Energy & Utilities · Gas transmission

How the gas grid earns — the RAB machine

A gas transmission network owns the high-pressure pipelines and compressor stations of the National Transmission System, and is paid a regulated revenue set by Ofgem (RIIO). The building blocks are the classic regulated ones: a return on the Regulated Asset Base (RAB) at an allowed cost of capital, plus recovery of depreciation and a totex allowance, with incentives for out- (or under-) performance. The RAB is inflation-protected. The twist for gas is the energy transition: as demand falls long-term, the regulator may shorten asset lives (faster depreciation) to avoid stranding. 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 flow high-pressure gas across the system Depreciation & allowances cost recovery + incentives Operating cost compression & network 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: the revenue is about as safe as infrastructure income gets — a monopoly system paid an allowed return on an inflation-linked asset base, insulated from commodity prices and short-run demand, which supports a premium-to-RAB valuation and heavy leverage. For gas specifically the key debate is the energy transition: lower long-run throughput raises stranding risk, so the regulator tends to allow faster depreciation (shorter asset lives) — protecting cash recovery but shrinking the long-dated base. Allowed-return resets at each price review remain the swing factor.
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

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×
y

Financing

×
%
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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 transmission network (the National Transmission System). Allowed revenue is built from regulatory building blocks: a return on the Regulated Asset Base (RAB × allowed return), regulatory depreciation, a totex allowance, and a performance/incentive adjustment (positive or negative) shown as a percentage of RAB. Operating costs are the network’s cash totex (compression fuel, O&M; modelled to run at the allowance), so EBITDA ≈ return + depreciation + incentives. The RAB is inflation-indexed; for gas, energy-transition stranding risk is typically managed via accelerated depreciation rather than written off here. EBITDA = allowed revenue − cash opex; excludes the periodic price-review reset. The investment case is a simplified DCF. For illustration only — not investment advice, and not any specific asset.