National Grid (NG.) have published a paper entitled “Future Energy Scenarios” which spells out the impact of future trends in energy consumption, and by implication how it might affect their business. For example, the forecast demand for electric cars might add 30% to peak electric power demand, thus requiring the equivalent of five Hinkley Point C nuclear plants. Even if people only charge their electric cars in off-peak periods, the additional demand could be very substantial.
If you live in London, you may not be surprised because the Mayor’s recently published Transport Strategy document suggests that by 2050 most cars will be electric – at least they will be if the Mayor has his way. Think that is a long time in the future? Think again – Mayor Sadiq Khan wants to have zero emission zones in central London and the suburban town centres by 2025. This means that unless you have an electric vehicle, it may be prohibitively expensive to drive around much of London in just a few years’ time. That’s much sooner than the vehicle population is likely to change en masse, but you can see it will be a very big incentive to switch to an electric or hybrid car.
Readers may be interested to know that I am planning ahead on this issue and recently had a test drive of a Tesla Model S as I am thinking of replacing my vehicle. A very impressive car altogether and obviously getting near the point where electric vehicles are practical for most car drivers. Somewhat costly in capital terms at present even if running costs are low as it’s obviously aimed at the luxury car market (I do tend to buy expensive cars) but Tesla announced the first production deliveries of the new Model 3 this week which will be substantially cheaper. One can see that in two or three years’ time, all electric cars will be a viable proposition for most drivers, particularly if the costs come down as expected. Volvo announced this week that all their new models after 2019 will be electric or hybrid so you can see the way the wind is blowing.
But that still leaves the problem of generating all the extra electricity, particularly when the wind is not blowing and the sun is not out. To meet the demand in the timescale required might simply result in more cheap gas power stations, not nuclear. I am yet to be convinced that this migration to electric vehicles makes much environmental sense because of the inefficient energy conversion involved in comparison with a modern petrol engine. We might end up with more air pollution rather than less, although the Mayor of London will no doubt ensure its not on his patch. But you can see that the pace of change in energy production and distribution could affect many other listed companies, not just National Grid.
Now it could be that National Grid did this analysis of future energy scenarios before they committed to dispose of a majority stake in their gas distribution business which recently went through. As I plan to attend the National Grid Annual General Meeting later this month, I may ask some questions on what the implications of their projected energy scenarios are for their business, but it might well be positive I suspect as electricity distribution will obviously grow substantially.
Roger Lawson (Twitter: @RogerWLawson )