ireland energy storage projects
  • Including a controlling interest in 160MW¹ portfolio of Irish energy storage assets of which 60 MW benefit from long term contacts
• Growing operational portfolio - Post 30 September our operating fleet is now 19 MW with another 10 MW expected to be commissioned during December 2019
• Key strategic partners - The Company secured a third major strategic partner in NTMA, an Irish sovereign wealth investor with significant renewable infrastructure experience, joining NEC ES and Nippon Koei

Dividend Highlights

• 4.0 pence per share in dividends declared for the period of 1 April 2019 to 30 September 2019
• The Company continues to target a dividend of 7.0 pence per share for the current year ending in 31 Marc2 2020
• This is one of the highest distributions of any London listed renewable infrastructure investment company

Financial Highlights

• £32.5m of new capital raised during the period, including commitments from the NTMA, more than doubling the AuM of the Company
• NAV per ordinary share of 95.5 pence as at 30 September 2019¹ representing an uplift of 2.0% over the previous quarter
• Portfolio valuation of £20.5 m as at 30 September 2019

Portfolio

Gore Street operates a substantial and diversified portfolio of energy storage projects with a substantial additional investment pipeline of c. 350MW:

Project	Location	Capacity - MW	% Owned by the Company	Site Type	Status	Commissioning / Expected Commissioning	Battery Provider
Boulby	Great Britain	6.0	99.99%	Industrial Mining	Operational	Q4 2017	NEC ES
Cenin	Great Britain	4.0	49%	Renewable Generation	Operational	Q1 2018	TESLA
Port of Tilbury	Great Britain	9.0	100%	Port	Operational	Q4 2019	NEC ES
Lower Road	Great Britain	10.0	100%	Greenfield	Under construction	Q4 2019	NEC ES
Mullavilly	Ireland (NI)	50.0	51%	Greenfield	Design stage	Q1 2021	To be confirmed
Drumkee	Ireland (NI)	50.0	51%	Greenfield	Design stage	Q1 2021	To be confirmed
Kilmannock	Ireland (RoI)	30.0	51%	Greenfield	Recently Acquired	Q3 2021	To be confirmed
Porterstown	Ireland (RoI)	30.0	51%	Greenfield	Recently Acquired	Q3 2021	To be confirmed

Net Asset Value

As at 30 September 2019, the estimated NAV increased to 95.5 pence per share, representing an uplift of 1.9 pence per share or 2.0% over the previous quarter³.

Dividend Declaration

Gore Street has today declared an interim dividend of 2.0 pence per ordinary share for the period 1 July 2019 to 30 September 2019.

CEO of Gore Street Capital, the investment adviser to the Company, Alex O'Cinneide commented:

"We are delighted by the continuing successful momentum at Gore Street. The energy storage market in which we operate continues to be a key component on the international transition to a low carbon economy. We have doubled the size of our capital during the six-month period and significantly increased the size of our investment portfolio. Our operational asset base also continues to grow, with a further 10MW anticipated to come online by 31 December 2019. The transformational Irish portfolio acquisition secured our third strategic partner in the NTMA, an Irish sovereign wealth investor with major renewable infrastructure expertise. Our pipeline has matured substantially since our IPO, and today we are analysing opportunities not only in the GB and Ireland, but also continental Europe, EUA and Canada.

We have delivered a satisfactory return for our shareholders during the past six months. Our targeted dividend distribution of 7.0 pence per share is already one of the largest distributions of any renewable infrastructure investment company.

As the international community continues to focus on building further intermittent renewable energy generation, such as solar and wind, while phasing out traditional stabilisers of the grid such as coal, energy storage is ideally positioned to offer essential services to enable countries to meet their carbon emission targets."

The Legal Entity Identifier of the Company is 213800GPUNVGG81G4O21.

 

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For further information:

Gore Street Capital Limited
Alex O'Cinneide	Tel: +44 (0) 20 3826 0290
Shore Capital
Anita Ghanekar / Hugo Masefield(Corporate Advisory) Henry Willcocks / Fiona Conroy (Corporate Broking)	Tel: +44 (0) 20 7601 6128

Media enquiries:

Buchanan
Charles Ryland / Henry Wilson	Tel: +44 (0) 20 7466 5000
	Email:[email protected]
JTC (UK) Limited, Company Secretary	Tel: +44 (0) 20 7409 0181

 

Notes to Editors

About Gore Street Energy Storage Fund plc

Gore Street is London's first listed energy storage fund and seeks to provide shareholders with a significant opportunity to invest in a diversified portfolio of utility scale energy storage projects. In addition to growth through exploiting its considerable pipeline, the Company aims to deliver consistent and robust dividend yield as income distributions to its shareholders.

 

1 Includes both of Northern Ireland and Republic of Ireland.
2 Value of dividend declared on 11 September (2.0 pence per share) has not been deducted in this figure since the payment date was after 30 September 2019.
3 NAV per share is 93.5 after subtracting dividend declared on 11 September 2019. It is lower by 0.1 pence per share compared to 93.6 NAV as of 30 June 2019. 93.5 NAV is before subtracting value of the dividend declared for this quarter.

 

Contents	Page
Chairman's Statement	2 - 3
Strategic Report	4 - 6
Investment Advisor's Report	7 - 15
Statement of Directors' Responsibilities	16
Independent Auditor's review report to the members of Gore Street Energy Storage Fund plc	17
Interim Condensed Statement of Comprehensive Income	18
Interim Condensed Statement of Financial Position	19
Interim Condensed Statement of Changes in Equity	20
Interim Condensed Statement of Cash Flows	21
Notes to the interim condensed financial statements	22 - 36
Directors and Advisors	37

 

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Chairman's Statement

For the period ended 30 September 2019

I am pleased to present Gore Street Energy Storage Fund PLC results for the period ending September 30 2019.

