Gresham House Energy Storage Fund : Annual Report and Financial Statements 31 December 2023

Powering

the renewable energy transition

Gresham House Energy Storage Fund plc (GRID)

Annual Report and Financial Statements for the year ended 31 December 2023

Contents

Highlights	4
Chair's Statement	6
Investment Manager's Report	10
Portfolio	15
Sustainability Report	28
Task Force on Climate-related Financial	31
Disclosures (TCFD)
Strategic Report	39
Principal Risks and Uncertainties	44
Stakeholder Engagement and Statement under	49
Section 172
Board of Directors	51
Investment Team	53
Directors Report	56
Directors Remuneration Report	61
Corporate Governance Report	65
Audit Committee Report	70
Remuneration Committee Report	74
Nomination Committee Report	76
Management Engagement Committee Report	78
Independent Auditor's Report to the Members of	80
Gresham House Energy Storage Fund plc
Statement of Comprehensive Income	87
Statement of Financial Position	88
Statement of Changes in Equity	89
Statement of Cash Flows	90
Notes to the Financial Statements	91
Alternative Performance Measures	114
Company Information	118
Glossary	119
Periodic (annual) disclosures - Annex IV (EU)	122
2022/1288)

2 Gresham House Energy Storage Fund plc (GRID)

Real time energy storage to address supply-demand imbalances to enable renewable energy

Gresham House Energy Storage Fund plc (GRID, the Fund or Company) invests in a portfolio of utility-scale operational Battery Energy Storage Systems (BESS) in Great Britain and beyond.

Gresham House Energy Storage Fund plc (GRID)

3

Dec 23

Dec 22

Dec 23 £50mn

EBITDA of underlying investment portfolio1 (as at 31 December 2023)

Total gross equity funds raised (as at 31 December 2023)

£50.0mn

£(110.1)mn

£150mn

Dec 22

Dec 23

Dec 22

Highlights

NAV per share

(as at 31 December 2023)

129.07p Dec 22 155.51p

-17%	Dec 23
	129.07p

Company (loss) / profit and total comprehensive income

(as at 31 December 2023)

£(110.1)mn £217.1mn

£25.8mn	Dec 22
	£48.8mn
Dec 23
-47%
£25.8mn

Dividend per Ordinary Share1
(as at 31 December 2023)
5.5p	Dec 23
	Dec 22

7.0p

5.5p

Ordinary Share Price Total Return since IPO1

(as at 31 December 2023)

+40.1% Dec 22 +96.4%

Dec 23

+40.1%

NAV per Ordinary Share Total Return1 (as at 31 December 2023)

-12.9%+40.1%

-12.9%

Operational portfolio size1 (as at 31 December 2023)

690MW Dec 22

550MW / 598MWh

+25.5% Dec 23690MW / 788MWh

1 Alternative Performance Measures are defined and calculated on page 114

4 Gresham House Energy Storage Fund plc (GRID)

Performance highlights

• The Net Asset Value (NAV) as at 31 December 2023 declined to £740.1mn or 129.07 pence per share (HY 2023: 145.11 pence / FY 2022 155.51 pence).
• Given the recent difficult revenue environment, the Board decided to not declare a dividend in relation to Q4 2023. Dividends totalling 5.51 pence per share were paid in relation to the first three quarters of 2023 and nothing for the fourth quarter.
• Alongside its growth ambitions, income distribution will continue to be an important part of the Company's strategy. The future dividend policy will reflect the balance between merchant and contractual revenues with the principle of paying a covered dividend.
• The dividend for the year of 5.51 pence per share was equivalent to a 5.1% dividend yield based on the closing share price of 109 pence on 31 December 2023.
• £50mn equity was raised in FY 2023 at a share price of
  155.5 pence per share.

Operational highlights

• The underlying investment portfolio generated revenues1 of £38.7mn (2022: £62.7mn) and EBITDA of £25.8mn (2022: £48.8mn).
• Operational capacity of the portfolio has now reached 690MW as of 31 December 2023 with Coupar (40MW), Grendon (50MW) and West Didsbury (50MW) completed in the period. The total further increased to 740MW in January 2024 with the commissioning of York (50MW). The Company anticipates operational megawatts (MW) to reach 1,072MW by the end of 2024.
• The duration of the portfolio increased from an average of
  1.09 hours as at 31 December 2022 to 1.14 hours as at 31
  December 2023. Further augmentations will take place in 2024 increasing the duration average to 1.58 hours.

