The decarbonization of energy systems is one of the world's biggest challenges, with net zero targets accelerating the transition to a clean and affordable energy future. We must act. Right now, National Grid is at the heart of the energy transition, advocating for change, collaborating with regulators, government, industry, and customers, and building the infrastructure needed to power everything we do. We're proud to own and operate some of the most reliable electricity networks in the world, upgrading and modernizing them to bring more renewable generation onto the grid.
We're using innovative technologies to create smarter networks, managing the changing patterns of energy supply and demand. We're pioneering offshore solutions to connect massive offshore wind farms to onshore networks in the U.K. and neighboring countries, allowing millions of homes to be powered by clean electricity while minimizing impacts to coastal communities and biodiversity.
We're creating the pathways to decarbonize transport, working with the U.K. government to deliver an ultra-fast load charging network. Across the U.S. Northeast, we're rolling out electric vehicle charging points and incentives to help our customers make the shift to clean transport. Today, 3x more energy is delivered through gas than electricity, and gas will continue to play an important role for years to come. We're changing our gas infrastructure to reduce emissions and make our networks cleaner.
We're leading hydrogen pilots in the U.K. and U.S. to deliver the clean fuel that will heat our homes in the future. Right now, National Grid is driving the journey to net zero. We're at the heart of the energy transition. We're building next generation smart power networks right now. We're monitoring and balancing energy needs right now. We are repairing and replacing old technologies right now. We're hiring and training the next generation of diverse talent right now. We are collaborating with our communities to deliver a sustainable and stable future right now. We are National Grid doing right now.
My intention today is that you'll take away the following four key messages. The first is that our pivot to electricity brings visibility and certainty of growth right now and out to 2050. Second, our scale magnifies our vital role at the heart of the energy transition. Third, we have a strong track record of delivering growth. Finally, with green CapEx making up GBP 13 billion of our investment over the next five years, we are the energy transition company. Hello, everyone, and welcome to our 2021 investor event. It's great that so many of you are here to join us today. Whether you're here live or watching remotely, I hope that both of you will really have a positive experience.
I'm delighted to be joined by my senior management team today, who you'll have a chance to meet through the course of this event. My team has more than 300 years of experience in the energy industry across multiple geographies, and each of them has a track record of delivery, they're purpose-driven, and they lead through their values. We have a lot to share with you today as we focus on our regulated businesses, which will deliver over 90% of our investment over the next five years, and where we see significant opportunities over the decades to come as National Grid enables the energy transition. Let me start today by laying out my vision for our energy networks. National Grid will be a leader in pioneering smarter low carbon energy networks, which at their core are made up of resilient transmission and distribution grids.
These grids will integrate multiple sources of energy, from massive nuclear power stations to offshore wind farms, to small distributed solar generation, enabling reliable power for all. Our networks will enhance the flexibility of power supply through cutting-edge demand response by enabling smarter homes to sense grid conditions and automatically modify their consumption. Vehicle-to-grid technology that allows electric vehicle batteries to store energy and sell it back to the network when it's most needed.
Our existing gas networks in time will be used to support a move to hydrogen and decarbonize natural gas, utilizing existing infrastructure to ensure affordability for our consumers. Ultimately, my aim is for our networks to power the technologies of tomorrow to enable greater choice and flexibility of supply, improve resilience, and importantly, maintain the affordability of delivered energy.
This vision for our future energy networks aligns with the global push to net zero and demonstrates the vital role that we'll play. With that vision, as I look to the decades ahead, I believe the scale of opportunity across our businesses is significant. The regions we work across have very ambitious climate goals. The U.K., New York, and Massachusetts all have net zero by 2050 targets. Do we.
They all have ambitious 2030 and 2040 goals, and so do we. Meeting these targets will require a step change in infrastructure investment to deliver the onshore and offshore clean energy that will enable the decarbonization of power, the electrification of transport, and the decarbonization of heat. Let's just put that into context. In 2020, the International Energy Agency forecast $400 billion of annual global network investment by 2030.
In the U.S., the infrastructure bill includes over $70 billion for power infrastructure and another $7.5 billion to build out a national EV charging network. Princeton's Net-Zero America report suggests Massachusetts and New York will have the fourth and fifth highest network investment needs across the nation. In the U.K., the Climate Change Committee's Sixth Carbon Budget forecasts a doubling of electricity demand by 2050 and a sharp increase in network CapEx to meet 2030 targets.
These are all big numbers. I saw firsthand at COP26 the strong commitment to them from government and industry. Now it's critical that we turn these commitments into action. We believe that our track record, along with the changes that we're making inside the group, will put us in a strong position to take advantage of those opportunities.
Let's just look at the last five years. We've consistently delivered world-class safety performance. We've operated some of the most reliable electricity and gas networks in the world. We've turned around our U.S. performance. We've outperformed our U.K. regulatory contracts, and we've built world-leading interconnected business, a business focused on enhancing our role in the energy transition. In addition, we've also made significant progress in reducing emissions in our own businesses and across our geographies. Since 2000, across the U.K., carbon emissions are down by more than 35% and down nearly 20% in the U.S. Northeast. National Grid is playing its part with emissions from our own operations, known as Scope 1 and 2, down by nearly 70% by 1990.
This exceeds our original goal, but we remain committed to reduce our Scope 1 emissions further and Scope 2 by 80% by 2030, by 90% by 2040, and to net zero by 2050. Our contribution is so much greater than this. We're also tackling Scope 3 emissions and are targeting a reduction of 35.5% by 2034. Right now, across our regulated businesses, we're enabling cleaner electricity with 22 GW of renewables now connected to our U.K. and U.S. electricity transmission and distribution networks. We're also enabling the take-up of electric vehicles. In our electricity transmission business, we're helping to deliver ultra-fast charging infrastructure as part of the U.K.'s Rapid Charging Fund.
In the U.S. jurisdictions that we own, we're supporting the installation of more than 20,000 EV charging points by 2025, and have recently filed for another 32,000 in Massachusetts. We're also working on ways to decarbonize our gas networks. For example, we're testing the impact of blending hydrogen on our gas networks through the Future Grid Pilot in the U.K. and the Department of Energy's HyBlend initiative in the U.S. Our focus is just not on regulated networks. National Grid Ventures is also playing its part. I'm particularly delighted by the recent early commissioning of our fifth interconnector, the 720-km North Sea Link connection to Norway. This 1.4-GW link will enable flow of zero carbon electricity, avoiding 23 million tons of carbon emissions by 2030.
In the U.S., our onshore renewables business continues to add capacity, having secured over 2 GW of power off-take agreements with household names such as Walmart and Home Depot. Since its inception three years ago, National Grid Partners has invested $290 million in 35 companies whose transformational technologies are helping to make grids greener and more resilient. I hope this just gives you a flavor of the many things we've been doing across our businesses to support energy transition, and we'll share more examples of these during the course of the day. However, you'll be pleased to hear we're not just relying on our performance and environmental track record. We're also making big changes to ensure we're positioned to deliver on the opportunities ahead.
As many of you know, we announced a significant strategic pivot in our portfolio in March, and this is now taking shape. Our acquisition of WPD, the U.K.'s largest electricity distribution business, is now complete, and I'm pleased to be able to welcome our new colleagues to National Grid. As part of our repositioning, we'll shortly be saying goodbye to our colleagues in Rhode Island's business when we complete the sale in the first quarter of 2022. We've also just launched the sale process for a majority stake in our gas transmission business here in the U.K. and expect to complete the sale by the summer next year. These moves will increase our exposure to electricity, enhance the long-term growth profile of the group, while cementing our position at the heart of the energy transition on both sides of the Atlantic.
As we position the group strategically for the opportunities ahead, we're also implementing a new organizational structure which enables us to be closer to our customers, to our regulators and communities, with a real focus on best-in-class service. To drive decision-making down to the local level, making us more agile as a business, and developing new processes and digital solutions to drive efficiencies. This last point is key. As we advance along the path to our clean energy future, we need to consider customer affordability to make sure that no one is left behind on this journey. In this respect, we're no different to any other business. We need to deliver our output to the most competitive price with a focus on efficiency and a drive for innovation in the way we build, operate, and maintain our networks.
Of course, we have a great track record of doing just that. For example, through RIIO-T1, we generated over GBP 850 million of savings for our customers, largely through CapEx outperformance. Going forward, we need to do more. Which is why, in addition to our continued focus on outperforming our capital allowances, we're committing to a significant cost efficiency program to deliver over GBP 400 million of savings over the next three years. This will translate into a flat, controllable cost base in our regulated businesses, which we're confident in being able to achieve despite the fact that we expect growth of over 20% in our asset base. A key contributor to these savings will be through process improements. Just one example.
In the U.K., we've seen demand for new connections to the electricity transmission network increase fourfold in the last five years. To address this, we developed digital self-service tools that help customers connect faster and easier and by reducing their costs. You'll see great examples like this today, all of which help to underpin the target that we've set of EPS growth of 5%-7% per year. As you can see, we've a track record that gives us the confidence in the future, and we've reshaped our portfolio and our organization for the opportunities ahead. However, we know to be successful, we recognize we must also use our voice to help shape policy and regulatory reforms that are needed to deliver net zero and minimize the impact on customer bills.
In the U.S., for example, we're developing new rate case mechanisms, which allows greater visibility for investment, creating opportunities for further efficiencies, while helping us align our environmental aims with the states we operate within. We're also agreeing plans that can develop step changes in behavior, whether it's our award-winning energy efficiency programs or investment in EV charging to deliver more ports and reduce range anxiety. There's so much more that we can do. We're working with policymakers in the U.S. to develop cost-effective routes to net zero.
This work is really about helping to educate all stakeholders and underpins the importance of investment in our gas and electricity infrastructure in order to meet climate change targets. For example, in New York City, we've recently published a joint report with the mayor's office looking at fully costed decarbonization pathways right out to 2050.
It considers three pathways from electrification to a more diversified energy mix, with all three showing the importance that a gas network will play for decades to come. In the U.K., we're also working closely with policymakers. Alongside the work we're doing on the Rapid Charging Fund, we're heavily engaged with regulators and government on enabling 40 GW of offshore wind by 2030, working with the electricity system operator on building an understanding of the 15 projects required to deliver this target. In National Grid Ventures, we're working with regulators and partners across Europe to think through future models to deliver offshore infrastructure requirements efficiently. As you'll see in the breakouts, our teams are setting out a North Sea vision to enable these goals to be met.
We're also looking beyond RIIO-T2 and the up-and-coming ED2 price control, and we're thinking about the changes that are needed to ensure there's a framework that will continue to attract investment and meet the U.K. government's ambitious climate targets. We're engaging decision-makers, thought leaders, and industry experts with our ideas to reform institutional governance, regulatory frameworks, and market mechanisms in a way that looks across the intersections between energy, the hydrogen economy, and a decarbonized transport sector.
We're doing all of this to increase the probability of successfully delivering the energy transition affordably and at pace. Alongside evolving the regulatory and policy frameworks, of course, we also need to bring all our customers on this journey. Electricity will deliver much more of society's energy needs going forward, from broadly around about 20% today to potentially 60% by 2050.
We know customers want a reliable, resilient, and safe energy network, and we know that they're really passionate about net zero, which is why we'll continue to engage widely and why we've set up an independent user group, which will run right throughout RIIO-T2. In the U.S., in New York and Massachusetts, we've also set up advisory groups to do the same. There's no time to lose if we want to help our regions meet their ambitious climate goals. With the work that we're doing both inside and outside National Grid, we're ready to play our part in delivering our ambitious growth plans. Over the next five years, we'll invest up to GBP 35 billion. It's the highest level of CapEx to date from National Grid. This is investment we're doing right now to deliver safe, reliable, and low-carbon energy networks.
For example, in the U.K., we're enabling 6 million homes and businesses to access low-carbon electricity through the Hinkley Point C Connection Project. In the U.S., we're unlocking renewable generation capacity with 100 mi of transmission rebuild with the Smart Path Connect project. We're making our gas networks cleaner through pipeline replacement program and investment in renewable natural gas and hydrogen projects.
We are the energy transition company. We're investing GBP 13 billion over the next five years directly in decarbonizing energy networks right now. That proportion will only increase over time. This is measured using the conservative definitions in our Green Financing Framework, which is closely aligned to the EU Taxonomy and excludes clean spend in areas like connecting nuclear power or lowering methane emissions through our gas pipeline replacement program. There are many companies investing in clean energy, but few are investing at this level.
What differentiates us further is our stability and risk profile. National Grid has attractive growth that delivers a resilient progressive dividend, and we do this without needing to take on significant merchant exposure at either end of the energy value chain. We know that as the energy landscape undergoes dramatic change, our regulated networks will become even more important. Over 90% of this investment over the next five years is within our regulated businesses. Now, I know the words regulated businesses may not always generate huge excitement outside of the National Grid boardroom, but it does deliver a compelling investor proposition.
Over the past 20 years, we've delivered sustainable growth, enabling us to be one of only a handful of FTSE 100 companies that's maintained a growing dividend, which of course, has been key to delivering strong shareholder returns with an annualized total shareholder return of nearly 10% over the last 10 years. The high degree of certainty that we have over the next five years gives us the stability and visibility we need to deliver asset growth of 6%-8% per year, earnings growth of 5%-7% per year, while maintaining a resilient balance sheet and continuing our track record of execution excellence and outperformance. We're doing this, of course, to ensure we can continue to deliver attractive shareholder returns into the future. Growth does not stop after five years.
Indeed, in the U.K. and in the U.S., it's likely to continue with further waves of investment. In the second half of this decade and in the decades beyond, additional investment is going to be needed. It's going to be needed to meet offshore wind targets and unlock renewable onshore capacity. It's going to be needed to deliver ambitious EV targets. And it's going to be needed to empower consumers with technology like advanced metering infrastructure, enabling them to engage with energy networks in real time. In the breakout, you'll have a chance to see what our teams are working on today, such as the new transmission routes that will come into New York, as well as our grid modernization program in Massachusetts.
Looking even further out, additional waves of investment are needed to meet 2035, 2040, and 2050 commitments across our U.K. and U.S. regions as electrification continues to grow. In particular, this growth will be driven by the decarbonization of heat, which today accounts for about 1/3 of carbon emissions in both the U.K. and the U.S. Northeast. This will be achieved through a mosaic of solutions, in my view, including heat pumps, hydrogen, and low carbon and renewable natural gas, all of which National Grid is working on today. What I want you to take away from all of this is that the energy transition gives us enormous growth opportunities, not just for the next five years, but also for decades to come. This growth will continue at a pace where we're confident that we can deliver.
Now, we have much more to share with you this afternoon on these plans, and in a moment, I'm gonna ask Phil Swift to join me to introduce our new Electricity Distribution business. But before that, I want to leave you with these final comments. I'm incredibly passionate about what we're doing here at National Grid because right now, as one of the world's largest publicly- listed utilities, we're making a tangible difference by taking on some of the biggest energy challenges and driving innovation to get us there faster. We're bringing people together as we do so through our unique position of working alongside governments, regulators, and customers. That's what I mean when I say National Grid is at the heart of a clean, fair, and affordable energy future.
We're doing it right now so we can drive long-term value growth and returns for our shareholders and to enable net zero across our communities. As investors, you're partnering with us in achieving that mission. Thank you. Okay, we're gonna start our first session this afternoon. Really I'm excited about this. It's an opportunity for me to introduce WPD as part of National Grid to everybody. I'm sure everybody in this audience is aware that the acquisition of WPD was an incredibly important part of the strategic pivot that we announced in March. I was obviously delighted when we had the approval from the CMA back in June. I'm equally delighted to welcome Phil-
Thank you.
...to the stage as the President of WPD. Phil and I have actually known each other for a very long time. We've both been in the industry, I think, 29 or 30 years.
Yeah.
I think I'm 30, he's 29.
I'm the young one, obviously.
Phil, why don't you introduce yourself?
Yeah. Hi. Well, as John said, I've been with the company 29 years, almost 30, so multiple roles across the organization. I guess the latter, the last 10 years, I was Ops director from 2013 for the four licenses and then, CEO/president from 2018. That's my history. Thanks, John.
Yeah. It's a great history to have, Phil, and you know how excited we are that WPD is now part of National Grid, and you also were very aware because you were fully involved, of course, in all the potential buyers that were interested in WPD. I think it'd be great just to share with everyone sort of what was your reaction when you heard that National Grid was going to be the new owners of WPD, and how did the organization view it?
Yeah, well, I mean, certainly with any sale acquisition comes a high degree of uncertainty for management and staff combined. I think when we reached the end of the process, as you say, John, and National Grid were the successful bidder, I think that was treated with a lot of happiness, if that's the right word. It's a fantastic result for WPD and its staff. If you look at National Grid, and you look at the culture and the values, they align with WPD and the journey we've been on.
