STRATEGIC OVERVIEW

Good operational performance in a year of record network investment

In 2023/24, National Grid delivered good operational performance with high levels of network reliability. Transmission and distribution reliability remained steady at c.99-100% across all of our networks, demonstrating the effects of our continued investment in network reinforcement and the steadfast commitment of our operational teams. High levels of network reliability were also achieved despite 13 named storms across our networks in the UK, and 13 major storm events across our New England and New York service territories.

Safety performance

During the year, we achieved a Lost Time Injury Frequency Rate (LTIFR)[5] of 0.08, compared to 0.11 in 2022/23 and against our Group target of 0.10.

 

In August 2023, one of our UK Electricity Distribution employees tragically lost his life at a site in Ludlow, Shropshire, after falling from height whilst performing overhead line work. Following this tragedy, we worked closely with the individual's family, friends and colleagues to support them. We also launched an internal investigation in response to this incident, and we have reinforced measures across our operations to seek to prevent such tragedies. We continue to cooperate with the ongoing Health and Safety Executive investigation.

 

In December 2023, one of our Massachusetts employees tragically lost his life after being struck by a vehicle driven by a member of the public, with two other colleagues sustaining injuries. A police officer, who was supporting our crew at the site, also lost his life. We have extended support to our team and the families affected through our Employee Assistance Programme. This incident has underscored the unpredictable nature of our work environment, prompting us to continue our efforts in safeguarding our employees and partners.

A record year of capital investment: full-year financial performance

Group financial performance in 2023/24 was strong in an environment that has seen supply chain inflation driven by higher demand from network owners across the global market.

 

Our statutory operating profit is presented on page 21 which includes the impact of exceptional items, remeasurements, major storms and timing. A reconciliation to our Alternative Performance Measures (APMs) is presented on page 87.

 

As set out in our recent pre-close statement, going forward we will be reporting underlying earnings excluding the impact of deferred tax in our UK regulated businesses (NGET and NGED). Across the Group, underlying operating profit for continuing operations increased by £255 million at constant currency to £4,773 million, an increase of 6% on the prior year (4% at actual exchange rates). This performance was principally driven by growth in UK Electricity Transmission revenues through the RIIO-T2 price control, non-recurrence of Western Link liquidated damages, and higher rates in New York and New England[6]; partly offset by lower RIIO-ED2 incentives for UK Electricity Distribution, and lower property sales principally related to the St William transaction.

 

Capital investment for continuing operations increased by £805 million at constant currency to a record £8,235 million, an increase of 11% on the prior year (8% at actual exchange rates). This increase was principally driven by early investment relating to ASTI in our UK Electricity Transmission business, increased spend on our new transmission projects in New York including our Smart Path Connect project, and higher asset condition and Grid Modernization spend in New England; partially offset by lower investment in NGV compared to the prior year due to lower spend on projects including the IFA1 Sellindge converter station rebuild, Grain LNG expansion and Viking interconnector as these projects neared completion.

 

When combined with RAV indexation, capital investment drove Group asset growth of 9.7%, within our 8-10% Compound Annual Growth Rate (CAGR) we published as part of our updated five-year financial guidance in November 2022.

 

Return on Equity (RoE)

Across the Group, we achieved a RoE of 8.9% in 2023/24, down on the prior year by 210 basis points (bps). This decrease was driven principally by a lower contribution from UK Electricity Distribution in the first year of RIIO-ED2, lower non-regulated profits reflecting property sales in the prior year, lower interconnector revenues, and a higher opening equity which was driven by prior period performance, growth and RAV indexation.

 

In the UK, we completed the third year of RIIO-T2 in our UK Electricity Transmission business where we delivered a RoE of 8.0%, up 50bps on the prior year. This includes 100bps of outperformance, principally reflecting delivery of capital projects during the year. For UK Electricity Distribution, we delivered a RoE of 8.5%, which included 110bps of outperformance, mainly driven by our totex efficiency programme including optimisation of our IT and digital programmes, and synergy benefits across the Group.

 

In the US, New York achieved a RoE of 8.5%, broadly in line with the prior year. This was principally driven by higher IT investments, partially offset by lower controllable costs delivered through our efficiency programme along with slightly higher Smart Path Connect recoveries. In New England, the achieved RoE increased by 90bps to 9.2% helped by a net 50bps of one-offs largely related to the recovery of historical property tax.

 

For further information on RoEs for each of our business entities, please refer to the Business Review section on pages 32 to 53.

A new phase of capital delivery: positioning the Group for future growth

Our financial performance reflects our role in the energy transition and a new phase of capital delivery that is firmly underway. With capital investment reaching a record £8,235 million in 2023/24, we have stepped up our investment in the 17 major onshore and offshore ASTI projects in the UK, whilst in the US we are progressing a number of major transmission projects to unlock renewable generation and upgrade infrastructure across our jurisdictions.

 

The progress we have made during the course of the year with partners, across supply chains, and on policy measures, and across both the UK and US Northeast, gives us more confidence around the scale and profile of our investment programme through the rest of this decade, and the regulatory frameworks that will sit around this investment. This confidence is shown in the announcement of our new five-year financial framework to March 2029, which is expected to see a near doubling of investment across the Group over the coming five years, to around £60 billion, versus the past five years. For further information on our new framework, please refer to the Five-Year Financial Framework section on page 18.

