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National Grid bets on electric future with £7.8bn deal

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Pylons
Pylons

National Grid has placed a multibillion-pound bet on the electric car revolution and the fight against climate change by buying Britain's biggest electricity distributor.

The FTSE 100 company also revealed plans to offload its gas network in a decisive shift away from fossil fuel power.

National Grid will pay £7.8bn for WPD from its US owner PPL, and sell to PPL its US electricity business Narragansett Electric Company for $3.8bn (£2.7bn).

It also plans to sell a majority stake in National Grid Gas, which owns the UK's national gas transmission network.

The deals will increase the proportion of electricity assets in the company's portfolio from 60pc to 70pc.

Projected demand for UK-produced batteries
Projected demand for UK-produced batteries

National Grid currently owns the core high voltage electricity transmission networks, but branching out into the local distribution networks owned by WPD is a significant step.

Electricity is expected to play a far greater role in the energy system as electric cars come to the fore and efforts are made to electrify heavy industry and heating.

Chief executive John Pettigrew said the deals marked a "strategic pivot" meaning its portfolio would reflect "an appropriate balance of electricity and gas for the energy transition".

He added: "It was a relatively unique opportunity for National Grid to be able to enter the electricity distribution market at scale.

"As we think about what needs to be done to achieve net zero [the UK's legally binding target of net zero carbon emissions], it will really put us at the heart of that transition and give us a much broader role than we have had historically."

It also means National Grid will increase its exposure to the UK relative to the US, even as the UK regulator Ofgem is cracking down on returns in the sector.

Mr Pettigrew said he was confident the UK "generally incentivises people to innovate and find new ways of doing things, which we think is going to be absolutely critical".

WPD owns four distribution networks, in the Midlands, south-west England and Wales, and made profits last year of £750m.

The shift away from fossil fuels is a threat to gas transmission network owners, although many hope that hydrogen will replace natural gas in some cases, prolonging use of their assets.

Mr Pettigrew said he was confident in the future of gas despite the sell down of its gas business, which is expected to kick off this year.

He said: "We absolutely believe that natural gas has a really important role to play in the energy transition... We will continue to advocate for it."

Analysts at Jefferies said the move was "strategically positive" given the shift towards electricity.

Shares were steady at 831p by midday.

Separately, Sir Jim Ratcliffe's chemicals empire Ineos splashed out $150m [£107m] on increasing its oil production portfolio in the Denmark side of the North Sea.

The company has become a major oil and gas producer in recent years and the deal means its portfolio is now 75pc gas and 25pc oil, which is more profitable than gas, compared to 85pc gas previously.

Brian Gilvary, former finance chief of BP, is leading Ineos' energy division, which is developing carbon capture in Denmark and is also a major hydrogen producer.