Low prices cut Scottish Power profits

Earnings also hit by rising non-energy costs

Scottish Power has reported a sharp fall in profits from its generation and supply business in 2016 due to low prices, reduced sales and rising non-energy costs.

Earnings before interest, taxation, depreciation and amortisation (EBIDTA) fell by more than 21 per cent year-on-year to £240 million.

Low wholesale gas and electricity prices, reduced sales due to warmer weather and a cut in production following the closure of the Longannet coal-fired plant in March 2016, all contributed to company’s poor performance.

Earnings were also affected by rising in non-energy costs, which grew by £75 million, due to higher transmission costs, a jump in the carbon price support part way through 2015 and increased costs from the purchase of renewable obligation certificates.

At the end of 2016 Scottish Power had 3.2 million electricity customers and 2.1 million gas customers. Parent company Iberdrola said they were “similar levels” to those seen at the end of 2015.  The supplier has installed more 240,000 smart meters so far and plans to fit an average of 2,500 each day in 2017.

EBIDTA for Scottish Power Renewables fell by 31 per cent year-on-year to £219 million. This was largely due to a 17 per cent drop in output owing to “unfavourable weather” following a record year in 2015. The removal of levy exemption certificates for renewable generation in the second half of 2015 also impacted its performance.

The company’s total installed renewable capacity reached 1,812 MW by the end of 2016. The installation of the 102 turbine 714MW East Anglia One windfarm is due to begin later this year.

SP Energy Networks saw its EBITDA fall by just over 3 per cent to £799 million, mainly because of the new regulatory framework for the distribution networks (RII ED1) which came into effect in April 2015.

During 2017 the business is scheduled to complete the £1 billion Western Link project which will connect Hunterston in Scotland with Desside in Wales via more than 380 kilometres of subsea cable . The project will increase the transmission capacity between Scotland and England by 2.2GW, allowing more renewable output to be transferred from the north to the south of the UK.

Commenting on the results, Scottish Power chief corporate officer Keith Anderson said: “2016 was a challenging year but Scottish Power continued to make significant investments.

“We are investing in projects to help improve services for customers and to deliver new low carbon generation and efficient networks, which are critical if the UK is to achieve climate targets and ensure continued security of supplies.

“Even amidst future uncertainties in global markets, we can continue to deliver on our planned investment programme, so long as stable regulatory frameworks remain in place.”

Scottish Power’s parent company, the Spanish energy giant Iberdrola, reported a more than 5 per cent increase in its EBITDA for 2016.