Strategic overview

DELIVERING ON OUR PROMISE
In November 2021, SSE laid out a fully-funded strategic growth plan to 2026 - the Net Zero Acceleration Programme - focused on delivering new investment in the assets needed to underpin a net zero energy system. In the months since, we have wasted no time in delivering on that promise. Excellent progress has been made on major electricity infrastructure and net zero-focused projects, with record levels of capex. This has consolidated SSE's standing as a national clean energy champion contributing to a more secure energy system which will be less reliant on imported gas and therefore better able to protect consumers from future price spikes.

The fact that the strong financial and operational performance of the past year has played out against the backdrop of volatile macroeconomic and market conditions, as well as adverse weather conditions, is testament to SSE's resilient operating model and the people who make it work. It is thanks to the commitment and capability of our 11,000-strong workforce that SSE is able to stay true to its central purpose of providing energy needed today while building a better world of energy for tomorrow.

I am extremely grateful to colleagues who have shown admirable courage in maintaining critical national infrastructure and helping customers through severe weather challenges and a cost-of-living crisis that has had a direct impact on all energy users. Our ongoing success is dependent on a highly-skilled, diverse and expanding workforce and we anticipate our numbers will rise by 1,000 people per year over the five-years of our current strategic growth plans.

RESILIENCE IN A VOLATILE WORLD
While SSE is not alone among energy companies going for growth in the transition to net zero, our ability to manage output variability through a diverse and well-balanced mix of businesses has served us well through a period that saw energy markets buffeted first by a spike in post-pandemic global demand, and more recently by the war in Ukraine. Having operations across the clean electricity value chain gives SSE a valuable natural hedge against market volatility.

SSE is well positioned thanks to a prudent approach to hedging and an integrated but wide-ranging asset portfolio. In still conditions, reduced output from wind assets can be compensated through the flexibility the Group has elsewhere in the generation fleet. Indeed, flexible generation assets performed particularly well in the balancing market in 2021/22, because the system needed the capacity and flexibility that SSE's thermal and hydro assets provide. Right across the portfolio, much of SSE's revenue is index linked, be it through CfDs, ROCs or Capacity Market payments, while networks income and Regulated Asset Values are backed by price controls and increase in line with inflation. This optimal blend of regulated and market-based income across a balanced range of businesses means we can continue delivering for shareholders and society in exceptionally volatile times, and means we are well placed to capture emerging growth opportunities as they emerge right across the clean energy value chain.

INVESTING IN CLEAN, SECURE ENERGY
While supporting efforts to maintain a 1.5C global warming pathway, the Net Zero Acceleration Programme has been given added impetus by the pressing need for clean, indigenous sources of energy as a long-term solution to an over-reliance on imported gas. SSE is well-placed to deliver on this and it welcomed the supportive policy signals within the British Energy Security Strategy. There are clear opportunities in the latest commitments, including: increasing offshore wind capacity to 50GW by 2030, including more floating wind; approving more strategic networks expenditure more quickly; bringing forward a support mechanism for long-duration storage projects like SSE's Coire Glas; and a doubling of hydrogen production ambitions and continued commitment to carbon capture and storage (CCS). Assuming a continued supportive policy environment, our investment in the UK and Ireland could total in excess of £25bn this decade contributing towards tackling climate change whilst providing indigenous energy supplies and creating high quality low-carbon jobs.

In Europe, meanwhile, the search for alternatives to Russian oil and gas is driving demand for more renewables, more renewables-enabling networks and more low-carbon flexibility. Against this backdrop SSE is securing a foothold in Southern Europe through the agreement to acquire Siemens Gamesa Renewable Energy's development platform. Most of the 3.9GW of onshore wind in the portfolio is in the early stages of development, but the experienced local teams will be integral to SSE's growth strategy in Europe and complement SSE's world-class renewables capability with local expertise.  

STRATEGY IN ACTION
Financial strength underpinned by investment-grade credit ratings and a stable debt profile is enabling SSE to execute a strategy of developing, building, operating and investing in the electricity infrastructure needed in the transition to net zero, and we are growing both at home and abroad as a result. We have completed the sale of our remaining stake in SGN - a key step in the strategic streamlining of the Group - and we invested a record £2.1bn in 2021/22.

Among many strategic delivery highlights we have progressed our major SSE Renewables projects at Dogger Bank, Seagreen and Viking; made progress internationally through our acquisitions in Southern Europe and Japan; and added 1GW to our domestic pipeline with a significant win in the ScotWind auction with our partners CIP and Marubeni.

The future looks bright for SSEN Transmission, too. Our flagship Shetland HVDC link continues at pace, while National Grid's Network Options Assessment made clear the extent of future network development that will be needed and the UK Government threw its weight behind a faster, more strategic networks build-out. In Distribution, we worked through six exceptional weather events in 12 weeks, including back-to-back named storms, while progressing a stakeholder-led plan for ED2 that we continue to engage on with Ofgem and other key stakeholders.

In SSE Thermal, construction at Keadby 2 was highly successful and it will be a useful provider of system flexibility. Elsewhere in the Group we acquired our first new solar and battery sites and signed Green PPAs with customers as we look for well-aligned growth opportunities.

SUSTAINABILITY IN ACTION
SSE is proud of its ESG commitments and this year we announced an update to our interim 2030 Goals, which are aligned to the UN's Sustainable Development Goals. This revision is to keep pace with the bolder ambitions set out in the Net Zero Acceleration Programme. The goals will see us cut carbon intensity by 80%; increase renewable energy output fivefold; enable low-carbon generation and demand; and champion a fair and just energy transition on the journey to net zero.

Shareholder support is critical to meeting the Group's net zero ambitions and that is why they will be given a vote at the 2022 AGM, and subsequent AGMs, on the progress being made by the Company towards decarbonising. The recently-published Net Zero Transition Plan sets out targets for scope 1 and scope 2 emissions by 2040 (subject to security of supply requirements) and for the remaining scope 3 emissions, by 2050 - alongside interim annual science-based targets aligned to a 1.5°C pathway.

CREATING LASTING VALUE
SSE's conviction - that a deliberately integrated and well-balanced group of market-based and economically regulated businesses offers the optimal route to value creation for shareholders - continues to be borne out. We are proposing payment of a full-year dividend of 85.7p, in line with plan, and we remain committed to our existing five-year dividend plan to 2023, which targets dividend increases in line with RPI each year. Our increased confidence in both our operational performance and the growth opportunities ahead means we have today set out our expectation that we will deliver adjusted earnings per share of at least 120p in 22/23, and increased our five year CAGR target to 7-10%, from the same 2021 base of 87.5p.

Through the progress being made on delivery of the Net Zero Acceleration Programme we are providing long-term, homegrown solutions to both climate change and the current energy crisis and we already see scope for contributing much more to efforts to decarbonise the energy system.

 

Alistair Phillips-Davies
Chief Executive
SSE plc

Group financial review

year to 31 march 2022

This Group Financial Review sets out the financial performance of the SSE Group for the year ended 31 March 2022. See also the separate sections on Group Financial Outlook, 2022/23 and beyond and Supplemental Financial Information.

The definitions SSE uses for adjusted measures are consistently applied and are explained in the Alternative Performance Measures section of this document, before the Summary Financial Statements.

Key Financial Metrics	Adjusted		Reported
(continuing operations)	March 2022 £m	March 2021 £m	March 2022 £m	March 2021 £m
Operating profit from continuing operations	1,536.8	1,333.5	3,755.4	2,654.9
Net Finance costs	(372.8)	(384.6)	273.2	(236.9)
Profit before Tax	1,164.0	948.9	3,482.2	2,418.0
Current Tax charge	(107.1)	(85.9)	(882.8)	(224.3)
Effective current tax rate (%)	9.2	9.1	25.4	9.3
Profit after Tax on continuing operations	1,056.9	863.0	2,599.4	2,193.7
Less: hybrid equity coupon payments	(50.7)	(46.6)	(50.7)	(46.6)
Profit after Tax from continuing operations attributable to ordinary shareholders	1,006.2	816.4	2,548.7	2,147.1
EPS from continuing operations (pence)	95.4	78.4	241.6	206.3
Number of shares for basic/reported and adjusted EPS (million)	1,055.0	1,040.9	1,055.0	1,040.9
Shares in issue at 31 March (million)**	1,067.6	1,043.0	1,067.7	1,043.0

* Comparative information has been re-presented to reflect the classification of Scotia Gas Networks as a discontinued operation and the changes to segmental disclosures made in the year (see note 2.3 of the Summary Financial Statements). ** Excludes treasury shares.

 

Dividend per Share	March 2022	March 2021
Interim Dividend (pence)	25.5	24.4
Final Dividend (pence)	60.2	56.6
Full Year Dividend (pence)	85.7	81.0

 

Impact from market volatility

The Group reduces direct exposure to short term commodity price volatility through its business mix, the disciplined application of its clearly defined approach to hedging and low VAR trading limits.  Nevertheless, the higher and more volatile gas and power market prices, combined with increasing inflation rates have had some impact upon SSE's businesses which can be summarised as follows:

SSEN Transmission and SSEN Distribution operate under a regulatory price control framework which is set by Ofgem. Returns under this framework have no direct relationship to gas and power market prices, however both allowed revenues and Regulated Asset Values are index linked (Transmission to CPI(H). Distribution to RPI (for ED1 price control) and CPI(H) (for ED2 price control)).

Within SSE Renewables, in periods where wind volume output was significantly lower than expected, excess forward sale contracts had to be 'bought back' in the market at higher prices, further reducing the trading result.

For SSE Thermal (as well as the Hydro plant within SSE Renewables), value has come from the ability of the plant to respond to market conditions and provide vital balancing services to provide security of supply and flexibility in higher, more volatile market conditions. The current market conditions are therefore generally positive for these businesses, although this is dependent upon plant availability at times of system stress.

Both EPM and Gas Storage, through their respective exposure to unsettled commodity contracts and physical gas inventory, have experienced significant positive unrealised mark-to-market remeasurement gains in the year. However, EPM is not expected to realise significant gains upon settlement of the contracts, as they are largely offset by significant adversely marked-to-market 'own use' operating derivatives which are excluded from disclosure as remeasurements under IFRS 9. In addition, for EPM, market volatility and retail energy supplier failure has resulted in a significant increase in the collateral requirements necessary to allow the businesses to continue to trade with counterparties and on exchanges as required. To date these increased collateral requirements have generally been managed by issuing new Letters of Credit, Guarantees and Performance Bonds, however exchange cash collateral requirements have been subject to volatility in recent months. The Group closely monitors this and maintains more than sufficient liquidity to manage these increased collateral requirements.

SSE Business Energy and SSE Airtricity (aside from Northern Ireland, where SSE Airtricity is subject to a regulatory pricing mechanism) are not subject to a regulated price cap and therefore variable tariffs are adjusted dynamically and fixed tariff rates are reset for new customers as wholesale costs increase or decrease. Although the businesses are insulated against gas price rises insofar as they are fully hedged, there are external circumstances that would result in hedge adjustments such as weather, supplier failures and broader economic conditions. A dynamic forecasting approach has been in place to quickly respond to volume changes. In relation to Airtricity, vertical integration of generation and customer businesses in the Irish market limits commodity exposures with some benefit received through REFIT receipts on legacy wind assets.

Finally, SSE Group is well funded with a strong investment grade credit rating, a high proportion of the £8.6bn adjusted net debt (c.96%) is fixed rate and the long average maturity of SSE's debt is 6.8 years. The Group has been successful in challenging debt markets, issuing a €1bn Hybrid and £350m Private Placement post year-end. SSE's balance sheet strength allows the Group to meet additional collateral increases on higher and volatile commodity contracts, while the high proportion of fixed rate debt provides robust financing in an inflationary environment.

 

 

Operating profit performaNce 2021/22

Business-by-business segmental	Adjusted		Reported
	March 2022 £m	March 2021 £m	March 2022 £m	March 2021 £m
Operating profit/(loss)
SSEN Transmission	380.5	220.9	380.5	220.9
SSEN Distribution	351.8	275.8	351.8	275.8
Electricity networks total	732.3	496.7	732.3	496.7
SSE Renewables	568.1	731.8	427.8	856.0
SSE Thermal	306.3	160.5	630.1	775.3
Gas Storage	30.7	(5.7)	125.4	2.8
Thermal Total	337.0	154.8	755.5	778.1
Business Energy (GB)	(21.5)	(24.0)	(21.5)	(3.9)
SSE Airtricity (NI and Ire)	60.4	44.0	60.4	50.0
Energy Customer Solutions Total	38.9	20.0	38.9	46.1
Energy Portfolio Management	(16.8)	18.4	2,083.6	608.5
Distributed Energy	(10.9)	(27.0)	(29.2)	(76.1)
Neos	(16.1)	(2.8)	(140.0)	(14.1)
Corporate unallocated	(95.7)	(58.4)	(113.5)	(40.3)
Total operating profit from continuing operations	1,536.8	1,333.5	3,755.4	2,654.9
Net finance costs	(372.8)	(384.6)	(273.2)	(236.9)
Profit before tax from continuing operations	1,164.0	948.9	3,482.2	2,418.0
Discontinued operations:
Gas Production Assets	101.4	33.0	(19.4)	33.0
Scotia Gas Networks	21.0	173.0	495.4	88.6
Total operating profit / (loss) from discontinued operations	122.4	206.0	476.0	121.6

* Comparative information has been re-presented to reflect the classification of Scotia Gas Networks as a discontinued operation and the changes to segmental disclosures made in the year (see note 2.3 of the Summary Financial Statements).

