National Grid - A medium/long term good buy?

[Bouleversee]

Can anyone explain why this is NOT a falling knife? Looks like one for writing options against IMO. [Then you probably can buy them for 900p]

GS

Would you apply that to SSE as well?

[kempiejon]

A great many people for sure but http://www.energy-solutions.co.uk/off-grid not necessarily absolutely EVERYONE

[kempiejon]

A great many people for sure but https://en.wikipedia.org/wiki/Uncontacted_peoples not necessarily absolutely EVERYONE

[dspp]

A great many people for sure but https://en.wikipedia.org/wiki/Uncontacted_peoples not necessarily absolutely EVERYONE

Then we agree to disagree. My assertion is that without living like a hermit in a REAL stone age environment, EVERYONE relies on the grid. You go to a supermarket? You're relying on the grid. You have mains water and drainage? You are relying on the grid. Disagree all you like, unless you REALLY DO live like a stone age caveman, and how many of those are there?*** Then, yes, you rely on the grid. Fact.

*** NG is England and Wales by the way. Not sure how many uncontacted tribes there still are. Perhaps a couple in Liverpool or Slough, maybe?

Actually not everyone. I used to have quite a lot of UK-based clients who were off grid. They are still out there off grid, even if I am no longer supplying them with stuff. Most of them are in the wilds, but not all of them by any means.

In my town centre house it would take me somewhere about £2k - £6k to go absolutely off grid, with the variation in cost being reflective of the options I would have to decide between. I mean axe through the cable off grid. Legally. OK I am an unusual case but anybody in a net-spill situation in Dec/Jan can do it. Those two months would be the iffy ones for me, but it would be doable just about on my PV alone, and very very easy with the odd run of a wee genset.

But that is a technicality about how to be off grid in a LV world. In my day job these days I am as much concerned with HV network matters and - on balance I think the HV grid will probably increase, not decrease, in capacity. There are technology pathways where that might not be the case (it depends whether the storage is centrally located, or dispersed at household level, or somewhere in between) but on balance I tend to think the outcome for this 40-yr adoption cycle will favour the increased development of the HV grid in the already-industrialised countries.

So, setting Corbyn to one side, and all other things being equal, that favours NG. I hold NG.

Corbyn is a worry for anyone with investments in the UK.

regards, dspp

[dspp]

FWIW, I'm not saying anything about being an individual who doesn't have/want mains electricity. That's great and a personal choice. If, however, that person still drives a car, shops in a supermarket, has mains water, wears clothes bought in a shop, uses toothpaste, visits the dentist, kids at shool etc.... Then that person still relies 100% on the grid for his/her life style. There is a lot more about being grid dependent than simply using candles and LPG cylinders. All modern life depends on a 24x7 electricity supply. A fact of modern life. And why NG is as near to a cash printing machine at the moment as you can legally get.

Agree, though it is not hard to size a domestic PV array to cater for the demand of a EV. But the best battery is the grid imho. regards, dspp

[TUK020]

The national grid is the equivalent of the motorway network. A natural monopoly, run by NG (in England and Wales) on a regulated basis.
The Distribution Network Operators (DNOs) are the equivalent of the local road networks. They are organised on 14? Regions in Great Britain.
You then have generators who create and supply electricity to the grid. These are not monopolies.
Lastly you have the retail suppliers who buy from the grid, sell to end customers, and pay the DNOs to run the networks that carry electricity to the customers. These are not monopolies.


SSE is a mix of all of the above. I think it runs the grid in Scotland, is the DNO in several regions, generates and supplies electricity.

So, some of their business is regulated monopoly, with moat.

[dspp]

hence my picks being SSE and NG

[77ss]

More likely. Why? Because nobody HAS to use SSE.

Bit tricky to avoid using a company that supplies about 7% of the UK's wholesale electricity.

SSE also owns the grid in northern Scotland.

[Dod1010]

Dogmatic comments like that from Fred are often unwise. As has been said SSE builds, maintains and controls the grid in Scotland roughly north of the Forth/Tay belt. Scottish Power (now unquoted) the southern half. SSE also distributes electricity and gas pretty much where it can sell it.

Ignoring the political risk (maybe unwise) both SSE and National Grid are decent dividend earners with a good moat, although I have to say probably not as good as our two tobacco companies.