1 Alternative Performance Measures are defined and calculated on page 114

Gresham House Energy Storage Fund plc (GRID)

5

Chair's Statement

On behalf of the Board, I present the Annual Report and Accounts of Gresham House Energy Storage Fund plc ("GRID", the "Fund" or the "Company") for the year ending 31 December 2023.

Summary

On behalf of the Board, I present the Annual Report and Accounts of Gresham House Energy Storage Fund plc ("GRID", the "Fund" or the "Company") for the year ending 31 December 2023.

In November 2023 GRID reached its fifth anniversary since its IPO in 2018. During this period, the Company has grown operational capacity from 70MW to 690MW (as of 31 December 2023), an 886% increase. As at the date of this report, operational capacity has further increased to 740MW with further growth to 1,072MW expected in 2024. This makes GRID the clear market leader at scale in Battery Energy Storage Systems (BESS) in Great Britain.

As set out below, 2023 (and early 2024) have proved to be very difficult for the Great Britain BESS sector. The Board and the Investment Manager are acutely aware that 2023 has been deeply disappointing and has required patience from our shareholders. The pathway to recovery in 2024 may require further leeway until our results bear the fruits of our action plans.

The industry in the UK experienced weakening revenues through 2023. This was driven by a combination of an oversupplied wholesale market and the under-utilisation of BESS by National Grid ESO (ESO)2 in the Balancing Mechanism which is being negatively impacted by the ongoing use by ESO of more expensive and carbon emitting legacy gas and coal fired generation, a matter which we are taking up with the Regulator. We firmly believe that the wholesale market is at or very near the bottom of a cycle and that ESO are taking programmed incremental steps to improve utilisation of BESS.

2. Soon to be National Energy System Operator, or NESO, once nationalised later in 2024.

"

Intermittent renewable generation is still increasing sharply, driving the need for BESS in Great Britain

The wholesale market will become more favourable as i) older thermal assets come offline, including the last remaining 1.8GW coal plant which is set to decommission in September 2024, ii) reduced reliance on CCGT Generation and as iii) electricity demand rises for structural reasons (driven by Electric Vehicles, AI (Artificial Intelligence) supporting data centres, increased penetration of heat pumps, etc) and as low wholesale power prices feed through to consumer bills.

In the meantime, intermittent renewable generation is still increasing sharply, driving the need for BESS in Great Britain. In 2024 alone, renewable capacity is expected to grow by at least 3GW, led by offshore wind projects, increasing renewable penetration to 50% within 12 months3. At the ESO, it is clear there is a restated commitment

to decarbonise the electricity system. Firstly, with the Balancing Programme which started with the launch of the Open Balancing Platform (OBP) in December 2023 and is set to conclude in 2027, completely modernising all systems and processes used to manage and balance the electricity system. Secondly, the Stability Pathfinders, first launched in 2020, are gradually removing the need to utilise gas turbines by installing additional stabilising technologies around the Great Britain network. The Investment Manager's report provides more details about the steps being taken by ESO, especially in the near term. The combination of these efforts is reducing the under- utilisation and "skipping"4 of BESS by the ESO when BESS is clearly the economic "in merit" solution.

At a portfolio level, completion of our ongoing construction programme will have a significantly positive impact on our revenue generation and ability to cover future dividends.

I am pleased to report that progress has been strong and we expect the imminent energisation of our Penwortham project (50MW / 50MWh) having already completed the augmentation at Arbroath. We also expect the energisation of Shilton Lane (40MW / 80MWh), re-energisation of Nevendon (upgraded to 15MW / 30MWh from 10MW / 7MWh) and completion of augmentations from one hour to two hours at Enderby and West Didsbury which are all expected by the end of May.

1. Gresham House New Energy research
2. BESS are considered as "skipped" when they have not been utilised even if in merit

6 Gresham House Energy Storage Fund plc (GRID)

Additional Information Financial Statements Annual Report

The Board has made the difficult decision to cancel the Q4 2023 dividend and has also decided not to pay dividends in relation to 2024. We realise this is unwelcome news. However, prioritising cash generation from the portfolio, along with available financing, towards the completion of the current project pipeline and duration extensions will create an additional near-term EBITDA contribution. This is in the best interests of shareholders and will put GRID in the strongest possible position to take full advantage of a market recovery and build towards a re-rating of our stock. This capital discipline also applies to share-buybacks: the recent programme was completed on 17 April 2024 and is not being renewed.

We remain convinced that the fundamental investment case for BESS is still strong and that the Company sees a positive outlook into 2025 and beyond. The Company will constantly review the ability to resume dividend payments and share buy-backs. In addition, the Investment Manager is pursuing opportunities to dispose of assets to reduce debt and potentially contract short-term stable revenue streams to de-risk income whilst the merchant BESS market recovers its dynamism.

