National Grid joins forces with RWE to target US offshore wind

National Grid is targeting a move into the burgeoning US offshore wind industry, further increasing the UK utility’s exposure to electricity generation.

The FTSE 100 company on Thursday announced a partnership with Germany’s RWE to bid in offshore wind auctions off America’s north-east coast, including an upcoming seabed leasing round for rights to develop projects in waters in the New York Bight area, between Long Island and the New Jersey coast.

National Grid is banned from developing generation assets in Britain, where it is in charge of managing the electricity system. But it has been building up solar and onshore wind assets in the US, where in 2019 it acquired renewables developer Geronimo Energy. In Europe, it develops subsea electricity export cables via its unregulated National Grid Ventures arm.

A move into US offshore wind would deepen National Grid’s exposure to electricity markets over gas, after its announcement in March of a £14.2bn deal for Western Power Distribution, Britain’s biggest local electricity network company. It is planning to sell a majority stake in its UK national gas network.

John Pettigrew, chief executive, said National Grid had a “strong” understanding of onshore power networks in the US and of developing offshore cables in Europe so “bringing it together is just a natural extension”. He stressed, however, that the US offshore wind move would require only “modest” capital investment in the next three to four years, given the lengthy auction and development processes involved.

“It’s likely to be probably more an opportunity in the second half of the 2020s,” he added.

Offshore wind is a new industry in the US. The Biden administration has set a goal for 30 gigawatts of capacity to be installed by 2030, which would provide clean electricity for 10m homes.

The US plans have already attracted a number of European energy groups and utilities. Equinor, BP, Orsted and Iberdrola are among those that have already entered the market.

National Grid announced the US plan as it reported a 19 per cent improvement in full-year pre-tax profit to £2.1bn after its results the previous year were adversely affected by exceptional provisions. On an underlying basis, pre-tax profits fell 3 per cent as it shouldered higher costs related to the pandemic, including making greater bad debt provisions for customers in the US where it owns energy supply businesses.

However, the group said the effect of the pandemic on its results was not as bad as originally anticipated. It had been braced for a £400m hit to its underlying operating profit but this turned out to be lower, at £355m.

Investec analyst Martin Young said he continued to “see attractions” in the National Grid “equity story”.