REG - SSE Plc - Preliminary results for the year to 31 March 2015 <Origin Href="QuoteRef">SSE.L</Origin> - Part 2
15/07/2015 18:29
- Part 2: For the preceding part double click ID:nRST7125Na
scheme, including deficit repair contributions of £58.5m.
Tax
Being a fair tax payer
SSE pays taxes in the United Kingdom and the Republic of Ireland, the only states in which it has trading operations.
Central to SSE's approach to tax is that it should be regarded as a responsible tax payer. As a consequence, SSE seeks to
maintain a good relationship with HM Revenue & Customs and with the Office of the Revenue Commissioners, based on trust and
cooperation.
SSE strives to manage efficiently its total tax liability, and this is achieved through operating within the framework of
legislative reliefs. SSE does not take an aggressive stance in its interpretation of tax legislation, or use so-called
'tax havens' as a means of reducing its tax liability. SSE's tax policy is to operate within both the letter and spirit of
the law at all times.
In the three years to 31 March 2015, SSE's tax paid to government in the UK, including Corporation Tax, Employers' National
Insurance Contributions and Business Rates totalled £1.25bn, including £506.2m in 2014/15. SSE pays taxes in the Republic
of Ireland, in relation to its operations there, and paid £47.7m during the same three years.
In October 2014, SSE became the first FTSE 100 company to be awarded the Fair Tax Mark. It was launched in February 2014
and is the world's first independent accreditation process for identifying companies making a genuine effort to be open and
transparent about their tax affairs. In complying with the Fair Tax Mark criteria SSE is providing information that moves
its disclosure well beyond the current requirements of UK company law to ensure that it provides all its stakeholders with
the information they need to properly appraise its tax affairs.
Setting out SSE's tax position
To assist the understanding of SSE's tax position, the adjusted current tax charge is presented as follows:
Mar 15 Mar 14 Mar 13
£m £m £m
Restated Restated
Adjusted current tax charge 224.8 236.7 223.6
Add/(less)
Share of JCE/Associate tax (35.6) 28.8 (16.6)
Deferred tax including share of JV and Associates 82.0 141.8 107.8
Tax on exceptional items/certain re-measurements (200.4) 260.8 (201.8)
Reported tax charge /(credit) 70.8 146.5 113.0
For reasons already stated above, SSE's focus is on adjusted profit before tax* and in line with that the adjusted current
tax charge is the tax measure that best reflects underlying performance. The effective adjusted current tax rate, based on
adjusted profit before tax*, is 14.4%, compared with 15.3% in 2013/14, on the same basis.
Priorities and Outlook for 2015/16 and beyond
Setting the right long-term priorities to provide the energy people need
In addition to the safe and efficient management of assets in operation or under maintenance or construction and the safe
and efficient delivery of services to Wholesale, Networks and Retail customers, SSE's priorities for 2015/16 are to:
· ensure further steps to simplify and streamline its business are successfully delivered, with further opportunities
identified;
· adapt successfully to the progressive implementation of the UK government's agreed energy policies;
· work for a progressive and enduring outcome from the CMA investigation into the energy market in Great Britain, for
the benefit of customers and investors alike;
· ensure that the development and construction of new electricity generation assets makes good progress;
· deliver in a timely manner the required investment in the transmission system in the north of Scotland;
· make a good start to the new Electricity Distribution Price Control while monitoring progress of the ED1 Appeal;
and
· ensure that the transformation of systems required under smart metering makes good progress and continue to develop
digital services to a standard which customers expect.
Conclusion
SSE's three business segments - Wholesale, Networks and Retail (including Enterprise) - have one core purpose: to provide
the energy people need in a reliable and sustainable way. SSE believes that success in fulfilling this core purpose
enables it to earn a profit which it can then put to good use for the benefit of customers, other stakeholders and
investors. This helps to ensure that SSE is in a good position to achieve its first financial objective for shareholders:
annual increases in the dividend that at least keep pace with RPI inflation in 2015/16 and beyond.