We look forward to putting this difficult period behind us, building out a larger and more diversified portfolio for the future. This will put GRID into an excellent position to take advantage of the upside opportunities that lie ahead.

Strategic focus and capital allocation

While we remain in an uncertain revenue environment, it is vital for the Company to exercise strict capital discipline, protect shareholder value and come through this period well positioned. As such the Board and Investment Manager are actively reprioritising how the Company allocates capital in the following five areas.

1. Capital expenditure

The Company is focused only on investments which lead to near term cash flow generation. This entails completing construction on the remaining new project pipeline of 327MW / 504MWh and duration extensions adding 5MW and 328MWh to current projects (with batteries which are already owned). This will approximately double the operational megawatt-hour capacity by the end of 2024 and subsequently improve the already cash-generative portfolio to capture further revenues. A significant amount of the remaining capex is expected to be financed with available cash (including cash in the underlying portfolio, which was in excess of £40mn as of 31 December 2023) and the remainder with debt.

2. Dividends

Given the recent difficult revenue environment, the Board decided to not declare a dividend for Q4 2023.

Therefore, dividends totalling 5.51 pence per share were paid in relation to the first three quarters of the year and nothing for the fourth quarter. The Company also announced on 18 April 2024 that it has decided to prioritise capital for the remainder of 2024, keeping leverage levels low to ensure greater dividend paying ability in future, and therefore does not expect to pay any dividends in relation to the 2024 financial year. We understand this news is unwelcome, but the long term interests of shareholders are best served by taking this action.

From 2025 onwards, the Company aims to deliver an attractive dividend from distributable cash-flow after debt covenant testing. Dividends will be commensurate with a blended merchant and contractual income model.

3. Share buybacks

Recognising the sharp decline in the share price at the start of 2024, the Company began a share buyback programme on 2 February 2024. Investing in shares trading at a significant discount to NAV per share represents a valuable incremental investment opportunity for the Company. The Company has purchased 4,380,555 shares at an average price of 45.6 pence under this programme. The accretion to NAV per share as a result of this will be reflected in the Q1 2024 NAV per share.

The Company's share buyback programme completed on 17 April 2024 and has not been renewed. This is in order to ensure capital remains focused on future pipeline whilst reducing debt funding requirements. The Company will continue to review if this programme should be recommenced but does not expect further buybacks in 2024 beyond the date of this report.

4. Debt facility

As at 31 December 2023, the Company's wholly owned subsidiary, Gresham House Energy Storage Holdings plc (MidCo) had a £335mn debt facility, of which £110mn has been drawn. After the year end, the Company entered discussions with the existing lender group to optimise terms for the debt facility. The lender group remain supportive of the Company and its ability to complete current projects to take advantage of future revenue growth potential in the BESS market. The amended and restated debt facility agreement includes:

• specific consent to draw all funds required (up to £65mn) to complete the current construction programme, which is expected to take operational capacity to 1,072MW / 1,696MWh in 2024; and
• amended Interest Cover and Leverage covenant levels for 2024 and 2025 to provide headroom against a situation where recent low revenue levels prevail for a longer time period.

Gresham House Energy Storage Fund plc (GRID)

7

Annual Report Financial Statements Additional Information

The Company also decided to reduce the overall facility by £110mn, to £225mn, in line with the plan to keep leverage down. As the Company was not planning to deploy into further projects while the revenue environment remains challenging it is sensible to cancel the excess facility and secure appropriate finance cost savings. The amendments to the existing facilities agreement enable completion of the current pipeline in addition to giving the business breathing space should a lower revenue environment persist, although we are pleased to see revenues already recovering since March 2024.

£110mn of the total £225mn facility has been drawn to date, with peak total debt to complete construction on the 1,072MW / 1,696MWh portfolio expected to be up to £175mn, prior to any asset sales, which is lower than initially expected thanks to capital preservation measures taken. Total debt to Gross Asset Value5 is therefore not expected to exceed 20% by the time all current construction projects have been completed.

5. Project disposals to refocus capital

The Company is continuing to progress a disposal of a subset of the portfolio and the Company is hopeful that something may be announced in this regard in the coming month or two.

Portfolio, transactions, and pipeline

The Company commissioned three projects in 2023: Coupar Angus (40MW / 40MWh) in February, Grendon (50MW / 100MWh) in July and West Didsbury (50MW / 50MWh) in November. Operational capacity on 31 December was 690MW / 788MWh and grew further to 740MW / 863MWh shortly after the year end with the completion of York (50MW / 75MWh).

