Gresham House Energy Storage Fund plc (GRID)

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Financial statements/reports

• Gresham House Energy Storage Fund plc – Supplementary Prospectus April 2023
• Gresham House Energy Storage Fund plc – Prospectus May 2022
• Gresham House Energy Storage Fund plc – Registration document May 2022
• Gresham House Energy Storage Fund plc – Summary document May 2022
• Gresham House Energy Storage Fund plc – Securities Note May 2022
• Gresham House Energy Storage Fund plc – Share Issuance Programme
• Gresham House Energy Storage Fund plc – Summary document
• Gresham House Energy Storage Fund plc – Securities Note
• Gresham House Energy Storage Fund plc – Registration document

Gresham House Energy Storage Fund plc – Investor Disclosure Document >>

Investment policy

Introduction

The Company invests in a diversified portfolio of utility-scale energy storage systems, which utilise batteries. The BESS Projects comprising the Portfolio will be located in diverse locations across Great Britain and the Overseas Jurisdictions.

Individual BESS Projects will be held within special purpose vehicles into which the Company invests through equity and / or debt instruments. It is intended that each BESS Project Company will hold one BESS Project, but an BESS Project Company may own more than one BESS Project. The Company will typically seek legal and operational control through direct or indirect stakes of up to 100%. In such BESS Project Companies, but may participate in joint ventures or co-investments, including, without limitation with other investors or entities managed, operated or advised by the Gresham House Group, where this approach enables the Company to gain exposure to assets within the Company’s investment policy. In such circumstances, the Company will seek to secure its shareholder rights through protective provisions in shareholders’ agreements, co-investment agreements and other transactional documents.

Asset type and diversification

The Company invests primarily in BESS 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 adaptable as to which energy storage technology is used by its projects, so long as they meet investment objectives and policy. It may invest in projects with alternative battery technologies such as those derived from sodium or zinc, or other forms of energy storage technology, such as flow batteries / machines and compressed air.

The Company intends to invest with a view to holding assets until the end of their useful life. BESS Projects may also be disposed of, or otherwise realised, where the Manager 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.

BESS Projects will be selected with a view to achieving appropriate diversification in respect of the Portfolio.

First, diversification will be sought by geographical location of the BESS Projects in which the Company invests across Great Britain and the Overseas Jurisdictions, provided that no more than 30% of Gross Asset Value (calculated at the time of investment) may be invested in the Overseas Jurisdictions.

Second, it is the Company’s intention that at the point at which any new investment is made, no single project (or interest in any project) will have an acquisition price (or, if an additional interest in an existing investment is being acquired, the combined value of the Company’s existing investment and the additional interest acquired shall not be) greater than 20% of Gross Asset Value (calculated at the time of investment). However, in order to retain flexibility, the Company will be permitted to invest in a single project (or interest in a project) that has an acquisition price of up to a maximum of 30% of Gross Asset Value (calculated at the time of acquisition). The Company will also target a diversified exposure with the aim of holding interests in not less than five separate projects at any one time..

Third, the Company intends to achieve diversification by securing multiple and varied revenue sources across the Portfolio by investing in BESS Projects which can benefit from a number of different income streams with different contract lengths and return profiles. The Company intends that the BESS Projects in which it invests will primarily generate revenue from in-front-of-meter services but may also provide behind-the-meter services. The Company may invest in changes to its equipment, technical configurations and technology in order to access revenue streams as they become available, noting that revenue streams and revenue stacking continues to evolve, not only in Great Britain but also in the Overseas Jurisdictions, as the energy storage market matures.

BESS BESS Projects in which the Company invests may diversify their revenue sources further by collaborating with renewable generators or large users of power in close proximity to an BESS Project, or providing availability-based services to restore electric power stations or part of electric grids to operation. The Company may also invest in BESS Projects with Co-Location Arrangements in the Overseas Jurisdictions and may purchase solar panels for use at such co-located BESS Projects in the Overseas Jurisdictions, provided that the proportion of an investment spent on purchases of solar panels does not exceed 6% of Gross Asset Value (calculated at the time of such purchase).

