National Grid stock price drops 6% on “disappointment” with Ofgem’s plan

National Grid stock price drops 6% on “disappointment” with Ofgem’s plan
Written by:
Michael Harris
9th July, 13:03
  • Ofgem, the U.K. energy regulator, has presented a plan for a five-year investment worth around £25 billion
  • The plan seeks to halve “allowed rate of return”, which will directly hurt National Grid and its energy peers
  • National Grid stock price has plunged around 6% to trade below 850p for the first time since April
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Shares of National Grid (LON: NG.) have plunged 6% today following the U.K. energy regulator Ofgem’s new price-control and investment plans. As a result, National Grid stock price now trades at a 3-month low. 

Fundamental analysis: National Grid “extremely disappointed” by Ofgem’s plan

Ofgem, the U.K. energy regulator, has presented a plan for a five-year investment worth around £25 billion ($31.43 billion). The basic idea behind the investment plan is to transform the country’s energy networks.

A part of the plan specifies “allowed rate of return”, which obviously, works against the interest of energy firms. Ofgem wants to reduce the profits of private companies by halving the allowed rate of return. Consequently, the regulator will channel these funds towards driving network improvements.

“Given the scale of green investment likely to be needed in future, Ofgem is keeping costs as low as possible for consumers by proposing the lowest ever rate of return on capital for network companies, and pushing companies to be much more efficient in how they run themselves,” the energy regulator said in a statement.

As a result, the households are likely to pay £20 less in network charges on bills for a year.

“This proposal leaves us concerned as to our ability to deliver resilient and reliable networks, and jeopardises the delivery of the energy transition and the green recovery,” National Grid said in a statement.

Moreover, Ofgem plans to offer around £10 billion in funds over the next five years for energy firms to further improve the green emissions-free energy and infrastructure.

Technical analysis: Shares plunge

National Grid stock price has plunged around 6% to trade below 850p for the first time since April. The price action has been in the continuous downfall in July, now down nearly 14% on the month. 

National Grid stock daily chart (TradingView)

More importantly, National Grid share price is testing the 100-MMA. This moving average has supported the price action for the last 12 months or so. A break of the 100-MMA at 867 would pave the way for a deeper correction towards 750p.

Summary

National grid stock price has dropped today after Ofgem presented a plan for a five-year investment worth around £25 billion. The plan also foresees to cut the allowed rate of return of energy firms in half.

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