WHOLESALE
March 15 March 14
Energy Portfolio Management (EPM) and Electricity Generation
EPM and Generation operating profit* - £m 433.3 496.1
EPM and Generation capital expenditure and investment - £m 399.6 616.5
GENERATION
Gas- and oil-fired generation capacity (GB and Ire) - MW 5,330 5,330
Coal-fired generation capacity (inc. biomass co-firing) - MW 3,009 3,009
Renewable generation capacity GB and Ire (inc. pump storage) - MW 3,394 3,326
Total electricity generation capacity (GB and Ire) - MW 11,733 11,665
Gas power station availability - % 96 92
Coal power station availability - % 74 84
Onshore wind farm availability % 97 97
Hydro storage at end March - % 77 75
Gas- and oil-fired (inc. CHP) output (GB and Ire) - GWh 9,788 10,111
Coal-fired (inc. biomass co-firing) output- GWh 9,143 16,576
Total output from thermal power stations (GB and Ire) - GWh 18,931 26,687
Conventional hydro output - GWh 3,726 3,753
Wind output (GB and Ire) - GWh 4,677 5,199
Dedicated biomass output - GWh 63 67
Total output of renewable energy (GB and Ire) - GWh 8,466 9,019
Total output from pumped storage - GWh 190 252
Total Generation output all plant - GWh 27,587 35,958
Note 1: Capacity is wholly-owned and share of joint ventures.Note 2: Output is electricity from power stations in which SSE has an ownership interest (output based on
SSE's contractual share).Note 3: Capacity includes 735MW of mothballed plant at Keadby and 1,180MW at Peterhead (while TEC for these stations is zero and 400MW
respectively from 1st April 14) and excludes 464MW at Great Island (net increase 224MW) operational from 17 April 2015.Note 4: Capacity excludes Ferrybridge units 1 and
2 (c. 980MW) and 2 units at Uskmouth (c.230MW) which ceased operations at the end of March 2014.Note 5: Wind output excludes 268GWh of constrained off generation in
2014/15 and 243GWh in 2013/14
GAS PRODUCTION
Gas production operating profit* - £m 36.6 130.2
Gas production - m therms 397.9 414.1
Gas production capital investment - £m 21.0 40.9
GAS STORAGE
Gas storage operating profit* - £m 3.9 8.3
Gas storage customer nominations met - % 100 100
Gas storage capital investment - £m 14.3 10.6
Sustainably sourcing and producing energy
SSE's long-term objective for its Wholesale segment is for it to make a sustainable contribution to the implementation of
SSE's core purpose and financial goals, through excellence in the provision, storage and delivery of energy and related
services for customers in wholesale energy markets in Great Britain and Ireland.
This is achieved through maintaining a diverse portfolio of assets, contracts and innovative energy solutions; and the
ability to respond quickly and effectively to changing market conditions and opportunities.
SSE's Wholesale segment delivers this through Energy Portfolio Management (EPM) and Electricity Generation. EPM is
responsible for ensuring SSE has the energy supplies it requires to meet the needs of customers; procuring the fuel
required by the generation plants that SSE owns or has a contractual interest in; selling the power output from this plant;
where appropriate, securing value and managing volatility in volume and price through the risk-managed trading of
energy-related commodities; and providing energy solutions and services.
Electricity Generation is responsible for: the operation and management of SSE's generation assets, their maintenance and
ensuring these assets are available when required and able to meet contractual obligations; and developing future
opportunities.
In addition, also within Wholesale, Gas Production is responsible for the efficient delivery of gas from the physical gas
fields that SSE has a shared ownership in and developing future opportunities; and Gas Storage is responsible for the
operation and management of SSE's gas storage facilities, their maintenance and ensuring they are available for use by SSE
and third parties.
The markets in which SSE's Wholesale businesses operate continue to be impacted by a number of key long-term trends,
including an uncertain macroeconomic environment; volatile commodity prices; increasing government intervention and
competition; and the continued journey to a low carbon economy.
This has resulted in an environment that is increasingly dynamic, but which will in turn give rise to attractive
opportunities for those who have the assets, capabilities and attributes required by key stakeholders. SSE's Wholesale
segment will therefore continue to review its portfolio in the context of market and regulatory conditions going forward to
ensure it can continue to meet its objectives.
Market and regulatory conditions could be impacted by the outcome of the CMA investigation into the supply and acquisition
of energy in Great Britain, which is examining issues in wholesale as well as retail markets. SSE believes that the energy
markets are generally well-functioning while being supportive of reforms that produce additional benefits for competition,
customers and participants. The CMA is currently expected to produce its final report around the end of 2015.
In line with its commitment to transparency in performance management and reporting; and in keeping with the ongoing
evolution of its business, SSE has completed the incorporation of a new subsidiary company for energy portfolio management,
SSE EPM Limited, which will sit alongside the separately disclosed Energy Supply and Generation activities of the Group and
will produce separately audited accounts from April 2015 onwards. SSE is also ensuring that the financial arrangements
between its companies continue to be clear and transparent.
Financial performance in Wholesale
During the year to 31 March 2015 operating profit* in Wholesale was £473.8m. This comprised (comparisons with the same
period last year):
Wholesale Operating Profit* Mar 15 Mar 14 Mar 13
EPM and Electricity Generation* £m 433.3 496.1 450.6
Gas Production* £m 36.6 130.2 39.6
Gas Storage* £m 3.9 8.3 18.4
Total Wholesale Operating Profit 473.8 634.6 508.6
The principal issues relating to operating profit in SSE's Wholesale businesses are as follows:
· EPM and Electricity Generation - lower output from renewable energy primarily due to lower average wind speeds
compared to the previous year; lower coal-fired power station output as a result of the March 14 closure of Units 1 and 2
at Ferrybridge and the Ferrybridge Unit 4 fire in July 2014; and lower 'dark spreads' (the difference between the cost of
coal and emissions allowances and the price received for electricity generated) across the year all contributed to the fall
in operating profit;
· Gas Production - day ahead wholesale gas prices were around one third lower on average than for the same period last
year which is the main reason for the significant fall in operating profit. Overheads also increased by c. £10m in the
year due to additional costs in the Bacton area; and
· Gas Storage - continued low gas price volatility has further reduced the spread between summer and winter gas prices
resulting in a lower Standard Bundled Unit price being achieved.
