SSE shares up as Ofgem allows higher returns

Shares of Perth-based renewable energy and networks giant SSE plc rose about 3% on Tuesday after UK energy watchdog Ofgem proposed a return on equity rate for network companies of 4.3%, up from an initial proposal of 3.95%.

Companies are currently allowed rates of return on equity of between 6% and 7%.

SSEN Transmission said that while it “cautiously” welcomes “Ofgem’s movement on a number of fronts” it continues “to have concerns.”

Rival Scottish Power said it remains concerned “that Ofgem’s proposals on the headline rate of return will not attract the global investment our transmission business requires …”

Scottish Power is owned by Basque power giant Iberdrola.

Ofgem said reducing the return on equity to 4.3% will contribute “to £10 saving on average domestic bill.”

The UK’s energy infrastructure is owned by several firms including SSE, National Grid and Scottish Power.

SSEN Transmission said it is “very disappointed that Ofgem has not fully reflected the robust evidence – particularly that from the Competition and Markets Authority (CMA) provisional findings – in setting the financial parameters …”

Scottish Power chief executive Keith Anderson said: “This is a large and complex document and we will now take our time to analyse it in full and consider our next steps.

“We remain concerned that Ofgem’s proposals on the headline rate of return will not attract the global investment our transmission business requires if we are to support the clear net zero ambitions of the UK and Scottish Governments.”

In a stock exchange statement, SSEN Transmission said: “SSEN Transmission notes today’s publication of Ofgem’s Final Determinations for the RIIO-T2 price control. 

“The next decade will be critical in making the progress required to place the country on a clear pathway to net zero emissions and delivering on the policies recently set out in the Prime Minister’s ten-point plan. 

“SSEN Transmission’s RIIO-T2 business plan, co-created with its stakeholders following over two years of engagement, places tackling climate change at its heart, as evidenced by it becoming the world’s first network company to be accredited with a science-based greenhouse gas emissions target consistent with net zero pathways.

“The regulatory framework must therefore act as an enabler to net zero delivery, as well as support wider stakeholder ambitions. 

“Following an initial review of Ofgem’s Final Determinations, SSEN Transmission welcomes the positive movement in total expenditure (TOTEX) to £2.16bn.

“Further work is required to assess whether this level of TOTEX is commensurate with delivering the outputs stakeholders demanded and the investment required to deliver Governments’ net zero targets. 

“However, SSEN Transmission is very disappointed that Ofgem has not fully reflected the robust evidence – particularly that from the Competition and Markets Authority (CMA) provisional findings of the PR19 water price control appeal – in setting the financial parameters for RIIO-T2, which SSEN Transmission expected to be at least in line with the CMA’s provisional findings. 

“With more material still to be released by Ofgem, SSEN Transmission will continue to review and assess the detail as it is published — including the proposed licence changes due to be consulted upon shortly — and will continue to work with Ofgem, industry and stakeholders to seek to resolve outstanding points of difference.

“SSEN Transmission will continue to keep all options open to secure an ambitious, fair and balanced price control settlement that meets the needs of all stakeholders and appropriately balances risk and reward.”

SSEN Transmission MD Rob McDonald said: “We were greatly encouraged by the broad support for our stakeholder-led business plan throughout Ofgem’s consultative process and cautiously welcome Ofgem’s movement on a number of fronts.

“However, at this stage in our assessment, we continue to have concerns and will need to reflect further as we review and analyse the full settlement in the round over the coming weeks. 

“In doing so, we will work constructively with Ofgem and other stakeholders as we consider our options and remain ready to invest the billions required to build a network for net zero, subject to an acceptable and investible overall price control settlement.”

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Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.