Performance and returns
Our assets continue to operate within expected parameters, with the exception of one operational issue which was rectified. and with further operating assets coming onstream, Fund cash flows are targeted to continue to strengthen. It is our expectation that current levels of operational efficiency will continue for the remainder of the year. This period also saw the progression of two further assets, Lower Road and Port of Tilbury with a combined 19MW of capacity, becoming operational soon after the period end; we note the commencement of projects at Drumkee and Mullavilly in Northern Ireland also took place then and are progressing well. These latter two projects, with a combined capacity of 100MW, are the first arising from our acquisition of a total portfolio of 350MW in Ireland (190MW of which we hold under option). They are expected to become operational in the first quarter of 2021. A further two projects from that portfolio , Porterstown and Kilmarnock in the Republic of Ireland, with 60MW of capacity, were completed upon our successful participation in the auction for six year fixed price contracts held in Ireland.

The attractive terms for the acquisition of the two Northern Ireland assets and the revenue contracts available have already enabled our independent valuers, BDO, to ascribe an increase in value to these assets, alongside operational improvements which significantly increase the lifespan of the assets. Overall we see strong momentum in our NAV with an uplift in this period of 91.5p a share to 95.5p. These valuations are derived by discounting future revenue, including a significant risk premium, of 10% compared to 6% for operational assets. This provides considerable upside to their valuation should the projects be completed on time and on budget as the discount rate falls. It would also be a highly encouraging indicator for the success of the Republic of Ireland projects. However, the projects are still at an early stage and the high discount rate used by BDO reflects the work ahead to bring the assets onstream. Your Board will be keeping a careful eye on the progress of these projects and the two in the Republic of Ireland and ensure that they continue to be appropriately valued during this time. Further uplift to the net asset value should be provided by the reinstatement of the capacity market following the satisfactory ruling of the European Commission. Following its suspension, we took a conservative view of the outcome and wrote off 12 months of capacity market revenues which we will be receiving back. Its reinstatement is also a good indicator of stability in our market and we welcome the move.

Since IPO the company has grown its portfolio to 189MW of projects in operation or construction from 6MW, proved itself to be competitive in new high value markets such as on the Island of Ireland, focused on significant operational improvements in its assets and received a strong mandate from a leading renewable energy investor; whilst navigating a steep learning curve as the first mover in this market. All of which we believe makes it well placed to benefit from the significant long term opportunities outlined at flotation.

Dividends
We continue to target a dividend of 7 pence per share with respect to year ending 31 March 2020, which is one of the highest distributions of any London listed renewable infrastructure fund.

Acquisitions & Funding
We are pleased to report that our acquisition pipeline has been fruitful, with the Company securing the rights to 350 MW of Energy Storage Assets since March 2019. The Company continues to generate a large pipeline of investment calibre opportunities on which further growth can be developed.

This strong performance on the acquisitions side has been mirrored by the announcement on 5 June 2019, that the Company entered into an agreement with the National Treasury Management Agency ("NTMA") for up to a £30m investment in the Company. £1.5m was invested as part of the Initial Placing in August 2019 and an additional £9.5m was subsequently drawn in October 2019. There is an additional £15.5m commitment to be drawn for the development of further projects in the Republic of Ireland.

Gearing
The Group will generally avoid using non-recourse debt at the SPV level and aims to keep Group level borrowings within a prudent range to reduce risk; the maximum gearing allowable presently is 15 % of Gross Asset Value. We ended the period with no external borrowings.

Governance
The Company has an independent Board with experience in the sector, comprising myself as chairman and three other non-executive directors, which has worked well during the year.

The Audit, Remuneration and Nomination and Management Engagement Committees are in place as sub-committees of the Board. The Board is aware of the new matters set out in the updated AIC Corporate Governance Code, has a range and depth of suitable and compatible skills and is committed to achieving high standards of corporate governance.

 

Patrick Cox
Chairman
Date: December 2019

 

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Strategic Report

Introduction
The Directors present their Strategic Report for the period ended 30 September 2019. Details of the Directors who held office during the period and as at the date of this report are given on page 37.

Investment Objective
The Company seeks to provide investors with a sustainable and attractive dividend over the long term by investing in a diversified portfolio of utility scale energy storage projects primarily located in the UK and the Republic of Ireland, although the Company will also consider projects in North America and Western Europe. In addition, the Company seeks to provide investors with an element of capital growth through the re-investment of net cash generated in excess of the target dividend in accordance with the Company's investment policy.

Investment policy
The Company is in the process of investment in a diversified portfolio of utility scale energy storage projects. The portfolio will be primarily located in the UK and the Republic of Ireland but the Company will consider projects outside the UK, and the Republic of Ireland in particular in North America and Western Europe.

Individual projects will be held within special purpose vehicles into which the Company will invest through equity and/or debt instruments. Typically, each special purpose vehicle will hold one project but there may be opportunities where a special purpose vehicle owns more than one project.

The Company will typically seek legal and operational control through direct or indirect stakes of up to 100 per cent. in such special purpose vehicles but may participate in joint ventures or acquire minority interests where this approach enables the Company to gain exposure to assets within the Company's investment policy which the Company would not otherwise be able to acquire on a wholly-owned basis. In such circumstances the Company will seek to secure its shareholder rights through the usual protective provisions in shareholders' agreements and other transactional documents.

The Company currently intends to invest primarily in energy storage projects using lithium-ion battery technology as such technology is considered by the Company to offer the best risk/return profile. However, the Company is ultimately agnostic as to which energy storage technology is used by its projects and will monitor projects with alternative battery technologies such as sodium and zinc derived technologies, or other forms of energy storage technology such as flow batteries/machines and compressed air technologies, and will consider such investments, including combinations thereof, where they meet the investment policy and objectives of the Company.

