SSE has pledged to reinvest any “additional” profits resulting from sky-high wholesale power prices into building new UK energy assets, as it forecast an increase of more than 25 per cent in earnings this year.
The FTSE 100 energy company’s gas storage facilities and thermal power plants — which back up the grid when intermittent generation such as wind and solar are not operating — have continued to perform strongly this year, helping to mitigate a fall in output from SSE’s renewables assets because of unfavourable weather conditions. Renewable output in the 12 months to September 22 was 13 per cent lower than the company had expected.
SSE said on Tuesday it expected to report adjusted earnings per share of at least 40p for the half-year when it publishes its interim results in November. It is forecasting EPS of at least 120p for the full year, although several analysts are forecasting an even better outcome for the full 12 months. SSE has promised to update the market on its full-year expectations later in the winter.
The company last year reported full-year EPS of 95.4p, which translated into pre-tax profits of more than £1.1bn. Investec analyst Martin Young is forecasting adjusted EPS this year to rise to 138p, which would mean profits of nearly £1.7bn.
SSE and other electricity companies benefiting from extraordinary volatility in wholesale energy markets are in the sights of the opposition Labour party and others who believe they should be subject to a windfall tax.
Prime Minister Liz Truss has so far insisted she is opposed to windfall taxes, although her administration has maintained an energy profits levy imposed on North Sea oil and gas producers by former chancellor Rishi Sunak in May that is expected to raise £7.7bn this year.
SSE, which has fought against threats of windfall taxes, stressed it was already investing at “record levels” in new energy infrastructure such as offshore wind farms.
Any “additional profit” it may generate as a result of the wholesale market volatility, triggered by the war in Ukraine, “will be reinvested in projects that will provide long-term solutions that help reduce the UK’s exposure to volatile international gas prices”, the company said.
SSE is among a group of electricity generators that are in discussions with the UK government over new fixed-price contracts for their output, at rates below prevailing wholesale market levels.
UK ministers hope that by persuading nuclear and renewables operators to sign up to the new deals they may be able to lower electricity prices for households and businesses over the next few years. The negotiations have attracted criticism from the Labour party and some energy experts who believe power companies could lock in prices that end up being higher over the full 15 years of the proposed contracts.
People familiar with the discussions also warn that most electricity generators have already sold their output for this year and a significant proportion of their production for next year. Unwinding those hedging agreements would be extremely costly and complicated.
If the new 15-year contracts only cover unhedged production, they are likely to have little impact on pricing in the new few years, the people said.