You know, the vision looking forward in terms of decarbonization that you just explained in your introduction there, we're aligned on that as well. Overlay National Grid's world-class engineering and safety performance, which is important to all of our businesses as operational businesses. It's a very good fit for WPD within that organization.
The other thing for me is our previous owner, PPL was a long-standing owner for 25 years, with a long-term interest in infrastructure assets and doing the right thing. Moving into the Grid group of companies, we can see that alignment is there as well. I think it's a really good result. Of course, as we've known each other, so have our operational teams known each other.
Yeah.
We've solved a number of challenging technical issues over the years. If I look back to 2015, 2016, we had a huge amount of renewable generation in the southwest, and it was actually the solution was a combined National Grid, WPD, technical solution at minimum cost, but actually dealt with the problem we had in terms of allowing connections to take place. That's a good track record and right now, of course, the teams work together on Hinkley to build the infrastructure and unlock the generation from the new Hinkley C reactor. All good stuff.
Well, it's certainly nice to hear all that, Phil, and certainly in my experience, as you know, I've been getting out and going to all your operational sites and meeting everybody. Certainly, the values that WPD have really align really closely with National Grid. I love that sense of continuous improvement, which is one of our values at National Grid. One of the things that struck me most of all, I think, when I've been out and about meeting people, is just the focus that WPD has on customer service and customer satisfaction. I know you've got a fantastic track record right through ED1 and before that. Why don't you just share with us what is it that sets WPD apart from the other DNOs when it comes to customer service?
I think the key is having that customer service, you know, at the core of our sort of values and our culture. That's been with us for some considerable time. You know, all of our staff are aligned to doing the right thing for our customers. We recognize that customers actually drive our success. So our success with customers is reciprocated. When you look at how we operate, you know, any new starter, we've got 100 apprentices start with us quite recently. From day one, they're taught about how we treat customers and how we look after customers, that we focus on the customer. The same for any trainees or people joining the organization.
We talk about the golden rule, which is basically treat customers the way you'd expect to be treated. Then we've got first time, every time. They're two little expressions we use that people really get, and that's really important that, you know, you get that embedded in, into your culture. When we look at our operational field teams, not only do they deliver outstanding customer service, where they're interacting with customers on a daily basis, but we also look to ensure that our corporate functions that sit in the offices take that passion on board as well. As an example, I've used at different things over the years. If we've got a storm situation, we typically run with 60-80 people who can take customer calls.
We can ramp that up to almost 300. We actually use people who aren't normally in the contact center. Those would be people who sit in our accounts department or in our regulatory department or in our employee relations department. They're trained, they sit on the headset and software about once every six months to make sure that they stay in tune with that.
Not only is that good for outstanding customer service, because that enables us to answer calls within two to four seconds, even in storms, but it also cements that cultural importance of the customer.
One thing that was really helpful, because one of the things I've been quite excited about is how we bring together the sort of capabilities that WPD has and the spikes they've got in performance with National Grid. What could National Grid learn from WPD when it comes to customer?
I think it is that right from the get-go, that the customer is actually driving everything that we do. As we move forward with decarbonization, never more so is it important. We've seen with COVID as well that it's even more important that we have reliability. Certainly if we look at our customer satisfaction scores on the independent survey that's done by Ofgem itself, you know, we get 90% scores across the four licenses. And that's actually a higher score than the likes of Amazon and First Direct. In context as well, when 25% of the people surveyed are customers who've lost their supply, I think it, you know, really is a truly outstanding reflection on how our staff operate. I think that's the message we'd share.
One of the things I'm really looking forward to is you're going out to the U.S. I think soon to spend some time with our customers.
Absolutely, yeah. Just looking at some of the technology here today, you know, shows you that there's a lot to be learned for us, yeah.
Another area that just jumps out in terms of outstanding performance from WPD is the way you've performed on the other incentives outside of customer over the last few years. Just tell us a little bit more about how you've gone about doing that.
Yeah, again, it's clarity of leadership and simple processes, I think are at the heart of it. We don't overcomplicate things. We look to try and make things as simple as possible right the way through the organization. We talked about customer service. If we look at reliability, I could use the Midlands as an example. When we acquired the Midlands, we have something called Target Sixty. That's how many customers you restore within one hour on a high voltage fault. The Midlands was running at just under 60%. Within three months, that was at 70%, and within nine months, that was at 90%. That's, you know, a delta of 30% more customers restored within one hour.
The thing with it is, it was the same people. It was the same operational staff delivering that result. It was giving people direction and also empowering them, you know, to deliver for the customer. When we see incentives, and those incentives clearly are aligned with customer service, then, you know, we really go after them. Incentive-based regulation delivers, you know, for both entities, if you like. It's customer gets incredibly good benefits and the company get benefits as well.
I can look forward to those incentive performance going forward, Phil.
Absolutely, John. Clearly we're, you know, in discussions now with our ED2 business plan and through next year in terms of the incentives that we're looking for, you know, in ED2 and across the wider sector as well.
I mean, one of the things I majored on in my keynote speech this afternoon was around just how important the energy transition is and what a critical role National Grid is playing. I know that WPD has been leading the way for DNOs in the U.K. on distributed system operation and flexibility.
Yeah.
Just describe what is it you're up to and what you're doing in that area, Phil?
Well, we were the first to publish a strategy for distribution system operator and then actually to create, you know, the core activities. Basically a distribution system operator is where it moves on from a distribution network operator is to fully utilize technology to run an active network rather than what was a traditional passive network. That allows us to get a lot more connections and different types of connections, you know, particularly intermittent renewables onto the network and to be able to cope with those. You know, we were the first to do that. We've led the sector on that. We've created, developed and created a platform that is a contract and dispatch platform.
That's actually being used now by four of the other DNOs. There's only one DNO that's not using it currently. That's about how we've led on that. The data and digitalization work that we're doing is gonna move us forward to the end of ED1 and into ED2 to further expand on that. In terms of flexibility is actually allowing services to contract onto the network. You know, so it's about managing them, but also being able to allow those things to happen where people can actually change what they're doing to deliver a solution to us, which is in lieu of a traditional reinforcement type situation. We use those.
We look at those first on all investment, but particularly they're good around marginal issues on the network, where basically you can deal with it over short periods of time. We're actually leading on that, so we're over 700 MW of contracted flexibility services. What's really exciting, the last tender round, we awarded 250 MW of contracts, of which 150 MW was with Octopus Energy on utilizing electric vehicle and the dynamic nature of electric vehicle charging. That can really help us on our network down at the low voltage end.
That must be definitely first in the U.K. and potentially one of the first in the world providing that storage.
As far as I know, it is the first. I've not heard of anyone else actually contracting for that service. Yeah.
Very good.
Yeah.
Look, I think I should move on and talk about ED2. Certainly, since the middle of June, I've gone through all the business plans, and I know you've published, I think three of them, which no other DNO has done. I've been hugely impressed by just the level of detail and the level of stakeholder engagement you've had. Why don't you just share with us the sort of key takeaways and highlights from the business plan? I guess it's going to be submitted in a couple of weeks' time.
Yeah, it goes in on December the first. As you say, it's the fourth iteration, which we're the only company to have done that. We've involved, I think we're up to 25,000 stakeholder engagements now. It was 19,000 up to business plan three. The key thing is to create that plan with your stakeholders. That was a really important part of Ofgem's requirement to actually, you know, meet the threshold on the business plan. I think we've demonstrated that beyond doubt. There are four main areas I'd focus on in the business plan that goes in.
The first would be, we call it connectability. It's actually about how we are looking to enable those new connections, particularly for electric vehicles, heat pumps, and renewable generation to connect to our network. Between now and 2028, we're looking at an additional 1.5 million EVs. That'll take it up to 2 million in total. 600,000 heat pumps and additional 2.6 GW of renewable generation, which is enough at peak output for a couple of million homes. You know, these are sort of big-ticket items in terms of decarbonization. That's a real core plank of our business plan, is that people can connect when they wanna connect. Sustainability is another very important part.
A big chunk of sustainability is driven by those connections because those are renewable connections. It's also about our own emissions as a business. As you said, we're heavily focused on Scope 1 and Scope 2, and a science-based target of 1.5 degrees in the business plan. Vulnerability. This customer vulnerability has always been at the center again of WPD's philosophy. We're expanding upon our really good ED1 vulnerability measures to give more customers access to things not necessarily from WPD directly.
I think we utilize partner agencies to provide access to other forms of support. That may be in terms of you know, energy reduction measures in the house, e nergy efficiency, insulating lofts and walls, but also advice to switching suppliers, and other access via local authorities. 'Cause quite often local authorities will have pockets of funding that-
Yeah.
...customers don't know about unless you point them in the right direction. That actually generates some huge benefits to the customers on WPD's network. And then finally, affordability. In terms of our investment going forward, it is a 28% increase in investment in ED2 in terms of a run rate from ED1, but we're holding bills pretty flat. Again, affordability is really important. People have to be able to, you know, have their energy and be able to pay for it.
I wanna come back to one element of it, Phil. I've just spent much of the last two weeks at COP26 in Glasgow, and it's clear that there's a huge amount of political will to accelerate green investment. Just share with us, what's the green investment that's going on within that business plan? I think you referenced a few things around EVs and heat pumps, for example.
Yeah. I mean, it's the whole package, John. You know, I mean, moving forward with the COP is fantastic news. You know, I bring that back down and distill it into the nuts and bolts of WPD. You know, the way we deliver and facilitate the delivery of the decarbonization areas are the ones I've alluded to. We're also doing, you know, rapid charges on motorway services. It's gonna be National Grid transmission or WPD distribution in our service territories. We're also working very heavily with local authorities and other major energy users on how we can help them design what they need to deliver their own decarbonization. That's an addition to the things I spoke about.
A lot of data and digitalization effort is going into that as well. You know, to run a smarter network and use those flex services, allow those connections. The more we really understand the two-way power flows and absolute time of use, information is key going forward. Those are things that we're pushing forward on.
What is the investment, Phil? You talk about increasing EVs to 2 million-
Yeah.
I think by the end of ED2-
Yeah.
...talk about 600,000 heat pumps. What's the investment you actually have to make? Just describe for us what that looks like.
Well, I mean, if you look at a typical household and a typical EV going forward, they actually use about the same amount of energy. For every EV that connects to our network, you're effectively building another house in terms of energy consumption. What that needs is, you know, that needs us to replace low voltage cables potentially in the ground, change transformers, and then through the voltage levels, it has different impacts.
Certainly as a distribution business, we're obviously as close as you can get to the customer 'cause we come, you know, to the doorstep. We actually find the diversity among customers gets less and less as you come down the voltage level, so the impact is higher. It's gonna be lots of work, you know, very much in the vicinity of our customers. Again, that's where customer service is really important.
What about heat pumps? Is that similar sort of levels of investment?
Well, yeah. I mean, heat pumps in terms of energy use will be even higher again. The impact of heat pumps, you know, could be dramatic. That's something that we really need to understand going through ED2 and is gonna present, I believe, you know, further capital opportunities in ED3 and beyond. Obviously the government have set a deadline of I think 2026 now to make a final decision on exactly the heat strategy going forward. What we do know is that we're gonna see some significant increases in load.
Okay. Look, I wanna stay on ED2, so we've got a couple of weeks left before the business plan goes in. Just give us a flavor of the conversations that are going on with Ofgem. How's the relationship? How confident are you that we can continue to get an appropriate return for the investments that are gonna be needed to support the energy transition?
Yeah, well, we've got really good working relationships with Ofgem. Whether that's Jonathan Brearley, you know, Akshay Kaul who's the Director of Networks or the operational teams underneath him. I think that working relationship is fostering, you know, I think gonna foster the right outputs, the right outcomes. I think that is important. I met Martin Cave this week. Martin Cave is the Chair of Ofgem. It's clear to me in those discussions that, you know, we are very much aligned on what needs to be done from a decarbonization viewpoint. What's also important is that when we submit our plan, that it's a well-justified business plan.
That's what I've been talking continuously, it seems, for some time now to the senior regulatory team in terms of this plan. It is well justified. It's stakeholder-supported, and we've done more work than anyone in terms of local authority engagement as well. We really understand the local authorities' net zero ambitions and the speed with which they wanna go out. It's about responsible business operation, having the customer you know at the core and understanding vulnerability and fuel poverty as well. Those things are all there. I think we're in a really good position. I think our business plan is well justified. I hope as per ED1 it went through, you know, we get a good outcome.
Yeah. Well, I'm certainly pleased to hear that they're aligned in terms of what we're trying to do around net zero.
Yeah.
I think that's important.
Yeah. I think sorry, just the one other thing is clearly the message there is it's in terms of the financial package as well. It needs to be a fair bill impact, but also a fair return for the organizations.
I'm conscious of time, so I'm gonna ask one more question.
Yep.
I'll let you get off the stage. We talked a lot about the future of distribution networks and the system operator. You talked about what's the standard performance of WPD. Why don't you just talk and share a little bit, what do you see the benefits for consumers of WPD being part of National Grid going forward? Perhaps an example.
Yeah, I mean, we've talked a lot about customer service, and I think that if we look at National Grid as a whole, I think WPD can help some of the other parts of National Grid in terms of customer service focus and simple processes. Then when we look at the engineering that National Grid brings to the table and the innovation as well. You know, I've been able to see some of the really innovative ways that National Grid in the States and the U.K. have approached technical challenges. It's a different way of looking at things. I think both organizations share some really good innovation teams. We can definitely harness that availability from there.
If you look at simple example, like the robot outside that I'm sure everybody's avoided, you know, everyone wanting to be a terminator or something. But the robot out there that, you know, that kind of application we may have use for. We've looked at vegetation management as well. We, you know, there's a lot of our focus is on vegetation management, and so anything that we can do to drive more efficiency in that, and that's something we know the U.S. operations have got some really good algorithmic learning and data processing capability that we believe we can foster. I think there's gonna be some good sharing of best practice.
Yeah. Well, I'm really looking forward to it. I'm excited. I've always said, you know, National Grid, the benefit of National Grid is the ability for different businesses to share best practice. Now with WPD being part of National Grid, I'm excited about what WPD can teach National Grid in other parts of the business and vice versa. Look, we've run out of time. I'm gonna say thank you for now. Later on this afternoon, we've got a broader Q&A session. Phil will be back, and you'll be able to ask him some questions.
As you've heard so far, it's a really exciting time to be part of National Grid, given the opportunities we see ahead of us to deliver sustainable 6%-8% asset growth per annum over the next five years. My priority as CFO is to give you confidence in our ability to deliver our commitments, and that we can fund this growth with a strong balance sheet and stable leverage. We can grow our EPS by 5%-7% per annum alongside our asset growth, and that we can continue our impressive track record of delivering a progressive dividend. Good afternoon or good morning, everyone. It's no exaggeration to say that the opportunities ahead of us are enormous, and I believe we can deliver on the commitments I just listed.
Because following our acquisition of WPD and our pivot towards electricity, we're a bigger player at the heart of the energy transition, which gives us much more certainty of growth for many years to come. We have a strong track record of delivering efficiently, and our new operating model will deliver a step change in productivity improvements. We've made excellent progress to update our rate plans to better align growth in assets and growth in earnings. Today, I will set out the building blocks of earnings growth to demonstrate the confidence that we have in delivering our targets. Turning first to asset growth. As we laid out six months ago, we expect to deliver a 6%-8% asset growth rate across the group over the coming five years, driven by our enhanced capital investment program.
This chart illustrates the growth in group CapEx that we've seen over the last two decades. It shows that investment levels have steadily increased and that the step up to our new five-year program should continue to sustain strong group asset growth. Across the group, we have a higher level of regulatory certainty than we've seen in many years. As we look further out towards 2030, New York, Massachusetts, and the U.K. all have ambitious medium-term climate targets, which will require infrastructure to connect the onshore and offshore wind capacity as we look towards these clean electricity goals, infrastructure strengthening and upgrades to maintain reliability and resilience, and infrastructure to enable the sharp uptake in EVs and to enable the adoption of hydrogen and renewable natural gas over time.
All these targets create opportunities for National Grid in the longer term and give us confidence and visibility around sustainable, attractive growth into the late 2020s and beyond. I want to spend a few minutes in particular talking through our five-year plan, where our forecast investment of GBP 30 billion-GBP 35 billion is a direct result of governments, regulators, and customers calling for bolder steps towards net zero. Over 90% of our investment will come in our regulated networks. Over 2/3 of this investment is already committed and visible through rate settlements and in our non-regulated business. Based on our own conservative assumptions, and not including our clean gas investments, we are investing around GBP 13 billion in green infrastructure, facilitating decarbonization and net zero across our jurisdictions. I believe we're in a unique position being a scale, low risk, green infrastructure player.
