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National Grid plans to raise £7bn in fresh capital to help strengthen its electricity networks in the US and UK, which are under strain due to the shift to renewable energy.
The London-listed company said on Thursday it aimed to raise the funds through a fully underwritten rights issue as part of a £60bn investment plan over the next five years.
John Pettigrew, chief executive, said the scale of the investment was “unprecedented” and the rights issue was the “largest we’ve seen in Europe over the last 15 years excluding the banking sector”.
The share price tumbled 10 per cent to £10.12 by late afternoon in London as investors were surprised by the scale of the raise, which some analysts had expected to be up to £5bn, and worried about the impact on the dividend.
National Grid plans to rebase its dividend from 53.1p per share this year to 45.3p next year and then increase it in line with inflation.
“We would expect an initial negative reaction to this news,” added analysts at RBC Capital Markets. “However, it should remove an overhang on the stock going forward.”
The transition away from fossil fuels is expected to increase the demands on electricity networks as households and businesses try to shift to electric cars and heating, powered by renewables.
Other network owners are also likely to need to raise new equity to update infrastrastructure for the clean energy transition.
“Over the next 10 years, the level of renewable generation is going to increase significantly, and of course economies are going to be increasingly dependent on electricity with the growth of data centres and AI, as well as the higher domestic uptake of things like electric vehicles and heat pumps,” said Pettigrew.
“These shifts are happening now, but will only accelerate as we move forward. So our plans are about investing today to support that transition.”
As well as the rights issue, National Grid plans to fund the investment through debt and by selling off its liquefied natural gas import terminal in Kent and its US onshore renewables business, National Grid Renewables.
Pettigrew said investors were “very supportive” of the spending plans and “the fact we’re giving them the 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 per cent stake in the UK’s gas transmission network and acquired the country’s largest electricity distribution business, Western Power Distribution.
National Grid said about 52 per cent of its £60bn planned investment would be in the UK and the rest in the US.
About £23bn would be ploughed into the UK’s electricity transmission system and about £8bn in 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 UK Prime Minister Rishi Sunak called a general election on July 4, with energy policy expected to form a big part of the campaign.
The UK government wants to decarbonise the electricity system by 2035 while the opposition Labour party, which is leading in the polls, has set a 2030 deadline.
“All the targets are incredibly ambitious. What we’re setting out today is National Grid’s role in facilitating and enabling that,” Pettigrew added.
“We talk to the government, we also talk to the Labour party, and they are very much aligned in the need for the infrastructure investment that we’re setting out today as a key enabler of the energy transition.”
National Grid also released its annual results, with underlying profit climbing 4 per cent to £4.8bn, boosted by revenues from its UK electricity transmission business.
Robert Johnson is a UK-based business writer specializing in finance and entrepreneurship. With an eye for market trends and a keen interest in the corporate world, he offers readers valuable insights into business developments.