UK: The Great Grid Upgrade and ASTI

In March 2023, we announced The Great Grid Upgrade, our plan to build new transmission infrastructure, and upgrade the existing grid, to bring clean, green energy from where it is generated to where it is needed by homes and businesses. The Great Grid Upgrade is the largest overhaul of the grid in generations. In the next six years we will be required to build more than five times the amount of new electricity transmission infrastructure than has been built in the past 30 years.

 

The 17 ASTI projects, awarded to us by Ofgem in December 2022, form a significant part of this grid upgrade. In August, Ofgem published transmission licence modifications which formally placed the ASTI projects into Transmission Operators' licences, including our own. The projects will focus on upgrading the East Coast transmission network in support of the UK government's 50 GW 2030 offshore wind target. We anticipate total capital investment across the 17 projects to be in the mid-to-high teens of billions of pounds range with the majority of investment to be deployed towards the end of this decade. ASTI projects will be delivered by our Strategic Infrastructure (SI) business unit and, as each project is commissioned, they will be transferred to UK Electricity Transmission.

 

We have made good progress on our early ASTI projects in 2023/24. This includes the signing of joint construction projects with ScottishPower Energy Networks for Eastern Green Link 1 (EGL1) in August, and with SSEN Transmission for Eastern Green Link 2 (EGL2) in June. For EGL1, Prysmian Group was selected in December to supply 400 kilometres of HVDC cable between England and Scotland, with GE Vernova's Grid Solutions and MYTILINEOS selected to supply the converter stations and civils respectively. The design phase of the link begins in 2024 with construction in 2025. The total investment for the joint construction project is £2.5 billion, of which National Grid's share is £1.5 billion. For EGL2, the joint venture signed a contract in February, also with the Prysmian Group, to supply around 1,000 kilometres of HVDC cable for the project, as well as signing a contract with Hitachi Energy and the Royal BAM Group for converter stations at either end of the cable. This represents a significant milestone for the project as we make progress towards the delivery phase. When complete, EGL2, connecting Peterhead in Scotland to Drax in England, will be the longest HVDC cable in the UK and the country's single largest electricity transmission project ever. The total investment for the joint construction project is £4.4 billion, of which National Grid's share is £2.4 billion. Between them, both EGL1 and EGL2 will provide enough energy to power around four million homes.

 

In March, the Secretary of State for Energy Security and Net Zero granted a development consent order for Yorkshire GREEN, our ASTI project to build 7 kilometres of new overhead lines, underground cables and two substations between Shipton and Monk Fryston. This follows the conclusion of the examination period in September and the issue of a recommendation report by the Planning Inspectorate in December. The project will upgrade and reinforce the high-voltage power network so that more low-carbon energy can be supplied to homes and businesses in Yorkshire, with construction due to commence this summer and project completion expected in 2028. In the same month, the Planning Inspectorate completed its examination phase of the development consent for our Bramford to Twinstead network reinforcement project which will reinforce part of the East Coast transmission network through 18 kilometres of new overhead line and around 11 kilometres of underground cable. Strengthening the network here is vital to deliver cleaner, greener electricity efficiently, reliably, and safely and to support the UK's move to net zero.

 

Looking ahead, we anticipate other ASTI projects to progress in 2024/25, including consultations on the Norwich to Tilbury and Brinsworth to High Marnham transmission projects, whilst consultations have also commenced on our EGL3 and EGL4 projects.

 

UK: securing the supply chain

To enable the delivery of The Great Grid Upgrade we have made positive steps in securing the necessary supply chain partners. In May 2023, we launched the 'Great Grid Partnership' to identify supply chain partners to help to initially deliver nine major onshore ASTI projects. At the end of April 2024, we selected seven partners to provide an initial £4.5 billion worth of network infrastructure design and construction work out to 2030. Specifically, two design and consenting service partners (Arup/AECOM and WSP), and five construction partners (Laing O'Rourke, Omexon-Taylor Woodrow, Murphy, Morgan Sindall Infrastructure and Morrison Energy Services) are joining National Grid in the Great Grid Partnership. This is an important milestone that will enable us to help deliver the significant new electricity network infrastructure required to move more clean energy from where it is generated to where it is needed, helping the UK meet its net zero ambitions.

 

By creating these long-term strategic contractual relationships, National Grid will be well-positioned to overcome constraints while driving learning and innovation. This 'enterprise' partnership model is designed to deliver integrated planning and working between projects, enabling the supply chain to combine capacity, capability, knowledge and experience to accelerate delivery and deliver cost efficiencies, in turn delivering value for money for consumers. It is also a model that we have successfully used before on our London Power Tunnel projects.

