Alex O'Cinneide, CEO of Gore Street Capital, the investment manager of Gore Street Energy Storage Fund (LON: GSF) talks to Rupert Hargreaves.
Gore Street Energy Storage Fund is one of the world’s largest publicly traded investors in energy storage assets. Its portfolio spans four uncorrelated international energy markets, including the integrated Irish grid, Germany, Texas, and California.
With a goal of reaching 813.4 MW of operational capacity by the close of 2024, the fund has a substantial growth pipeline ahead of it as the world transitions away from fossil fuels.
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In this interview, Alex explains how Gore Street is planning to grow in the years ahead and how the firm will profit from the energy transition.
You can find more information about Gore Street on their website: https://www.gsenergystoragefund.com/content/about/fund
Welcome to MoneyWeek interviews. In this series, I will be speaking with a wide range of fund managers to discuss their views on the market and where investors can find the best opportunities today.
In this interview, filmed in central London on the hottest day of the year in the UK, I sat down with Alex O'Cinneide CEO of CEO of Gore Street Capital, the investment manager of the Gore Street Energy Storage Fund to talk about the energy storage market and Gore Street's plans for growth in this rapidly expanding industry.
I do hope you enjoy the interview as much as I did and please stay tuned for more MoneyWeek interviews.
Can you start by giving us a bit of background about Gore Street, what it does, and what role is going to play in the energy transition,
We founded Gore Street to be material in our fight against climate change. We wanted to be a strong force in an asset class that made a difference in our energy transition. You mentioned the hottest day of the year in central London.
I mean, this is the manifestation of the problems so many people are trying to deal with. And we in our small way, are also part of that fight. Gore Street focuses on energy storage assets. These are the critical assets of our energy transition. And we've been investing in them since 2016.
Could you give our viewers a bit more of a background? What is an energy storage asset? What are you buying and how does it help our grids?
Our energy systems throughout the world are part of this big transition. So we're decommissioning, coal gas nuclear, at a rapid price. And we're adding in solar and wind. Solar and wind are excellent energy sources and generation sources, and actually, in many localities, the cheapest form of energy, and they also don't kill the planet. But they're intermittent.
They produce electricity when the sun shines, and the wind blows. That's hard for the grids to cope with. They're used to gas and coal and nuclear chugging away, producing electricity consistently. So as we add more and more solar and wind, we need to balance out that solar and wind with energy storage facilities, which allow the grid to be balanced and to function correctly.
So those energy storage facilities are essentially just batteries that you turn on?
They are essentially just batteries. So if you're standing at an energy storage facility, one of the ones we own and we have energy facilities across Britain, Ireland, Germany, Texas, and soon to be California, what you would see is a large number of shipping containers, they look like shipping containers.
And those shipping containers are full of lithium-ion battery cells, connected with a whole range of different technology and then connected to the grid.
How big is the overall market here globally?
It's really interesting - when we started investing in energy storage we were one of the first movers - we created this asset class for the public investor with our IPO in May 2018. But we’ve been investing since 2016.
One of our first assets, Boulby, which we still own in the north of England a 6MW asset, was the largest privately owned lithium ion facility in the UK, when we switched it on was one of the largest in the world doing grid balancing.
Our latest acquisition is 400 MW hours in California. So you see this huge growth in the size of these facilities. It going in tandem with the growth of solar and wind. Right now, across Britain, there are about 3.1GW of energy storage assets in operation.
The National Grid is forecasting that needs to quadruple over the next period. I recently returned from Japan, where they're probably a few years behind in terms of the UK story around energy transition.
There, they're forecasting 10 GW, so 10,000 MW by 2030. So are these large, advanced economies, such as the UK, such as Japan, with very rapid build-out of energy storage.
What about in the US with the recently announced Inflation Reduction Act? How is that changing the market?
It's a dramatic game-changer. I've always said to be a good investor in renewables, and I've been investing in renewables for a very long time, you need to understand finance. But you also need to understand technology and you understand the technology that you're building.
And they also need to understand policy. So those three things have come together in a Venn diagram, that you should sit in the middle of. What the US did with the Inflation Reduction Act, was put in place a policy, which incentivizes us to build.
So we have assets in operation and construction in Texas, and in construction in California and the day we switch those assets on, we will receive 30% of our CapEx back from the federal government.
Now, we operate in a worldwide supply chain, where prices are pretty similar between the US Germany Ireland and GB to have assets built. So that's a big driver. If in we can buy the same type of solution to be built at the same price.
But in the US, we get 30% of our investment back and that leads to some considerable flows heading to the US rather than other places.
It's effectively 30% cheaper to build in the US than it is anywhere else in the world?
It is. Yeah.
So what about the UK then - where does the UK sit in all of this?
The UK has been the market leader. The UK traditionally has had a very advanced set of energy policies, a very advanced ideas around how the energy system should be organised.
The UK is the leader in offshore wind, right, it drove the offshore wind, to be honest, it drove the offshore wind because of a bad policy, which was not building onshore wind. But by building offshore wind, they became the world leader.
It has been the leader in energy storage as well. So from about 2016 to about 2019 Britain was adding more energy storage than anywhere else in the world. Because the way the market was set up, the market was set up to allow asset owners such as ourselves, to build assets, provide a critical service and make good returns on the back of it.
Do you think that is no longer as attractive as it once was?
The UK is a very attractive market and will remain a very attractive market and one of our core investment targets. Gore Street though, back in 2019, we decided that diversification of our portfolio across multiple markets was the right thing to do for our shareholders.
So in 2019, we moved into the Irish market, a similar market in some ways, but fundamentally a different energy system. We are now one of the most significant players in that market. We moved into the German market, very early last year, we moved into the Texas market early last year, and early this year, we moved into the California market.
So all those markets have really interesting characteristics. They're all driven by the same investment thesis, which is that if you continue to add more and more solar and wind to your grid, you need storage to balance it off.
We work with the same supply chain, therefore we can deliver the same investment thesis. But with uncorrelated revenues, these revenues in each of these markets are not affected by each other. So the UK GB remains a very strong market for us. But we see huge growth in California, Texas, Ireland and mainland Europe.
Could you put a finger on the total market potential here?
Oh, yeah, I think we could see 10GW of storage over the next 10 to 15 years, compared to 2GW now - that's 10GW GB alone.
Rupert is the Deputy Digital Editor of MoneyWeek. He has been an active investor since leaving school and has always been fascinated by the world of business and investing.
His style has been heavily influenced by US investors Warren Buffett and Philip Carret. He is always looking for high-quality growth opportunities trading at a reasonable price, preferring cash generative businesses with strong balance sheets over blue-sky growth stocks.
Rupert was a freelance financial journalist for 10 years before moving to MoneyWeek, writing for several UK and international publications aimed at a range of readers, from the first timer to experienced high net wealth individuals and fund managers. During this time he had developed a deep understanding of the financial markets and the factors that influence them.
He has written for the Motley Fool, Gurufocus and ValueWalk among others. Rupert has also founded and managed several businesses, including New York-based hedge fund newsletter, Hidden Value Stocks, written over 20 ebooks and appeared as an expert commentator on the BBC World Service.
He has achieved the CFA UK Certificate in Investment Management, Chartered Institute for Securities & Investment Investment Advice Diploma and Chartered Institute for Securities & Investment Private Client Investment Advice & Management (PCIAM) qualification.
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