National Grid delivers 82% operating profit growth to £4.3 billion, accelerates net-zero transition

National Grid shares were down 1.2% to 1,229.9p in late morning trading on Thursday, after the utilities firm announced a positive series of results for its FY 2021-2022 including an 82% growth in operating profit to £4.3 billion compared to £2.4 billion the last year.

The company reported a pre-tax profit increase of 107% to £3.4 billion against £1.6 billion, alongside a capital investment rise of 39% to £6.7 billion from £4.8 billion.

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National Grid has experienced a few complications in light of the group’s transition to an increased green energy portfolio.

The group confirmed that 70% of its five-year investment was aligned to EU taxonomy principles, which would make it one of the FTSE 100’s biggest net-zero investors.

The National grid added that it had made strong progress on its £400 million cost efficiency programme as it continued to focus on affordability for its customers, with £140 million delivered to date.

The company poured £24 billion of investment into its five-year financial framework aligned with the EU taxonomy legislation principles, with its extensive programme in progress to deliver the UK government’s 50GW offshore wind goal by 2030, alongside the launch of its clean energy strategy in the US to replace fossil fuels by 2050.

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“The UK and US communities we serve are facing significant cost of living challenges, at a time when further urgency is needed to address climate change,” said National Grid CEO John Pettigrew.

“Against this backdrop, National Grid remains focused on positioning our business, through acquisitions and investment, to deliver net zero while continuing to safely ensure security of supply at the lowest possible cost to consumers. And our results today reflect the strength of this strategy.”

Analysts noted that under regular circumstances, advancement into green energy would be cause for celebration. However, with the energy price cap set to rise again in October and utilities bills shooting into the stratosphere, the group has apparently picked a poor time to make the switch.

“The group argues that it must spend to keep up with the UK’s ambitious climate change targets, the current grid simply isn’t strong enough to cope with a ballooning number of new connection requests,” said Hargreaves Lansdown equity analyst Laura Hoy.

“In normal times this wouldn’t be much of an issue, utilities are constantly negotiating with regulators on how they’ll be compensated for infrastructure investment. But with energy prices soaring uncomfortably higher, price hikes for customers are inevitable.”

“Together with the investment needed to shift to an all-electric future, it leaves regulators stuck between a rock and a hard place.”

The National Grid reported that its outlook between 2020-2021 to 2025-2026 remained unchanged, with a projected total cumulative capex of £30-35 billion, asset growth CAGR of 6%-8% supported by a strong balance sheet.

The firm commented that it expected earnings for 2022-2023 to remain broadly flat at an exchange rate anticipated at £1 to $1.30.

The energy group announced an EPS growth of 64% to 60.6p against 37p year-on-year, alongside a 4% dividend rise to 50.9p per share from 49.1 the previous year, representing a 3.7% uptick in line with executive policy.

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