The Renewables Infrastructure Group has bought a British battery storage developer as it seeks to diversify into assets with the potential to deliver higher returns.
The FTSE 250 group will pay £20 million for Fig Power over the next two years, half of which will fund the upfront cost of the deal, with the remainder put towards funding developments in the pipeline.
The projects have the capacity to store up to 1.7 gigawatts of renewable power, with nine projects representing about 400 megawatts of storage boasting electricity grid connection offers running between 2025 and 2033.
The Renewables Infrastructure Group, widely known as Trig, has interests in renewable energy spanning offshore wind, onshore wind, solar panels and battery storage throughout Europe, with a total capacity of over 2.8GW, or enough renewable power for 1.9 million homes.
An increase in intermittent renewable energy generation coming on to the electricity grid as more wind and solar is added should exacerbate volatility in power prices and increase the need for battery storage, according to developers of the assets.
Fig Power’s batteries will be capable of discharging power over two hours, with the intention of generating most of its revenue by buying power from National Grid when it is plentiful and cheap, such as in the middle of the night, and selling it back when demand, and the price, is higher. It is thought that developing battery storage assets has the potential to generate double-digit returns, compared with about 8 per cent for Trig’s entire portfolio.
However, the deal comes at a challenging time for battery developers, with many of the London-listed funds suffering a downturn in the revenue being generated by operational assets and delays in getting batteries connected to the grid.
From 2026, Trig hopes that Fig will become self-funding, by selling some of the projects at the point of construction and others when completed. It also plans to develop battery projects on behalf of third parties.
Green funds have fallen out of favour with investors over the past 18 months as higher bond yields have diminished the relative attraction of the dividend yields on offer from renewable investment trusts.
InfraRed Capital Partners, which manages the trust, is aiming to more than halve its debt to £150 million, from £364 million at the end of last year, through a combination of asset sales and cash generated by the business.
Shares in renewables funds, including Trig, have fallen to deep discounts against the value of their assets as rising interest rates have cast doubt on the valuations of green energy assets. That effectively has precluded the investment trusts from raising funds on equity markets to finance acquisitions. Trig’s shares trade 24 per cent lower than the fund’s net asset value, a reversal of a substantial premium less than two years ago.
Richard Crawford, head of energy income funds at InfraRed, said Fig would provide “diversifying and often complementary revenues to the portfolio. Adding development capabilities within Trig’s investment portfolio creates the opportunity to capture higher returns for shareholders and generate a proprietary pipeline through a team that is closely aligned with Trig’s objectives.”
Shares in The Renewables Infrastructure Group fell 1.5 per cent, or 1 1/2p, to 98p.
The timing of The Renewables Infrastructure Group’s deal to increase its exposure to battery storage might seem incongruous (Emma Powell writes). London’s pure-play developers are battling a slump in revenue that has stretched their abilities to service debt, fund capital expenditure and meet dividend costs.
Developers have blamed numerous challenges: the slow adoption of battery storage by National Grid in balancing supply and demand; subdued levels of power price volatility as natural gas prices have subsided and European storage capacity has improved; and delays in getting batteries connected to the grid.
This month Gresham House Energy Storage and Harmony Energy Income Trust paused their latest quarterly dividends. The latter announced a restructuring of its debt facilities and plans to sell at least one of its assets, with the proceeds to be used to reduce gearing and to fund future dividends this year and next.
However, analysts at Peel Hunt have warned about relying on disposals to fund dividends or to reduce debt, particularly “if the funds are seeking a liquidity event at short notice and the potential buyer takes advantage of this”.
Gresham House eschewed its dividend for the final three months of last year in favour of redeploying capital towards projects in the pipeline with capacity of about 332 megawatts, as well as potentially reducing the size of its £335 million debt facility, of which £110 million was drawn at the end of last year.
Battery specialists had already suffered a fall from grace as rising interest rates had eroded the value of their projected cashflows and had led to a reduction in net asset values. However, markets suspect that a further fall could be in store. Shares in both Gresham House and Harmony Energy have declined by more than 50 per cent since the start of this year, while Gore Street Energy hasn’t fared much better, being down by more than a quarter. That leaves all three priced at steep discounts of more than 30 per cent against their respective net asset values.