Energy & Utilities · Gas distribution

How a gas distribution network earns — the RAB machine

A gas distribution network (a GDN) owns the local lower-pressure mains that carry gas from the transmission system to homes and businesses, and is paid a regulated revenue set by Ofgem (RIIO-GD). The building blocks are the classic regulated ones: a return on the Regulated Asset Base (RAB), plus recovery of depreciation and a totex allowance, with incentives. A big slug of GDN spend is the mandated iron-mains replacement programme, which keeps the RAB growing. The case turns on the RAB, the allowed return, and performance.

£7bn
6.00%
+0.5%
LIVE
Return on RAB allowed return on the asset base Gas to homes mains supplying connected premises Depreciation & allowances cost recovery + incentives Operating cost mains, emergency & replacement totex
Flows — annualised from current assumptionsper year
Revenue p.a.
£0
£0 / hr
EBITDA p.a.
£0
0% margin
EBITDA / RAB
0%
RAB yield
Regulated asset base
£0bn
6.0% allowed return
Stocks — what the flows accumulate intolive
Return on RAB · session
£0
the regulated annuity
EBITDA banked · session
£0
accumulating in real time
Implied enterprise value
£0
at 12× EBITDA
Where revenue comes from Total £0 p.a.
Return on RAB
Depreciation & allowances
Why investors prize regulated networks: a GDN is a monopoly on an essential service, paid an allowed return on an inflation-linked asset base with charges recovered from every connected home — defensive, predictable cash flow that supports a premium-to-RAB valuation and heavy leverage. The mandated iron-mains replacement programme reliably grows the RAB. The long-run question is the energy transition: if heating electrifies or shifts to hydrogen, throughput and asset lives come under pressure — typically handled through faster depreciation rather than stranding.
Revenue streams£0 p.a.
Operating costs£0 p.a.
Investment case — should you buy it?DCF returns

Year-1 financials flow live from the simulation above: revenue £0 and EBITDA £0 p.a. Set your deal terms below — the unlevered IRR (asset return) and levered IRR (return to equity, after debt) recompute instantly.

Operating

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%
%
%
%
%

Valuation & hold

×
×
y

Financing

×
%
%
Unlevered IRR
—
asset / project return
Levered IRR
—
return to equity
Equity multiple
—
MOIC over hold
Equity gain
—
exit equity − invested
Equity cash-flow profile£m · ■ invested   ■ returned
Projection — £m per year

Illustrative model. Represents an Ofgem RIIO-style regulated gas distribution network (a GDN). Allowed revenue is built from regulatory building blocks: a return on the Regulated Asset Base (RAB × allowed return), regulatory depreciation, a totex allowance (including the iron-mains replacement programme), and a performance/incentive adjustment (positive or negative) shown as a percentage of RAB. Operating costs are the network’s cash totex (mains maintenance, emergency response, replacement; modelled to run at the allowance), so EBITDA ≈ return + depreciation + incentives. The RAB is inflation-indexed and grows with investment. EBITDA = allowed revenue − cash opex; excludes the periodic price-review reset and long-run energy-transition effects. The investment case is a simplified DCF. For illustration only — not investment advice, and not any specific asset.