National Grid - A medium/long term good buy?

[PeterGray]

Not sure NG is a "Strategy"!.

However, I would not assume that the grid will be unaffected by changes in electricity use and generation any more than cars will not be.

Many of the developments that people are talking about, such as improved battery tech combined to local solar generation, for example, would reduce the role of the grid.

Alternatively, if offshore wind and tidal generation become more significant, and distribute via the grid, massive investment will be needed, as the places where all those the electrons are created are not connected to it. Think massive powerlines over the highlands (or even more expensive, underneath) - and then think of the political welcome that would get.

Peter

[tjh290633]

I am of the opinion that any organisation that installs a "renewable" power source should also pay for the connecting wires to the National Grid, as there seems to be a thinking that it is up to National Grid to provide the connections at its own expense.

The cables for the Rampion Array, off the Sussex Coast, are being laid as part of the overall project, as it should be, and they run to the National Grid's sub-station at Bolney. One hopes that all the rest have the same arrangement.

If electricity for road vehicles grows in the way predicted, then the basic National Grid will have to be enhanced to cope, but that is diferent from laying power cables from a new source to an existing grid line.

TJH

[tjh290633]

Don't conflate capacity with usage. A lot of that would be at night, when most vehicles would be on charge.

TJH

[richfool]

With the movement away from diesel cars and the movement towards electric cars, along with the increasing use of solar and wind farms, all of which will feed into or take out of the grid, that to me all sounds like good news (in the medium term) for NG.

With the increasing "baby-boomers" ageing population, I am seeing more mobility scooters about, which charge up overnight from the electricity supply (the grid).

I'm a holder of NG.

[PeterGray]

The case seems compelling to me. Oh well.

I may be cautious about this and looking for problems, but I'm glad that doesn't mean I don't see any value in your argument.

The 5% div while you wait for anything to happen is certainly food for thought too!

Peter

[dspp]

I am of the opinion that any organisation that installs a "renewable" power source should also pay for the connecting wires to the National Grid, as there seems to be a thinking that it is up to National Grid to provide the connections at its own expense.

The cables for the Rampion Array, off the Sussex Coast, are being laid as part of the overall project, as it should be, and they run to the National Grid's sub-station at Bolney. One hopes that all the rest have the same arrangement.

Basically what you hope for is what happens. The only exception is if there is spare capacity in the existing network that is sufficient that additional network investment is not required.

As a by the way I tend to think NG is making a reasonable strategic play in this area.

regards, dspp

[SalvorHardin]

I hold National Grid; have done so for over a decade and I don’t really see myself ever selling (it’s one of the few shares I consider worthy of being held forever because of the quality of their economic moats - some others on this list are Diageo, Unilever and Union Pacific). I see five major positives:

http://www.investopedia.com/ask/answers ... icmoat.asp

1) As more and more vehicles use electric power this will increase the demand for electricity transmission and generation.

2) Whilst Electricity generation and transmission uses 19th century technologies, barring some revolutionary developments in engineering these are not going to be replaced anytime soon. There isn’t a decent substitute for the electrical grid (using your own generators full-time is not a long-term solution for the vast majority of people and businesses).

3) Electricity isn’t ever going to go away. Electromagnetism is one of the four fundamental forces (aka “interactions”) of physics. It can’t be replaced by one (or more) of the other three forces without some sort of technological development where Arthur C. Clarke’s quote about magic applies; “Any sufficiently advanced technology is indistinguishable from magic”. Using a mini black hole to power your TV set isn’t going to happen for a millennia (or two).

https://en.wikipedia.org/wiki/Fundamental_interaction

4) The National Grid itself has a tremendous economic moat. No-one is going to build a second National Grid to compete with it. Microwave transmission is probably the best possible substitute but the potential risks using modern technology would cause most of the population to freak out (and it would probably be prohibitively expensive to build a microwave power distribution grid).

5) Increased economic output generally means increased electricity consumption.

I see three negatives:

1) Political and regulatory risk, particularly in the American generation businesses and the UK electricity grid (transmission isn’t at as much risk because its customers are big businesses so they don’t get the same level of critical press as generators).

2) Electricity generation is a riskier business for investors than transmitting electricity.

