SSE Proposes Closure Of Fiddler’s Ferry, The Last Remaining Coal-Fired Power

SSE Proposes Closure Of Fiddler’s Ferry, The Last Remaining Coal-Fired Power

SSE PLC (SSE) is a Perth, United Kingdom-headquartered energy company with operations and investments across the United Kingdom and Ireland, which generates, transmits, distributes, and supplies electricity, and produces, stores, distributes and supplies gas and other energy services. The group was founded through the merger of Scottish Hydro Electric and Southern Electric in 1998 and is the UK’s largest generator of renewable energy. The company has a strategic focus on regulated electricity networks and renewable energy, and the bulk of its operating profit comes from it, with these businesses forming the core of the group’s low-carbon strategy. The company is listed on the London Stock Exchange and is a constituent of the FTSE 100 index. The group employs 20,000 personnel for its operations at more than 150 locations. The current Chief Executive Officer is Alistair Phillips-Davies and was appointed to the position in July 2013.

It is primarily a developer, operator and an owner of low-carbon energy assets and is the only company on the exchange that is engaged in such a wide range of energy businesses. The company’s operations are differentiated in three operating segments: Retail, Networks and Wholesale. The Networks segments include electricity distribution, electricity transmission and gas distribution and primarily operates in the North of Scotland and the South of England, distributing electricity to customer premises. Retail segments include energy supply, enterprise and energy-related services, and is engaged in supplying gas and electricity to business and residential customers in the United Kingdom and Ireland. The Wholesale segment comprises of energy portfolio management and electricity generation, gas storage and gas production, and is engaged in energy portfolio management and electricity generation, gas storage and production, and the procurement and optimisation of power and gas and other commodity requirements in United Kingdom, Ireland and Europe.

On 13 June 2019, the company said that it was proposing to close the remaining operational units at its Fiddler’s Ferry Coal-Fired Power Station near Warrington, Cheshire by 31 March 2020, after undertaking a comprehensive review of operations and conditions. The big six supplier SSE previously announced the closure of one 485MW operating unit at the Mersey-side power station in March 2019, but the latest announcement will mean the complete closure of the last remaining coal-fired power station by 31 March 2020. In a bid to tackle climate change, as national and international policies focus on promoting lower-carbon forms of electricity generation, the power station has become less economically viable in recent years and running coal-fired stations have become increasingly challenged.

As Fiddler’s Ferry became increasingly reliant on ancillary services to make revenue, the group had been mulling the decision for several years, with financial performance deteriorating to unsustainable levels. Further losses were projected in future years, and the company reported a loss of around £40 million in the last financial year. Fiddler’s Ferry has had poor success in the Government’s Capacity Market auctions, which pays generators to be available during times of peak demand, and the plant failed to secure any contracts beyond September 2019.

Stephen Wheeler, managing director of Thermal Energy at the company, said the station was unable to compete with more modern and efficient gas and renewable generation as it was nearly 50 years old and the decision to phase out coal-fired generation by 2025 at the latest will lead to prolonged financial stress. He further added that the company’s priority is to support employees and ensure they have a range of opportunities available to them for the future as the proposed closure will impact employees and contractors at the station, their families and the local economy. The group would seek to avoid compulsory redundancies where possible for the 158 people employed at the site. It would offer voluntary redundancy on enhanced terms, while some will continue to play a role in managing the decommissioning of the plant and also look at options to redeploy employees.

Announcement of the proposed closure has caused a strong response from the union, and it said that it would be meeting with SSE management on Tuesday (18th June). Unite regional officer Graham Williams noted that this was a being a massive blow for the economy in the North West and very grim news for the workforce, with the closure increasing the likelihood of possible future power cuts. He further added that ministers are more interested in the internal energy market than the national interest as the government was not prepared to pay an economical price to have this reserve at the ready. As National Grid is seeking additional supplies and there is a surge in the energy demand during cold snaps, the power plant plays a significant role in providing back-up

Fiddler’s Ferry, which is capable of co-firing biomass as a feedstock and has two groups of four cooling towers, was regarded as a landmark in Merseyside and opened in 1973. Before SSE took it over in 2005 during privatisation, it was operated by the Central Electricity Generating Board. The operational units at Fiddler’s Ferry have a hold Transmission Entry Capacity of 1,455MW and a combined capacity of 1,510MW.

The government announced that it would bring forward a legislation which outlines achieving a net zero carbon emissions target by 2050, and coal-fired stations are facing increasing challenges in the current world conditions, with major efforts being made to decarbonise the economy. The UK has committed to ending unabated coal-fired electricity generation by 2025 at a time when coal-fired electricity generation in the country has been at all-time lows. In the first week of May, natural gas delivered 46 per cent of Britain’s electricity in that week, and its electricity generation used 0 per cent coal-fired power, powering the UK to its first coal-free week since the 1880s. Beating the record from earlier that month, Britain had a two-week coal-free run later in May. According to official figures, the share of renewables continues to grow, while the share of coal in electricity generation continues to shrink. In Q4 2018, coal’s share of generation was down by 3.4 percentage points from Q4 2017 to 5.7 per cent, while the share of renewables rose by 7.0 percentage points from Q4 2017 to 37.1 per cent. The upswing in renewable energy can be credited to a higher capacity.

In the latest filing for the financial year 2019, the company reported total revenue from continuing operation of £7,331.6m against the revenue of £27,250.4m reported in the last financial year. In the same period, the gross profit of the group plunged by 32 per cent to £1,545mOperating profit from continuing operation stood at £1,692.2m against £1,157.4m recorded in FY18. Pre-tax profit stood at £1,370.6m against £864.4m in FY18 and recorded a surge of 58.56% against the previous financial year. For FY19, profit from the continuing operations stood at £1,428.2m against £748.0m in FY18 and recorded an increase of 90 per cent.  Reported basic earnings per share from continuing operation surged to 135.2 pence against the Basic EPS of 64.3 pence reported in the previous financial year. The board of the SSE Plc have recommended a final dividend of 68.2 pence, and including the final dividend, group’s total dividend for FY19 stood at 97.5 pence against 94.7 pence recorded in FY18. Full year dividend for FY19 was 2.95 per cent higher against the previous year.

Share Price Commentary

Daily Chart as at June-14-19, before the market closed (Source: Thomson Reuters)

 On 14 June 2019, at the time of writing (before the market closed, at 12:25 pm GMT), SSE shares were trading at GBX 1,119.5, down by 0.57 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 1,405.00/GBX 997.80. The company’s stock beta was 0.67, reflecting less volatility as compared to the benchmark index. The outstanding market capitalisation was around £11.64 billion, with a dividend yield of 8.66 per cent.

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