National Grid is one of those businesses that everyone assumes is quintessentially British.
Today’s full year results, though, highlight that it is increasingly a transatlantic company.
Operating profits from its US operations were £1.7bn, the same as they were from the Grid’s better known – at least to UK consumers – UK electricity transmission business, although the UK remains, for now, the Grid’s most important geographic market thanks to its activities in gas distribution.
The US, where the Grid is one of the largest suppliers of household energy, including the evocatively named New York State-based utility Niagara Mohawk, is growing in importance, though.
The US now makes up 45% of the Grid’s regulated asset base.
That can be seen by the Grid’s investment during the last 12 months.
While it invested £1bn in its UK electricity transmission operations and a further £310m in its gas transmission arm, the Grid invested $3.3b (£2.4bn) in its US businesses, driven by the need to replace and reinforce ageing infrastructure.
Image: National Grid has responsibility for the UK’s gas and electricity networks
This will involve literally thousands of small to medium-sized projects in New York, Massachusetts and Rhode Island.
John Pettigrew, the chief executive, said: “We expect to invest at least $10bn over the next three years.
This falls into three areas. This is mandated spend to replace older gas mains that are prone to leaks, storm hardening for our electric networks and other initiatives to modernise our networks and provide new connections with gas and electric customers.”
This partly reflects a quest for stronger growth. The US has offered stronger growth than in the UK, where the Grid is gradually exiting activities like gas distribution, where returns are lower.
Also influencing that decision is the likelihood that the returns the Grid can make from its gas and electricity networks in the UK are likely to come under further pressure from Ofgem during the next regulatory period, called RIIO-2, due to come into effect in 2021.
The company has already had one dust-up with the regulator this year over the cost of connecting the new Hinkley Point ‘C’ nuclear power plant in Somerset to the grid.
Image: The construction site at Hinkley Point C
That is not to say there are not growth opportunities in the UK.
The company’s National Grid Ventures arm, for example, is investing heavily in new interconnectors joining Britain with Belgium and Norway to reduce the risk of energy shortages in the future.
Possibly the biggest opportunity for the Grid, on both sides of the Atlantic, is the growth of renewables.
Mr Pettigrew noted that both the US and UK continue to decarbonise at pace, with 2017 the greenest year ever for the UK, with more than half of electricity generation last summer coming from low-carbon sources.
Similarly, many US states are pushing through aggressive targets on CO2 reduction.
He added: “The economics for wind, solar and storage are becoming increasingly attractive, with further demand for clean energy coming directly from US corporates.
“There is no doubt that the significant growth in large-scale renewables is set to continue into the long term. So we are actively engaged in the renewables space, which is creating new opportunities for us.”
Mr Pettigrew said that, in the UK alone, the company had around 100 connections in the pipeline for new solar and storage customers.
Image: Demand for green energy is expected to grow substantially
He added: “The transition to renewables is likely to be closely followed by the electrification of transport, with many forecasters now predicting price parity with petrol and diesel cars by the early 2020s. This brings with it some fantastic opportunities for National Grid.”
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