National Grid Makes $11 Billion Deal in Move to Green Future

Rachel Morison
·2 min read

(Bloomberg) -- National Grid Plc agreed to buy PPL Corp.’s U.K. distribution business for 7.8 billion pounds ($10.9 billion), a move that will transform the company as it prepares for a low-carbon future.

The U.K. grid operator also plans to sell its majority stake in its gas grid business later this year, as the fossil fuel comes under increasing scrutiny from investors and activists.

National Grid is positioning itself as the global energy system shifts toward electricity and away from fossil fuels. Distribution grids, the local networks that feed directly into homes and businesses, are at the heart of that transition. Smart homes with electric heating systems, as many as 30 million electric cars, and small scale renewable generation will all be connected to local grids in the coming decades.

“This makes an awful lot of sense for the U.K, and National Grid in terms of the energy transition,” chief executive officer John Pettigrew said in an interview. “We believe that the growth that we’re likely to see in the distribution sector is going to be stronger and more certain and longer than other elements of the energy sector.”

It also agreed to sell The Narragansett Electric Company in the U.S. to PPL for an equity value of $3.8 billion. Completion of the U.K. deal, which will be funded with bridge financing through debt, is expected within the next four months and completion of the NECO sale is expected before the end of the first quarter of 2022. It plans to start the sale process of its gas unit in the second half of this year.

The future sale of a majority stake in NGG shows National Grid’s commitment to reducing its involvement in fossil fuel operations. Once the deals complete, its portfolio will be 70% electricity, 30% gas, Pettigrew said. The fossil fuel is quickly becoming the next target of climate policies aimed at effectively eliminating emissions by 2050 in the U.K.

The operator is currently looking at how it can switch from piping natural gas through its networks to clean burning hydrogen.

National Grid has a commitment to reach net zero for scope one and two emissions. It plans to cut scope three emissions, on the energy carried through its networks to customers, by 20% by 2030 from a 2016 baseline.

“We view the transaction as a positive step for National Grid,” John Musk, analyst at RBC EUrope Ltd said in a note. Adding that the market will need time “to digest.”

Shares fell 2.1% to 814.2 pence a share at 8:27 a.m. in London.

(Updates with CEO comment in the fourth paragraph)

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©2021 Bloomberg L.P.

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