SHARES in Scottish Hydroelectric Owner SSE have plunged around eight per cent after the power firm warned the price cap on tariffs would hit profits following a “disappointing and regrettable” performance in the first five months.
The Perth-based utility said the price cap that Ofgem has proposed to implement from 1 January will result in annual profits for the division that serves households being significantly lower than expected at the start of the financial year.
Ofgem last week said it would impose a £1,136 cap on the annual bills of dual fuel customers paying by direct debit following repeated complaints about the prices charge by the big six energy firms.
Read more: Scots paying up to £400 too much on energy bills
The introduction of the cap will pose fresh challenges for SSE following a difficult first half.
SSE said profits for the six months to September 30 would be around half the level achieved last time, with warm summer weather and increased gas prices taking a heavy toll on the business.
The sunny summer resulted in lower than expected output from the wind farms and hydro plants operated by SSE’s core renewables business. The group’s customers used less energy.
SSE said persistently high gas prices had continued to result in a higher cost of energy than expected.
“Adjusted operating profit for the first five months of the financial year has therefore been negatively affected by around £190m compared with plan,” it told investors.
The unscheduled update came weeks after SSE warned that weather and gas price effects had left first quarter profits £80m below forecast.
Read more: SSE sees value plunge as warm weather bites
“SSE’s financial performance in the first five months has been disappointing and regrettable,” Mr Phillips-Davies said yesterday.
However, he said the underlying quality of SSE’s businesses remains strong, with the networks and renewables operations forming the core of what will be an infrastructure-focused group in the years ahead.
Mr Phillips-Davies emphasised SSE still expects to deliver the five-year dividend plan set out in May helped by the reshaping of the group.
SSE is set to quit the retail business. The company plans to merge its retail arm with npower, through a deal that will result in the big six energy retailers that dominate the household market being reduced to five.
Read more: Energy giant faces challenging transition
Unions and consumer groups have expressed concern about the impact on gas and electricity prices and on jobs. However, the Competitions and Markets Authority last month signalled it would clear the deal. It has concluded that SSE and npower do not compete closely on the kind of standard variable tariffs that have stirred controversy.
Shareholders in SSE will own 65.6% of the new retail business created by the merger, which is expected to complete by March 31.
SSE continues to expect to recommend a full-year dividend of 97.5 pence per share for 2018/19.
“Pledging to make good its promise on the dividend will sugar the pill of another profit warning, but with earnings falling and investment requirements stretching well into the billions, SSE can ill-afford more slip ups,” said George Salmon, equity analyst at Hargreaves Lansdown.
SSE’s transmission networks business appears to have been its best performing operation in the year to date.
The division is expected to deliver a mid-single digit increase in adjusted operating profit for the full year.
The Energy Portfolio Management arm, which ensures SSE has the supplies needed to meet customer demand, is expected to lose £300m this year.
SSE achieved £586.2m adjusted operating profit in the first half last year, down 8% on the same period in the preceding year.
In July SSE said total energy customer numbers for Great Britain and Ireland stood at 7.45 million at June 30, compared with 7.77m on June 30 last year.
Shares in SSE closed down 103.5p at 1147p.
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