Gore Street En. Share Chat (GSF)

That is a hefty premium.

Closed at 65p issued at 111p.

jr

Not the first time either. It implies fair value is MUCH higher than current SP, so I'll continue to hold my losing position. Gotta be the most sensible option at this stage but wtfdik

10m new shares, so just 2% added which means this is essentially immaterial to holders in terms of raw dilution. 3 step lock-in means they won’t all come to market at once which is also good.

That they’ve been issued at such a premium makes me feel slightly uneasy though. I wonder what the market clearing price would have been for cash? Presumably £6.5m (based on 10m @65p) rather than the £11.1m paid? Or is that too cynical an interpretation..?

Presumably it is no coincidence that the issue price is the same as the most recent unaudited NAV per share value (see recent RNS)

Looking more closely at the RNS, it says:

“The total consideration for these transactions was settled via the issuance of 9,700,000 new Ordinary Shares in the capital of the Company (the "Ordinary Shares") issued at 111.0 pence per Ordinary Share[1], PLUS CASH consideration.”

How much cash? Why hasn’t the actual purchase price been disclosed? I will ask IR…

Cash will presumably make up for the discount currently being traded from NAV ... I sold into 65+ this morning buying back mid 63s ... nice morning's work.

Well! It would appear the market did not like the RNS.

Not sure if it is the projects or the price paid.

jr

Everything does indeed depend on the price paid and i guss the share price at NAV is a bit disingenous since the discount would be paid for in cash, at least partially. Regarding people worried about Carbon selling, i dont think they will be selling any time soon at these prices and they are probably happy to take the dividend.

Ireland is a good and logical expansion step and it does indeed generate good revenues. i dont think it would ever drop below £7.5/MW /Hr because of the things mentioned in the report:

"Whilst there were always questions about the longevity of the volume uncapped market including the amount being spent on the service, we note that the timeline has regularly been extended as the number of batteries been deployed for grid balancing services still remains relatively low. Although new proposals are being considered to reform the Irish ancillary services market, including the existing DS3 contracts, EirGrid remains focused on ensuring that it delivers a stable system with the minimum possible hydrocarbon usage and therefore whatever the reforms, Ireland will continue to require some form of ancillary services and hence we believe the probability that we have a decline in revenues to levels significantly below what GSF has estimated remains low, particularly so given the slower buildout of energy storage projects"

this makes sense albeit no one can say what the price will be if it is above 7.5.

still at the above revenue rate, and now with 385MW capacity it could theoretically generate on average 25 million per year.

dont forget that lithium prices will be going up from 2025 onwards (unless the whole energy transition is completely scrapped)

GSF would do well to set out its buying process.

I suspect the cash was a payment to acquire the 49% of Mucklaigh, in order to move from project plan to land buying, permissions and construction. The monies will have been paid to Grid System Services (Low Carbon and Irish Independent Developers), based on early phase DCFs. Once the construction phase is ongoing, the DCFs and costs will be

refined and GSF will buy the remaining 51% . The cash will pay the builders (Irish Independent Developers) and Low Carbon for their work done. The second phase (51%) will be in shares to Low Carbon who maintain their interest in GSF. These are dilutive. So the 9,700,000 shares to buy the Porterstown and KIlmannock will dilute the share price by 1.3 to 1.4p. Which is roughly yesterday's drop. I assume that all these shares will have gone to Grid Systems Services as there is still construction work to be done and batteries purchased and installed. Some could be sold to pay the builders, but I suspect Low Carbon will keep them if they see more benefit from holding them long term. That does depend on prices chargeable and battery usage. But Ireland and the EU seem to be more reliable than the UK for anything linked to renewables and sticking to plans. As Alibaba says, Ireland is the right place for investment

Interesting, although if thats right it implies that the share contribution was basically for 0 vlue to shareholders. Also your other point about Europe is something else Gore Street should consider - Germany seems to be having trading opportunities, are these longer lived than chasing ancilliary services accross the globe? it seems at the very least Gore Street need to have excellent management of their assets and maximise trading while also looking for trading opportunities. i know its probably not as easy as that and building a small 10MW batterry in a few EU countreis to evaluate trading may also not be feasible. Thus i think Gore street is doing the next best thing in diversifying accross grids, regions, regulations and energy system approaches.

BOE may ahve to lower rates soon, Will this be sufficient to allow Gore street to make further investments? ideally they would find more value opportunities now in preparation for low rates, while Lithium is cheap.

there is the possibility of holding on to cash also and evaluating the prospect for installing Sodium ion batteries in future projects e.. from 2027 or 2028 - China has already been deploying large scale sodium cells so if they really are cheaper and they can secure supply and some guarantees it should be looked at earlier and Gore street could run some pilots on small site extensions with Sodium

ultimately the destruction in value for gore street and others has been primarily the result of chasing overpriced energy markets that were in a temporary phase of instability and also supply chain issues leading to spiked in lithium prices (they overpaid for the right to develop them and then overpaid for the lithium). the trajectory back to the NAV or anything similar will simply require hard work and a lot of very careful capital management.

for BESS as an industry to thrive we really need increasing buildout of renewables, higher lithium prices and high variance in grid demands, otherwise there is nothing to prevent grids from saturating for a time (although maybe its the new cyclical - grids saturate reducing bess build and so on) - some markets are slightly different like texas bess revenues rely almost entirely on freak weeather events happening (which they seem to) -Texas rvenues are basically almost all coming from 10-11 days of very volatile weather.

california is more dependable but we need to know what the contractual rates agreed by gore street are (and i dont know the average rates per MW there ayway).

in light of this ireland makes sense but again how much is it going to cost to develop these and what are the expected payouts.

from report, the revenue curve for ireland shows it stabilising at above £10/Mw/Hr and the USA drops slowly towards £8 or so (which i think will happen faster unless lithium prices go up). the UK being stuck at £5 i think that once again reaffirms that £7.5/MW/Hr is a global baseline - 56 mil or 72 mil revenue for 850MW and 1100MW

Agreed alibaba … two ways of looking at this … Labour pushing floating wind farms will increase the need for BESS where the revenues Gore street grabs from outside UK is an indicator of potential returns when UK gets its balancing mechanisms sorted out.

