National Grid Rights Issue for Future Investment Plans
The National Grid company that is the UK’s largest utility company has announced a massive share rights issue in order to invest the billions that are need to upgrade the UK’s energy sector.
The announcement of the rights issue was completely unexpected as the company had previously said that it did not require funding in this way. However in this issue the National Grid said it would sell 990 million shares in a two-for-five placing at 335p a share which was a 46 per cent discount to the closing price on the previous day.
The UK’s largest utility group wants to use the cash for spending £22 billion on upgrades to Britain’s high-voltage electricity and gas networks over the next five years. The Guardian newspaper even suggested that this would add an average of £4 per year in energy bills which is really insignificant as the average bills is around £1400 per year in any case.
Why have this rights issue now ?
So what has changed? And will the company be able to generate the return that makes reaching into your wallet for this cash call worthwhile? Steve Holliday, chief executive, told Questor yesterday that what had changed was the “degree of clarity” that had now emerged on investment need in UK infrastructure. He said that last year there were scenarios of potential investment, but now it was clearer what needed to be done.
The company has invested £14bn in its business over the past five years and it now plans to invest £22bn over the next five. All of this new investment will be in its UK-regulated business. It will be spent on things like connecting new sources of generation, such as renewables, to the transmission systems and investment in pipes that can transport imported gas from terminals. The investment is certainly needed.
The two-for-five rights issue, raising £3.2bn, will allow the company to embark on its £22bn “capital investment opportunity” and maintain its single “A” credit rating. This will keep the cost of borrowing low and provide an appropriate cost of capital.
Over the next year the group will not raise any debt. Mr Holliday also says that he expects to get a good return on this investment in one to two years at the “absolute outside”.
Some of the investment plans from National Grid
The additional £5.6bn raised is on replacing the aging infrastructure in the UK. About £2.8bn has been earmarked for nine major projects to link up nuclear power and offshore wind farms in Suffolk, Somerset and Wales. A further £1bn will be spent on “rewiring” London and Birmingham – building deep-bore cable tunnels to replace the old system – and another £1bn on “other opportunities” such as installing new cables from Scotland to England and further gas interconnectors. The remaining £800m will go towards reinforcing the gas network to secure the country’s liquefied gas supply from abroad. The investment programme is expected to create 5,000 new jobs.
Energy investment too high for many companies ?
However issues are developing on the previous governments grand plan to generate much of their energy from renewable sources.
Over the past 3-5 years many new companies have been developed to invest in off shore wind farms and other green solutions to meet various targets to reduce CO2 emissions and generate more energy from renewable sources. But just recently the German company RWE who own npower have pulled out of a joint venture project to invest into a 905 MW wind farm off the Scottish coast.
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