3) Households and businesses will somewhat reduce the demand for transmission (and generation) by generating electricity through their own solar panels, wind turbines and stuff that's currently in the labs such as using plants to generate electricity (no, this isn't a joke - I came across this a few years ago doing a Nanotechnology course, we already have the technology to make a "paint" that you spray onto a wall which generates electricity when exposed to light). This may be offset somewhat by these new producers selling their surplus power through the grid.

https://www.sciencedaily.com/releases/2 ... 103252.htm

[dspp]

The UK gov has realised that NG is in a monopoly position. The Centrica publicity fuss this week is partly aimed at influencing gov re this. There is a very real possibility, slim but real, that NG grid control aspect may be split up with a second national-level control organisation brought in. Natural monopolies can be unmade by sufficient intervention in such circumstances.

regards, dspp

[richfool]

I spotted this on yahoo finance this morning:

https://uk.finance.yahoo.com/news/natio ... nance.html

OSLO (Reuters) - Britain's National Grid will create a new company to separately operate its electricity system by April 2019, energy regulator Ofgem said on Thursday.

"National Grid should proceed with plans to set up a new legally separate company to carry out its electricity system operator function," Ofgem said in a statement.

[vrdiver]

I've held NG since August 2006 and haven't topped up or sold since purchase except for taking up the rights issue in 2010 and the forced 11 for 12 consolidation in May of this year. My XIRR shows as 10.6%, which seems respectable, but the dividend CAGR is 3.1% over 5 years and 4.5% over 10. (CAGR calculated as at 16th Aug - i.e. to include the next dividend.)

Regulation will, IMHO, keep the lid on NG's performance, compared to an unfettered company being able to exploit its market dominance. I have this in my HYP as a "boring. slow but steady, no surprises" constituent. I'm hoping it stays that way!

[dspp]

I spotted this on yahoo finance this morning:

https://uk.finance.yahoo.com/news/natio ... nance.html

OSLO (Reuters) - Britain's National Grid will create a new company to separately operate its electricity system by April 2019, energy regulator Ofgem said on Thursday.

"National Grid should proceed with plans to set up a new legally separate company to carry out its electricity system operator function," Ofgem said in a statement.

Thanks. Not sure what this means. Kind of like Openreach business is to BT maybe? At the end of the day, NG gets paid for every kw it sends across its infrastructure. That is going to be paid whatever the business is called. And it will in turn be passed to shareholders as dividends? Anyhow, thanks for the link. I'll take a look.

NG in grid terms does two things. It owns and maintains the grid assets. It also operates the grid system. There is no intrinsic reason why the second requires the former. The activity of running the control centre can be logically separated out from owning and maintaining the wires and the switchgear. In general there are big games being played, and the Centrica etc posturing is not all it seems in areas such as these.

regards, dspp

[gbjbaanb]

I am of the opinion that any organisation that installs a "renewable" power source should also pay for the connecting wires to the National Grid, as there seems to be a thinking that it is up to National Grid to provide the connections at its own expense.

The cables for the Rampion Array, off the Sussex Coast, are being laid as part of the overall project, as it should be, and they run to the National Grid's sub-station at Bolney. One hopes that all the rest have the same arrangement.

If electricity for road vehicles grows in the way predicted, then the basic National Grid will have to be enhanced to cope, but that is diferent from laying power cables from a new source to an existing grid line.

TJH

The NG is currently telling localised generators that they cannot be connected - too much solar being set up in places that is far away from transformers that can't cope with the input.

The DNO (network operator) can refuse the G59 application and then that's it. They can then lay cables to connect you to another transformer that's less loaded, but at a cost. I know one farmer who wanted a wind turbine connected and was informed it'd cost him £65k to lay the cabling to connect to a point 1km away. I think this is going to be more likely as time goes on.

[daveh]

I am of the opinion that any organisation that installs a "renewable" power source should also pay for the connecting wires to the National Grid, as there seems to be a thinking that it is up to National Grid to provide the connections at its own expense.

The cables for the Rampion Array, off the Sussex Coast, are being laid as part of the overall project, as it should be, and they run to the National Grid's sub-station at Bolney. One hopes that all the rest have the same arrangement.