The Company does not intend that the aggregate value of investments outside the UK and the Republic of Ireland will be more than 40 per cent. of Gross Asset Value (calculated at the time of investment). The Company may invest cash held for working capital purposes and pending investment or distribution in cash or near-cash equivalents, including money market funds. The Company may (but is not obliged to) enter into hedging arrangements in relation to currency, interest rates and/or power prices for the purposes of efficient portfolio management. The Company will not enter into derivative transactions for speculative purposes. The Company intends to invest with a view to holding assets until the end of their useful life. However, assets may be disposed of or otherwise realised where the Investment Advisor determines in its discretion, that such realisation is in the interests of the Company. Such circumstances may include, without limitation, disposals for the purposes of realising or preserving value, or of realising cash resources for reinvestment or otherwise.

Risk and diversification
The Board is focussed on ensuring that there is a sufficient diversity of risk within the Company's portfolio. It is the Company's intention that when any new acquisition is made that no single project or interest in any project, will have an acquisition price, or, if it is an additional interest in an existing investment, the combined value of the Company's existing interest and the additional interest acquired shall not be greater than 20 percent of Gross Asset Value calculated at the time of acquisition. However, in order to retain flexibility, the Company is permitted to invest in any single project, or interest in any project, that has an acquisition price of up to a maximum of 25 per cent. of Gross Asset Value, calculated at the time of acquisition. The Company will target a diversified exposure with the aim of holding interests in no fewer than 10 separate projects at any one time once fully invested. Geographical diversification within the Company's portfolio will be achieved through investments located throughout the UK and the Republic of Ireland.

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Principal Risks and Uncertainties
Gore Street Energy Storage Fund's approach to risk management and governance structure are set out in the Risk section of the Annual report and accounts 2019, which can be accessed on the Group's website at www.gsenergystoragefund.com.

The principal risks to the achievement of the Group's strategic objectives for the remaining six months of its financial year are unchanged from those reported on pages 48 to 53 of the Annual report and accounts 2019, except for the following relating to foreign exchange, instalment payments and procurement environment have been added:

Risk: Changes in procurement methods relating to balancing services, alteration to the length of contracts offered and pricing across frequency response and Irish DS3 contracts. Failure to secure new contracts to supply these services.

The procurement details and contract designs that National Grid, Eirgrid and SONI use for the range of balancing services currently varies. For example, in GB, firm frequency response contracts are procured mainly through monthly tender process. This tender process is currently undergoing a transition with the National Grid currently working on the trial of a weekly auction mechanism to procure firm frequency response service. This may have an impact on pricing levels. Changes in the specification of services, for example, relating to the speed and duration of the delivery of a balancing service, may require battery storage projects to incur additional investment and set up costs. In the Irish (NI and ROI) market, DS3 uncapped contracts are awarded through semi-annual procurement process. Until such time as the Company's assets are awarded the contracts, there is a possibility that Eirgrid or SONI may revise the technical requirements or pricing methodologies, or new contracts may cease to be offered. After the award of DS3 uncapped contracts, there is a possibility that Eirgrid/SONI could cancel the contracts at 12 months' notice at any stage over the life of the contract.

Mitigant: The Company operates a revenue stacking strategy such that each asset benefits from a range of revenue streams and consequently has a lower reliance on any single contract mechanism or market. The Company has a back-up revenue strategy which can be enacted, incorporating wholesale arbitrage or involvement in the balancing mechanism market, in the event the currently forecast main revenue sources are terminated or unprofitable.

Risk: Instalment payment risk pertaining to battery system suppliers repayment schedules.

With respect to some of the existing portfolio assets, the Company has an agreed payment schedule with the relevant battery supplier incorporating payments scheduled after the commercial operation of the asset has begun. A part, or all of such payments is planned to be paid from cash flow of the assets, although a portion of the future instalment payments may be funded by the Company's additional deployment of capital to the SPV which owns the assets. The Company may enter into similar contracts for new projects to allow the company to improve capital efficiency. With this arrangement, there is a risk that the SPV owning the assets may require significant additional capital contribution from the Company to satisfy instalment payment obligations to the battery suppliers post commercial operations, which may not be covered by inherent operating cashflows of the SPV.

Mitigant: These instalment payments are arranged by the asset SPV without any recourse to the Company. Therefore, there is no contractual obligation to the Company in the event the asset SPV fails to make a scheduled payments to the battery system suppliers. The Company has strong relationships with various lenders in UK and Ireland and, if required, an SPV would potentially be in a position to finance the battery suppliers instalment payments though asset bank financing of cashflow generating assets.

Risk: Foreign Exchange Risk
A portion of the Company's assets will operate in markets in which Revenues are pegged to the Euro, or Capex and Intercompany loans at SPV level may be denominated in Euro, creating a foreign exchange exposure as the Company reports in GBP.

Mitigant: The Company may, in its discretion, hedge its currency exposure under any specific project contract between Sterling and any other currency in which the Group's income and payment obligations may be denominated, in particular US Dollars and Euro. The Company is in the process of reviewing various hedging strategies with respect to its Euro exposure. There can be no assurances or guarantees that the Company will successfully hedge against such risks or that adequate hedging arrangements will be available on an economically viable basis, and in some cases, hedging arrangements may result in additional costs being incurred or losses being greater than if hedging had not been used.

Otherwise, there have been no material changes to the impact and likelihood of the Company's other principal risks, which are summarised below. This is not a comprehensive list of all potential risks and uncertainties faced by the Group, but rather a summary of the risks which may have a significant impact on its performance and future prospects.

Risk relating to the Company and Operation of its Portfolio:

The Company relies on third party service providers, external factors could affect these providers. We continue to review and improve our governance and controls to protect our operational infrastructure.

