CREATING VALUE THROUGH THE LOW CARBON TRANSITION SSE RENEWABLES - - PowerPoint PPT Presentation

SSE RENEWABLES OVERVIEW

OCTOBER 2019

CREATING VALUE THROUGH THE LOW CARBON TRANSITION

SSE Renewables brings together the development and operation of all of SSE’s renewable energy assets under a single management team, creating a leading renewable energy company across the UK and Ireland, with ambitions beyond those two countries. It has a sector-leading management team with the focus, specialisation and innovation needed in a distinct part of the energy sector, in which SSE has a large pipeline of opportunities.

KEY SOURCES OF VALUE

• Biggest renewable energy portfolio across UK & Ireland
• Technology diversity (flexible hydro, run-of-river hydro, pumped

storage, onshore wind, offshore wind)

• Semi regulated income
• Operational excellence
• Development and construction expertise

SSE RENEWABLES

LEADING IN RENEWABLE ENERGY

Page 2 Onshore operational Offshore operational Hydro operational Offshore Awarded Cfd Contracts Sept 2019

RENEWABLE ENERGY

GENERATING RETURNS

KEY FACTS

• Owned capacity in operation of around 4GW in UK and Ireland
• Operate a further 1.2GW of onshore and offshore wind on behalf of partners
• Awarded over 2.2 GW of CfD contracts in recent Round 3 auction
• Aligned to geo-political low carbon transition
• Capacity

1,450MW

• FY19 Adj. EBIT

£179m

• Efficiency

investment

• pportunities
• Capacity

1,955MW

• FY19 Adj. EBIT

£188m

• 1GW+

pipeline

• Capacity

579MW

• FY19 Adj. EBIT

£89m

• 7GW+

pipeline

HYDRO ONSHORE WIND OFFSHORE WIND CAPACITY (MW) REMUNERATION SCHEME Status 2,254 CfD £/MWh Awarded in Round 3 2,235 ROC £/MWh Operational 235 CfD £/MWh Operational 375 REFIT €/MWh Operational 850 Capacity Mechanism £/MW Operational

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Perfect compliment to wind intermittency

• Flexible running
• Capture peak prices
• Retained storage

RENEWABLE ENERGY – SSE HYDRO

SSE effectively owns UK’s Biggest Battery

MW Hydro Technologies 750 Flexible Hydro 400 Run of River 300 Pumped Storage 1,450 SSE Total Hydro Capacity

2GW OF CAPACITY PLUS 1.2GW PIPELINE OF ONSHORE WIND PROJECT OPTIONS ONSHORE

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RENEWABLE ENERGY - SSE ONSHORE

Generating Returns

OPERATIONAL 1,247 141 567 1,955 GB Onshore NI Onshore ROI Onshore

MW

REQUIRING CONSENT 139 215 186 540 Doraville New wind Other extensions

MW

CONSENTED 133 38 49 28 248 Strathy South Gordonbush Extension Tangy Other

MW

Viking (Island Wind ) Consented

Central to progress is Ofgem’s consultation on the new transmission link for Shetland

WORKING TO DELIVER

MW

457

0.6GW OF CAPACITY PLUS 7GW PIPELINE OF OFFSHORE WIND PROJECT OPTIONS IN PROGRESS OFFSHORE

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RENEWABLE ENERGY - SSE OFFSHORE

GENERATING RETURNS

OPERATIONAL 252 92 235 579 Greater Gabbard Walney Beatrice

MW

REQUIRING CONSENT 3,200 250 3,450 Seagreen – Ph2 /3 Greater Gabbard Ext.

MW

AWARDED 2019 CFD CONTRACTS

600 600 600 454 2,254 621 Dogger Bank Teeside A Dogger Bank Creyke Beck A Dogger Bank Creyke Beck B Seagreen Phase 1 Seagreen Phase 1* * No CfD but planning to build MW

CONSENTED 800 Arklow Bank (ROI)

MW

SSE RENEWABLES

Awarded CfD Contracts in Sept 2019 Round (3)

MW (SSE Share) SSE Ownership Price £/MWh Delivery Year Dogger Bank Creyke Beck A 600 50% 39.65 2023/24 Dogger Bank Creyke Beck B 600 50% 41.61 2024/25 Dogger Bank Creyke Teeside A 600 50% 41.61 2024/25 Seagreen 454 100% 41.61 2024/25 Total 2,254