In order to present the financial results and performance of the Group in a consistent and meaningful way, SSE applies a number of adjusted accounting measures throughout this financial report. These adjusted measures are used for internal management reporting purposes and are believed to present the underlying performance of the Group in the most useful manner for ordinary shareholders and other stakeholders.

The definitions SSE uses for adjusted measures are explained in the Alternative Performance Measures section before the Summary Financial Statements.  A reconciliation of adjusted operating profit by segment to reported operating profit by segment can be found in Note 6.2 to the Summary Financial Statements.

Segmental EBITDA results are included in Note 6.3 to the Summary Financial Statements.

 

Operating profit

Adjusted and reported operating profit/losses in SSE's business segments for the year to 31 March 2022 are set out below; comparisons are with the same period to 31 March 2021 unless otherwise stated.

SSEN Transmission: Adjusted and reported operating profit increased by 72% to £380.5m. This was mainly due to higher allowed revenues in FY22 (the first year of the RIIO-T2 price control) resulting from an increased proportion of higher totex allowances received through the 'fast money' mechanism, and an over-recovery of £9m, as timing impacts passed from the Electricity System Operator to Transmission Operators. This higher revenue was partially offset by increases in operating costs and depreciation charges, as the business continues to expand its operational capability and asset base.

SSEN Distribution: Adjusted and reported operating profit increased by 28% to £351.8m compared to £275.8m which was lower than expected due to a c.£40m impact of coronavirus in FY21 which will be recovered in FY23. In FY22, higher allowed revenue and an over-recovery of £17m were partially offset by a £51m increase in operating costs, c£40m of which related to expenditure incurred managing the impact of several severe weather events during the year.

SSE Renewables: Adjusted operating profit decreased by 22% to £568.1m, compared to £731.8m, mainly as developer profits of £64m from a 10% stake disposal in Dogger Bank C on 10 February 2022 were lower than the £226m of developer profits in the prior year. Excluding developer profits, operating profit was broadly flat as exceptionally still and dry weather in the summer months led to a decrease in output of 7% or 0.7TWh compared to the prior year, offset by strong financial performance from hydro and pumped storage in volatile markets. The financial impact of lower output - equivalent to 13% or 1.4TWh below planned levels - included the cost of buying back hedged volumes at high market prices.

In addition to the factors outlined above, reported operating profit of £427.8m compared to £856.0m which included one-off exceptional gains of £214.5m. In addition, reported operating profit was also impacted by a £21.5m increase in joint venture share of interest and tax charges and the impact of the UK Corporation tax rate change on deferred tax balances in joint ventures.

SSE Thermal: adjusted operating profit increased 91% to £306.3m, compared to £160.5m. This increase was mainly due to higher achieved spark spread, including buying back forward power sales on high wind days, and strong performance in the balancing market. This was partially offset by non-recurring developer profits on the disposal of a 50% stake in Slough Multifuel in the prior period, lower profit contribution following divestment of Ferrybridge Multifuel and increased depreciation following the part-reversal of historic impairment charges at the half year.    

Reported operating profit decreased to £630.1m from £775.3m in the prior year which had included one-off gains of £669.7m on the sale of Multifuel Energy and £21.3m on Slough Multifuel offset by a £58.1m exceptional impairment charge for Great Island CCGT. In addition to the factors affecting operational performance highlighted above, the reported result reflects the associated impairment reversal of £331.6m to the carrying value of SSE's CCGT assets following higher forward price curves, alongside other minor tax and interest movements.

Gas Storage: Adjusted operating profit of £30.7m, compared with a prior year loss of £(5.7)m. SSE continues to operate the plant on a merchant basis, with the ability to capture positive gas price spreads during periods of heightened market volatility. The operating result for the period reflects continued volatile market conditions, which allows Gas Storage to optimise the value from storage of physical gas against changes in the spread between summer and winter prices.

Reported operating profit of £125.4m included an impairment reversal of £97.3m as a result of improved operating prospects given projected gas price volatility, together with a £(2.6)m revaluation loss on gas held in storage, compared to a revaluation gain of £8.5m in the prior year.

SSE Business Energy: Adjusted operating loss of £(21.5)m has slightly improved compared with an adjusted operating loss of £(24.0)m last year. Both years have been impacted by significant volatility; the prior year result included approximately £24m of losses on early settlement of excess commodity hedges linked to Covid, while the current year has borne non-recoverable BSUoS costs of around £20m and £14m of additional mutualisation costs due to a significantly higher number of supplier failures. These were partially offset by an improvement in bad debt recovery of £14m as the economy emerged from the impact of coronavirus. The underlying business remains stable with a solid customer book.

Reported operating loss was also £(21.5)m, compared to £(3.9)m loss in the prior year which included a £20.1m release of excess bad debt provisioning originally expected to arise from coronavirus impact.

SSE Airtricity: Adjusted operating profit increased to £60.4m compared to £44.0m in the previous year, with the increased profit due to £51m of higher generation receipts on wind assets which are contracted through Airtricity. This was partially offset by a £25m adjustment in relation to historic use of system costs.

The business has grown customer numbers year on year but seen a drop in customer margins as energy prices increased; commodity costs increased significantly in the year and were managed through our approach to hedging and where necessary through tariff increases.

Reported operating profit was also £60.4m, compared to £50.0m profit in the prior year which included a £6.0m release of excess bad debt provisioning originally expected to arise from coronavirus impact.

Energy Portfolio Management: Adjusted operating loss of £(16.8)m, compared to an adjusted operating profit of £18.4m which included a net £20.4m income from legacy Gas Production hedges. The operating loss is primarily due to a legacy power contract with Ovo which fully unwound during the year in a higher commodity price environment. EPM continues to expect to earn a small adjusted operating profit through service provision to those SSE businesses requiring access to energy markets.

Reported operating profit of £2,083.6m reflects a material net remeasurement gain in the year on unsettled fair value forward commodity contracts, under IFRS 9. In line with reporting in previous years, this result excludes an adverse remeasurement of 'own use' contracts of approximately £2.0bn which largely offsets the IFRS 9 gain.

SSE Distributed Energy: An adjusted operating loss of £(10.9)m was reported, compared with an adjusted operating loss of £(27.0)m which included an impact from coronavirus. This reporting segment includes the result from the Contracting and Rail business, which remains reported within this segment up to the point of disposal on 30 June 2021. The segment no longer includes Out of Area Networks, which is now reported within the Distribution segment, and Neos Networks JV, which has been separately presented below.

Reported operating loss of £(29.2)m reflects the above factors together with an exceptional loss on disposal of £18.3m upon completion of the sale of Contracting and Rail.

Neos Networks JV: SSE's remaining 50% share in the Telecoms business Neos Networks recorded an adjusted operating loss of £(16.1)m compared with £(2.8)m in FY21. The reported loss of £(140.0)m includes both an impairment of £(106.9)m and an adjustment to original transaction consideration.

Corporate unallocated: Adjusted operating loss of £(95.7)m compared with £(58.4)m, reflecting a natural reduction in external revenues as enduring service agreements with recently divested businesses roll-off, together with higher central costs including increased Group IT costs as the Group accelerates its investment in digitalisation.

Reported operating loss of £(113.5)m reflects the above factors together with a £(13.1)m revaluation adjustment to the legacy Gas Production decommissioning provision, part of Corporate unallocated following the business disposal in the year, and other minor tax and interest movements.

Adjusted Earnings per share

To monitor its financial performance over the medium term, SSE reports on its adjusted earnings per share measure. This measure is calculated by excluding the charge for deferred tax, interest costs on net pension liabilities, exceptional items, valuation movements on the retained Gas Production decommissioning liabilities, depreciation on fair value adjustments and the impact of certain remeasurements.

SSE's adjusted EPS measure provides an important and meaningful measure of underlying financial performance. In adjusting for the items mentioned, adjusted EPS reflects SSE's internal performance management, avoids the volatility associated with mark-to-market IFRS 9 remeasurements and means that items deemed to be exceptional due to their nature and scale do not distort the presentation of SSE's underlying results. For more detail on these and other adjusted items please refer to the Adjusted Performance Measures section of this statement.

In the year to 31 March 2022, SSE's adjusted earnings per share on continuing operations was 95.4p.  This compares to 78.4p for the year to 31 March 2021 (restated for SGN disposal - 87.5p previously reported) and reflects the movements in adjusted operating profit outlined in the section above.

 

 

Group financial outlook
- 2022/23 and beyond

Key Points for 2022/23

The group has enjoyed a strong start to delivery of the targets it set out in its Net Zero Acceleration Programme with thermal and hydro plant performing particularly well in the second half of 2021/22.

SSE's focus continues to be on long-term, sustainable financial performance. Through high levels of investment expected in Transmission, a step up in profits expected in Thermal generation and an expected return to normal weather for Renewables, SSE is confident about delivery of strong earnings growth for this financial year, specifically:

-   For SSEN Transmission: SSE expects to report strong growth in adjusted EBIT with a 20% increase in allowed revenues under the RIIO-T2 price control, as the network continues to expand its operational capability and asset base;

-   For SSE Renewables: assuming normal weather and plant availability, SSE expects to report generation output of 11.4TWh, including 0.9TWh from Seagreen; and

-   For SSE Thermal and Gas Storage: assuming normal plant availability and excluding the benefit of Keadby 2, SSE expects to report adjusted EBIT for 2022/23 of at least £337m, the same level as 2021/22.

Taking the above into account SSE currently expects to report full year adjusted earnings per share of at least 120p.

The Group remains committed to its five-year dividend plan to March 2026 and is recommending a 2022/23 full-year dividend of 85.7 pence in line with that plan.

Capital expenditure and investment is expected to total in excess of £2.5bn in 2022/23 (including acquisitions but net of project finance development expenditure refunds) assuming the recent Southern European acquisition successfully completes as planned. This is consistent with maintaining SSE's target net debt to EBITDA ratio of 4.5 times or below.

Update to Net Zero Acceleration Programme

In November 2021 SSE set out that it expected to deliver adjusted EPS CAGR on the 87.5 pence reported for the year ended March 2021 (before restatement) of between 5-7% in the period to 31 March 2026. This was underpinned by index-linked revenue streams driving 60% of EBITDA and was after a modelling assumption of a 25% minority interest disposal of Transmission and Distribution during FY24.

SSE now expects to deliver an adjusted EPS CAGR of between 7-10%* over the same period as a result of: confidence derived from strong delivery in 2021/22; higher RPI forecasts; higher and more volatile energy commodity prices; and evidence of increased value creation potential from flexibility provided by SSE's Thermal and Hydro generation, and gas storage assets.

* Using the same baseline adjusted EPS of 87.5p (before restatement for SGN disposal) and continuing to model a 25% minority interest disposal of Transmission and Distribution during FY24.

Disposal of Minority Stake in Networks

SSE continues to regard partnering as vital for the future and an important means of unlocking future opportunities in its businesses.

In line with the modelling assumption in its Net Zero Acceleration Programme, announced in November 2021, the Group has recently initiated a sales process with banking advisers for a 25% share of the SSEN Transmission business which is expected to formally commence in Summer 2022.  Given the SSEN Distribution business is currently progressing its ED2 price control negotiations, a decision on the timing of a similar stake sale will be made later in the financial year.

While these are high-quality, core businesses and SSE will retain control, the scale of potential growth and the associated investment required mean that bringing in non-controlling partners will create greater long-term value by enabling SSE to harness this significant growth whilst maintaining an attractive balance of capital allocation across the Group.

 

 

 

 

Supplemental financial information

Adjusted Investment and Capex Summary	March 2022 Share %	March 2022 £m	March 2021 £m
SSEN Transmission	30	614.4	435.2
SSEN Distribution	18	364.8	350.8
Regulated networks total	48	979.2	786.0
SSE Renewables	39	811.0	294.3
SSE Thermal	6	129.3	106.5
Gas Storage	-	2.1	1.9
Thermal Total	6	131.4	108.4
Energy Customer Solutions	2	39.8	31.2
Energy Portfolio Management	-	2.4	2.1
Gas Production*	-	-	26.8
Distributed Energy	1	26.6	17.6
Corporate unallocated	4	78.7	74.2
Adjusted investment and capital expenditure, before refunds	100	2,069.1	1,340.6
Project finance development expenditure refunds		(136.7)	(428.6)
Adjusted investment and capital expenditure		1,932.4	912.0
Acquisitions		141.3	-
Adjusted investment, capital and acquisitions expenditure		2,073.7	912.0

* Discontinued operation, the Gas Production business was disposed on 14 October 2021.

PROGRESS IN SSE'S CAPITAL EXPENDITURE PROGRAMME

During the year to March 2022, SSE's adjusted investment, capital and acquisition expenditure, which now includes equity expenditure on acquisitions per above, totalled £2,073.7m, an increase of 127% compared with the prior year and representing the highest ever investment recorded by the Group. Almost £2bn of this was invested within SSE's Renewables, Thermal and Networks businesses, all which are fundamental to delivery of the UK's net zero ambitions. In summary:

·      Excellent progress was made in SSEN Transmission's investment programme, with a total of £614.4m invested in building out and reinforcing the network in the North of Scotland. Work was completed on Tealing Substation Extension, required to facilitate the connection of Seagreen to the grid. In addition, construction is well under way on the link between Shetland and mainland Scotland, which will see a submarine cable laid in order to transmit power beneath the seabed between converter stations at Weisdale Voe on Shetland and Noss Head in Caithness.

·      SSEN Distribution continued its capital investment programme across both the north and south networks, with a total spend of £364.8m, mainly on strategic investment and construction in both the north and south regions, as well as progressing the replacement of the submarine cable between Skye and Harris. All of which is designed to deliver improvements for customers.

