YESTERDAY’s profit warning from SSE may help explain why the giant utility wants out of the retail sector but also made clear it faces challenges in the power generation and trading businesses, which it plans to focus on.
SSE said profits from the sale of gas and electricity to households will be significantly lower than expected this year following the introduction of a cap on controversial variable tariffs by the regulator.
Read more: SSE shares plunge on price cap profit warning
The move by Ofgem followed interventions by MPs’ who did not accept power firms’ claims that the market could be left to deliver the best outcome for consumers.
SSE will be glad to exit such a politically charged sector, assuming the merger of its retail business with npower completes as planned next year.
However, the fact the firm expects the cap to have such an impact on profits suggests the market has been allowing it to achieve pretty fat margins in the consumer market.
SSE will be free to focus on its chosen specialisms of power generation and the distribution of gas and electricity, which it reckons will support a progressive dividend policy.
But the group may have limited control over key factors that will determine the returns it achieves.
The warm weather this summer resulted in lower than expected output from renewables assets like wind farms and hydro schemes, in which the group has invested heavily.
SSE also highlighted the impact of high wholesale prices for gas on first half profitability, underlining its dependence on a market which can be volatile.
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