Energy Portfolio Management (EPM)
Maintaining a diverse energy portfolio
The wholesale price of energy can fluctuate significantly due to a number of factors including the economy, the weather,
customer demand, infrastructure availability, and world events. EPM seeks to manage the impact of these variables by
maintaining a diverse and well-balanced portfolio of contracts, trading positions and assets, both long and short term. In
doing so, SSE has:
· greater ability to manage wholesale energy price volatility, thereby protecting customers and ensuring greater retail
price stability;
· lower risk from wholesale prices through reduced exposure to volatility in any single commodity; and
· more scope to deliver the investment needed in Generation and Gas Production because the risks associated with
large-scale and long-term investments are contained by the balanced nature of SSE's energy businesses.
In recent years, SSE has typically required around seven million therms of gas per day to supply its customers and to fuel
its power stations, and around 130GWh of electricity per day to supply all its customers. EPM has three primary routes to
competitively and sustainably procure the fuels and energy it needs to meet this demand:
· assets: including upstream gas exploration and production and thermal and renewable electricity generation;
· contracts: long-term gas producer contracts, power purchase agreements (with SSE-owned plant and third parties) and
solid fuel contracts; and
· trading: where energy contracts are transparently traded on international exchanges or through 'over the counter'
markets.
Managing risks associated with energy procurement across these three routes is a key challenge for EPM. By optimising
energy procurement through a diverse portfolio, SSE ensures that, to an extent, its customers are protected from the
unavoidable volatility that exists in global markets.
Responding to market opportunities
A number of key long-term trends, including an uncertain macroeconomic picture; volatile commodity prices; intense
competition and increasing government intervention; and the continued journey to a low carbon economy, have resulted in
wholesale markets which are increasingly dynamic. This creates attractive opportunities for those who have the assets,
capabilities and attributes required by key stakeholders. EPM will continue to proactively seek out these opportunities
through a range of activities including contractual agreements and the provision of system services.
Managing market issues in 2014/15
Global energy markets continued to be volatile in 2014/15, with knock-on impacts for UK markets and customers. Spot and
day-ahead gas prices, which had reduced through the end of the winter 2013/14 period, continued to fall into the summer of
2014/15 and beyond, with day-ahead prices dropping to below 35p/therm in early July, their lowest level since September
2010. This trend , broadly, continued through the winter with prices averaging 50.5p/therm over Winter 14 compared to
63.8p/therm the previous winter .
This reduction in prices was initially driven by mild weather over the previous winter period (2013/14) and gas storage
levels, which were at their highest level in five years going into summer 2014. Another mild winter, coupled with
geopolitical events, most notably the fall in the global oil price, has kept downward pressure on commodity prices.
Changes to the gas price have impacted the profitability of electricity generation and gas production assets. 2014/15 saw
an uplift in 'spark spreads' - the difference between the cost of gas and emissions allowances used by a CCGT and the value
of the power produced - compared to the historically low levels of 2013/14 which had resulted in greater use of coal-fired
plant. This uplift in 'spark spreads' combined with the April 2014 increase in the Carbon Price Support Rate (see below)
resulted in greater use of gas-fired generation relative to coal. The long-term trend points to gas continuing to enjoy
this comparative advantage.
Increasing wholesale market transparency
SSE has led the way in responding to stakeholders' desire for greater transparency and increased liquidity in the
short-term wholesale market for electricity. For three years it has consistently placed 100% of its electricity generation
and demand into NASDAQ OMX Group Inc. and Nord Pool Spot AS's N2EX daily auction. In taking this action SSE has helped to
deliver a new level of market transparency and liquidity which is now sufficient for independent retailers and does not
represent any kind of barrier to market entry.
EPM priorities for the remainder of 2015/16 and beyond
EPM's priorities include:
· securing a stable and predictable supply of energy to meet SSE's customers' needs;
· driving business change to respond effectively to new UK, RoI and EU regulations;
· responding to market evolution and change;
· identifying and agreeing new long term opportunities; and
· continuing to support improved market transparency and liquidity initiatives.
Generation - Great Britain and Ireland Overview
Managing and developing Generation assets to meet key priorities
SSE's primary objective for its Generation division is to maintain a diverse generation portfolio, including the largest
amount of renewable energy capacity in the UK and Ireland, that helps keep the lights on by being available, reliable and
flexible. This objective is underpinned by six principles that direct the operation of, and investment in, its Generation
portfolio:
· compliance: with all safety standards and environmental and regulatory requirements;
· diversity: to avoid over-dependency on particular fuels or technologies;
· capacity: to contribute to the requirements of the GB and Irish electricity systems;
· availability: to respond to system demand and market conditions;
· flexibility: to ensure that changes in demand for electricity and the variability of generation from wind farms can
be addressed; and
· sustainability: to support progressive reduction in the CO2 intensity of electricity generated through the cost
efficient decarbonisation of its generation fleet.
SSE's generation assets are underpinned by a strong engineering focus on asset life and ongoing equipment monitoring to
maximise efficiency.
