SSE expects to cut investment as policy uncertainty persists

The prospects for investment in power generation are “not encouraging”, SSE warned in an interim management statement on Thursday.

The energy giant flagged up its fears for the future as it confirmed it is on course to invest around £1.5 billion this financial year. Adjusted pre-tax profit is also expected to be around the £1.5 billion mark.

Despite progress with the government’s Electricity Market Reform package, SSE said “important detail has still to be confirmed”.

The energy company is reviewing its offshore wind development portfolio after the government denied Galloper and Beatrice arrays early approval for subsidies.

That decision, following a surprise change in the rules to ration support under the go-early process, is one reason “there is greater uncertainty” about SSE’s investment programme from 2015 to 2020. It is “likely to be lower” than the £1.5 billion to £1.7 billion invested each year since 2010.

SSE expects to increase the dividend by around 3 per cent when it announces its full year results in May. Adjusted earnings per share are set to rise between 2 and 4 per cent.

The profit rise will mainly be driven by expansion in the upstream gas market, with customer numbers down and power generation flat.

Gas production rose from 131 million therms to 300 million therms, following the purchase of Sean gas field assets in April 2013.

In the nine months to 31 December 2013, SSE lost quarter of a million customers. Household electricity consumption fell by 4.3 per cent and gas consumption by 9.5 per cent.

Power output remained broadly comparable to the same period in 2012, at 25TWh, with increases in gas and renewable generation offsetting a decline in coal power.

The distribution network business dealt with the aftermath of dramatic storms and power cuts over Christmas. It missed out on the fast-track process for Ofgem’s RIIO-ED1 price review and must resubmit its business plan in March. The transmission business invested £280 million in network upgrades, including its new Beauly-Denny line, which is more than half built.

In a year that energy bills have been high on the national agenda, SSE raised prices by 8 per cent in November. It then agreed to cut them by 4 per cent in March after government intervened to cut the cost of some energy efficiency measures.

Alistair Phillips-Davies, chief executive of SSE, said: “An energy policy can only be sustainable if it is affordable and December’s decision by the UK government to make changes to reduce the future costs associated with the Energy Company Obligation is an important step in the right direction. In the interests of fairness, however, there is still more to be done to achieve what we have argued for some time is the fairest, most progressive solution – which is to shift the full cost burden of environmental and social policies from the energy bill payer to the taxpayer.

“We have a clear appetite for reform and an enthusiasm for working with anyone who wants to improve further customers’ experience of the energy sector.”

SSE is preparing to publish a considered response to Labour’s green paper on energy, which included the controversial “price freeze”, in March.

Overall, Phillips-Davies said the company’s performance had been “solid” despite “a difficult business environment”. Conditions are “not expected to be any easier in 2014/15,” he added.