How can renewed investment in the National Grid unlock major growth opportunities across various sectors and regions?
National Grid has recently announced a £60 billion capital investment in energy infrastructure long-term over the next 5 years until 2029. If this endeavour proves successful, National Grid will nearly double its investment compared to the last 5 years. This capital investment intends to reduce consumer bills in the long term.
Following the announcement, the share price of National Grid experienced a decline of 8.21%, while the group’s shares have decreased by approximately 6% over the last year. Behind this investment is additionally a broader mission to support the UK’s power decarbonization target by 2035. Highlighting the impact of this policy, the National Grid stated, “National Grid is expected to support over 60,000 more jobs, whilst also decarbonizing our energy systems, bolstering security of supply, and reducing consumer bills in the long term.”
Many analysts see National Grid’s investment as a major growth opportunity for the power, utilities, and renewable energy sectors. Indeed, Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said National Grid is ‘moving fast to plant itself at the heart of the electric transition”. He believes the £60 billion investment “should deliver annual asset growth of around 10 percent”. What is most fascinating about this investment is that it enables National Grid to attain major growth opportunities while maintaining the traditional benefits of being a utility service. Chiekrie describes this as a “rarity for the sector”. He highlights how this works describing that “In return for investing those billions to maintain and upgrade its infrastructure, regulators allow National Grid to earn a reasonable profit” and “That helped underlying operating profits climb 6 per cent higher because of rate increases and higher allowed revenues in its UK transmission business”.
Due to the increased digitalization, electrification, and decarbonization of economies in the 21st century, there has arguably never been a more important time for energy infrastructure to be fit for the future. The National Grid understands this, highlighting in their own statement that “the need for energy infrastructure has rarely been more pressing”. The advantages of the proposed investment were also outlined by Chiekrie as he claims “All this feeds into fairly predictable revenues, low borrowing costs and what should be a relatively dependable dividend.”