If electricity for road vehicles grows in the way predicted, then the basic National Grid will have to be enhanced to cope, but that is diferent from laying power cables from a new source to an existing grid line.

TJH

The NG is currently telling localised generators that they cannot be connected - too much solar being set up in places that is far away from transformers that can't cope with the input.

The DNO (network operator) can refuse the G59 application and then that's it. They can then lay cables to connect you to another transformer that's less loaded, but at a cost. I know one farmer who wanted a wind turbine connected and was informed it'd cost him £65k to lay the cabling to connect to a point 1km away. I think this is going to be more likely as time goes on.

Yes when our local community invested in a community wind turbine the grid access fee was £55k, plus the turbine had to run at reduced capacity for several months whilst the network was upgraded to cope.

[gbjbaanb]

Yes when our local community invested in a community wind turbine the grid access fee was £55k, plus the turbine had to run at reduced capacity for several months whilst the network was upgraded to cope.

Given those costs, I'd like to see what the cost of a storage box would be instead so the power gets used locally rather than sent to the grid. RedT does some vanadium flow batteries for grid-scale storage, might be worth asking them for a visit and price.

[dspp]

At the moment storage is too costly for the purposes of avoiding grid reinforcement. By the time it gets to that level then the reason for a grid would be very different (aka timing signal).

Grid reinforcement charges are only levied where the grid needs reinforcing the the project to go ahead. If there is existing spare capacity in the grid then projects can go ahead with no charge.

regards, dspp

[Alaric]

The activity of running the control centre can be logically separated out from owning and maintaining the wires and the switchgear.

That reminds me a bit of the split of the railways between structure (Railtrack/Network Rail) and operation (Train Operating Companies such as Virgin). Is the hidden hand of an EU Directive at work here? National Grid own gas distribution as well, have they been required to separate that from electricity?

[dspp]

No. It is the realisation in government that they have a monopoly on their hands. Whether anyone in (say) SSE jogged their elbow I don't know.

[Urbandreamer]

No. It is the realisation in government that they have a monopoly on their hands. Whether anyone in (say) SSE jogged their elbow I don't know.

Actually I'm not convinced that it IS a monopoly, or indeed could be totally nationalised if a future government wanted to do so.

Let us start with the fact that SSE also runs the grid.
http://sse.com/whatwedo/networks/electr ... tribution/
So NG is not a monopoly then, though it is part of a select few.

Then there would be the nationalisation issue of what to do with NG's overseas operations. Apparently NG decided to invest overseas. As a SSE shareholder I would like to see them do the same, for the same reasons.
http://news.bbc.co.uk/1/hi/business/104738.stm

In some respects the fact that SSE is totally UK based AND vertically integrated (generating, distributing and selling electricity) should make it a more obvious target for politcal interfearence. I suspect the difference in name may be the reason that they are only held to account rather than becoming a political football.

Returning to topic, yes I do think that the sector/company is a good medium/long term buy. There are serious political risks, but I am confident that in the long term the situation can be managed for the benefit of all (including the electricity consumer).

[baldchap]

Then there would be the nationalisation issue of what to do with NG's overseas operations. Apparently NG decided to invest overseas. As a SSE shareholder I would like to see them do the same, for the same reasons.
http://news.bbc.co.uk/1/hi/business/104738.stm

Indeed, 20 years on from that article, over 40% of NG's turnover is from the US, and only 30% from the UK 'grid' part of the business. There is a good reason why they are listed on the NYSE.

So, to sum up. A large cap Anglo-American multi-utility with a good div and a wide barrier against the competition. Yes please.

[TUK020]

I think you will find that the terminology commonly used means that the "grid" refers to the High Voltage (>66kV?) national network, which then supplies 14 regional "distribution networks" (33 or 11kV transformed down to 240V 'low' voltage networks)

National Grid run the former.
The latter are run by several companies including SSE, UK Power Networks, Western Power Distribution etc.

Electricity generators feed into the grid
The power companies you buy your electricity supplies from in effect rent distribution capacity form the "Distribution Network Operators" (DNOs)

Generators and suppliers compete for business.

The Grid, and each DNO, operate regulated monopolies.

i.e. although you can buy your electricity from several different sources, the company running the wire from the substation to your house run a monopoly. The company connecting the central power station to the substation also run a monopoly.