Scottish Hydro parent company SSE has warned that its retail arm has fallen into the red because of rising wholesale gas prices and a dip in energy demand during the summer.
SSE also suffered a setback in its attempts to persuade the UK government to delay a costly energy-efficiency initiative, which critics fear could add more than £100 to bills.
The Perth-based utility had been pushing for an 18-month reprieve to meet its targets under the Energy Companies Obligation (Eco) scheme, which is aimed at cutting vulnerable customers’ power bills, but the Department of Energy & Climate Change (Decc) said on Monday that it had no plans to grant an extension to the programme, which has so far benefited almost 174,000 properties.
A spokesman for Decc said: “The targets currently set on energy companies under Eco come to an end in March 2015. We are keen to give the industry early certainty on arrangements beyond that, and we expect to consult in early 2015 on the future of Eco after March 2015.”
Under Eco, suppliers such as Scottish Gas, ScottishPower and SSE will have to deliver energy-efficiency measures targeted at vulnerable consumers or those living in “hard to treat” homes.
The scheme was established in January and companies face the prospect of being fined up to 10 per cent of their turnover by industry regulator Ofgem if they have not met their obligations by March 2015.
Suppliers will pass on the costs to customers through a levy on bills, and some in the industry have estimated that the initiative could end up costing as much as £2.3 billion.
A spokesman for SSE said the group wanted to deliver the scheme in a cost-effective manner but “it makes sense to extend the first phase for 18 months in order to protect customers”.
Despite warning that its first-half profits are expected to fall short of last year’s £397.5 million, SSE stressed that it remained on track to meet its “principal financial objective” of delivering an inflation-beating rise in its annual dividend.
The group’s retail operation, which has about 9.5 million customers across Britain and Ireland, saw its annual operating profits surge 27.5 per cent to £410.1 million last year as the cold weather pushed up energy consumption.
However, the business is expected to have made a loss during the six months to 30 September, “reflecting higher wholesale gas costs and the heightened impact of fixed distribution and other costs, which themselves were rising, during the spring and summer period of lower energy consumption”.
Finance director Gregor Alexander said the utility prefers to focus on the full-year picture, as its half-year results are likely to show “unusual variations”, and insisted the group has made “solid progress” in the face of tough market conditions.
Labour leader Ed Miliband last week promised a 20-month freeze on energy bills if Labour won the 2015 general election, leading to warnings of power cuts and a drop in investment, but Chancellor George Osborne told the Conservative Party conference yesterday that companies would simply “jack up prices before the freeze, so in the short term prices go up”.
SSE, which was fined a record £10.5m by Ofgem earlier this year after being found guilty of providing inaccurate and misleading information on energy prices, is due to publish its first-half results on 13 November.
Alexander said: “Despite the intensifying political debate, we will maintain our operational and financial discipline, to enable us to deliver an above-inflation increase in the dividend for this financial year and beyond.”