• Auction contracts to be signed
• Financial Investment Decisions on Doggerbank and Seabank to be taken in 2020
• SSE continue to monitor the Judicial Review application to BEIS by a third party

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• Remaining 50% Doggerbank owned by Equinor
• In 2012 prices which will be inflated by CPI

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AUCTION PROCESS

Sealed bid window

09 Aug -29 Aug 30 Aug -16 Sep 20 Sep

Contracts processed and distributed

23 Sep -04 Oct

Sign contracts and return to LCCC

07 Oct -18 Oct

CFD AUCTION

Run Allocation and Independent Audit process

30 Aug -16 Sep

CfD Notification (results go out)

20 Sep

SSE RENEWABLES

FINANCIAL PERFORMANCE

EBITDA £m 2019 2018 2017 2016 Hydro 220 214 231 266 Onshore 318 342 208 251 Offshore 156 137 142 131 Total 694 693 581 648

• Consistently strong performance underpinned by growth pipeline
• Total renewable adj. EBIT of around £525m expected for FY20 *

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* inc. £26m of suspended capacity mechanism payments relating to contracts for the period after suspension 18/19 and all of 19/20

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ONSHORE BUILD COST POST 2015 £1.4m/MW

Average cost of SSE onshore build Project Cost £m Completion Date Capacity MW Build Cost £/MW Strathy North 119.2 Nov 2015 67.6

1.8

Tievenameenta 52.3 Mar 2017 34.5

1.5

Slieve Divena II 28.0 May 2017 18.8

1.5

West Galway 94.4 May 2017 66.0

1.4

Dumnaglass 210.0 July 2017 94.1

2.2*

Bhlaraidh 134.1 Oct 2017 108.0

1.2

Leenamore 33.0 Feb 2018 20.7

1.6

Stronelairg 343.8 Dec 2018 227.6

1.5

*Dumnaglass includes acquisition costs

SSE RENEWABLES

ONSHORE DEVELOPER CREDENTIALS

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DEVELOP & BUILD STAKE SALE

Operated under MSA Developer - SSE Renewables 66 Vestas turbines 227.7MW 31.6 KM2 site ROC accredited Planning consented in June 2014 Build time 18 months to Dec 2018 Contractor – RJ McLeod Cost - £343.8m Delivery ahead of time and underbudget

£450.4m

Price for 49.9% stake sold in March 2019

3.96 £/MW

Highest ever multiple for onshore windfarm disposal in Europe PPA agreement with Currently operates 2.6GW of onshore wind for wholly owned, 3rd party and partner assets

OWN & OPERATE

Ownership

50.1%

Retained ownership stake, will benefit from earnings and dividends form the windfarm

Market rate PPA with SSE

CASE STUDY

STRONELAIRG ONSHORE WIND FARM

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• SSE Renewables lead developer
• 40% owned
• Financed off balance sheet
• 88 Siemens turbines
• 588MW
• Underpinned by 15 year Cfd - £151/MW in 2016 prices
• Build time 36 months to May 2019
• Cost - £2.5bn
• Delivery ahead of time and £100m underbudget

SUCCESSFUL REFINANCING

• Refinanced in May 2019
• 15 year term
• Gearing increased post construction allowing equity release via dividends
• 29 banks subscribed 24 hedging banks
• Commercial banks and institutional investors

PARTNERS HIGHLIGHTS

CASE STUDY

BEATRICE OFFSHORE WIND FARM

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HYDRO ONSHORE OFFSHORE

40% to 50% 35%

Based on 8 year average

25% -33%

Pre 2015

40 – 45%

Post 2015 1,150 MW

• Exc. pumped storage

1,955 MW 579 MW

TECHNOLOGY

Load Factor Capacity*

• Based on typical year
• Wind is gross of constrained off volumes which can be in the range of 1-3%

LOAD FACTORS

*as at September 2019 Page 13

1 2 3-10

• 1
• 2+

Crown Estate Scotland – bidding process

1 2 3-10

• 1
• 2+

Agreement for Lease Year Option agreement year

Fee/km2 for the <=10 year period Habitats Regulation Assessment (HRA)* Habitats Regulation Assessment* 1x annual payment AfL Payment