Fourth, the Company aims to achieve diversification across the Portfolio through the use of a range of third-party providers, such as developers, EPC contractors, battery manufacturers and landlords.

Finally, each BESS Project internally mitigates operational risk because each BESS Project will contain a battery system with a number of battery modules in each stack, each of which is independent and can be repaired, upgraded or replaced separately, thereby reducing the impact on the project as a whole of the failure of one or more battery modules.

Other investment restrictions

The Company will generally acquire BESS Projects where construction is substantially complete and where BESS Projects are capable of commercial operations (“Operational Projects”). Operational Projects will need to have in place sufficient land rights, either in the form of a freehold interest or substantially similar interest in the Overseas Jurisdictions or a completed lease on satisfactory terms in relation to the land where that BESS Project is situated, a grid connection agreement or grid sharing or such other rights to import or export from the relevant network as are market standard and completion of relevant commissioning tests confirming commissioning completion.

The Company may also acquire BESS Projects or rights to acquire BESS Projects which are considered “shovel ready” that as a minimum have in place sufficient land rights either in the form of a freehold interest or substantially similar interest in the Overseas Jurisdictions, or a completed lease, lease option, or agreement for lease, on satisfactory terms in relation to the land where that BESS Project is situated, full planning permission enabling the construction of a suitable BESS Project on that land, and a grid connection offer or grid sharing or such other rights to import or export from the relevant network as are market standard, prior to connection works being completed (Ready to Build Projects).

The Company may invest in Ready to Build Projects provided that no more than 10% of Gross Asset Value (calculated at the time consideration is paid for such acquisition) may be exposed in aggregate to such Ready to Build Projects. If the Company wishes to acquire other Ready to Build Projects in excess of the 10% of Gross Asset Value restriction, it may acquire such Ready to Build Projects for a nominal upfront consideration
provided that: (i) any remaining consideration is paid by the Company only where construction is substantially complete and where such BESS Projects are capable of commercial operations; and (ii) the Company has a put option to transfer back the Ready to Build Project to the seller in certain circumstances.

The Company may provide loan finance to BESS Project Companies before they hold Operational Projects so that the BESS Project Companies can acquire equipment or make payments in connection with the BESS Projects’ construction or delivery, provided that no more than 25% of Gross Asset Value (calculated at the time that finance is provided based on the latest available valuations) may be exposed in aggregate to any such loans.

Once an Operational Project is acquired, or after a Ready to Build Project becomes an Operational Project, the Company may invest in upgrades by loans or otherwise and enter into new lease arrangements to increase the size of the site, new planning permissions enabling construction of an increased capacity BESS Project on that land, a new and / or amended grid connection which provides for increased capacity or altered technical parameters, and / or an EPC contract, EPCm contract suite or other construction contracts to undertake construction of the relevant upgrades.

The Company does not intend to invest in listed closed-ended investment funds or in any other investment fund (other than, potentially, in money market funds as cash equivalents) and in any event shall not invest any more than 15% of its total assets in listed closed-ended investment funds or in any other investment fund.

Investment in developers

The Company may invest in one or more Developers of BESS Projects through equity issued by the relevant Developer, provided that investment in Developers (calculated at the time of investment) shall be capped at £1mn in aggregate.

Cash management

Uninvested cash or surplus capital may be invested on a temporary basis in:

• cash or cash equivalents, money market instruments, money market funds, bonds, commercial paper or other debt obligations with banks or other counterparties having a ‘‘single A’’ or higher credit rating as determined by any internationally recognised rating agency selected by the Board which, may or may not be registered in the European Union; and
• any UK ‘‘Government and public securities’’ as defined for the purposes of the FCA Rules.

