Interim Management Statement

RNS Number : 7659K

Scottish & Southern Energy PLC

21 July 2011

 



SCOTTISH AND SOUTHERN ENERGY PLC

INTERIM MANAGEMENT STATEMENT

SSE (Scottish and Southern Energy plc) will today advise shareholders at its Annual General Meeting in Perth about its performance since the start of the current financial year, which began on 1 April 2011. This Interim Management Statement includes updates on operations, major projects, other developments and the financial outlook.

Household energy prices

SSE is today announcing separately increases in prices for household electricity by 11% (average) and household gas by 18% on 14 September 2011.    It last increased electricity prices in August 2008 and gas prices in December 2010.  SSE will not implement another household energy price increase before August 2012 at the earliest.

Operations
In the three months to 30 June 2011 (comparisons with the same three months in 2010, unless otherwise stated): 

·     SSE's Total Recordable Injury Rate was 0.15 per 100,000 hours worked, compared with 0.12 during 2010/11 as a whole;

·     its number of electricity and gas customer accounts in markets in Great Britain and Ireland increased by 70,000 to 9.72 million; including home services, customer accounts now total over 10.1 million;

·     wholly-owned gas-fired power stations achieved 98% of their maximum availability to generate electricity, excluding planned outages; coal-fired stations achieved 90%; and wind farms achieved 96%;

·     total electricity output from gas-fired and coal-fired power stations was 9,905GWh, compared with 9,945GWh*;

·     total electricity output from renewable sources (conventional hydro electric schemes, onshore wind farms* and dedicated biomass plant) was 1,325GWh, compared with 720GWh, reflecting wet and windy weather conditions and additional generation capacity in operation;

·     underlying consumption of electricity by SSE's household customers in Great Britain fell by 2.9%; underlying consumption of gas by SSE's household customers fell by 5.8%; and actual consumption fell even more largely as a result of mild weather;

·     the number of Customer Minutes Lost in both the Scottish Hydro Electric Power Distribution and Southern Electric Power Distribution areas  was 16, the same as in the previous year; and

·     the amount of replacement and reinforcement gas mains laid by Scotia Gas Networks was 263km, compared with 325 km, mainly due to phasing of work.

* Output from electricity generating plant in which SSE has an ownership interest (output based on SSE's contractual share).

Large capital projects
In its Annual Report 2011, SSE set out its investment priorities for 2011/12, including commissioning new assets and meeting other development and construction milestones in its programme of investment in renewable energy, electricity networks and gas storage.  It is currently forecasting total capital and investment expenditure of around £1.7bn for 2011/12 as a whole.

Progress has been made in the following key capital projects:

·     Clyde onshore wind farm (350MW development): The first export of electricity from Clyde to the national grid took place at the start of June and Renewables Obligation Certificate (ROC) accreditation has been applied for.  Turbines with a total capacity of 70MW have now been energised and are able to export electricity.  This progress means that the first of the wind farm's three sections (South, 130MW) should now be completed earlier than forecast, around the end of September, and the wind farm as a whole should be completed in 2012.  It is expected to produce over 1,000GWh of electricity in a typical year, and its construction cost is expected to be over £500m.

·     Griffin onshore wind farm (156MW development): The first export of electricity from Griffin to the national grid took place at the start of May and ROC accreditation has been applied for.  Turbines with a total capacity of 40MW have now been energised and are able to export electricity.  The wind farm should be completed in the spring of 2012.  It is expected to produce over 350GWh of electricity in a typical year, and its construction cost is expected to be over £200m.

·     Gordonbush onshore wind farm (70MW development):  Construction work is making good progress.  Turbine delivery and installation should begin in the next few weeks, with the first generation of electricity taking place before the end of the calendar year.  The wind farm should, therefore, be completed around the end of this financial year.  It is expected to produce around 180GWh in a typical year and its construction cost is expected to be just over £100m.

·     Other onshore wind farms under construction (nine sites; 138MW):  At the start of the current financial year, SSE had nine other onshore wind farms with a total capacity of 138MW under construction or in pre-construction.  Construction of the first of these, Rathcahill (12MW) in County Limerick, has been completed.  Slieve Kirk (27MW) in Northern Ireland is expected to be SSE's next completed onshore wind farm, in the next few months.

·     Greater Gabbard offshore wind farm (500MW development; SSE stake in Greater Gabbard Offshore Winds Limited -  50%):  All 140 monopile foundations are in place at the wind farm and 108 turbines have been installed.  As planned, turbine installation will resume in September.  In the meantime, other works at the site have continued, with a total of 42 turbines now energised and 70% of the total subsea cable length now in place.  Both offshore substations have been energised.  GGOWL remains in a contractual dispute with Fluor Limited, the principal contractor for the wind farm, relating to: the need for assurance of the quality of potentially up to 52 of the turbine foundations used in the early stages of the development; and the claim by Fluor Limited of around £300m relating to time and costs associated with alleged additional testing and repairs of some of the welds, against which GGOWL has been advised that it has a robust defence. GGOWL is currently testing the structural integrity of a number of the transition pieces to ensure they meet the required standard, and will begin testing on some of the monopile foundation pieces shortly.  GGOWL retains the option of submitting its own substantial claim should the need arise.  Despite this, the wind farm remains scheduled to be completed as planned in 2012, although there remains some potential risk to this timetable as a result of Fluor Limited/GGOWL disputes.