Dod

[richfool]

As Fred has mentioned NG also has significant and growing operations in the US and derives a growing income from those sources.

Group operating profit from continuing operations, excluding timing was £3.4bn, up 5%. This includes 4% growth from the US business, where profits were £1.5bn, and a 6% increase in profits from UK electricity transmission, to £1.2bn.

Capital expenditure hit a record £4.5bn, with the majority spent on the US business.

Looking ahead, the performance of the US business is expected to improve now that a number of regulatory filings have been completed, with 2017/18 benefiting from a full year of new rates in the New York Gas and Massachusetts Electric businesses. Returns from the UK transmission business are set to remain consistent, while the contribution from other activities and joint ventures is expected to be higher.

http://www.hl.co.uk/shares/shares-searc ... e-research

[77ss]

Maybe just an observation re political risk, which I agree is real and not be ignored. How much of the turnover of SSE and NG is from overseas now? In the case of NG, I think it is an extremely substantial portion of the whole business?

Quite right. The US business is predicted to overtake the UK business in the next few years:

National Grid’s American business will be bigger than its British division by the early 2020s as the utility company invests heavily in upgrading its US gas and electricity networks, its chief executive has forecast.

https://www.thetimes.co.uk/article/nati ... -xgj0v8sv2

Still a regulated business though - with all that that entails - including political risk.

SSE's non UK business is relatively small - limited to the Republic of Ireland.

[dspp]

I spoke with a installer yesterday who is currently installing grid-connect domestic-level battery storage for early adopters. He is doing about £2500 as the installed price for a 2.5kWh lithium-based system. That's the installed price, not the factory price. About £1000/kWh installed. A 2.5kWh system is quite small but actually is about right for me.

Leading prices for lithiums are now $140/kWh (http://benchmarkminerals.com/lithium-io ... tour-2017/) and expected to be sub $100/kWh by 2020. These prices are moving faster than most had expected.

A very brief zero-based-costing headscratch indicates that £1000/kWh installed versus $140/kWh for the major BoM item means there is plenty of cost reduction to come in the very near future.

I have 90% spill to grid from my PV. My annual imported consumption is about 1000kWh and my annual generation is about 3000kWh (i.e. most of my generation takes place when I am not consuming). So assume I pay £0.15/kWh for import my max gain/year is £150/yr in avoided import. So at £2.5k I would be looking at a 17yr payback (ignoring cyclic life etc, which most likely is not a problem in my use case). My general rule-of-thumb is that 5-7 year paybacks is when the mass-market gets moving. So at £750 - £1,050 for a 2.5kWh system this segment of the storage market should be going crazy.

So ..... how long to get a £2500 system down to £1000 in the mass market. My guess is less than 5-years. That in turn would drive a lot more domestic solar PV installs (which were prematurely curtailed by the FIT changes). Plus of course big changes to utility valuations. Which is the point of this thread. Even more reasons (perhaps) to switch from a HYP strategy to (say) a index tracker strategy. Strategic ignorance can kill value.

Could be fun out there.

regards, dspp

[BusyBumbleBee]

My general rule-of-thumb is that 5-7 year paybacks is when the mass-market gets moving.

Agreed but : trouble is that Lithium Ion batteries don't last long and about 7 years of daily use will probably see them worn out. Deep discharges are even worse for the batteries. If the costs do come down then all sorts of savings come into play including charge at night on economy 7 and use during the day saving peak rate charges. That would even out the load on the grid as well.

[dspp]

My general rule-of-thumb is that 5-7 year paybacks is when the mass-market gets moving.

Agreed but : trouble is that Lithium Ion batteries don't last long and about 7 years of daily use will probably see them worn out. Deep discharges are even worse for the batteries. If the costs do come down then all sorts of savings come into play including charge at night on economy 7 and use during the day saving peak rate charges. That would even out the load on the grid as well.

Are you sure re the wearing out issue you are raising ? I think you are wrong, but maybe you know something I don't..

