Bloomberg News

Britain’s Power Market Proposals Stall SSE Gas Plant, Chief Says

November 14, 2012

SSE Plc (SSE), the U.K.’s second-biggest energy supplier, said lack of clarity around government proposals to reform the electricity market has stalled an investment decision at a natural gas plant in Wales.

“With uncertainty around how capacity will be treated under the electricity market reform proposals, we can’t yet make a decision to invest in a new CCGT gas plant at Abernedd,” said Chief Executive Officer Ian Marchant. “We are watching and waiting to see how the policy agenda settles.”

The British government is about to publish final proposals to overhaul its energy market designed to encourage 110 billion pounds ($175 billion) of investment for replacing older plants and upgrading the grid. A draft of the bill includes plans to pay generators for staying online, ensuring security of supply. The government’s climate adviser has said absence of detail about the so-called capacity mechanism is freezing investment.

“Government has rightly said they’re going to have a capacity mechanism, but there is a lack of clarity on what mechanism and when,” Marchant said today on a conference call. “The face of the bill does not give enough detail for any board to make an investment decision.”

SSE said in May that the plant in Abernedd in South Wales may not be operational before 2015.

Profits Surge

The company based in Perth, Scotland, reported a 38 percent rise in adjusted pre-tax profit to 397.5 million pounds ($631 million) in the six months to Sept. 30 from 287.4 million pounds a year earlier.

SSE benefited from a return to profitability of its retail business as cold weather drove demand, as well as a 19.3 percent rise in operating profit at its networks segment.

The average profit margin in the retail business was 1.5 percent, working out at about 20 pence per account per week, according to Marchant.

SSE was the first energy company to raise prices for household gas and power in August while Centrica Plc (CNA)’s British Gas and RWE Npower Plc announced increases in October. That prompted Prime Minister David Cameron to say he’d use the forthcoming legislation to ensure consumers get the lowest tariffs from energy companies, who say government environmental programs and higher wholesale prices have pushed up bills.

“The rise in energy supply costs in these areas is not going away,” Marchant said. Operating profit for the utility’s wholesale business dropped 45 percent to 123.2 million pounds, as gas-fired generation “has basically not been profitable,” he said. Marchant expects a return to normality in the next 18 months as aging coal plants retire restoring demand.

SSE would “strongly support” the Financial Services Authority and energy regulator Ofgem as they probe wholesale natural-gas trading price-fixing allegations, Marchant said. The regulators have not approached SSE for assistance, he said.

“Our profits in the first half year are up 38 percent on the previous half year, and in headlines that seems very encouraging, indeed almost too good,” Marchant said. “In some respects it is too good because the half year profits in our business swing around an awful lot more, and if you look back two years ago actually the profits were up 3 percent over a two year period. That’s probably a better measure of how the business is actually performing.”

To contact the reporter responsible for this story: Sally Bakewell in London at Sbakewell1@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net


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