With £2bn profit, is National Grid’s pureplay networks strategy working?

In May, utility giant National Grid announced a £66 billion ($85.2 billion) networks investment plan and £7 billion ($9 billion) in underwritten rights issue; now they’re reporting £2 billion ($2.6 billion) in operating profit for the first half of their fiscal 2024.

Nearly half a year since announcing their gigantic networks investment plan and the rights issue – intended as a means of ensuring the capital would be raised – National Grid has reported £2 billion in operating profit for the first half of 2024, a 14% increase from 2023, despite gross revenue declining by 6%.

According to National Grid, the profit stem from increased rates in their New York businesses, higher revenues in UK electricity transmission and a higher contribution from the UK Electricity System Operator (ESO), following its sale to the UK government.

In a statement, National Grid chief executive John Pettigrew commented on the results and the “exciting momentum” within the company, which he says marks the company’s ability to deliver on their investment plan:

“Delivery is well underway with investment increasing to a record £4.6 billion in the first half of this year…We’ve been encouraged by policy and regulatory progress on both sides of the Atlantic.

“In the UK, we sold the Electricity System Operator to government, and Ofgem’s publication of the sector specific methodology decision marked the next step in the RIIO-T3 regulatory process In the US, we have new rates for our downstate New York gas business, and for our Massachusetts Electric business, giving us greater visibility on investment plans.”

National Grid’s pureplay strategy:
National Grid UK’s strategic pivot: goodbye gas, hello Great Grid Upgrade
National Grid sells ESO in £630m deal

A move into ‘pureplay energy networks’

When the investment plan was announced, National Grid signalled their move into status as a ‘pre-eminent pureplay networks business’.

Specifically, up to 80% of the capital investment is planned to go into the operator’s electricity networks business.

Said Pettigrew: “In the UK, work on our 17 major onshore and offshore transmission projects is moving forward, in consultation with our communities and stakeholders, and we are well progressed in securing the supply chain for all these projects.

“In the US, we’ve made good progress on our $4 billion upstate upgrade in New York and delivered further gas mains replacement and network reinforcement across our communities.”

Additionally, within this strategy, National Grid Renewables and Grain LNG have been classified as held for sale following the company’s intention to sell both businesses.

At the time of the company’s investment plan, shares went a bit a cattywampus, with the rights issuance coming as a surprise to investors.

At the time, Swiss investment banking company UBS decried the market response an overreaction, saying they were punished too harshly.

Now, with the profit, the company’s shares went up 0.51% as of Thursday, reported ShareCast, and 1.35% as of this morning, indicating positive winds.

As for the company’s strategy, signs are positive, but time will tell as to its effectiveness.

Said Pettigrew: “National Grid is delivering a new and exciting phase of growth with an attractive investor proposition underpinned by high quality asset growth, strong earnings growth and an inflation protected dividend.

“We remain focused on playing our role in the energy transition and the responsible delivery of the new infrastructure required to enable the digital, electrified economies of the future.”