Gresham House Energy Storage Fund (LON:GRID) is the largest owner and operator of battery energy storage systems (BESS) in Great Britain, with the operational portfolio representing 17% of the market in MW terms, more than twice the market share of its nearest competitor.
GRID’s recently released annual results for the year ended 31 December 2024 confirm that, after a tough start to the year for GRID and its competitors, the company’s response to these challenges has significantly improved its prospects.
Revenues have risen and are set to increase further. The fundamentals of the BESS sector remain extremely supportive, and the manager is focused on capitalising on the growth opportunity this presents.
GRID’s three-year plan to significantly increase both revenues and operational capacity, and reinstate its dividend, will move into full swing once refinancing negotiations conclude (expected by the end of Q225). GRID’s share price discount to NAV has begun to narrow from its 2024 extremes, but the company’s positive outlook suggests the potential for further discount narrowing.
Highlights From the Annual Results
GRID’s results confirm the unaudited information provided in a trading update in early March 2025. Key points include:
- A NAV of 109.35p per share at end-December 2024, close to Q324’s 109.09p result, but 15.3% below the end-December 2023 result of 129.07p. This annual decline was mainly due to a deterioration in revenue conditions within the BESS sector during 2024 (as discussed in previous notes).
- Operational capacity of 945MW/1,447MWh as at April 2025, up from 690MW/788MWh at end-December 2023, representing capacity increases of 37% and 83.6% in MW and MWh, respectively. Capacity will reach 1072MW in Q225, once GRID’s existing project pipeline is completed.
- A 20.1% rise in revenues to £46.5m at end-December 2024, from £38.7m a year earlier. By year-end, revenue per MW reached its highest level since January 2023. EBITDA stood at £29.1m as at end-December 2024,12.7% higher than EBITDA of £25.8m for the previous year. Assuming current revenue conditions persist, the company estimates that annual EBITDA could reach £59.4m once all projects in the existing pipeline are contributing to earnings and during the tolling arrangement, around double 2024 levels.
- Refinancing negotiations currently being finalised will unlock the three-year plan GRID announced in November 2024. This plan includes significant growth in MW and MWh capacity via new projects and augmentations to existing plants, further major increases in revenue, and ongoing diversification of revenue sources. The refinancing deal will also enable the company to reinstate the dividend in H225, which the board describes as a ‘key priority.’
GRID’s manager, Ben Guest, says that he is ‘very excited by the next phase of growth. Once the funding is secured, we will start work on new construction and the company will be in a position to start valuing the anticipated augmentations and new projects. We expect this will drive a significant increase in both NAV and cash flow, underpinning our total return strategy.’ Guest expects successful execution of the plan to ‘generate a significant equity return for shareholders’.
Operational Milestones and Strategic Updates
The growth in operational capacity to 945MW as of April 2025 reflects progress on one pipeline project and augmentations to two existing plants:
- Melksham (100MW/100MWh) was commissioned at a one-hour capacity in January 2025;
- An over 40 MWh augmentation to Coupar Angus to a two-hour duration in April 2025; and
- Melksham’s augmentation (+100MWh) to a two-hour duration in April 2025.
Total operational capacity will reach 1,072MW/1,701MWh once Shilton Lane (40MW/80MWh) and West Bradford (87MW/174MWh) become operational (expected in Q225).
Implementation of the tolling arrangement with Octopus Energy continues, following an agreement struck in May 2024. GRID assets operating under the tolling arrangements totalled 360MW in April 2025, out of a total 568MW contracted. The tolling arrangements are expected to be fully implemented during Q225.
Revenues from energy trading now represent more than 50% of total revenues, as the National Energy System Operator (NESO) increases its use of BESS in its Balancing Mechanism (BM). This is consistent with the manager’s long-term goal for trading revenues to dominate income, as short-term trading is the most profitable means of generating revenues. GRID expects trading’s share of total revenues to continue to increase.
Over 2024, GRID’s portfolio consistently outperformed the market in terms of annualised £/MW, as measured by energy consultant Modo Energy’s BESS Index. This outperformance was mainly due to rising revenues from tolling contracts and trading. Performance during Q125 continued at similar levels to Q424.
As previously announced, GRID is negotiating an equity investment at the project level. Initial terms have been agreed upon, and the process is in the final stages of due diligence, with an announcement expected soon. Once completed, this transaction is expected to validate GRID’s NAV and valuation methodology.
The refinancing arrangements currently being finalised are expected to involve a long-term debt facility, with a lower interest rate than GRID’s current loan arrangements. The company’s existing financing will be replaced by a new operational facility, alongside new additional individual project facilities to finance up to 694MW of pipeline.
Borrowings will be underpinned by longer-term contracted revenues, while the separate financing of new projects means there will be no cross-collateralisation across projects, thus reducing risk.
