The CEO of SSE urges government officials to back the renewable energy sector amidst rising inflation.
The CEO of SSE has urged the government to take decisive measures in order to back the renewable energy sector, as increasing inflation in global supply chains poses a risk to the progress of implementing new sustainable energy initiatives.
The CEO of SSE, Alistair Phillips-Davies, informed shareholders that the utility company will be raising its budget by 14% to £20.5bn. This decision is partly due to the significant increase in costs for constructing wind farms and electricity grids.
The government was strongly encouraged to take decisive measures in aiding offshore wind developers by providing increased subsidies for the construction of new offshore windfarms to account for their higher expenses.
Phillips-Davies advocated for increased government backing as officials get ready to announce a revised initial cost for the upcoming subsidy auction. The projected maximum bid is anticipated to be significantly higher than the previous starting price, which failed to entice any new offshore wind projects.
The Labour party labeled the auction as a “disaster for energy security.” They warned that the UK may lose out on billions of investments and could see an increase in energy costs if it hinders the goal to triple offshore wind power capacity by 2030.
After weeks of discussions between the offshore wind industry and Whitehall officials regarding the increasing costs, the specifics of the upcoming auction will be announced on Thursday morning.
Phillips-Davies informed reporters that it was challenging to separate the effect of increasing costs on their plan to increase spending by billions of pounds. However, they did note that the recent inflation in the supply chain had been considerable.
He suggested that, besides increasing auction prices, the government should also permit more offshore windfarms to participate and grant longer contracts of up to 20 years. This would help to decrease the winning bids and lessen the effect on household energy bills.
The increasing expenses have raised worries within the international offshore wind sector. Recently, Ørsted, a Danish wind company, called off two major projects near the coast of New Jersey in the United States. Similarly, Vattenfall from Sweden has abandoned its plans for a large offshore wind farm off the coast of Norfolk in the UK due to the growing costs that made it unprofitable.
The government initiated its unsuccessful bidding process at a rate of £44 per megawatt hour following the previous round’s record-breaking contract prices of slightly above £37 per MWh. As stated in a Bloomberg report, officials are gearing up to reveal a higher starting price of £70 to £75 per MWh to account for the industry’s increased expenses.
Earlier this year, SSE announced its intentions to dedicate £40bn towards sustainable energy investments for the next decade. This comes after a significant increase in annual profits, nearly double that of the previous year. In the first half of this year, the company reported a pre-tax profit of £565.2m, a 1% rise from the same period last year.
According to Phillips-Davies, the company’s profits are expected to continue increasing due to the ongoing political agreement to construct the necessary electricity infrastructure for achieving net zero emissions.
He stated: “There is still a strong agreement among politicians on the major factors driving energy security and decarbonisation. These include increasing the use of renewable energy, investing in networks, and promoting flexible power generation, which are the key elements driving SSE’s growth.”
SSE’s renewable energy assets generated adjusted earnings of nearly £87m in the first half of the current year, a significant increase from the £15m earned during the same period in the previous year. Despite decreased windfarm output due to milder weather, the company’s renewable energy portfolio remained profitable.
The gas-fired power plants owned by the company, used to meet high electricity demands, recorded adjusted profits of approximately £226m for the first half of this year. This is a slight decrease from the £248.2m earned in the same period last year.
In the first half of the year, SSE’s high-voltage transmission cables generated an adjusted operating profit of £215.6m, showing a 3% increase from the previous year. However, its regulated local power grids business experienced a 31% decrease in adjusted profits to £120.1m due to higher costs in its supply chain.