Looking firstly at the U.K. in a little more detail, starting with electricity transmission. Between now and 2026, we expect to spend around GBP 8 billion. Within this, our baseline allowance is around GBP 5.5 billion will be invested in asset management and sanctioned major growth projects, such as London Power Tunnels. The remaining GBP 2.5 billion of investment falls under uncertainty mechanisms, which can be thought of in two ways. Firstly, GBP 1.5 billion pounds of well-defined investment in areas such as network reinforcement, reducing our reliance on the greenhouse gas SF6, and cyber resilience. These are filed for and agreed on an ongoing basis with Ofgem, and we've already filed three projects since the start of RIIO-T2.
Secondly, GBP 1 billion for early engineering and pre-construction work on future major projects such as Eastern Link, which you will hear about in the U.K. breakout. Across WPD, our U.K. electricity distribution business, we expect to invest GBP 4 billion-GBP 5 billion over the next five years, including our expectation of higher investment levels in the start of the next price control, ED2, in 2023. Broadly, half will be on asset maintenance to ensure continued world-class reliability and availability, with the latter at an impressive 99.995%. There will also be further investment to accelerate the energy transition with a four-fold increase in electric vehicles expected across its regions by 2028, a three-fold increase in heat pumps, as well as the continuing rise of distributed generation connections.
Finally, in the U.K., we also have over GBP 1 billion of committed investment in our National Grid Ventures business, driven by our interconnector program as well as investment at our Grain LNG facility. Looking now at the other side of the Atlantic, where we expect to spend around half of the Group's GBP 30 billion-GBP 35 billion pound investment in the next five years in New York and New England. In New York, we expect to invest around GBP 10 billion within our regulated businesses, made up of around GBP 6 billion in gas safety and reliability, and our leak-prone pipe projects. Over GBP 2 billion in strengthening our electricity distribution networks, as well as connecting and expanding the network to enable the expected 3 GW of clean energy coming online over the next five years across our Upstate region.
Around GBP 1.5 billion on electricity transmission projects to unlock renewable generation capacity in Upstate New York. In New England, we expect to invest around GBP 7 billion across our regulated businesses. Just over GBP 3 billion is expected to be invested in our gas pipeline replacement program, in addition to ongoing safety and reliability spend. Over GBP 2 billion will be invested in electricity distribution on storm hardening and innovative grid modernization projects in Massachusetts, such as advanced metering infrastructure to ready the network for a net zero future. The remaining GBP 2 billion is in our FERC-regulated companies on projects such as rebuilding 130 mi of transmission lines for resiliency and network capacity to further accommodate the region's clean energy goals.
Such a high level of visibility in our investment plans gives me confidence around delivering this growth while maintaining our strong balance sheet and remaining comfortably within our current triple BB B+ and B double A one group credit ratings at S&P and Moody's. I've said previously that our net debt to RAV is expected to remain stable above 70% once we have completed our announced portfolio repositioning, and that this level keeps us comfortably within the metric ranges required by our credit rating agencies to maintain our existing ratings. As a reminder, our target ranges are 7%-9% for Moody's RCF to debt ratio and 10%-13% for S&P's FFO to debt ratio.
To reiterate, we expect to remain at a stable level within these bands over that timeframe, and that we see this as an efficient level to fund the group on an ongoing basis. Given the essential role we play at the center of energy systems, we understand the careful balancing act required to ensure energy security, maintain customer affordability, and deliver the decarbonization of energy systems at pace. The growth plans we've laid out are vital to keeping our networks reliable and resilient while also progressing the energy transition. We'll do this while being mindful of the impact on affordability for our customers. We therefore need to continue being nimble and efficient. This morning, with our first half results, we provided more detail around our realigned organizational structure that moves us closer to our customers.
These organizational changes will drive efficiencies across our businesses, which will deliver benefits to our consumers. We're therefore today announcing a new target to deliver over GBP 400 million of efficiency savings across the group over three years, which equates to a flat, controllable cost base, even while our regulated assets are expected to grow more than 20% over that timeframe. We expect our U.S. businesses to deliver over GBP 300 million of the cost efficiency program, with the remainder across our U.K. electricity transmission and National Grid Ventures businesses. These efficiencies will come through a number of areas, such as increasing use of technology and digital solutions that will deliver greater working practice productivity, as well as standardizing our working practices and retaining more of this knowledge within the business.
Our strong track record of achieving efficiencies in both our U.K. and U.S. b usinesses give me the confidence that we can meet the challenge. The target that we've announced today does not include WPD, but as Phil touched on a moment ago, we're already working together to find more efficient ways to deliver for our customers. Whether that's support in developing the best possible plan for ED2, with the knowledge we've gained through the RIIO-T2 process, or start and take learnings from WPD's incredible focus on customer service, as you heard from Phil earlier, through to sharing engineering expertise across the group, looking for ways to better deliver our large projects across our wider portfolio. On top of this OpEx focus, we're also finding ways and driving ways to deliver our capital programs in the most efficient way as we transform our businesses under the new operating model.
For example, our strong track record of delivery through RIIO-T1 gives me confidence that we will continue to innovate and deliver efficiencies in our U.K. electricity transmission business. Today, we've announced that we are targeting operating outperformance of around 100 basis points on average through RIIO-T2, with much of this driven through TotEx examples, such as working with our contractors earlier in the project planning process to design efficiencies, reappraising our consenting approach, reducing the time to achieve consent by up to a year. In the U.S., this focus on both OpEx and CapEx efficiency is key to enable the infrastructure investment needed to fulfill climate goals while maintaining bill affordability and delivering appropriate returns, where our goal remains of achieving at least 95% of our allowed level of ROE going forward. You'll hear more detail around some of these initiatives in the U.K. and U.S.
Breakouts later. This new operating model and the benefits it brings will play an important role in helping to deliver EPS growth as we continue to grow our asset base. Our objective is to establish a stronger link between asset growth and earnings growth going forward. All the hard work teams have put in over the past couple of years gives us the confidence to set out a five-year program for the first time, and we now have the building blocks in place to deliver our annual 5%-7% EPS growth alongside our 6%-8% asset growth. The business has been transformed in four fundamental areas. Firstly, through our work to update and change our new regulatory settlements.
In the U.S., this includes agreed rate increases, inflation protection, including inflation index rates in our Massachusetts electricity and gas businesses, and forward-looking inflation embedded into our New York rates. Changes to the way we account for storm costs to more closely match the expenditure we are making as storms become stronger and more frequent. Additional regulatory settlements outside of our base filings, such as the grid modernization in Massachusetts, where we will recover revenues as we invest. In the U.K., under RIIO-T2, you'll see this in a revised capitalization rate that better aligns to our natural OpEx and CapEx split, alongside the move from RPI to CPIH indexation and our outperformance targets.
Secondly, in our non-regulated business, National Grid Ventures, where earnings growth will come through as new projects come online, including the North Sea Link and Viking Link, Isle of Grain Tank IV, and our U.S. onshore renewable projects. Thirdly, through the efficiencies we've created historically and through our new efficiency program being launched today, which will help us maintain flat, controllable cost base across our regulated businesses, even as our assets grow by over 20%. Lastly, our pivot towards higher growth electricity.
The integration of WPD into our portfolio will deliver higher asset and earnings growth over the coming period than gas transmission, as well as greater certainty of asset growth into the longer term. Our five-year financial framework has come together through a lot of hard work across all of our businesses over the past couple of years, and it's this that gives me the confidence that we will successfully deliver. Putting all this together, I want to spend a moment on how we think about our financial framework and the commitments we've made.
Looking at the sources of capital, they're primarily from our strong operating cash flow, which we expect to grow broadly in line with our EPS growth and growing balance sheet capacity. As a regulated business, our debt capacity grows as our regulated asset base, or RAB, grows. Over the next five years, we expect senior debt capacity to increase by around GBP 2 billion-GBP 3 billion annually. Beyond this, we will have proceeds from divestments, such as the sale of our Rhode Island business and the majority stake in our U.K. gas transmission business, as well as through our ongoing scrip dividend. In utilizing our capital, our first priority is making the investments agreed in the rate plans in our U.K. and U.S. r egulated businesses .
Al ong with any committed capital in our non-regulated business, and delivering a growing dividend in line with CPIH while maintaining our balance sheet strength. Beyond this, we have potential for additional capital investment opportunities. These include further investment in our regulated businesses, such as large onshore transmission investment approved through the RIIO-2 control, and discretionary investments in our non-regulated business, National Grid Ventures, such as our subsea interconnector portfolio, where returns are in excess of our regulated business.
Our choices will always be guided by our responsible business ethos and the opportunities to accelerate the energy transition whilst maintaining our investor proposition to deliver a sustainable growing dividend and attractive total shareholder returns. The breakouts will shortly take you into our businesses, showcase some of the great people we have working to deliver our projects, and the passion we all have to enable the energy transition. As I said at the start, this is a really exciting time for National Grid. We have a multi-decade growth story in front of us, with history showing that we have the capabilities and experience to manage the pace of this growth successfully. We have a vital role to play in the energy transition, and we're doing it right now.
Okay, as Andy said, we're gonna take the opportunity now to take some questions on what you've heard from Andy and myself, and then later on this afternoon, you'll get an opportunity to have another question- and- answer session, with myself and Andy and the presidents of the businesses. Why don't we just put hands up and take the first question? We'll bring a mic around.
Hi, it's Martin Young at Investec. If I could ask two questions, please. The first relates to the return on equity that you might be hopeful to get in the ED2 process. On one hand, the distribution companies in their sort of draft business plans have pitched for something that's significantly higher than Ofgem had put out as its working assumptions. There are obviously a number of reasons, you know, why we need to make sure the appropriate incentives are there to get those heat pump connections, to get those EV connections, etc, in place.
On the other hand, you've got the CMA that has come out and said, "Look, Ofgem was not wrong in what it did in the T1 process." How do we sort of square the circle on those opposing views as we go through the ED2 process? This one's just for Andy. Point of clarification on the 100 basis points outperformance that you expect in the U.K. business. Is that solely on the sort of operational side of things and excludes anything that you might do on financing and tax?
Okay. Well, why don't I take the first one and then hand the second one over to Andy. Obviously we're a couple of weeks away from submitting the final business plan for our distribution in the U.K., WPD. You know, our approach to it will be, first of all, we'll look at the fundamentals, as you'd expect, in terms of Capital Asset Pricing Model and update that to reflect the latest views on risk-free rates and so on. We'll clearly be, and we are, spending quite a lot of time looking at the detail of what the CMA said, and obviously, that will feed into our assessment. Fundamentally, what you'll see in the business plan is what we believe is an appropriate return for the risk that we're taking whilst also trying to incentivize the energy transition.
You know, Ofgem have already said quite clearly that they see distribution leading the energy transition in the U.K., and therefore it will need an appropriate return to encourage that. The final thing I would say is, as I said when we did the transmission business plan, actually, you know what's important is not just the base returns, but also making sure that the overall financial package is right. Base returns are really, really important, but we need to make sure we got the right incentive package to give us the opportunity to drive innovation and efficiency. Also the cash characteristics of that business are right as well. Things like fast and slow money, and whether that's at a natural rate or something different.
We're just finalizing all that at the moment, putting that together and make sure that what we do submit is something that we believe that we can fully defend with Ofgem, going forward. Andy, second question.
Thanks. In terms of the 100 basis points, then absolutely that is from operational performance, so a combination of things like TotEx or CapEx, OpEx outperformance, the incentive portfolio, what we can deliver against that. Anything we are able to achieve on a financing perspective will be over and above that.
Should we go to Dominic?
Hi. Thank you. This is Dominic Nash from Barclays. Just following up again on this GBP 400 million number and the RORE in the U.K., the 100 basis points outperformance. How much of that, or how much of that GBP 400 million is coming from OpCo performance? How much of it will be coming from the holding company sort of synergy benefits? I know we talked about synergies this morning on the call, as well. Does that then mean that the RORE outperformance that you're the 100 basis points that you're talking about, is that the total outperformance, or have we got more above that that sits outside the regulatory ring-fence?
Yeah. If I just break it down. The GBP 400 million of operating, the target we set this morning. It's broken down, GBP 300 million will come from the U.S., GBP 100 million from the U.K. through our ET business. None of it is covered by WPD, U.K. Electricity Distribution. In terms of that will help to contribute to the 100 basis points of operational outperformance that Andy's just described.
That outperformance will come from either direct operations within ET or the functions that support ET that make up the ET business. Over and above that, what we haven't included in that 100 basis points is any outperformance for finance that w ould be over and above. The 100 basis points is just the operational outperformance o ver and above that depends on how we do on the financial incentives.
Sorry, but apologies for following up here. It's not the financial outperformance I'm actually asking. It's operational outperformance outside of the regulatory compact.
No. I think to answer that specifically, the element of the EUR 100 million portion that is focused in the U.K. ultimately will all turn up within electricity transmission or the functions to support, so ultimately within the operating company. There is though there won't be savings outside of electricity transmission, if that's what the question. It's part of delivering the 100 basis points. Yeah.
Okay. The same in the U.S. with 300 as well.
It will turn up ultimately within the operating companies within the U.S. It, again, it's part of delivering the 95% of allowed that we talked about previously.
Thank you.
All right.
From Credit Suisse. I have three quick questions. Firstly, further to the returns, the 100 basis points, clearly that's ET in isolation. It's usually commercially sensitive, you know, because you don't want WPD being quite controlled. Presumably there are synergies between WPD and ET which may come through over a longer period. Is it fair to assume that where the businesses may benefit from coming together, there could be upside to the 100 basis points? Secondly, just on the CapEx, I mean the GBP 30 billion-GBP 35 billion was something that you put together, I guess April, May this year. The world's moved on since then. Ofgem have been agile, and they're, they seem to be moving things forward a lot more quickly. Is that a conservative number, and could it go up?
Finally, I think I'll just leave it at two, actually.
All right. Well, in terms of the second, I don't think it's a conservative number. It's our best view. And that hasn't changed. So, you know, it's GBP 30 billion-GBP 35 billion. Within that, we've assumed around about GBP 8 billion for ET, for electricity transmission. And that assumes, you know, a significant number of projects that are progressing the energy transition. So we remain confident with that number, as a good guide for the next five years. In terms of your question around synergies, as you can imagine, our absolute focus at the moment is making sure that we put the very best business plan in, at the end of this month, beginning of December. As you heard from Phil earlier on, you know, I think the team have done a fantastic job. There's a huge amount of detail in it.
They've gone out, and I think it's over 20,000 stakeholders have now been discussed. We're very confident it's a plan that reflects what customers are asking from us and what stakeholders need. As I said when we did the acquisition, you know, I'm hugely excited by the opportunity of bringing the capabilities that WPD has. You know, they've got a fantastic track record, as you heard today, around customer, about delivering on short-term incentives. Putting that together with the capabilities we've got in National Grid around engineering and asset management, given the energy transition, I think is something that we're hugely excited about. At the moment, our focus is very much on making sure we get the best possible business plan in.
Thank you. Deepa from Bernstein. I have two questions. Andy, you mentioned there is some headroom in the plan. Can you quantify that, whether it's extra CapEx or headroom to the FFO ratio? The second question, John, on the uncertainty mechanisms. You've shown those two different clusters that in the reopeners and something else. Are you seeing Ofgem move fast enough on whatever should be automatic? Have you seen any change versus RIIO-1 in terms of the other uncertainty mechanism processes moving faster?
Yeah. Let me do the second one, then hand Andy to do the first. I mean, I think in terms of the uncertainty mechanisms, we have seen, you know, reaction from Ofgem since RIIO-2 started. I think, I mean, Chris Bennett will talk when you do ET later on today, but I think we've already submitted, I think three applications and got a response from Ofgem on one of them already. You know, we've got some uncertainty mechanisms which are automatic, as you know, and then we've got some where, for the bigger projects, where we have to make a submission. I think the first one we did was on cyber, and we got a good reaction from Ofgem with regards to that.
It's early days because we've got a lot of these uncertainty mechanisms, as you know, as the energy transition unfolds. Initially, we're seeing the response that we need, but we need to see that continue.
Yeah. Deepa, the point you're referring to the overall financial framework that I set out towards the end of my presentation. I think the point we're making there is, as John said, the best view we have today is the 30-35, and that's the level of CapEx that delivers the 6%-8%, and delivers the 5%-7% earnings growth. The point I was making is we have further optionality within that, you know, firstly within the five years, but certainly as we look ahead of the waves of growth beyond the next five years, as that frame continues to grow with the size of the balance sheet and, you know.
The precise scale of the headroom as you cite will depend ultimately on our performance over the next five years.
