‘Electric or bust’ for National Grid as it snaps up Western Power Distribution for £8bn

National Grid shocked the system this morning when it announced it would buy Western Power Distribution (WPD), the holding company of Britain’s largest electricity distribution business, from US-based company PPL in a £7.8bn deal.

Moreover, National Grid agreed to sell The Narragansett Electric Company (NECO) to PPL Energy Holdings, also a subsidiary of PPL, for an equity value of £2.7bn.

It also announced that it would begin a process of selling off its gas business at the end of the year, as part of a wholesale pivot towards electricity.

Through the transactions, the proportion of the Group’s assets in electricity will increase from around 60 per cent currently to about 70 per cent.

Analysts said that the firm was trying to take advantage of the growing shift towards electrification and increased need for electricity capacity for the charging of electric cars.

“These transactions will trengthen National Grid’s long-term growth outlook by ensuring a significant scale position in electricity distribution through the acquisition of WPD, the UK’s largest electricity distribution business.

“Electricity distribution is expected to see a high level of asset growth as a result of the ongoing energy transition”, the FTSE 100 firm said.

Completion of the WPD purchase is expected to occur within the four months and completion of the NECO sale is expected to occur before the end of the first quarter of 2022.

The gas sale will be launched in the second half of this year and is expected to complete approximately a year later.

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Shares were flat as of midday, as investors held off on judging the deal.

Laura Hoy, equity analyst at Hargreaves Lansdown said that the restructuring effectively meant National Grid was pursuing an “electric or bust” policy.

“Not only will the deal increase National Grid’s electricity assets, but the group will put its gas business up for sale as well, which will weight its portfolio heavily toward electricity assets”, she said.

“From a strategic standpoint, it makes sense as the world shifts away from fossil fuels usage. Not only are homes consuming more, but the boom in electric cars represents an opportunity for NG, and the WPD acquisition puts it one step closer to seizing it.”

Earlier this earlier electricity regulator Ofgem released a review into National Grid which said the firm should further separate its grid ownership and distributive networks.

In 2019 the firm span off its Electricity System Operator (ESO) division into a separate entity, but the watchdog said it should go further.

“Given the scale of the net zero challenge, Ofgem is recommending government goes further and considers full separation”, it said.

“Full separation would help ensure future decisions on how to manage the energy system are taken in the interests of consumers, helping to keep costs as low as possible.”