Operating and Investing in Renewable Energy
Renewable energy is one of the primary routes for achieving decarbonisation in Ireland, the UK and further afield. Correspondingly, renewables are a core business area for SSE and a key part of its future growth plans.
In November 2018, SSE announced its plans to consolidate its renewable energy assets in the UK and Ireland under the banner of a new business to be known as SSE Renewables. The new business is led by Managing Director, Jim Smith, and is bringing together SSE’s existing operational assets and those under development and construction in onshore wind, offshore wind, flexible hydro electricity, run-of-river hydro electricity, and pumped storage.
In the full year to 31 March 2019, volumes of renewable generated electricity increased following the commissioning of new capacity, however renewables adjusted operating profit decreased to £455.9m from £475.9m, mainly due to the fact that renewable output in 2018/19 was sold at a lower achieved price than in the previous year.
In 2019/20, subject to the impact of the weather on output of renewable energy and plant performance, renewable generation is expected to earn adjusted operating profit of around £525m, including £26m of suspended Capacity Market payments relating to contracts for the period after suspension in 2018/19 and all of 2019/20. This is based on SSE’s renewable capacity at c.4GW (including Beatrice) with an expected average annual electricity output of around 11.5TWh, based on normal weather.
Renewable energy capacity and output
Output from renewable sources, including pumped storage, increased in 2018/19 compared to the previous year (9.8TWh compared with 9.4TWh) which is mainly driven by an increase in average generation capacity during the year as Stronelairg and Beatrice began to generate. Net capacity at 31 March 2019 reflects the value creating divestments at Clyde, Stronelairg, Dunmaglass and Cloosh. SSE’s overall renewable capacity increased to 4,002MW in May 2019 with the delivery of the Beatrice offshore windfarm.
Stronelairg (228MW), SSE’s last wind farm to be accredited under the Renewables Obligation, was completed in December 2018. In March 2019, stakes in Stronelairg and Dunmaglass, totalling 161MW secured an average sale price of just under £4m/MW, demonstrating the value that can be created through the development of high-quality assets. In March 2019, SSE also sold 27MW of the Cloosh Valley Wind Farm part of the Galway Wind Park, Ireland’s largest wind farm; taking its share of the overall site to 93MW. SSE Renewables will continue to operate the three wind farms and to offtake the power.
These divestments were part of SSE’s strategy to create value from development and operation, as well as ownership, of assets. Like other leading energy companies, SSE is likely to continue to operate in this way, effectively continuing to seek a developer and operator premium, whilst acknowledging the increased appetite that potential financial partners have for working with leading developers and operators like SSE.
SSE’s onshore wind farm development pipeline consists of over 1GW of potential new build projects. This includes around 475MW of capacity with consent for development, some of which SSE is seeking to optimise through planning amendments to accommodate more advanced turbine technology. The current focus is on the joint venture Viking Wind Farm (up to 457MW – SSE share 50%), located on Shetland, Strathy South (133MW), Gordonbush Extension (38MW), and Tangy re-power (up to 49MW) in Scotland, and on others requiring consent, such as Doraville (139MW) in Northern Ireland.
SSE continues to take forward development options for new onshore wind farms and extensions to existing wind farms and is well placed to take advantage of any future opportunities as they emerge. This includes exploring merchant opportunities for onshore wind and considering corporate power purchase agreements to deliver additional renewables.
The Beatrice offshore wind farm (588MW – SSE share 40%) was completed in May. Phase 1 CfD payments started on 6 November 2018 and Phase 2 on 28 April 2019. SSE Renewables will operate and maintain the entire asset on behalf of the Joint Venture, Beatrice Offshore Windfarm Ltd, once complete.
CfD Allocation Round 3 (AR3) will commence on 29 May 2019. The UK’s Department for Business, Energy and Industrial Strategy has confirmed the overall budget available, the administrative strike prices for each eligible technology, and the ‘references prices’ (a measure of the average GB market price for electricity used to calculate the budgetary impact of each bid during an Allocation Round).
SSE Renewables is actively involved in two offshore prospects which are expected to be eligible to enter AR3. (Viking Wind Farm will also be eligible to complete in AR3 as ‘remote island wind’.)
- Seagreen Phase 1 (up to 1,050MW), consists of the Alpha and Bravo projects. Seagreen is wholly owned by SSE following its acquisition of Fluor Ltd.’s 50% share of the joint venture in September 2018.
- Dogger Bank (up to 3.6GW), is a 50:50 joint venture with Equinor to develop three projects in the Dogger Bank zone – Creyke Beck A, Creyke Beck B and Teesside A. The projects are being progressed in preparation for the CfD auction.
SSE Renewables also has interests in the following further offshore projects in development:
- Seagreen Phases 2 & 3 (up to 3,200MW)
- Greater Gabbard Extension (up to 504MW – SSE share 50%)
- Arklow Bank Wind Park in Ireland (800MW)
This means that, overall, SSE has an on- and offshore wind development pipeline of over 8GW at varying stages of development.
SSE continues to engage with the Crown Estate and Crown Estate Scotland on their leasing processes for new seabed to maintain a pipeline of offshore projects through to the late 2020s and beyond.
Arklow Bank Wind Park has a lease but is awaiting details regarding the auction processes in Ireland where the new Renewable Electricity Support Scheme (RESS) is awaiting State Aid approval. SSE believes offshore wind has real opportunities from the second RESS auction, indicatively scheduled for 2020, with further auctions signalled for 2021, 2023, and 2025.
SSE’s fleet of hydro electric assets continues to deliver low-carbon power to respond to the needs of the GB electricity system. The focus continues to be on ensuring the fleet is as operationally efficient and flexible as possible. Whilst SSE has some development assets, in the form of pumped storage, there is not yet a clear route forward for commercially realising the system value that these assets could provide.
Extending SSE Renewables core competencies in renewable energy to other technologies and geographies presents significant potential to add to future growth opportunities. SSE is actively exploring opportunities and assessing whether the right risk/reward balance can be achieved. With a wealth of opportunities to pursue in the UK and Ireland, SSE will take time to evaluate all opportunities carefully, and strict capital discipline will be a feature of any decisions.
Click here to read the full statement.