Payment

£0.5m + next x2 annual payment (min 3yr commitment)

The Crown Estate – bidding process

*Environmental consultation undertaken in parallel to the bidding process Risk of bidding for site which is not included in the adopted plan (but negligible financial risk)

*Environmental consultation undertaken after sites awarded As a result, the deposit of 1 year’s lease payment is at risk HRA may extend beyond 12 months

Key characteristics:

• Option fee auction based (likely to be

higher than in Scotland)

• Initial deposit of 1 years’ lease payment is

at risk while Habitats Regulation Assessment (HRA) is undertaken Key characteristics

• Auction process with bids capped
• Paid in full at the outset of the lease
• Financial risk owing to environmental

considerations is limited to the application fee (£20k) Outcome determined by:

• Price bid into auction
• Full detailed technical analysis
• Potential breach of lease if milestones

not met Outcome determined by:

• Qualitative characteristics
• Health & Safety
• Environmental
• Project delivery
• Technical experience
• Quality assurance

NEW SEABED LEASING TIMETABLE

Milestones/Option to break at Yr 3 Various milestones Page 14

500 1000 1500 2000 2500 3000

SSE ROCS EXPIRY PROFILE - MW

hydro

• nshore wind
• ffshore wind
• ffshore double roc
• Hydro ROCs expire from March 2027
• Double ROCs on offshore wind mean impact

delayed to 2032

• Newer onshore wind receives 0.9 ROCs out to

March 2037

POST ROCS:

• Significant repowering potential
• Replace with larger turbines
• Existing ground works reduce costs
• Supply chain efficiencies

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MAJORITY OF ROCs IMPACT NOT UNTIL 2032

ROCs year April to March

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HIGHLIGHTS

• A leading renewable energy company across the UK and Ireland
• Aligned to geo-political low carbon transition
• The UK needs a lot of renewables to meet its 2030 and 2050 targets

– and we can be part of the solution

• Over 800 staff
• Overseas ambitions

KEY SOURCES OF VALUE

• Biggest renewable energy portfolio across UK & Ireland
• Technology diversity (flexible hydro, run-of-river hydro, pumped storage,
• nshore wind, offshore wind)
• Semi regulated income
• Operational excellence
• Development and construction expertise

SSE RENEWABLES

LEADING IN RENEWABLE ENERGY

SSE INVESTMENT CASE

▪ Clear dividend commitment ▪ Underpinned by strategy to create and unlock value for shareholders from being a developer, an operator and an owner of energy-related assets and businesses through the transition to a low carbon energy system ▪ Focusing on regulated electricity networks and renewable energy.

STRATEGIC FOCUS ON REGULATED NETWORKS AND RENEWABLES

EXECUTING OUR STRATEGY:

FOCUSING ON THE CORE of regulated electricity networks and renewable energy, complemented by flexible thermal generation. DEVELOPING, OWNING AND OPERATING applying world-class skills and experience to the low-carbon infrastructure needed now and in the future. CREATING VALUE through development, construction, operation and

• wnership of energy assets.

BEING SUSTAINABLE by pursuing targets aligned to four UN Sustainable Development Goals.

INVESTMENT PROGRAMME

• £6bn capex in the 5 years to FY23
• 70% in Networks and Renewables

FINANCIAL STRENGTH

• Average cost of debt 3.7%
• S&P BBB+ stable
• FFO/debt about 18%
• Moody’s Baa1 stable
• RCF/debt around 11% FY19 and FY20, then

trending towards the ‘low-teens’

£8bn

NETWORKS RAV

4GW

RENEWABLE CAPACITY

COMBINED £1.5BN EBIT FY19 EBIT split* Renewable Networks Other *Excluding Energy Portfolio Management

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SSE’S COMMITMENT TO CREATING VALUE THROUGH THE LOW CARBON TRANSITION

OPPORTUNITIES FOR SSE THROUGH THE LOW CARBON TRANSITION

UK LEGISLATION FOR ‘NET ZERO’ EMISSIONS BY 2050

UK is the first major economy to legislate for ‘net zero’ emissions

• Electrification of transport and heat
• Maximising renewable energy sources key to achieving target
• Central enabling role for electricity networks

