AS the Chancellor Rishi Sunak prepared for the spending review announced yesterday, an update from SSE provided a reminder of how important it is that any subsidies provided to firms are necessary and effective.
Given the pressure on public finances and households resulting from the coronavirus crisis, that applies whether support comes from governments or consumers.
Perth-based SSE posted a £418 million underlying operating profit for the six months to September, a period in which the economy shrank disastrously and hundreds of thousands of people lost their jobs.
SSE was able to shrug off a £115m hit to profit resulting from the coronavirus, which it warned could rise to £250m for the full year.
The group did not feel it needed to change a generous dividend policy that was introduced in 2019. It is still targeting dividend increases in line with inflation during the current year and in the two following years.
The interim dividend increased to 24.4p per share, up from 24p. The full year payment is due to be at least 80p
If SSE shares remain at around 1380p that would leave buyers in line to enjoy a yield of six per cent, a tidy return when savers are getting less than 1% on deposits.
SSE’s chief executive, Alistair Phillips-Davies, said the results covered “yet another period of strong operational performance and strategic progress in establishing SSE group as the UK and Ireland’s pre-eminent green energy company”.
The company has decided to focus on renewable energy generation and related transmission networks under Mr Phillips-Davies.
It exited the controversial retail business in January by selling its household supply arm to Ovo for £500m.
Mr Phillips-Davies said SSE will continue to invest in gas-fired power for the time being because it can be used to balance out fluctuations in the amounts of power generated from renewable sources and is cleaner than coal.
But he made clear that SSE reckons the biggest prize lies in renewables.
The company said it expects to treble its renewable output by 2030.
It is making progress with a £7.5 billion investment plan under which it plans to build the huge Seagreen windfarm off Angus and a similarly massive one in Shetland.
Environmental campaigners in Shetland are not happy about the prospect of the Viking development but SSE feels its projects will form an important part of the effort to achieve net zero carbon emissions.
In a call with reporters, however, Mr Phillips-Davies made clear that SSE will only back projects on which it expects to achieve strong returns.
He renewed calls for the regulator Ofgem to back down in the row about the level of returns that energy firms should be able to make on their investment in networks.
In July, Ofgem said it wanted to curb the returns firms can expect to generate on investment in networks at around 4%.
Mr Phillips-Davies said Ofgem’s brief should be amended to include an explicit commitment to supporting the net zero drive.
But people are entitled to ask whether a commitment to net zero involves allowing energy firms to generate returns that others could only dream of.
The Bank of England may leave the base rate at 0.1% for a long time.
The numbers involved in network development may be big and the technical challenges considerable but returns on investment are effectively secured for years under the price control regime.
At the end of the day the costs will be picked up by consumers through their energy bills.