SSE has hit out at UK chancellor Rishi Sunak’s plan to impose a windfall tax on electricity generators, warning that the “unhelpful” threat has harmed investor confidence just as companies planned to plough billions of pounds into new energy projects in Britain.
“They [the government] used the word extraordinary profits [to justify the proposal]. Where are these extraordinary profits?” SSE chief executive Alistair Phillips-Davies told the Financial Times.
“I’m not entirely sure where the windfall is. Given that we have got very well-developed plans to invest lots in [energy] networks, lots in renewable generation, it’s very clear from the share price reaction that they are affecting investor confidence and that is unhelpful for us,” he added.
Sunak confirmed that he also planned to target electricity generators when he announced a new 25 per cent windfall levy on oil and gas producers at the end of May to partly fund a £15bn package to help households with soaring energy bills.
Describing electricity generators’ profits as “extraordinary” as a result of high wholesale power prices, the chancellor said he was considering “appropriate steps” to ensure generators also contributed towards support for consumers.
The plans have wiped billions of pounds off the value of power companies including SSE, Drax and Centrica and has even drawn criticism from the Labour party, despite its MPs championing a windfall tax on oil and gas producers.
On a visit to Peterhead, north of Aberdeen, where SSE is spending more than £250mn to reinforce the electricity grid in order to accommodate more renewables projects, Phillips-Davies argued the generation sector was “much more complex” than oil and gas.
Power companies tend to sell their output far in advance and the sector covers a range of different technologies that are subject to different subsidy regimes.
“Looking at one price on one particular day for one megawatt [hour of electricity] or one therm of gas, not everything trades at that price,” said Phillips-Davies.
SSE’s adjusted operating profit rose 15 per cent to £1.5 billion in the year to March 31, boosted by its gas-fired power stations and hydro plants that help to meet supply when renewable technologies, such as wind, are not generating. Profit at SSE Thermal, which includes its gas plants, jumped 91 per cent last year to £306.3mn
But Phillips-Davies argued some assets that benefited from record gas and power prices last year previously made losses. He cited SSE’s gas storage facilities, which generated £30.7mn in profit last year but did not make any money for the previous decade.
Before Sunak’s speech last month, SSE pledged to invest more than £24 billion this decade in clean energy infrastructure in Britain. It is developing vast new wind farms such as Dogger Bank off England’s north-east coast, which will be the world’s biggest offshore array when it is finished in 2026.
In Peterhead, where SSE has an existing gas-fired power plant, the group hopes to develop a new facility fitted with carbon capture technology to help meet demand in future, when Britain’s system will be even more reliant on intermittent renewables but have to emit little CO₂.
Asked if some of those projects could be threatened by a windfall tax, Phillips-Davies said SSE would still be able to build the projects in its £24bn pipeline but warned ministers: “If somebody decides to change tax laws we will have to restructure our projects so they still make money.”