Risks arising from external factors including political, legal, regulatory, economic and competitor changes, which affect the Company's operations. There is significant continuing uncertainty in the outlook for the global economy, in addition to the political uncertainty linked to the forthcoming UK general election and UK's planned exit from the EU. Although we cannot be immune to wider market conditions and political instability, the Company's balance sheet is well funded with no Company debt and a portfolio which has a presence across both the UK and the Republic of Ireland. The Company continue to monitor the impact of current geo-political uncertainties as they develop.

Risk relating to Portfolio and Investment Strategy, and Tax Code Compliance:

Risks in respect of specific asset investment decisions, the subsequent performance of an investment or exposure concentrations across the Company's portfolios. Risks arising from external factors including political, legal, regulatory, economic and competitor changes, which affect the Company's operations. Risks relating to compliance failure regarding tax codes currently in force, and possible changes in tax legislation which may be enacted in the future. The Company continues to rely on third party experts for the provision of Investment, Valuation and Tax advice.

The Half-year report provides an update on the Company's strategy and business performance, as well as on market conditions, which is relevant to the Company's overall risk profile and should be viewed in the context of the Company's risk management framework and principal risks as disclosed in the Annual report and accounts 2019.

 

Patrick Cox
Chairman
Date: December 2019

 

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Investment Advisors Report
For the period ended 30 September 2019

About Gore Street Capital ("Investment Advisor")
The Investment Advisor was in operation since 2013 as a platform to acquire, develop and manage global renewable energy assets. It is headquartered in the UK and comprises a strong team of investment professionals with significant experience in sourcing, structuring and managing large renewable energy projects globally. The Investment Advisor was the first to deploy privately-owned large-scale battery projects in Britain.

Structure
Gore Street Energy Storage Fund plc (the "Company" or "GSF") holds and manages its investments through UK limited companies which are effectively 100% wholly owned by the Company, GSES 1 Limited, NK Energy Storage Solutions Ltd., GSC LRPOT Limited and GSF IRE Limited. All project SPV's are not 100% owned.

Investment Objective
The Company seeks to provide investors with a sustainable and attractive dividend over the long term by investing in a diversified portfolio of utility scale energy storage projects primarily located in the UK and the Republic of Ireland, although the Company also considers projects in North America and Western Europe. In addition, the Company seeks to provide investors with an element of capital growth through the re-investment of net cash generated in excess of the target dividend in accordance with the Company's investment policy.

Strategic Partners
The Company's cornerstone investors, NEC Energy Storage Inc. ("NEC ES") and Nippon Koei ("NK") remain strategic partners and major shareholders since the IPO of the Company on 25 May 2018.

On 5 June 2019, the Company entered into an agreement with the National Treasury Management Agency ("NTMA") for up to a £30m investment in the Company. £1.5m was invested as part of the Initial Placing in August 2019 and an additional £9.5m was subsequently drawn in October 2019. There is an additional £ 15.5m commitment to be drawn for the development of further projects in the Republic of Ireland.   

Investment Portfolio Summary
At period end, the Company's portfolio consists of eight projects with a total grid connection capacity of 189.0 MW. Four of those projects are situated in GB with two in Northern Ireland. Rights to the remaining two projects in Republic of Ireland were crystallised to 51% ownership post period end. Operating projects represented 10.0 MW at the end of the period. In addition, post period end a further 9mw asset became operational bringing the portfolio total to 19MW.

The Investment Advisor has selected assets that deliver portfolio diversification by multiple revenue streams, geographical location, EPC contractors, O&M counterparties and developers.

Portfolio Assets
As of 30 September 2019, the Company's portfolio consisted of six assets as detailed below:

	1. Boulby	2. Cenin
Location	Cleveland, North Yorkshire	Swansea, Wales,
	United Kingdom	United Kingdom
Size	6 MW	4MW
SPV Entity	NK Boulby Energy Storage Limited	Kiwi Power ES B Limited
Percentage effectively owned by GSF	100%	49%
Contract Type	Behind-the-meter	Co-location
Source of Revenue	Frequency Response	Frequency Response
	Capacity Market	Capacity Market
	Service to the site
Site Type	Industrial Mining	Renewable Energy
Status	Operational	Operational
Commissioning / Expected Commissioning	Operational since Oct. 2016	Operational since Feb. 2018
Battery Supplier	NEC ES	Tesla

	3. Lower Road	4. Port of Tilbury
Location	Brentwood	Port of Tilbury, London
	United Kingdom	United Kingdom
Size	10 MW	9 MW
SPV Entity	OSSPV001 Limited	OSSPV001 Limited
Percentage effectively owned by GSF	100%	100%
Contract Type	Front of the Meter	Behind the Meter
Site Type	Greenfield	Port
Status	Construction	Final Pre Commissioning
Commissioning / Expected Commissioning	Targeted to become operational in Q4 2019	Asset became operational in October 2019.
Battery Supplier	NEC ES	NEC ES

	5. Mullavilly	6.Drumkee
Location	Northern Ireland	Northern Ireland
Size	50 MW	50 MW
SPV Entity	Mulavilly Energy Limited	Drumkee Energy Limited
Percentage effectively owned by GSF	51%	51%
Contract Type	Front of the Meter	Front of the Meter
Site Type	Greenfield	Greenfield
Status	Design-phase	Design-phase
Commissioning / Expected Commissioning	Targeted to become operational in Q4 2020	Targeted to become operational in Q1 2021
Battery Supplier	To Be Determined	To Be Determined

At period end the company held options to project rights, subject to condition precedent, to a further 60.0 MW and extended certain loans to the project vehicles. The projects were acquired post period end on October 11, 2019 (please see Note 23). These assets are situated in the Republic of Ireland and are scheduled for start of operations in Q3 2021. Please see below description of the Republic of Ireland assets.