 

Within the year we also launched our HVDC supply chain framework which, together with SSEN Transmission and ScottishPower Energy Networks, aims to secure the supply chain required for over 14,000 kilometres of cabling requirements across UK networks out to and beyond 2030. The framework, which has the provision for around £60 billion of investment, will enable National Grid to create longer-term strategic contractual relationships as well as provide a mechanism to secure not only our existing requirements but also anticipated future capacity. It also aims to reduce the administrative burden of individual tenders so that the Company becomes a more attractive client for the supply chain. Our ambition is to procure a long-term framework for all SI and NGV future needs - including cables, converters and civils - in collaboration with our joint venture partners.

 

These contractual arrangements with the supply chain not only highlight our confidence in being able to deliver ASTI projects efficiently, with 20% of our project portfolio now contracted with the supply chain, but represent a significant boost to the UK supply chain that will help deliver the energy transition, underlining our commitment to investing in jobs, skills and people required to deliver net-zero.

UK: National Gas Transmission

In July, we announced the sale of a further 20% in National Gas Transmission to a consortium led by Macquarie Asset Management and British Columbia Investment Management Corporation (the Consortium), with the equity sale on equivalent financial terms to the original 60% transaction (acquired by the same consortium) that was completed in January 2023. The 20% sale was completed on 11 March 2024 following the same National Security and Investment (NSI) clearance process as the initial 60% tranche. This has now taken the Consortium's equity stake in National Gas Transmission to 80%. The Consortium has an option to acquire the remaining 20% interest, exercisable between 1 May 2024 and 31 July 2024. If the option is partially exercised by the Consortium, National Grid will have the right to put the remainder of its equity interest in National Gas Transmission to the Consortium, which can be exercised by National Grid between 1 December 2024 and 31 December 2024. If one or both of these options are exercised, the consideration for the remaining interest is expected to be paid in cash to National Grid on equivalent financial terms to the original 60% transaction, subject to certain adjustments.

 

Following the completion of the 20% equity stake sale in National Gas Transmission to the Consortium in March 2024, National Grid's asset base moved to around 75% electricity, up from 60% in March 2021.

United States (New York) - Upstate Upgrade

In March, we announced plans to invest more than $4 billion in transmission network infrastructure in New York. The 'Upstate Upgrade' is a collection of more than 70 transmission enhancement projects through 2030 to deliver a modernised, stronger, and cleaner energy network in Upstate New York. In addition to generating thousands of new jobs, the investment will help the state meet its climate goals outlined in the Climate Leadership and Community Protection Act (CLCPA).

 

The Upstate Upgrade - the largest investment in New York's electricity transmission network for over a century - will focus on three key areas: (1) improving the energy network's resilience by reinforcing and upgrading infrastructure such as transmission lines and substations to help reduce outages during extreme weather events (this will include constructing, rebuilding, and modernising over 1,000 miles of transmission line and 45 substations); (2) creating over 1,700 new construction jobs; and (3) powering upstate New York's energy future by ensuring the network can meet increasing electric demand and transmitting clean power produced in New York.

 

Key projects in the Upstate Upgrade include:

■ Smart Path Connect - the project, for which National Grid's share of capital investment is $550 million, includes the rebuild and upgrade of approximately 55 miles of our Adirondack-Porter 230 kV transmission circuits to 345 kV in Northern New York. It remains on track for energisation in December 2025.

■  CLCPA Phase 1 - construction has begun on the first stage of our substation upgrade as part of the $800 million Phase 1 funding for transmission upgrades. This also includes projects such as Inghams-Rotterdam and Churchtown to Pleasant Valley circuit rebuilds (129 miles) to support 330 MW of incremental headroom capacity for renewable generation.

■  CLCPA Phase 2 - engineering contracts were awarded in October 2023 for transmission projects as part of the $2.1 billion Phase 2 funding for transmission networks and modernising the electric network.

 

On the supply chain, contracting has been executed to secure the supply of critical, high demand materials required for these upgrades including circuit breakers and power transformers. In November, National Grid hosted a supplier conference in Albany, New York, with 16 of the largest contractors in the US invited to discuss our vision and CLCPA projects. The key objectives were to discuss CLCPA work packages and encourage supplier engagement and relationships to support the growing portfolio. Of the 16 suppliers invited, 14 are now active participants in the CLCPA 2 bid event.

 

We also continue to grow strategic relationships with major contractors as part of the Supply Chain Transformation programme launched in 2023. The programme seeks to deliver two major outcomes with suppliers to aid becoming a 'Client of Choice'. Firstly, to partner more closely with the supply chain to ensure our strategies and goals are aligned; and secondly, to enhance our scale as a group to be able to secure wider, longer-term contracts with our suppliers.

Transmission investment through National Grid Ventures

Whilst we are entering a new phase of capital delivery through our regulated businesses, we are also pursuing new transmission opportunities through our non-regulated business, National Grid Ventures (NGV).

 

NGV had a successful year through New York Transco, a partnership of New York's major utilities, of which NGV has a share of 28.3%. In June 2023, New York Transco's Propel NY Energy transmission project was selected by the New York Independent System Operator (NYISO) to deliver increased transmission capacity between the mainland and Long Island. The project is in partnership with the New York Power Authority and follows the bid New York Transco submitted in October 2021 as part of the NYISO's Long Island Offshore Wind Export Public Policy Transmission Need solicitation. Total investment for the project is $2.8 billion, of which NGV's capital contribution is around $340 million.