For the Panasonic NCR18650 cell, which is the one that Tesla were using in most of their vehicles until now*, and which they adopted because it was a mass-market cell that Panasonic have had in volume production for decades, the cyclic life data I have is:

DoD cycles
10% 40,000
40% 40,000
60% 38,000
80% 34,000
90% 8,000

I am reading from a graph so please excuse any inaccuracies. But this looks to me as if it has been designed for an optimal use of 34,000 cycles at 80% DoD. On that basis in single cycle use per day I get 93-years of lifetime. Even on double cycle use per day it is 46-years. In fact, as I have commented elsewhere, the cyclic lifetime of lithiums is no longer their problem in grid storage applications. Instead the problem is the calendar lifetime of lithiums (though of course both go together) and my reading suggests that in the fairly benign duty & conditions of grid applications at least 10-years should be achievable for a heavily used grid-duty cell. Tesla cite 5-years for EV-duty for a combination of both cyclic & calendar lifetimes, and grid-duty is much more benign than that.

Some useful links if you want to read further are:
http://jes.ecsdl.org/content/163/9/A1872.full
https://www.tesla.com/en_GB/blog/bit-about-batteries
http://www.mpoweruk.com/life.htm

At these lifetimes, with these intrinsic costs, there are indeed many battery usage strategies available. The example I gave for my own personal house is one of the most simplistic but I have good data for it and it is an easily understandable example. It is also a very standard 1900 build Victorian 3-4 bed terrace lived in by 3 adults. So it is by no means an unusual outlier.

regards,
dspp

* they are starting to go over to the 2170 cell now I believe: https://qz.com/879121/teslas-tsla-cheap ... ory-model/

[PeterGray]

I think you have to apply a degree of scepticism to cell lifetime figures.

The manufacturers tend only to talk about maximum cycles. However, there is clear evidence - just google - that cells both survive more cycles when part discharge/charged - probably normal service, but also over a number of cycles loss maximum capacity, which may be a problem.

They also don't talk about simple lifetime, so it's hard to judge how they stand up. Newer cells may be able to survive many years regardless of cycles, but that certainly was not the case of older ones, and I suspect that in real use simple age needs to be factored in.

Peter

[dspp]

Peter,

The simple table I gave is indeed simplistic. If you read some of the papers in those links you will see some of the complexities. In my day job I have modelled some of those complexities in energy system modelling software (both technical & economic), and then successfully validated those models against test rigs and real-life systems, and comparable models that others have created/used/validated. Along the way I have come to have considerable scepticism re most manufacturers' battery claims.

Yes there are many complexities. But the conclusion I have so far come to is that directionally, on average, lithium batteries seem to have sufficient cyclic and calendar lifetimes for economic use in grid storage applications, especially of the residential variety which is a relatively benign case. As far as I can see the limiting issues are now balance-of-system costs (inc install & permitting), which are trivial and will largely be solved by volume.

Clearly there will be good and bad products, and good and bad experiences. But we know how to drive quality into these sorts of products and I do not expect that to be a significant adoption issue.

regards, dspp

[BusyBumbleBee]

Are you sure re the wearing out issue you are raising ? I think you are wrong, but maybe you know something I don't..

I really hope you are right and I am wrong - and by the sounds of it you know an awful lot more than I do. I am probably wrong to extrapolate from small battery use to larger systems such as that used in cars.

And by the way my plug in hybrid has never reached even 90% of the rating given by the manufacturer - more usually about 60% no matter how carefully I drive. My friend's Tesla gives about the same. Conversely my smaller lithium ion batteries in chain saws, hedge trimmers etc do (more or less)

There is some useful information on the do's and don'ts with Lithium Ion batteries here http://batteryuniversity.com/learn/arti ... _batteries and I would value your views as to whether this is correct or not.

We have gone way off-topic on this diversion - what a pity the Lemon Fool hasn't got a 'Renewable energy' or some such topic in the main index where these discussions could take place.

Have a 'rec' - kind regards - BBB

[dspp]

Are you sure re the wearing out issue you are raising ? I think you are wrong, but maybe you know something I don't..

I really hope you are right and I am wrong - and by the sounds of it you know an awful lot more than I do. I am probably wrong to extrapolate from small battery use to larger systems such as that used in cars.

And by the way my plug in hybrid has never reached even 90% of the rating given by the manufacturer - more usually about 60% no matter how carefully I drive. My friend's Tesla gives about the same. Conversely my smaller lithium ion batteries in chain saws, hedge trimmers etc do (more or less)

There is some useful information on the do's and don'ts with Lithium Ion batteries here http://batteryuniversity.com/learn/arti ... _batteries and I would value your views as to whether this is correct or not.

