The rapid evolution of the UK’s power system over recent years amazes me. In early January, National Grid (LSE: NG) reported that Britain saw its ‘greenest’ year ever for electricity production in 2020.
There was a record amount of renewable power flowing through the nation’s electricity grid. And we had the longest period without coal-fired generation since around the time of the industrial revolution – wow!
Passive income from ‘green’ power
National Grid’s Electricity System Operator (ESO) told us that key factors in the outcome were “significant” periods of coal-free electricity generation and “record-breaking” levels of power from zero-carbon sources. However, unusually low demand for power during the Covid lockdown also contributed to the result.
I reckon the figures are encouraging in terms of the UK’s target to have net zero emissions by 2050. There were 5,147 hours of coal-free power generation in 2020, which compares to 3,666 hours in 2019. And it’s great news that just 1.6% of Britain’s energy came from coal last year compared to 25% just five years earlier.
And it’s a good job too because the government wants all coal plants closed for good by 2024. Meanwhile, the county broke its record for wind power generation repeatedly during the year. And on August 26, some 60% of Britain’s electricity came from wind. Perhaps that’s no surprise given the sheer number of wind generators we have on land and at sea now.
But the other big growth area is solar power. Personally, I love solar farms because they have fewer moving parts and potentially less visual impact on the landscape. On top of that, there’s always some solar energy to be had even on dull days, whereas wind farms come unstuck when there’s no wind. During May, solar energy delivered a full one-third of the Nation’s power on several days, according to ESO.
Consistent cash flow
Meanwhile, the great thing about National Grid’s UK business is it doesn’t matter where Britain’s electricity comes from. It won’t be hurt by the move to greener energy in the way some other big names will be. The company owns a big part of the heavy-duty, high-voltage transmission system and operates the entire grid. And that’s the part of the system that moves power vast distances up, down and across the country from where it’s generated to the local areas where it’s needed, and when it’s needed. In local areas, distribution of the power to towns, factories and other users is generally the responsibility of other power companies.
National Grid’s regulated monopoly position strikes me as being similar to a toll bridge – if you want to cross the bridge, you must pay the fee! Meanwhile, I’ve read that Warren Buffett is keen on so-called toll-bridge-style operations such as National Grid. And I reckon the set-up is what makes its cash inflow so consistent and attractive. And decent cash flow usually goes hand in hand with steady shareholder dividends.
With the share price near 879p, the forward-looking dividend yield is near 5.6% for the trading year to March 2022. I’d be keen to add the stock to my diversified portfolio aimed at creating passive income.
I'd also consider these.
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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.