·     Walney offshore wind farm (367MW; SSE stake 25.1%):  The first phase of Walney is now operational.  This means that 51 turbines, with a total installed capacity of 183.6MW, have successfully completed commissioning tests and are now available to generate electricity.  ROC accreditation has been secured.  As a result, SSE has added 46MW to its total electricity generation capacity.  Construction of the second and final phase of the wind farm, which also comprises 51 turbines with a total installed capacity of 183.6MW, is now well under way.  The first turbine was installed in early June 2011 and more than 20 have since been installed.  Phase two of the wind farm will be commissioned next year.

·     Beauly-Denny replacement electricity transmission line (SSE section Beauly to Wharry Burn): Ofgem has undertaken its consultation on an asset value adjusting event submitted by Scottish Hydro Electric Transmission Ltd to recover additional forecast construction costs arising from the replacement of the line between Beauly and Wharry Burn.  Subject to the outcome of that consultation and continued progress generally, full construction work on the replacement line, including the erection of new pylons, should begin later this year, with the replacement line being completed in 2014.

·     Northern electricity transmission upgrades (Knocknagael Substation, Beauly-Blackhillock-Kintore and Beauly-Dounreay): Ofgem has authorised pre-construction and construction funding for these three projects, which have a total value of almost £200m.  The first project, the upgraded Knocknagael Substation, is on course to be completed this autumn.  Work on the remaining two projects is under way and they are on course for completion by 2015.

·     Aldbrough gas storage capacity (around 330mcm; SSE stake 66.6%): Six of the nine caverns are already storing gas and the UK Energy Minister visited Aldbrough on 27 June to mark its official opening. Leaching at the remaining three caverns has been completed; testing has been completed on two of those caverns and they are being prepared to accept gas. All three of the remaining caverns should be ready for operation by the summer of 2012.

Glendoe hydro electric scheme

Work on the restoration of electricity generation at the Glendoe hydro electric scheme is progressing well.  Both of the two new tunnels required to by-pass the blockage in the existing tunnel, and thereby allow water to go from the reservoir to the power station, have been completed.  This means the process of re-filling the reservoir should begin around the end of this winter and electricity generation should resume in the first half of 2012.

Other developments

Since the publication of its full-year results on 20 May 2012, SSE has also:

·     agreed with Statoil to enter into a 10-year contract for the annual supply of 500 million cubic metres (mcm) of natural gas, to be delivered to SSE's Peterhead power station via the St Fergus gas terminal;

·     suspended all of its doorstep sales activity in Great Britain, a decision welcomed by consumer bodies.  Subject to consultation with affected employees, it expects to close permanently its existing doorstep sales operations; and

·     released an initial, high-level response to the UK government's Planning our electric future White Paper.

Board

In line with the announcement on 9 December 2010, Colin Hood, Chief Operating Officer, will step down from the Board on 31 October 2011.  His Board-level responsibilities, for large capital projects, will transfer to Ian Marchant, Chief Executive.  The Board will then comprise three Executive Directors, six independent non-Executive Directors and the Chairman.  The Davies review into Women on Boards recommended that FTSE 100 Boards should aim for a minimum of 25% of female representation by 2015.  From 1 November 2011, female representation on SSE's Board will be 20%.

Financial outlook
SSE will publish its six month results for 2010/11 on 9 November 2011. In measuring adjusted profit before tax, SSE focuses on the full year, as opposed to six months, because half-year results are more likely to fluctuate, with unusual variations or circumstances.  In line with that, SSE expects that a particularly large proportion of its adjusted profit before tax will be delivered in the second half of 2011/12 and that adjusted profit before tax for the six months to 30 September 2011 will be lower than in the same six months in 2010 and 2009.  This should have no implications for the full financial year. 

SSE's core financial objective is to deliver annual, above-inflation increases in the dividend payable to shareholders and it remains on course to meet its dividend growth targets in the years ahead.  Most immediately, it is on course to deliver a dividend increase of at least 2% more than RPI inflation in respect of 2011/12, while maintaining a dividend cover around the established range.

Ian Marchant, Chief Executive of SSE, said:

"I am sorry that we have had to announce an increase in household energy prices at a time when many people's budgets are under strain, but the upward pressures on prices have become too great.   We want to avoid another increase in household energy prices and they won't go up again, if they have to, before August next year at the earliest.

"As in each of the last three financial years, SSE will invest more than it will make in adjusted profit before tax in 2011/12.  This means it is vital that large capital projects are delivered successfully, and I am encouraged by the progress that has been made in the last few months throughout SSE's operations."

 

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