The focus is now on completing the remaining 327MW of new projects in 2024 as well as carrying out duration increases across seven projects with total connection capacity of 335MW, taking overall operational capacity to 1,072MW / 1,696MWh.

In relation to upcoming project completions, we are pleased to announce that Arbroath completed its upgrade on 2 April 2024 whilst the augmentations of Nevendon, Enderby and West Didsbury are approaching completion and are expected by the end of May 2024.

Penwortham and Shilton Lane are set to energise in April 2024. Melksham is expected to energise in the coming months while the West Bradford and Elland projects will follow in H2 2024. The completion of duration extensions at Penwortham, Melksham and Coupar Angus are also expected in H2 2024.

The Company remains focused solely on projects which drive immediate earnings and increase cash generation in 2024. As a result, we took the difficult decision to defer our first international project, Project Iliad. We plan to revisit international opportunities to enhance our geographic diversification and growth once the market backdrop improves.

The Investment Manager is continuing to work on longer term further domestic and international pipeline. This will be pursued once earnings improve and capital is available.

Discount rates and valuations

The discount rate on contracted income was increased by 100bps at the interim stage in 2023 but no further changes were made in the year. The weighted average discount rate was 10.9% as at December 2023 (10.9% at 31 December 2022) which remains higher than our listed peers.

The Company values projects on a discounted cash flow (DCF) basis only when they are within nine months of commissioning (and a 75bp premium to the discount rate is applied during construction) and only if they are fully funded. The Company uses forecast revenue curves from third- party consultants when valuing projects on a DCF basis. For the project valuations as at 31 December 2023, the Company has applied reductions to these third-party forecasts for 2024, 2025 and 2026 to reflect the weak but gradually improving market. Our adjusted revenue forecasts converge with third-party forecasts in 2027. This is further detailed in the Investment Manager's report.

Debt drawn to date from the debt facility has been fully hedged and has therefore reduced exposure to interest rates fluctuations.

5. Alternative Performance Measures are defined and calculated on page 114.

8 Gresham House Energy Storage Fund plc (GRID)

Additional Information Financial Statements Annual Report

Capital structure and share price performance

The higher interest rate environment has seen capital allocated away from infrastructure funds during 2023. This has impacted share prices across the renewables and infrastructure sector, including those of energy storage funds. The Company's share price stood at a discount to NAV of 16% at the year end. This discount has widened at the start of 2024 as continued selling pressure caused by uncertainty and a difficult revenue environment has further impacted the share price. The Company was in confidential discussions with the lending group and was unable to issue an RNS until 18 April 2024 and we recognise that the inability to communicate widely was unwelcome.

We remain confident in the long-term opportunity for BESS assets both in Great Britain and internationally, and the potential for income and capital growth.

The Board notes the current share price is trading at a significant discount to NAV and, in consultation with the Investment Manager, is actively considering ways to reduce costs, drive operational efficiencies and improve investor confidence.

The MidCo has drawn £110mn of its £335mn (before reduction) debt facility as at 31 December 2023. The MidCo has fully hedged its interest rate exposure on debt drawn.

After the year end the Company converted its £613mn loan due from MidCo into equity in order to mitigate against VAT (Value Added Tax) rule changes post Brexit: from 1 January 2024 the management fees from the Investment Manager include VAT and if the Company continued to receive high levels of interest income from MidCo this would lead to high levels of irrecoverable VAT. The conversion of the loan due from MidCo into equity will change the optics of the Company's Income Statement: in future only dividends paid up to the Company and valuation gains or losses

will now appear as Income. The Company will ensure the Alternative Performance Measures continue to provide transparency in relation to the performance of the Company and its portfolio.

Dividends

The Company paid dividends of 5.51 pence per share, down 21% on 2022, primarily because the 2023 Q4 dividend was cancelled due to low operational dividend coverage and

a preference to maintain capital discipline. The Company also made the difficult decision to refocus capital resources during 2024 and does not expect to pay any dividends in relation to the 2024 financial year. After sector-leading Operational Dividend Cover at 1.07x in 2022, cover fell to 0.25x in 2023 as the Company's portfolio faced a difficult revenue environment.

The Company intends to pay fully covered dividends in future when capital discipline allows.

Sustainability

The Company remains focused on increasing BESS capacity to support the cost effective, decarbonisation of our electricity supply in line with Great Britain's climate objectives. The Investment Manager continues to work with environmental experts to improve its sustainability reporting and is hopeful of further recognition of the benefit of batteries in carbon avoidance methodology. Further updates are provided in the Sustainability Report on page 28.