We have gone way off-topic on this diversion - what a pity the Lemon Fool hasn't got a 'Renewable energy' or some such topic in the main index where these discussions could take place.

Have a 'rec' - kind regards - BBB

0. I don't claim to be a battery guru. But I have friends that are if I need them !

1. Until recently small battery systems have not had state of charge meters that passed the laugh test. That is changing - I now tend to believe my computer and mobile phone SoC indications more than I used to.

2. I can't comment on your particular hybrid, or your friend's EV. There is a lot of literature out there re practical EV performance and the many games that are being played.

3. I like batuniversity but do find what they write to be only a generalisation, and some is good and some is bad (or not relevant or not up to date). What is being delivered in many small increments are improved batteries that incorporate all sorts of little refinements that give better performance. The info they give on the link you gave http://batteryuniversity.com/learn/article/how_to_prolong_lithium_based_batteries is a fair generalisation. Don't charge to 100% unless you have to, minimise depth of discharge because it is non-linear, keep temperature lowish. If you read some of the links in the last post I did you will see that designers are working on refinements to address each of these issues. So the game keeps changing. My personal aproach is to note that the 100% comment is only really relevant if you plan to leave a device sitting fully charged for an extended period, and for most devices/vehicles that is unlikely so I ignore it. The temperature is not something one can do too much about, but best not to park in the full sun, or leave your phone on the dash. The DoD thing is the one we can often keep an eye on and so I try to keep my devices fully recharged whenever I can, but accept that I will run to flat if needs must.

4. Here on TLF we made a conscious decision to put all the energy topics in one board (https://www.lemonfool.co.uk/viewforum.php?f=16) as they are inextricably linked. Please feel free to head over there. It is possible to invest in, and learn from, conventional fossil and renewables at the same time - indeed better imho.

5. I am invested in NG. There is a fairly fundamental transition going on at present and whilst it is decadal in length sharp valuation corrections can occur en route. I am unsure whether NG as a company has what it will take to survive and thrive, but I cannot see any/many better options in this sector. Nevertheless I keep a careful watch as I may have to change my opinion.

regards, dspp

[hiriskpaul]

Can anyone explain why this is NOT a falling knife? Looks like one for writing options against IMO. [Then you probably can buy them for 900p]

GS

Would you apply that to SSE as well?

More likely. Why? Because nobody HAS to use SSE.

EVERYONE HAS to use NG. Very big difference. It's the ultimate economic moat.

And other opinions are available, DYOR etc etc......

Just got round to reading this thread and was struck by this comment. There is a big danger in this sort of thinking.

Everyone may have to use the electricity grid, currently owned by NG, but that does not automatically mean that the ordinary shares of NG are bound to be good investments. In the worst case scenario, NG could become insolvent. In that case the electricity grid would not suddenly disappear, it would continue to function whilst NG was in receivership and would be sold in order pay creditors, unless NG was nationalised or taken over instead. In other words, NG shares could still become worthless even though NG own a monopolistic asset for which failure is inconceivable. It is also worth remembering that NG cannot set grid prices as they see fit, so if they p*** away billions on some illconceived expansion, they cannot bail themselves out by jacking up prices to access the UK grid.

Railtrack was a monopoly and held a lot of valuable assets. The assets still exist and are being used. Railtrack does not exist and its shareholders lost everything.

Edit - sorry, I was wrong about Railtrack, shareholders did receive some payment.

[Dod101]

Fred

The Morningstar comment is largely on the cost of capital v return on capital not about its moat, although I agree that the initial thrust of the article would suggest that that is its worry. The UK grid produces around 25% of its profits as far as I can see and there is some stirring around separating the grid within NG itself (Maybe along the lines of Openreach in BT?)

I assume that as for SSE there are advantages in owning the distribution network (apart simply from profit because of course that is regulated) but I cannot see that NG is a bad investment. It does not so far as I am aware go in for speculation. and produces steady and decent rises in its dividends. It seems to me a good long term buy. It is not though a licence to print money. I hold both NG and SSE.

Dod