Leverage and derivatives

The Company may raise debt and introduce leverage (at the Company level and / or the level of one or more of its subsidiaries, such leverage to be introduced directly or through one or more subsidiaries) to the extent that funding is available on acceptable terms. In addition, it may from time to time use borrowing for short-term liquidity purposes, which could be achieved through a loan facility or other types of collateralised borrowing instruments. The Group is permitted to provide security to lenders in order to borrow money, which may be by way of mortgages, charges or other security interests or by way of outright transfer of title to the Group’s assets. The Directors will restrict borrowing to an amount not exceeding 50% of the Company’s Net Asset Value at the time of drawdown. There will be no cross-collateralisation between the BESS Projects.

Derivatives may be used for currency, interest rate and power price hedging purposes as set out below and for efficient portfolio management. However, the Directors do not anticipate that extensive use of derivatives will be necessary.

Efficient portfolio management

Efficient portfolio management techniques may be employed by the Group, and this may include (as relevant) currency hedging, interest rate hedging and power price hedging.

Amendment to and compliance with investment policy

No material change will be made to the investment policy without the approval of shareholders by ordinary resolution.

In the event of any material breach of the investment restrictions applicable to the Company, shareholders will be informed of the actions to be taken by the Manager through a Regulatory Information Service.

No consideration of adverse impacts of investment decisions on sustainability factors

The Manager has elected to exercise its discretion under Article 4(1)(b) of SFDR not to commit to considering the adverse impacts of investment decisions of the Company on sustainability factors in the manner specifically contemplated by Article 4(1)(a) of the SFDR but will continue to consider and manage these impacts in line with its Sustainable Investment Policy.

The manner in which sustainability risks are integrated into the investment decisions of Gresham House Asset Management Limited (the “Manager”) in relation to the Company

As detailed in the Energy Transition Sustainable Investment Policy, specific to the Manager’s investment division, the Manager integrates ESG (“sustainability”) risks and opportunities into the investment process.

The Manager integrates sustainability risks and opportunities through the completion of the ESG Decision Tool prior to investment. The Tool supports the identification of potential material ESG risks that need to be managed and mitigated during the investment period of the asset. The Tool also determines if there are any reasons why the asset may not be invested in at this stage for ESG reasons.

Post-investment, material sustainability risks identified through the ESG Decision Tool or as part of the division’s assessment of material sustainability risks to its assets, are monitored and managed on an ongoing basis. The Manager will also monitor ESG related data, where available, to support the ongoing management of sustainability risks for assets.

The likely impacts of sustainability risks on the returns of the Company

The Manager has determined that the sustainability risk (being the risk that the value of the Company could be materially negatively impacted by an environmental, social or governance event or condition) faced by the Company is low to medium.

The Manager has put in place processes and checks to minimise ESG-related risks associated with the manufacturing and sourcing of the components used in energy storage plants, as well as the construction and operation of these plants.

Sustainability-related disclosures

Publication date: 23 December 2022

Environmental and social characteristics

The Company is committed to investing in and increasing battery energy storage system (BESS) capacity to support the decarbonisation and electrification of energy systems. Battery energy storage systems (BESS) play an essential role in supporting the decarbonisation of energy systems and consequently the broader economy. The Company, in this way, aims to contribute positively to climate change mitigation and net zero strategies.

The Manager will assess adherence to the characteristic through measuring and monitoring:

• total operational battery energy storage capacity (megawatts (MW) and megawatt hours (MWh))
• total battery energy storage capacity under construction (megawatts (MW) and megawatt hours (MWh))

The Manager also intends to measure, monitor, and report on carbon emissions avoided (tCO2e) as a result of the operation of BESS and increase in BESS capacity. The Manager is in the process of finalising a robust methodology to estimate the carbon emissions avoided through the increased adoption of BESS in energy systems.

Summary

The Company is committed to investing in and increasing battery energy storage system (BESS) capacity to support the decarbonisation and electrification of energy systems. Battery energy storage systems (BESS) play an essential role in supporting the decarbonisation of energy systems and consequently the broader economy. The Company, in this way, aims to contribute positively to climate change mitigation and net zero policies.