·      Significant further capex was deployed on SSE Renewables' flagship projects, including nearly £500m investment on Seagreen, Scotland's largest offshore wind farm, and around £100m on Viking onshore wind farm, which will be one of Europe's most productive onshore wind farms, once complete. In addition, progress was made at the 30MW Lenalea onshore wind farm in County Donegal and the 38MW Gordonbush Extension onshore wind farm in Sutherland was commissioned during the year.

·      Investment in SSE Thermal was focused on the final stages of the 893MW Keadby 2 CCGT, with commissioning started in October 2021 and full commercial operation expected 1 October 2022.

 

In April 2022, an incident occurred on a sub-contractor S7000 installation vessel which is contracted to the Seagreen offshore wind farm construction project. The project team are working closely with contractors to manage and mitigate project impacts and the project is currently expected to achieve first power in July 2022 and full commercial operation in April 2023.

SSE's Hedging Position at 18 May 2022

SSE has an established approach to hedging through which it generally seeks to reduce its broad exposure to commodity price variation at least 12 months in advance of delivery. As market conditions change, SSE may decide to alter its hedging approach in response to any changes in its exposure profile.  SSE will continue to provide a summary of its current hedging approach, including details of any changes in the period, within its Interim and Full-year Results statements.

A summary of the hedging position for each of SSE's market-based businesses is set out below.

SSE Renewables - GB wind and hydro:

Forward power prices and volatility have been increasing, driven by supply-demand tensions, the acceleration in carbon pricing, nuclear outages and closures and the reconfiguration of the merit order in both GB and Ireland. These trends have been amplified by scarcity concerns across Europe. In response to this, SSE Renewables has increased its hedge position against its target volume for financial years 2023/24 and 2024/25.

In order to show this hedge acceleration, the table below has been updated to show the position at 18 May 2022 for those periods.

		As at 31 March 2022		As at 18 May 2022
		2021/22	2022/23	2023/24	2024/25	2025/26
Wind	Expected volume - TWh	4.2	5.3	6.8	8.4	8.7
	Volume hedged - %	85%	91%	78%	37%	1%
	Hedge price - £MWh	£48	£54	£69	£105	£108
Hydro	Expected volume - TWh	3.6	3.5	3.7	3.8	3.8
	Volume hedged - %	83%	85%	70%	38%	1%
	Hedge price - £/MWh	£50	£63	£74	£110	£108

Volumes are based on average expected output, and the contracted hedge price is either at 31 March or 18 May as noted in the table above. 

The expected volumes include anticipated volumes from SSE's wind farms in construction, Seagreen (pre CFD) and Viking. No volumes have been included for Dogger Bank wind farm. Seagreen accounts for approximately 0.9TWh in 22/23 and 2.5TWh in each of 23/24, 24/25 and 25/26 with Viking accounting for 1.6TWh in 24/25 and 1.9TWh in 25/26. These volumes represent SSE's most up to date view of the output from Seagreen taking account of recent issues encountered by the S7000 installation vessel. In the event that further construction delays result in a shortfall against wind hedged volumes, it is expected that the exposure will continue to be managed within the wider SSE generation portfolio.

The table excludes additional volumes and income for BM activity, ROCs, ancillary services, pre-commissioning, capacity mechanism and shape variations. It also excludes volumes and income relating to Irish wind output, pumped storage and CfDs.

Energy output hedges for both wind and hydro are progressively established over the 36 months prior to delivery (although the extent of hedging activity for future periods depends on the level of available market depth and liquidity). Target hedge levels continue to be achieved through the forward sale of either electricity, or gas and carbon equivalents (assuming a constant 1MWh : 69.444 th and 1MWh : 0.3815 te/MWh conversion ratio between commodities), with the balance determined by the optimal hedge price across those markets. This approach aims to reduce the exposure of renewables assets to volatile spot power market outcomes whilst still providing an underlying commodity price hedge.

For wind energy output, SSE's established approach to hedging seeks to account for the effect of the 'wind capture price' by targeting a hedge of less than 100% of its anticipated wind energy output for the coming 12 months. The targeted hedge percentage is reviewed and adjusted as necessary to reflect any changes in future market and wind capture insights. The last such revision occurred in May 2021, with at least 90% of the anticipated energy output from wind for the coming twelve months being hedged from that date.

The approach to hedging hydro energy output remains unchanged at approximately 85% of its forecast energy output for the coming 12 months.

UK Business Energy: The business supplies electricity and gas to business and public sector customers. Sales to contract customers are 100% hedged: at point of sale for fixed contract customers; upon instruction for flexi contract customers; and on a rolling hedge basis for tariff customers.

Given the pricing and macro-economic context Business Energy is dynamically monitoring nearer term consumption actuals for any early signs of demand variability, and adjusting future volumes hedged accordingly.

GB Thermal: In the six months prior to delivery, SSE aims to hedge all of the expected output of its CCGT assets, having progressively established this hedge over the preceding eighteen months. Hedging activity depends on the availability of sufficient market depth and liquidity, which can be limited, particularly for periods further into the future.

SSE continues to monitor market developments, in particular the recent energy and carbon price volatility, and will adjust its hedging approach to take account of any resultant change in exposures.

Gas Storage: The annual auction to offer gas storage capacity contracts from Atwick, held in April 2022, resulted in no third-party contracts being secured. As such the assets are being commercially operated to optimise value arising from changes in the spread between summer and winter prices, market volatility and plant availability.

Energy Portfolio Management (EPM): EPM provides the route to market and manages the execution for all of SSE's commodity trading outlined above (spark spread, power, gas, oil and carbon). This includes monitoring market conditions and liquidity and reporting net Group exposures. The business operates under strict position limits and VAR controls. There is some scope for small position-taking to permit EPM to manage around shape and liquidity whilst taking small optimisation opportunities. This is contained within a VAR limit of £2m (£1m for the curve period and £1m for the prompt).

Ireland: Vertical integration of the generation and customer businesses in Ireland limits the Group's commodity exposure in that market.

 

Summarising movements on exceptional items
and certain remeasurements

Exceptional items

In the year to 31 March 2022, SSE recognised a net exceptional gain within continuing operations of £305.0m before tax. The following table provides a summary of the key components making up the net gain position:

Exceptional Credits / (Charges) within continuing operations	Total £m
Disposals of non-core assets:
Contracting & Rail business - loss on disposal	(18.9)
Impairments and other exceptional items
Thermal Electricity Generation historic impairment reversal	331.6
Gas Storage historic impairment reversal	97.3
Neos Networks investment impairment and adjustment to consideration	(113.1)
Other historic true-up credits	8.1
	323.9
Total exceptional items	305.0

Notes:

-       The definition of exceptional items can be found in Note 4.2 of the Summary Financial Statements.

-       Non-core assets are defined as being assets in which SSE is not the principal operator or are less aligned with the transition to net-zero emissions.

In addition to the above exceptional items from continuing operations, a net exceptional gain within discontinued operations of £455.7m before tax was recognised. This net exceptional profit consisted of:

·      a £576.5m gain recognised on completion of the disposal of the Group's 33.3% investment in SGN on 22 March 2022; offset by

·      a £120.8m loss relating to the disposal of the Gas Production assets and liabilities on 14 October 2021.

For a full description of exceptional items, see Note 7 of the Summary Financial Statements.

Certain remeasurements

In the year to 31 March 2022, SSE recognised a net remeasurement gain within continuing operations of £2,118.8m before tax. The following table provides a summary of the key components making up the net gain position:

Certain remeasurements within continuing operations		Total £m
Operating derivatives		2,100.4
Commodity stocks held at fair value		(2.6)
Financing derivatives		21.0
Total		2,118.8

Operating derivatives

SSE enters into forward purchase contracts (for power, gas and other commodities) to meet the future demands of its energy supply businesses and to optimise the value of its generation assets. Some of these contracts are determined to be derivative financial instruments under IFRS 9 and as such are required to be recorded at their fair value as at the date of the financial statements.

SSE shows the change in the fair value of these forward contracts separately as this mark-to-market movement does not reflect the realised operating performance of the businesses. The underlying value of these contracts is recognised as the relevant commodity is delivered, which for the large majority of the position at 31 March 2022 is expected to be within the next 12-18 months.

The change in the operating derivative mark-to-market valuation was a £2,100.4m increase from a small "in-the-money" position at 31 March 2021 into a significantly "in-the-money" position at 31 March 2022. This movement consisted of:

·      Settlement during the year of £(1,426.8)m of previously "in-the-money" contracts in line with the contracted delivery periods; and

·      Mark-to-market gains of £3,527.2m on unsettled contracts entered into during the course of 2020/21 and 2021/22 in line with the Group's stated approach to hedging. These mark-to-market gains reflect the significant volatility in commodity markets during the period.

As in prior years, the reported result does not include remeasurement of 'own use' adverse hedging agreements which would have settled at a mark-to-market loss in the year of c.£1.95bn and which would be valued at c.£(2.1)bn at 31 March 2022; these contracts are excluded from recognition under IFRS 9 and largely offset the IFRS 9 remeasurement noted above.

Commodity stocks held at fair value

Gas inventory purchased by the Gas Storage business for secondary trading opportunities is held at fair value with reference to the forward month market price. The £(2.6)m negative movement in the year mainly resulted from a decrease in the underlying volumes of gas held at year end, as gas was sold in the second half of the financial year realising the significant increase in the fair value of that gas during the year.

Financing derivatives

In addition to the positive movements above, a positive movement of £21.0m was recognised on financing derivatives in the year to 31 March 2022, including SSE's share of joint venture financing derivative remeasurements, and related to mark-to-market movements on cross-currency swaps and floating rate swaps that are classed as hedges under IAS 39. These hedges ensure that any movement in the value of net debt is predominately offset by a movement in the derivative position. The adjustment was primarily driven by weaker Sterling against the Dollar partially offset by stronger Sterling against the Euro.

These remeasurements are presented separately as they do not represent underlying business performance in the period. The result on financing derivatives will be recognised in adjusted profit before tax when the derivatives are settled.

Reported profit before tax and earnings per share

Taking all of the above into account, reported results for the year to 31 March 2022 are significantly higher than the previous year. In addition to the £2,118.8m cumulative net gain on forward commodity, gas inventory and financing derivative fair value remeasurements noted above, reported results also reflect the reversal of historic SSE Thermal and Gas Storage impairment charges of £428.9m as well as other pre-tax exceptional items totalling £(123.9)m as detailed within Note 7 of the Summary Financial Statements.

Reported results in the prior year reflected pre-tax exceptional and certain re-measurement gains of £1,503.7m recognised which were driven by a combination of progression with the Group's £2bn plus non-core asset disposal programme and IFRS 9 remeasurements on operating derivatives.

Financial management and balance sheet

Debt metrics	March 2022 £m	Sept 2021 £m	March 2021 £m
Net Debt / EBITDA*	4.0	N/A	4.7
Adjusted net debt and hybrid capital (£m)	(8,598.2)	(9,611.4)	(8,898.9)
Average debt maturity (years)	6.8	7.2	7.4
Adjusted interest cover (times)	4.0	1.6	3.5
Average interest rate for the period (excluding JV/assoc. interest and all hybrid coupon payments)	3.29%	3.35%	3.12%
Average cost of debt at period end (including all hybrid coupon payments)	3.81%	3.89%	3.75%

* Note: Net debt represents the group adjusted net debt and hybrid capital.  EBITDA represents the full year group adjusted EBITDA, less £125.4m (at March 2022) for the proportion of adjusted EBITDA from equity-accounted Joint Ventures relating to project financed debt.

Net finance costs reconciliation	March 2022 £m	March 2021 £m
Adjusted net finance costs	372.8	384.6
Add/(less):
Lease interest charges	(30.4)	(35.3)
Notional interest arising on discounted provisions	(5.7)	(3.8)
Hybrid equity coupon payment	50.7	46.6
Adjusted finance costs for interest cover calculation	387.4	392.1

 

SSE Principal Sources of debt funding	March 2022	Sept 2021	March 2021
Bonds	55%	58%	58%
Hybrid debt and equity securities	21%	22%	24%
European investment bank loans	7%	7%	8%
US private placement	9%	9%	8%
Short-term funding	5%	1%	0%
Index -linked debt	3%	3%	2%
% Of which has been secured at a fixed rate	96%	100%	98%

 

Rating Agency	Rating	Criteria	Date of Issue
Moody's	Baa1 'negative outlook'	'Low teens' Retained Cash Flow/Net Debt	November 2021
Standard and Poor's	BBB+ 'outlook stable'	About 18% Funds From Operations/Net Debt	November 2021

Maintaining a strong balance sheet

While there may be short-term fluctuations, a key objective of SSE's approach to managing cash outflow and securing value and proceeds from disposals is its target of a net debt/EBITDA ratio of 4.5x or lower across the five years to 31 March 2026.

As well as promoting the long-term success of the Company, this approach is also designed to ensure that SSE maintains credit rating ratios (Retained Cash Flow (RCF)/Net Debt and Funds From Operations (FFO)/Net Debt) that are comparable with private sector utilities across Europe and comfortably above those required for an investment grade credit rating.

SSE's S&P credit rating remains at BBB+ 'stable outlook' and its Moody's rating also remains at Baa1, but updated to 'stable outlook' following the strategic review update in November 2021.

