SSE profits triple in energy crisis

At the time of its full-year results in May, SSE (SSE) was hesitant to quantify the impact of a potential windfall tax on its power generation earnings. Now, after the government has detailed just how it wants to raise more cash from generators like SSE – when power prices are above £75 per megawatt hour (MWh), it will take 45 per cent of “aggregate revenue”, once these “extraordinary returns” exceed £10mn. This will only apply to low-carbon electricity generation, meaning SSE's offshore wind business will take a hit. Chief executive Alistair Phillips-Davies did not explicitly say the levy was flawed but questioned the approach that was "treating the cause, not just the symptoms of the energy crisis". 

Looking at the six months to 30 September, SSE’s renewables unit did not manage extraordinary returns in the first half, in any case – the company’s adjusted pre-tax profit of £559mn was largely driven by the thermal and gas storage, which saw its adjusted pre-tax profit jump from £65mn a year ago to £248mn. The renewables division, despite generation growing from 2,853 MWh to 3,725MWh, saw its adjusted profit drop 11 per cent to £22.5mn, hit by “the pace of project delivery and unfavourable weather”, the company said. Adjusted profits are the key measure because SSE is constantly revaluing hedges and other financial instruments. 

Despite the higher profits the balance has been impacted by the rocky power market: the company’s cash collateral requirements have soared, from £75mn in March to £1bn as of last week. This extra cash has come from new commercial paper and draw-down of existing debt. SSE said it had £2bn in liquidity in reserve, however. 

This is a major player selling a hot commodity right now. The winter will likely drive profits higher – analysts forecast full-year operating profit of £1.9bn, with margin of 19.5 per cent, compared with £1.2bn and 13.6 per cent for the 2022 financial year. Hold. 

Last IC View: Hold, 1,591p, 25 May 2022