National Grid (LSE:NG.) may benefit significantly from proposed changes to the UK’s electricity transmission framework, according to a research note published Monday by investment bank Jefferies.
The analysis focuses on Ofgem’s Draft Determination, which outlines potential revisions to how project costs are treated under the regulatory model. Specifically, Jefferies evaluated the impact of reduced capitalisation rates on companies such as National Grid, Iberdrola (BIT:1IBE), and SSE (LSE:SSE).
Capitalisation rates affect how infrastructure investment is recorded—either added to the regulated asset base or expensed immediately—thereby influencing earnings and cash flow.
Jefferies projects that if capitalisation rates come in 8% below National Grid’s current business plan assumptions, the utility’s earnings per share could rise by approximately 7p annually, or around 8% above current market consensus, across fiscal years 2026 through 2031.
The projections are based on a maximum pipeline investment scenario of £34 billion outlined by Ofgem. Actual expenditures may ultimately vary.
Jefferies also sees moderate upside for Iberdrola, estimating a potential 4p, or 3% EPS lift via its UK subsidiary, Scottish Power, if similar regulatory adjustments are made.
SSE, by contrast, appears less exposed to earnings upside under the revised model. The company had already proposed a capitalisation rate below 80%, which is roughly in line with the blended rate currently assumed by Ofgem under the highest spend scenario.
While lower capitalisation rates could support short-term earnings and cash flow—especially for National Grid—Jefferies cautions that this might come at the cost of slower long-term growth in the regulated asset base.
Under the draft plan, Ofgem has projected a maximum total grid investment of £80 billion over the 2026–2031 period, including £10 billion in base spending and £70 billion allocated to future pipeline developments.
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