UK: SSE Announces Half Year Results

SSE plc has announced half year results for the six months to September 2012.

Lord Smith of Kelvin, Chairman of SSE, said:

 “SSE’s focus is always on full-year results, because the potential for volatility is always much greater in a half year period, but it is obviously encouraging that adjusted profit before tax in the first six months has been restored to a level around that achieved in 2010. This does not hide the fact, however, that energy market conditions remain challenging. The prices achieved for generating electricity have been weak, and higher gas and non-energy costs unfortunately had to be reflected in the increase in household energy prices which SSE implemented last month. The Energy Supply business accounted for 8.1% of SSE’s adjusted operating profit in the period and its profit margin was 1.5%.” 

Investment and Capital Expenditure

In November 2010, SSE said that it expected its investment and capital expenditure would be in the range of £1.5bn to £1.7bn in each of the five years to March 2015. In the six months to 30 September 2012, SSE’s capital and investment expenditure totalled £699.2m, compared with £796.9m in the same six months in 2011.

During the six months to 30 September there was investment of:

· £167.5m in electricity transmission, of which £109.5m was spent on the work to replace SSE’s section of the Beauly-Denny replacement line;

· £117.7m in electricity distribution, the majority of which was spent on system upgrades;

· £35.9m in retail, the majority of which was spent on work associated with preparations for the roll-out of smart meters;

· £95.5m in thermal generation, including refurbishment at Keadby and Medway, and development of future projects;

· £216.1m in renewable generation, a significant part of which was invested in completing the construction of the Clyde onshore and Greater Gabbard offshore wind farms as well as bringing Glendoe hydro scheme back to service; and

· £21.0m in gas storage, including investment in the new facility at Aldbrough.

Increasing capacity for renewable energy

At 30 September 2012, SSE had 3,208MW of renewable energy capacity in the UK and Ireland, including its share of joint ventures, comprising (net):

· 1,150MW conventional hydro;

· 1,422MW onshore wind;

· 256MW offshore wind (excluding 93MW disputed turbines at Greater Gabbard);

· 80MW dedicated biomass; and

· 300MW pumped storage.

Maintaining renewable policy support

Output from over 1,500MW of SSE’s renewable portfolio qualifies for ROCs, the main financial support scheme for renewable energy in the UK. While the UK government has announced the outcome of its review of the bands of support provided by the RenewablesObligation, the review will have no impact on existing assets in operation or under construction which are eligible for the existing 20 year support level.

Producing electricity from renewable sources

Total electricity output from all of SSE’s renewable resources, including conventional hydro electric schemes, onshore wind farms, offshore wind farms and dedicated biomass plant was 2,805GWh in the six months to 30 September 2012, compared with 2,784GWh in the same period last year.

The increase in output reflects 670MW of additional generation capacity coming into operation, which was then offset by the relatively drier and calmer weather experienced compared with the record breaking wet and windy weather experienced during the same period last year. In energy terms, it is equivalent to the electricity output from around 180 million therms of gas.

Producing electricity from offshore wind farms

At 30 September 2012, SSE’s total net capacity for generating electricity at offshore wind farms, including Walney and turbines at Greater Gabbard which are not the subject of dispute, was 256MW. Including the disputed turbines, it was 349MW. SSE’s share of total electricity output from all turbines during the period was 283GWh.

Due to the significantly larger scale and cost of both consenting and constructing offshore wind farms compared with onshore, SSE recognises the inherent risks are best managed through partnership arrangements, which it adopts throughout its portfolio of projects. On this basis, SSE has delivered:

· Greater Gabbard (500MW), through the partnership Greater Gabbard Offshore Winds Limited (‘GGOWL’), in which SSE has a 50% stake; and

· Walney (367MW), through the partnership Walney (UK) Offshore Windfarms Ltd, in which SSE has a 25.1% stake.

Managing the issues at Greater Gabbard

All of the 140 turbines at Greater Gabbard are commissioned and exporting electricity and GGOWL is responsible for the day-to-day operation of the completed wind farm.

Completion of the commissioning of the turbines is a major milestone for SSE. It is a substantial operating asset contributing a significant amount of electricity to help meet consumer demand and further diversify the UK energy portfolio with a carbon free electricity source in support of low carbon energy objectives. As at 30 September 2012, turbine availability at Greater Gabbard was 87% (undisputed turbines) with overall performance more than 10% ahead of expectations.

GGOWL remains in a contractual dispute with Fluor Limited, the principal contractor for the wind farm, relating to the quality of up to 52 upper foundations (transition pieces) supporting turbines and the quality of up to 35 lower foundations supporting the same turbines.

Developing more new offshore wind farms

Offshore wind continues to play an important role in the delivery of low carbon energy for the UK. Already the Great Britain offshore wind market is the largest in the world, with 1.5GW in operation, 2.6GW under construction and a total of 11-18GWs planned by 2020.

SSE has gained valuable experience of offshore wind farm development and construction through the Greater Gabbard and Walney projects, and it is this experience that enables it to exercise informed and disciplined judgement when prioritising projects in its development pipeline.m The next offshore wind farm project in SSE’s development pipeline is the 500MW Galloper, which is located close to the existing Greater Gabbard development and is also a 50:50 partnership with RWE npower renewables. Significant progress has been made in the planning phases of this project and it has received confirmation from the Infrastructure Planning Commission that it has accepted the Development Consent Order application. Full consents for the project are expected during 2013.

Beyond this, SSE has secured from The Crown Estate valuable development rights for potentially up to 4.8GW (net) additional offshore wind farm assets later in the decade.

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Press release, November 14, 2012; Image: SSE