Investors eye major role for hydrogen in decarbonising UK’s gas and energy system after deal valuing business at £9.6bn

An investor consortium led by Macquarie is eyeing an expansion of hydrogen’s role in Britain’s gas grid to help ready the network for the net zero transition, after agreeing to snap up a controlling stake in National Grid’s gas transmission and metering business in a multi-billion pound deal.

The deal, which was announced yesterday and values the business at around £9.6bn, is expected to complete in the second half of the year, and will see a consortium comprising Macquarie Asset Management and British Columbia Investment Management Corporation acquire a 60 per cent stake.

National Grid’s 7,660-kilometre transmission system plays a critical role in the UK energy landscape, transporting the gas needed to heat homes and power industry and electricity generation.

The consortium said it would partner with National Grid to ensure it remains “secure, safe, reliable while enabling the UK to accelerate its transition away from fossil fuels, at the least cost to consumers”.

As part of the transaction, the consortium has also secured an option agreement with National Grid for the potential acquisition of the remaining 40 per cent stake in the gas transmission and metering business “on broadly similar terms”, the firms said.

Martin Bradley, head of Macquarie Asset Management’s real assets team in Europe, the Middle East and Africa, said the consortium’s investment would help ensure Britain’s gas transmission system plays a “leading role” in preparing the energy system for a net zero emission economy.

“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,” he said. “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.

Hydrogen appears to be a major priority for the new investor consortium, which said it planned to actively support and develop several projects currently being progresses across the national gas transmission system to trial blends of H2 as a potential lower carbon replacement for fossil gas.

National Grid has previously touted ambitions to build an initial hydrogen “backbone” network through investment to link key blue hydrogen production sites and industrial clusters with the conventional gas network by 2030.

Bradley said the partners planned to “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”.

The acquisition further strengthens Macquarie’s interests in Britain’s gas grid, with the Australian bank having previously snapped up leading gas distribution firm Cadent from National Grid in 2017. Macquarie is also the owner of Green Investment Group, previously known as the Green Investment Bank, which it acquired from the UK government.

John Pettigrew, chief executive of National Grid, claimed the deal would “significantly enhance” its role in delivering the UK’s net zero target, while further pivoting the company towards electricity.

“Today’s announcement is a strong result for all our stakeholders, including employees and customers, he said. “Alongside our plans to invest up to £35bn 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.

It came as National Grid separately announced today that its IFA2 subsea interconnector cable linking Britain’s power grid with France’s has already paid off its carbon cost within less than a year of the project being operational.

The 1GW electricity cable, which stretches 120 miles along the bed of the English Channel from Lee-on-Solent near Portsmouth to Caen in northwest France, has saved the UK around 300,000 tonnes of CO2 by importing zero carbon nuclear power from France for use on Britain’s grid, the firm claimed.

That CO2 saving is 10,000 tonnes more than the entire amount of carbon emitted during the four-year construction of the project, as well as any carbon emitted during the daily running of the asset over its lifetime, according to National Grid.

In total, the firm estimates the subsea cable enables the UK to import enough clean electricity to power around one million homes.

“By 2030, we estimate our interconnectors, including IFA2, will have saved the UK around 100 million tonnes of CO2 by enabling the fast and flexible sharing of clean and green energy with our European neighbours,” added Nicola Medalova, managing director for interconnectors at National Grid.

Want to find out more about how the net zero transition will impact your business? You can now sign up to attend the virtual Net Zero Finance Summit, which will take place live and interactive on Tuesday 29 March and will be available on demand for delegates after the event.

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