There's a question over-
Okay.
Can't quite see. We're just getting the mic.
Thank you. Well, thanks very much for this, and it's very helpful. I have a couple of questions, and you probably won't like either of them I'm afraid, so I apologize in advance. John, I think I'm right in saying that you had your five-year anniversary as CEO earlier this year. Is that right?
Mm-hmm. Yeah.
Congratulations on that, but I think we talk about a five-year plan here, so I just wondered if there's an opportunity for you to just confirm for us if you're eager and willing to stay and deliver the next five years if the board supports you. We've had a few CEO surprises in the sector before, so it'd be helpful to have your answer on that. Secondly, I think the other thing I want to sort of wrestle with is not RIIO-2, but RIIO-3, and he's started sort of looking ahead to this. But if I list everything you're saying, you know, CapEx is gonna be higher in the future. Arguably, returns are gonna need to be higher in the future as well.
I wonder if sometimes we fall in the trap of valuing your very long-term assets on a very short-term view of allowed returns. Is there anything you could share with us that would help us think about where returns might go in RIIO-3 and 4 and 5, and just think about the, I mean, you must think about that when you're valuing assets like WPD or even your gas assets that you're selling. I'd just love to hear your thoughts on the longer-term return outlook.
Okay. Thank you for those questions.
Thank you.
I'm gonna answer one and a half of them. I'm gonna hand over the half to Andy. In terms of the first question, look, I am loving this job. Anybody that's in the sector at the moment who's not excited about the energy transition and what's going on is in the wrong sector, so I have no intentions of leaving or going anywhere. As long as the board wants me, I'm here to stay. That answers your first question. In terms of the second, I'll leave it to Andy to do his crystal ball on numbers in RIIO-T3 and beyond.
What I would say is I do think there is a real opportunity, actually, as we look at the energy transition over the next 10, 20, 30 years, and to stand back, which is a conversation I think that we're starting to have, and I referenced it in my keynote speech, about what is the right regulatory framework that is really going to encourage and incentivize innovation to deliver what is a massive task. You know, it's a one in a generation task. I think the regulatory framework, have we got the right market mechanisms, have we got the right institutional framework. The discussion around the future of the system operator is a small element of that.
I do think there is an opportunity now that we're out of the price control and transmission, and we'll soon be out of the price control on ED2, just to start a broader conversation about what's needed for the next 30 years. What we've had has been great, but I do think there is an opportunity there. There's nothing more in that other than I do think it is a sensible conversation to be had given the levels of investment in infrastructure that's going to be needed over the next several decades. Andy.
Yeah. I think you know what I would say in terms of you know returns around whether it's ED3, 2, 3, 4 or T, T3 is you know we've always said and consistently that what matters overall is the overall financial framework. The allowed return is a part of that. So are the cash characteristics. What we've seen is the change in the capitalization rate, the RPI to CPIH switch, the opportunity for incentives, the opportunity to drive efficiencies and outperform and share that with consumers. We feel overall for T2 certainly we've got a package now that's as I said it's gonna be challenging but we believe we can continue to deliver. I've no reason to assume that won't be the case.
I'm not gonna try and second-guess what returns might be. Of course, I'd love them to go up slightly. But, I think for me what's important is the overall package. We've got a good package now to work with for T2. Confident that we'll work with Phil and Ofgem to achieve the right package for ED2, and that we'll continue to do that as we look ahead.
Now, there's a question over here. I'll go there, and then I'll come there.
Richard Alderman, BTIG. Three questions. Starting maybe just with the bigger picture one, John. You said you were up at COP26 for a large period of the time. When you came back and sort of gave feedback to your senior colleagues, how would you summarize what you learned there that you didn't know? And how would you take that knowledge into perhaps future business plans and things that might adjust your thinking going forward on the CapEx plan, both at high voltage and low voltage? And then maybe a question for either of you. On the GBP 100 million number you talked about in the U.K. in terms of OpEx savings, you talked about digitalization.
What are you doing from a practical point of view that you've not been doing in the last sort of three or four or five years on digitalization? Can you give us some examples of that? The age-old problem of U.S. storm costs and you talked on the slide about how to speed up or improve the collection of storm costs. It's always been an issue for yourselves and other U.S. utilities. Can you give us some practical examples about how you might deal with that? How will you persuade the regulators? Excuse me. Is it just cost assessment and quicker rate cases, or is there something more detailed?
Okay. Why don't I cover the first two, and then let Andy do storm costs. We were the principal partners up at COP26, which we were very proud to be. Actually, I was there for the whole of the first week personally, and my whole team was there for the whole duration of the second week, including many of the senior team that are here today. When I left at the end of the first week, I have to say it was with a sense of relative optimism. I think some of the commitments that had been made at COP26, including, you know, deforestation, reduction in methane, the coal commitments, it goes on. I think, you know, there was a sense our progress was being made and is being made.
There are many people who think that more progress should have been made, but nonetheless, there were significant commitments. What was really interesting, I think, being at COP was, one, and I'm certainly not a COP aficionado, but there were many people there seemed to have been to the prior 25. It just felt very different. It felt very different in terms of the energy that was there, the makeup of the people that was there. There were way more businesses being represented. I mean, you couldn't shake a stick without hitting a CEO. I mean, there were I think every CEO from the FTSE 100 and the Fortune 500 was there. And they were there, and they were seriously engaging in the conversation about what needs to be done.
I think that was the sense of COP, which was it wasn't a debate around the size of the commitment. Actually, it was about what do we need to do and what barriers need to be removed. What I found quite interesting was I sat in a meeting for one breakfast with John Kerry, which was quite fascinating. The topic of the conversation was, what are the barriers that need to be removed? It was really pertinent because I sort of learned from it that, you know, the things that we're grappling with in our country are very similar in every other country. To bring that to life, you know, planning is one of those things. In the U.K. we've got a commitment to build 40 GW of offshore wind by 2030.
We've got nine years to do it. Over the last 10 years, we've built ten. Everybody, whichever country they were representing, was saying, "If we don't get the planning process right, then we're not gonna be able to achieve this target, even if we've got, you know, the right financing and the right engineering and the right commitments in place." It's good that in the U.K., BEIS is doing a consultation on that, but there are lots of those types of barriers. I came away with a sense of optimism and actually, although there was some sort of dampening of some of the commitments right at the end, I was also, you know, optimistic given the commitment to come back next year to Egypt rather than wait five years to relook at those commitments.
My expectation is now going forward, which is, you know, there is an awful lot of conversation at COP around commitments, but actually turning those commitments into actions is going to require a tsunami of policy, not just in the U.K., but right across the globe. So it'll be really interesting to see what happens over the next 12 months to see whether that commitment actually translate into policy and ultimately into action. For me, we will be, you know, working with BEIS and working with Ofgem about what are the actions that now need to be put in place and by when, if we're gonna deliver on the commitments that the U.K. has made. In terms of digitization, well, great question.
I'm trying not to preempt because what you're gonna see today is lots and lots of examples of where we are delivering innovative and digital solutions to actually deliver on the GBP 400 million commitment we talked about, but actually to serve our customers better. I'll just give one example. It's a very simple one. You know, through some of the work we've been doing with National Grid Partners in Silicon Valley, we're working with a company that's got military-grade satellite imagery that allows us to more directly manage vegetation management. It might sound very sort of straightforward, but if you manage your vegetation really well, you improve reliability of your customers, and it is the single largest OpEx number in any distribution company.
We're using that digital technology to fundamentally change the way that we manage all the trees that put our networks at risk. That's just one simple example that will save money and improve reliability. That type of technology wasn't there 10 years ago. It's there today, and National Grid's embracing it. Andy?
Yeah, thanks. On storms, I mean, I will start where John finished, which is the first thing we've done is we have to make sure that our storm performance continues to deliver best in class and deliver what our regulators and customers expect. The vegetation management example is one that we have invested in to make sure that, you know, the impact of storms is mitigated as best we can, as well as, obviously, our storm readiness. That, if you like, is the key to then have the right regulatory debates around the recovery mechanisms.
The reference I had earlier on was, we were facing potentially perverse incentives that actually the ability to recover storm costs was linked to how bad the storm was, how long people were off, which is completely counter to the real incentive, which is to get people back on as quickly as possible. We've done some great work as part of current or new rate cases to try and shift that, to make sure the incentive matches what we want to do, which is get customers back on. We've made some good strides in that, which give me confidence that recovery of those costs better matches how we incur them.
Thanks, Andy. We've run out of time for this segment and partly because I'm really keen to get you to the breakout so you can actually see some of the great work that's going on right across National Grid. There is going to be another opportunity for Q&A at the end of this afternoon. What I'd ask you to do is actually head out from this room and make your way to your breakouts. There's lots of people by the door who can make sure you get to the right place. I'll see you a little bit later on this afternoon. Thank you.
Good afternoon and good morning. I'm Chris Bennett, National Grid's Interim President for Electricity Transmission, standing in for Alice Delahunty, who's just had a baby. I'm delighted to be here today to share with you the plans for the future of the electricity transmission system in the U.K., both onshore and offshore. I've worked at National Grid for 29 years, and it's been a real pleasure to work for an organization that keeps the lights on and the gas flowing. However, when I speak to people joining the organization today, I say not only will they be part of that, but they'll also be at the heart of delivering a clean, fair, and affordable energy transition. It's a genuine privilege to work for an organization with such a strong societal purpose. As we move through the breakout this afternoon, we'll show you to start off with RIIO-2.
That's the price control that runs from 1st of April 2021 to March 2026. You'll see that's the start of a period of sustained growth as we invest to maintain, connect, and expand the network. As we go to the second cube, I'll be joined by a colleague from National Grid Ventures, and we'll share with you our North Sea vision to support the delivery of the U.K. government's 10-point plan to net zero. You'll see this vision leads to growth in onshore and offshore infrastructure out to 2035 and beyond. As a quick reminder, within the U.K., National Grid owns and operates the transmission network in England and Wales and operates the network in Scotland. We have a regulated asset base of over GBP 14.5 billion.
Earlier, Andy mentioned that we're planning to invest GBP 8 billion of CapEx across the next five years, and that compares with the GBP 8 billion we invested in RIIO-1 across eight years. That's a 60% increase. The chart behind me shows the buildup of CapEx over RIIO-2. You'll see in blue at the bottom of the charts, we plan to invest GBP 4.5 billion to maintain the reliability of the existing network. At GBP 900 million per annum, that's an increase from the GBP 700 million per annum we invested in RIIO-1. This includes GBP 800 million on our London Power Tunnels project. The chart then shows in gray an estimated GBP 1.5 billion to connect new customers.
This includes GBP 400 million to connect the new Hinkley Point C nuclear power station, but also battery connections and new data centers. The regulatory framework enables us allowances to flex as new generation and new demand connect to the network. Finally, in green, you can see over GBP 2 billion for expanding the network for net zero. It's in this green area that we see the major investment that increases as we go through RIIO-2 and grows as we go through RIIO-3 and beyond. In aggregate, you can see that we plan to invest GBP 8 billion over the five years, rising from GBP 1 billion at the beginning of the price control period to nearly GBP 2 billion at the end of the period. In a moment, I'll talk about how we are transforming the business to deliver this investment as efficiently as possible.
First, I'd like to share a quick video that really brings to life some of the investments we're doing right now in RIIO-2. If you'd like to follow me. If you could play the video. You can see from the video that we're delivering some fantastic engineering across the whole country. Let me now explain how we're transforming our business to deliver this infrastructure. Firstly, we are transforming how we connect our rapidly changing customer base as we look to connect customers both quicker and at a lower cost. Digital is at the heart of this transformation. We are digitizing our customer processes, enabling more self-service and more transparency of the whole connection end-to-end process. We're also using digital to standardize our connection designs. The Digital Product Solution Lab is enabling us to go for standard minimum specifications for our customer connections.
We believe through this new digital product, we'll be able to reduce the time to design by 75%, the time to connect by 50%, and reduce the cost to connect by 10%. This is just one of a number of new digital initiatives we'll be implementing in RIIO-2. Secondly, we are developing new innovative ways to increase the capacity of the network. Increasing capacity from our existing network is a key priority, and we will continue to use the Smart Wires technology that we explained in the last video. This is critical if we are to avoid building new overhead lines. It's clear, though, that we will need to consent and build new infrastructure. We are therefore working actively with stakeholders to reduce the time and the cost of obtaining consent.
This will be critical to meeting the government's 2030 commitment. Finally, we are reimagining how we work on our existing network. In addition to standardizing our designs to lock in efficiencies at the beginning of the process, we are increasingly using internal resources to design, develop, and project manage T2 asset interventions. Cost savings will be realized through lower contractor costs and greater flexibility to adapt to the plan. 10%-20% unit cost savings have been realized in the initial projects, with further savings targeted as we further digitize our processes and increase productivity. In summary, we are transforming across our whole portfolio to maintain, expand and connect.
We're setting targets across the portfolio to deliver outcomes at 10% below allowances, which when added to incentive performance and unlicensed income, equates to 100 basis points of targeted outperformance across RIIO-2 that Andy had mentioned earlier. If you'd now follow me, I'll explain how our delivery in RIIO-2 supports the National Grid investor proposition. The image behind me shows the expected RAV growth and profit growth during RIIO-2 for NGET, which contributes to the group's 6%-8% asset growth, 5%-7% earnings growth, and delivering this within the credit metric bands. There are three key reasons why operating profit will grow in RIIO-2. Firstly, investment growth leads to an increase in our regulatory asset base, which in turn drives higher revenues. Secondly, the changes in the regulatory framework in RIIO-2 improve our revenue position.
This is driven by moving from RPI to CPIH, which increases in-period revenue collection, and also changes to the regulatory capitalization rates, which now better align with our actual rates, allowing us to recover a greater proportion of revenue within the RIIO-2 period than was the case in RIIO-1. Finally, controlling our operating costs and spending below our allowances. This directly leads to increased profit. Let me now take you over to cube two, where Nicola is standing, and we will cover the period beyond RIIO-2. Over to you, Nicola.
Thank you very much, Chris. Good morning and good afternoon. My name is Nicola Medalova, and I'm the Managing Director of Interconnectors, part of National Grid Ventures. We're gonna start this section by looking at a video that shows the context of supply and demand out to 2050.
As the video shows, there is a huge change out to 2030, and Nicola and I will now explain what this means to the onshore and offshore network, if you'd follow us. The picture behind us shows you the likely investment, onshore investment out to 2030. This is to connect the wind farms required to meet the government's 40 by 30 commitment. You can see there is need for significant transmission capacity all along the East Coast. As you can see, there are 15 major projects at an estimated spend of GBP 10 billion, GBP 8 billion of that expected in RIIO-3. We have two planned HVDC offshore cables, which will take the wind capacity from Scotland and move it to the demand centers in England. We'll be developing these projects with our Scottish transmission companies as partners.
We're also looking to build a new HVDC offshore cable that will connect Suffolk and Kent to bring the East Coast wind to the demand centers in the south. These major investments account for just over half of the GBP 10 billion forecast, and we expect to agree the funding for these projects with Ofgem over the next year in order to let contracts and start construction in RIIO-2. The other half relates to 10 new onshore projects which first require us to get planning consent, but these projects are also critical to get the power across the network. Sorry, Nicola.
Sorry. Chris, I can see the need for this investment, but will you be doing it all or will some of it go to competition?
It's a great question. We continue to engage with Ofgem and government around the introduction of legislation to introduce onshore competition and whether that's in the interests of consumers. We fully support competition, but I think some of these projects, the timing required to start and develop them and construct them, such as the HVDC cables, the likelihood is that we'll be asked to do them because there's not time to build if we introduce competition. It may well be for some of the later projects, there is time to introduce competition, but in that scenario, I'm very confident that we can bid for that work and win.
That makes perfect sense. Is this all about connecting offshore winds?
It's not all about offshore wind. You can see there's a load of investment for offshore wind, but on the demand side, there'll be a lot of investment required to meet the electric vehicle revolution. The government has said that it will invest GBP 950 million in infrastructure to enable the infrastructure for electric vehicles. It's not just about electric vehicles. We also are seeing new demand connect directly to the grid, whether that be data centers or batteries. Let's not forget, we've also got the investment that's required to maintain the resilience and reliability of the network. I mentioned earlier that we're planning to invest GBP 900 million per annum in maintaining the reliability of the network, and that's likely to continue as we go through RIIO-3. That's obviously before we talk about the offshore investments, Nicola.