	7. Porterstown	8.Kilmannock
Location	Republic of Ireland	Republic of Ireland
Size	30 MW	30 MW
SPV Entity	Porterstown Battery Storage Limited	Kilmannock Battery Storage Limited
Percentage effectively owned by GSF	51%	51%
Contract Type	Front of the Meter	Front of the Meter
Site Type	Greenfield	Greenfield
Status	Post Acquisition	Post Acquisition
Commissioning / Expected Commissioning	Targeted to become operational in Q3 2021	Targeted to become operational in Q3 2021
Battery Supplier	To Be Determined	To Be Determined

Market Update

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Energy Storage Market

The energy storage market has the capacity to support delivery of stacked or multiple services to the grid and to commercial/industrial partners. While the Company's operational assets currently provide firm frequency response ("FFR"), capacity market services and Triad services, it is anticipated that beginning as early as next year, the suite of services available at market will expand to include Balancing Mechanism, Wholesale/Trading, and Black Start (these services will be explained in greater detail later in the document).

Energy Storage in Great Britain

Regulatory changes in the GB storage market are trending towards a push for increased use of energy storage both as a renewables enabler and as a component for electricity system flexibility.

With the increase in distributed generation and renewable energy, the regulator for electricity and gas in GB, Ofgem, has been reviewing electricity charging arrangements to ensure that they continue to be fit for purpose. Ofgem will commence implementation of legislation by year-end 2019 to enable more cost reflective pricing, removal of barriers to market participants and more effective ancillary markets.

A blackout event in August 2019 led to a greater procurement of FFR volumes, resulting in a positive short-term market drive for the storage market. The blackout may have also reinvigorated the overall systems review by the National Grid and Ofgem. In addition, Government legislation implemented on 28 of June 2019 is targeting net zero emissions by 2050.

These events have potential to positively impact the energy storage sector with potential for the energy storage market in GB to grow from 2.9 GW in 2017 to between 5.9 GW to 9 GW by 2030.⁴

At the time of writing, uncertainty remains over Brexit as the UK faces a General Election on 12 December 2019 and it's possible impact on the British energy markets. The Investment Advisor's view remains that potential changes to licences and codes should not materially impact the Company's business.

The major revenue streams for the Company's assets in GB are:

• Firm Frequency Response Market

FFR is the largest source of revenues for the Company. Given the intermittent nature of renewable energy generation, FFR aims to stabilize the grid around a target frequency. The Investment Advisor anticipates amendment to a weekly auction format by National Grid, currently under trial⁵, moving away from the current monthly format. The shorter format will likely result in improved optimisation of the stack of revenue opportunities available to battery storage companies.

• Triad market

Triad income is based on the peak shifting service applied during the three half-hour periods of highest demand (Triad) on the GB electricity transmission system (between November and February each year). The demand during a Triad is measured as the net demand on the transmission system (measured at the grid supply point where the distribution and transmission network meet). If suppliers can contract with generators embedded within the distribution network to export during likely Triad periods, then the effect is to reduce their net demand at the grid supply point, thereby reducing their exposure to Triad charges.

Network charging is under review by the GB regulator, Ofgem, and could result in an amendment or elimination of Triad. The Investment Advisor has assumed no Triad income across its portfolio after April 2023.

• Capacity Market (CM)

The UK capacity market is a policy mechanism that provides a long-term revenue stream to storage systems based on their availability for dispatch.

The Company previously reported the suspension of the capacity market on 15 November 2018, following a legal challenge to the original State Aid approval. Following the suspension, the Company wrote off 12-months of capacity market revenues. On 24 October 2019 the European Commission ruled in favour of the Capacity Market, enabling the UK Secretary of State to immediately issue ‘trigger letters' to reinstate the scheme, prompt the collection of deferred payments and approve conditional T-1 auction capacity agreements⁶.

With the reinstatement and the confirmation of back payments for the suspended period, the Company's net asset value will be revised upwards to reflect the reinstatement of its accrued and anticipated capacity market revenues in all four assets (29 MW) within GB.

Prospective Revenue Streams for the assets in GB are:

• The Balancing Mechanism

National Grid is responsible for balancing the GB system in real time. It uses the balancing mechanism ("BM") as one of the main tools to perform this role. In the BM, it is able to accept bids and offers from available market participants to decrease or increase their output (respectively). By comparison to FFR, it is a much larger market of 1 GWh⁷.

National Grid has been working on widening access to the BM to make it more accessible for smaller generators, remove barriers to entry, improve existing routes to the BM and create new routes to market.

The Investment Advisor is reviewing options for entering the BM with selected sites in the future.

• Wholesale Trading

The wholesale electricity markets relate to generation, transmission, distribution, and supply of electricity, trading in wholesale electricity or cross-border exchanges in electricity. Wholesale trading can be implemented in conjunction with participating in the Balancing Mechanism and the Investment Manager is evaluating an integrated, cross market strategy.

• Black Start

The National Grid has developed Black Start as a procedure to restore power in the event of a total or partial shutdown of the national electricity transmission system. The National Grid has set out its intention to broaden participation in this market, with storage assets able to participate. Competitive tenders are underway covering three zones.

Energy Storage in Ireland
Since the last report, the Investment Advisor has announced the successful participation in the Irish fixed-term auctions for system services. This auction occurred under the multi-year DS3 programme ("Delivering a Secure, Sustainable Electricity System"). The aim is to meet the challenge of operating the all-Ireland electricity system in a secure manner while achieving the 2020 renewable electricity target (40% by 2020; a 70% target for 2030 was announced by the Irish Minister Richard Bruton in March 2019). A key focus of DS3 is the procurement of services needed to operate the system following the increasing prevalence of renewables. The Irish Governments' commitment to such progress, combined with the Republic of Ireland's high growth economy, makes it a particularly attractive market from a renewables perspective.

There are two main procurement routes for system services under the DS3: (a) a ‘volume uncapped' route offering contracts but with no pre-set terms or timeframes for those contracts, and (b) the ‘volume capped' route with competitive tendering for 6-year fixed term contracts. The Company has majority ownership of, and a preferred return from the two assets under the uncapped regime in Northern Ireland.

