Harmony Energy Income Trust (HEIT), a major battery energy storage system (BESS) investment fund, has opened the second stage of its portfolio sale process, raising questions about the role of listed funds in the BESS market.
The fund announced plans to run a sales process for its entire BESS portfolio in May, when it scrapped its dividend after weak performance in the UK market.
HEIT said recently (10 October) that the process has now progressed, with select parties invited to move to a second round and negotiations expected to conclude by the end of this year.
While HEIT’s announcement noted that “at this stage there can be no certainty as to whether any assets will be sold, nor the terms of any sale,” an anonymous BESS developer source told our sister site Energy-Storage.news that the ongoing gap between HEIT’s market capitalisation (£116.68 million) and its net asset value (NAV) (£218.5 million) means that HEIT is left with few options other than to sell its portfolio if it wishes to continue.
Is BESS too volatile for a publicly listed fund?
More crucially, our source adds that the portfolio raises much more fundamental questions about the suitability of BESS for publicly listed funds like HEIT, noting that “the bigger question this whole thing raises is whether these funds are the best way to raise money in the market for BESS projects.” They added: “Their structure works well for renewables like solar which pay out regularly, but BESS are fundamentally volatility assets, so you need investors that understand you might have 12 bad months and then 12 great ones.”
However, some in the sector take a more optimistic view. A second source Energy-Storage.news spoke to, who works in an advisory capacity in the BESS market, noted that income trust funds like HEIT could work for storage but they need to bring in floors and tolls to their contracting structures, in order to stabilise revenues and reduce investment risk. This would align them with renewable generation income trust funds, which work well.
This is a strategy employed by fellow UK-listed BESS fund Gresham House Energy Storage Fund (GRID), which has also seen its share price drop well below its NAV, and recently contracted with utility Octopus Energy for a fixed-price, two-year tolling deal for half of its portfolio. This deal was later described as something of a turning point in the BESS sector, with Gresham House’s New Energy assistant fund manager, James Bustin saying it “woke up the wider market to the possibility of this being an option” for suppliers of all sizes.
Our advisor source notes that buyers have expressed strong interest in HEIT’s potential sale, but various market drivers will ultimately determine the success of the move. A spokesperson for HEIT and its investment adviser Harmony Energy said the company would not comment further than its second round announcement when asked by Energy-Storage.news.
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