Engie grid M&A has hedge against UK political risk

CK Hutchison Holdings

27/02/2026 10:59

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By George  Hay

LONDON, Feb 27 (Reuters Breakingviews) - Maybe British utilities aren’t so toxic after all. Undeterred by the bin fire that is Thames Water, France’s Engie ENGIE.PA this week announced a swoop on London’s energy grid counterpart, UK Power Networks, for 15.8 billion pounds ($21 billion) including debt. Hedges against unpleasant political blowback point to why the $83 billion group’s boss Catherine MacGregor took the plunge.

As the only big European utility lacking electricity grids – regulated assets that investors tend to like – Engie’s motivation may be as much about pouncing on available assets rather than their national location. Still, on Thursday MacGregor lauded the UK’s stable and transparent regulated market, inflation-linked returns, and commitment to the energy transition. Engie reckons the distribution part of the UK grid – which connects British homes to the higher voltage transmission network – alone requires up to 60 billion pounds in capital investment by 2050 to deal with higher electricity demand as the country decarbonises. That implies its new owner will be able to hike bills under ED3, the process run by regulator Ofgem dictating what bills utilities can charge.

Even so, it’s a funny time to be singing the UK’s praises as an investment destination. Canada’s Ontario Municipal Employees Retirement System and the Abu Dhabi Investment Authority lost a packet writing down equity on Thames Water – a disaster that stemmed from its poor performance, but also regulators' desire to squeeze utilities' returns. Britain’s Labour government has a big majority, but on Friday badly lost a Manchester by-election. While that poll was topped by the Green Party — which favours swifter decarbonisation — Labour was also comfortably beaten by Reform UK, which advocates scrapping Britain’s 2050 net zero target and could benefit from any divided left-wing vote. The upshot: it’s hard to predict who prevails in national elections due by 2029, and easy to see how politicians of all political persuasions might be tempted to appeal to angry voters by constraining the bills utilities are allowed to charge.

MacGregor has a few buffers against political surprises, though. UK Power Networks, which she’s buying from Hong Kong conglomerate CK Hutchison 0001.HK, is a different beast compared to Thames Water – it generally performs well in customer satisfaction polls, and is also more profitable than rivals. The weighted average cost of capital for UK Power Networks is under 5%, according to a person familiar with the situation. Tax the 1.1 billion pound average of its last two years of operating profit at 25%, and Engie’s return on investment should exceed that level. And, even if politicians downplay net zero, it should benefit from data centres' demand for energy.

The French group’s real hedge, however, is timing. After a lengthy planning process, ED3’s five-year period will commence in 2028 – a year before the next UK-wide elections are due. That means that MacGregor should be able to count on amenable bills until 2033 at the earliest. That’s a buffer against her UK gambit going awry – and reduces the extent to which Engie’s big bet on the UK is a template for others.

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CONTEXT NEWS

UK Prime Minister Keir Starmer’s Labour suffered an election defeat to the left-wing Green Party on February 27 in an area of Manchester it had dominated for almost a century.

The Green Party's Hannah Spencer won the contest for the vacant parliamentary seat of Gorton and Denton with 40.7% of the vote, with Nigel Farage's Reform UK party coming second with 28.7%, and Labour pushed into third place with 25.4%.

John Curtice, a senior UK pollster, called the result a "seismic moment", which means the "future of British politics looks more uncertain than at any stage" since the end of World War Two.

Engie said on February 25 it would buy UK Power Networks for 15.8 billion pounds ($21 billion) including debt, marking a move into power grids.

Shares in Engie rose 7.2% on February 26, although were trading down 2.5% at 28.8 euros as of 1012 GMT on February 27.

Engie's new UK asset has been more profitable than its domestic rivals https://www.reuters.com/graphics/BRV-BRV/klpylkdgxvg/chart.png

(Editing by Neil Unmack; Production by Streisand Neto)

((For previous columns by the author, Reuters customers can click on HAY/george.hay@thomsonreuters.com))