WITH the UK Government reportedly preparing to cap the revenues generated by renewables firms, a Scottish giant has underlined how much money firms are making in the sector while highlighting the risks involved in relying on wind farms and the like.

Liz Truss’s administration is reckoned to have decided to take action to limit the profits made by energy generators after efforts to get them to agree to a voluntary cap on output prices failed.

These followed calls for a windfall tax to be imposed on renewables firms such as SSE and ScottishPower, which have been big beneficiaries of the surge in gas prices that has left consumers facing huge increases in their bills. UK market arrangements mean the amount renewables firms get for the electricity they generate is based on the price of gas, which has risen dramatically in recent months.

Perth-based SSE underlined how much money companies are making in the renewables business in a recent trading update in which it said it was on track to grow earnings per share by more than 25 per cent in the current year, to at least 120p.

SSE made 95.4p per share in the year to March. Underlying pre-tax profits surged 23% to £1.2bn encouraging SSE to award shareholders dividends worth £863m, up from £836m last time.

The company said it had performed well in the six months to September 30 amid “volatile market conditions”.

SSE appears to have reaped big rewards from its decision to focus investment on the renewable energy business.

This has seen it lead the way in the development of giant offshore windfarms such as Seagreen off the Angus coast and onshore assets.

The company has avoided some of the flak faced by firms that market energy to consumers after selling its retail business to Ovo for £500m in 2020.

It sold its North Sea gas business to Viaro Energy the same year for £120m.

SSE and other big investors in windfarms have capitalised on the fact that they can benefit from support under a subsidy regime that was initially developed when firms were reluctant to take the risks involved in developing such assets.

Firms are now clamouring to invest in a sector in which they expect to achieve good long-term returns amid the transition to a cleaner energy system.

The enthusiasm was evident in the strong response shown by the likes of BP to the ScotWind licensing round last year.

Against that backdrop, firms can hardly be surprised if the Government responds to the fact that the Ukraine war fallout has provided such a dramatic boost to their profitability by increasing the tax take.

It could retain revenues generated by firms above any cap imposed.

In the trading update SSE maintained the industry line that tax increases could threaten investment and pledged to use any additional profits it makes to fund projects that will provide “long-term solutions that help reduce the UK’s exposure to volatile international gas prices”.

This may be sincere. However, the challenge for the Government and regulators will be to ensure that the associated bills for consumers and taxpayers are fair.

The trading update provided a further indication that the subsidy regime has resulted in renewable generating capacity being developed without some of the infrastructure needed to make the most of it.

SSE said renewable output for the year to September 22 was around 13% below plan “mainly due to the weather”.

This was offset by a good performance by the gas-fired power stations SSE operates, which it says provide back-up power to complement renewable energy.

The comments provide a reminder that those who claim renewables can solve Scotland’s energy supply problems while helping tackle climate change have questions to answer.

Following the launch on Friday of a North Sea oil and gas licensing round that the UK Government said would support energy security, First Minister Nicola Sturgeon insisted renewables would be a better option for Scotland, which she said had become a net exporter of electricity.

However, the latest official energy statistics report issued by the Scottish Government showed the amount of renewable electricity generated in the country fell by 15.1% in 2021 “likely due to milder weather throughout the year”.

While low winds can result in windfarm output falling below requirements, strong winds at the wrong time can mean power is generated when it is not needed.

Windfarm operators have been paid huge amounts of compensation for energy they generated that was not required.

The solution will involve developing storage technologies that can be deployed at large scale.

Industry players have highlighted the potential of pumped storage hydro schemes which can bank renewable energy generated at times of low demand for release when required.

These could follow the model used in the Cruachan ‘Hollow Mountain’ scheme operated by Drax in Argyll, which involves moving water between a reservoir in the hills and Loch Awe below.

Drax has said it could double capacity at Cruachan. However, it has made clear it would expect the Government to help ensure it achieved its return targets.

SSE has said it could develop a major pumped storage hydro scheme in the Highlands if energy policy is adapted to encourage the long-term investment required.

Other investors have shown they see huge commercial potential in the storage market.

The Duke of Buccleuch has just secured backing for the Glenmucklock pumped storage hydro scheme on the site of a disused mine in Dumfries and Galloway from the Foresight Energy Infrastructure Partners private equity operation.

It is hoped that the scheme could generate hundreds of jobs.

Drax reckons work on the expansion of Cruachan could generate around 1,000 jobs.

Jobs on such a scale would be hugely welcome amid concerns that the economic impact of renewables activity in Scotland has been much lower than hoped.

Last week Scottish Renewables hailed a report by the Fraser of Allander Institute that found more than 27,000 jobs were supported by Scotland’s renewable energy industry and its supply chain in 2020. However, a report commissioned by Scottish Renewables in 2010 predicted the offshore wind sector alone could create 30,000 full time equivalent jobs by 2015.

The onus is on policymakers to ensure that firms deliver the power and support for the economy we need amid the fallout from the Urkaine war and the climate change challenges that lie ahead.

That will involve encouraging the development of a range of energy and storage sources while ensuring corporations don’t hog the resulting benefits.