Why is there a risk of asset stranding in gas?
Investments made by Gas Distribution Networks (GDNs) are funded under a Regulated Asset Base (RAB) model. Under this model, investors recover the outstanding capital value through payments for depreciation and a return, which are included in allowed revenues.
The RAB model is sustainable if investors expect that investments in the network can be recouped from customers over a long-term horizon. However, if the customer base declines because of the UK’s planned transition away from gas as part of the path to Net Zero, which leads to prices that are unsustainably high, then it cannot be safely expected that investments can be fully recouped. In addition, parts of the gas network that cannot be repurposed will need to be decommissioned. The costs of decommissioning will add upward pressure on prices that may already be unsustainably high.