National Grid’s £14.4bn acquisition of WPD

National Grid PLC announced the acquisition of Western Power Distribution from PPL Corporation on 21 March 2021. The acquisition was announced as a complete cash transaction and was part of National Grid’s long-term clean energy transition path. The transaction was finalised on 14 June 2021, with National Grid acquiring WPD for £14,400 million.

Investment Considerations

WPD’s acquisition is part of National Grid’s strategic shift in the UK market, as it offers the opportunity to gain a significant scale position in the country’s electricity distribution. WPD has a high-quality, rapidly growing asset base, as well as a proven track record of customer satisfaction, low-cost operational performance, and financial returns.

Electricity distribution market 

In the United Kingdom, there are 14 licenced distribution network operators (DNOs) owned by six separate groups, each in charge of a specific regional area.

DNOs are licenced companies that own and operate the network of towers, transformers, cables, and metres that transfer power from the national transmission system and distribute it to final consumers throughout the United Kingdom. They oversee distribution networks ranging from 240V to 400 kV delivered via underground and overhead power lines to commercial, industrial, and residential properties. Other minor networks within the DNO coverage zones are owned and operated by independent network operators (IDNOs).

Both DNOs and IDNOs are natural monopolies responsible for connection line faults and maintenance. As a result, they have to be monitored by Ofgem (Office of Gas and Electricity Markets) to safeguard customers against price increases. Both DNOs and IDNOs must accredit the same prices for their services.

Western Power Distribution PLC and National Grid PLC

WPD is a private company and the largest electricity distribution network operator in the United Kingdom. National Grid PLC is a public company specialising in the transmission and distribution of electricity and gas, operating in the UK and US. National Grid forecasted an increase in electricity demand in the UK by 70% by 2050 and believes that electricity represents, in particular from renewable sources, the optimal sustainable source of power. By increasing their exposure to electricity, they can accomplish long-term growth and be the heart of a clean and affordable energy future.

Conclusions

The acquisition of Western Power Distribution will enable National Grid to implement its green strategic plan and thus reduce 80% of its environmental footprint by 2030 and achieve net-zero by 2050. National Grid’s electricity-focused assets will increase from 60% to 70% after the acquisition while still retaining 40% of the Group’s assets in the US, thereby profiting from its position in terms of geographic and regulatory diversity.

Read and download the full report here

Authors : Pietro Giulio Comello, Yash Kesharwani, Filippo Tagliavini

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