SSE posted a 40.9% drop in pre-tax profit for the six months to 30 September. The company also announced it will spin off its renewable generation business into a separate company – SSE Renewables – and published plans on how it intends to curb exposure to wholesale market volatility.
On the proposed deal to merge its domestic energy retail business with Innogy’s Npower, the firm said “creating a new independent energy supplier remains our objective”. But it admitted there is “now some uncertainty as to whether this transaction can be completed, as originally contemplated”.
The company said it and Innogy were in discussions “regarding potential changes to the commercial terms of the planned transaction” and reiterated any deal is now unlikely to complete before April 2019.
The company lost 290,000 domestic electricity accounts over the period and 150,000 gas accounts. It posted an operating loss of £62.1m for that part of its business.
Business energy operating profit dipped slightly to £41.6m. Business customer accounts increased 100,000 to 570,000, though this includes 55,000 reassigned from its domestic business ahead of the proposed demerger. The earnings report (twice) outlines its plans to move into demand-side response, having signed a deal with Origami to launch a virtual power plant.
Trading position losses were a key factor in the profit slump. The company outlined a new hedging approach to be implemented in its next financial year. The aim is to reduce exposure to volatility in commodity prices. The company said the approach will also make the impact of commodity volatility on shorter term earnings more transparent and predictable – and is necessary in the event of a demerged retail business.
It plans to hedge separate aspects and business differently (details here).
Weather also hit profits. The company’s renewables output was 14% lower than expected due to dry, still conditions, which reduced wind and hydro generation.
The company indicated in May that it would separate out its renewables operations from other business.
The new company, SSE Renewables, will consolidate all SSE’s assets in wind, hydro and pumped storage into one business led by Jim Smith, currently managing director of SSE Generation. See details here.
Transmission and distribution
SSE’s transmission operating profit increased 30% to £127.4m. Electricity distribution operating profit fell 5% to £166.9m. Gas distribution operating profit rose 5% to £85.4m.
The company expressed concern about Ofgem’s current thinking on introducing competition to onshore transmission, as it has implemented in offshore transmission.
It suggested the regulator is “effectively reopening the [transmission] price control”. Ofgem’s proposals are “justified on unproven customer benefits; they are not underpinned by legislation; and they risk delays to the delivery of well-established and advanced projects”, it suggested.
See the interim report here.