Is National Grid plc (NGG) An Undervalued Gem in Renewable Energy?

The renewable energy sector has been a magnet for investors seeking growth and alignment with decarbonization goals. But with National Grid plc (NGG) recently divesting its U.S. onshore renewables business to Brookfield Asset Management, questions arise: Is NGG still a play in renewable energy, and is it undervalued? Let’s dissect the data.

Valuation Metrics: A Mixed Picture

National Grid’s valuation metrics paint a complex picture. As of 2025, its trailing P/E ratio stands at 29.16, which is elevated compared to its forward P/E of 15.34. This suggests the market is pricing in higher future earnings growth, possibly tied to its regulated network infrastructure projects. Meanwhile, its price-to-book (P/B) ratio of 1.47 indicates the market values NGG at a slight premium to its book value.

The standout metric is the dividend yield of 9.62%, driven by an annual dividend of $7.02 per share. However, this yield comes with a caveat: the payout ratio is an unsustainable 1,196.28%, meaning dividends exceed net income. This raises red flags about dividend sustainability, especially with negative free cash flow (-$1.32 billion) and a debt-to-equity ratio of 1.30.

Renewable Energy Pipeline: A Strategic Exit

National Grid’s renewable energy projects pipeline has undergone a seismic shift. In 2025, it completed the sale of its U.S. onshore renewables business (National Grid Renewables) to Brookfield, stripping away 1.8 GW of operational solar, wind, and battery storage assets and 1.3 GW under construction. This divestiture marks a strategic pivot toward its core regulated networks—transmission and distribution systems in the UK and U.S.—while Brookfield assumes ownership of the renewables assets.

Post-sale, NGG’s renewable focus is limited to a joint venture with RWE AG for offshore wind projects in the New York Bight, with a potential 3.2 GW capacity. However, regulatory delays and RWE’s paused U.S. offshore wind activities (due to political uncertainties) mean this project’s 2025 timeline is unlikely to materialize.

Core Infrastructure: The New Growth Engine

National Grid is doubling down on its regulated network businesses, which are insulated from market volatility. Key projects include the UK’s Great Grid Upgrade (a £6.8 billion investment to modernize power systems) and the New York Upstate Upgrade, both critical to meeting decarbonization targets. These projects offer stable returns due to regulated rate structures, which could underpin steady earnings growth.

Analysts project 6-8% EPS CAGR from a 2025 baseline, driven by these infrastructure investments. The Brookfield sale proceeds will further bolster capital for these projects, potentially improving NGG’s balance sheet over time.

Risks and Challenges

• Dividend Sustainability: The 9.62% yield is unsustainable without earnings recovery. If NGG cannot reduce its payout ratio (currently 1,196%), it may face dividend cuts or debt-driven dilution.
• Regulatory and Political Risks: Projects like the New York Bight offshore wind venture face delays due to U.S. federal permitting freezes and policy shifts under the Trump administration.
• Debt Burden: With $62.26 billion in debt, NGG’s leverage ratio poses a risk if interest rates rise or cash flows falter.

Conclusion: Not a Renewable Play, But a Value in Infrastructure?

National Grid is no longer a renewable energy stock—it has exited U.S. onshore renewables entirely and scaled back offshore ambitions. Its 9.62% dividend yield and forward P/E of 15.34 may tempt investors, but the unsustainable payout ratio and debt burden temper optimism.

However, if viewed as a regulated infrastructure play, NGG’s core business offers stability. The Great Grid Upgrade and New York Upstate projects align with long-term energy transition goals, and the Brookfield sale’s proceeds could improve capital allocation.

Final Verdict: Avoid NGG as a renewable energy stock. Its strategic pivot renders it irrelevant to the sector. For infrastructure investors, it’s a cautiously considered value, but only if the dividend is trimmed to sustainable levels.

In summary, NGG’s valuation metrics and strategic shift make it a complex investment. While its regulated networks offer steady returns, its high-risk dividend and diminished renewable profile mean it’s not an undervalued gem in the sector—unless you’re betting on a turnaround in its core business.