Adjusted net debt and hybrid capital

SSE's adjusted net debt and hybrid capital was £8.6bn at 31 March 2022, down from £8.9bn at 31 March 2021. This movement reflects the completion of the non-core asset disposal programme announced in 2020, which included completion of the sale of the 33.3% investment in SGN in March 2022, partially offset by the ongoing investment programme, including the acquisition of an 80% stake in a Japanese development platform from Pacifico Energy in September 2021, as well as various working capital movements.

Following the significant debt issued in the 20/21 financial year, where the SSE Group accessed the debt and hybrid capital markets three times issuing c.£2.5bn of debt over six tranches, no new medium- long-term debt was issued in the 2021/22 financial year. The SSE Group did however re-enter the short-term Commercial Paper market during the year and at 31 March 2022 had £507m of Commercial Paper outstanding.

Debt summary as at 31 March 2022

As stated above no new medium- long-term debt was issued and received in 2021/22 however the following two debt issues were committed to or completed either side of the financial year end:

·      In March 2022, the SSE Group through its SSEN Transmission entity priced and committed to a £350m dual tranche private placement, being a £175m 10-year tranche at 3.13% and £175m 15-year tranche at 3.24% giving an all-in average rate of 3.19%. The pricing was committed to in March 2022 and the proceeds will be received on 30 June 2022.         

·      In April 2022, SSE plc issued a €1bn NC6 equity accounted hybrid bond at 4% to refinance the dual tranche debt accounted hybrid bonds issued in March 2017.  SSE has taken advantage of the 3-month par call option on these 2017 hybrid bonds, meaning they will now be repaid on 16 June 2022 in advance of the first call date. The €1bn equity accounted hybrid bond has been kept in Euros and the proceeds will be used to cover the portion of the maturing hybrid that was swapped to Euros (€575m) and to finance a portion of the Southern European onshore wind development platform acquisition cost which is expected to complete by September 2022.

In addition to the hybrid bonds called in June 2022 a further £613m of medium- long-term debt matures in 2021/22 being £163m (USPP) which matured in April 2022, £300m (Eurobond) maturing in September 2022 and £150m (EIB) maturing in October 2022. A further £507m of short-term debt in the form of Commercial Paper is also due to mature in the first half of 2021/22, however the current intention is to roll this maturing short-term debt forward where possible. 

Hybrid bonds summary as at 31 March 2022

Hybrid bonds are a valuable part of SSE's capital structure, helping to diversify SSE's investor base and most importantly to support credit rating ratios, with their 50% equity treatment by the rating agencies being positive for SSE's credit metrics.

A summary of SSE's hybrid bonds as at 31 March 2022 can be found below:

Issued	Hybrid Bond Value*	All in rate	First Call Date	Accounting Treatment
March 2017	£300m	3.73%	September 2022	Debt accounted
March 2017	$900m (£749m)	2.72%	September 2022	Debt accounted
July 2020	£600m	3.74%	Apr 2026	Equity accounted
July 2020	€500m (£454m)	3.68%	July 2027	Equity accounted

 

In accordance with the first call date, the €600m (£440m) March 2015 Hybrid Bond was called and redeemed in April 2021 and therefore not included in the table above. The March 2017 hybrids have a 3-month par call option that SSE has invoked meaning these two hybrids will now be called and settled on 16 June 2022.

Further details on each hybrid bond can be found in Notes 13 and 14 to the Summary Financial Statements and a table noting the amounts, timing and accounting treatment of coupon payments is shown below:

Hybrid coupon payments	2022/23		2021/22
	HYe	FYe	HYe	FYe
Total equity (cash) accounted	£39m	£39m	£51m	£51m
Total debt (accrual) accounted	£21m	£21m	£15m	£31m
Total hybrid coupon	£60m	£60m	£66m	£82m

 

SSE's March 2015 and July 2020 hybrid bonds are perpetual instruments and are therefore accounted for as part of equity within the Summary Financial Statements but, as in previous years, have been included within SSE's 'Adjusted net debt and hybrid capital' to aid comparability. The March 2017 hybrid bonds which have been called and will be settled in 2022/23 had a fixed redemption date and have therefore been debt accounted and included within Loans and Other Borrowings; as such they were already part of SSE's adjusted net debt and hybrid capital.

The coupon payments relating to the equity accounted hybrid bonds are presented as distributions to other equity holders and are reflected within adjusted earnings per share when paid. The coupon payments on the debt accounted hybrid bonds are treated as finance costs under IFRS 9.

Managing net finance costs

SSE's adjusted net finance costs - including interest on debt accounted hybrid bonds but not equity accounted hybrid bonds - were £372.8m in the year to 31 March 2022, compared to £384.6m in the previous year after restatement for SGN related finance costs. The relatively stable level of finance costs from year to year, despite periods of high inflation, reflects the high proportion of fixed rate debt held by the Group.

Reported net finance costs were £273.2m compared to £236.9m, after restatement for SGN related finance costs, reflecting a £34.6m year-on-year change in the mark-to-market revaluation of financing derivatives held at fair value.

Summarising cash and cash equivalents

At 31 March 2022, SSE's adjusted net debt included cash and cash equivalents of £1.0bn, down from £1.6bn at March 2021 which reflects the continued strong cash generation from operating activities, offset by a significant increase in capital investment, a reduction in year-on-year disposal proceeds as the June 2020 non-core asset disposal programme came to an end and a net repayment of borrowings. This continued strong cash position will allow SSE to meet its near-term debt repayment and capital investment needs as set out above.

As the fair value of forward commodity contracts has moved from an 'in the money' position in the prior year to an 'out the money' position in the current year, the related collateral required has similarly unwound. At 31 March 2022, £74.7m of cash was provided as collateral to third parties compared to £37.1m held as collateral from third parties on these 'in the money' contracts in the prior year.

Revolving Credit Facility / SHORT TERM FUNDING

SSE has £1.5bn of committed bank facilities in place to ensure the Group has sufficient liquidity to allow day-to -day operations and investment programmes to continue in the event of disruption to Capital Markets preventing SSE from issuing new debt for a period of time. These facilities are set out in the table below.

Date	Issuer	Debt type	Term	Value
Mar 19	SSE plc	Syndicated Revolving Credit Facility with 10 Relationship Banks	2026	£1.3bn
Oct 19	SSE plc	Revolving Credit Facility with Bank of China	2026	£200m

 

The facilities can also be utilised to cover short-term funding requirements; however, they remain undrawn for most of the time and at 31 March 2022 they were both undrawn.

Both facilities are classified as sustainable facilities with interest rate and fees paid dependant on SSE's performance in environmental, social and governance matters, as assessed independently by Vigeo Eiris.

In addition to these committed bank facilities, the Group has access to £100m of uncommitted bank lines and a £15m overdraft facility.

Maintaining a prudent Treasury policy

SSE's treasury policy is designed to be prudent and flexible. In line with that, cash from operations is first used to finance regulatory and maintenance capital expenditure and then dividend payments, with investment and capital expenditure for growth generally financed by a combination of cash from operations, bank borrowings and bond issuance. In 2021/22 growth was also financed by disposal proceeds.

As a matter of policy, a minimum of 50% of SSE's debt is subject to fixed rates of interest. Within this policy framework, SSE borrows as required on different interest bases, with financial instruments being used to achieve the desired out-turn interest rate profile. At 31 March 2022, 96% of SSE's borrowings were at fixed rates.

Borrowings are mainly in Sterling and Euros to reflect the underlying currency denomination of assets and cash flows within SSE. All other foreign currency borrowings are swapped back into either Sterling or Euros.

Transactional foreign exchange risk arises in respect of procurement contracts, fuel and carbon purchasing, commodity hedging and energy portfolio management operations, and long-term service agreements for plant.

SSE's policy is to hedge any material transactional foreign exchange risks through the use of forward currency purchases and/or financial instruments. Translational foreign exchange risk arises in respect of overseas investments; hedging in respect of such exposures is determined as appropriate to the circumstances on a case-by-case basis.

Ensuring a strong debt structure through
medium- and long-term borrowings

The ability to raise funds at competitive rates is fundamental to investment. SSE's fundraising over the past five years, including senior bonds, hybrid capital and term loans, now totals £7.7bn and SSE's objective is to maintain a reasonable range of debt maturities. Its average debt maturity, excluding hybrid securities, at 31 March 2022 was 6.8 years, down from 7.4 years at 31 March 2021. This movement reflects the £2.1bn of debt maturing in the next 12 months and is forecast to return to 7.5 years during 2022/23. SSE's average cost of debt is now 3.81%, compared to 3.75% at 31 March 2021.

Going Concern

The Directors regularly review the Group's funding structure and have assessed that the Summary Financial Statements should be prepared on a going concern basis.

In making their assessment the Directors have considered sensitivities on the forecast future cashflows of the Group for the period to 31 December 2023 resulting from the current volatile market conditions; the Group's credit rating; the success of the Group's disposal programme through 2020/21 and 2021/22; and the successful issuance of £1.2bn of hybrid equity and private placement debt issued since the March 2022 financial year end.  The Directors have also considered the Group's obligations under its debt covenants, with projections to 31 December 2023 supporting the expectation that there will be no breaches.

The Directors have also assessed that the Group remains able to access Capital Markets, as demonstrated by the £3.7bn of debt issued over the last 24 months. There is also an expectation of continued availability of the Commercial Paper market along with future available liquidity in the private placement market in addition to the Group's existing liquidity with £1.5bn of undrawn committed borrowing facilities.

SSE's principal joint ventures and associates

SSE's financial results include contributions from equity interests in joint ventures ("JVs") and associates, all of which are equity accounted. The details of the most significant of these are included in the table below. This table also highlights SSE's share of off-balance sheet debt associated with its equity interests in JVs which totals less than £2.5bn as at 31 March 2022.

SSE principal JVs and associates1	Asset type	SSE holding	SSE share of external debt as at 31 March 2022	SSE Shareholder loans as at 31 March 2022
Seabank Power Ltd	1,234MW CCGT	50%	No external debt	No loans outstanding
Marchwood Power Ltd	920MW CCGT	50%	No external debt	£39m
Clyde Windfarm (Scotland) Ltd	522MW onshore wind farm	50.1%	No external debt	£127m
Dogger Bank A Wind Farm	Up to 1,200MW offshore wind farm.	40%	£532m	Project financed
Dogger Bank B Wind Farm	Up to 1,200MW offshore wind farm.	40%	£364m	Project financed
Dogger Bank C Wind Farm	Up to 1,200MW offshore wind farm.	40%	£185m	Project Financed
Seagreen Windfarm Ltd	1,075MW offshore wind farm	49%	£570m	£477m2
Seagreen 1a Ltd	Offshore wind farm extension	50%	No external debt	£9m
Lenalea Wind Energy Ltd	30MW of onshore windfarm	50%	No external debt	£3m
Beatrice Offshore Windfarm Ltd	588MW offshore wind farm	40%	£736m	Project financed
Cloosh Valley Wind Farm	105MW onshore windfarm (part of Galway Wind Park)	25%	£25m	Project financed
Neos Networks Ltd	Private telecoms network	50%	No external debt	£91m
Slough Multifuel Ltd	50MW energy-from-waste facility	50%	No external debt	£63m
Stronelairg Windfarm Ltd	228MW onshore wind farm	50.1%	No external debt	£88m
Dunmaglass Windfarm Ltd	94MW onshore windfarm	50.1%	No external debt	£47m

Notes:

¹ Greater Gabbard, a 504MW offshore windfarm (SSE share 50%) is proportionally consolidated and is reported as a Joint Operation with no loans outstanding.

² For accounting purposes, £205m of the £477m of SSE Shareholder loans advanced to Seagreen Windfarm Limited as at 31 March 2022 have been classified as equity.

Taxation

SSE is one of the UK's biggest taxpayers, and in the PwC survey published in November 2021 was ranked 16th out of the 100 Group of Companies in 2021 in terms of taxes borne (those which represent a cost to the company, and which are reflected in its financial results).

SSE considers being a responsible taxpayer a core element of its social contract with the societies in which it operates. SSE seeks to pay the right amount of tax on its profits, in the right place, at the right time, and was the first FTSE 100 company to be awarded the Fair Tax Mark. While SSE has an obligation to its shareholders, customers and other stakeholders to efficiently manage its total tax liability, it does not seek to use the tax system in a way it does not consider it was meant to operate, or use tax havens to reduce its tax liabilities.

Under its social contract SSE has an obligation to the society in which it operates, and from which it benefits - for example, tax receipts are vital for the public services SSE relies upon. Therefore, SSE's tax policy is to operate within both the letter and spirit of the law at all times.

In December 2021, SSE published 'Talking Tax 2021: Tax as a driver for change' report. It did this because it believes building trust with stakeholders on issues relating to tax is important to the long-term sustainability of the business.

In the year to 31 March 2022, SSE paid £335.3m of taxes on profits, property taxes, environmental taxes, and employment taxes in the UK, compared with £379.0m in the previous year. The reduction in total taxes paid in 2021/22 compared with the previous year was primarily due to: 

-   The sale of SSE's Contracting business in June 2021.  Only three months of profit taxes, property taxes and employment taxes are included in relation to that business in 2021/22 compared with a full year in 2020/21;

-   Lower Climate Change Levy being paid as a result of outages at SSE's gas-fired power stations.

In 2021/22 SSE also paid €46.4m of taxes in Ireland, compared to €20.4m the previous year, due to increased profits in SSE's Irish businesses. Ireland is the only country outside the UK in which it currently has significant trading operations. SSE's operations elsewhere are still at an early stage and are not yet paying material amounts of tax. 

