SSE rakes in bumper profits and ramps up plans for huge green energy investment as industry windfall tax calls intensify
- SSE posted £3.5bn annual pre-tax profit today, marking 44% rise on a year ago
- Investing more than it is making to help cut imported gas dependency
- Energy firms like SSE could be slapped with a windfall tax on profits in future
SSE has recorded a bumper rise in annual profits, but the energy giant claims it’s investing ‘significantly more’ than net returns to help reduce dependency on imported gas.
The FTSE 100 group posted a 44 per cent rise in its annual pre-tax profit to £3.5billion on Wednesday, as millions of households feel the squeeze amid soaring energy bills.
SSE shares rose sharply today, and were up 5.14 per cent or 90.83p to 1,856.84p in early morning trading, having jumped over 19 per cent in the past year.
But the shares dropped by about 9 per cent earlier this week amid speculation over a possible windfall tax on energy firms in future.
On the up: SSE shares have jumped sharply amid a hefty rise in annual profits
Rocketing oil and gas prices helped SSE’s adjusted operating profit increase by 15 per cent to £1.54billion.
The upturn in profit was bolstered as the group benefited from high wholesale prices to its hydro plants and gas-fired power stations.
Back in March, the company upped its annual profit forecast in response to rocketing wholesale power prices.
While SSE’s hydro assets performed strongly over the past year, overall adjusted operating profit of its renewable division was down 25.2 per cent on the previous year to £568.1million amid unusually still weather and a lack of wind.
But the company made a £30.7million profit from gas storage facilities thanks to volatile pricing, against a £5.7million loss a year earlier.
SSE said it could plough £24billion of investment into Britain by the end of 2030 in a bid to help fulfill the country’s green energy ambitions. This compares to previous plans of a £12.5billion investment by 2026.
The group expects to deliver adjusted earnings per share in its current financial year ‘of at least 120p’, up from 95.4p over the previous year.
SSE’s board plans to recommend a final dividend of 60.2p per share, taking the full-year dividend to 85.7p, up from 81p the previous year.
Options: Chancellor Rishi Sunak is mulling the viability of a windfall tax on energy firms
Surging: UK households look set to see their energy bill rise by a further £800 in October
Boss Alistair Phillips-Davies, said: ‘This was a year in which our resilient business mix and balanced portfolio of assets helped us navigate volatile markets and meet our financial objectives whilst making record investments in the critical UK infrastructure needed to tackle climate change and deliver more secure, independent energy supplies.
‘Strategically, operationally and financially, SSE is well-placed to continue to create value for all of our stakeholders and wider society as we create the infrastructure needed to deliver net zero, secure energy supplies and ultimately drive consumer prices down.’
But, with household energy bills set to rise a further £800 in October, the Chancellor has ordered plans to be drafted up for a possible windfall tax on more than £10billion worth of excess profits made by electricity generators, including the likes of SSE, Centrica, ScottishPower and EDF Energy.
Neil Shah, director of research at Edison Group, said: ‘With Ofgem predicting energy bills to rise £800 by October this year, it is unclear whether the Chancellor will be as receptive to the arguments made by energy companies as he has been in the past.
‘Amidst both macroeconomic uncertainty and this potential legislative scrutiny, SSE faces a difficult year ahead.’
SIMON LAMBERT: The UK’s strange gas surplus has sent market prices tumbling… but we can’t take advantage to lower our energy bills
Inflation has hit 9 per cent – a 40-year high – and energy prices are among the chief villains in the rapidly rising cost of living.
Yet, as a measure of the often-impenetrable world we live in, wholesale gas prices in the UK have collapsed.
The energy price cap has just rocketed 54 per cent and we are repeatedly warned that it and our bills will go up again in autumn, but the main UK wholesale gas price has taken a beating.
Curiously, Britain has a glut of gas and what is often referred to as the spot price has tumbled.
This measures day ahead prices, what you’d pay now for gas delivered tomorrow, and the UK benchmark NBP gas wholesale price has fallen way below the European benchmark TTF measure.
At one point earlier this week, it was at the lowest level for 18 months and cheaper than before energy prices started spiralling.
So, will this cut your bills and what is going on here?
To answer the former question, unfortunately not now, but it does provide a glimmer of hope for the next price cap round.
UK wholesale gas prices have tumbled while European prices have remained high, due to the difficulty of shifting gas to where it is needed.
The world and particularly mainland Europe is trying to avoid Russian gas, but that means getting gas shipped in, which is done as liquified natural gas (LNG), and there are a limited number of terminals to receive it from tankers.
As gas prices spiked and Europe got hit by a double whammy of that and trying to sanction Russia for its invasion of Ukraine, energy traders spotted an opportunity to sell to Europeans who no longer wanted to buy Russia’s gas.
Lots of liquified natural gas (LNG) has been redirected to Europe in recent months to take advantage of higher prices.
However, mainland Europe doesn’t have enough terminals where tankers can dock and LNG can be turned back into gas and piped out, whereas the UK has three major ones representing about a fifth of Europe’s total capacity.
The UK has therefore been receiving lots of gas and sending it via pipelines to Europe, but these have been operating at capacity leading to a surplus of gas in the UK.
Read Simon Lambert’s full article on the UK’s strange gas surplus.