National Grid has vowed to reduce its greenhouse emissions to net zero by 2050 in its financial results for the first half of 2019/20.
The commitment mirrors the UK’s recent adoption of a 2050 net-zero target. Like the country as a whole, National Grid was previously aiming for an 80 per cent reduction in emissions compared to 1990 levels by the middle of the century.
“Today’s announcement that we are increasing the group’s own emissions reduction target from 80 per cent to net zero by 2050 underlines our commitment to lead the industry towards a cleaner energy future,” said chief executive John Pettigrew.
“This objective will be supported by work in other areas, such as offering further energy efficiency programmes for our US customers, proposals for renewable natural gas and hydrogen blending programmes.”
The company made the pledge as it reported a 1 per cent fall in operating profit to just over £1 billion and a 23 per cent drop in pre-tax profit to £404 million.
Underlying profit, the group’s preferred metric for gauging its performance, was up 1 per cent to £1.3 billion, reflecting higher revenues from its US arm and lower storm costs.
The figure for National Grid Electricity Transmission rose 5 per cent year-on-year to £582 million, with inflationary increases in its base revenues being partially offset by a true-up of incentive payments to the electricity system operator for previous years.
Investment in electricity transmission in the UK climbed 2 per cent to £583 million. National Grid said it will shortly award contracts for its London Power Tunnels 2 project – a £1 billion link running from Wimbledon to Crayford, which is scheduled for completion in 2028.
The company welcomed Ofgem’s recent decision to fund the Hinkley Seabank connection project using the existing strategic wider works mechanism rather than the new competition proxy model it was considering.
Underlying earnings from National Grid Gas Transmission plunged 27 per cent to £66 million owing to reduced capacity charges for use of the gas network.
Meanwhile, investment grew 9 per cent to £167 million as a result of increased spending on compressors. This was offset somewhat by lower costs from the Feeder 9 pipeline project under the Humber Estuary, for which tunneling has now been completed.
National Grid said it remains on track to cut annual operational costs by £50 million in 2019/20 and £100 million in 2020/21 across its regulated businesses in the UK. The firm said this should allow it to outperform baseline returns by 2 to 3 per cent over the first set of RIIO price controls.
The company once again raised concerns over Ofgem’s planned methodology for setting the RIIO2 price controls, which start in 2021 for transmission.
Based on the CPIH measure of inflation it intends to adopt, the regulator has said the methodology could be expected to result in a real baseline return on equity of 4.3 per cent.
National Grid believes when “correcting for errors in the calculations” and “taking a balanced approach to risk” the evidence points to 6.5 per cent as a more appropriate level.
The group additionally gave an update on the three interconnector projects being developed by National Grid Ventures.
A large majority of the cabling for the 2GW IFA2 interconnector to France was laid over the summer and “good progress” is being made on the converter stations.
More than 650 kilometres of cabling has also been laid for the 1.4GW North Sea Link which will allow excess wind generation from the UK to be stored by pumped hydro plants in Norway. The project remains on track for completion in 2021/22.
Contracts for the 1.4GW Viking Link to Denmark have been awarded and pre-construction work is now underway.
Including the Nemo Link interconnector to Belgium, which began operating commercially in January, National Grid said it is investing £2 billion in new interconnectors. The four projects are expected to add £250 million to annual earnings once they are fully operational by the mid-2020s.
Asked by Utility Week whether National Grid is considering any further investments in interconnectors, the company’s new chief financial officer Andy Agg said: “By the end of the next decade, 90 per cent of the energy coming through these will be decarbonised, so they’re a huge tool in the net-zero agenda.
“The ones we’re building today will take it 7.8GW of interconnection to the continent. Studies show you could be in the mid-teens – fifteen, sixteen gigawatts – before you get the cannibalisation or saturation point.”
He continued: “We’re happy with the ones we’re investing in today. We haven’t made any decisions beyond that, but interconnectors as a portfolio is an attractive one.”