The Company's two assets in the Republic of Ireland successfully participated in the first tender under the volume capped route (which took place in August 2019) and secured 60MW out of the 110MW procured by EirGrid. The volume capped contracts are offered for a six‑year term. The Company has majority ownership of, and a preferred return from the Porterstown and Kilmannock assets under the capped regime in the Republic of Ireland. The assets are scheduled to commence service delivery by 1 September 2021.

The Company is preparing for participation in the DS3 uncapped market through two 50 MW projects in Northern Ireland. The uncapped market offers a five-year term up to 30 April 2023, with an option for the Transmission System Operator (TSO) to extend by up to three years. The TSO can also terminate early on 12 months' notice.

The Advisor anticipates further developments in a positive direction for storage as other markets build a best practice model for the treatment of storage in network regulation.

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Investment Performance -

The NAV per share for the Company as at 30 September 2019 was 95.5 pence.

NAV Bridge (31 March 2019 to 30 September 2019)

NAV Bridge	NAV
	£ Million
NAV as of 31 March 2019	28.1
Offering Proceeds	6.34
Offering expense	-0.16
Fund Opex	-0.59
Interest and management fee income	0.24
Dividends	-0.31
Acquisition and Capex, net of distribution	-11.50
Distribution from SPV's	-0.27
Increase in NAV of Portfolio SPVs (from 31 March to 30 September 2019)	14.01
Total NAV (30 September 2019)	35. 87

The NAV per share as at 31 March 2019 was 92 pence per share (30,600,000 issued Ordinary Shares). The NAV per share as at 30 September 2019 was 95.5 pence per share (37,562,148 issued Ordinary Shares).

Valuation of the Investment Portfolio
The Investment Advisor is responsible for providing a fair market valuation of the Company's underlying assets. The results of fair market value of the Company's investment portfolio are presented to the Company's Board of Directors for their review and approval. Investments are reported at the Directors' estimate of fair value at the reporting date. Investment Valuations are calculated by Management quarterly and reviewed on a sample basis by a third party in the mid-year and end of year reports. For this period, the Independent Valuer, BDO performed valuations on all assets held by the company with the exception of the Company's Republic of Ireland assets and Cenin.

The Investment Advisor uses a Discounted Cash Flow ("DCF") method for all the projects. The methodology adheres to IFRS 13 as well as the International Valuation Standards Council ("IVSC").

The Investment Advisor applies multiple assumptions in the valuation models as detailed below:

General

• Discount rate: For the assets currently in operation, the Investment Advisor applied a discount rate from 6.0% to 10%. The 6.0% discount rate is applied only for revenue contracted periods for operational assets, reflecting the lower risk associated with National Grid as a counterparty. The 10% discount rate is applied for projects in the early construction or pre-construction stage.

Revenue

• Movement in working capital: Change in working capital (period-on-period current assets less current liabilities) is incorporated into project cash flows through an assessment of relevant balance sheet operating line items (e.g.: changes in receivables, payables and VAT balance).
• Foreign exchange rate: Rate is based on the spot rate as of 30 September 2019 and relevant forward rate on that day.
• Contracted revenues based on the actual contracted prices and estimated availability, forecast cash flow increments and forecast receipt timings
• Uncontracted revenues based on the unit price forecast from third party research house(s).
• Future optimum mix of various revenue contracts based on in-house expertise and advice from industry experts (third party consultants).

Operating Expenses

• Expenses based on (a) contracted prices under long term agreement (e.g. machinery maintenance and lease contract) or (b) most recent actuals/quotes with inflation adjustments.
• Energy cost based on system efficiency from EPC's technical specifications, published transmission/distribution network tariff and third-party electricity price forecast.

Capital Expenditure

• Capital expenditure based on (a) contracted prices and its payment schedule and (b) estimated future price based on third party forecast and/or in-house view referencing most recent pricing levels.

Portfolio Summary

(A) Great Britain (Excluding Northern Ireland) Portfolio

• Boulby (6 MW)

From April 2019 to September 2019, Boulby's average availability for frequency services was circa 85% attributable primarily to a short-term failure of its inverter. Excluding this incident, availability was 97% inclusive of planned maintenance work and system disconnection failure.

• Cenin (4 MW⁸)

From April 2019 to September 2019, Cenin's average availability was 97.4%. The majority of time offline related to state of charge management or minor system issues (less than 3 hours), with an incident of failure in the site's communication system resulting in the site going offline for 23 hours on July 23.

• Lower Road (10 MW)

The Company finalised its investment in Lower Road in September 2018 by acquiring OSSPV001, an SPV owning the rights to the project. Project construction is near completion and delivery is expected in Q4 2019.

• Port of Tilbury (9 MW)

The Company finalised its investment in Port of Tilbury in September 2018 by acquiring OSSPV001. At time of writing, construction was operational by October 18, 2019.
The Company has the option to upgrade and increase capacity from 4.5 MWh to 9 MWh within the first 3.5 years after the start of operations.

The fair market value of the above Great Britain (Excluding Northern Ireland) portfolio was £6,241,261 calculated using the discounted cash flow methodology.

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(B) Northern Ireland Portfolio

• Mullavilly

On 4 June 2019, the Company acquired 51% of Mullavilly Project in Northern Ireland with a total installed capacity of 50.0 MW. Low Carbon, the seller and developer, maintains 49% ownership of the Project.

The estimated total capex required for the Mullavilly Project is c. £ 20 million. The capex will be funded either from operating cash flow from the asset or by GSF by way of a shareholder loan (SHL) carrying 10% interest, stepping down to 9% upon commissioning. GSF will share excess profits (following loan repayment) with Low Carbon.