In the same month, our New York Energy Solution transmission line upgrade project was fully energised. This project was selected by the NYISO to provide transmission upgrades to New York's power system, while enhancing reliability and facilitating upstate clean energy resources to downstate demand centres. Total investment for the project is $670 million, of which NGV's capital contribution is around $100 million.

UK regulatory progress

We have been encouraged by the good progress made during the year by government and Ofgem to support the step-up in investment required across UK energy networks. We are particularly pleased to see many of the areas we highlighted in our Spring Policy Paper now being acted upon. As we deliver our new contractual model for working with the supply chain it is important that we see the regulatory and legislative support necessary to support this and the investment required to upgrade the grid network. This is also critical to ensuring we build a transmission network that will serve society, protect the environment, and underpin economic growth for decades to come.

Delivering the future electricity network - National Grid

In May 2023, we published our Spring Policy Paper, 'Delivering for 2035: Upgrading the grid for a secure, clean and affordable energy future'. The paper outlined five priority areas of action for government and Ofgem to ensure electricity networks can fully play their part in decarbonising the power sector by 2035. These included (1) reforming the planning system, centred around a strategic spatial energy plan; (2) ensuring the regulatory and governance framework is set up for delivery; (3) transforming how clean energy connects to the grid and accelerating decarbonisation projects; (4) putting communities and consumers at the forefront of the transition; and (5) developing supply chain capacity and a skills pipeline across the country.

 

The recommendations we made in the publication are critical to reforming the scale and pace of the energy transition needed over the next decade, particularly in transmission, to enable the decarbonisation of the UK power sector by 2035. Since the publication of the paper we have been pleased to see a number of positive developments that have supported our call for reform.

Legislative and regulatory change

In August, we welcomed the publication of the Electricity Networks Commissioner's (ENC's) report and its recommendations aimed at significantly reducing timelines for delivering onshore and offshore transmission network infrastructure. Many of the recommendations align with our priority areas. In particular, we supported the ENC's recommendation for a strategic spatial approach to planning energy infrastructure and the robust need case this would provide.

 

We were also pleased to see a number of the planning points we had advocated in our Spring Policy Paper in the Chancellor's Autumn Statement in November. This included updated National Policy Statements for Energy which give transmission infrastructure 'Critical National Priority' status, and a Transmission Acceleration Action Plan which aims to shorten the time taken for new-build transmission projects to seven years through a range of initiatives aligned with our recommendations, including:

■  the creation of a Strategic Spatial Energy Plan which will create certainty for industry by identifying optimal generation locations and the infrastructure needed to meet future demand and net zero commitments;

■ the development of a Centralised Strategic Network Plan (CSNP) which will create a blueprint for the transmission network, establishing the need case and strategic options for our projects to move towards consent; and

■  a 'minded to' position on community benefits associated with new transmission infrastructure which will provide greater clarity for both the communities that host our infrastructure and the teams developing these project proposals.

 

In October, we welcomed the passing of the Energy Act 2023 which established important policy and governance foundations to deliver on the UK's net zero ambitions. It enables the separation of the Electricity System Operator (ESO) from National Grid and the formation of the independent National Energy System Operator (NESO) which we expect will complete later this calendar year. The Energy Act also introduced a net zero duty for Ofgem, widening the regulator's remit to consider net zero targets as part of its decision making.

 

In the same month, we also welcomed Ofgem's publication of the Future System and Network Regulation (FSNR) Framework Decision, setting out the overarching framework for the network price controls for electricity and gas transmission, and gas distribution, which will run from April 2026, known as 'RIIO-3'. For electricity transmission, the main points from the FSNR Decision included the continuation of five-year price controls, the setting of returns to ensure that necessary capital is attracted to support grid expansion, and the evolution of a RIIO-style framework, with the introduction of a major projects regime for significant network investments identified in the CSNP.

 

The detail of the frameworks will be developed by Ofgem through its sector specific methodology phase. This began in December with the publication of the regulator's Sector Specific Methodology Consultation (SSMC) for our UK Electricity Transmission business relating to the RIIO-T3 regulatory period. The consultation provided the framework on which we will base our UK Electricity Transmission business plan for RIIO-T3 which is due for submission in late 2024. In our response to the SSMC in March 2024, we welcomed Ofgem's recognition of the need to deliver clear signals and direction so as to provide certainty and assurance to investors that projects are viable, investable and deliverable. We also highlighted that Ofgem's investment needs assessment must allow projects to move at pace, that its cost assessment must recognise supply chain competition and volatility, that the incentives package must evolve to reflect the value that transmission operators deliver to customers, and that the financial framework must reflect the scale of the investment we must deliver and the changed macroeconomic environment. These approaches will enable National Grid to continue delivering world class networks at the lowest cost for consumers. In addition, the SSMC confirmed that the overarching RIIO-T3 framework will provide a foundation for the Electricity Distribution price control which will start in April 2028.

 

We expect the final methodology decision will be made by Ofgem in summer 2024, whilst the precise framework and process for Electricity Distribution will be consulted on separately in late 2024.