Maintaining a diverse Generation portfolio
In moving towards a lower carbon generation mix SSE will, by the end of the decade, transition its generation assets from a
portfolio weighted towards gas and coal, towards a portfolio more weighted towards gas and renewables. SSE's generation
portfolio at 31 March 2015 comprised:
Electricity generation capacity March 15 March 14
Gas -fired generation capacity (GB) - MW 4,262 4,262
Gas- and oil-fired generation capacity (Ire) - MW 1,068 1,068
Coal-fired generation capacity (GB) (inc. biomass co-firing) - MW 3,009 3,009
Renewable generation capacity GB and Ire (inc. pump storage) - MW 3,394 3,326
Total electricity generation capacity (GB and Ire) - MW 11,733 11,665
Capacity excludes Ferrybridge units 1 and 2 (c. 980MW) and 2 units at Uskmouth (c.230MW) which ceased operations at the end of March 2014.
With this portfolio SSE continues to have significant fuel diversity for producing electricity and retains a very flexible
asset fleet. It also makes SSE the largest generator of electricity from renewables across the UK and Ireland.
Generation - Great Britain (thermal)
GB thermal output March 15 March 14
Total Gas and oil-fired (inc. CHP) output (GB) - GWh 9,537 10,085
Coal-fired (inc. biomass co-firing) output- GWh 9,143 16,576
Total output from thermal power stations (GB) - GWh 18,680 26,661
Gas and oil-fired (inc. CHP) output (GB) from fully owned stations included above - GWh 2,000 4,729
Managing the impact of marketplace conditions and the public policy framework
Uncertainty around market conditions and the public policy framework affecting electricity generation in Great Britain have
continued to create challenging conditions for SSE's thermal and renewables businesses.
As detailed above changes to commodity prices resulted in the running hours and relative profitability of gas stations
increasing at the expense of coal stations during 2014/15. There have also been a number of public policy interventions in
recent years that impact on both the development and operation of thermal plant. These include:
· Carbon Price Support: On 1 April 2013 the UK government increased the Carbon Price Support (CPS) rate in line with
the level confirmed in Budget 2013. This added a cost of £9.55/tonne of CO2 emissions in 2014/15 for fossil-fuelled
generation in Great Britain, on top of the cost of complying with the EU ETS. The CPS rate has risen to c.£18/tonne in
2015/16; but the 2014 Budget announced that it would then be frozen until 2018/19, instead of increasing as previously
proposed.
· Capacity Market: In December 2014 the first Capacity Auction for generation capacity in GB was held. This
competitively determined the volume of plant (49.3GW) which would take on a capacity obligation, and the level of capacity
payment (£19.40/kW) these will receive for successfully providing capacity. A total of 4.4GW of SSE's 7.2GW pre-qualified
plant were successful in the auction, and will receive a total of £85m if they deliver this capacity in 2018/19.
Contributing to security of electricity supply
Ofgem has consistently maintained that over the coming years electricity generation capacity margins will be lower than
they were in recent years due to weak market economics and EU regulations closing down older plant.
The UK Government, together with National Grid (as the System Operator) and Ofgem, has decided to address this issue in two
ways:
· in the longer term through the introduction of a Capacity Market, which will begin in 2018/19; and
· in the intervening period, through the Supplemental Balancing Reserve (SBR) which began last winter (2014/15).
In addition to these mechanisms National Grid already has the ability to manage moments when demand outstrips supply
through a range of different balancing and optimisation tools.
The design, implementation and operation of these mechanisms is ultimately determined by DECC and National Grid. They will
determine how much capacity is required to ensure security of supply under each of these mechanisms. Once this volume has
been determined they will signal the market, and then procure the necessary capacity through a competitive auction/tender
process.
Responsibility for determining the volume of capacity required to ensure a secure electricity supply, and for the timely
signalling of this to the market, therefore lies with National Grid and DECC. Both organisations are confident that they
will fulfil this responsibility. SSE will play its part by working with DECC and National Grid and by focusing on ensuring
that its plant, where practicable, is available to generate at times when demand is highest. It will also continue to
assist the UK government and National Grid with their policy development and will engage constructively with all parties on
this issue.
Managing gas-fired power stations
SSE has three wholly-owned gas-fired power stations: Keadby (Lincolnshire; 735MW); Medway (Kent; 700MW) and Peterhead
(Aberdeenshire; 1,180MW). In addition, SSE has a 50% stake in gas-fired power stations at Marchwood (840MW total capacity)
and Seabank (1,164MW). All of the stations' output is contracted to SSE and in 2014/15 these stations generated a total
of 7.5GWh of electricity. Each of SSE's three wholly-owned gas-fired power stations has recently undergone, or is
undergoing, an investment programme:
· Keadby has been mothballed since March 2014. In March 2015 SSE announced that it would look at options available to
return the station to service for the winter of 2015/16 and intends this to happen by the end of October 2015; a final
decision will be taken later this year. The station has taken on a capacity obligation for 2018/19.
· Medway is operational, and has taken on a capacity obligation for 2018/19; and
· Peterhead reduced its TEC (Transmission Entry Capacity) to 400MW from 1 April 2014, which has prevented the station
from participating in the electricity market since then due to its current configuration. Previously announced investment
to alter this configuration is under way, and will allow 400MW of Peterhead's capacity to participate in the market from
the end of October 2015.
In addition Peterhead has secured a number of contracts to provide support services to National Grid:
· In May 2014 SSE signed a contract with National Grid to provide ancillary support services to the electricity system
in the north of Scotland for one year.
· This contract was terminated on 28 October 2014 when SSE signed a contract to provide up to 780MW of capacity to
National Grid's Supplemental Balancing Reserve (SBR) service, a contract which it successfully executed over the winter.