The Company promotes environmental or social characteristics but does not have sustainable investment as its objective.

As detailed in the Gresham House Energy Transition Sustainable Investment Policy, the Manager integrates sustainability risks and opportunities into the pre-investment process for all assets through the completion of the ESG Decision Tool prior to investment. Post-investment, material sustainability risks identified through the ESG Decision Tool or as part of the division’s assessment of material sustainability risks are monitored and managed on an ongoing basis.

In line with the Company’s focus on supporting decarbonisation of the economy, the Manager will consider any climate-related risks and opportunities within the acquisition and construction phase and aim to mitigate or minimise risks.

At least 96% of the Company’s investments are aligned with the environmental and/or social characteristics of the Company. The Company does not commit to making sustainable investments as defined under the SFDR.

The Manager will measure and monitor the MWs and MWhs of operational BESS capacity and BESS capacity under construction on a regular basis. This is a central objective and outcome of the Company and remains core focus for the Manager.

MW and MWh operational and in-construction capacities are taken from the as built site diagrams and connection agreements, with in-construction assets driven from the site specifications as approved within the EPC agreement.

The parent entity of the Manager has a dedicated Sustainable Investment Team. This team provides support in relation to the evolution of processes around sustainable investing applied by the Manager. The Sustainable Investment Team carries out annual auditing of ESG processes to ensure they meet the sustainability-related commitments of the Manager. This includes an assessment of ESG metrics, ESG Decision Tools and investment processes.

As detailed in the Gresham House Energy Transition Sustainable Investment Policy, the Manager commits to engaging with relevant stakeholders as part of its ongoing investment and management of BESS assets. Engagement is focused to maximise the efficient operation of BESS that help balance the UK electricity grid, allowing it to make optimal use of intermittent renewable energy generation in the UK electricity generation system.

The fund does not designate a reference benchmark.

No sustainable investment objective

The Company promotes environmental or social characteristics but does not have sustainable investment as its objective.

Environmental or social characteristics promoted by the Company

The Company is committed to investing in and increasing battery energy storage system (BESS) capacity to support the decarbonisation and electrification of energy systems.

Battery energy storage systems (BESS) play an essential role in supporting the decarbonisation of energy systems and consequently the broader economy.

The Company, in this way, aims to contribute positively to climate change mitigation and net zero policies.

Investment strategy

The Company seeks to provide investors with an attractive and sustainable dividend over the long term by investing in a diversified portfolio of utility scale energy storage systems, which utilise batteries, located in Great Britain, and the Overseas Jurisdictions.

The Company aims to do this through the construction, development, acquisition, management, and operation of battery energy storage system (BESS). BESS assets are managed to provide several integral functions to energy systems that will enable the decarbonisation of the grid through increased renewable energy generation and generate varied revenue streams.

Functions include “Trading”, providing “Balancing Mechanisms” to the grid, and “Ancillary Services” (such as ” Frequency Response”, which maintains electrical stability by responding to deviation in frequency flowing through a network).

As detailed in the Gresham House Energy Transition Sustainable Investment Policy, the Manager integrates sustainability risks and opportunities into the pre-investment process for all assets through the completion of the ESG Decision Tool prior to investment. Post-investment, material sustainability risks identified through the ESG Decision Tool or as part of the division’s assessment of material sustainability risks are monitored and managed on an ongoing basis. In line with the Company’s focus on supporting decarbonisation of the economy, the Manager will consider any climate-related risks and opportunities within the acquisition and construction phase and aim to mitigate or minimise risks.

The Company invests in individual battery energy storage projects. All projects are companies that sit within special purpose vehicles invested in by the Company. Projects may either be operational or under construction at time of acquisition. Due diligence is carried out prior to acquisition for all projects. As noted above, this includes completion of the ESG Decision Tool to assess potential sustainability risks and opportunities. In addition, all projects will be assessed to ensure the project compliance to all relevant legal and regulatory requirements. The projects do not have management structures, employees, or tax policies in the way “investee companies”, as understood by the SFDR, might have.

