Power giant's profits please the City

Britain's second-largest energy supplier reported adjusted pre-tax profits of 385.5m, a fall of six per cent but better than analysts' estimates. SSE, which owns Ferrybridge coal-fired power station in West Yorkshire, blamed the drop on a 25 per cent rise in wholesale gas prices and a weather-related cut in output from its hydro-electric schemes and wind farms.

The firm said, however, that it was sticking to its plan to raise its dividend and was on track to meet full-year forecasts.

SSE's gas supply business, Southern Electric Gas, again incurred a loss, a factor that triggered the company's announcement last month that it would increase gas prices by 9.4 per cent on December 1.

A five per cent year-on-year fall in electricity consumption by household customers and an increase in some costs involved in generation and supply also hit the company's performance in the six months to September 30.

Lord Smith of Kelvin, chairman of SSE, said: "The past six months have not been easy, with low renewable energy output and higher wholesale gas costs contributing to a challenging business environment.

"SSE's key financial objective is dividend growth, and we are on course to meet our target of a two per cent real increase for the full year 2010-11, while maintaining a dividend cover in line with our established range."

The Perth-based company, which employs more than 20,000 people, supplies electricity and gas as Southern Electric, SWALEC, Scottish Hydro Electric and Atlantic, raised its interim dividend 6.7 per cent to 22.4 pence.

During the six months it achieved a net gain of 100,000 energy supply customer accounts taking the total to 9.3 million.

SSE's shares rose by as much as five per cent yesterday before closing up 42p, nearly four per cent, at 1160p. Analysts said the fall in half-year profits was smaller than expected. The City also welcomed guidance that SSE expected to meet its recent dividend promise for an increase of at least two per cent a year in real terms for the next five years.

Fraser McLaren, an analyst at Bank of America Merill Lynch, said the results were slightly ahead of expectations and brought a sense of clarity which will support medium-term growth prospects.

He raised his rating on SSE stock to "buy", and said: "With the stock having underperformed the UK utilities since June, we see the renewed clarity and management confidence as positive. Our new numbers still show material medium-term profit growth from existing projects."

SSE added that its investment programme, under which it will spend up to 1.7bn in each of the five years to 2015, was well-financed. It spent 377.4m in renewable generation, 126.6m on its electricity networks during the half-year and 25.7m in gas storage, including 15.1m in the new facility at Aldbrough in East Yorkshire, which is due to be completed in 2012. Four caverns have already been completed at Aldbrough and more capacity is expected to become available by the end of this year.

It said it has put off plans to build more gas storage because of regulatory uncertainty and reduced profitability, but hopes to open its first nuclear plant around 2023. SSE, together with consortium partners GDF Suez and Iberdrola, expects to make a final investment decision on building a nuclear plant around 2015.

It has, however, put off the final decision on the Aldbrough II gas storage facility, a joint venture with Norway's Statoil, because of uncertainty over usage rules and the shrinking premium of winter gas prices over summer contracts, caused by increasing liquefied natural gas import capacity in Britain.

SSE's December price rise means the average annual household gas bill for a customer will increase by 5.60 a month to 782.

CARBON CAPTURE TRIALS IN YORKSHIRE

Scottish and Southern Energy was given the go-ahead in April to develop a five-megawatt carbon capture test plant at Ferrybridge in West Yorkshire.

The 21m project, the largest of its kind in the UK, aims to demonstrate the viability of capturing harmful carbon emissions. SSE said it is significant because it bridges the gap between laboratory trials and the bigger pilot schemes the Government wants to see.

The trial is due to start next year and run to the end of 2012.

In September, SSE also signed a deal with Sheffield clean fuel firm ITM Power to test its high-pressure hydrogen vehicle refueller.