As with other key financial indicators, SSE's focus is on adjusted profit before tax and, in line with that, SSE believes that the adjusted current tax charge on that profit is the tax measure that best reflects underlying performance. SSE's adjusted current tax rate, based on adjusted profit before tax, was 9.2%, compared with 9.1% in 2020/21 on the same basis. Total deferred tax for the period increased to £797.4m from £145.4m and was principally driven by the tax effect on the significant mark-to-market valuation movement on derivative contracts, in addition to a £244.7m adjustment relating to the tax rate change to 25% which was substantively enacted on 24 May 2021.

pensions

Contributing to employees' pension schemes - IAS 19	March 22	Sept 21	March 21
Pension scheme asset recognised in the balance sheet before deferred tax £m	584.9	501.7	543.1
Pension scheme liability recognised in the balance sheet before deferred tax £m	-	(63.7)	(186.1)
Net pension scheme asset recognised in the balance sheet before deferred tax £m	584.9	438.0	357.0
Employer cash contributions Scottish Hydro Electric scheme £m	1.0	0.5	1.1
Employer cash contributions Southern Electric scheme £m	58.0	30.7	55.2
Deficit repair contribution included above £m	40.9	20.4	37.9

 

In the year to 31 March 2022, the net surplus across SSE's two pension schemes increased by £227.9m, from £357.0m to £584.9m, primarily due to actuarial gains of £197.3m and contributions made to the schemes offset by current service costs.

The valuation of the Southern Electric Pension Scheme ('SEPS') increased by £253.5m in 2021/22 primarily due to actuarial gains of £221.9m, in particular the impact of higher discount rates, and deficit repair contributions exceeding service costs.

The Scottish Hydro Electric Pension Scheme ('SHEPS') has insured against volatility in its deferred and pensioner members through the purchase of 'buy-in' contracts meaning that the Group only retains exposure to volatility in active employees. During the year the SHEPS surplus decreased by £25.6m. 

Additional information on employee pension schemes can be found in Note 15 to the Summary Financial Statements.

 

business operating review

SSE's strategy of developing, building, operating and investing in the electricity infrastructure and businesses needed in the transition to net zero is delivered through a focused mix of market-based and economically-regulated energy businesses.

SSE's businesses are key to enabling a net zero economy, have significant growth potential and, importantly, fit together. With common skills and capabilities in the development, building and operation of world-class, highly technical electricity assets, there are strong synergies between them. SSE's business mix is very deliberate, highly effective, fully focused and well set to prosper on the journey to net zero and beyond.  

The review of the Business Units that follows provides visibility of performance and future priorities.

Economically-regulated networks

SSE owns and operates an electricity transmission network in the North of Scotland and two electricity distribution networks, one in the North of Scotland and the other in central southern England. SSE completed the sale of its entire 33.3% financial stake in Scotia Gas Networks on 22 March 2022 to a consortium comprising existing SGN shareholder Ontario Teachers' Pension Plan Board (Ontario Teachers') and Brookfield Super-Core Infrastructure Partners (Brookfield).

Owners of energy networks in Great Britain are remunerated according to the RIIO (Revenue = Incentives + Innovation + Outputs) framework set by Ofgem, under which the regulator determines an annual allowed level of required capital expenditure and operating costs, in order to meet required network outputs. These are added together to form total expenditure or 'totex', which is split by defined capitalisation rates which differ between networks.

Regulatory operational expenditure ('fast money') flows into licensee revenue, whereas regulatory capex ('slow money') is added to the regulatory asset value ('RAV') for each network. Licensees earn a return on regulatory equity and receive an allowance for the cost of debt, both of which are calculated based on a notional split of their RAV. Revenues and RAV are index-linked under the regulatory mechanism, providing a valuable hedge against rising inflation. SSEN Distribution's income and asset base is linked to RPI until the end of its current price control in March 2023; while SSEN Transmission is linked to CPIH under its RIIO-T2 price control until March 2026.

Each licensee has the opportunity to earn above its base return on equity through delivering efficiency savings on totex. Additionally, if service levels improve against targets, there is an opportunity to earn additional income through incentives. In the event that service levels fall below targets set out in the price control, a penalty will be incurred which reduces network revenue and therefore customer bills. This ensures that customers only compensate networks for improving service levels. Further, customers benefit from reduced bills when network providers achieve efficiency savings on totex expenditure.

In Distribution, charges per MWh ('tariffs') are set by licensees 15 months in advance of the regulatory year and are based on forecasts of: (a) revenue which licensees are entitled to collect in respect of the regulatory year ('allowed revenue'); (b) the incentives and totex outperformance for the last three months of the year in which the tariffs are set; and (c) the level of volumes which will be distributed within the regulatory year. Differences in collected versus allowed revenue (referred to as 'over- or under-recovery') are accommodated in allowed revenue two years after the year in which they occur.

In Transmission, licensees are paid by the System Operator based on a forecast of allowed revenue amount set three months in advance of the regulatory year. While under RIIO-T1 the System Operator assumed the risk of forecast volumes being different to outturn (paying Transmission Operators a fixed allowed revenue irrespective of volumes transported), under the RIIO-T2 price control settlement this risk has been transferred to the Transmission Operators and collected revenue for Transmission Operators can vary depending on actual versus forecast volumes transported. For 2021/22, volumes transported are higher than forecast and therefore SSEN Transmission recovered around £9m in excess of its allowed revenue. Over- or under-recovered volumes are accommodated in allowed revenue in the following regulatory year, based on a forecast set in November prior to that year, with a true-up in the subsequent year for any variance to forecast.

SSEN Transmission

SSEN Transmission	March 22	March 21
Transmission adjusted and reported operating profit - £m	380.5	220.9
Regulated Asset Value (RAV) - £m	4,155	3,631
Renewable Capacity connected to SSEN Transmission Network - MW	7,790	6,750
Transmission adjusted investment and capital expenditure - £m	614.5	435.2

SSEN Transmission overview

SSEN Transmission owns, operates and develops the high voltage electricity transmission system in the North of Scotland and its islands. Over the duration of the five-year RIIO-T2 price control, which began in April 2021, total expenditure by SSEN Transmission is expected to reach at least £2.8bn (the Certain View) which would take Transmission RAV to in excess of £5bn by the end of RIIO-T2.

In addition to the Certain View expenditure, under Ofgem's Uncertainty Mechanisms changes to the allowed revenue are permitted during the price control period to reflect additional investment requirements, when their need or expected timeframe are not known at the outset. These Uncertainty Mechanisms are used to fund further upgrades to the network during the price control period, when there is more certainty around the scope of work required. This investment plays a pivotal role in providing critical national infrastructure and to maintain network reliability for the communities SSEN Transmission serves as it delivers a network for net zero.

Operational delivery

SSEN Transmission has made a strong start in delivering against its regulatory settlement during the first year of the new five-year RIIO-T2 price control period. Building on its strong track record of consistently delivering over 99.99% network reliability - and in line with its RIIO-T2 goal to aim for 100% transmission network reliability for homes and businesses - in 2021/22, SSEN Transmission achieved the full reward of £0.7m through the Energy Not Supplied Incentive. This is the second consecutive year SSEN Transmission has achieved the full Energy Not Supplied Incentive available and the 2021/22 reward will be reflected in revenue in 2023/24.

In addition to exceptional operational performance in the year, SSEN Transmission continues to deliver against its strategic objective to enable the transition to a low-carbon economy as it builds a network for net zero in the North of Scotland. The RIIO-T2 period is expected to deliver significant growth in the capacity of renewables connected to SSEN Transmission's network, from under 7GW at the start of RIIO-T2 to around 14GW by March 2026. This includes growth of around 1GW in 2021/22, which brings the total installed capacity connected to the North of Scotland transmission network to around 9GW, of which just under 8GW is from renewable sources. SSEN Transmission is well on its way to delivering its RIIO-T2 goal to transport the renewable electricity that powers 10m homes, which will be met once the installed capacity of renewables reaches 10GW. 

This forecast growth in renewables will be enabled by a series of strategic investments in new and upgraded infrastructure. Excellent progress continues to be made on the Shetland HVDC transmission link, which has now been in construction for over 18 months and will see Shetland connected to the GB transmission system for the first time, enabling the connection of renewables and supporting Shetland's future security of supply. The substation and convertor station sites at Kergord (Shetland) and switching station at Noss Head (Caithness) are taking shape, with all main building structures now complete. Cable installation preparatory works have also progressed well, with all land cable ducting now in place and the first phase of subsea boulder clearing successfully completed. Subsea cable installation works will follow from 2022/23, alongside the fit out of substation and convertor station buildings, with the project on track for completion and energisation in 2024.

The second phase of the Inveraray to Crossaig overhead line replacement project in Argyll, from Port Ann to Crossaig, is also progressing well, with the replacement line remaining on track for completion by summer 2023. 

Excellent progress continues on works to increase incrementally the capacity of the north east and east coast transmission network to 275kV then to 400kV, with new substations at New Deer and Rothienorman now energised at 275kV, to be subsequently upgraded to 400kV in 2023. The 400kV overhead line (OHL) upgrade works between Peterhead, Rothienorman and Blackhillock are also well under way and are due for completion in 2023, with the overall upgrade of the east coast network to 400kV remaining on track for completion in 2026.

At both Alyth and Kinardochy, construction of new substations, including specialist voltage control devices, have commenced with good progress also being made at Peterhead substation and an upgrade to Tealing substation. 

To support SSEN Transmission's 1.5°C  science-based targets for emissions reductions, including its RIIO-T2 goal to deliver a one third reduction in greenhouse gas emissions, the business remains at the forefront of industry efforts to remove harmful SF₆ gases from its infrastructure, working with its supply chain to develop and deliver innovative alternatives. This includes the world's largest installation of GE's g3 gas-insulated substation at New Deer substation and the world's first g3 400kV substation at Kintore.

For financial performance commentary please refer to the Group Financial Review.

growth opportunities in RIIO-T2

During 2021/22, SSEN Transmission has made excellent progress progressing plans for a number of investments over and above its £2.8bn Certain View. These additional investments, which are being taken forward through Ofgem's Uncertainty Mechanisms, will be key to delivering a pathway for net zero.

In March 2022, Ofgem provisionally approved the Final Needs Case (FNC) for the first of two planned HVDC links connecting Peterhead to demand centres in England. Work on the initial 2GW Peterhead to Drax link, with a combined investment of around £2.1bn, will be progressed jointly by SSEN Transmission and National Grid Electricity Transmission (NGET). Development and early construction activity and expenditure will continue during RIIO-T2, with delivery and energisation in 2029 (RIIO-T3).

Also in March 2022, SSEN Transmission submitted its Initial Needs Case (INC) to Ofgem for the Argyll and Kintyre 275kV Strategy. At an estimated total investment of around £400m, this is required to upgrade the main Argyll transmission network from 132kV, supporting the forecast growth in renewables in the region.

In April 2022, Ofgem published its response to SSEN Transmission's INC for the replacement and upgrade of the Fort Augustus to Skye transmission line, recognising the clear need for the project, paving the way to progress to the FNC stage of the regulatory approvals process. At an estimated total investment of around £400m, the replacement line is required to maintain security of supply and to enable the connection of renewable electricity generation along its route.

Further expenditure to connect new renewable generation, rail electrification and system security is also expected throughout the RIIO-T2 period and beyond when the need for this investment becomes certain. These investments could see the total installed generation capacity increase to around 14GW by the end of RIIO-T2, with up to 13GW of this expected from renewable sources. Subject to regulatory approval, combined, these investments, alongside the Certain View, could bring the total expenditure across the RIIO-T2 period to over £4bn, with SSEN Transmission RAV increasing to between £6.5bn to £7bn by the end of RIIO-T2.

 growth Opportunities beyond riio-t2

In January 2022, Crown Estate Scotland published the outcome of the ScotWind leasing round, awarding leases with a potential capacity of around 25GW, vastly exceeding the anticipated 10GW of potential capacity expected to be leased. In April 2022, the UK Government published its British Energy Security Strategy (BESS), which included an increased offshore wind ambition from 40GW to 50GW by 2030 and a clear direction for Ofgem to support anticipatory investment in strategic network projects ahead of demand, which will be formalised in a Strategic Policy Statement from BEIS to Ofgem later this year. Enabling ScotWind's ambition and the UK Government's 50GW target will require significant transmission upgrades in both onshore and offshore transmission infrastructure.

In January 2022, National Grid Electricity Transmission (NGESO) published its 2022 Networks Options Assessment (NOA). This provided strong 'proceed' signals recommending several major reinforcements in the North of Scotland to meet forecast future energy scenarios, although these will still require Ofgem approval. The NOA recommended the following investments in SSEN Transmission's network region:

·      Two subsea high-voltage direct current (HVDC) links from Peterhead to England;

·      A second HVDC link from Spittal in Caithness, connecting to Peterhead; and

·      Strategic onshore reinforcements north of Inverness and between Inverness and Peterhead.

In addition to the opportunities outlined above, SSEN Transmission continues to work with stakeholders in Orkney and the Western Isles to develop and take forward proposals to enable mainland transmission connections. Changes to the structure of the forthcoming Contracts for Difference (CfD) auction, with offshore wind now in a separate pot to remote island wind, may increase the competitiveness of remote island wind which, in turn, could support the investment case for the proposed transmission links. The outcome of the next CfD auction is expected in the summer of 2022.

