Breakdown in political consensus over energy threatens £1.5 billion investments as profits slump at Scottish & Southern Energy

Scottish and Southern Energy
Scottish and Southern Energy

Profits at Perth-based Scottish & Southern Energy (SSE) have slumped by 12% in the six months to 30 September.

While its Networks and Wholesale divisions were profitable, SSE’s energy supply Retail division generated an operating loss of £115 million.

The company blamed this on the higher wholesale gas prices and on higher distribution and environmental costs over the consumer demand of the spring and summer months.

Lord Smith of Kelvin, SSE Chairman, said: “Energy market conditions generally have been difficult for some time.

“But even in testing environments such as this, and at times of greater uncertainty, our commitment to operational and financial discipline is particularly important. In practice, that means helping Retail customers mitigate the impact of the increase in unit electricity and gas prices we unfortunately had to announce last month.

“When looking at future investments, it also means taking account of the fact that key questions on energy policy in the UK are not yet resolved.

 “SSE’s capital investment and expenditure for 2014/15 is currently forecast to total around £1.5bn. In the years after that, however, there is greater uncertainty about the extent and the shape of the programme, largely because of uncertainties around Electricity Market Reform and the implications of the apparent breakdown in the broad political consensus on energy.”

The increase of 8.2% (average) in household electricity and gas prices in Great Britain – announced last month by SSE – take effect from tomorrow ( 15 November). Will Morris, SSE Group Managing Director, Retail, said: “We’re sorry we have to do this. We’ve done as much as we could to keep prices down.

“But the reality is that buying wholesale energy in global markets, delivering it to customers’ homes, and government-imposed levies collected through bills – endorsed by all the major parties – all cost more than they did last year.”

Since SSE last put prices up, three things have been putting upward pressure on domestic energy prices. A company spokesman explained: “First, the average price in the wholesale markets over the last 24 months to secure energy is around 4% higher than it was for last year.

“Second, the costs of using the energy networks to distribute electricity and gas to customers’ homes are 10% higher than they were a year ago. The owners of these pipes and cables charge energy suppliers to use them, but the amount of money they are allowed to recover for this plus a reasonable return is agreed with the regulator, Ofgem.

“And finally, the cost of government taxes paid for through energy bills – supported by the major political parties – is 13% higher than a year ago. These are initiatives like the Energy Company Obligation (ECO) energy efficiency programme, and support for producing low-carbon energy which together represent towards 10% of a typical bill. This cost has more than doubled in the last four years.”

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