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Gresham House Energy Storage Fund has announced a landmark agreement with Octopus Energy, one of the UK’s largest and fastest-growing energy suppliers.
The energy storage fund owns a portfolio of battery energy storage assets around the UK. These assets are designed to take in and store energy during times of excess renewable energy generation and then unleash the power back into the grid when demand rises and supply can’t catch up.
Batteries have been touted as a crucial part of the energy transition, but due to some teething problems, the UK’s battery storage assets have struggled to live up to their full potential.
Ben Guest, managing director of Gresham House’s energy division and the fund manager of the Gresham House Energy Storage Fund, has accused National Grid of underusing battery storage.
“The underutilisation of batteries by the ESO [National Grid’s electricity system operator] risks reducing investment,” Guest told the Financial Times. He added this was “throttling the development of battery solutions in the UK . . . not to mention slowing the UK’s legal commitment to meet net zero[carbon emissions] by 2025.”
Prices for storage have also collapsed as supply has outpaced demand. Analysts at Stifel calculated battery storage revenue was £150,000 per megawatt hour in 2022 but fell to £50,000 in 2023.
Analysts at Winterflood have noted the headwinds facing the company. In a note published today, the broker said: “The fund’s principal counterparty, National Grid Electricity System Operator (ESO), has faced teething problems in its reforms to the control room, which have fallen short in delivering the kind of revival those in the sector were hoping for.
“While the fault for some of these issues does not necessarily lie with the manager, what has become increasingly clear is the need for diversification to support revenues given the inherently volatile nature of battery revenues,” Winterflood added.
Octopus Energy agreement
The agreement with Octopus should add some stability to the company’s operating model. Under the terms of the agreement, 14 of the fund projects, a total of 920 megawatt hours (roughly half of its portfolio) of capacity, have secured fixed-price contracts with a subsidiary of Octopus Energy for two years.
For the term of these arrangements, Octopus will pay a fixed fee per megawatt on these projects in return for the use of each project’s batteries. During the terms of the agreement, the Gresham House Energy Storage Fund said it expected to generate £43m in revenue.
The trust added that, for a portion of the assets, it had “secured a higher price than recent weak performance at the start of the year, and at a competitive price for underlying battery economics.”
Commenting on the announcement, Ben Guest said: “Diversifying revenues via alternative and innovative opportunities has been on the Board’s agenda for some time so this transaction is a very important milestone…By fully contracting circa 50 per cent of [the] portfolio with Octopus, the company has secured a reliable level of revenue.”
Guest added: “We share Octopus’ passion for innovation, which has helped it become Britain’s largest electricity supplier. As renewable generation continues to ramp up, we expect batteries to earn revenues in new ways that deliver cheaper, renewable and reliable power to homes and businesses across the country. We believe working with the largest energy suppliers in this way could become as important as the national market.”
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Winterflood said: “Clearly, recent events have highlighted how the integration of battery energy storage systems on the Grid is likely to become a prolonged process, and reducing exposure to ESO amidst such uncertainty seems to be a sensible decision.”
By Rupert Hargreaves via CityAM
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