Absolutely. Please join me at the other side of the cube. National Grid Ventures already has a very important presence in the North Sea. We currently own and operate five interconnectors to France, the Netherlands, Belgium, and Norway. Together, they bring 6.4 GW of capacity to the U.K., enabling the powering of many, many millions of U.K. homes. We're also building a sixth link to Denmark called Viking Link. With its capacity, in total, our portfolio is approaching 8 GW of power. We will be able to provide 15% of the U.K.'s electricity needs. Importantly, we will also be able to export that power. That means that when we have an abundance of wind power or solar power in the U.K., we can share those renewables with continental Europe.
To give you an idea of the scale of these projects, Viking Link, which we expect to be in operation in two years' time, is a 760-km subsea cable between the U.K. and Denmark, and it costs in the region of GBP 2 billion. Like all of our interconnectors, National Grid is a 50-50 partner with the joint venture partners on the other side of the interconnectors. We will be investing about GBP 1 billion of that. That's only phase I of three phases for the North Sea. The U.K. government and the European government have staggering ambitions for the North Sea. Over the next decade, we'll start to see phase II take hold, and that includes two new types of interconnectors. Firstly, multipurpose interconnectors.
Now, those connect two countries like our point-to-point interconnectors do today, but they also pick up wind farms along the way. That's really important because the offshore wind operators can then access two markets, sharing renewables further and putting them where they're most needed for security of supply. It also means that we reduce the number of landfalls to the coastal communities. If we have, for example, three wind farms and one interconnector joining together, we have 1/4 of the landfall necessary, 1/4 of the converter stations, that would otherwise be needed, and 1/4 of the coastal infrastructure that then joins to Chris' onshore network. That's really important for being able to consent these projects and to do the right thing for our coastal communities. Energy islands are man-made islands in areas of really intensive energy production.
Undoubtedly will include offshore wind, but may also include battery storage, hydrogen production, or possibly even the infrastructure for carbon capture and storage. They'll connect to two, three, four, or more different countries, meaning that again, renewables can be shared further. Phase III, out beyond 2030. We've heard about the government's ambition for 40 GW of wind by 2030 and an ambition for 18 GW of interconnection.
Beyond 2030, that ramps up. We're looking at 100 GW of offshore wind in U.K. waters and 300 GW of wind in European continental waters. To be able to allow that to transfer around where it's needed, we're looking at a coordinated holistic offshore grid in the North Sea, much like Chris' grid onshore, but replicated in the seabed. I think we can see clearly that in the near future, the North Sea is gonna become very, very busy.
That sounds really exciting, Nicola. Can you tell me why you think you're really well-positioned then for this future?
Yes. I'd love to. For me, that's a combination of two things. Firstly, capability, and secondly, influence. We have a 50% share in every single interconnector between the U.K. and continental Europe, and we operate most of them. We are one of the foremost interconnector owners in the world. We have just built the longest interconnector worldwide to Norway at 720 km, and we're just about to supersede that with the Viking Link at 760 km. We know how to develop these projects, we know how to construct these projects, and we know how to operate interconnectors.
Looking at our influence, we have a fantastic relationship with government and with Ofgem, and we're at the heart of the North Sea vision, and we're able to help government and Ofgem to develop some of the frameworks for these interconnectors. The cap and floor mechanism, the regulatory framework that we have for our existing interconnectors, we designed that with government and Ofgem, and now we're doing exactly the same for the next generation of interconnectors.
It looks like you've built some fantastic interconnectors. Is there anything you can tell us about the future interconnectors that you might be working on now?
As you might imagine, much of it is commercially sensitive and subject to non-disclosure agreements. What I can say is that we're involved in pathfinder projects to the Netherlands and Belgium. Pathfinder projects are those that are supported by the U.K. government to allow derogations from existing legislation that might not enable these interconnectors to go ahead before we get new legislation and frameworks in place for them. They've got a huge support from U.K. government to try and get us moving, and as the name suggests, find a pathway to the delivery of these interconnectors. We have also just agreed a close working agreement with Statnett in Norway so that we can support each other and work collaboratively in the development of multipurpose interconnectors.
I would just finish by saying that clearly there is an enormous amount of investment that will be happening in the North Sea over the coming decades, and I can honestly say that I think National Grid is the best company in the world to deliver this.
That's fantastic, Nicola. Can we now just move to a final video that will complete the journey out to 2050? If you move this way. What an amazing future. It's clear from the video that transmission is gonna undergo a massive transformation to meet the government's 2050 net zero commitments. This provides National Grid with a huge array of investment opportunities, both onshore and offshore, to connect renewable forms of generation and also to meet the increased demand as we decarbonize transport and heat. This will be for decades to come. Hopefully, you can see we are genuinely at the heart of delivering a clean, fair, and affordable energy transition. Thank you for listening. I propose we now move over here, where there's a bit more room, and we will take questions.
Thanks, Chris. Thanks, Nicola. Really interesting presentation you've just given. For those of you don't know me, I'm Nick Ashworth, I'm the Director of Investor Relations, and I'm gonna be your host this afternoon through the virtual breakouts. I'm on hand to ask your questions for you. So if you have questions, please put them into the text box and I'll be able to ask the presenters the questions as we go through the breakouts this afternoon. I've got a few coming in already. I'll start with you, Chris. We've talked about the vision for the next, well, next 30 years, but certainly over the next 10 years.
It's just interesting actually just being in the plenary and listening to Phil and WPD talking about the potential acceleration rollout around heat pumps and EVs, and that has an impact across all of the electricity networks. I guess the broader question is, it feels like there's an acceleration now around changes to the system, and you talked about some of that over the next 10 years. Is Ofgem ready? Are we ready? Are there new mechanisms and regulatory changes that need to be made to actually get some of this stuff done?
I mean, it's a great question, and you can see there's a lot that needs to be done. If I refer back to the 40 by 30 targets and just, you know, the 15 projects that are required to connect the 40 GW by 2030, we're in regular dialogue with Ofgem and government about the changes that are probably required to deliver that level of investment. Historically, it would probably take us over more than 10 years to deliver such infrastructure, so there are some changes that are needed. We're working closely with the ESO to develop a Holistic Network Design, so that'll be the backdrop for these investments to create the needs case. We are working with Ofgem. Can we bundle some of these investments to I mean, we can get things through planning and get funding quicker.
As John mentioned in the plenary, we're working with BEIS on the planning process. I think there are changes. The positive thing is, you know, all of the engagement that we're having with BEIS and Ofgem is we're all aligned on the need to, you know, drive forward for net zero. I'm very confident that we'll work together and remove any regulatory barriers that there are, 'cause it's all clear that we do need to deliver net zero.
Nicola, in a similar vein, I mean, you talk about the potential 18 G of interconnection that is talked about over that by 2030. Presumably, this all takes partnerships, as we've seen with the interconnections we've already got. It feels like there is good government momentum on this side. Given we need partners, are you seeing that there's good momentum on the other sides of all these connections as well? Is it feasible this can get done?
Absolutely. I think the momentum is equivalent on both sides of the North Sea, and we have some, you know, some really ambitious targets in continental Europe at individual country level, and at the European Commission level. We have some, you know, some differences in the frameworks and aspirations, but everybody understands the need to deliver this and the fact that this is a critical decade for setting off in the right direction. We have good cooperation, we have good fora to be represented at, where we can start to think about the future frameworks. Like Chris, I'm incredibly confident that we will have frameworks in place soon, and until then, we have the opportunity of pathfinder projects.
Chris, we've had a question on the GBP 10 billion for the 15 projects, and I think you said GBP 8 billion in T3. So I guess I have two questions on the back of this. One is, does that leave the GBP 2 billion in T2? Is that part of the UMs or does that come later? And the second part of it is, unsurprisingly, how much of that is gonna come when? And therefore, you said that given pace, National Grid could end up doing some of this or maybe a lot of this before competition comes in. Can you sort of-
Yeah.
Give us a sense of scale around that?
Yeah, I can. Just to be clear then, the GBP 10 billion in total across the 15 projects, we believe at the moment based on phasing that would be GBP 2 billion in RIIO-2 and GBP 8 billion in RIIO-3. The GBP 2 billion in RIIO-2 is made up of the early engineering and consenting that we need to do on all of the projects, so we've got some baseline funding for that. As I mentioned, we think the HVDC cables to Scotland were likely in RIIO-2 to have got the funding from Ofgem and started the construction phase. The two billion in RIIO-2 is a mixture of pre-construction, consenting, and early construction, of which the HVDC cables to Scotland, I think, are the most likely ones.
I mean, part of the active debate we're in with government and Ofgem is this potential trade-off between introducing competition and giving the clarity to get on and deliver these projects in one go. You know, they're still open-minded on all of the projects, whether it is in the interest of consumers to introduce competition. No, I think I said earlier, I think at least half. I think the timescales would suggest they will come to us and our Scottish counterparts. The others could go out to competition, but you know, we need to work through whether that is the right answer for consumers or is it of more interest actually trying to deliver it a bit earlier.
Just on that, what should we be watching out for? What should we be listening out for in terms of next steps around competition?
Next steps in terms of competition, I mean, each of these projects. Recently, Ofgem have approved the initial needs case for the Eastern Link. We'll get the final needs case approved early in the new year, and then we would expect the funding. The normal regulatory processes will continue and the default is we'll be delivering them. Ofgem then, obviously we look to see whether there is the primary legislation that comes in in any energy bill next year. Onshore competition does need primary legislation, so that would be probably the first step in terms of whether competition's happening.
I think we are starting to hit up on time. I've got a question which I think is actually good for both of you. Unsurprisingly, it's on returns. For Nicola, can you just sort of size. You didn't talk specifically about the level of returns. You can sort of just size them for us, and give us some idea of what we're looking for. Chris, we've talked about and you mentioned the new performance and efficiency program that Andy mentioned as well. It's GBP 100 million across the U.K. businesses. How does that fit into what we're talking about, a potential 100 basis points of outperformance? Yeah. Nicola?
Thank you. In interconnectors, we enjoy returns that are higher than in the regulated business. We generally have double-digit returns. As we start to move into different types of interconnector, the return range might narrow, but with that will come less volatility and less market dependence. For the moment, good returns into the double digits. Obviously, a bit of competition between Chris and I there.
I mean, in terms of the regulated business, obviously the returns have now been set for RIIO-2. We were pleased that the CMA overturned the outperformance wedge. We're at 4.5%. You add on the CPIH on top of that, let's assume that's at least 200 basis points. That gets you to 6.5. I've explained we're targeting 100 basis points of outperformance, can get you to 7.5. Although it's not included in the operational targets under the RIIO contract, there is the potential to outperform on the finance elements in terms of debt as well. You know, that could add up to 100 basis points as well. You know, we're just now focused on delivering for our customers, and I'll say through delivering things efficiently, shareholders will benefit as well as consumers.
Brilliant. Thank you very much, both of you.
Thank you. I'm an electrical engineer. I studied electrical power engineering because I always wanted to be part of the power industry and part of the energy transition. I actually started in a very hands-on role on coal power stations doing high voltage testing. Then a bit like the energy industry, I transitioned through coal into gas-fired power stations, then into offshore wind. I spent some time in research and development of low-carbon technologies, and then joined National Grid. I've been lucky enough to work all over Europe. I spent about four years in Slovakia, good few years in Germany, a little bit of time in the U.S. I've seen the power industry from all sorts of angles and worked along the value chain, which has given me a great insight into how the whole industry comes together.
I joined National Grid about three and a half years ago. I joined to run the 24/7 control room and the development of all the capital schemes that we deliver on the network. I came into this role as President of ET about 6 months ago. My vision for the ET business is that we are absolutely positioned to be at the heart of the energy transition. When we brought our new executive team together and we said, "What will it take for us to succeed?" There were three themes that came out really strongly. One was we want to build the organizational health and capability of the business for the future, to really set leading-edge capability in terms of operating transmission networks.
The second was to be able to deliver our outputs sustainably and continuously more efficiently, so that we just keep going on that efficiency journey for our customers, for our consumers, and for our stakeholders. The third was about turning the net zero ambition into real concrete steps and making those immediate and responsive to the pace at which we need to operate. If we can do that over the next five years, we can really accelerate through to this 2050 ambition and be absolutely central to that for the country and for the world more widely. The fundamental role of National Grid and electricity transmission of transporting electrical energy from where it's generated to where it's needed doesn't change.
Actually, in the future, how and where it's generated is changing completely, as is how it's being used, and we need to respond to that. We need to support the government's ambition of 40 GW of offshore wind by 2030. That means instead of generating down through the center of the country, we're generating on the coast, so where the energy needs to move completely changes. Then how it's being used and where it's being used is also gonna change. We don't fully know how yet, but we know that electricity will be part of the decarbonization of transport and of heating our homes, and that that's gonna require reinforcements at all levels of the electricity network going forward.
The nature of our business is that we have a vast array of stakeholders, and they all touch our business in really different ways. For customers that are already connected, for consumers, for the distribution networks, the thing that's front of mind for them is resilience and reliability, how we respond in times of bad weather, for example, how we work with local communities, how we create employment, develop skill sets. By focusing in on those local stakeholder needs, we're able to respond to them and reflect them in those local communities. We have other local communities that are affected in a totally different way when we need to build new infrastructure, hearing their voice, considering what that new infrastructure means for them is gonna be.
is a very important part of how we work today, but will be even more so in the future as we make space for net zero. Yeah, we've created a delivery unit within the organization that is entirely focused on delivering for customers from the point of interest to physically connecting to the network. Whereas we've made huge strides in terms of customer service, being focused on our customers and listening to them, the next step change is really in terms of customer need and being able to respond to that customer need. What we're seeing is that customers want to be able to connect quicker.
They want to be able to connect to the network and be part of the net zero transition, and we need to facilitate that, and that requires quite significant changes in terms of how we develop work, how we facilitate access to the network. So creating that home for that focus and that accountability for working with customers to respond to their needs has been a really integral part of how we've designed the new structure. We do have a real array of stakeholders to deal with, and that changes in different areas, and at different times. At the moment, actually, a lot of our time is going into engaging with the supply chain because we recognize there's this huge work bank coming up. It's not just with us.
There's other big infrastructure projects going on, whether that's HS2 or the offshore wind developers building their infrastructure. We're all playing in the same space in terms of equipment, raw materials, critical skill sets, engineering resources. Working with that supply chain to see what does the next five, 10 years look like, how are we gonna build capability together, how are we gonna respond to this challenge ahead of us to the green recovery, to the leveling up agenda? These are all really big, important questions. As we work with the supply chain, equally, we need to engage the right government departments, the regulator, and try and coordinate that response and bring everyone together on this incredible challenge and ambition that we have towards net zero.
Our RIIO-T2 deal is a really challenging one in that we've got a lot of work to deliver. There's a step up in volumes in terms of the asset health work that we need to deliver. We're seeing an increased number of customer applications, and that comes with quite a high level of uncertainty, and we know we've got big infrastructure build and reinforcement to do as well. The deal comes with very prescriptive deliverables, clawback mechanisms and quite significant efficiency challenges with that as well. As a business, we really need to respond to that and think about how we can sustainably but continuously reduce our cost of delivery without compromising on reliability or the progress that we're making towards net zero. That's a real focus for us at the moment.
We see digital being quite a big part to play in that, particularly in the asset health work and how we control and operate the network. We're looking at where digital can support in terms of consenting and construction in areas where it hasn't traditionally been used before. In the initial phase, we're putting a lot of effort into maximizing productivity of our field force, so giving them the right information at the right time to make the decisions that they need to make. Mobile devices, giving them absolute clarity of their work, allowing them to record the right information so we can create a continuous feedback loop and learn from that and keep ratcheting up the productivity over time.
We're moving more into the AI space in terms of predicting failures, how we want to control the network of the future. One of our big investments over this period is actually gonna be an entirely new control system for the network. Yeah, so we've created fully accountable and empowered business units, and that's about putting together the decision-making around top-line objectives with bottom-line costs, putting decision-making closer to the assets, closer to the customers, so we get greater ownership and accountability for the results that we're trying to achieve as a business. And bringing those really together in a very open and transparent way so we're able to talk about the decisions we're making and why they've been made and where they've been made. We're on a pretty significant transformation of the electricity transmission business.
We've brought together what was the operational part of the electricity transmission business with our capital delivery construction part of the business and embedded the functions that support us to create this fully accountable business unit. Within that business unit, we've structured it to be really aligned to our external stakeholders' requirements to put outputs together with cost and create that true accountability for results, 'cause we want to be a much more results-oriented organization with accountability for delivery and decision-making in the right place to support that. That is quite a big change for us, as previously we were organized along internal processes.
We need to bring the teams on those journeys and provide them with the tools, whether that's digital tools or capability or upskilling or support to take on that wider remit and that accountability for delivering outputs for our stakeholders.
Hi, and welcome to the New York breakout session. I'm Rudy Wynter, President of National Grid New York.
