Tue. Jul 5th, 2022

The metaphorical wind is blowing in SSE’s direction even if the meteorological one is not. The UK utility, whose operations include traditional and renewable energy generation, upgraded earnings per share guidance by 7p to “at least 90p”. Not all stakeholders will applaud.

Energy company profits are attracting growing criticism at a time when inflation is squeezing low-income households. Around 22mn UK households face a 54 per cent increase in the energy price cap from April 1, which will jack up the average bill by nearly £ 700 to almost £ 2,000 a year.

SSE is also under pressure from Elliott Management. The omnipresent activist investor is pushing the business to split out its renewable energy operation.

SSE’s numbers show some of the merits of a hybrid portfolio. It is useful to have steady, cash generative businesses when capital expenditure is steep. SSE should spend £ 2bn-plus this year. So far the bulk of this has gone into renewables. Fluctuating fortunes also argue for diversity, at least during energy transition. In the latest period strength in flexible thermal and hydro generation offset disappointing renewables output.

The Scottish-based utility, which is keen to champion British clean energy, has laid out ambitious goals for a renewables portfolio capable of generating an annual 50TWh. Yet production has, so far, fallen short – to the tune of nearly one-fifth in the first nine months of the year. Blame an unusually windless and dry summer in UK and Ireland.

So-called “terrestrial position”Has also blown the likes of Orsted and Vestas off course. Renewable specialists have underperformed horribly in the past year.

SSE’s figures, might, in that context, point to a triumph of diversification. But company results provide evidence for contrary viewpoints. High capex combined with a decent dividend of 81p plus retail price inflation for this fiscal year is a case in point. Elliott and its supporters will simply calculate how much larger the payout would be without investment drag from renewables. Consumer champions will see scope for price cuts or a windfall tax.

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