 

 

Ssen distribution

SSEN Distribution	March 22	March 21
Distribution adjusted and reported operating profit - £m	351.8	275.8
Regulated Asset Value (RAV) - £m	4,054	3,792
Distribution adjusted investment and capital expenditure - £m	364.8	350.8
Electricity Distributed - TWh	37.6	36.1
Customer minutes lost (SHEPD) average per customer	57	57
Customer minutes lost (SEPD) average per customer	42	44
Customer interruptions (SHEPD) per 100 customers	56	64
Customer interruptions (SEPD) per 100 customers	42	48

SSEN Distribution overview

SSEN Distribution, operating under licence as Scottish Hydro Electric Power Distribution plc (SHEPD) and Southern Electric Power Distribution plc (SEPD), is responsible for safely and reliably maintaining the electricity distribution networks supplying over 3.8m homes and businesses across central southern England and the North of Scotland. SSEN Distribution's networks cover the greatest land mass of any of the UK's Distribution Network Operators over 75,000km² of extremely diverse terrain.

In December 2021, SSEN Distribution published its RIIO-ED2 Final Business Plan for 2023 to 2028. Titled 'Powering Communities to Net Zero' it sets out the £3.99bn of flexibility and network investment required to accelerate net zero in a way that is efficient and affordable.

Operational delivery

SSEN Distribution continues to undertake a major capital investment programme across both its networks, delivering significant improvements for customers and increasing its Regulated Asset Value. In the 12 months to 31 March 2022, the business invested £364.8m, bringing the total invested since the beginning of the RIIO-ED1 price control to around £2.3bn. This is part of a forecast £2.7bn investment throughout the RIIO-ED1 period, supporting future earnings through RAV growth. This includes progressing £41m of strategic investment approved through the Green Recovery programme in 2021.

2021/22 investment has included a multi-million pound upgrade to an essential section of Hampshire's infrastructure in Fareham, completed in January 2022; and a substantial programme of works to boost power supplies to homes and businesses on the Isle of Wight comprising the complete refurbishment of two 132kV transformers along with the replacement of two 33kV circuit breakers. In the North of Scotland, work commenced on a £9.5m project to boost the resilience and reliability of the network around Aultbea and Ullapool, and a £7m investment programme to enhance security of supply across Tayside.

Incentive performance remains a revenue driver and SSEN prioritises improving reliability of network performance and supporting a positive customer experience. Under the RIIO regulatory regime, and the Interruptions Incentive Scheme (IIS), SSEN Distribution is incentivised on its performance against the loss of electricity supply through the recording of Customer Interruptions (CI) and Customer Minutes Lost (CML) which includes both planned and unplanned supply interruptions. These incentives will typically be collected two years after they are earned.

The winter of 2021/22 saw six exceptional weather incidents which had a major impact on SSEN Distribution's network, causing in excess of 2,600 points of damage. In total, 10 Met Office Weather Warnings were in place last winter for both licence areas.

Whilst SSEN Overall Customer Satisfaction (CSAT) is broadly in line with last year at 87%, the incentive reward has been impacted due to the unprecedented storm season. The volume of calls presented during the winter period (October to February) was equivalent to a normal year's worth of calls, resulting in reduced customer satisfaction metrics. As a result, the overall incentive reward under the Broad Measure of Customer Satisfaction reduced in 2021/22 to £2.7m from £4.9m the previous year. It is expected that a best ever score from the Stakeholder Engagement and Customer Vulnerability (SECV) incentive will be achieved in 2021/22, which would result in an increased incentive revenue from £1.6m to £1.9m.

For financial performance commentary please refer to the Group Financial Review.

Growth opportunities In RIIO-ED2

As a provider of critical national infrastructure, SSEN Distribution is playing a vital role in accelerating the transition to net zero. The business is on track to deliver its key ED1 outputs and, in October 2021, became the first DNO to set a 1.5°C-aligned target accredited by the Science Based Target initiative.

In April 2022, the UK Government's British Energy Security Strategy recognised the importance of strategic network investment which is essential to meeting the expected demand growth in RIIO-ED2 and future price control periods. DNOs will unlock billions of pounds in investment in wider economic benefits for a net zero future.

SSEN Distribution now awaits Ofgem's draft determination on its ambitious, stakeholder-led business plan for the RIIO-ED2 period. This will be an acid test of the regulator's alignment with the British Energy Security Strategy and fundamentally its approach to delivering the necessary strategic investment for networks to be an enabler, rather than a blocker, of net zero. SSEN Distribution continues to engage proactively with Ofgem and government on achieving a fair ED2 outcome that protects current and future consumers, and delivers the outcomes customers want at a pace consistent with a rapid growth environment.

The proposals within SSEN Distribution's Final Business Plan for ED2 are a key part of SSE's Net Zero Acceleration Programme. The plan was co-created with stakeholders and this engagement will continue to ensure that their ambitions are reflected in the process. The Final Business Plan proposes a total base expenditure of £3.99bn representing a 32% increase over an equivalent timeframe in RIIO-ED1, and reflecting additional requirements for customers over the five years to 2028. The proposed baseline spend provides a low-regret foundation enabling all scenarios and optionality, without which DNOs risk becoming a blocker to customer demands for EV and heat pump connections through ED2 and beyond and increasing costs for future generations.

Late 2021 saw much-awaited publications and strategies related to heat decarbonisation. The UK Government confirmed its ambition to upscale the installation of heat pumps to at least 600,000 a year by 2028 and to make its Boiler Upgrade Scheme available for early adopters, while the Scottish Government has set a 2030 target for at least 1m homes to have switched to zero emissions heat. It is anticipated that there will be over 800,000 heat pumps across SSEN Distribution's networks by the end of RIIO-ED2. The Final Business Plan sets out the required investment to ready the network for net zero, consistent with this projection.

The Scottish Government's January 2022 publication, A Network Fit For The Future: Draft Vision for Scotland's Public Electric Vehicle Charging Network, confirmed its desire to enable new models of public electric vehicle chargepoint financing and delivery, focused on public and private partnerships, to support and coordinate investment. In March 2022, the UK Government's EV Infrastructure Strategy set out ambitions for EV chargepoints to be seamlessly integrated into a smart energy system with at least 300,000 public chargepoints installed by 2030. By this date, the 2021 DFES projects that SSEN Distribution's licence areas could support up to 10.8GW of electric vehicle charging capacity. SSEN Distribution has set out investment plans to help provide the increased capacity needed to enable these projections and to ready its network to facilitate 1.3m electric vehicles by 2028.  

 

SSE Renewables

SSE Renewables key performance indicators

SSE Renewables	March 22	March 21
Renewables adjusted operating profit - £m	568.1	731.8
Renewables reported operating profit - £m	427.8	856.0
Renewables adjusted investment and capital expenditure before refunds - £m	811.0	294.3
Generation capacity - MW
Onshore wind capacity (GB) - MW	1,285	1,247
Onshore wind capacity (NI) - MW	122	122
Onshore wind capacity (ROI) - MW	567	567
Total onshore wind capacity - MW	1,974	1,936
Offshore wind capacity (GB) - MW	487	487
Conventional hydro capacity (GB) - MW	1,159	1,159
Pumped storage capacity (GB) - MW	300	300
Total renewable generation capacity (inc. pumped storage) - MW	3,920	3,882
Contracted capacity	2,792	2,792
Generation output - GWh
Onshore wind output (GB) - GWh	2,502	2,377
Onshore wind output (NI) - GWh	264	282
Onshore wind output (ROI) - GWh	1,196	1,354
Total onshore wind output - GWh	3,962	4,013
Offshore wind output (GB) - GWh	1,430	1,845
Conventional hydro output (GB) - GWh	3,107	3,476
Pumped storage output (GB) - GWh	227	244
Total renewable generation (inc. pumped storage) - GWh	8,726	9,578
Total renewable generation (also inc. constrained off) - GWh	9,423	10,171

Note 1: Capacity and output based on 100% of wholly owned sites and share of joint ventures

Note 2: Contracted capacity includes sites with a CfD, eligible for ROCs, or contracted under REFIT

Note 3: Onshore wind output excludes 469GWh of constrained off generation in 2021/22 and 592GWh in 2020/21; Offshore wind output excludes 228GWh constrained off generation in 2021/22 and 1GWh in 2020/21

Note 4: Onshore wind capacity in GB reflects the commissioning of Gordonbush Extension in August 2021

Note 5: Biomass capacity of 15MW and output of 73GWh in 2021/22 and 71GWh 2020/21 is excluded, with the associated operating profit or loss reported within Distributed Energy

 

SSE Renewables overview

SSE Renewables comprises the Group's existing operational assets and those under development in onshore wind, offshore wind, flexible hydro electricity, run-of-river hydro electricity and pumped storage. Its operational offshore wind installed capacity is 487MW with its onshore wind and hydro electric installed capacity at 1,936MW and 1,459MW respectively.

Operational delivery

SSE Renewables' hydro assets continue to play an important role in providing cost-effective, low-carbon flexibility to the system, which is providing additional diversified revenue streams. Hydro assets performed very strongly across the year, with availability at an all-time high between December and March and providing much needed flexible peak capacity to the market. In addition, Foyers pumped hydro station was fully available through periods of very high demand.

Despite natural wind resources being below normal yearly averages, a steady second half of the year - coupled with high plant performance to maximise production - led to a year-end position of onshore wind volumes at 88% of planned volume.

Offshore, Beatrice saw excellent availability in the second half and Greater Gabbard saw improved turbine availability over the 12 months. Offshore wind speeds returned to average after low wind speeds in the first half of the year, resulting in improved volumes.

As part of SSE Renewables' continued investment into its asset management capabilities, it has just been awarded certification in the ISO55001 standard for asset management for its operational organisation.

For financial performance commentary please refer to the Group Financial Review.

Construction programme

All three phases of the world's largest offshore wind farm at Dogger Bank (each 1,200MW, SSE share 40%) remain on track. Onshore works are continuing, and offshore construction is now under way with installation of the HVDC export cables for Dogger Bank A. Dogger Bank C reached financial close in December 2021, and in February 2022, SSE Renewables and Equinor each sold a 10% share in this third phase to Eni.

On Seagreen 1 (1,075MW, SSE share 49%) there are currently 21 jackets and turbines installed on what will be the world's deepest, fixed-bottom offshore wind farm once operational. The offshore substation platform is successfully installed and commencing commissioning works. All onshore cabling works and export cable installation is progressing as planned. SSE currently expects first power in July with commercial operations by mid-April 2023. In April 2022, an incident occurred on a sub-contractor S7000 installation vessel which is contracted to the Seagreen project. The project team is working closely with contractors to manage and mitigate project impacts. Seagreen 1 is eligible to participate in the UK CfD Allocation Round 4 (AR4). Bids are due to be submitted by 15 June 2022 with the results of the auction expected by 8 July 2022. 

Construction is progressing well on Viking (443MW) with almost all of the access tracks completed and 83 of 103 bases excavated. Work on the DC substation is continuing with the first two transformers due to be delivered by June 2022. Turbines will be installed in early 2023 and completion is planned for July 2024. Viking is expected to be amongst the highest-yielding onshore wind farms in Europe, producing almost 2TWh annually. It is also eligible to enter AR4.

At Lenalea wind farm (30MW, SSE share 50%) in Ireland, construction is progressing and is to be commissioned in late 2022/early 2023.

In July 2021, Beatrice Offshore Wind Farm Limited, a joint venture owned 40% by SSE Renewables, agreed divestment of its Offshore Transmission Owner assets at an asset value of £437.9m and full asset transfer took place on 5 August 2021.

Gordonbush Extension (38MW), SSE's first merchant onshore wind project, was fully commissioned and handed over to operations following its official opening in August 2021.

In Hydro, investment in works to modify three key stations, Sloy, Glendoe and Errochty, has started and will increase the capability of these stations in providing essential services to the grid. And in April 2022, a £50m investment to upgrade Tummel Bridge power station commenced which will increase the station's potential power output from 34MW to 40MW, with a return to service expected in Autumn 2023.

Growth opportunities - domestic

SSE Renewables' core markets of the UK and Ireland still offer considerable opportunities for growth over the near, medium and long term.

Near term, onshore wind growth can be delivered through SSE Renewables' consented sites at Strathy South (208MW) and Tangy repower (57MW) in Scotland. Yellow River (104MW) in Ireland was provisionally successful in the May 2022 RESS-2 auction in Ireland and will now progress towards a final investment decision. Consent applications have been submitted to the Scottish Government for Bhlaraidh Extension (in excess of 100MW), and Achany Extension (in excess of 80MW).

Offshore, near-term growth is expected to come from the consented Seagreen 1A (500MW, SSE Renewables share 49%), which is an extension to the Seagreen 1 offshore wind site. Seagreen 1A is eligible to participate in AR4. Should a Financial Investment Decision (FID) be reached, it could be operational by 2025/26.

In the medium term, out to the end of the decade, there is a wealth of opportunities. In addition to the UK's increased offshore target of 50GW by 2030, from 40GW noted above, the British Energy Security Strategy set out a raft of measures which will see permitting of offshore wind projects accelerated. SSE Renewables' unrivalled offshore wind pipeline will play a key role in meeting this new target.

SSE Renewables is working towards a consent application submission in Q3 2022 for the up to 4.1GW Berwick Bank wind farm with the aim of securing consent in 2024 and being operational around the end of the decade.

North Falls wind farm (up to 504MW, SSE Renewables share 50%), which is an extension to the Greater Gabbard wind farm off the east coast of England, continues to progress with local consultation under way for a potential grid connection in North Essex. North Falls could also be operational by 2030.

SSE Renewables has added its first floating offshore wind project to its domestic pipeline with the success in Crown Estate Scotland's ScotWind offshore wind seabed leasing process as part of a consortium with Marubeni Corporation and CIP (Copenhagen Infrastructure Partners). The up to 2.6GW site (SSE Renewables share 40%) in the E1 Zone in the Firth of Forth will be one of the largest floating wind projects in the world and aims to start generating by 2030. This will play an important part in meeting the UK Government's increased floating wind target of 5GW by 2035.

