National Grid plc has announced that it has agreed to sell a 60% equity interest in its UK gas transmission and metering business to a consortium of long-term infrastructure investors comprised of Macquarie Asset Management and British Columbia Investment Management Corporation (BCI).

In August 2021 Macquarie acquired a majority stake in Southern Water, followed by a £120 million debt investment in Anglian Water’s holding company . In 2017 it sold its stake in Britain’s biggest water supplier, Thames Water.

This latest acquisition will see global asset manager Macquarie the world’s largest infrastructure manager, and BCI, one of Canada’s largest institutional investors take a majority interest in a key provider of the UK’s critical national infrastructure.

National Grid said the transaction forms part of its strategic pivot towards electricity and follows last year’s acquisition of Western Power Distribution, the UK’s largest electricity distribution business, and announced sale of The Narragansett Electric Company in the US.

The terms of the deal imply an enterprise value for NGG of approximately £9.6 billion - following the Transaction, National Grid will own a 40% minority equity interest in NGG via a new holding company called GasT TopCo. As at March 2022, NGG’s regulated asset value is estimated to be approximately £6.6 billion and its net debt is estimated to be approximately £3.8 billion.

National Grid has also entered into an option agreement with the Consortium for the potential sale of the remaining 40% of equity in GasT TopCo - the option may be exercised by the consortium between 1 January 2023 and 30 June 2023.

Completion of the transaction will be subject to certain antitrust and regulatory conditions. Subject to the clearances, National Grid expects that it will complete in the second half of calendar year 2022.

National Grid said that on completion, the transaction together with the proposed sale of NECO, will:

• Increase the balance of National Grid’s portfolio towards electricity, with the proportion of the Group’s assets in electricity growing from c.60% to c.70%;
• Significantly enhance National Grid’s central role in the delivery of the UK’s net zero targets;
• Underpin National Grid’s 6 to 8% asset growth target for longer;
• Enable National Grid to maintain a strong balance sheet with its strong investment grade credit rating, supporting its sustainable dividend policy.

John Pettigrew, Chief Executive of National Grid, said:

“This transaction further enhances our role in delivering the UK’s energy transition, pivots our portfolio towards electricity, whilst ensuring the security of the energy supply for the country. Alongside our plans to invest up to £35 billion in energy infrastructure over the next five years, the series of transactions announced last March will strengthen our long-term growth prospects, and drive long-term value for shareholders.

“Today’s announcement is a strong result for all our stakeholders, including employees and customers. The Consortium has a long-term commitment to the UK with significant experience in owning and operating infrastructure assets.”

Martin Bradley, Head of Macquarie Asset Management’s Real Assets team in EMEA, said:

“The national transmission system is a critical enabler of the UK’s energy transition, providing the flexibility and reserve energy needed in the electricity system as the deployment of renewable sources of generation accelerates. However, if the UK’s net-zero by 2050 target is to be met, the country must have a next-generation transmission backbone to power homes and businesses with renewable energy.

“Backed by our significant investment, the transmission system will play a leading role in making the network ready for this transition. In doing so it will support the expansion of hydrogen’s role in the energy mix to deliver a competitive edge to the UK and its industry, while working closely with the Government and Ofgem to maintain security of supply.”

Lincoln Webb, Executive Vice President and Global Head of Infrastructure & Renewable Resources at BCI, added that the investment “aligns well with our diversified portfolio of regulated utilities that securely deliver critical services to customers.”

National Grid Gas owns and operates the regulated gas National Transmission System (NTS) in Great Britain, and also owns a regulated gas metering business.

As both the transmission owner and system operator, NGG owns, builds and operates the high-pressure NTS with day-to-day responsibility for balancing supply and demand in real time and facilitates the connection of assets to the transmission system.

National Grid Gas transmission network comprises approximately 7,660 kilometres of high-pressure pipe and 23 compressor stations connecting to 8 distribution networks and other third-party independent systems.

NGG also owns and operates an independent metering business, the largest owner of traditional gas meters in the UK with approximately 8.4 million domestic and commercial meters as of March 2021.

The business’ activities broadly cover: asset procurement and logistics management; meter installation, maintenance, exchange and removal; and, customer service provision.