SSE Earnings Hit by High UK Gas Prices

Britain’s second largest energy supplier SSE expects earnings to be lower than forecast because of “persistently high gas prices,” despite its upstream production. But it expressed confidence that a retail merger would complete within a year.

Higher gas prices had resulted in a “higher cost of energy, lower than expected output of electricity from renewable sources, and lower volumes of energy being consumed,” since April, said SSE in a trading statement July 19 ahead of its annual general meeting. These had negatively impacted SSE's adjusted operating profit in April-June 2018 by around £80m ($105mn) compared with its forecast, and could affect its full year result, it added.

Norwegian generator Statkraft also July 19 remarked on higher gas prices: it quoted the average spot gas price on the N2EX exchange as £0.526/MWh in 2Q2018, which was up 12.6% year on year. Much higher year on year 1Q gas consumption across Europe, thanks to very wintry weather from late February through March 2018, were a factor.

SSE also said the average temperature in the UK in April-June 2018 was 1.5 degrees Celsius warmer than the 30-year average, which led to average domestic gas demand being around 10% lower than plan. The warm still weather also negatively impacted SSE's wind-power generation.

The planned merger of SSE's and Innogy’s UK retail businesses, announced November 2017, “is on course for completion by the end of the current financial year,” the Scotland-based company said, meaning by end-March 2019 (its reporting year runs from April to March).  SSE also said its combined gas and power retail customer count (UK and Ireland) was 7.45mn at end-June, down 4% year on year.

Innogy though is currently the target of a complex takeover and break-up plan by RWE, its majority owner, announced in March 2018 – whereby Innogy's UK retail business (NPower) would be among several assets spun off to its rival E.ON. However, as the latter is the third largest energy retailer in Britain, that might raise competition issues – as it would amalgamate three of the Big Six UK energy retailers.

An E.ON spokesperson told NGW: "We are in process of preparing the necessary merger control notification. We are already in dialogue with the relevant authorities. We are confident that the proposed transaction will be approved by all relevant regulatory authorities. We cannot comment on specific markets at this time. We will enter into a constructive dialogue with the authorities where necessary."

SSE also said its net gas production, which comes mainly from its 20% stake in the Laggan-Tormore field, was 14% lower year on year at 112mn therms in April-June 2018.