Battery energy storage company Harmony Energy Income Trust (Harmony) has announced its intention to undertake an initial public offering (IPO), to fund the development of 213.5MW of projects using Tesla's battery storage technology.
It will list on the Specialist Fund Segment of the Main Market of the London Stock Exchange through an institutional placing and an offer for subscription with up to 230 million new ordinary shares that will be available at an initial issue price of 100p per share.
Additionally, Harmony Energy’s management team and their associates will be able to subscribe for 2.5 million shares that will be subject to a five year lock-up period.
It is targeting a dividend yield of 8% per annum, which will be payable quarterly from 2023.
Harmony is planning to use the IPO to fund a diversified portfolio of battery energy storage systems in Great Britain. Shovel ready projects will be targeted, to maximise the value of potential risk-adjusted capital value growth.
It will initially acquire five projects with a capacity of 213.5MW (427MWh) from Harmony Energy Limited, which have an acquisition value based on a fixed funding requirement of £750,000 per MW on acquisition.
This is expected to further increase to c. £874,000 per MW once constructed the company noted. The majority of construction and supply costs have already been fixed through Pillswood Contracts – for the 98MW Pillswood Project – as well as a framework agreement with Tesla.
Harmony has contracted with tesla for this initial portfolio including agreed pricing and timing of delivery. Working with the battery manufacturer will allow it to take advantage of the company’s two-hour duration Megapack systems and Autobidder AI revenue optimisation platform, and see the assets covered by a 15 year warranty.
In additionally to this initial portfolio, there is a 99MW (198MWh) advanced project to be acquired following Admission, bumping up Harmony’s initial portfolio to 312MW (625MWh).
The company will also have exclusive rights to acquire a pipeline of battery storage projects with an aggregate capacity of 687.5MW that is already within Harmony Energy’s control.
Overall this would bring Harmony’s initial target portfolio to 1GW, it will also have preferential rights over Harmony Energy’s future projects.
The company highlighted the growing share of renewables on Britain’s grid for its decision to enter launch an IPO now. With wind and solar capacity meeting around 50% of generation capacity in 2020, and this predicted to reach up to 78% by 2030 (80GW) and 91% by 2050, the need for increased energy storage capacity is clear.
There will be opportunities for batteries through both an increased requirement for system balancing and ancillary services and greater pricing volatility in the wholesale market over the longer term.
“The nation is becoming increasingly aware of the need to have the right infrastructure in place to secure our energy supplies,” said Norman Crighton, prospective chairman of Harmony Energy Income Trust.
“As we increase our reliance on renewable power, battery storage will have a crucial role to play. The battery energy storage sector is one that has seen remarkable growth over the past 10 years; it will only grow further and the Company will be at the forefront of this growth.”
The Tesla Megapack batteries have been specifically chosen by Harmony for their duration, as if the revenues in the ancillary services markets become unattractive, they will be able to switch to the wholesale or Balancing Mechanism markets where they will have a competitive advantage in comparison to one-hour duration projects.
Development of the sites will be aided by Harmony Energy’s proven track record, having worked with Tesla on a number of sites since 2016. Both Holes Bay (7.5MW/15MWh) and Contego (34 MW/68 MWh), which were developed jointly with FRV, had Tesla as supplier and EPC contractor.
Its more recent site – which is currently still under development – the 99MW/198 MWh Clay Tye site – is also to use systems comprising Tesla Megapack lithium-ion battery systems, together with Tesla’s Autobidder AI software for real-time trading and control.
Paul Mason, managing director of the Investment Adviser, said battery energy storage offers exciting growth potential, with an expected requirement of up to 43GW by 2050 from just 1.2GW now.
“Investing in battery storage energy systems requires extensive sector expertise and knowledge, and our team has decades of investment and industry experience. Battery storage energy systems are a vital cog in the renewable energy value chain. We believe there is enormous potential in the sector and the 2-hour duration battery will be best placed to take advantage of this.”