Proportion of investments

At least 96% of the Company’s investments are aligned with the environmental and/or social characteristics of the Company. The Company does not commit to making sustainable investments as defined under the SFDR.

“Other” category investments include a legacy asset that uses mostly gas engine technology to provide power to the grid although does have a small amount of BESS (used as primary energy source before gas takes over) and a small amount Diesel generator capacity (primarily used as back up for Capacity Market Obligations). Under the investment policy, only energy storage systems (primarily BESS assets) will be invested in and as such the Company will not invest in equivalent assets going forward.

Monitoring of environmental or social characteristics

The Manager will measure and monitor the MWs and MWhs of operational BESS capacity and BESS capacity under construction on a regular basis. This is a central objective and outcome of the Company and remains core focus for the Manager.

The Manager is working to develop a credible carbon avoided methodology and will monitor this as a key metric to measure the attainment of the environmental characteristic to support climate change mitigation through the Company’s contribution to the decarbonisation of the energy system over time. The Manager is seeking input from a third-party carbon consultant to support the development of this methodology and the parent entity’s Sustainable Investment Team will also provide oversight.

Methodologies

MW and MWh operational and in-construction capacities are taken from the as built site diagrams and connection agreements, with in-construction assets driven from the site specifications as approved within the EPC agreement.

The methodology for carbon emissions avoided is currently under development and will be made available once ready.

Data sources and processing

MW and MWh operational and in-construction capacities are taken from the as built site diagrams and connection agreements, with in-construction assets driven from the site specifications as approved within the EPC agreement.

This disclosure will be updated when the Company adopts new metrics to assess carbon emissions avoided.

Limitations to methodologies and data

This disclosure will be updated when the Company adopts new metrics to assess carbon emissions avoided.

Due diligence

The Manager integrates sustainability risks and opportunities through the completion of the ESG Decision Tool prior to investment. The Tool supports the identification of potential, material ESG risks that need to be managed and mitigated during the investment period of the asset. The Tool also determines if there are any reasons why the asset may not be invested in at this stage for ESG reasons.

Post-investment, material sustainability risks identified through the ESG Decision Tool or as part of the division’s assessment of material sustainability risks to its wind, solar and battery energy storage system (BESS) assets, are monitored and managed on an ongoing basis. The Manager will also monitor ESG related data, where available, to support the ongoing management of sustainability risks for assets.

The parent entity of the Manager has a dedicated Sustainable Investment Team. This team provides support in relation to the evolution of processes around sustainable investing applied by the Manager. The Sustainable Investment Team carries out annual auditing of ESG processes to ensure they meet the sustainability-related commitments of the Manager. This includes an assessment of ESG metrics, ESG Decision Tools and investment processes.

Engagement policies

As detailed in the Gresham House Energy Transition Sustainable Investment Policy, the Manager commits to engaging with relevant stakeholders as part of its ongoing investment and management of BESS assets. Relevant stakeholders include developers, landowners, planning authorities, contractors and equipment suppliers during the development and contracting/procurement/construction process, as well as investors.

During the operational phase of the project, the Manager will engage with several stakeholders including local communities, insurers, operations & maintenance contractors, asset optimisers, the Environment Agency, and local fire services. Engagement is focused to maximise the efficient operation of BESS that help balance the UK electricity grid, allowing it to make optimal use of intermittent renewable energy generation in the UK electricity generation system.

Designated reference benchmark

The fund does not designate a reference benchmark.

• Shareholder Circular 22 April 2022
• Articles of Association June 2021
• Shareholder Circular 27 October 2020
• Shareholder Circular 6 February 2020
• Placing October 2019 Circular
• Terms of reference – Audit Committee
• Terms of reference – Management Engagement Committee
• Articles of association