Looking beyond 2030

In March 2024, the ESO published the transitional Centralised Strategic Network Plan (tCSNP2), referenced as 'Beyond 2030', which sets out the network required to achieve a low carbon grid by 2035 (in line with the 6th UK Carbon Budget). This follows the publication of the first tCSNP in 2022, also referred to as the Holistic Network Design (HND), which set out the network reinforcement options required to connect 23 GW of offshore wind, including the 17 ASTI projects that are now within National Grid's transmission operating license.

 

The tCSNP2 sets out the network reinforcement required against the ESO's 'Leading the Way' Future Energy Scenario (which achieves net zero power sector emissions by 2034), and to support an additional 21 GW of wind in Scotland identified under the HND Follow-Up Exercise (HNDFUE) in 2022/23. It sees up to £58 billion of investment into the electricity transmission networks to be delivered through the 2030s, across all UK transmission operators, as well as a 65% growth in Great Britain's electricity demand between 2023 and 2035. For National Grid, tCSNP2 sees 35 'investment signals' to develop into projects of various sizes required for ongoing expansion and reinforcement of the grid network. We continue to mature and develop these projects with Ofgem and the ESO.

Driving connections reform across our transmission and distribution networks

During the year, National Grid launched a new reform initiative to accelerate grid connections across our transmission and distribution networks.

 

On transmission, the ESO has worked with stakeholders, including UK Electricity Transmission, to improve and reform the connections process to the transmission network. This includes two major aspects: a shorter term Five Point Plan, and a longer full connection reform process. The transmission connection queue now stands at over 700 GW for Great Britain which represents a significant oversubscription of what is required to meet the scenarios in the ESO Future Energy Scenario publication.

 

One of the key changes on the Five Point Plan has been the introduction of 'Queue Management' clauses into connection agreements. This allows the ESO the right to terminate connections for customers who miss key milestones in their project development, an important measure as we look to move to a 'first ready, first connected' process. Ofgem made the code modification required to enable this in November 2023. In addition to Queue Management, measures introduced through the Five Point Plan (which NGET worked on collaboratively with the ESO) include changes to how battery projects are modelled and updating background modelling assumptions, which have the potential to accelerate the connections dates for up to 70 GW of projects currently in the queue. For longer-term reform, the ESO published a consultation in the summer, to which National Grid (as one of the UK's transmission operators) responded with a recommended solution. We continue to work with Ofgem to understand a way forward that can expedite the implementation and delivery of the benefits of the proposed connection reform.

 

We also took further action on connections reform across our UK Electricity Distribution network. In September, we announced plans to release 10 GW of grid capacity for the connection of renewable generation assets to our distribution network. This followed engagement with the ESO, Ofgem and the UK government to find solutions to speed up the connection of low carbon technologies. Through a new agreement with the ESO, projects connecting at distribution level that require additional transmission network reinforcement will be offered the chance to connect under an interim, non-firm connection arrangement. In return for an earlier connection, the interim arrangements would mean some projects could be curtailed when there is too much generation on the system, such as on some of the windiest and sunniest summer days.

 

In September, we began replacing the current 'first come, first served' connection model with a 'first ready, first connected' approach on our UK Electricity Distribution network. This updated approach will accelerate the connection of 'shovel ready' projects to allow more low carbon projects to connect faster. As a result, these changes will allow customers to accelerate their connection dates and provide a more agile approach to managing connection requests. We also continue to work with members of the Energy Networks Association (ENA) on reforming the connection process to distribution networks. This includes promoting mature projects that are closer to delivery above those that may be 'blocking' the queue, and changing how transmission and distribution networks coordinate connections, improving their interactivity. During the year, we removed 95 projects from the distribution connection queue totalling 2.25 GW.

Offshore Hybrid Assets (OHA) - next phase of interconnection

In 2022, Ofgem opened an OHA pilot seeking to work with selected developers on establishing an investible OHA regime. OHAs are the next phase of interconnection, not only linking two countries but also connecting with offshore wind generation. The two projects in the Ofgem OHA pilot are LionLink (to the Netherlands) and Nautilus (to Belgium), both NGV projects, providing us an opportunity to shape the OHA regime and prepare it for future investment. In March, Ofgem granted a 'minded-to-approve' decision for LionLink and we are now working with our partner, TenneT, to ensure the project meets the approval conditions. However, Nautilus did not receive a 'minded-to-approve' with one of the main reasons cited by Ofgem being high estimated constraint costs associated with the project. We continue to work with our partner, Elia, to provide further evidence to address Ofgem's concerns through our consultation response in May. We expect Ofgem to make a final decision on LionLink, Nautilus and the OHA regime parameters in the second half of calendar year 2024.

US regulatory progress

We have seen equally good momentum on regulatory progress across our US jurisdictions during the year.