The Mullavilly Project is expected to derive revenues from the "DS3" or "Delivery Secure Sustainable Electricity System" Programme operated in Northern Ireland as well as the Irish Capacity Remuneration Mechanism and wholesale trading revenues (the latter after the end of DS3 services). The Company intends to participate under the DS3 Standard Contracts tender in October 2020 and proceed with testing throughout December and January. Operations are estimated to start at the end of Q4 2020.

The project is on track and in its design stage.

• Drumkee

On 4 June 2019, the Company acquired 51% of Drumkee Project in Northern Ireland with a total installed capacity of 50.0 MW. Low Carbon was the Projects' seller and developer; and are 49% equity partner is each Project.

The estimated total capex required for the Drumkee Project is c. £ 20 million. The capex will be funded either from operating cash flow from the asset or by GSF by way of a shareholder loan (SHL) carrying 10% interest, stepping down to 9% upon commissioning. GSF will share excess profits (following loan repayment) with Low Carbon.

Similarly to Mullavilly the project, the Drumkee Project is expected to derive revenues from the "DS3" Programme as well as the Irish Capacity Remuneration Mechanism and wholesale trading revenues (the latter after the end of DS3 services). The Company intends to participate under the DS3 Standard Contracts tender in October 2020 and proceed with testing throughout December and January. Operations are estimated to start at the end of Q1 2021.

The project is on track and in its design stage.

The fair market value of the Company's 51% share (inclusive of equity and debt) of the Northern Ireland Portfolio was £10,973,092 calculated using the discounted cash flow methodology.

(C) Republic of Ireland Portfolio

• Republic of Ireland Assets

On 4 June 2019, the Company acquired the rights to purchase controlling interests in a portfolio of two assets in the Republic of Ireland ("RI Projects") from renewable energy developer, Low Carbon subject to the RI Projects' receipt of grid and revenue contracts.

On 9 August 2019, it was announced that the two 30 MW projects were successful in Eirgrid's DS3 auction process; consequently The value of loans provided by the Company to the asset SPV to enable completion of the EirGrid contracting and grid connection requirements was £3,281,622. Rights to ownership of 51% of these Asset SPV's crystallised post period end.

Governance
The Investment Advisor regularly reviews all energy storage assets to ensure they are compliant with planning consent and additional conditions set by the relevant local councils. Over the past six months we have added to both our Investment and Technical staff, bolstering what was already an experienced and skilled team. As the Fund continues to grow, we look forward to making further additions over the coming months.   

Investment Pipeline
Investment opportunities under exclusivity arrangements or advanced negotiations are listed below.

Exclusive Assets or in advanced stage of negotiations
Project	Location	Total project size - MW
Project 1	United Kingdom	40
Project 2	United Kingdom	10
Project 3	United Kingdom	50
Project 4	United Kingdom	20
Project 5	Ireland	30
Project 6	Ireland	30
Project 7	Ireland	22.5
Project 8	Ireland	50
Project 9	Belgium	25
Project 10	Germany	11
Project 11	United States	40

AIFM
On December 2 2019 Gore Street Capital Limited was authorised and regulated by the Financial Conduct Authority. A further application is pending with regard to "passporting", after which process is completed Gore Street Capital Limited will take over the role of AIFM from Mirabella LLC on January 1 2020.

 

Gore Street Capital
Investment Advisor
Date: December 2019

 

 

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Statement of Directors' Responsibilities
in respect of the preparation of the Interim Financial Statements

The Directors, who are required to prepare the financial statements on a going concern basis unless it is not appropriate, are satisfied that the Company has the resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered information relating to present and future conditions, including future projections of profitability and cash flows.

The Directors confirm that to the best of their knowledge:

a) the condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the EU;

b) the Half-year report includes a fair review of the information required by:

i)

DTR 4.2.7R of the Disclosure Rules and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year ending 31 March 2020 and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

ii)

DTR 4.2.8R of the Disclosure Rules and Transparency Rules, being (i) related party transactions that have taken place in the first six months of the financial year ending 31 March 2020 which have materially affected the financial position or performance of Gore Street Energy Storage Fund PLC during that period; and (ii) any changes in the related party transactions described in the Annual report and accounts 2019 that could materially affect the financial position or performance of the Gore Street Energy Storage Fund PLC during the first six months of the financial year ending 31 March 2020.

The Directors of Gore Street Energy Storage Fund PLC and their functions are listed below

Patrick Cox, Chairman and Chairman of the Management Engagement Committee
Caroline Banszky, non executive Director and Chairman of the Audit Committee
Malcolm Robert King, non executive Director
Thomas Scott Murley, non executive Director

 

Patrick Cox
Chairman
Date: December 2019

 

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INDEPENDENT AUDITOR'S REVIEW REPORT TO THE MEMBERS OF GORE STREET ENERGY STORAGE FUND PLC

Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2019 which comprises the Interim Condensed Statement of Comprehensive Income, the Interim Condensed Statement of Financial Position, the Interim Condensed Statement of Changes in Equity, the Interim Condensed Statement of Cash Flow and the related explanatory notes that have been reviewed. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the company are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2019 is prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

Ernst & Young LLP
London
Date December 2019

 

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Interim Condensed Statement of Comprehensive Income
For the period ended 30 September 2019

	Notes	1 April 2019 to 30 September 2019 (£)			1 April 2018 to 30 September 2018 (£)
		Revenue	Capital	Total	Revenue	Capital	Total
Gain/(loss) on Investment at fair value through profit and loss	7	-	2,219,191	2,219,191	-	(110,380)	(110,380)
Investment income	8	236,065	-	236,065	18,863	-	18,863
Administrative and other expenses	9	(568,130)		(568,130)	(286,295)		(286,295)
Profit/(loss) before tax		(332,065)	2,219,191	1,887,126	(267,432)	(110,380)	(377,812)
Taxation	10	-	-	-	-	-	-
Profit/(loss) after tax and loss for the period		(332,065)	2,219,191	1,887,126	(267,432)	(110,380)	(377,812)
Total comprehensive profit/(loss) for the period		(332,065)	2,219,191	1,887,126	(267,432)	(110,380)	(377,812)
Profit/(loss) per share (basic and diluted) - pence per share	11			5.86			(1.23)

All Revenue and Capital items in the above statement are derived from continuing operations.

