(Bloomberg) – National Grid Plc has agreed to purchase the electricity distribution business from PPL Corp. in the UK for £ 7.8 billion ($ 10.9 billion), a move that will transform the company as it prepares for a low-carbon future.
The UK’s largest utility transaction in a decade highlights how networks have become crucial as nations discover how to navigate the shift from fossil fuels to electricity.
Distribution networks, the local networks that directly feed homes and businesses, are at the heart of the energy transition. Smart homes with electric heating systems, up to 30 million electric cars and small-scale renewable generation, will all be connected to local networks in the coming decades.
“It makes a lot of sense for the UK and the National Grid in terms of energy transition,” said executive director John Pettigrew in an interview. “We believe that the growth that we are likely to see in the distribution sector will be stronger, more certain and longer than other elements in the energy sector.”
In a separate agreement, the network manager agreed to sell the Narragansett Electric Company in the USA to PPL for a book value of $ 3.8 billion. National Grid also announced that it plans to sell its majority stake in its gas network business later this year.
The sale of WPD attracted the interest of a wide range of companies. The government’s climate promises are what attract investors to distribution networks, according to Randolph Brazier, director of innovation and electrical systems at the Association of Energy Networks.
“Ultimately, it is driven by the zero network,” he said. “Because people are connecting all of these new technologies to the distribution network.”
Local network businesses involve digitization, decarbonization and decentralization. They are all supported by the zero network, he said.
The conclusion of the WPD agreement, which will be financed through debt financing, is expected in the next four months and the completion of the NECO Sale is expected before the end of the first quarter of 2022. National Grid said it plans to start the sale process of its gas unit in the second half of this year.
Once the deals are completed, National Grid’s portfolio will be 70% electricity and 30% gas, said Pettigrew. Fossil fuel is fast becoming the next target of climate policies aimed at effectively eliminating emissions by 2050 in the UK
Western Power supplies electricity to more than 7.9 million UK customers in the Midlands, South West and Wales.
National Grid is committed to achieving net zero for scope one and two emissions. It plans to reduce scope three emissions, in energy carried by its networks to customers, by 20% by 2030, compared to 2016.
The reduction of carbon in the fuel transported in its gas network is possible through hydrogen. The utility is currently studying how it can switch from the natural gas pipeline through its networks to clean up the burning hydrogen to heat homes.
“We see the transaction as a positive step for National Grid,” said John Musk, an analyst at RBC Europe Ltd, in a note. Adding that the market will need time to “digest” the business.
The shares fell 1.9% to 815 pence per share at 9.25 am in London.
(Updates with graphics and context)
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