I'm Will Hazelip, Head of U.S. Business Development and Partnerships at National Grid Ventures.
You know, I've been with National Grid for 33 years, and I can't tell you a more exciting time to be at the helm of the New York business. We are at the point where we're solving large problems, like helping the state through the energy transition, while at the same time making sure we deliver energy safely, deliver it reliably, deliver it cleaner, but also make sure that no one gets left behind on that transition. Today, Will and I are really excited to share with you the New York story. We're going to talk to you about what we're doing in New York that keeps us at the heart of the energy transition. We'll share with you some really exciting growth opportunities, and finally, we'll give a financial outlook for our New York business.
Please follow me into the presentation.
Welcome, welcome, everyone, and thank you for joining us and welcome to New York. I wanna show you and start off with our service territory in New York State. Just as a reminder, we are 65% of the group's U.S. asset base. We're investing $2 billion a year in CapEx. We have a rate base of almost $16 billion that's growing at 8%, and probably more importantly, we have the privilege of serving over 4 million customers in the state. The last point I would make about New York is New York probably has some of the most progressive environmental targets of any state in the United States. You know, earlier today, you heard Andy and John set out the group's five-year financial framework. Well, this is how New York aligns to it.
Five-year CapEx investment of $14 billion or GBP 10 billion, and the expected asset growth and earnings growth to follow. We'll deliver this through a focus on efficiencies as well as executing on some of the exciting investment opportunities that we're gonna be talking about today. We've got great visibility with our new rate cases in Downstate New York, our KEDLI, KEDNY case, as well as our proposed case for Niagara Mohawk. All of those give us greater alignment to the environmental aims of the state. It gives us greater visibility on how we can drive efficiencies to ensure that we're delivering at 95% of allowed. Then finally, it gives us great visibility for all the important capital investments we have to make in this business.
You know, during my time at National Grid, we've always had a good working relationship with our stakeholders, with our regulators, etc. It's no secret that a couple of years ago we had some issues, particularly as it related in Downstate New York to a proposed moratorium on new gas connections. Well, I wanna tell you today that we have worked very hard. We've reset that relationship with the state and others, and we've also designed and we're executing programs in Downstate New York that introduced some non-infrastructure solutions into our plans as well. I'm gonna have my colleague, Bryan, tell you all about that.
Hello, my name is Bryan Grimaldi. I'm the Vice President of Corporate Affairs in New York for National Grid. As you know, New York State has a new governor. Kathy Hochul was sworn in on August 24th and has hit the ground running with an ambitious agenda, and we stand ready to assist the state to build back better as we recover from the pandemic. Her early actions and statements on addressing climate change are focused on collaboration and partnership with the private sector, and we've communicated our readiness to assist. Just this week, we collaborated with her office when they reached out to National Grid proactively to ask our opinion on a piece of pending legislation.
We've set up our relationships with our key staff members in government relations, communications, regulatory, energy policy with their counterparts in state government, some of whom are new, all of whom are willing to assist and work with National Grid. Our senior leadership meets regularly with NYSERDA, the Public Service Commission staff, and the building blocks are in place to maintain these relationships at a very high level. I very much look forward to continuing to work with the state stakeholders, advancing our clean energy future.
You know, Bryan and Team New York are doing a great job, like I said, in resetting that relationship. We have to make sure that we deliver affordably for our customers and make sure we're delivering efficiently so we drive value for our shareholders as well. To do this, we're going to have a laser-like focus on driving some efficiencies in the business as well. Earlier today, you heard Andy talk about the group's new cost efficiency program. Well, New York is gonna be playing a role in that as well. New York is targeted to deliver $175 million of efficiencies in that program, and we're gonna deliver those targeted efficiencies focused on three main themes. The first of which is reducing our external and supply chain spend. The second of which is enhancing our work and asset management capabilities and introducing new technologies.
Just outside of this room on display, we have something called the CISBOT. It's an internal robot that goes inside of the pipeline that helps us seal leaking joints. By utilizing technology like CISBOT, the New York business has been able to save $40 million between the year 2017 and the year 2021. The third example and key theme for efficiencies is focused on digitalization and automation of many of our work processes. For us, we're focused on deploying a digital tool that helps us optimize the routes, bundle work, and improve dispatch of all of our field crews. That platform will allow us to save $30 million a year. It's not only about OpEx, we're also doing a lot to deliver our capital plans more efficiently as well.
We'll deliver the same level of output today, but deploying 10% less than we did three years ago. Now, moving on to our growth opportunities. Our goal here is to make sure you leave this session just as excited as we are about the opportunities we have before us in New York. I'll be breaking down for you really how we're gonna be spending that GBP 10 billion over the next five years. Largely, you'll see us talk about the gas distribution business and how those investments are gonna be critical to ensuring an affordable energy transition. I'll be talking about the investments we're making in electric distribution, much of which is focused on maintaining resiliency and integrating renewables into the grid.
Lastly, we'll talk about the electric transmission business and show you some really cool regional solutions that we're deploying, again, to help integrate renewables onto the network. Let's begin with the gas distribution business, where the plan is to invest GBP 6 billion over the next five years. 80% of this is largely driven by mandated programs and reliability, specifically our leak-prone pipe program. Our leak-prone pipe program underpins a lot of our growth. To date, we've replaced over 5,000 mi of leak-prone pipe, and we still have easily another 15 years on this program to go. I'm gonna have my colleague from New York, Corey, tell you all about it.
My name is Corey Wallace. I'm Senior Supervisor at National Grid in the BPI in-house construction team. We're out here on Pinelawn Avenue in Copiague. We are performing a main replacement project where we are going to be upgrading the existing gas main infrastructure, and we're replacing this leak-prone pipe. It is 2-in bare steel, and since it is steel, it's susceptible to corrosion as well as springing leaks upon it, which releases methane into the atmosphere. This program is more proactive than it is reactive. Our goal is to replace that aging infrastructure with a brand-new upgraded gas main facility. It's gonna eliminate gas main emissions and deliver a safe and more reliable product to our consumers.
It's always better seeing Corey and the team talk about it and do it rather than hear me talk about it up here. The other thing the leak-prone pipe program does is it helps us future-proof that gas distribution network, because we do believe that network has a future in a net zero future. We recently published and participated in a study with the City of New York called the Pathways Study. The study was designed to look at how do you decarbonize New York City? Three big findings came out of that that I'll share with you. The first of which is that on the peak day in the wintertime, the gas distribution network in New York City is carrying 3x the amount of energy than the electric distribution network is carrying on the peak day in the summer.
It's carrying a lot of energy. The second is the fuel that's going through that pipeline can be decarbonized. The third is that the diverse building topography we have in New York City, and that might be a read across to any city, it is impossible to electrify everything. As a matter of fact, the study showed that anywhere from 1/3- 2/3 of those buildings cannot be electrified. Now, electrification is part of an ongoing narrative on how we're gonna decarbonize the heating sector. Don't get me wrong, we have to electrify a lot of the heating sector, but it is not practical, nor is it affordable to electrify everything. The natural gas network will have a role in the future.
We're not just talking about these things, but we're actually doing a lot of study work and planning pilots on integrating renewable natural gas and even blending hydrogen into the network. As a matter of fact, in a couple of weeks, you'll hear us announce a hydrogen blending pilot that we'll do in New York, where we'll blend green hydrogen into the network and distribute that lower carbon fuel to hundreds of customers. Some really exciting things on the horizon. I know Will has some really cool stuff going on with hydrogen as well.
Thank you, Rudy. Hydrogen is a key tool to reach decarbonization goals. New York is poised to lead with one of the first hydrogen hubs in the United States, and that led us to launch our vision just a couple of months ago. In addition to the upcoming blending project Rudy mentioned, New York is home to one of the leading green hydrogen companies in the world, Plug Power, which recently broke ground on a $250 million facility in upstate New York that will produce 40 tons of green hydrogen each day. Further, Long Island's unique requirements for power generation to maintain reliability, coupled with significant penetration of offshore wind, make it the perfect place to pursue hydrogen-fueled power generation to support the grid when the wind isn't blowing.
We also see demand potential in the gas network and in mass transport, including passenger ferries, trains, and airports. While investment won't happen for a number of years, there's important work to do today, and when we look out at the future for hydrogen, the opportunity is significant. For example, establishing a hydrogen hub in New York, we forecast would lead to a 15x increase in hydrogen production to 600 tons per day, which could fuel 10 passenger ferries, 45 trains, up to 1 GW of power generation, and blend into the natural gas network. Now, all of that would represent about $5 billion of investment over the next decade.
We're excited about the future for hydrogen and see our role as leading the development of a hydrogen hub in New York, developing hydrogen-fueled power generation, and blending into the natural gas network. Being a leader here is critical to remaining at the heart of the energy transition for decades to come.
Thanks, Will. Now let's turn our attention to the electricity business, where we plan to invest $4 billion of CapEx over the next five years $2 billion in electricity distribution and $2 billion in electricity transmission. The electricity distribution business has very similar strong growth drivers that we've seen in the gas distribution business. A lot of it is driven by hardening the network. Remember, my upstate distribution network has about 82% of its lines are above ground. We're investing in hardening those assets and making that network much more resilient. I also wanna get you excited about just the market dynamics that are going to drive growth, not just over the next five years, the next 10 and 20 years. Let's take a look at renewables, for example, and distributed generation in upstate New York.
Over the last 20 years, we've interconnected about 900 MW of distributed generation onto our network in upstate New York. I have 4 GW currently in the queue to be interconnected. That's going to drive some additional investments to ensure that we interconnect that, those generation on time. Take electric vehicles or EV, that's another great example. When I look at the last three years in our upstate footprint, we installed 1,600 electric vehicle charging ports. If I look at the next three years going forward, we have an ambition to install 16,000 EV charging ports. Then if we look over at transmission, that's where we actually see some huge opportunities for investment in New York State.
As the state attempts to really build out a strategy of having a green superhighway that can bring cleaner energy from Upstate New York down to the load centers in New York City. What are we seeing and what are we doing about these opportunities? Well, we've been hard at work identifying where that load's going to come on, and then more importantly, what are the local upgrades we've got to make on our distribution and transmission networks in order to facilitate that load coming on. We've prepared all that and made a filing with our regulator, the New York State Public Service Commission. If approved, that could be another $2 billion of investments between the 2025 and 2030 timeframe, and that is on top of the investments I talked about before.
All of this is in an effort to create transmission capacity so the state can integrate its renewable energy targets. Another great example of this is a regional solution called the Smart Path Connect project. In 2021, the New York Power Authority selected National Grid as its partner for this project. It's due to be commissioned in the year 2025, and it will help unbottleneck about 1,000 MW of existing renewables that are in Upstate New York. I'm gonna have my colleague, Bart Franey, tell you all about it.
These wooden structures behind me will soon be upgraded to a state-of-the-art design, capable of carrying over 1,000 MW of additional renewable energy produced in Northern New York to customers all across the state. This transmission project is known as Smart Path Connect and is critical to support New York's ambitious effort under the Climate Leadership and Community Protection Act.
Transmission solutions such as this will also be a catalyst for economic growth. By investing in upstate transmission, local communities will benefit economically from construction activities, and new transmission will create enduring economic benefits through the growth of renewable generation along their path. National Grid is working with regulators and policymakers to advance additional cost-effective transmission solutions that satisfy clean energy mandates during this critical decade.
That's an exciting project, and it represents investment of about $500 million for us. Bart talked about a great transmission project that's happening in Upstate New York. Now, Will will tell you about a great one that we're planning for in Downstate New York.
You know, it is such an exciting time to be part of transforming the transmission network. With the regulated utilities that Rudy just discussed in our commercial businesses in National Grid Ventures, we really are right at the heart of the clean energy transition in New York. For New York, the single largest source of clean electricity will be offshore wind, and much of that offshore wind will connect to Long Island, making Long Island critical for the New York's clean energy transition. In fact, of the 4.3 GW currently under contract, just over half will connect to the Long Island Electric System. Beyond that, we could see another 5 GW over the next 10- 15 years.
This will require connecting new transmission, both on the island and connecting the island to the mainland New York transmission system, to be able to integrate all of that offshore wind. That's led to a competitive process that's open right now to procure additional transmission cables connecting Long Island to the mainland system and upgrading the system on Long Island to maintain reliability. We're participating through our New York Transco joint venture, of which we own just under 30%, along with the other three utilities in New York State. To further enhance our competitive position, New York Transco has partnered with the New York Power Authority and submitted the proposals as Propel NY Energy. In addition to the important goal of integrating offshore wind, Propel NY Energy would also deliver important benefits.
Emissions reductions from allowing more transfer to and from the island, lower costs to consumers by relieving congestion, and increased reliability and delivery of offshore wind to the demand centers. Now, to put it in perspective, 3 GW-6 GW of transmission capacity is expected to cost in the order of $3 billion-$5 billion. Clearly, this is an exciting opportunity for us.
You know, I'll close it out where I started the presentation. As I said before, I've been in this business for 33 years, and I don't remember a time where we've had so many exciting growth opportunities before us. If you look at the regulated businesses we have in New York, we have great investment plans driven by our great regulatory agreements, growth opportunities, and underpinned by an efficiency program to ensure that we're delivering on the returns we need to deliver for this business. At the end of the day, we're going to be investing, as I mentioned, $14 billion of CapEx. We'll see an 8% rate-based growth, followed by 8% operating profit growth.
We have a business here in New York that across the board, whether it's gas distribution, leak-prone pipe, or it's the electric distribution business, many years of solid growth ahead of us. The things that we'll talk about are just adding to that real pipeline of opportunities. There is a lot going on, and we've done a lot in New York State to make sure we're at the heart of that clean energy transition and making sure we're doing it safely and making sure we're doing it reliably. There's still so much more to be done, and we look forward to getting to work in New York. With that, I'd like to open it up to some questions.
Rudy.
Yes.
Thank you very much for that. Really interesting. We have some questions coming through. Thank you very much. If you want to ask questions, please do send them through on the web platform. Let's start with you, Rudy. I've had a question on gas. 60% of your investment is going to gas distribution, but the whole energy transition relies on increased electrification and reducing dependence on natural gas. Are you worried about stranded assets?
Not worried about stranded assets because number one, we do feel there is a role for the natural gas network in the future. It may not be carrying all methane. It will likely be carrying a lower carbon fuel as we mix renewable natural gas and hydrogen into it, but there is a role for that natural gas network.
As a follow-up to that, can you talk a little bit about hydrogen blending and what's going on and what the future holds?
Right now the future is we're focused on looking at number one, is the network ready to blend the levels of hydrogen we'd like to blend? Doing a lot of studies around that. We're also doing some work around understanding what are the policies that we are going to need in New York State to enable more hydrogen production, green hydrogen production. And then lastly, the pilots that you'll hear us announce are gonna be focused on us actually blending some green hydrogen into the network, monitoring it, seeing if customers' equipment changes, or it operates efficiently as it would with natural gas. Over the next couple of years, it's a lot of making this real and continuing to learn.
One more on hydrogen. To bring Will into this, you were talking about the opportunities on Long Island. Can you give a bit of a timeframe? Because you said it was a few years off, but I think also the capital investment number suggested the next decade. Can you just sort of scale that for us, please?
Yeah, certainly. I think I'll start with the infrastructure bill, which does contain some funding for hydrogen hubs, and so we would certainly be targeting that. Now, the timeframe on that is a competitive process led by the government over the next six months to a year and a half after that. Certainly quite some time before a selection would be made there, and then we could really get to work. What we see is a lot of the actual investment and construction taking place in the second half of the decade out much more close to 2030.
Thank you. Moving on to electricity. There's a lot of potential growth that you talked about coming over the next decade. A lot of it is new connections and moving renewable supply to demand areas. Is a lot of that being driven by offshore or is there onshore as well, Rudy?
There's onshore as well. New York has a goal of having 70% electricity come from renewables by 2030. Today, we have about 27% coming from renewables. There is a goal of having 9 MW of offshore wind along New York, but there is going to also be maybe 10 GW of onshore renewables as well. In New York, we won't hit those aggressive goals without both.
In terms of returns, we just had a question around financial framework at the end that you put up. You expect 8% rate-based growth, 8% operating profit growth. There can sometimes be a lag between the two. Is the cost savings program expected to close the gap?
The cost savings program is absolutely gonna be a tool to make sure that we're always delivering on our goal of a 95% or better return.
Perfect. In terms of sharing that with customers?
In New York, we have a mechanism where if we exceed our ROE by greater than 100%, there is a mechanism where we would absolutely share that with customers, and that's the right thing to do.
Will, just moving on to the transmission projects that you were talking about. Can you give us a bit of timeframe around that? I know you said bids have just gone in, if I'm right. So what's the next process? What should we be listening out for?
