SSE’s thermal generation fleet lost more than £22 million in the company’s last financial year, leading the utility to laud its networks and renewables business units.
The Big Six utility this morning reported its preliminary results for the year ended 31 March 2019, unveiling a 38% slide in operating profit to £725.7 million. That profit slump comes amidst a dramatic turnaround in the company’s strategy, best evidenced by the creation of a dedicated renewables division late last year.
However the detail in SSE’s financial disclosure reveals that the utility actually lost money from thermal generation last year, indicating the scale of the economic issue facing legacy fossil fuel assets in the UK.
SSE’s total thermal generation output fell 11% to around 21TWh last year, while the company’s renewable output climbed slightly to 9,779GWh.
That output resulted in an 80% slide in the company’s thermal generation earnings to just £32.3 million in 2018/19, a performance which ultimately translated to an adjusted operation loss of £22.3 million.
In comparison, SSE’s thermal fleet made an operating profit of £107.8 million in the 2017/18 financial year.
Those figures not only indicate the scale of change at SSE, but also the energy sector in general, and underpin trends emerging this year that show coal all but being shunted off the grid for days at a time, displaced by surging wind generation and economic factors.
Alistair Phillips Davies, chief executive at SSE, said the firm had the assets and skillset to “seize the sizeable opportunities” presented by decarbonisation.
“SSE has made long-term decisions in the past 12 months that have built a platform for delivery of a strategy that creates value for shareholders using its extensive portfolio of high quality assets to deliver earnings, support the five-year dividend plan and benefit society as a whole through a continuing sustainable economic contribution,” he said.
The rise and rise of networks and renewables
The scale of the turnaround at SSE was also evident in the ever-growing influence the company’s networks and renewables units have over its overall financial performance. At around £1.5 billion, the combined EBITDA of the two divisions contributed around 83% of SSE’s earnings for the year.
Furthermore, networks’ operating profit of £830.2 million accounted for 73% of SSE’s entire profit last year.
Performance of that nature will go some way to explaining SSE chief executive Alistair Phillips-Davies’ choice words for Labour’s renationalisation plans, which were unveiled by shadow energy secretary Rebecca Long Bailey last week.
In his statement, he said Labour’s initiatives were part of more significant scrutiny of the energy sector, before adding that the utility is maintaining an open dialogue with the opposition party to better understand the plans.
Uncertainty also remains over the fate of SSE Energy Services, the utility’s supply division which it had intended to spin off and merge with npower. SSE lost around 550,000 retail customers last year and the firm has now appointed Katie Bickerstaffe, who had been identified as the CEO designate for a future retail business comprising SSE’s energy supply division and npower, as executive chair of SSE Energy Services.
Her mandate is now very much to identify the most appropriate role for SSE ES moving forward, with the company insisting it lies outside of the wider SSE Group. It expects this to be secured by H2 2020.
Richard Gillingwater, chair at SSE, said that while the company’s financial performance fell “well short” of expectations, it had made “significant progress” towards becoming a leader in low carbon energy.
"We have continued to develop our core businesses of regulated energy networks and renewables; demonstrated our ability to create and unlock value from developing and operating, as well as owning, assets; and adopted clear long-term goals as we set up the business for long-term success.
“The fundamental strengths of our business and the strategic opportunities afforded by the transition to a low-carbon economy will support the delivery of our five-year dividend plan and creation of value for society as a whole,” he said.