Right actions, right now24 May 2023
Right actions, right now
As a purpose-led developer, builder and operator investing in low-carbon electricity infrastructure, SSE is working to deliver a strategy that is making energy cleaner, more secure, and more affordable. The Net Zero Acceleration Programme that we launched in November 2021 was designed to meet demand for what SSE has to offer as the world weans itself off carbon. But, in the intervening 18 months, that demand has grown exponentially, and we have acted now to upgrade our plans to keep pace.
Getting everyone who works for SSE home safe every day will always be SSE's top priority and we recognise there is a correlation between record levels of investment and heightened risk from the associated increase in construction activity. With the tragic death of a young contractor, Liam Macdonald, in June 2022 - and an overall increase in injuries during the year - we continue to prioritise and focus on all aspects of safety.
Against the backdrop of war in Ukraine, market upheaval and cost inflationary pressures on energy users, 2022/23 has not been without its challenges. I'd like to thank our direct employees and contractors for the hard work and commitment that has gone into a year of excellent financial and operational performance.
And on behalf of the Board and the executive team I'd like to thank Gregor Alexander for the indispensable part he has played as Finance Director for the past 21 years. We are losing one of the FTSE's finest FDs but, after a rigorous selection process, we have a highly capable successor in Barry O'Regan.
Creating value for shareholders and society
This has been a year of strong financial performance that will create lasting shareholder and societal value. These results show the value of a balanced portfolio of market-focused energy assets that are supported by regulated income from electricity networks.
While still weather and project timetables have impacted wind generation output, this has been offset by efficient operation of our thermal and gas storage businesses, and flexible hydro assets, which provided timely backup for the market when it was needed.
The profit we are making has an underlying purpose as we reinvest additional earnings back into critical national infrastructure. We invested £2.8bn in 2022/23 - an all-time record level of capital expenditure and investment for SSE which represented a 36% increase year-on-year - and much of that spend was on major projects in networks and renewables. We have said that we expect to break that record again in 2023, as we continue to put profits to work for all our stakeholders.
Picture: HVDC underwater cable laying to connect Shetland to the GB energy system
Delivering on our strategy
Delivery of our net zero-focused strategy is amply demonstrated by a long list of milestones summarised here but covered in greater detail in the Operating Review to be found in the following pages.
Progress was made in the year on flagship projects like Dogger Bank, Seagreen and Viking wind farms; exploratory works got under way on the Coire Glas pumped storage hydro development and repowering continued on the Tummel hydro scheme. The purchase of SGRE's Southern European onshore development platform started to bear fruit, with construction shortly to be under way on the first project in France. And the pipeline continues to grow at home, with Irish developments and domestic solar and battery projects, and abroad, with development projects in Spain, France, Italy and Greece as well as opportunities being explored in Japan, the US, the Netherlands and Poland.
SSE Thermal's performance in the year is matched by our longer-term ambitions for the fleet's lower-carbon future. We were pleased with the delivery of our new high-efficiency Keadby 2 CCGT; Tarbert and Platin secured capacity contracts for new biofuel plant; the signs are good for our Aldborough Pathfinder Hydrogen project and we remain confident that CCS will in time be built at both Keadby 3 and Peterhead 2, both of which are needed to meet net zero targets. The acquisition of Triton Power, meanwhile, added new decarbonisation options to the SSE Thermal portfolio and paid for itself in the year as it provided vital flexible capacity in an exceptionally tight market.
In networks, construction continues at pace on SSEN Transmission's pioneering HVDC link to Shetland and the successful sale of a minority stake in the business to Ontario Teachers will unlock capital for further growth. We achieved final settlement on a RIIO-ED2 price control that balances the needs of customers and net zero and SSEN Distribution is getting to work on delivering its £3.6bn business plan. And, as ever, the business had to cope with the worst of the British weather in the year but lessons learned from the extreme, back-to-back weather events of 2021/22 led to an improved response to the ice storm that hit Shetland and later during Storm Otto.
Picture: Offshore wind turbine foundations (jackets) for Seagreen, the world's deepest fixed-bottom offshore wind farm
Net Zero Acceleration Programme Plus
We are on a firm financial footing as we deliver our current portfolio of large capital projects and plan for future investment and growth. World-class assets underpin the balance sheet; our credit ratings compare favourably with our peers; and the recent transmission stake sale, weighted against record levels of capex, mean adjusted net debt and hybrid capital was £8.9bn at the year-end.
This financial strength, combined with performance in 2022/23 and the wealth of opportunities we are generating, gives us the confidence to upgrade the Net Zero Acceleration Programme that was announced in November 2021. The NZAP, as we call it, was only ever a baseline plan and now, 18 months on, the addition of a "Plus" reflects new projections including upgraded capex and new growth targets for Adjusted EPS, renewables capacity and networks RAV as well as supporting a higher dividend growth rate than previously indicated.
Under the NZAP Plus we plan to invest £18bn out to 2026/27, or around £10m a day, in the infrastructure needed for net zero and energy security, compared to £7.5m a day under previous plans. The new plan also promises even more balance than the original NZAP, with more geographical and technological diversity, but also more stability, with higher capex percentages going into regulated networks.
And we have concluded after careful consideration of the balance and financial strength of the new plan, that retaining full ownership of SSEN Distribution is the right strategy at this time. We remain focused on maximising the growth potential in this core business as it plays a key role in enabling net zero for consumers.
Picture: SSEN Distribution poles and wires in field
Doing more for the planet
SSE's long-held purpose - providing energy needed today while building a better world of energy tomorrow - means we seek to provide solutions to the climate-related problems faced by people and the planet. We are doing that by contributing to every stage of the clean electricity value chain and remain accountable to verified business goals that are science-based and aligned to a 1.5C global warming pathway.
We understand decarbonisation of the economy will be disruptive, so every effort must be made to leave no-one behind, and this is why we are championing a just transition. An increasing number of the 1,000 quality green jobs we create each year now go to people moving across from high-carbon industries.
One of the UK's first shareholder-approved Net Zero Transition Reports, stretching business goals aligned to a 1.5C pathway, commitment to Fair Tax, leadership on the Living Wage, and provision of safe and inclusive workplaces are all reflected in our place in leading sustainability indices and confirm SSE's standing as an ESG-rated stock.
More growth to come
SSE is a clean energy champion providing critical, low-carbon infrastructure needed to meet net zero targets and bolster system security in our home markets and further afield. We aim to deliver over 20% of the networks and offshore wind investment required to meet UK climate targets.
Our original investment programme looked to optimise our growth and fulfil our potential though accelerated investment, with net investment potentially exceeding £25bn by 2030/31 in the UK and Ireland by the end of the decade. Eighteen months on, and assuming a supportive policy environment, our investment could total around £40bn by 2031/32, consolidating our position as one of the FTSE's largest UK's capital investors.
We offer a compelling investment proposition: with balance sheet strength; wide ranging optionality; depth in capability; investment in Thermal flexibility now paying off and exciting and increasing growth prospects in all our businesses. Ultimately this has allowed us to update our base case plans and provide shareholders with sustainable earnings and dividend growth while creating real value for society.