· In March 2015 Peterhead was awarded a contract to provide voltage support to the electricity system in the north of
Scotland between April 2016 and September 2017.
Peterhead's ability to successfully support National Grid, together with the ongoing investment in Carbon Capture and
Storage at the station (see below), illustrates its strategic, long-term value to the UK. It also demonstrates that there
are options for existing assets outside of the Capacity Market process.
Despite experiencing challenges in recent years, and despite expected longer-term changes in the way electricity is
generated and used, it is still anticipated that gas-fired power stations will eventually play an increasingly important
role in electricity generation. As a result, SSE will continue to maintain an option for CCGT, in Great Britain, at Keadby
2 (Lincolnshire). It will not, however, make any significant additional commitments to the project unless it is entered
into and is successful in the Capacity Market auction process. This means SSE will be reviewing its options for Abernedd
(South Wales), and is putting all development work at Seabank 3 (Bristol) on hold.
Contributing to the development of Carbon Capture and Storage
SSE is continuing to work with Shell UK as a strategic partner in the proposed CCS project at SSE's gas-fired power station
in Peterhead. The project aims to create the first commercial-scale application of CCS technology at a gas-fired power
station anywhere in the world by capturing up to one million tonnes of CO2 annually. Shell is leading the development of
the project, and will take responsibility for the construction of the CO2 capture plant and thereafter the operation,
transport and storage elements of the project.
Front End Engineering Design (FEED) work has been ongoing throughout the 2014/15, and the project team is in discussions
with the UK Government about securing the next stage of support through its CCS Commercialisation programme.
Managing coal-fired power stations
SSE has two wholly-owned coal-fired power stations: Ferrybridge (Yorkshire; 1,014MW) and Fiddler's Ferry (Lancashire,
1,995MW):
· all of the above capacity at Fiddler's Ferry and Ferrybridge is compliant with the Large Combustion Plant Directive
(LCPD) and able to continue to generate electricity beyond 2015;
· the capacity at Fiddler's Ferry (as well as all of SSE's gas-fired power generating plant) has been opted in to the
Transitional National Plan (TNP) for emissions and dust; and
· the above capacity at Ferrybridge has been opted in to the Limited Life Derogation option under the Industrial
Emissions Directive (IED)
None of Ferrybridge's capacity was successful in the Capacity Market auction, whilst 1,294MW (de-rated) of Fiddler's Ferry
(3 out of its 4 units) did take on capacity obligations for 2018/19.
SSE has consistently said that the cost of the Carbon Price Support, along with the constraints imposed by the Industrial
Emissions Direction, the introduction of full auctioning of EU emissions allowances, and the age of the stations, have been
weighing heavily on the long-term viability of coal assets.
As a result it announced, in March 2015, that it would carry out a comprehensive and detailed review of its coal
generation assets. SSE's review examined a number of factors including current and future economic viability; compliance
with emissions regulations; the existing and likely future policy framework; SSE's own long-term decarbonisation and
business objectives; and the impact on SSE's employees and the local communities within which the assets are based.
Based on the conclusions of this review SSE has, regrettably, made the difficult decision to cease coal-fired electricity
generation at Ferrybridge by 31 March 2016. The emissions abatement equipment on one of the two units at the station, Unit
4, was badly damaged during a serious fire at the site in 2014. SSE has been pursuing options to reinstate this equipment,
but this activity will now stop, although the work to demolish the damaged equipment will continue. As a result, Unit 4
will be removed from service with immediate effect. Unit 3 will return to service in August 2015 following successful
completion of the planned outage which began in April 2015.
SSE currently employs 172 people at its coal-fired operations at Ferrybridge. It is expected that some will be redeployed
to elsewhere in the SSE group, including Keadby power station, or will have a continuing role beyond March 2016 in managing
the closure and decommissioning of the plant. SSE will also offer voluntary release on enhanced terms, and seek to avoid
compulsory redundancies.
SSE remains committed to the Ferrybridge site, and the local community in which it sits. The £300m Ferrybridge Multifuel 1
project is due to be fully commissioned in the second half of 2015, and will provide 50 full-time jobs at the site, with
more created in the supply chain. It supported over 500 jobs at the peak of construction, and involved around 30 local
companies. The Ferrybridge Multifuel 2 project, currently being developed at the site, would create similar benefits if it
is granted planning consent (a planning decision is due in 2015, see below).
While factors such as compliance with emissions regulations; the existing and likely future policy framework; SSE's own
long-term decarbonisation and business objectives apply equally to coal-fired operations at both Ferrybridge and Fiddler's
Ferry, this announcement does not impact on existing operations at Fiddler's Ferry. It has a derogation under the
Transitional National Plan which allows it to remain open within specific environmental and operating constraints; and a
contract for the station to provide 1,294 MW of de-rated capacity for one year from October 2018 was secured in the
Capacity Market Auction in December 2014. The retention of some coal-fired capacity contributes to the diversity of SSE's
generation portfolio and maintains Fiddler's Ferry's contribution to the security of electricity supplies. The capacity at
the station will, therefore, be entered into the next Capacity Market Auction, at the end of 2015.
Investing for the future through 'multi-fuel'
SSE's generation strategy is built upon managing risk through owning a diverse range of assets and fuels from which to meet
its customers' needs. Solid fuel remains an important part of that strategy.