Outlook

The energy transition from fossil fuels to renewables in Great Britain was always expected to be challenging, and even more so once levels of intermittent generation begin to dominate the electricity system. The Board and the Investment Manager have progressively worked their way through the many challenges of recent years including COVID, supply chain issues, demand destruction caused by high power prices following Russia's invasion of Ukraine and new grid connection delays. We have seen how challenging it is for ESO to automate and digitise their legacy systems and processes to a fully modernised platform that can fully utilise and reward BESS assets. During 2024 we expect to see further trends demonstrating improvement in our earnings as a result of planned and announced systems changes.

Despite this currently challenging environment for the battery storage sector, the continued rapid deployment of new renewable output, particularly offshore wind, drives a parallel demand for battery energy storage. The merits of this technology and the long term commercial attractions remain as true as ever, both in Great Britain and more so internationally

We look forward to reaching 1GW of operational capacity this year which will be a significant milestone for GRID. Due to the expansion of the size and duration of the portfolio during the course of 2024, the robustness in our revenue streams will naturally follow allowing us to get back to

full operational dividend cover and further potential for capital growth.

John Leggate CBE, FREng

Chair

Date: 26 April 2024

Gresham House Energy Storage Fund plc (GRID)

9

Investment Manager's Report

Gresham House Asset Management Limited (GHAM) is wholly owned by Gresham House Limited (formerly Gresham House plc), a specialist alternative asset manager. Gresham House provides funds, direct investments, and tailored investment solutions, including co-investment, across

a range of highly differentiated alternative strategies. Gresham House's expertise includes strategic public equity, private equity, forestry, housing, new energy, and infrastructure.

In the current challenging revenue environment, we are focused on taking the right actions to ensure continued capital efficiency and discipline which will position the Company for continued growth. We are focussing on deploying capital where it has the biggest cash generation impact and believe a redefined dividend policy will be more appropriate for the merchant business model going forward.

Efficiently deploying capital primarily means focusing on pipeline projects that deliver earnings in the near term. This approach reduces exposure to long lead time projects, diversifies earnings, preserves capital and reduces exposure to ESO's system improvement rollout. It also means reviewing if existing capital is better deployed elsewhere: the Investment Manager will therefore consider disposals if these are in the best interests of the Company.

Whilst the revenue environment has remained challenging in January and February 2024, we have seen revenue improvements for BESS assets since March 2024 as the launch of Balancing Reserve and the change of the

15-minute rule to a 30-minute rule alongside improvements in utilisation of BESS by ESO all contributed to an improving revenue picture for BESS. See Market update section below for further details on the progress made and improvements to come for BESS assets in Great Britain.

Deployment of capital into improving the portfolio

To maximise near-term cash generative returns, we are focused on deploying capital into projects which contribute to earnings in 2024. This includes the completion of York (50MW) in January 2024, 327MW of further projects which are approaching construction completion and the duration extensions of a further 340MW of operational projects, including an increase in Nevendon's connected capacity by 5MW.

77% of the cost of assets under construction had already been paid as at 31 December 2023. This means that there is a disproportionately larger positive impact on near term revenues from spending the remaining incremental capital expenditure on these projects as they are commissioning in 2024. This approach is even more powerful for project extensions as we already own the batteries for these extensions with 83% of the total augmentation cost already paid for by 31 December 2023. There are significant revenue advantages from moving from a one-hour to a two-hour duration.

In the current revenue environment, the Investment Manager has decided to defer its first investment in the US. The Company maintains its strategic intent to diversify internationally and we will revisit this when the market backdrop improves.

The Company's tight focus on efficient capital allocation will remain through this period. Finally, while deeply regrettable and disappointing to shareholders, the cancellation of the 2023 Q4 dividend and the decision not to pay dividends in relation to 2024 puts the Company in a stronger positive cash generative position. It also allows the business to continue to build its portfolio while reducing drawings on our debt facility.

Diversification into contracted revenue streams

The issue of under-utilisation of BESS by National Grid Electricity System Operator (ESO) and their very gradual progress fixing their system-based issues has driven us to look for alternative revenue opportunities. In the shorter term, we have been focused on other revenue generative opportunities for our assets.

For example, we are working with several DNOs (Distribution Network Operators) to create additional revenue opportunities for our assets through availability-linked payments and higher export tariffs during peak times to provide DNO networks with additional flexibility during times of higher demand.

10 Gresham House Energy Storage Fund plc (GRID)