In its half-year presentation in November SSE hailed its thermal plant portfolio as improving group earnings stability via capacity contracts, and providing a “natural hedge” against lower wind output or higher prices. That proved true in the nine months to 31 December when “exceptionally still and dry” weather cut its renewable energy production from wind by 19% against expectations, and overall renewables by 13%. Nevertheless the company upgraded its expectations for full-year 2021/22 adjusted earnings per share from 83p to “at least 90p”. According to a trading statement for Q3 2021/22 good financial performance from its flexible thermal and hydro plant more than offset lower than planned renewables output.
The thermal offset did not come simply from energy production: SSE expects the profit from its SSE Thermal group, which also includes oil and diesel plant, to be ‘ahead of plan’ despite the fact that gas-fired generation plants also saw production fall in the nine months to 31 December.
The company said generation from its thermal generating plants, which are in GB and Ireland, fell by 14% to 11,187GWh (although oil-fired generation, included in the figure, was 642GWh, up from 242GWh) from the same period in 2020, reflecting plant availability and market conditions. But it said that the role of thermal generation is now “creating value by providing vital balancing services to enable a renewables-led system”. Profitability is therefore less dependent on the volume of its output.

Frequency pays for Gore Street
SSE Thermal is not the only company whose profit is shifting to the balancing market and grid services.
In a recent market update Gore Street Energy Storage Fund said that its battery assets had benefitted from ‘record prices’ for frequency contracts, at approximately £25 per MW per hour. That had delivered returns “which are significantly above the company’s base case across Gore Street’s GB operational portfolio (110MW),” the Fund said, noting that its flexible assets are able to take advantage of a variety of contracts depending on prevailing market conditions.
Gore Street said that during Q4 2021, historic highs in energy prices as well as volatility were driven by “historical low wind generation, planned and unplanned generation plant outages, unforeseen interconnector failure and high gas prices”. It said the scale up of renewable energy generation, and the consequential need for grid flexibility, suggests that the market will have high levels of volatility throughout 2022.