Yeah. We expect a selection to be made in late 2022. It'll be quite a lengthy process. It's quite complicated. Once the selection is made, there's quite a bit of development work. We shouldn't expect to see any infrastructure placed into service until the second half of the five-year period at the end of the decade. Call it around about 2027 timeframe.
Perfect. On the distribution side as well, we often hear about storms and the impact that it has on local communities and the work that we're doing. Firstly, can you talk a little bit about, I think John or Andy, one of them mentioned, regulatory mechanisms changing so that we can more align costs to the storms and recovery. Can you talk a little bit about how the mechanisms are changing and then also a bit of the infrastructure work and can we underground more of them or can we do something to help going forward?
Yeah. I'll start with the mechanisms for recovery. At least the joint proposal we have before the Public Service Commission now has in it greater ability for us to recover some of our storm costs from major storms, minor storms, as well as certain mechanisms for us to recover costs for pre-staging of work, right, before a storm happens. Those are probably better aligned now, as Andy was talking about, than they have been in the past. But I also wanna make sure everyone realizes we have a very reliable network in Upstate New York.
This will be our fourteenth year of hitting our reliability targets. A lot of that is because we do a tremendous amount of work focused on vegetation management to ensure that we have the trees out of the way from these power lines, so when a storm inevitably comes, our lines are secured. If and when customers do experience an outage, we try to make sure that we're recovering them in a very timely fashion as well.
Perfect. We've just got time for one last question if there's a quick answer to it as well. Relationships in New York is what I always get asked from an investor relations point of view. There's a new governor. We heard Bryan talk a little bit about relationships. Can you just talk from your perspective and what you're doing and how you're connected to different policymakers and decision-makers across the state?
Sure. When I took on this role, I made sure I went out and did a 100-day listening tour, and I met with community leaders, politicians, regulators, all of our key stakeholders to hear them out, but also send a message that we're looking to reset relationships, step up our game with stakeholder engagement, and we have done that. We're in a much better place now. Bryan mentioned the new governor. I spoke to the new governor a couple of about three weeks ago about economic development projects we can be doing in public and private partnerships. The relationships now are very different than they were, say, two years ago.
Brilliant. Really well. Thank you very much indeed.
Thank you.
Thank you.
Hello, my name is Bryan Grimaldi. I'm the Vice President of Corporate Affairs in New York for National Grid. As you know, New York State has a new governor. Kathy Hochul was sworn in on August 24th, and has hit the ground running with an ambitious agenda. We stand ready to assist the state to build back better as we recover from the pandemic. Her early actions and statements on addressing climate change are focused on collaboration and partnership with the private sector, and we've communicated our readiness to assist. Just this week, we collaborated with her office. When they reached out, National Grid proactively to ask our opinion on a piece of pending legislation.
We've set up relationships with our key staff members in government relations, communications, regulatory, energy policy with their counterparts in state government, some of whom are new, all of whom are willing to assist and work with National Grid. Our senior leadership meets regularly with NYSERDA, the Public Service Commission staff, and the building blocks are in place to maintain these relationships at a very high level. I very much look forward to continuing to work with the state stakeholders, advancing our clean energy future.
My name is Corey Wallace. I'm Senior Supervisor at National Grid in the BPI in-house construction team. We're out here on Pinelawn Avenue in Copiague. We are performing a main replacement project where we are going to be upgrading the existing gas main infrastructure, and we're replacing this leak-prone pipe. It is two-inch bare steel, and since it is steel, it's susceptible to corrosion as well as springing leaks upon it, which releases methane into the atmosphere. This program is more proactive than it is reactive. Our goal is to replace that aging infrastructure with a brand-new upgraded gas main facility. It's gonna eliminate gas main emissions and deliver a safe and more reliable product to our consumers.
These wooden structures behind me will soon be upgraded to a state-of-the-art design, capable of carrying over 1,000 MW of additional renewable energy produced in Northern New York to customers all across the state. This transmission project is known as Smart Path Connect and is critical to support New York's ambitious effort under the Climate Leadership and Community Protection Act. Transmission solutions such as this will also be a catalyst for economic growth. By investing in upstate transmission, local communities will benefit economically from construction activities, and new transmission will create enduring economic benefits through the growth of renewable generation along their path. National Grid is working with regulators and policymakers to advance additional cost-effective transmission solutions that satisfy clean energy mandates during this critical decade.
Welcome to the breakout session to discuss National Grid New England. I'm Steve Warner, President of National Grid New England.
I'm Carol Sedgwick, Vice President of Electric Asset Management and Engineering.
I'm excited to be part of this senior leadership team, having joined National Grid at the beginning of October following a 31-year history at Baltimore Gas and Electric, Constellation Energy, and Exelon Utilities, where I have a track record of driving operational excellence across the business. I have experience in working in a utility that owns multiple other distribution companies, and we're looking forward to leveraging what we have with WPD and New York.
I do feel that my deep utility experience will be an asset to the senior team as we embark on a journey to achieve efficiencies in our business to make the incremental investments that present growth opportunities enable our clean energy future for our customers. I'm interested in partnering with our customers and the communities that we serve to help them reliably and safely and cost-effectively meet the challenges of the climate change challenge. Now I would invite you to follow us around to the other side of the display. Just follow Carol, please.
Yep, to the main presentation area.
I'm gonna set the stage. Behind me, there's a map of the New England region, and what you see is we have two distribution companies in a multi-state New England electric transmission system that serves over 2 million customers and is positioned to achieve the state's environmental goals for 85% reduction in greenhouse gas emissions by 2030 and net zero by 2050. All of the numbers that Carol and I are gonna share with you are Massachusetts or transmission investments. We are not discussing investments we're making in the Rhode Island business because that, as you heard earlier, is positioned for sale to PPL in the first quarter of next year.
While I've been with the company for just over a month at this point, I can confidently say that I've got the leadership team, and we collectively have the relationships in this jurisdictional model to be successful in transforming our electric and gas distribution systems to enable safe, reliable, and a clean energy future for our customers and the communities that we serve. We're actively participating in the state's future of gas discussions, and I'll talk a little bit more about that later. Another example of where we've partnered to improve operational performance already over the last couple years, Massachusetts has a significant interest in distributed generation to achieve these goals, solar installations. Well, all of those require investments in the transmission system to enable them, and Carol's gonna discuss a little bit more.
We've already achieved Massachusetts being the second-highest concentration of distributed generation anywhere outside the state of California. A little more scene setting. You heard Andy and John talk about a five-year financial framework. Carol and I wanna talk to you about New England's piece of that. Over the next five years, we're investing GBP 7 billion. This is split between the gas system and the electric distribution and transmission. As you're gonna hear, there is a tremendous amount of investment required to enable this clean energy future. We do have performance-based rates for our distribution companies in Massachusetts that secure regulatory support for the investments needed through 2024 in electric distribution and 2026 in gas distribution. We also have a number of incremental filings to address additional challenges, and I'll speak more of that in a few minutes.
All of our investments are totally aligned with the state's environmental goals, and the benefit of these multiyear rate filings is it gives us a clear line of sight on the investments required and how we will be compensated for making those investments. It's excellent visibility, which enables us to build the workforce to execute against the growth. I'm gonna first talk about, though, how we drive efficiency and why are we spending so much time focused on efficiency. Well, it's as simple as this. I mentioned safety and reliability, but also cost-effective. As we make these investments, for every $1 I can save in operating expense, I am able to invest $8 of capital for the same impact to my customers.
That's incredibly important to me because I don't want to accomplish these goals without a focus on cost effectiveness. As you heard John and Andy talk about this, the group has a target of GBP 400 million, and that's across the whole group. Mass, New England's piece of that is GBP 125 million. Carol and I are gonna talk about some of the things we're doing to achieve these. They all are categorized in one of three areas, either automating our work practices, enhancing our work and asset management capabilities, or reducing or optimizing our external supply chain spend. An example of the work and asset management, we're leveraging a tool called Copperleaf Asset Optimization that was actually developed by a company that National Grid Partners invest in.
This tool allows our planners to select the optimal mix of projects and programs to achieve the safety, reliability, and environmental goals that we have set forth to do, and they're key to achieving successful regulatory outcomes for the portfolio of projects that are selected. Carol's gonna talk a little bit more about one of the investments that gives the targets external supply chain spend, and you heard a little bit about it earlier from John, where we spend our... One of our most significant external spends is vegetation management, and Carol's gonna talk about some new and innovative technology where we're gonna drive improvements in the effectiveness. As you saw in this morning's announcements, in the New England region, we're falling short of our ROE targets. Now why is that?
In Massachusetts, we have a historic test year process for setting rates, and whenever a company is investing at a level of capital that we are, you have a lag effect on that new capital investment. Between incremental filings to address investment needs that are outside of the multiyear period and efficiency, we expect to close that gap over the coming months.
Moving to growth opportunities. We are very excited about the opportunities to transform our network over the next five years. We're gonna talk about $7 billion of investments, $3 billion of gas, $4 billion of electric. I'm gonna speak to the investments we're making in gas, and then Carol's gonna speak to some of the investments we're making in the electric business. Starting with gas. $3 billion of that $7 billion is being invested in the gas system.
This compares. It's at a 50% greater level of investment than the previous five years. The past five years, we've spent $2 billion on this system. 80% of this investment is absolutely focused on improving or modernizing the gas network to transform it, meet the state's emission goals, as well as drive safety and reliability. In Massachusetts, I mentioned that we are fully engaged in the future of heat proceedings.
What this docket is designed to do is explore strategies that will enable the state of Massachusetts to meet its net zero greenhouse gas goals, and do so in a responsible manner, where you're safeguarding customer interests and ensuring safety, reliability, and cost-effective natural gas service. We're gonna file our specific plan for this journey in March, and we expect to hear from the regulator later in the year.
The biggest investment that we will be doing is GBP 2.6 billion in what's known as our leak-prone pipe program. 3,000 of our 11,000 mi of gas distribution is targeted by this program. This is replacing outmoded equipment. We began at a more aggressive pace replacing this system back in 2012. In 2014, the Massachusetts legislature, recognizing the importance of this work, passed legislation that allows us to do so at a more accelerated pace and provides clear line of sight of the remaining years in this program, which is 15-20 years. This is quite complex work. In terms of mileage of what we're doing, it's equivalent to installing pipe from Boston, Massachusetts to Houston, Texas. It's not as simple as installing pipe in a green field.
This work is performed in customers' neighborhoods, in the community, under roads and sidewalks, and it comes with challenges. That's why I put a range on the remaining work, 'cause we can only move forward at a pace that's also balancing the customer impact. Over the last 10 years, this program has resulted in a reduction in terms of CO2 equivalent emissions of 29,000 metric tons. Over the next five years, it targets another 20,000 reduction. This is equivalent to taking 4,300 vehicles off the roadway, and this line aligns completely with the COP26 directions.
We are also working with our local communities to look at alternative and less carbon-intensive fuels, and how our new improved modern network can become a transport mechanism for renewable natural gas and hydrogen, which can help leverage this system to more cost effectively address the strong winter peak loads that are currently carried by gas in the Northeast winter.
The next slide shows some examples of the work we're doing. At the top you see a bare steel pipe. On the left you see a cast iron pipe. In both cases, we're installing high-density polyethylene pipe that future-proof not only addresses the aging infrastructure, but future-proofs our network to a medium that's capable of transporting multiple different energy transport fuels. Now I'll turn things over to Carol to talk a little bit more about what we're doing in the electric business.
Thank you, Steve. I have been with National Grid for 34 years. I have worked in our transmission and distribution organizations, both in Upstate New York and New England, mainly in our engineering groups. I can say that this is the most exciting time to be in this energy industry, because we really are at the heart of the energy transformation. We are helping Massachusetts achieve its goals of net zero by 2050, and it aligns with our goals. This is, again, one of the best times to be in this industry. I'm so happy to share with you the work we're doing in our electric business in New England. In our electric business, we intend to spend GBP 4 billion over the next five years, split equally between our transmission and our distribution business.
The work we're doing is focused in two main areas. It's about hardening our system and improving the assets so that we can have them withstand the climate impacts that are coming, as well as readying them for electrification of the state. Before I get to some of the growth areas, I'll talk first about the climate work that we're doing or the hardening that we're doing on our system. If we go to the next slide, when you ask, "Why are we doing all of this hardening work?" This graph here shows the increase in storm activity in Massachusetts over the last eight years. It's been both minor and major storms, and we need to focus on how to improve our performance in the face of these climate impacts.
This is important to us because 73% of our system, our distribution system, is above ground. When we have storms come through with higher winds, they knock down trees that then knock down our distribution circuits and impact our customers, and both are out, as well as economic activity in the areas impacted. Our focus is how do we manage that, and how do we make sure that our system is operating well? The investments we are making are in our infrastructure, where we're spending annually $350 million in TotEx dollars to address climate impacts. One of the main things we're doing is focusing on vegetation. How can we deliver efficiencies in how we manage our vegetation? Our vegetation is, we have to figure out a way to do this well.
In the past, we were using annual cycles, and now we are using a digital product, which is very innovative, called Vegetation Management Optimization or VMO. This product uses satellite imagery. It uses our historical reliability information and analytics to help us target where the best trees are to take out, and so that they are not taking out our distribution lines. This work allows us to be more cost-effective and provide better or the same reliability for customers. Other climate work or hardening work that we're doing is around our distribution system and putting in stronger, taller poles at locations that are critical on the distribution network. It's around targeted undergrounding as well as flood mitigation. All of these things are needed in order for us to deliver for our customers in the face of climate.
Now, most of these were distribution examples, but if I go to the next slide, we'll share with you some of the work we're doing in our transmission businesses of New England Power and the interconnectors. We are investing GBP 2 billion in the transmission network over the next five years. They are on specific projects, many projects, but I'll just point to five. Five are rebuilding 171 miles of transmission network across three states. That work is being done to help reinforce the system, again, for climate. The cost is a $900 million spend, a significant portion of that GBP 2 billion. Now, I'll go further into two areas that we're spending a significant investment.
There are two rights-of-way that have 69 kV lines on them that were installed back in the 1910s, 1920s, and 1930s. These lines, we are looking at investing in them to be able to do three key things. One, help with the resilience. Stronger poles, taller poles, a new standard of 115 kV instead of 69 kV, stronger wires to withstand the climate impacts. Two, smart, because we're adding fiber optic communications on the line so that we can have a more intelligent network system that we can operate. Three, renewables, adding renewable capacity in this area. In fact, this area of Massachusetts has had a great deal of solar generation coming into it. These, the rebuilding of these lines allow us to deliver that renewable capacity in the future.
Three things: climate, smart, and renewables. That brings me to the growth opportunities that we have. If we go to the next slide, when we talk about growth, there are programs that we are investing in that are outside of our base rates that we have made filings for with the state of Massachusetts. One is our grid modernization program, a four-year program at $300 million, and another is our advanced metering infrastructure, a $400 million program, again, to install smart meters to all of our customers in Massachusetts. Those two programs are total $700 million over the next four years. Great investments to be able to automate our systems. When we say grid modernization, we mean adding automation, adding smart sensors to the system that would enable us to deliver higher reliability for our customers more efficiently.
Now, what we're doing right now is installing FLISR systems. In fact, in the future, the FLISR systems will be about GBP 100 million of the GBP 300 million investment. FLISR stands for Fault Location, Isolation, and Service Restoration. We have a video for you that was filmed at our Millbury Training Center with our engineers as well as our line personnel installing this equipment. They'll explain more to you about FLISR.
Fault Location, Isolation, and Service Restoration, also known as FLISR, is part of the grid modernization technologies that will improve system reliability, reduce customer outage time, and increase customer satisfaction. This technology is in line with what our customers expect of the electrical network and meets regulatory compliance and objectives for modernizing the electric grid and enabling the clean energy transition for our customers.
The added benefit of FLISR to our customers is that through wireless communications, faults can be isolated automatically and feeder ties closed automatically to restore service in less than a minute.
The FLISR schemes are real-time systems that routinely check and respond to faults along the grid, and some of their benefits include optimized system performance by reducing customer outages, by isolating faults in the electric system to a smaller area, and automatically rerouting power. Improve operational response time during outages, as the crews will be able to find the fault quicker. Provide better grid visibility by deploying communication-enabled grid devices.
FLISR, really a fantastic innovation as well as efficiency for our customers. Our intention is to install FLISR systems on 50% of our distribution circuits by the year 2031. That leads me to our last innovation that we wanted to talk about today, which is our robotics, SPOT. SPOT is a autonomous robot that we use in our transmission substations in New England as well as in upstate New York, where it's able to walk the substation and go in areas where it might not be safe for our personnel.