The Total column of this statement represents Company's profit and loss account, prepared in accordance with Interim Financial Reporting and interpretations adopted by the European Union. The return on ordinary activities after taxation is the total comprehensive income and therefor no additional statement of other comprehensive income is presented. The supplementary revenue and capital columns are presented for information purposes in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies. All items in the above statement derive from continuing operations of the Company. No operations were acquired or discontinued in the year.

 

The notes on pages 22 to 36 form an integral part of these financial statements.

 

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Interim Condensed Statement of Financial Position
As at 30 September 2019

Company number 11160422

	Notes	30 September 2019 (£)		31 March 2019 (£)
Non - Current Assets
Investments at fair value through the profit or loss	12	20,485,555		6,482,964
		20,485,555		6,482,964
Current assets
Cash and cash equivalents	13	10,537,140		17,223,770
Trade and other receivables	14	5,070,670		4,616,613
		15,607,810		21,840,383
Total assets		36,093,365		28,323,347
Current liabilities
Trade and other payables	15	220,982		207,510
		220,982		207,510
Total net assets		35,872,383		28,115,837
Shareholders equity
Share capital		375,621		306,000
Share premium		6,173,275		67,476
Special reserve		186,656		186,656
Capital reduction reserve		28,284,177		28,590,177
Capital reserve		1,654,127		(565,064)
Revenue Reserve		(801,473)		(469,408)
		35,872,383		28,115,837
Total shareholders equity		35,872,383		28,115,837
Net asset value per share	18	0.96		0.92

The half yearly financial statements were approved and authorised for issue by the Board of directors and is signed on its behalf by;

 

Patrick Cox
Chairman
Date: December 2019

The notes on pages 22 to 36 form an integral part of these financial statements.

 

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Interim Condensed Statement of Changes in Equity
For the period ended 30 September 2019

	Share capital (£)	Share premium reserve (£)	Special reserve (£)	Capital reduction reserve (£)	Capital reserve (£)	Revenue Reserve (£)	Total shareholders equity (£)
For the period ended 30 September 2018:
As at 1 April 2018	-	-	-	-	-	-	-
Comprehensive loss for the period
Loss for the period	-	-	-	-	(110,380)	(267,432)	(377,812)
Total comprehensive loss for the period	-	-	-	-	(110,380)	(267,432)	(377,812)
Transactions with owners
Ordinary shares issued at a premium during the period	306,000	30,294,000	-	-	-	-	30,600,000
Share issue costs	-	(551,459)	-	-	-	-	(551,459)
Issue of redeemable preference shares	12,500	-	-	-	-	-	12,500
Redemption of redeemable preference shares	(12,500)	-	-	-	-	-	(12,500)
Transfer to special reserve	-	(186,656)	186,656	-	-	-	-
Transfer to capital reduction reserve	-	(29,508,177)	-	29,508,177	-	-	-
As at 30 September 2018	306,000	47,708	186,656	29,508,177	(110,380)	(267,432)	29,670,729

For the period ended 30 September 2019:
As at 1 April 2019	306,000	67,476	186,656	28,590,177	(565,064)	(469,408)	28,115,837
Comprehensive profit for the period
Profit for the period	-	-	-	-	2,219,191	(332,065)	1,887,126
Total comprehensive profit for the period	306,000	67,476	186,656	28,590,177	1,654,127	(801,473)	30,002,963
Transactions with owners
Ordinary shares issued at a premium during the period	69,621	6,265,934	-	-	-	-	6,335,555
Share issue costs	-	(160,135)	-	-	-	-	(160,135)
Dividends	-	-	-	(306,000)	-	-	(306,000)
As at 30 September 2019	375,621	6,173,275	186,656	28,284,177	1,654,127	(801,473)	35,872,383

Capital reduction reserve and revenue reserves are available to the Company for distributions to Shareholders as determined by the Directors.

Note: Capital reserve and Revenue reserve have been renamed from Revaluation reserves and Retained earnings, respectively, from previous naming conventions.

The notes on pages 22 to 36 form an integral part of these financial statements.

 

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Interim Condensed Statement of Cash Flow
For the period ended 30 September 2019

	1 April 2019 to 30 September 2019 (£)		1 April 2018 to 30 September 2018 (£)
Cash flows used in operating activities
Loss for the period	1,887,126		(377,812)
Net (gain)/ loss on investments at fair value through the profit and loss	(2,219,191)		110,380
Increase in trade and other receivables	(454,057)		(4,695,294)
Increase in trade and other payables	13,472		177,663
Net cash used in operating activities	(772,650)		(4,785,063)
Cash flows used in investing activities
Purchase of investments	(11,783,400)		(8,091,831)
Net used in investing activities	(11,783,400)		(8,091,831)
Cash flows used in financing activities
Proceeds from issue of ordinary shares at a premium	6,335,555		30,600,000
Share issue costs	(160,135)		(551,459)
Issue of redeemable preference shares	-		12,500
Redemption of redeemable preference shares	-		(12,500)
Dividends	(306,000)		-
Net cash inflow generate from financing activities	5,869,420		30,048,541
Net change in cash and cash equivalents for the period	(6,686,630)		17,171,647
Cash and cash equivalents at the beginning of the period	17,223,770		-
Cash and cash equivalents at the end of the period	10,537,140		17,171,647

 

The notes on pages 22 to 36 form an integral part of these financial statements.