National Grid to buy WPD, UK’s largest DNO, and sell majority stake in National Grid Gas

National Grid is to acquire Western Power Distribution, the UK’s largest electricity distribution network, for £7.8B and begin disposal of a majority stake in National Grid Gas, currently valued at £6.4B, in a “strategic pivot” towards electricity.

The WPD acquisition is conditional on the approval of shareholders at April’s General Meeting and on regulatory approvals. It comes as Ofgem announced plans to cut the returns allowed for distribution network operators (DNO) over the next five-year price review.

National Grid said the acquisition would give it a “significant scale position in electricity distribution,” which “is expected to see a high level of asset growth as a result of the ongoing energy transition”.

It said the transaction would be “significantly earnings accretive from year one, generate a return in excess of National Grid’s cost of capital and, taken together with the proposed NGG Sale, continue to be earnings accretive in the longer term”.

Rating agency Moody’s said the acquisition might result in a ratings upgrade for WPD plc and placed the company under review. It noted WPD would become an intermediate holding company within the National Grid group. It will consider “the potential strengthening of WPD plc’s credit quality in the context of a change in ownership and possible changes in capital

National Grid said it intends to maintain WPD’s existing headquarters in Bristol and offices in other key locations, and retain its existing chief executive and CFO.

John Pettigrew, Chief Executive of National Grid, said“These transactions will be transformational for our UK portfolio. The acquisition of WPD is a one-off opportunity to acquire a significant scale position in UK electricity distribution.  

…”In combination with the continued successful execution of our strategy in the US, establishing National Grid as the leading electricity transmission and distribution operator in the UK will strengthen our long-term growth prospects, enhance our role in the UK’s energy transition and drive long term shareholder value.”

In an investor call he said the electricity sector had “much higher growth potential” than gas. The company’s engineers will be able to connect generation “at all levels”, he said. The company would share best practice across technology and customer solutions, he said, highlighting plans to roll out fast EV charging.

Regarding the NGG sale process, which will begin in the second half of this year and is expected to be complete approximately a year later,  he said, “ 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. We expect strong interest when the sale process begins, likely to be in the second half of this year.” He said, “I am confident that we will also deliver attractive shareholder value from the NGG sale in due course”.

National Grid will also sell The Narragansett Electric Company in Rhode Island to PPL Energy Holdings, the current owner of WPD, for £2.7B.


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