Multi-fuel plants use waste derived fuels to generate electricity and therefore benefit from an additional revenue
opportunity in the form of a 'gate fee' for taking the waste. They offer a sustainable energy solution that has lower
carbon intensity than other solid fuels and which further diversifies the range of fuels that SSE can deploy in its
generation fleet.
As noted above, the SSE and Wheelabrator Technologies Inc. 50:50 joint venture - Multifuel Energy Ltd (MEL) - is currently
commissioning a £300m (69MW) multi-fuel generation facility adjacent to SSE's existing Ferrybridge coal power station.
Construction of the facility is complete , the commissioning programme is well under way and the plant is expected to be
fully operational in autumn this year. The station has taken on a capacity obligation for 2018/19.
A Development Consent Order (DCO) Application for a second multi-fuel facility at the Ferrybridge site has been submitted
to the Planning Inspectorate with a final decision expected by the autumn.
Generation - Great Britain (renewable)
Producing electricity from renewable sources
SSE continues to be the UK's leading generator of electricity from renewable sources and the largest generator of
electricity from wind across the UK and Ireland.
Renewable generation (GB) March 15 March 14
Conventional hydro capacity- MW 1,150 1,150
Onshore wind capacity - MW 1,008 940
Offshore wind capacity -MW 355 355
Dedicated biomass capacity - MW 38 38
Renewable capacity - MW 2,551 2,483
Renewable capacity qualifying for ROCs - MW c.1,900 c.1,900
Pumped storage capacity - MW 300 300
Pumped storage output- GWh 190 252
Conventional hydro output - GWh 3,726 3,753
Onshore wind output - GWh 2,219 2,511
Offshore wind output - GWh 1,191 1,338
Biomass output GB - GWh 63 67
Renewable output - GWh 7,199 7,669
Wind output excludes 268GWh of constrained off generation in 2014/15 and 243GWh in 2013/14
Managing the impact of market conditions and the public policy framework
SSE continues to operate under the policy support regime for renewable generation capacity in GB, currently delivered
through the Renewables Obligation (RO) (the RO applies also in Northern Ireland); and the recently introduced Contracts for
Difference (CfD) mechanism.
SSE believes the CfD to be a viable, long-term support mechanism for low carbon generation. However, the mechanism's
design changes the way that investments in renewables are evaluated by both developers and providers of finance, including
SSE. Absolute support for low carbon technologies is limited by the Levy Control Framework budget which has the reasonable
objective of controlling costs to customers from government energy policies. This also means that there is competition for
support contracts. In addition, the contract terms will impact the way in which renewable projects are developed and
constructed.
SSE chose not to participate in the first CfD auction round, but will continue to analyse its portfolio with a view to
participating in future.
Optimising the renewable development portfolio
Since April 2007, SSE has invested nearly £4bn in renewable generation. As it moves forward to the next phase of its
renewable energy development pipeline, it is focusing on projects that best allow the efficient allocation of resources and
economies of scale.
In order to support future investment in onshore wind assets SSE will, as outlined in March 2014, recycle capital by adding
to its established programme of selective disposals of operational onshore wind assets and those in development. Recent
activity includes the agreement to sell Langhope Rig, a 16MW construction project, to GE Financial Services in March 2015.
Developing renewable energy schemes onshore
Onshore wind farm development pipeline (GB) March 15 March 14
In operation - MW 1,008 940
In construction or pre-construction - MW 457 246
With consent for development - MW 475 358
In planning - MW over 150 over 500
Pre-planning - MW over 200 around 300
In addition to projects in development (see below), the following projects were in construction at 31 March 2015 and are
key components of SSE's portfolio of strategic onshore wind projects in GB:
· Strathy North (67MW) - Located in Sutherland, main site construction is under way and the site is due for completion
in 2015.
· Dunmaglass (94MW) - Main construction at this site south of Inverness is progressing well; the site is scheduled for
completion in 2016.
SSE has a number of projects at different stages in the development cycle. These include:
· Clyde Extension (pre-construction) (up to 172MW)- this project, an extension of SSE's operational Clyde wind farm,
was consented by Scottish Ministers in July 2014. In May 2015 a final investment decision (FID) was taken to proceed with
the project. It is expected to be fully operational by the end of 2016.
· Stronelairg (with consent) (up to 240MW) - located in the Great Glen in the Highlands the project was consented by
Scottish Ministers in June 2014. In August the John Muir Trust announced it had lodged a petition to the Court of Session
asking for this decision to be judicially reviewed. SSE is participating fully in the legal process and a decision is
expected before the end of the year.
· Bhlaraidh (pre-construction) (up to 108MW) - located in the Great Glen this project was consented by Scottish
Ministers in January 2014. SSE is progressing the project towards a final investment decision in 2015.
· Viking (with consent) (up to 457MW - SSE share 50%) - located in Shetland the project has been involved in a
prolonged legal dispute since it was consented by Scottish Ministers in April 2012. In February 2015 the Scottish Supreme
Court dismissed the legal challenge. SSE, along with its Joint Venture partner, will now continue to develop the project
in 2015.
