National Grid plans a £7 billion capital increase to strengthen its electricity network

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National Grid plans to raise £7 billion in fresh capital to help strengthen its electricity networks in the US and Britain, which are under pressure from the shift to renewable energy.

The London-listed company said on Thursday it planned to raise the money through a fully underwritten rights issue as part of a £60 billion investment plan over the next five years.

John Pettigrew, chief executive, said the scale of the investment was “unprecedented” and that the rights issue was the “largest we have seen in Europe in the last fifteen years, excluding the banking sector”.

The company’s share price tumbled 9 percent to £10.20 by early afternoon in London as investors were surprised by the size of the raise, which some analysts had expected to be as high as £5 billion, and worried about the impact on the dividend.

“We expect an initial negative reaction to this news,” RBC Capital Markets analysts said. “However, it should remove an overhang on the shares going forward.”

The transition away from fossil fuels is expected to increase demand on electricity grids as households and businesses seek to switch to electric cars and heating powered by renewable energy sources.

Other grid owners will also likely need to raise new capital to modernize infrastructure for the clean energy transition.

“Over the next decade, the level of renewable generation will increase significantly, and of course economies will become increasingly reliant on electricity with the growth of data centers and AI, as well as higher domestic adoption of things like electricity. vehicles and heat pumps,” says Pettigrew.

“These shifts are happening now, but will only accelerate as we move forward. So our plans today are about investments to support that transition.

In addition to the rights issue, National Grid plans to finance the investment through debt and by selling its liquefied natural gas import terminal in Kent and its US onshore renewable energy business, National Grid Renewables.

Pettigrew said investors were “very positive” about the spending plans and “the fact that we are giving them clarity on that investment over a very long period of time”.

Since 2021, National Grid has reshaped its portfolio to focus on electricity. It sold a 60 percent stake in Britain’s gas transmission network and acquired the country’s largest electricity distribution company, Western Power Distribution.

National Grid said around 52 percent of its planned £60 billion investment would be in Britain and the rest in the US.

Around £23 billion would be pumped into the UK’s electricity transmission system and around £8 billion into electricity distribution to help “accelerate the adoption of low-carbon technologies, such as electric vehicles and heat pumps, by our customers”, the company said.

National Grid unveiled its plans a day after British Prime Minister Rishi Sunak called a general election on July 4, with energy policy expected to be a big part of the campaign.

The British government wants to decarbonize the electricity system by 2035, while the opposition Labor Party, which is leading in the polls, has set a deadline of 2030.

“All the targets are incredibly ambitious. What we are setting out today is National Grid’s role in facilitating and enabling that,” Pettigrew added.

“We are talking to the government, we are also talking to the Labor Party, and they are largely aligned on the need for the infrastructure investment that we are putting forward today as a key factor in the energy transition.”

National Grid also announced its full-year results, with underlying profits rising 4 percent to £4.8 billion, boosted by revenues from its UK electricity transmission business.

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