New York rate filings

On 10 April 2024, we filed a Joint Proposal with New York Public Service Commission (PSC) Staff for a three-year rate settlement at our downstate gas distribution businesses, KEDNY and KEDLI. This follows our initial rate filing for the businesses in April 2023. The proposed settlement includes funding for capital investment of $924 million for KEDNY and $646 million for KEDLI in the first rate year (an increase of around 30% on 2022/23), and a RoE of 9.35% which compares to 8.8% under the prior rate settlement. It will fund programmes necessary to modernise the gas network and continue a safe and reliable service for our customers. In addition, it maintains a focus on customer affordability through delivering efficiencies and bill assistance programmes, and includes programmes to reduce methane emissions, promote non-gas alternatives, and expand energy efficiency in support of the State's environmental goals. A final decision from the New York PSC is expected in the next few months. For further details please refer to the Business Review section on page 46.

 

We also remain on track to file for new rates for our upstate New York electric and gas distribution business, Niagara Mohawk (NIMO), before summer this calendar year.

New York transmission investment

In July, we received Federal Energy Regulatory Commission (FERC) approval for cost recovery on our Smart Path Connect transmission rebuild and refurbishment project in upstate New York. The order included a 10.3% RoE with a 50:50 debt:equity ratio, with cost recovery effective from 1 April 2023. The project, to develop 110 miles of transmission lines in partnership with the New York Power Authority (NYPA), will unlock more than 1,000 MW of existing renewable resources, deliver significant production cost savings and emissions reductions, and will decrease transmission congestion. The project is on track to be completed by 2025.

Massachusetts - Electric Sector Modernization Plan (ESMP) and rate filings

In January, we filed our final ESMP with the Department for Public Utilities (DPU) in Massachusetts. The plan outlines the investment required in our electric distribution network over the next five years and beyond to help the state meet its clean energy goals under the 2050 Clean Energy and Climate Plan (CECP). Under the ESMP, we have proposed to invest up to $2 billion over the next five years across the following areas:

■ Network infrastructure - upgraded power lines, transformers, substations, to make the network more resilient, connect clean energy and plan in advance for growth in demand from electrification;

■ Technology and platforms - new planning tools for smarter decision making, including new data and monitoring systems to ensure system stability, and new IT infrastructure; and

■   Customer programmes - helping customers reduce their carbon footprint and drive smart energy use.

 

In our filing, we sought DPU approval to take forward the plan investment and define the appropriate cost recovery approach. The DPU is now considering the filing and we expect the regulator to issue an order on our proposal in August. The proposed investment under the ESMP is not currently part of any rate order for our service territory.

 

In November, we filed for new rates for our Massachusetts Electric business. Our filing requested a five-year rate plan with a RoE of 10.5% and a revenue increase of $131 million in the first rate year. The rate plan introduces a comprehensive performance plan that includes a new capital recovery mechanism. This will adjust rates annually to recover the costs of the Company's core investment needs as well as any approved projects or programmes in the ESMP up to a recovery cap. The proposal also includes a Performance Based Rate Mechanism (PBRM) focused on core operations and maintenance (O&M) expense. Overall, the total requested capital expenditure in this filing, together with that under the ESMP, could reach up to $6 billion across the five years if the DPU accepts our investment proposals for both the MECO rate filing and the ESMP. The rate filing is currently progressing through the 'evidentiary' phase of the process, and we anticipate the DPU making a final rate order in September 2024.

The Future of Gas - Massachusetts and New York

In December, the Massachusetts DPU issued Order DPU 20-80, an investigation into the role of local gas distribution companies (LDCs) in achieving the state's 2050 climate goals. The Order establishes a framework to implement the decarbonisation pathway established in the state's 2050 Climate and Clean Energy Plan. The main requirement is for LDCs to consider Non-Pipeline Alternatives (NPAs) as a condition of recovering additional investment in distribution networks and must provide evidence when there is no NPA. The Order is clear, however, that existing investments in natural gas infrastructure by LDCs will not be affected. We are now working with other utilities in the state to deliver a plan by 2025 that takes into account the requirements of the Order. This will involve working with electric utilities in jurisdictions where we are the gas network operator, and vice versa, to deliver against the need for NPAs. The Order does not impact the current rate order for our Massachusetts Gas business which runs to October 2026.

 

In New York, the PSC is considering issues relating to the future of gas in its Gas System Planning Proceeding. Gas distribution companies are required to submit Long Term Gas Plans which are consistent with the state's CLCPA on a three year cycle. The initial Long Term Gas Plan filings for KEDNY, KEDLI and NIMO are required to be submitted by 31 May 2024, following which there will be a stakeholder engagement process with the final plan submitted in December 2024.

Community Offshore Wind (COSW)

In April 2024, the New York State Energy Research and Development Authority (NYSERDA) announced that no final awards would be made to the provisional awardees of New York's third offshore wind solicitation due to an inability of developers to agree to contract terms with their manufacturing partners. The New York Governor subsequently announced a path forward for New York's offshore wind industry, including a supportive manufacturing and logistics Request for Proposals (RfP) to grow the domestic supply chain in New York and a Request for Information (RfI) to inform future development for the state's fifth offshore wind solicitation.

 

The NYSERDA announcement followed our submission of 1.3 GW to New York's fourth large-scale offshore wind bid solicitation in December. However, following the announcement of the successful bidders in January, COSW was not selected but instead placed on a 'waitlist', a new part of the bidding process. COSW also submitted an offtake bid for a further 1.3 GW in August in response to the New Jersey Board of Public Utilities (BPU) solicitation. Following careful consideration, COSW withdrew its proposal, determining the offtake design would not allow us to deliver an affordable project for residents of New Jersey and for the state's climate goals.