SSE Renewables also aims to contribute additional capacity needed to meet Ireland's offshore wind target of 5GW by 2030. Following the introduction by the Irish Government of the Maritime Area Planning (MAP) Act in December 2021, SSE Renewables will now progress Arklow Bank Wind Park 2 via this new consenting regime. The revised project will proceed with an increased capacity of 800MW. Subject to securing the necessary consents and if successful in the first Offshore Renewable Energy Support Scheme (ORESS) auction, expected at the end of 2022, Arklow Bank Wind Park 2 could be operational by 2028.

A foreshore licence has been secured for site investigations for the 1,000MW Braymore Wind Park project off the north-east coast and an application has been submitted for the 1,200MW Celtic Sea Array off the south-east coast. Celtic Sea Array and Braymore Wind Park will both apply for a Marine Area Consent (akin to a seabed lease) in the Irish Government's next phase, expected in 2023.

Onshore, there continues to be positive progress on SSE Renewables' consented Coire Glas pumped hydro storage project (up to 1,500MW). Coire Glas would double the current amount of electricity storage capacity in Great Britain and create energy storage capacity of 30GWh, equivalent to powering around 3m homes for up to 24 hours. The British Energy Security Strategy identified the importance of long duration storage, and a policy decision in response to the BEIS call for evidence on possible policy interventions, such as cap and floor mechanism to support long duration storage, is expected imminently. Subject to the outcome of these policy decisions, Coire Glas could progress to an FID decision by 2023/24 with the objective of being completed before the end of the decade.

SSE has ambitions to develop, build and operate >1 GW of 'green' hydrogen in industrial clusters and co-located with wind by 2031. As part of this, SSE Renewables has kickstarted its first electrolysis projects. Currently in the early stages of development, the Gordonbush H2 project will use a portion of the renewable energy from the 100MW-plus Gordonbush onshore wind farm to produce up to 2,000 tonnes of green hydrogen each year, contributing to the new UK 5GW electrolytic hydrogen target. SSE Renewables is also part of Galway Hydrogen Hub (GH2), a consortium proposing to develop an initial flagship demonstrator project at Galway Harbour, for the indigenous production and supply of green hydrogen fuel for public and private vehicles.

Sse renewables project pipeline

Project	Location	Technology	Capacity (MW)	SSE Share (MW)
Due FID or in Construction
Dogger Bank A	GB	Offshore wind	1,200	480
Dogger Bank B	GB	Offshore wind	1,200	480
Dogger Bank C	GB	Offshore wind	1,200	480
Seagreen 1	GB	Offshore wind	1,075	527
Viking	GB	Onshore wind	443	443
Lenalea	ROI	Onshore wind	30	15
Consented
Seagreen 1A1	GB	Offshore wind	500	245
Yellow River	ROI	Onshore wind	104	104
Tangy	GB	Onshore wind	57	57
Strathy South	GB	Onshore wind	208	208
Coire Glas	GB	Pumped storage	Up to 1,500	Up to 1,500
Requiring consent
Berwick Bank2	GB	Offshore wind	Up to 4,100	Up to 4,100
ScotWind E1 Lease	GB	Offshore wind	2,600	1,040
Arklow Bank 23	ROI	Offshore wind	800	800
North Falls	GB	Offshore wind	504	252
Cloiche	GB	Onshore wind	155	155
Other	-	Onshore wind	c200	c200
Future prospects4
Braymore Point	ROI	Offshore wind	1,000	1,000
Celtic Sea Array	ROI	Offshore wind	1,200	1,200
Japanese development projects	Japan	Offshore wind	10,000	8,000
Other GB	GB	Onshore wind	c250	c250
Other NI	NI	Onshore wind	c50	c50
Other ROI	ROI	Onshore wind	c250	c250
Other GB	GB	Hydro	75	75

Note 1: Seeking variation to existing consent

Note 2: Berwick Bank and Marr Bank offshore wind farms were combined into one wind farm in September 2021, known as Berwick Bank Wind Farm

Note 3: Entering new Irish Marine Area Planning process with revised capacity proposed

Note 4: Reflects named development areas where some form of development activity is underway and therefore excludes any future or in-flight auction processes

Note 5: SSE agreed to acquire 4.9GW Siemens Gamesa Renewable Energy onshore wind and solar platform in April 2022 with projects excluded above ahead of the acquisition completing. Completion is expected by end September 2022

Growth opportunities - international

SSE Renewables made important progress in its international expansion plans in April 2022 when it entered into an agreement with Siemens Gamesa Renewable Energy for the acquisition of an onshore wind development platform totalling c.3.9GW across Spain, France, Italy and Greece for a consideration of €580m. The portfolio includes scope for up to 1GW of additional co-located solar development opportunities. The move marks SSE Renewables' entry into Southern Europe and creates a wider opportunity to pursue a balanced range of technologies, e.g. wind, solar, hydrogen, and storage. As part of the transaction, SSE Renewables will take on a team of around 40 employees with vast local experience in the sector. The transaction is likely to complete by the end of September 2022, subject to receipt of relevant foreign direct investment and regulatory approvals.

In September 2021, SSE Renewables progressed into Japan with the creation of a new joint ownership company, SSE Pacifico (80% stake), which includes the acquisition of an interest in an offshore development platform for US$208m. The new company will develop the acquired 10GW gross portfolio, comprising a number of early development stage offshore wind projects in Japan. It includes a mix of fixed bottom and floating sites with the most advanced projects expected to be constructed by the end of this decade.

SSE Renewables has submitted an application to the Polish government for an Offshore Location License (OLL) for the allocation of development rights for an offshore wind farm in the Baltic Sea, which would be developed in partnership with Acciona Energia. The process is expected to run until Q3 2022.

SSE Renewables also continues to work with Acciona Energia on offshore wind opportunities in Spain. The Spanish Government published its draft offshore wind roadmap in August which set out an ambition to target up to 3GW by 2030.

In the Netherlands, SSE Renewables has submitted bids in the 1.4GW Hollandse Kust (west) offshore wind tender for two separate sites of 750MW each. Ecological innovation and energy systems integration are key assessment criteria. SSE Renewables has formed a 50/50 strategic partnership with Brookfield for the bid, who have strong offtaker relationships in the Netherlands. SSE Renewables has also recently opened an office in Rotterdam.

SSE Renewables is also assessing other growth options across selected markets in Northern Europe and the United States. Towards the end of the financial year, it opened an office in Boston and is assessing participation in upcoming offshore leasing rounds, for example, in California, which is expected to take place in Autumn 2022.

 

 

SSE Thermal

SSE Thermal key performance indicators

SSE Thermal	March 22	March 21
Thermal adjusted operating profit - £m	306.3	160.5
Thermal reported operating profit - £m	630.1	775.3
Thermal adjusted investment and capital expenditure - £m	129.3	106.5
Generation capacity - MW
Gas- and oil-fired generation capacity (GB) - MW	3,975	3,992
Gas- and oil-fired generation capacity (ROI) - MW	1,292	1,292
Total thermal generation capacity - MW	5,267	5,284
Generation output - GWh
Gas- and oil-fired output (GB) - GWh	11,303	15,324
Gas- and oil-fired output (ROI) - GWh	2,962	2,433
Multifuel output - GWh	-	251
Total thermal generation - GWh	14,265	18,008

Note 1: Capacity is wholly owned and share of joint ventures

Note 2: Output is based on SSE 100% share of wholly owned sites and 100% share of Marchwood PPAs due to the contractual arrangement. In September 2021 SSE's offtake agreement for 100% of output from its Seabank CCGT JV expired, with output following that date only recognised to the extent of its 50% equity share.

Note 3: SSE announced the sale of its stake in Ferrybridge and Skelton Grange multifuel assets on 13 October 2020

Note 4: Decreased gas- and oil-fired capacity relates to closure of 17MW small diesel plant

SSE Thermal overview

SSE Thermal owns and operates conventional thermal generation in the UK and Ireland. These assets play a key transitional role in the SSE Group and wider energy system, supporting the Balancing Mechanism on the journey to net zero. While providing much-needed system flexibility to ensure stability and security of supply in the short term, SSE Thermal is actively developing options to progressively decarbonise its fleet.

Operational delivery

SSE Thermal's combined cycle gas turbine (CCGT) fleet has played an important role in the UK, providing flexibility at scale to support a tight and volatile energy market, demonstrating the value it delivers within the SSE Group portfolio, providing balance when wind resource is scarce, and the importance of flexible assets in securing a resilient transition to net zero.

In the GB market, significant periods of scarcity in the year have led to increased forward spark spreads allowing value to be secured by the fleet ahead of delivery. This has been complemented by the fleet's ability to respond to on-the-day market requirements to balance the system, through the Balancing Mechanism. In the Irish market, the system has been tighter than normal, with lower generation capacity available. As a result, SSE Thermal's assets in Ireland have played an important role in keeping the lights on.

With the value of the SSE Thermal portfolio coming from its ability to respond to market conditions, plant availability has been managed responsibly to respond to system balancing needs; an approach that is likely to become more important as the volume of renewable capacity on the system increases. In providing these vital balancing services, strong operational performance is therefore less dependent upon the volume of its output and more on the availability of the plant at times of system stress. Reduced plant availability in the year was predominantly concentrated in the first six months and was driven by a number of factors including unplanned outages to respond to faults and maintenance requirements, slight overrun of planned outages and the phasing of outages towards the first half of the year to respond to system needs.

SSE's UK-based CCGT fleet has secured valuable Capacity Market agreements for winter 2022/23 and for future years out to September 2026, demonstrating the role thermal plant plays in ensuring security of supply. Agreements have also been secured for all of SSE Thermal's fleet in Ireland.

For financial performance commentary please refer to the Group Financial Review.

 

The following agreements have been awarded through competitive auctions:

SSE Thermal Capacity Contract Awards

Station	Asset type	Station Capacity	SSE share of contract	Capacity obligation
Medway (GB)	CCGT	735MW	100%	To September 2023
Keadby 1 (GB)	CCGT	755MW	100%	To September 2026
Keadby 2 (GB)	CCGT	893MW	100%	16-years commencing October 2022
Peterhead (GB)	CCGT	1,180MW	100%	To September 2026
Seabank (GB)	CCGT	1,234MW	50%	To September 2026
Marchwood (GB)	CCGT	920MW	100%	To September 2026
Slough Multifuel	Energy from Waste	50MW	50%	15-years commencing October 2024
Great Island (Ire)	CCGT	464MW	100%	To September 2026
Rhode (Ire)	Gas/oil peaker	104MW	100%	To September 2026
Tawnaghmore (Ire)	Gas/oil peaker	104MW	100%	To September 2026
Tarbert (Ire)	Oil	620MW	100%	To September 2023

Capacity contracts are based on de-rating factors issued by the delivery body for each contract year, therefore will not directly match SSE's published station capacity.

Capacities stated reflect Transmission Entry Capacity

Keadby 1 has capacity obligation in 2022/23 and 2025/26 but none in 2023/24 or 2024/25 contract years

Keadby 2 16 year obligation comprised of a T-1 and a 15 year contract

Marchwood (SSE equity share 50%) tolling arrangement means SSE receives 100% of economic benefit from capacity contract

Growth opportunities

Delivering lower-carbon flexibility is a key pillar of SSE's Net Zero Acceleration Programme. Developing more efficient alternatives to the existing CCGT fleet will be vital to deliver SSE's goal to cut carbon intensity by 80% by 2030 and achieve its science-based carbon reduction targets, aligned with a 1.5°C  global warming scenario. SSE Thermal is developing projects using carbon capture and storage (CCS) and hydrogen; technologies which will be critical to society in the transition to net zero, enabling enhanced renewables deployment by balancing the system.

In 2021/22 SSE Thermal progressed its carbon capture power stations, which it is co-developing with Equinor, through the planning process. In June 2021, SSE Thermal submitted a planning application for Keadby Carbon Capture Power Station to the UK's Planning Inspectorate. In March 2022 SSE Thermal submitted a planning application for Peterhead Carbon Capture Power Station to Scotland's Energy Consents Unit.

In October 2021 the UK Government announced that the East Coast Cluster - comprising the Humber and Teesside regions - and the HyNet Cluster in north-west England would be Track 1 clusters, or the first clusters supported to deploy shared CCS infrastructure by the middle of this decade. The Scottish cluster was identified as a 'reserve' Track 1 cluster and remains in line to progress to deployment as a Track 2 cluster by the end of the decade. The UK Government's commitment to supporting four clusters by 2030, including two by the middle of this decade, was galvanised in its CCUS Investor Roadmap which emphasised that the technology is a necessity not an option to deliver net zero emissions by 2050. Published in April 2022, it also confirmed its intention to engage with industry on the 'Track 2' process this calendar year.

In November 2021, the UK Government launched the second phase of the Cluster Sequencing Competition to identify which projects would be supported to connect to Track 1 clusters; this process was also open to projects seeking a connection into the 'reserve' Scottish Cluster. SSE Thermal submitted applications for Keadby Carbon Capture Power Station, seeking to connect into the East Coast Cluster, and Peterhead Carbon Capture Power Station, seeking to connect into the Scottish Cluster. Successful projects will secure a Dispatchable Power Agreement; a revenue support scheme designed by the UK Government. A decision on which projects will progress into negotiations is expected from July 2022.

