National Grid’s near-£50bn debt pile set to push up energy bills

National Grid, once among Britain’s most respected public utilities, is set to gain a new title – one of the UK’s most indebted private companies . Its latest accounts show the power grid operator has built up net debts of £48bn as of Sept 30 – set to rise by another £4bn within the next six months. Much of the planned spending is driven by Labour’s net zero and decarbonisation targets. By 2031, National Grid will owe far more. “I’d expect my overall net debt to be growing into the £60bn to £70bn range,” Andy Agg, the chief finance officer, told The Telegraph earlier this year.

This is likely to make it Britain’s most indebted company outside the financial sector, with borrowings far greater than those of Thames Water, which faces collapse under £18bn in debt. National Grid argues its borrowing is essential to power the net zero investments demanded by the Government. It insists the loans are safe and secured against its own assets, with the costs of servicing the loans underpinned by the Regulated Asset Base (Rab) model.

Rab is a way of paying for the cost of infrastructure. A regulator values the capital a company has invested, then lets it charge customers enough to earn a set return and gradually recover the principal. In effect, this means that it is customers who are paying for National Grid’s debts, subject to approval by energy regulator Ofgem. Announcing half-yearly results last week, Agg set out why these substantial borrowings are not the problem they seem.

He pointed out that planned investments would push the company’s underlying asset value to £115bn. The business is “resilient to macroeconomic volatility” and “designed to deliver a compelling investor proposition with attractive and consistent double-digit investor returns”, he said. For policymakers and politicians, however, the primary concern is the bill-paying public rather than investors. The sheer scale of Britain’s grid upgrades, and their subsequent effect on bills, is causing growing unease.

Critics point to past utility disasters based on similar Rab funding models. Railtrack, which was privatised in 1996 to run rail infrastructure, cut track maintenance to prioritise shareholder dividends, a policy that was questioned after the fatal 2000 Hatfield disaster. Thames Water proved a similar disaster. Successive owners, most notably Macquarie, borrowed against assets to create £18bn in debt while paying out billions in dividends.

As with Railtrack, consumers and taxpayers look set to pay for the mess. Crippling debt pile National Grid’s net debts are already far larger than either of those companies, and are about to become bigger. While the company notes its credit ratings remain high and its share price is up 11pc this year, the effect of its borrowing on bills has been weaponised by both the Conservatives and Reform. Andrew Bowie, the shadow energy secretary, said: “Labour’s reckless dash for clean power by 2030 is driving a gold-plated spending spree.

Every pound the National Grid now borrows to chase net zero lands on the household bill.” National Grid’s debts today are, by a wide margin, the highest they have been. The company traces its origins to Margaret Thatcher’s utility privatisations, which inspired the 1990 breakup of the state-owned Central Electricity Generating Board (CEGB). Floated on the London Stock Exchange in 1995, National Grid was initially a stolid British utility overseeing a super-grid that was the envy of the world.

However, privatisation turned its pylons and wires into valuable assets against which it could borrow. Debt reached £1.5bn in 1998 to fund a £768m special dividend to shareholders. In 2000, it rose to £2.7bn linked to the acquisition of the New England Electric System. The subsequent purchase of Eastern Utilities Associates pushed debt to £4bn, rising to £8bn in 2002 following the acquisition of Niagara Mohawk. Critics argue these ventures set a pattern that continues today: the company uses a large asset base funded by the British public, plus guaranteed income from bill payers, to support foreign expansion.

By 2007, net debt hit £12bn, jumping to £18bn in 2008 and £23bn in 2009 – a staggering rate of increase given pre-tax profits were only £2.2bn. That surge was driven not by domestic grid investments, but largely by the debt-financed purchase of Keyspan, another US company. Four years ago, net debt jumped again from £28.5bn in 2021 to £43bn in 2022, driven by the acquisition of Western Power Distribution, which runs regional grids across Lincolnshire, the Midlands, South Wales, and the South West.

This matters heavily to consumers because National Grid is one of five main companies upgrading the UK’s power grids, all of which can add borrowing costs to energy bills. This creates two key problems. One is the remote, but potentially disastrous, risk of financial failure. The other is the immediate effect on bills. Network costs now comprise about £250 of the average £883 annual electricity bill for a dual-fuel home, which totals £1,723 when gas is factored in.

With suppliers EDF and Eon predicting average bills will approach £2,400 around April, grid upgrade costs are driving those increases. Brewing backlash over rising bills Prof David Newbery, emeritus director of Cambridge University’s energy policy research group, argues that the Rab system incentivises National Grid to gold-plate spending far more than is needed to maximise long-term returns. “Much of the investment is more expensive than needed … the financial solvency of National Grid would be greatly enhanced if Ofgem forced it to consider much cheaper on-shore rather than subsea transmission upgrades,” he says.

A backlash is brewing as bill payers become increasingly unwilling or unable to pay. In October, Tim Jarvis, Ofgem’s director general, warned that domestic energy debts had surged from £1.1bn five years ago to at least £5bn, and could double within a decade. With roughly three million households already struggling, a further rise in defaults risks sending a financial shock across the entire power system. David Turver, an energy analyst who runs the Eigen Values blog, says allowing utility operators to pile borrowing costs onto bills was a recipe for disaster.

“The largest single component [of the] electricity bill increase, as forecast by the National Energy System Operator, is rising transmission costs. Neso (National Energy System Operator) forecasts that transmission charges will more than triple from £4.2bn in 2024/25 to £13.6bn by 2030/31.” Zoe Yujnovich, National Grid’s chief executive, disputes this framing. She argues that, given the Government’s mandate to expand and decarbonise the grid, borrowing is the cheapest way to raise the necessary capital.

“We do carry significant debt … it’s certainly higher than you would normally expect,” Yujnovich said. “The reason we have such high debt, and the reason the regulator allows us to have such high debt, is because it is the cheapest way to fund it [grid expansion]. So that has an affordability dimension. Raising equity tends to come at a more costly level, and therefore it is cheaper for our customers if we raise debt instead.” While National Grid suggests current grid investments will bring long-term savings, other industry figures disagree.

Dale Vince, the boss of green energy firm Ecotricity, argues the cost of that debt is unacceptable. He is angered that Ofgem allows network operators to make an annual return of around 9.8pc on investments, a level he regards as excessive. “Allowing a monopoly supplier to add the costs of their debts to customer bills – while the debtor itself builds an ever bigger balance sheet and company value – is obscene,” Vince said. “Ofgem is not regulating energy companies properly.”

Ofgem declined to respond to these claims, but Richard Tice, Reform’s energy spokesman, bluntly described the surging network charges as an “abuse of customers”. “National Grid is being incentivised to take on more debt and spend as much as possible to boost returns for its shareholders, all in pursuit of a flawed net zero strategy,” Tice said. “Consumer bills will grow much further due to this vast National Grid expansion.” Energy bills have become one of the biggest issues in British politics.

Until now, National Grid’s role in rising bills has largely escaped scrutiny. But as its debts – and our bills – spiral, that may not be the case for much longer.