 

COSW will look to participate in future offshore wind bid solicitation rounds and we expect to see these moving forward in due course.

Efficiency savings significantly above our three-year target

In 2023/24, we delivered a further £139 million of Group efficiency savings taking cumulative savings to £513 million at actual exchange rates. This significantly exceeds our £400 million savings target that we announced in November 2021, and that we committed to deliver by the end of 2023/24, and has been delivered against a strong inflationary backdrop whilst growing the asset base by 9.7%.

 

Our Group efficiency savings have been delivered through the year across four key areas:

■   Digital improvements - in the UK, we have consolidated work management programmes, reducing licensing and support costs in UK Electricity Transmission. In the US, we have shifted customers to e-billing; introduced a web portal for customer self-service; and introduced 'OnMyWay', automating work schedules for our field workers.

■   Continuous improvement - in the UK, we have increased productivity and reduced low value work allowing the redeployment of labour in UK Electricity Transmission to capital projects as our capital workload increases; in the US, we have achieved savings through redesigning transmission line inspections, greater use of drones for asset health inspections, and extending the life of transmission towers with a new steel coating technology.

■  Process improvement - in our US customer service centres, we have reduced call volumes by providing self-service options; introduced new automated messaging to direct customers online to resolve their queries, thereby increasing availability of staff to deal with more complex calls; and introduced new processes to resolve customer calls first time, reducing the requirement for 'call-backs'.

■  Supply chain optimisation - across the Group, we have driven contract efficiencies through consolidating our IT data centres; and utilising contract management strategies to enable us to reduce external third party spend.

Delivering as a Responsible Business

Our Responsible Business Charter

Since we launched our first Responsible Business Charter three years ago the external environment has continued to change and our business has evolved significantly with the repositioning of our portfolio. To reflect these changes, we updated the Charter in September following engagement with stakeholders and with a focus on three core pillars: our environment; our customers and community; and our people. Each of these pillars is underpinned by our Responsible Business Fundamentals - committing to safely, reliably and efficiently connecting millions of people to the energy they use - with the previous pillars of economy and governance now embedded within these new focus areas.

Progress on our environment pillar

Following the update to our Responsible Business Charter, our new aim is to reduce Scope 1 and 2 green house gas (GHG) emissions by 60% by 2030, from a 2018/19 baseline[7], whilst remaining committed to reducing Scope 3 emissions excluding sold electricity by 37.5% by 2034. We recognise the need for urgent action this decade and have worked with the Science Based Target initiative (SBTi) to align our near-term targets to their 1.5°C pathway. As part of this validation, we have also set a range of sub-targets which align to SBTi's more ambitious power sector pathway and which require higher decarbonisation of specific material emissions, such as generation and sold electricity. We now plan to update our Climate Transition Plan in June 2024 to reflect these new targets, which will be put to an advisory shareholder vote at the 2024 Annual General Meeting (AGM).

 

In 2023/24, we achieved a 5.9% reduction in our Scope 1 and 2 emissions, or a 11.8% reduction against the 2018/19 baseline. Our total Scope 3 GHG emissions decreased by 1.7% year-on-year. Against our SBTi approved target (which excludes sold electricity) our Scope 3 GHG emissions have increased by 0.8% since 2018/19. This was principally driven by emissions linked to our higher annual spend in relation to purchased goods and services (including capital investment) within our supply chain, with the bulk of these emissions coming from resource-intensive activities associated with constructing new energy infrastructure. Longer term, we expect a decline in the carbon intensity of materials and sectors and anticipate a reduction in our supply chain emissions. We aim to accelerate this by actively encouraging our suppliers to establish action plans and adopt science-based decarbonisation targets of their own.

 

During the year, we also connected 3,030 MW of renewable energy across our UK and US transmission and distribution networks, an increase of 2,344 MW compared to the prior year. In addition, the commissioning of our Viking Link to Denmark in December 2023 increased our interconnector capacity by 1.4 GW.

As we delivered another record year of capital investment, we also reached a higher proportion of green capital investment at 78% of Group capital expenditure[8] (versus 75% in the prior year). This amounted to £6.0 billion of green capital investment (versus £5.6 billion in the prior year) which was aligned with EU Taxonomy principles for sustainable investment.

 

We also continued to work with our supply chain during the year to establish decarbonisation roadmaps and Science Based Targets (SBTs). To help reduce our Scope 3 GHG emissions, we have continued to engage with our key suppliers that form a large part of our emissions linked to the goods and services we procure. We are asking the top 50% of US suppliers by emissions to set a decarbonisation roadmap plan towards a SBT by 2025/26. For our equivalent top 80% of UK suppliers, we are asking them to go one step further by formally committing to set target(s) with the SBTi by 2025/26.

