Deal forms part of 'strategic pivot towards electricity' for National Grid as it also set out plans to explore creating a major UK hydrogen gas network
National Grid has moved to snap up local power networks company Western Power Distribution (WPD) in a £7.8bn deal, as it today announced a wider "strategic pivot towards electricity" that includes plans to sell off shares in its gas transmission business and step up work to explore the wider use of hydrogen in the energy system.
The proposed acquisition of WPD Group - the holding company of the UK's largest electricity distribution business - from US power company PLL Corporation comes at the same time as National Grid said it has also agreed to sell its Narragansett Electric Company (NECO) to PLL for £2.7bn.
In addition, National Grid said it would commence a process later this year to sell a majority stake in National Grid Gas (NGG) plc, the owner of the national gas transmission system, as part of a "strategic portfolio repositioning" that will increase its share of assets in electricity from around 60 per cent to around 70 per cent.
As the broader green energy transition accelerates, the grid operator said it expected electricity distribution to see a high level of asset growth, and the acquisition of WPD and its wider strategic shift towards power would "significantly enhance National Grid's central role in the delivery of the UK's net zero targets".
John Pettrigrew, National Grid's chief executive, said the transactions announced today would be "transformational for our UK portfolio", as he described the WPD acquisition as a "one-off opportunity to acquire a significant scale position in UK electricity distribution".
"Our vision for National Grid remains unchanged, to be at the heart of a clean, fair and affordable energy future," he said. "With increased exposure to the UK's electricity sector, these transactions enhance our role in the progress towards net zero, underpinning our core ambition which is to enable the energy transition for all."
Pettrigrew added that he expected "strong interest" in NGG when the sale process for its majority shares in the firm begins later this year, likely during the second half of 2021.
"As we move our portfolio to higher growth assets, we have taken the decision to sell a majority stake in NGG," he explained. "Given the strategic nature of its business coupled with its central position in a transition towards a hydrogen economy, it will continue to play a vital role in the UK's energy system."
Meanwhile, in addition to shifting the focus of its business away from fossil fuel gas and towards electricity, National Grid also today announced it is exploring plans to potentially repurpose around a quarter of the UK's gas transmission pipelines to run on hydrogen over the next decade.
The company, which last year set out a raft of 2030 science-based climate targets, said it was exploring the development of a UK hydrogen "backbone", which would aim to join together industrial clusters around the country that could produce green or low carbon hydrogen to potentially create a 2,000km H2 transmission network to heat homes and businesses by 2030.
It estimated the "backbone" plan could carry at least a quarter of current gas demand in Britain today, while also providing "vital resilience and storage".
Dubbed 'Project Union', the plan would aim to connect industrial clusters in Grangemouth, Teesside, and Humberside, as well as linking up with clusters in Southampton, the North West, and South Wales, with pipelines for hydrogen gas.
Supported by government funding, the company said the project was researching how best to convert gas pipelines to transport hydrogen and that it would then develop a phased transition plan. "As the clusters develop, National Grid stands ready to join them up," it said.
The announcement builds on the Prime Minister's 10 Point Plan for a Green Industrial Revolution, through which the government aims to invest more than £1bn in scaling up hydrogen production and carbon capture utilisation and storage (CCUS) technologies across four industrial clusters in Britain. It also comes just a day after the publication of the government's Industrial Decarbonisation Strategy, which announced new funding for hydrogen demonstration projects and raised the prospect of new 'revenue mechanisms' for low carbon hydrogen developers.
Antony Green, hydrogen project director at National Grid, said the gas had "a critical role to play as we transition to a cleaner energy future".
"The potential is exciting, and a hydrogen backbone to support the industrial clusters could accelerate the roll-out," he said. "But there is a lot of work to find the most economic way to repurpose our assets and how we might develop a phased conversion to develop a hydrogen network for the UK."
Decarbonising the gas network, which provides heating for the overwhelming majority of homes and businesses, is widely regarded as one of the UK's biggest challenges on the journey towards net zero emissions by 2050. But while energy and gas distribution companies have touted the potential to repurpose the gas network to run on low carbon hydrogen, others argue providing heating via electric appliances such as heat pumps offers a cheaper route to decarbonisation.
However, Energy and Clean Growth Minister Anne-Marie Trevelyan welcomed National Grid's announcement today, arguing there was "huge potential for hydrogen to help the UK transition towards a green economy, and we are committed to investing in its development as part of our plans to build back greener".