It has a payload of thermal vision cameras that's able to identify if there are hotspots in our substation equipment, which allows us to fix it before failure. This is just one of the many innovations that we're working on at the company. W ith that, I will turn it back over to Steve so he can speak more about our electric vehicle infrastructure.
Another area where we're enabling the state's environmental goals is through our enabling of the electrification of the transportation network within the state of Massachusetts. Already, as outlined on this slide, we've had success in implementing two phases of our program. In July, we proposed an incremental program which would dramatically enhance the electrification to enable 30,000 charging points for residential, workplace, and fleet charging. Also included in this program is a specific initiative to electrify school buses targeted at 300 school buses targeted at environmental justice communities and serving the customers in those areas.
As I said at the beginning, Carol and I, our goal today was to outline some of what we're doing from an efficiency point of view, to outline for you how we're preparing for these growth investments, what some of those growth investments are, all to align to achieving the state's goals. To do so safely, reliably, and cost-effectively. One point that I want to make, just to make sure it came through, we discussed GBP 7 billion of investments. GBP 6 billion of these investments are already part of regulatory proceedings and approvals that solidify and make it clear how we will earn against these investments. Another GBP 1 billion incremental is actually associated with the three targeted filings that we just discussed.
The next slide shows that over the future, our opportunities, and presented here on the Gantt chart, is that we have significant opportunity even beyond this five-year period as we enable smart energy transition for our customers in the communities. Now I will pause for your questions.
Thanks. Nick.
Thank you both of you. Really interesting. I've got some questions. Again, if you want to ask some questions, please do put them onto the platform and I will ask them for you. Let's start with the jurisdictional model. Steve.
Sure.
You're quite new to National Grid.
Right.
You've been here a month and a half, I think.
Right.
Tell me, what do you think of the change we're making and how does it sit for you?
Well, clearly I would not have joined but for this jurisdictional focus model. My role is to lead this jurisdiction, and I think it is the best model because we need to work with our customers and the communities they live in and the state and all the stakeholders in the area to present, in a collaborative way, our point of view on how we enable the smart energy future.
We're gonna be much more effective at being able to do that with our focus on the jurisdiction, and we're gonna make sure that we don't lose any of the efficiencies that come from having a collection now of three distribution companies across the National Grid footprint. I'm looking forward to partnering with Phil to learn how we can not just learn from WPD, but improve WPD's operations. I already have a relationship with Rudy, where we're doing the same thing between New England and New York.
Fantastic. You touched on efficiencies and we have a question around returns. I think you touched on the fact that I think we said this morning, returns across New England will be above 80%.
Right. This year.
This year, which isn't quite at our targeted 94% or at least 95%.
Right.
You talked a lot, both of you talked a lot about the efficiencies you're driving across the businesses. Can you talk a little bit about your confidence around getting towards the 95-
Yeah. Yeah.
...the sort of timelines around it?
Sure. A combination of these incremental filings to help solidify how we're gonna recover these incremental investments that are outside of traditional rate cases, the ones we just discussed today, combined with the efficiency investments that we're driving in the business, will help us close that gap over the coming 12 months.
I've just come from New York and the broadcasters at our session's just come from New York, and there's always discussions around relationships there and energy transition and how we're plugged in.
Right.
Can you both talk about your relationships with policymakers and how we see our business developing and how we're partnering and helping?
Would you like to start?
Sure. So our relationships, again, with our policymakers and regulators are engineers, our operations, our policy, our regulatory teams. They are engaged with those policymakers here in the state of Massachusetts. But we are also focusing on maintaining our relationships with our peers in our New York jurisdiction and understanding what's happening there, and being able to take the best practices that are occurring in New York and bringing that here to New England or Massachusetts. We have this great opportunity again with WPD to do the same thing. What we're learning, whether it's with DSO and how we're gonna operate as a DSO in upstate New York, we're applying those same learnings to what we're gonna do in New England.
As I said earlier, although I've only been with the company a little over a month, in that time, I've been able to meet with key state elected officials, regulators, and I find that they are absolutely hungry to partner and collaborate with us and would like our point of view, particularly on the future of heat.
Yeah.
The one thing I actually wanted to touch on, because I think it's really interesting about Massachusetts in particular, you've talked about grid mod, AMI, EVs, and spend outside of or investments outside of base rates. This feels like this is part of the business that is changing. Can you talk about some of the timelines around what we're seeing and then how, when this will come through?
Sure.
Is this something that we should expect across jurisdictions over the coming years and more outside of base rates?
Yes. You know, as I mentioned earlier, although it's a multi-year decision for electric and gas, it's still based on historical test years. That leaves you exposed for any new incremental investments that weren't part of the plan at the time you filed them. That's why we're making those incremental investments. I would say, you know, it's, there's other ways to do this. In New York, you're able to propose what the future investments need to be and debate that before you spend it. It's a different model. Right now, the current climate in Massachusetts is much more comfortable with the historic test year.
We still will remain focused on efficiently deploying that capital, getting those benefits, but we will, in the short term, continue to make incremental filings as we develop new investment opportunities to help close the gap on the state's environmental goals.
I think the state has been very supportive of our company and in the incremental filings that we've been making. It achieves some of the goals that they have. Of course, they're looking at it closely. These filings, we anticipate approval of them before the summer of 2022. Some of them may come, some portions of them may come even sooner than that, possibly in the first quarter.
Brilliant. Steve, Carol, thank you very much indeed.
Thank you. Thank you all for joining us.
For the virtual breakout, I think we have a bit of a break before we go into the plenary for Q&A in just over half an hour. We'll see you then. Thank you.
Fault Location, Isolation, and Service Restoration, also known as FLISR, is part of the grid modernization technologies that will improve system reliability, reduce customer outage time, and increase customer satisfaction. This technology is in line with what our customers expect of the electrical network and meets regulatory compliance and objectives for modernizing the electric grid and enabling the clean energy transition for our customers.
The added benefit of FLISR to our customers is that through wireless communications, faults can be isolated automatically, and feeder ties closed automatically to restore service in less than a minute.
The FLISR schemes are real-time systems that routinely check and respond to faults along the grid, and some of their benefits include optimized system performance by reducing customer outages by isolating faults in the electric system to a smaller area and automatically rerouting power, improve operational response time during outages, as the crews will be able to find the fault quicker, provide better grid visibility by deploying communication-enabled grid devices.
Okay, welcome back, everybody. I hope you found the breakouts really, really useful and got some more content on things that we discussed earlier on this afternoon. As I said earlier on, we're gonna have another opportunity for you to ask questions. I have my team with me. I'll just gonna throw it open to the first question. Mark. I can see Mark at the front here.
Hi. Thank you. We've had a lot of granularity on all of the various returns targets, the 100 basis points, what you're doing in WPD until 2023. How can we encapsulate that? I mean, well, I guess we can do that ourselves, but are you willing to put an overall group return on equity target out there to bring it all together?
I think, Mark, we set out at the beginning of this year, sort of the financial frame. You know, I'm gonna repeat that. The financial frame that we're working to over the next five years is we're gonna invest GBP 30 billion-GBP 35 billion. We're gonna grow the asset base by 6%-8%. We're looking to grow earnings by 5%, continue to grow the dividend by CPIH and maintain the strength of the balance sheet. That's the financial frame that we're going to, you know, that we put in place, and we'll report against that. On an annual basis, of course, we'll report on returns. For today, I think that frame is how you should think about it. Chris.
Thank you very much. In the Electricity U.K. Transmission breakout session, we had an interesting chart showing RIIO-1 operating profit and then moving into RIIO-2. Do you think that RIIO-2 will deliver more stable, less volatile earnings for you? The dotted line that looks much more smooth is. Do you think that's a reasonable expectation? I'll leave it there and come back if we need to.
Okay. Well, why don't I ask Andy just to talk about financials, perhaps Chris just to talk about RIIO-2 as well?
I mean, Chris, in terms of the shape of the line, I think I'd love to believe it was gonna be quite as smooth as the trajectory of that arrow. I think that, you know, obviously, it was in my presentation first thing this afternoon as well, I think absolutely we believe that the way T2 is designed, that the mechanisms are in place to ensure much better alignment. I suspect inevitably there's going to be some ups and downs, some waves in that line, but I think the important thing is that as we continue to drive that investment and the asset growth, we will see earnings track that much more closely than some of the ups and downs that we've seen through T1.
Chris, do you wanna?
Yeah. I mean, we covered a lot, didn't we, in the breakout, so I wasn't stumped when I go into RIIO-2 performance.
Okay. Thank you. Okay. Thanks, Chris. Question here. I can't quite see who.
In your session, John, you talked about or you got asked a question about COP26 and the opportunities. What about what you think of the policymakers? I mean, you're in a great position to compare the U.K. and the U.S. here. Who do you think is perhaps lagging the curve, and who do you think is perhaps driving the curve? I suppose I'm particularly thinking about the U.K. Ofgem and the government and what they've gotta do to make sure everything gets done. Do you see, let's say, the U.K. driving the bus a bit quicker than the U.S., or what are your concerns about not being able to invest at the scale you're talking about over the next 5-10 years?
Yeah. Look, I don't think I can do a sort of comparison of who's faster and who's slower. I mean, I would say that at COP26, you know, the U.S. showed up, you know, and we're hugely visible, and we're driving a lot of the discussion and debate. So, you know, irrespective of your politics and what we've seen in the last few years in the U.S., there was no doubt that the U.S. were present, and they were looking to think through what do we need to do in order to deliver on climate change. Similarly, in the U.K., as the host, you know, I think the whole cabinet was there pretty much most days over the course of the two weeks.
From my perspective, what we saw was a lot of presence, a lot of visibility, and a lot of good engagement with business around the commitments that we needed. I mean, from National Grid's perspective, I think we've been very clear in that, converting commitment into policy and policy into action is now, you know, hugely urgent and the next step. I don't think that's, you know. I think lots of people feel that. The example I gave earlier, you know, is a critical one, which is, and it's true actually in the U.K. and in the U.S., if we're going to build the infrastructure that's gonna be needed, then things like making sure we got the right consenting and planning process are gonna be massively critical.
Also making sure that we got stable regulatory frameworks is also, in the longer term, gonna be massively important 'cause there's a huge amount of investment that needs to be delivered. I came away, as I said this earlier on, you know, optimistic that, you know, there's an expectation, I think, from everybody that that commitment now needs to turn into into significant policy and that policy then into action. My sense was that business is there and waiting for that policy to come along to be able to deliver it. All right. I'm gonna go there first. I'm just doing whose hand got up quickest actually.
Yeah. In the slides today, you've obviously presented CapEx requirements with a GBP 5 billion range over the period through to 2026. Chris's breakout session in particular presented what looks to be a hugely significant investment opportunity through the 2030s. If I think about potential sources of funding for all of that, you will, at some stage next year, be in a minority in the gas transmission business here in the U.K. Would it be right to think that is something that if conditions are right in the future could be a candidate for monetization to fund the pivot to electricity here in the U.K.?
Thanks, Martin.
Yeah. I think, Martin, in terms of, you know, the stake in gas transmission, as we've said quite clearly, you know, our intent is to sell a majority stake. Yeah, I think beyond that point, you know, where we describe the pivot, that gives us the 70/30 electricity to gas, and that's the mix we're very comfortable with. Obviously, as we've seen in the past, you know, we saw with Cadent, there were further steps taken because, you know, the eventual acquirer decided they were very keen to take on more over time, and it worked for us from a value perspective. At this point, our focus is on the first majority stake and whatever the outcome of that, and we're comfortable therefore with the minority stake remaining in the portfolio.
You're right, it then becomes a potential option for us going forward, but it's not one that we're assuming, certainly within the next five years, to deliver the frame that we've set out.
I'm just gonna go.
Thank you. The two questions, so one is on the RIIO-ED2. Obviously, we're facing maybe a different environment in terms of the pressure on energy bills. Phil, a question to you: do you, I mean, obviously on the WAC, maybe the outlook is more clear, but how confident do you feel about your cost proposals and so on? Because I'm sure Ofgem is gonna be looking at these numbers even more carefully.
Second question more broadly is in terms of the plans you've laid out, John, particularly, I think the U.K. transmission, you're generally confident that you will be able to get these through Ofgem, and we won't have a situation where you're not quite living because the fast money and slow money, and it'll change earnings and so on. How confident are you on achieving particularly the U.K. transmission?
Okay. You can go through.
Yeah, yeah. In terms of confidence, as I said this morning, it's a stakeholder-led business plan, which Ofgem recognize. It's north of, I think it's 24,000 in total, inputs we've had, and these are real inputs as well. They're not just mailing out to people and saying that we engaged with them. I think the key is gonna be in what we're proposing to deliver. As I said, it's a 28%, you know, increase in TotEx there, and we're holding those bills flat. I think if I was the regulator looking at that, I'd like to think they'd see that in a very positive light. Because when we're focused on the bill impact, and affordability, you know, that's really important. Likewise, as John has said, you know, pushing for decarbonization, we, you know, we can't wait forever, and the investment is required to allow those connections to take place.
I'm gonna let Chris answer 'cause Chris is closer to it than any of us.
Yeah, yeah. Absolutely. I mean, the large transmission infrastructure projects, we're working really closely with Ofgem. You might have seen they've approved the initial needs case for the Eastern Link, and we've been really transparent when the major milestones are. For the Eastern Link ones, they're aware we need the final needs case approved early in the new year, 'cause to hit those targets, we need to go out to contract later in the year. Yeah, if I take it all the way back, Ofgem absolutely get the need for net zero, and we're working together, laying out when the milestones are, and at the moment, we're in a good place that they do not want to hold up these investments.
Thanks, Chris. Next question, please.
It's a question about capital allocation, because even within the regulated businesses, there are lots of plans for the future that I would call quasi-discretionary. How are you gonna decide there are so many opportunities now? I mean, even putting aside ventures, which is obviously a bit more discretionary.
You wanna go on?
Yeah. I think you know, as we look forward, certainly for the next five years, I think and we probably tried to set out this afternoon, much of that capital investment in the frame that in the 30-35 is clear. It's either mandated in our price controls today, or it's highly expected to be negotiated as part of the uncertainty mechanism. I think the capital allocation flexibility is you know, limited in the next few years. I think ultimately, the way the price controls work is although you know, you do have the negotiation with regulators in each jurisdiction, once the price control is set, there is that clarity, and that's you know, very clear framework to deliver.
I think you know what we've tried to show this morning is the way, or this afternoon, is the waves of different investment is what's really going to drive those levels of investment. Yes, there is some flexibility in terms of the ultimate levels and the phasing of that, but I think our expectation is that CapEx is going to continue to deliver and continue to grow across all of our operating companies. Potentially less optionality than you might be thinking.
Any further questions? Okay. In which case I'm gonna say thank you, team.
Thank you.
Thank you. I thought I'd just finish with a few words to finish off the day. First of all, thank you so much for attending, whether it's virtually or here live today. We really do appreciate it. I hope you found it extremely useful. I started the day by saying that there were sort of four key takeaways that I wanted you to take away, and one overarching theme, I guess. The first was that the strategic pivot that we've made in the last few months really does give us visibility and certainty of the investment that we need.
I'm hopeful that what you've seen today actually is that visibility and that certainty is not just for the next five years, but actually there are waves of investment that are gonna be coming through in all of our businesses as we position ourselves for the energy transition. The second theme was all around National Grid's role is absolutely vital in terms of the energy transition. Again, through all the breakouts that we've done, I'm hopeful that what you've seen in each of the businesses that National Grid has, that each of us, each of our businesses, is really focusing on what is that role that they play, what investment is needed, and how can we be an enabler to the energy transition, whether it's in our gas business or our electric business, whether it's transmission or whether it's distribution.
The third takeaway is that you should take confidence that we've got a track record that demonstrates that we can deliver. Over and above that, I'm hoping that you took away also through some of the demonstrations of the innovation that we've got going on and some of the fantastic technology, that not only do we have a track record, but we're already thinking about how do we do things differently to be able to deliver the energy transition in a way that's affordable for all our customers. We talk a lot about making sure we take everybody along on the journey with us and really focusing in on technology and digitization and trying to hold customer bills down is our way of being able to contribute to the energy transition in a way that customers can afford.
Fourthly, I talked about the fact that we're going to be investing GBP 13 billion in green investments over the next five years, and that number is only going to increase going forward. As I said earlier, there are many companies investing in green investments, but few are doing it at the level of National Grid. The overarching theme that, you know, I used earlier on is that National Grid is the energy transition company.
If there's one thing you do take away from today, it is that we have a very clear vision. We have a very clear strategy on how we're going to achieve it. You've seen the capability that we have just at the top of National Grid, and the capability below that is absolutely awesome. You should take away a lot of confidence in our ability to deliver. Thank you very much for attending today, and safe journey home.