· Strathy South (in planning) (up to 133MW) - in July 2014 the Highland Council's Northern Planning Committee raised an
objection to the project, which is located in Sutherland, adjacent to SSE's Strathy North site. This objection is now
being examined further at a Public Local inquiry, and SSE is participating fully in this process.
Whilst current policy and market signals do not favour investment in new pumped storage, SSE continues to explore the
conditions for investment to allow progress with its 600MW consented pumped storage scheme at Coire Glas in the Scottish
Highlands.
Developing renewable energy capacity offshore
In 2014/15 SSE's efforts and resources have been focused on progressing the Beatrice project (up to 664MW) planned for the
outer Moray Firth; and obtaining consents for the Dogger Bank (Forewind Phase 1 and 2 ) and Seagreen Phase 1 projects. It
has successfully achieved these objectives.
The scale of offshore wind, and its long-held commitment to maintaining a diverse portfolio of generation assets, means SSE
does not currently believe it is prudent to construct multiple offshore wind projects in parallel. In the near term SSE
will therefore continue to focus on progressing the Beatrice project. It will continue to minimise development spend on
the other projects in which it has an interest but will review the position if a positive final investment decision (FID)
for Beatrice is made in early 2016.
Preparing Beatrice for a final investment decision
In April 2014, the UK government announced that Beatrice had been successful in securing an Investment Contract (or early
CfD). Securing this contract has enabled SSE and its partners to continue to invest in the engineering and procurement
work required to maintain progress towards a final investment decision (FID) in early 2016.
In November 2014, SSE agreed to sell 25% of the Beatrice Offshore Wind Farm (BOWL) to fund management company Copenhagen
Infrastructure Partners (CIP). The sale was consistent with SSE's strategic approach to the project announced in March
2014, and secured a strong additional partner to take the project forward. After the divestment, SSE owns a 50% share of
the BOWL project; CIP owns 25% with Repsol maintaining its ownership of the remaining 25%.
A final investment decision (FID) will only be made if the project provides the return on capital investment required to be
compatible with the risks involved.
Other offshore projects being managed
In addition to Beatrice, SSE has an interest in three further offshore wind farm developments. In the near-term, SSE will
undertake minimal development work on these projects now that relevant planning consents have been secured.
Galloper (340MW, 50:50 partnership between SSE and RWE Innogy). In September 2014 SSE announced it would exit the project
on pre-agreed terms once RWE Innogy has made a Final Investment Decision. SSE is working with RWE Innogy to explore
alternative opportunities for the project.
Seagreen (3,500MW - a 50:50 partnership between SSE Renewables and Fluor Limited). Consent for the Phase 1 in the zone
(totalling 1,050MW) was granted by Scottish Ministers in October 2014.
Forewind (7,200MW - a four-way partnership with RWE Innogy, Statoil and Statkraft). Consent for the first two projects
within the development - Creyke Beck A & B (2,400MW) - was granted in February 2015, with a decision on the next two
projects expected in August.
Generation - Ireland
SSE Irish Generation Capacity and Output Mar 15 Mar 14
Onshore wind capacity (NI) - MW 88 88
Onshore wind capacity (ROI) - MW 456 456
All Ireland wind capacity - MW 544 544
Thermal capacity (ROI) - MW 1,068 1,068
All Ireland generation capacity - MW 1,612 1,612
Excludes 464MW at Great Island (net increase 224MW) operational from 17 April 2015.
Onshore wind output (NI) - GWh 212 208
Onshore wind output (ROI) - GWh 1,055 1,142
All Ireland wind output - GWh 1,267 1,350
Thermal output (ROI) - GWh 251 25
All Ireland generation output - GWh 1,518 1,375
Producing electricity for the Single Electricity Market
Through the last months of 2014/15 SSE carried out final commissioning tests on the new 464MW Great Island CCGT unit (grid
connection capacity set at 431MW), with the station being handed over for commercial operation on 17 April 2015. The
commissioning of the new unit coincided with the retirement of the old 240MW HFO unit.
The new CCGT station, which is now among the cleanest and most efficient natural gas power plants on Ireland's national
grid, will generate enough electricity to power the equivalent of half a million Irish homes and the transition from heavy
fuel oil to gas improves the carbon intensity of SSE's fleet.
SSE is the third largest generator by capacity on the island and also trades across the interconnectors between GB and
Ireland.
Delivering and developing new capacity for electricity generation
Onshore wind farm development pipeline (All Ireland) March 15 March 14
In operation - MW 544 544
In construction or pre-construction - MW 152 116
With consent for development - MW 33 56
In planning - MW c. 80 c. 100
Pre-planning - MW over 150 over 150
Galway Wind Park (in construction) (174MW) - project with JV partners Coilte has started construction and, once completed,
will be the Ireland's largest wind farm. This completion date will qualify the project to be supported under the REFIT II
support scheme.
Tievenameenta (in construction) (32MW) - Located in County Tyrone, this 32MW project is due to be commissioned in 2017,
thereby qualifying for NIRO support.
Slieve Kirk Extension (consented) (9MW) - SSE recently received planning for the extension, which will bring the total
installed capacity at the site to 83MW in 2017.
Engaging in the ISEM reform process
Reform of Ireland and Northern Ireland's SEM market is required in order to comply with the EU Electricity Target Model.
