There’s something elegant about electricity arbitrage (Patrick Hosking writes). Buy power cheaply from the grid at 3am, when those giant wind turbines in the North Sea are spinning, then sell it back expensively at 7am, when the nation starts boiling kettles. What could be a greener way of matching supply to demand while turning a profit?
Gresham House Energy Storage Fund is one of several listed vehicles trying to harness these sometimes big swings in power prices by the not-so-simple process of storage in gigantic battery packs. It has invested in nine sites in Britain, housing shipping containers with lithium-ion batteries, with more to come.
Sometimes the process works like a dream, as on March 4 this year, when weather forecasters mistakenly predicted gusts. It was calm, there was a power shortage and the wholesale price hit a 19-year high of £2,242 per megawatt hour, more than 40 times normal levels. The fund was able to hit the jackpot by draining its batteries at just the right time.
But it doesn’t always go so smoothly. The technology is a lot more complex than a Duracell AAA, the industry is highly regulated and it can be just as wrongfooted by the weather forecasters as anybody else. Gresham has developed its own algorithms to try to determine when best to buy and sell.
The fund got off to a patchy start in November 2018, when it raised only half of a planned £200 million from investors. But it has caught up with additional placings as investors have warmed to the business model, with a total of £238 million of equity raised, plus some extra financing from the issue of bonds. Half-year results yesterday were a mixed bag. It reported a 2.6p decline in net asset value per share to 98.16p for the six months to 30 June after third-party consultants took a more cautious view of its revenue streams because of the pandemic and volatility in electricity demand and prices. Covid-19 delayed the opening of two new sites, at Thurcroft, South Yorkshire, and Wickham Market, Suffolk.
Gresham has improved on serious levels of unavailable capacity. A few months ago it admitted that 22 per cent of its batteries’ capacity was impeded because of technical issues. That has fallen to below 4 per cent.
The latest quarterly dividend was set at 1.75p. This helps to meet the stated goal of the fund at its launch, which was to pay a 7p total dividend each year. However, the dividend is not presently covered by profits, with the fund dipping into reserves to pay it. That is not sustainable, though it hopes that the dividend will be “fully cash-covered by 2021”.
The fund has two advantages. The first is the rise of renewable but intermittent energy sources, which makes it even more important to have battery storage for when the wind isn’t blowing or the sun isn’t shining. The fund reckons that 10GW of storage will be needed in Britain by 2025, which compares to actual capacity of 1GW, of which Gresham has a 21 per cent share.
The other is the lower-for-longer outlook for global interest rates, which make even modest-looking yielders attractive. If the fund can consistently generate 7p a year, the shares will be marked higher from the present 114p, which is already a 16 per cent premium to net assets.
However, the risks are not insignificant. The fund is expanding fast, with new projects in the pipeline, including its first overseas site in Ireland. That rush for scale advantages Gresham House, the fund manager, which takes 1 per cent of the net assets in fees, but is not always in the best interest of shareholders. Technology is changing all the time and Gresham’s may be overtaken by more efficient technologies. There are also fears that the batteries may deteriorate, just as they do in mobile phones.
ADVICE Buy
WHY High yielding, green and the biggest player in UK battery storage
Zoom Video Communications
Britons are returning to the workplace in huge numbers, Boris Johnson claimed yesterday, but, as his government is acutely aware, many remain at home (Callum Jones writes).
After decades of digital progress, the Covid-19 lockdown triggered an overnight revolution. Millions logged on from kitchen tables and spare rooms to conduct business previously confined to the office.
Predicting this pandemic’s lasting implications on the future of work is about as easy as calling the precise date when a vaccine will be available, but the question of its effect can be looked at in three ways.
The first — its short-term impact — is evident. Working practices were transformed, at least temporarily, so that companies could function with restrictions at their most stringent. Ministers are fighting to influence its second, medium-term consequences by attempting to lure as many workers as possible back to their desks. This is a work in progress, to put it politely. The third and final effect — the long-term ramifications of the pandemic — is the most fiendish to consider. It remains unclear whether the experiences of employees and employers will lead to profound change or if, once this stage is over, the much-discussed “new normal” will look and feel an awful lot like the old. Perhaps it’s safe to assume that we will end up somewhere between these two poles.
Such soothsaying is pivotal for Zoom, owner of the video-conferencing software platform that yesterday scaled fresh highs after reporting a 355 per cent jump in second-quarter revenue. Zoom’s short-term gains are clear. It is steaming ahead, having boosted its annual revenue forecast by a third as it converts more of its free users into paying customers. Any potential risks did not prevent the shares from surging by almost 41 per cent yesterday, overtaking IBM’s market value and breaching $129 billion.
Demand for its software and that of rivals, such as Microsoft Teams and Google Meet, is here to stay. But as the world adapts to life during and after coronavirus, usage is likely to fluctuate. Its shares, up 500 per cent or so since the start of the year, are likely to fluctuate as well.
ADVICE Avoid
WHY Recent surge will bring shares into sharp focus as future working habits evolve
