National Grid UK’s strategic pivot: goodbye gas, hello Great Grid Upgrade
Image courtesy National Grid
In this week’s Power Playbook Yusuf Latief discusses National Grid UK’s strategic pivot in the wake of the NESO sale and launch, and the closure of its National Gas sale.
September came to a close early this week and with it closed two deals that should be on our radars, both of which have to do with what is arguably one of the most important utilities in the world: National Grid.
First, last week, the company closed a divestment process from the gas sector. Second, on October 1, the National Energy System Operator (NESO) officially launched, two weeks following its sale from National Grid to the UK government.
Neither of these announcements came out of the blue. We can, and here will, trace the gas sale back to last year, and the NESO split-off has been a long-running development.
But, what they signal is still of interest: National Grid’s road ahead is going to be focused, more so perhaps than ever before, on network infrastructure.
A gas divestment
In February 2023, I covered National Gas’s equity acquisition by Macquarie Asset Management (MAM).
At the time, the Australian investment fund – which has a big interest and hand in energy infrastructure – bought 60% equity interest in National Grid’s UK gas transmission and metering business (NGG) for £4.2 billion.
Initially announced in March 2021, the sale has been part of a long-running pivot for National Grid towards electricity.
Following this initial 60% sale, in July 2023 a further 20% was sold to MAM for £681 million. Then, fast forward a year to July 2024, and the final, remaining stake of 20% was sold, at equivalent financial terms to the original transaction, indicating another £700 million.
Now, it has all come to a close, according to energynews, putting an end to National Grid’s presence in the management of the UK gas network.
With the pivot out of gas, National Grid is set to refocus on electricity-related assets, a sector deemed more strategic.
This is not only represented by their move out of gas but also by the operation of the British energy system, which as of Tuesday this week was taken over by the officially launched NESO.
More from the Power Playbook:
NYC Climate Week: Energy financing in the buildup to COP29
National Grid’s shares plunge: watershed or warning sign for energy financing?
NESO replaces National Grid ESO
NESO’s formation dates back to 2022 when, following industry consultation, Ofgem and the UK government decided that the country needed a new, independent organisation that would take a whole system approach to the energy and power sector.
In October 2023, the Energy Act 2023 was passed, legislating for a Future System Operator (FSO) to be created. In January this year, the ESO announced the new name for this entity—the National Energy System Operator.
Then, in mid-September this year, the official sale was announced of the ESO to the government in a deal valuing £630 million ($827.8 million), with Fintan Slye becoming the CEO.
According to energy regulator Ofgem, NESO will be entirely funded by consumers, with all money to be recovered through a ‘fast money’ approach, where all forecast costs are recovered through charges in the year NESO expects to incur them.
It will also operate under a not-for-profit regulatory model, with an objective of ‘cash neutrality’, states Ofgem, aiming to prevent consumers from being disadvantaged by the system shift.
With its formation, NESO takes from National Grid the responsibility of planning and balancing the British network, opening up space for them to realign their activities with the increasing need for infrastructure, particularly as a result of transport electrification and the development of renewable energy.
More on NESO:
Britain’s National Energy System Operator launched
Planning key focus for Britain’s future National Energy System Operator
Great Grid Upgrade and a £66bn network investment
With the closure of National Gas and the separation of NESO, National Grid UK now has space to double down in its focus on network infrastructure.
Back in May, I covered National Grid’s plans to invest £66 billion over five years into its power networks for digitalisation and decarbonisation of the power system. Half of this investment will be allocated towards the company’s operating networks in the UK.
In a release at the time, National Grid said the move was in line with their strategy to turn into a “pre-eminent pureplay networks business”, with up to 80% of the capital investment planned to go into the operator’s Electricity Networks business in the UK and US.
Further to this, considering the company’s Great Grid Upgrade, what they call “the largest overhaul of the grid in generations”, it is not difficult to see that their infrastructure refocus will keep them busy for the years to come.
New flexibility focus point
National Grid’s focus, however, is not solely on infrastructure build-out but also on its management.
A week and a half following the ESO sale and days prior to NESO’s official launch, National Grid announced the first of ‘demand turn-up, generation turn-down’ contracts, as part of winter flexibility requirements.
These new contracts, says the company, are aimed at owners or operators of flexible assets which can be available to turn up demand or turn down generation within a day’s notice to help the DSO balance its grid.
Three locations in the South West, South Wales and the Midlands are available under the contracts, totalling 2,811MWh as part of National Grid’s next round of procurement.
UK the flexibility leader
The UK has of course been a forerunner in the realm of flexibility, with the Energy Networks Association (ENA) in July calling the country the biggest flexibility market in the world.
Specifically, finds the ENA, UK network operators tendered a record 6.4GW of capacity on Great Britain’s local flexibility markets last year, with 4GW contracted, almost doubling in one year.
ENA’s figures also show that for a second year in a row, approximately 75% of the contracted flexibility is made up of low-carbon technologies, such as stored energy, solar and biofuel.
And with their new contracts, National Grid is clearly looking double down and pivot in this arena. To be precise, the company says they are also seeking flexibility agreements at more than 800 locations, many of which will be suitable for domestic customers with EV chargers, battery storage or heat pumps.
According to National Grid, there are opportunities for domestic participation in 744 low-voltage zones, equating to a peak of 21.9MW. In high voltage locations, there are 64 opportunities, equating to a peak of 241MW.
In monetary terms, the high voltage requirements have a market value of £7 million in availability payments and offer further payment when called upon to deliver, while low voltage requirements’ – which are scheduled in advance – total £1.15 million in market value.
With the closure of National Gas and the launch of NESO, National Grid in the UK is able to refocus on infrastructure, which will be needed to meet the country’s ambitious net zero targets.
The years ahead for the company will undoubtedly be chock full of interesting updates. I will keep a close eye on these developments and keep you updated on how this unfolds.
Cheers,
Yusuf Latief
Content Producer
Smart Energy International
Follow me on Linkedin