The regulators in each jurisdiction have progressed the Integrated SEM (I-SEM) project over the course of 2014/15, with the
new market due to be introduced by the end of 2017. SSE has been heavily involved in all stages of the consultation
process and will remain engaged throughout the project, advocating an optimum design for customers and industry
stakeholders. Separately to reform of the market arrangements, the regulators and System Operators are involved in a
project to review the ancillary services necessary to achieve Ireland's 2020 target.
Generation priorities in 2015/16 and beyond
· Comply fully with all safety standards and environmental requirements;
· Ensure power stations are available to respond to customer demand, market conditions and contractual obligations;
· Operate power stations efficiently to achieve the optimum conversion of primary fuel into electricity;
· Manage effectively the transition of Ferrybridge power station towards closure and decommissioning; and
· Ensure new assets are commissioned and operate successfully.
Gas Production
GAS PRODUCTION Mar 15 Mar 14
Gas production operating profit* - £m 36.6 130.2
Gas production - m therms 397.9 414.1
Gas production capital investment - £m 21.0 40.9
Producing from North Sea assets
SSE's upstream portfolio is 100% gas weighted, and at 31 March 2015, it was estimated to hold in excess of 2.2 billion
therms of reserves.
Total output in the year to 31 March 2015 was 397.9 million therms, compared with 414.1 million therms in the previous
year. This slight fall in production in 2014/15 was due to a natural decline in the field output.
The reduction in operating profit (£36.6m compared to £130.2m) from gas production during the period was mainly a result of
lower day ahead wholesale gas prices which were around one third lower than the previous year. Overheads also increased in
the year due to additional costs in the Bacton area.
SSE continues to seek new opportunities to increase its reserve base to meet portfolio demand requirements. The UK and
north west Europe remains the focus for this activity, as it provides a relatively stable tax and fiscal regime and is near
to SSE's domestic energy supply markets. SSE has not set a target scale for its upstream business and will continue to
evaluate opportunities in line with its investment criteria and financial discipline.
Monitoring developments gas production
SSE currently has no involvement in any shale gas operations. It is, however, continuing to monitor the development of
shale gas in the UK and the proposed fiscal and tax regimes surrounding its potential exploitation.
Gas Production priorities for 2015/16 and beyond
Gas Production priorities for the 2015/16 financial year include:
· ensuring the safe operation of all the assets in which it has an ownership interest;
· stringent cost control on operator budgets and enhanced monitoring and reporting of operator work programmes; and
· continuing the robust investment appraisal process to identify potentially suitable acquisition targets.
Gas Storage
GAS STORAGE Mar 15 Mar 14
Gas storage operating profit* - £m 3.9 8.3
Gas storage customer nominations met - % 100 100
Gas storage capital investment - £m 14.3 10.6
Delivering Gas Storage Services from Hornsea and Aldbrough
Both sites have continued to operate to meet the needs of its customers through 2014/15:
· Hornsea (Atwick) again met 100% of customer nominations with the site 98% available during the winter period except
in instances of planned maintenance and 87% available over the full year;
· Aldbrough met 100% of customer nominations and was 87% available overall except in instances of planned maintenance.
Following temporary removal of two of the site caverns during the previous year, these were both in commercial operation
by the end of the year.
However, the economic environment for gas storage facilities has continued to be challenging during the year - as
illustrated by the significant reductions in operating profit reported by SSE's gas storage business. Operators have been
faced with low operating returns due to unfavourable market conditions, combined with an increasing cost base as a result
of ageing asset investment requirements and the decision by the Valuation Office Agency during the period to effectively
double business rates for most gas storage facilities in the UK.
In the light of these challenges, alongside the requirements to continue to invest to ensure the highest standards of asset
management are maintained, SSE has been reviewing its gas storage business on an ongoing basis to ensure that it continues
to provide valuable flexibility and hedging services to its customers and hence the wider UK gas market, while being as
well positioned as possible to take advantage of future market developments.
SSE has, as a result, identified that the costs of operating, maintaining and upgrading the older withdrawal plant at its
Hornsea (Atwick) facility are not currently supported by market returns and, as such, announced in March 2015 its decision
to mothball 33% of the withdrawal capacity of the site (6mcm/d) with effect from 1 May 2015. This change to the site's
capability will alter the shape of the storage service it can offer, creating a greater value product for SSE's gas storage
customers.
As previously announced, this decision will result in a reduction in Gas Storage employee numbers of around 12. SSE is
currently working with affected employees in order to achieve this reduction through voluntary means where possible, with
good progress being made.
Gas Storage priorities in 2015/16 and beyond
Gas storage priorities for the financial year and beyond include:
· ensuring on-going high safety standards for operation of the facilities at Hornsea and Aldbrough and the compliant
and effective operation of the Gas Storage business; and
· continuing to listen to existing and potential customers, working with them to shape flexible products which add
value to their portfolios.
Wholesale -
- More to follow, for following part double click ID:nRST7125NcRecent news on SSE
See all newsREG - SSE Plc - Director/PDMR Shareholding
AnnouncementREG - SSE Plc - Holding(s) in Company
AnnouncementREG - SSE Plc - Result of AGM
AnnouncementREG - SSE Plc - Q1 Trading Statement
AnnouncementREG - SSE Plc - Director/PDMR Shareholding
Announcement