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National Grid UK profits slip as it lays foundations for changing role

National Grid insisted it had the right tools at its disposal for the forthcoming winter. Image: National Grid.

National Grid insisted it had the right tools at its disposal for the forthcoming winter. Image: National Grid.

National Grid’s UK power transmission profits slid more than 20% in the first half of its 2017/18 financial year, with the system operator (SO) continuing to prepare for its changing role in the power market.

Adjusted operating profit for the six month period ended 30 September 2017 stood at £542 million, down 22% from the £697 million it recorded in H1 2016/17. While around £85 million of the slide was attributable to adverse ‘timing’ movements (i.e. possible over-recoveries of regulatory costs in previous period which are then returned to customers), there has also been a drag on National Grid’s bottom line caused by costs incurred with its SO separation.

Earlier this year industry regulator Ofgem informed National Grid that it must spin out the separation of its SO unit into an entirely, legally separate company by April 2019 at the latest.

National Grid has confirmed that it is progressing as planned with this separation, with the costs incurred set to be recovered from customers over the coming years.

Meanwhile the company said it remained committed to delivering further cost savings throughout the final three years of RIIO T1, noting that it had already started early stakeholder engagement regarding the forthcoming RIIO T2 framework.

National Grid and the UK’s tranche of distribution network operators have been warned to expect tighter margins from the next RIIO framework after T1 was criticised for allowing billions in “unjustified” profits to be kept by network companies.

Academic Dieter Helm also blasted the eight-year frameworks in his recent review of energy costs, claiming that the pace of technological and regulatory change was too great for the periods to keep up.

But National Grid has stood by the frameworks and yesterday claimed that electricity transmission costs were 30% lower than pre-privatisation levels, lauding particular attentions to operational efficiencies.

One particular project – the 400kV Littlebrook substation – had been delivered £15 million cheaper, approximately 20% of the overall cost, than forecast by adopting an incremental gains approach to its development.

Total operating profit at National Grid for the first half stood at £1.274 billion, down 13.4% year-on-year.

Meanwhile National Grid once again asserted that it had all the required tools at its disposal to manage the grid this forthcoming winter. National Grid's SO unit confirmed that its winter margin for this year was increased on 2016's, meaning there would be far less of a chance of system blackouts. 

This year is the first year that the Capacity Market is in effect with various generators prepared to switch on should the need arise.