ii view: SSE's renewable power output gusts higher

First-quarter trading update to 30 June

Chief financial officer Barry O'Regan said:

"We have made a solid start to the financial year as we convert our premium project pipeline into high-quality sustainable earnings.

"We remain on track to meet our 2027 growth targets that are underpinned by world-class assets and balance sheet strength, with two-thirds of revenue either regulated or already backed by existing government policy.

"The outlook is supported by the enhanced clean power target of the new UK Government which recognises the essential need for investment in renewables, flexible power and electricity networks - areas where SSE has unrivalled capability and significant growth potential."

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ii round-up:

Renewable and gas-powered energy provider SSE (LSE:SSE) today detailed a 60% increase in renewable energy production as weather conditions normalised and new windfarm turbines became operational.  

Total renewable energy output climbed to 2,596 GigaWatt Hours (GWh) during the company's first quarter to late June, up from 1,625 GWh in Q1 2023, broadly matching City forecasts. 

Shares in the FTSE 100 utility rose 0.6% in UK trading having come into this latest news up almost 4% over the last year. That’s ahead of a 2% gain for transmission provider National Grid (LSE:NG.) and in contrast to a 5% fall for biomass energy producer Drax Group (LSE:DRX). The FTSE 100 index itself is up by close to 11% over the last year.

SSE is one of the UK's largest generators of renewable energy including the Dogger Bank wind farm in the North Sea which is still being built, as well as traditional gas-fired power plants.

Dogger Bank turbines now total 27, up from 16 installations back in May, with a total of 95 turbines targeted by the first half of 2025.  

Perth, Scotland headquartered SSE continues to pursue a £20.5 billion Net Zero Acceleration Programme (NZAP) of investment by 2027, in line with the new Labour government's clean energy goal.  

Gas-fired generation reduced 10% year-over-year to 3,338 GWh given the increase in renewable production. 

The trading update came alongside initial proposals from industry regulator Ofgem for the period 2026 to 2031, with SSE due to submit a business plan come December, with the final outcome expected in December 2025.  

ii view:

SSE was formed as Scottish & Southern Energy via the merger of Southern Electric and Scottish Hydro Electric. Today it employs close to 15,000 people. Renewable operations include the Viking wind farm on Shetland, with 103 turbines capable of generating enough electricity to power around 500,000 homes, including every home in the Shetland Islands.

For investors, renewable energy production such as wind power is vulnerable to the weather. Regulatory reviews remain a constant. Competition in the renewable energy field has increased as oil giants such as BP (LSE:BP.), Shell (LSE:SHEL) and TotalEnergies SE (EURONEXT:TTE) have entered, while a previous reduction in the dividend to pay for renewable investment has seen the dividend yield drop from over 5% to a forecast yield of around 3.4%.  

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On the upside, SSE ambition includes delivering over a fifth of the networks and offshore wind investments required to meet the UK’s climate change targets. A diverse portfolio of generating assets is held. Moves overseas have been made including Denmark, Spain and the Netherlands, while plans to increase the dividend now exist following the recent rebasing.    

In all, with concerns about global warning still high up the political agenda, and the consensus analyst estimate of fair value sat at over £21 per share, grounds for longer-term optimism look to persist. 

Positives

• Expanding asset base
• Diversity of operations

Negatives

• Subject to regulatory rulings
• Previous target of government windfall tax

  The average rating of stock market analysts:

Buy