Today’s announcements by Alistair Phillips-Davies, CEO of SSE, will no doubt be trumpeted as a mark against renewables. Is it? Well in some ways possibly but mostly this is re-alignment with the customer base. Why now? Well, without a crystal ball or a seat on SSE’s board, we can only go by conjecture. Without doubt SSE policy of quick to raise prices and slow to cut will have had some effect on the market base. In an geographic area where Scottish Hydro has been hitherto unassailable we are aware that E-On is much cheaper(by about £60 per year) and Scottish Gas has captured much of the dual fuel market. Less than candid announcements that £50 cuts due to green levy reductions will only be applicable to dual fuel customers suggest that SSE, like the Leopard, doesn’t change it’s spots! Can we then assume that concern is reflected across the customer base and SSE’s market share has plummeted. I don’t know but it would explain the sudden concern for their customers. Perhaps unfairly I consider the final days of Ian Marchant somewhat similar to those of Fred the Shred at RBS. Heavy investment in vanity projects without the due diligence that one should expect of a FTSE company. All based on high levels of subsidy that if removed would make the Wall Street crash look like child’s play. One could look at wind in the last few years and consider it as a kind of Ponzi scheme. A reliance on tomorrows investments to pay for today’s returns. So what have SSE actually done. Well they are pulling out of wave/tidal which has so far proved horrendously expensive for meagre energy returns. Also our waters tear the equipment to shreds in a short time scale. To bring something to market is going to take billions for a dubious return very much reliant on eye watering subsidy. Certainly this is not in the time scale of an energy provider. Beatrice is described as a £1.5billion investment but reading between the lines SSE are only talking of continued development of the plan. This after a reduction in their share from 75% to 50%. Remember without the Beatrice inter-connector to Peterhead, Viking is dead and buried! This can sound grand without much actual financial commitment. It is strange as most of Europe is going cold on offshore that SSE should nail their colours to this mast, but they may be aware of forthcoming support from the DECC and Westminster. Someone is going to have to by all those Hull assembled Seimen’s turbines. £310,000 per job much be one of the most expensive job creation schemes ever!
Politically Bio-mass is becoming a hot potato and not core business. SSE don’t have a Drax or Tilbury in their portfolio. The link between Forth Ports and SSE may well have been a marriage of convenience rather than one born in heaven. Dundee was mired in opposition and Rosyth and Grangemouth had not exactly been welcomed with open arms locally. What it has done is create a black hole in SG expectations for replacing base load from Nuclear..
Carbon capture development is heavily subsidised by government so little risk and guaranteed profits. Most experts have concluded that carbon capture will die a death over the next couple of years. But then experts have been wrong before. Just consider the IPCC. Certainly SSE cut backs in offshore will damage Government aspirations. However the devil is in the detail so follow the link. But SSE are only the last in a long line of major players who are pulling out of off-shore. Onshore wind though has still a great number of large developments in the pipeline from Dunmaglass, Balmacaan(Bhlaraidh) to Stronelairg and others in North Ayreshire. The Coire Glas Pumped Hydro Scheme is still on the table, we assume. We have seen SSE pull smaller projects, like Fairburn Extension and Dalnessie, but this suggests that they consider their resources, both in manpower and finance, too stretched.
I must look at Beauly-Denny which has turned into a political nightmare for SSE. While essentially cost neutral, the infrastructure upgrade has proved a PR disaster and sucked in hours of senior management time. We have always challenged the principle of Beauly-Denny. The Grid is like a spider’s web with built in redundancy. Beauly-Denny will concentrate a high level of transmission capacity down one single point to point line with no built in redundancy. If the line fails through sub transmission station failure, terrorist activity or even landslide a large part of the northern wind fleet will be dead in the water. But then it is for 80% of the time anyway and nothing is going to change nature.
So is SSE’s announcement a nail in the coffin? More a snubbed toe. SSE will still grow it’s onshore wind farms but concentrating on larger projects. SSE will still work to bring Beatrice to market. SSE will re-align their prices to capture greater market share. Western Isles HVDC line is still in train, although one wonders how close to the buffers? What I think we are seeing is SSE distancing itself from the SNP administration in advance of the Independence Referendum while keeping a toe in the water. SSE will take a far more pragmatic view that projects must be able to deliver guaranteed returns in an acceptable time frame. The Genie is out of the box and they cannot put it back in however much we should like them to do so. SSE will continue to be our Bêtte Noir for the foreseeable future. They are after all Scotland’s only home grown energy company. Scottish Power are of course only Scottish in name being wholly owned by Spain’s Iberdrola. What we see more and more is a departmentalising of SSE’s portfolios and possibly some disposals. It would seem that all renewables are now contained within an Irish based entity, SSE Renewable Holdings. It will be interesting if we see more diverted to offshore control as a tax shelter and in that they will be adversely affecting the First Minster’s tax revenue aspirations. As to the rest, a week is a long time in politics and over the final Marchant years we had statements of a freeze in investments in wind, due to the referendum and uncertainty, followed shortly after by heavy multi billion investment. No doubt promises were made behind closed doors and I have little doubt that, running up to the Referendum, more promises will be made. I think though the SSE will be very circumspect in how much we know of them.