 

During 2023/24, we enhanced how we calculate the emissions of our purchased goods and services (including capital goods) as part of our Climate Transition Plan (CTP). The change in methodology has affected the emissions profile associated with our suppliers, leading us to revise our list of carbon strategic suppliers. We will continue engaging and working with suppliers in partnership to identify common challenges and to help decarbonise our business. Our CDP Supplier Engagement programme in 2023 included 50 carbon strategic suppliers in the UK and 74 in the US that in aggregate accounts for over 30% of our GHG emissions from our purchased goods and services (including capital goods). Next year, we will revise our list of carbon strategic suppliers as a result of the change in our methodology for calculating the emissions of our purchased goods and services and in 2024/25 we will report on our progress to meet our stated SBT supply chain engagement targets for the US and the UK.

 

In December 2023, we partnered with the UK Government, We Mean Business Coalition and Climate Action, amongst other organisations, at COP28, participating in over 110 events and discussions on accelerating the energy transition. Our focus was on achieving system-wide resilience, developing reliable and clean power systems, and delivering a just and equitable transition. We welcomed the final COP28 agreement published by governments which included two new global goals to triple renewable energy capacity and double energy efficiency by 2030, recognising the need to transition away from fossil fuels in a just and equitable manner, in line with 1.5ºC and achieving net zero by 2050.

Progress on our customers and community pillar

In 2023/24, we made good progress on making sure our economic and social role has the greatest impact on the communities we serve. In the UK and US, with the support of our charity partners, we continued to provide financial support to those severely affected by rising energy costs through our Energy Support Fund. This winter, our UK partners received £11.3 million, while our US partners received approximately $1.8 million. In the UK, the funding helped expand our UK Electricity Distribution Community Matters Fund, offering grants to customers struggling with fuel poverty; our support for home visit, customer advice and fuel vouchers through the National Energy Foundation and Fuel Bank Foundation; and our support for Citizens Advice by funding an additional 15 full-time caseworkers, delivering support to an additional 2,400 people with specialist advice.

 

In Massachusetts, we continued to provide support to those customers severely affected by rising energy costs. This winter, we hosted over 185 in-person customer savings events which helped connect our most vulnerable customers to available resources. We facilitated more than $18 million in home energy assistance funding and bill relief for our customers. Additionally, we enrolled more than 250,000 customers on an income-based discount rate, as well as nearly 31,000 customers in arrears management programmes. In New York, through our September Week of Service and other community events, we continued to have a positive impact on our communities through volunteering at over 400 different events. In addition, Project C was honoured by CenterState Corporation for Economic Opportunity (CEO) as their 2023 Community Visionary Award winner citing us as an 'unwavering partner' for our communities.

 

During the year, we continued to engage directly in our communities through volunteering. In total, colleagues across the Group volunteered 77,918 hours across our communities in 2023/24. In the US, we recorded over 47,000 volunteering hours, whilst in the UK we recorded over 30,000 hours. Cumulatively, National Grid colleagues have now volunteered 179,480 hours since the publication of our Responsible Business Charter in 2020, achieving 36% of our ten year Group commitment of 500,000 volunteering hours. We also made good progress in skills development in 2023/24, with 18,907 people provided access to skills development through National Grid programmes in the UK and the US. Cumulatively, we have now delivered skills development for 30,730 people in our communities achieving 68% of our ten year commitment of 45,000.

Progress on our people pillar

In 2023/24, we welcomed a number of new additions to our Group Executive team, including Carl Trowell (President, Strategic Infrastructure), Katie Jackson (President, National Grid Ventures), Lisa Wieland (President, New England) and Courtney Geduldig (Chief Corporate Affairs Officer). As of March 2024, Group Executive diversity[9] stood at 53.8%, an increase of 8.3 percentage points on the prior year. The diversity of National Grid's Board stood at 45.5%, down by 4.5 percentage points on the prior year and below our 50% goal by 2025, principally through the departures of Thérèse Esperdy and Liz Hewitt, with Jacqui Ferguson joining the Board in January 2024.

 

For management gender and ethnicity diversity representation, we ended 2023/24 with figures of 35% for gender and 17.6% for ethnicity, both higher than the prior year which were 32.6% and 16.7% respectively; we remain on track to attain our 2025 goals of 35% and 20%. Our new talent (new recruitment) gender diversity reached 31.6% in 2023/24, an increase of 0.8% on the prior year. We also saw a notable increase in the number of ethnically diverse new talent joining National Grid during the year at 32.3% compared to 24.8% reported in the prior year.

 

Finally, this year we received over 24,000 responses to our annual independently managed employee engagement survey Grid:voice, the highest number of colleagues to ever complete the survey. Our employee engagement index score remained at 81% favourable, four points above the highest performing companies. Our 'Safe to Say' Grid:voice score remains stable year-on-year at 71%.

Board changes

On 17 May 2023, we announced that Thérèse Esperdy would step down from the Board as a Non-Executive Director on 31 December 2023 after serving more than nine years.

 

On 21 September 2023, we announced that Ian Livingston would succeed Thérèse Esperdy as the Senior Independent Director on 31 December 2023.

 

On 11 December 2023, we announced that Jacqui Ferguson would join the National Grid Board as an independent Non-Executive Director with effect from 1 January 2024; and that Liz Hewitt would step down from the Board on 31 January 2024.