Low-carbon hydrogen will be an important facet of a net zero economy. The UK Government's inaugural hydrogen strategy, published in August 2021, highlighted the role it will play in providing flexible energy for power, heat and transport and the need for large hydrogen storage facilities. SSE Thermal is continuing to develop low-carbon hydrogen projects, alongside Equinor, including Keadby Hydrogen Power Station and Aldbrough Hydrogen Storage and sees significant further growth opportunities in this space, in line with the UK's target to deliver 10GW of low-carbon hydrogen production by 2030. SSE Thermal is also involved in Project Cavendish, an initiative to promote the Isle of Grain as a location for a low-carbon hydrogen economy. This could provide the opportunity to bring low-carbon hydrogen to SSE's Medway site.

Commissioning of Keadby 2, SSE Thermal's 893MW CCGT, started in October 2021 and full commercial operation is targeted for 1 October 2022. Keadby 2 brings Siemens' cutting-edge turbine technology to the UK; this first-of-a-kind turbine will be Europe's most efficient CCGT and will displace older, more carbon intensive plant on the system. It is capable of being upgraded to decarbonise the system further, through hydrogen blending or carbon capture and storage.

Keadby 2 also provides a testing ground for SSE Thermal's new digital strategy to deliver intelligent asset management, building on the digital capabilities already used to manage the SSE Thermal fleet. Using data and technology, the digital strategy aims to enhance asset management and maintenance capabilities.

 

 

Gas Storage

Gas Storage key performance indicators

Gas Storage	March 22	March 21
Gas Storage adjusted operating (loss)/profit - £m	30.7	(5.7)
Gas Storage reported operating profit/(loss) - £m	125.4	2.8
Gas storage adjusted investment and capital expenditure - £m	2.1	1.9

Gas Storage overview

SSE Thermal holds around 40% of the UK's conventional underground gas storage capacity. These assets can play an important role in the transition to net zero, supporting stability and security of gas supply in the short term as well as potential conversion to hydrogen storage for a net zero future.

In 2021/22 SSE's Gas Storage business has navigated highly volatile gas markets and optimised assets to help ensure security of gas supply for the UK and provide important liquidity to the market. The assets also offer a significant risk management value to the portfolio by offering spot, short-notice flexibility. This helps defend the portfolio from exposures emanating from wind speed or consumer demand variability. Given the increasing focus around gas supply response across Europe, and the need for additional reserve to protect markets against significant geopolitical exposures, SSE anticipates this trend will continue. On that basis Gas Storage assets are likely to make a substantial contribution to the Group in the next financial year.

SSE Thermal remains committed to working with UK Government departments and Ofgem to ensure the critical role of UK storage in relation to security of supply and stability of gas price is properly valued. It is also looking to play a future role as a source of low-carbon hydrogen storage which will be needed to balance supply and demand in a hydrogen economy.

Plans to develop a potentially world-leading hydrogen storage project at Aldbrough, announced in July 2021 with Equinor, are progressing. Since this announcement, the UK Government has committed to develop business models for hydrogen storage as part of the British Energy Security Strategy and SSE is  particularly close to this policy discussion.

For financial performance commentary please refer to the Group Financial Review.

 

Energy Customer Solutions

overview

SSE Business Energy in GB (non-domestic) and SSE Airtricity in Ireland (domestic and non-domestic) provide a shopfront and route to market for SSE's low-carbon energy solutions and renewable green products.

SSE's customer businesses are committed to high service standards covering all aspects of operations, within contact centres and among colleagues visiting and working in customers' homes and premises. Throughout the coronavirus pandemic and more recent energy wholesale price volatility the businesses have worked with customers across GB and Ireland to provide support through a variety of payment options, and additional support funds have been established for financially vulnerable domestic customers in Ireland. In addition, it was announced on 12 May 2022 that existing financially vulnerable domestic customers in the Republic of Ireland would be insulated from any further price rises for the remainder of the 2022 calendar year.

Considerable focus has been placed on training teams to provide market-leading energy advice across a range of energy solutions to provide a highly skilled level of partnership with customers. Across the customer businesses SSE has extended the range of energy products and digital service capabilities and continues to invest in digital and energy solutions to adapt and evolve the offerings in GB and Ireland.

Throughout all periods, but especially during the pandemic, the safety and wellbeing of employees has been prioritised. Regular employee surveys are acted upon to further improve the working environment. This includes a range of topics from SSE's "Belonging Groups" (e.g. supporting gender and ethnic diversity) to "Flexible First" working practices.

SSE Business Energy

SSE Business Energy key performance indicators

SSE Business Energy	March 22	March 21
Business Energy adjusted operating (loss)/profit - £m	(21.5)	(24.0)
Business Energy reported operating profit/(loss) - £m	(21.5)	(3.9)
Electricity Sold - GWh	12,645	13,070
Gas Sold - mtherms	218	245
Aged Debt (60 days past due) - £m	79.3	73.8
Bad debt expense - £m	18.5	37.8
Exceptional bad debt (credit) / expense - £m	-	(20.1)
Energy customers' accounts - m	0.47	0.48

SSE Business Energy overview

Business Energy GB retains a solid book and customer base and amongst non-domestic suppliers is ranked for power 4th by meters (market share 11.6%) and 4th by volume (market share 7%); and for gas is ranked 7th by meters (market share 6.5%) and 9th by volume (market share 2.3%). The business markets its products under the SSE Energy Solutions brand alongside SSE Distributed Energy, selling power to over 469,000 non-domestic customers across GB.

Operational delivery

During 2021, Business Energy increased its green customer propositions including the launch of a new and simplified Corporate Power Purchase Agreement product, to make them increasingly accessible to a wider range of businesses. This was followed in July by a commitment to businesses on fixed power contracts that they will receive their electricity from renewable sources. Green credentials associated with this electricity supply are independently verified by EcoAct, an Atos company, and customers are provided with Renewable Energy Guarantees of Origin (REGOs) certification. Business Energy's 'Green Gas plus' tariff, a renewable gas tariff which is also independently certified by EcoAct, performed well through the year since its launch.

Smart meters are a key factor in supporting customers on their net zero journey and 2021/22 saw strong performance for the rollout of smart meter installations. Business Energy continues to work towards its first year of challenging smart regulatory installation targets in calendar year 2022.

For detailed financial performance commentary please refer to the Group Financial Review.

Growth opportunities

The platform SSE Business Energy growth is via the SSE Energy Solutions business-to-business brand, launched in July 2021 in partnership with SSE Distributed Energy. The platform provides a single shopfront for a range of SSE customer product offerings to support all business segments on their net zero journey; from renewable power and flexible Corporate Power Purchase Agreement offerings, to customer workplace EV charging solutions and larger scale distributed energy systems. As SSE's electricity generation businesses continue to expand and deliver new technologies, so will SSE Energy Solutions as an important route to market for the Group.

 

 

Sse Airtricity

SSE Airtricity key performance indicators

SSE Airtricity	March 22	March 21
Airtricity adjusted operating profit - £m	60.4	44.0
Airtricity reported operating profit - £m	60.4	50.0
Aged Debt (60 days past due) - £m	7.3	7.9
Bad debt expense - £m	4.6	6.9
Exceptional bad debt (credit) / expense - £m	-	(6.0)
Airtricity Electricity Sold - GWh	5,219	7,595
Airtricity Gas Sold - mtherms	177	219
All Ireland energy market customers (Ire) - m	0.70	0.68

SSE Airtricity overview

SSE Airtricity provides a valuable route to market for SSE's low-carbon energy solutions and green products to customers across the island of Ireland. Airtricity retains a strong market position as Ireland's largest supplier of 100% green energy, supplying approximately 701,000 customers and holding 21.2% market share by load.

Operational delivery

As a responsible business, SSE Airtricity has recognised that current market volatility has created challenges for many households and has taken various measures to support financially vulnerable customers.  An all-island customer support fund (€1m) has been established, €1m was donated to a trusted all-island charity partner, and a home energy efficiency upgrade programme has been rolled our for up to 600 homes in fuel poverty. In addition Airtricity's financially vulnerable domestic customers in the Republic of Ireland will be insulated from any further price rises for the remainder of the 2022 calendar year.

For financial performance commentary please refer to the Group Financial Review.

Growth opportunities

A positive public policy environment aimed at improving the thermal efficiency of 0.5m buildings provides the backdrop for the Generation Green Home Upgrade product. This is enabling the rapid rollout of a first of its kind one-stop-shop business model, in partnership with An Post, in the Republic of Ireland market. The growth of this business segment remains a key priority for 2022.

Further areas of strategic focus include building on the success of partnerships with brands such as Volkswagen and ePower delivering electric vehicle charging infrastructure and green end-to-end solutions for customers; and continued innovation and delivery of extended customer offerings to help support decarbonisation.

 

SSE DISTRIBUTED ENERGY

SSE Distributed Energy key performance indicators

SSE DISTRIBUTED ENERGY	March 22	March 21
SSE Distributed Energy adjusted operating (loss)/profit - £m	(10.9)	(27.0)
SSE Distributed Energy reported operating profit/(loss) - £m	(29.2)	(76.1)
SSE Heat Network Customer Accounts	11,291	10,482
Biomass, heat network and other capacity - MW	33	34
Biomass, heat network and other output - GWh	104	108

SSE Distributed Energy overview

SSE's reporting of its Enterprise segment has been updated following the sale of its Contracting and Rail businesses. The primary retained activity of the former SSE Enterprise businesses is now distributed energy. The business provides solar and battery storage asset development and operation and focuses on distributed generation, EV infrastructure, heat and cooling networks, and smart buildings and places.

The financial results from the Group's out of areas networks business and Neos Networks Limited (formerly SSE Telecoms) joint venture are now reported within SSEN Distribution and Corporate Unallocated respectively. Comparative information has been re-stated to reflect these changes.

Operational delivery

Over the past 12 months SSE has announced significant milestones in its nascent solar and battery storage business including a secured 380MW solar and battery pipeline, with over 1GW more of other sites currently under assessment. The secured pipeline includes a 50MW battery storage asset on a consented site in Wiltshire, where construction gets under way this summer, with full energisation expected in summer 2023. SSE has also acquired a 30MW solar farm at Littleton Pastures in Worcestershire and, once complete in late 2023, this 77-acre site will be capable of powering some 9,400 homes.

Growth opportunities

A key focus will be on battery storage and solar technology. Existing grid connections at legacy coal-fired sites, such as Ferrybridge and Fiddlers Ferry, also puts SSE in a strong position to deploy battery storage at scale and pace.

SSE's Distributed Energy team is helping people and places reach their net zero targets by adopting a 'whole system' approach to connect localised and flexible energy assets. These include energy optimisation, heat and cooling networks, electrical networks, smart buildings, and EV charging. Distributed Energy therefore seeks to help provide the platform for a data-driven and sustainable world.

Distributed Energy has ambitions to build a network of EV charging hubs across the UK - with the first of potentially 300 hubs being built in summer 2022 in Glasgow. Innovation also remains a key tool to unlocking net zero; its heat sector division for example, has an exciting partnership under way with National Grid to utilise heat from electricity transformers that would otherwise go to waste.

 

ENERGY PORTFOLIO MANAGEMENT (EPM)

EPM key performance indicators

EPM	March 22	March 21
EPM adjusted operating profit/(loss) - £m	(16.8)	18.4
EPM reported operating profit/(loss) - £m	2,083.6	608.5

EPM overview

Energy Portfolio Management (EPM) is the energy markets heart of the SSE Group, securing value and managing volatility through risk-managed trading of energy-related commodities for SSE's market-based Business Units. 

SSE trades the principal commodities to which its asset portfolios are exposed, as well as the spreads between two or more commodity prices (e.g. spark spreads): power (baseload and other products); gas; and carbon (emissions allowances). Each commodity has different liquidity characteristics, which impacts the quantum of hedging possible. See also SSE's Hedging Position.

Operational Delivery

In 2021/22 EPM navigated unprecedented energy market volatility, ensuring the SSE portfolio was hedged in accordance with the Group's approach to hedging and optimised through prompt periods. The value EPM secures for SSE's asset portfolio continues to be reported against individual Business Units. 2021/22 also saw successful delivery of the first year of operation under the UK Emissions Trading Scheme.

For detailed financial performance commentary please refer to the Group Financial Review.

Growth Opportunities

Transformation of the EPM Business Unit continues with key external recruits into risk, prompt trading and analytics. Trading has started in France, Belgium and the Netherlands as the business looks to expand into Europe.

 

 

Investment in SGN
(Scotia Gas Networks - discontinued operation)

SGN key performance indicators

SGN (Discontinued Operation) SSE's 33.3% share - Disposed on 22 March 2022	March 22	March 21
SGN adjusted operating profit/(loss) - £m	21.0	173.0
SGN reported operating profit/(loss) - £m	495.4	88.6

SGN overview

As part of its strategic refocusing of the Group, SSE's entire 33.3% financial investment stake in gas distribution operator SGN (Scotia Gas Networks Limited) was sold to a consortium comprising existing SGN shareholder Ontario Teachers' Pension Plan Board and Brookfield Super-Core Infrastructure Partners on 22 March 2022.

Whilst the business had been a good long-term financial investment for SSE since 2005, SSE's focus is now on low-carbon electricity businesses and the role they have in transition to net zero. This disposal marked the completion of SSE's £2bn plus disposals programme announced in June 2020, with a headline consideration amounting to over £2.8bn exceeding that original target.

The adjusted operating profit for the business of £21.0m is retained by the Group for the period to 11 June 2021 when the investment was designated as 'held for sale' and equity accounting ceased. On disposal, the Group recorded an exceptional gain on disposal of £576.5m.