SSE has increased its investment forecast by £2.5 billion to reflect recent regulatory decisions on upgrades to the transmission network.
The company said it now expects to make £20.5 billion of net zero related investments over the five-year period ending in 2026/27.
This figure includes £7.5 billion of investment in the transmission network. SSE said it has more certainty over expected transmission investment after Ofgem approved three major projects in Skye, Argyll and Orkney through the Large Onshore Transmission Investment (LOTI) re-opener mechanism, and also expedited the delivery of numerous grid upgrades through its new Accelerated Strategic Transmission Investment (ASTI) framework.
The latter was introduced to ensure the onshore transmission network upgrades needed to achieve the government’s target of deploying 50GW of offshore wind by 2030 are completed in time.
SSE gave the update in its financial results for the six months to the end of September. Adjusted operating profit across the group dipped by 3% when compared to same period last year to £693 million.
The fall was partly driven by reduced earnings from its electricity distribution business, SSEN Distribution, which saw its adjusted operating profit slump by 31% to £120 million due to higher operating costs. These include increased salary costs due to pay raises and headcount growth, and greater expenditure on network maintenance, which increased in volume. SSE noted that the inflationary cost pressures it has faced recently have not yet fed through to network charges.
SSE’s gas storage business also reported an £87 million loss, compared to a £148 million adjusted operating profit during the same period last year. The company said it expects to post a £75 million profit over the full year as gas injected during the summer months is sold during winter. The previous first half result reflected higher and more volatile gas prices and an inversion of the typical spread between summer and winter prices following Russia’s invasion of Ukraine.
These reductions were offset by increased profits from SSE’s thermal generation division, which more than tripled from £100 million to £313 million.
In September 2022, SSE Thermal and Equinor jointly acquired Triton Power, which operates the 1.2GW Saltend combined-cycle gas turbine (CCGT) plant and the 140MW Indian Queens open-cycle gas turbine plant. In March of this year, SSE Thermal also commenced commercial operation of its new 840MW Keadby 2 CCGT power station. Sales of output from these plants generated £103 million of additional profit during the first half of the current financial year. They also contributed to a £73 million increase in Capacity Market earnings.
Adjusted operating profit from SSE Renewables surged almost five-fold from £15 million to £86 million as increased hedge prices more than offset lower than expected output during “exceptionally still and dry weather conditions,” particularly in the first quarter.
SSE said it reached several significant milestones during the first half of the year, including first power generation at the mammoth 3.6GW Dogger Bank offshore wind project, full power at the 1.1GW Seagreen offshore wind farm and the installation of the final turbine at the 440MW Viking onshore wind farm.
Earnings from SSEN Transmission rose by 3% year-on-year to £216 million, partly due to higher allowed revenues. This was despite increased operating costs and SSE selling a 25% stake business, which would have otherwise provided £72 million of additional profit, in November 2022.
The group reported a statutory pre-tax profit of £573 million, compared to a £511 million loss during the first half of the previous financial year.
Commenting on the results, SSE chief executive Alistair Philips-Davis said: “Our performance in the first half of 2023/24 demonstrates SSE’s well-balanced business mix and our ability to adapt and create value while maintaining capital discipline in a fast-evolving energy landscape.
“As visibility of growth options improves, we have upweighted our capex plans to meet the ambitions of the NZAP Plus plan.
“With an enduring broad political consensus behind the need to build the electricity infrastructure required for net zero, a supportive power price outlook, balance sheet strength underpinned by world-class assets and unrivalled optionality across the clean energy value chain, we have increased confidence in our earnings forecasts not only for this year, but out to 2026/27.”