The problem with the sector, however, is possible oversupply at some point if too many enter the renewable market or at least fears of over supply.

We will see.

I read alibaba42's comment about £7.5/MW/Hr being a global "baseline rate". bessanalytics.com gives £5.45 MW/hr for GSF's five BMUs, which seems to agree with alibaba42's "baseline rate". But in their 12th March 2024 RNS GSF say "The Company's consolidated portfolio generated an estimated average of £15.1 per MW/hr during the Company's third financial quarter (ending 31-December 2023)". I'm confused. How does the £15.1 per MW/hr figure relate to alibaba42's "baseline rate"?

The baseline is a longer term rate that is sustainable beyond 2025 etc. the rates for all regions are generally going down as more BESS is installed. the current £15 is largely driven by ireland which is seeing some very high rates of maybe £30 at the moment due to high windspeeds, a totally unsaturated and ncapped market and also slower build out of BESS (so supply constrained). eventually after a few more years, most regions will fall somewhere between fully saturated and unsaturated (closer to saturated) thus the rates will decrease to some average.

every BESS operator will see a different avergae baseline, because of the location and size of gore streets assets - we can start to calculate some global avergae steady state or baseline rate for the next 10 years or so

my esitmate is £7.5

Alibaba42 - thanks for your answer. Can I ask you another question? In an earlier post you wrote: "still at the above revenue rate, and now with 385MW capacity it could theoretically generate on average 25 million per year". How did you calculate £25 million? I don't really understand how BMUs make money. If capacity is 385MW and the units are discharged six times a day, that's 385*365*6 = 843,150 MW/hrs per year - but at £7-50 a MW/hr that's only £6.3 million. I'm not doing the calculation correctly?

My understanding is the revenue rate is given as a normalised rate as if they were running continously, for example lets have a look here:

https://www.bessanalytics.com/operations?asset_name=Pillswood%202&datestr=2024-03-26

you can see that the calculated rate is shown above the graph as £10/MW Hr

this unit generated £11,801 for the day - it is a 49MW rated battery.

now lets say we were going to calculate the revenue 'per hour' you can see at the bottom there the number of half hour periods as 48 therefore 24 hours. so we can say 11801/24 = £491 per hour. however we also need per MW so lets divide by 49 = £10 /MW Hr

ok but this BESS did not generate revenue for the whole time? inded but the calculation is obviously spreading the revenue over total hours not the actual hours of operation (because its just easier to calculate - imagine having to first find number of operating hours and what counts as an operating hour? if the unit is doing very little does it still count).

you can also verify that they spread this over the whole time by saying:

unit generated 11801 in one day, so in 365 days it will generate: 4.31 million - divide this by 8770 hours and then by 49MW we get the same value - £10 /MW Hr

in other words, all revenue is calculated as if it is equally spread throughout the year and not per hour of operation of the asset (its impossible to say per hour of operation since the revenue varies so much depending on what mode the asset is operating in)

so the maximum capsacity ireland calc is then

385*7.5*8770 = 25 million - because any revenue rate (like 7.5 above) is the revenue per hour of existence (or number of hours in year) not per hour of operation.

I would also add that any changes to the environment and also any big artificial intelligence deployments would be potentially big positive catalysts for revenue - https://www.computing.co.uk/news/4190203/power-demand-uk-datacentres-set-surge-fold-decade#:~:text=John%20Pettigrew%2C%20the%20chief%20executive,and%20advancement%20in%20quantum%20computing.

i think its very likely to occur in the next 5 years onwards

@alibaba42 - I agree with your explanation of how revenue rates are calculated. GSF (and the other BESS funds) could do much more to help investors understand their impenetrable jargon IMHO.

I dont think thats the issue. the issue is uncertainty in the revenue generation past 10 years or so.

the revenue curves and future revenue predicted by GSF is very easy to find and calculate from the reports - so you can easily make your ownn calculations and if you followed their curves you would find a NPV similar to their NAV. the issue is in believing that battery energy storage is going to be in the same format, capturing similar revenues for 20 years or more.

some of the risks are car batteries acting as grid stabilisation (would need some grid reform but i guess it spossible especially since car batteries actually store a lot of energy). sodium cells which maybe gore street could capitalise on later and maybe things like hydrogen or other chemical storage - though these have low efficiencies.

i dont really see other big risks - can the grid saturate to very low prices? yes but not for long since this reduces future investment. can lithium prices stay low for a long time? maybe another year or 2. can rates stay this high for a long time? it doesnt seem so based on job numbers and mounting risks.

My early memories of this stock was simple, safe and dependable but having got out close to the top, my rebuilding my position has been a nightmare. Whilst it looks tempting at this price I’ll not mind losing a bit to get in further with more stability and transparency. I honestly thought with a diversified portfolio and what is due to come online, this looked like a no brainer…, and could yet be