IRISH CLIMATE ACTION PLAN

Irish Government supports adoption of a net zero target by 2050

• Aim for >70% of Ireland’s electricity from renewables by 2030
• Commitment to carbon pricing as a core policy measure to reduce

greenhouse gases

SSE OPPORTUNITIES THROUGH LOW CARBON TRANSITION

• Pipeline of over 8GW of onshore and offshore wind farm developments
• Potential to treble renewable energy output to over 30TWh by 2030
• Climate Change Committee advice foresees 75GW of offshore wind

needed to meet 2050 targets

• Powerful case for investment in electricity transmission
• Could take Transmission RAV from £3.3bn to £5bn by 2026
• Leadership in innovation in electricity distribution
• Capable of delivering transition to Distribution System Operator (DSO)

CLEAR DIVIDEND COMMITMENT

• First financial goal is paying dividends
• Five-year dividend plan from FY19 to FY23
• High quality renewables and networks assets
• Strong balance sheet
• Substantial pipeline of growth opportunities
• Aligned with decarbonisation agenda
• Forecast dividends FY19-FY23 expected to total c£4.25

per share

FY19a Full-year dividend of 97.5 pence per share FY20e Full-year dividend of 80.0* pence per share FY21e Annual increase of at least RPI FY22e Annual increase of at least RPI FY23e Annual increase of at least RPI

*intend to recommend

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Renewables – Generating Returns Supporting Dividend Growth

Forecast

Extensive portfolio of high quality assets that deliver earnings to underpin SSE’s dividend commitments

Dividend per share, pence

FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20e FY21e FY22e FY23e 25.7 27.5 30.0 32.4 35.0 37.7 42.5 46.5 55.0 60.5 66.0 70.0 75.0 80.1 84.2 86.7 88.4 89.4 91.3 94.7 97.5 80.0*

+RPI +RPI +RPI

Likely to be at least c.£4.25

* FY20 – intend to recommend

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DISCLAIMER This investor presentation contains forward-looking statements about financial and operational matters. Because they relate to future events and are subject to future circumstances, these forward-looking statements are subject to risks, uncertainties and other factors. As a result, actual financial results,

• perational performance and other future developments could

differ materially from those envisaged by the forward-looking statements. SSE plc gives no express or implied warranty as to the impartiality, accuracy, completeness or correctness of the information, opinions or statements expressed herein. Neither SSE plc nor its affiliates assume liability of any kind for any damage or loss arising from any use of this document or its contents. This document does not constitute an offer or invitation to underwrite, subscribe for, or otherwise acquire or dispose of any SSE shares or other securities and the information contained herein cannot be relied upon as a guide to future performance. DEFINITIONS These financial results for the twelve months to 31 March 2019 are reported under IFRS (International Financial Reporting Standards), as adopted by the EU. In order to present the financial results and performance of the Group in a consistent and meaningful way, SSE applies a number of adjusted accounting measures throughout this financial report. These adjusted measures are used for internal management reporting purposes and are believed to present the underlying performance of the Group in the most useful manner for ordinary shareholders and other stakeholders. The definitions SSE uses for adjusted measures are consistently applied and are explained in the Alternative Performance Measures section before the Summary Financial Statements. In preparing this financial report SSE has been mindful of the commentary issued in May 2016 by the Financial Reporting Council on the European Securities and Markets Authority’s Guidelines on Alternative Performance Measures. SSE will monitor developing practice in the use of Alternative Performance Measures and will continue to prioritise this, ensuring the financial information in its results statements is clear, consistent and relevant to the users of those statements. Important note: SSE Energy Services At 31 March 2019, SSE has assessed that it is highly probable that SSE Energy Services will be disposed and has presented the assets and liabilities of that business as held for disposal and the business activity as discontinued (see note 4.2. (i) of the Summary Financial Statements). ‘Held for disposal’, as presented throughout this statement may be either ‘held for sale’ or ‘held for distribution’ as defined by IFRS 5. Therefore, the results of SSE Energy Services have been excluded from the profit and loss metrics. As the Group continues to fund SSE Energy Services, and will do so until completion of the transaction, the capital expenditure and debt related metrics presented include the activity of that business.

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