Once the refinancing arrangements are in place, GRID’s three-year plan, including additional project augmentations (totalling up to 1.5 GWh) and new projects (representing a potential capacity increase of up to 694MW/1,388MWh of two-hour duration projects), will get underway in earnest.
The manager expects these projects to be built by the end of 2027 (see our December note for more details). However, the final list of projects is expected to be announced at the time of the refinancing, and the pipeline may be amended if other opportunities arise. GRID expects to begin work on the new pipeline in H225.
In addition to the Octopus Energy tolling arrangement, GRID is exploring other similar revenue contracts to further diversify its revenue sources and support both existing and incremental debt. The manager is also pursuing new revenue opportunities beyond established streams. Due to commercial sensitivity, details are unavailable at this stage but will be released in due course.
The investment manager’s fee has been reduced, with annual savings of £1.6m (representing a decline of 28% in a full year), following an agreement to change the fee basis from a percentage of NAV to the average of NAV and market cap.
Outlook: The BESS Investment Case Remains Strong
The investment case for BESS remains strong. In the near term, NESO’s demand for BESS services seems set to continue to increase, as the operator has now committed to improving BESS utilisation in the management of energy supply and demand in the BM. Revenues from this source should continue to rise accordingly.
However, GRID stresses that the modernisation of NESO’s control room must be successfully completed and that BESS must become the operator’s default option, rather than other sources of supply (such as gas-powered electricity suppliers), during periods of high demand. Eliminating so-called ‘skip rates’ is essential for BESS’s position within the BM to be truly secure.
Looking further ahead, as renewable energy penetration and generation increase, the volume of storage needed on the system will also grow. The UK government’s Clean Power 2030 (CP30) Action Plan has fundamentally shifted attitudes in favour of batteries as the most readily available means of storage.
The Department for Energy Security and Net Zero is now targeting 22GW of BESS by 2030, compared with 5GW today.
At the same time, demand for BESS’s services looks set to continue rising over time, and sector fundamentals are also being supported by falling battery prices and incidences of negative energy pricing. Battery pack prices fell c 20% in 2024, according to Bloomberg’s New Energy Finance Survey, with innovation expected to drive further price falls.
Combined with the CP30 Action (WA:ACT) Plan, this most likely cements batteries as the most cost-effective and appropriate technology for both short- and long-duration flexibility. Furthermore, the incidence of negative electricity prices increased significantly in 2024, due to periods of excess renewables generation, giving BESS operators the opportunity to purchase energy at negative prices.
On the release of the company’s results, GRID’s chairman, John Leggate, said that the government’s support for BESS, combined with significant efforts from NESO to reduce skip rates, leaves the board ‘confident the revenue backdrop will continue to improve over the medium term.’
In the board’s view, ‘the combination of a greater operational portfolio base, coupled with an improving merchant picture, a portion of which will be contracted over the longer term to protect against downside scenarios, will drive a growing and more resilient business going forward.’
Discount Has Further Scope to Narrow
This favourable environment should support GRID’s share price. From inception in 2018 to 2022, GRID traded at a premium, but entered discount territory in 2023. The challenges experienced by the BESS sector in 2024 caused GRID’s share price and those of its competitors to fall significantly, with GRID’s discount widening to as much as 60% in early 2024.
We have long argued that the early success of GRID’s efforts to address these challenges means that its shares offer potential value at such a deep discount to NAV. It appears the market is coming around to this view. The company’s share price began to rise from its 2024 lows in early 2025.
Investors may be reassured by the improvement in GRID’s revenues and its three-year plan for further revenue and capacity increases. They may also be beginning to recognise value in the shares.
Alternative valuation estimates, first published in GRID’s H124 results and updated in its annual results, show that, at current merchant revenue levels and based on current operational capacity, the company is valued at 8.2x EV/EBITDA (vs 9x in H124), with a P/E ratio of 5.8x (5.7x in H124) on a forward basis.
With capacity set to continue rising, and medium- to long-term revenues forecast to increase significantly based on third-party revenue curves, both the EV/EBITDA and P/E ratios are likely to fall further over time.
Exhibit 1: Premium/Discount to NAV Since Inception (%)
Source: LSEG Data & Analytics, Edison Investment Research
As a consequence of the share price recovery, GRID’s discount has narrowed and is currently less than 40%. However, in our view, the discount has further scope to narrow, given the positive long-term outlook for the BESS sector and GRID’s position as the UK BESS sector’s largest player.
It will take more time for GRID’s plans for significant expansion of operational capacity to deliver significant NAV increases and higher revenues, but the company appears on track to realise its goals. This suggests that the current, still wide, discount may represent an opportunity to acquire exposure to the leading UK investor in this exciting and growing sector at an attractive level.