National Grid announces profit hike as business and household energy prices rise

National Grid raised its full-year profit forecast for two of its core UK businesses on the back of rising electricity prices.

The FTSE 100 group now expects the underlying operating performance of its UK transmission and distribution division to exceed its mid-November half-year forecast for the year to March 31.

At the time, the company also forecast annual adjusted EPS to be “well above” the high end of its 5% to 7% range, but it now expects to beat that guidance.

Meanwhile, profits in the US and joint ventures are expected to be in line with expectations, but the tax rate for the full year is expected to be around 25% due to an additional tax burden of around £100m.

National Grid’s trading update comes amid Britain’s rapidly growing cost of living crisis, which has been exacerbated by record wholesale gas prices in recent months.

The surge has put increasing pressure on the budgets of many households and businesses and has helped push UK inflation to its highest level in three decades.

More power has also been used as the global economy recovers from the coronavirus pandemic with the successful rollout of a Covid-19 vaccine program.

At the same time, however, demand in Asia has increased significantly, storage supplies have fallen after the cold European winter of 2020/21, and a gust of wind in Europe last summer.

UK prices were further affected by a fire at the IFA power interconnector in Sellingge, Kent, a key subsea power connection between the UK and France.

The elements of this “perfect storm,” as analysts describe it, were made worse by Russia’s full-scale invasion of Ukraine in late February.

Weeks before the incident, the UK energy regulator Ofgem raised the energy price cap for standard tariffs by almost £700 to £1,971, compared with a £139 increase in October.

The surge in oil and gas prices has fueled huge profits for many energy companies and prompted calls from many politicians and environmentalists for a windfall tax to lower people’s energy bills.

With the UK’s weak storage capacity, there are growing concerns that the country may not have enough supply to meet demand.

But the UK has enough gas to run between April and September last year, according to the latest summer forecast report from National Grid ESO released today.

It states: “With all reliable interconnection scenarios, we will be able to meet demand and our reserve needs anytime in summer 2022. We do not expect high interconnection exports when UK demand is high.

“When demand is low, we’re going to need to act on the system, but it’s mostly day-to-day actions like trading interconnects and pumping up demand.”

Total UK gas demand for the summer six months is forecast at 34 billion cubic metres (bcm), up from 31.9 bcm in the same period last year.

The UK only gets about 3% of its natural gas from Russia, while the EU depends on Russia for about 40% of its demand. Several European countries have said they will reduce their reliance on Russian gas after the war in Ukraine.