SSE shares plunge as it warns profits will be ‘significantly lower’ due to Ofgem price cap

Provider blamed higher gas prices and warm, dry weather for reduced profits

The weather was blamed for hitting output and demand (REUTERS)

SSE has blamed the better-than-expected weather this year for an anticipated £190m hit to profits in the first five months of the year, and warned of more pain to come from the energy price cap proposed by Ofgem.

Shares in the group dropped by 10 per cent in early trading on Wednesday after it published the numbers in an unscheduled trading update.

The energy provider said relatively dry, still and warm weather and persistently high gas prices had led to “a higher cost of energy than expected, lower than expected output from renewable sources, and lower volumes of energy being consumed”.

These factors led to an £80m impact on first quarter profits, and a £190m dent in operating profit for the first five months of the financial year. Of this total, half was due to higher than expected commodity prices, and half was down to the weather, SSE said.

Looking ahead, the company said Ofgem’s proposed price cap is expected to result in profits being “significantly lower” in 2018/19 than previously expected.

The energy market regulator wants to apply a cap of of £1,136 per year for a typical dual fuel customer paying by direct debit, and is aiming to have the price restriction in place by the end of the year.

The firm also noted: “Unlike other suppliers, SSE Energy Services has implemented only one increase in standard household energy prices in Great Britain in the course of 2018.”

SSE hiked prices for 2.4 million customers in May, one of 41 bill increases imposed by energy providers so far this year.

"Lower than expected output of renewable energy and higher than expected gas prices mean that SSE's financial performance in the first five months has been disappointing and regrettable,” said Alistair Phillips-Davies, chief executive of SSE.

"The underlying quality of SSE's businesses remains strong, with regulated networks and renewables providing the core of what will be an infrastructure-focused SSE group in the years ahead.”

George Salmon, equity analyst at Hargreaves Lansdown, said: “While most of us enjoyed day after day of blissful sunshine earlier this year, it wasn’t such a great summer for SSE.

“Hardly any rain or wind meant output from its hydro and wind assets wilted in the heat, and with nobody putting the heating on, customer meters just didn’t tick over. All the while, the price of gas in the wholesale market has kept on rising.”

He added: “Investors should remember that SSE can’t control any of these factors, and a business increasingly focused on renewable energy will have good years and bad.”

SSE is in the process of merging its energy services business with Npower, but made no comment on the transaction in its latest update aside from noting that the division will be excluded from earnings calculations for the current financial year.