The £70bn that turns customer bills into National Grid dividends

Tin towers are rising across the English countryside, and 1,000km of undersea cable is being laid to connect offshore wind farms that do not yet exist. This is the Great Grid Upgrade, the largest overhaul of Britain's electricity network in a generation. National Grid, the owner of most of the transmission system and of distribution and gas networks on both sides of the Atlantic, has committed at least £70bn of capital over the five years to 2031. The regulator, Ofgem, has approved £28bn for the networks it oversees over the same period, a figure the watchdog expects to grow to £90bn by 2031 once all gas and electricity schemes are counted.

For a shareholder, the important thing to recognise is what this spending is not. It is not a cost that depresses profits, the way a carmaker's new factory eats into its returns. It is the mechanism by which a regulated utility makes money.

Britain pays its network monopolies through a framework called RIIO ("revenues equal incentives, innovation and outputs"). Each pound a company spends on approved infrastructure is added to its regulatory asset base, the number on which the regulator lets it earn a fixed real return every year for decades. Spend more, and the base grows; the base grows, and the allowed revenue grows with it. That is why National Grid's senior figures can promise compound asset growth of around 10% a year and underlying earnings growth of 8–10% to 2031, with a dividend policy indexed to consumer-price inflation. The £70bn is less an investment than a regulatory promise to pay.

The other side of that promise is what the headline "consumers face higher bills" describes. The two statements are the same number seen from opposite ends. Ofgem puts the total added cost to a household bill at £108 a year by 2031 — £48 for gas, £60 for electricity. The trouble is that this is not the whole account. A stronger grid stops the current absurdity of paying wind farms to switch off because the lines cannot carry their power; it is this "constraint" payment that the build-out curtails. Add the savings from lower reliance on imported gas, and the regulator reckons the net rise is about £30 a year, with perhaps £80 saved versus a world in which nothing was built.

The framing matters because it decides which political pressure the companies face. Cast as a pure bill increase, the upgrade looks like a tax on households to enrich shareholders, and a future government would be tempted to squeeze the settlement. Cast honestly, it is a choice between two bills: pay now, in network charges, or pay later and more painfully, as constraint payments balloon toward the £12.7bn a year the system operator projects by 2030. That is a trade-off with identifiable winners and losers — today's bill-payers and tomorrow's, energy-intensive industry and the rest — not a simple outrage.

The deeper risk is that the promise is a movable one. The allowed return is not discovered in a market; it is granted, and hence can be regranted more stingily. In the settlement that begins in April 2026 the companies accepted real allowed returns on equity of 6.12% for National Grid's transmission arm and 5.70% for SSE, the Scottish transmission owner — below the 6.57% SSE had sought and arrived at only after Ofgem struck out about a quarter of requested spending. Every five years the regulator resets the dial, under whatever political weather is blowing. The grid's growth is therefore underwritten by an institutional compact: that Britain will keep honouring a fixed return on an asset base that grows with every kilometre of new line.

That compact is what the investor is really buying. National Grid's American depositary receipts, at about $76 near a 4% yield, are best understood as a long-dated, inflation-linked bond with a growth rider attached — the growth being the compounding of the regulatory asset base. Its vulnerabilities are the usual ones for such a claim: real interest rates, which govern how the future revenue is valued, and the gearing required to fund it, which the company expects to rise from 61% toward the high sixties by 2031. And beneath both sits the political one, that the next RIIO review trades customer goodwill against the cost of capital and finds the latter easier to shave.

None of this makes the upgrade a bad bet. The alternative favoured by the headline is not cheaper; it simply defers the cost and hides it in constraint payments and imported gas. But it is worth being clear-eyed about what the bet is. The £70bn is not evidence that Britain's grids are well run or that demand for their services is strong. It is evidence that a regulator has promised to pay them a fixed return on whatever they build, and that the shareholder's belief in National Grid is, at bottom, a belief that the promise will be kept.