Longannet is driving force behind profit growth at SP

Iberdrola chairman Ignacio Sanchez Galan
Iberdrola chairman Ignacio Sanchez Galan
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BETTER generation margins helped by falling gas prices helped ScottishPower deliver bumper profit growth in the first nine months of the year.

The Glasgow utility’s Spanish parent firm, Iberdrola, singled out its Longannet coal-fired ­station in Fife for particular praise but said its improved performance was “ironic” given that its future is in doubt due to the costs it has to pay to connect to the National Grid.

The improvement in generation margins helped overall UK generation and supply net profits increase to €85.1m (about £67.3m) from €17.9m, despite mild weather seeing demand for electricity decrease by 6 per cent and for gas by 17.6 per cent.

Iberdrola stressed that margins in ScottishPower’s energy supply business have remained steady in the range of 4 per cent to 5 per cent that it targets.

UK renewables output rose 13 per cent to 2.06 gigawatt hours (GWh) from 1.81GWh in the first nine months of 2013, offsetting lower average prices and a ­reduction in subsidies.

Installed renewables capacity rose 20 per cent to 1.6GW, almost all of it onshore, but the figure also included output from Iberdrola’s first offshore wind farm, the 389MW West of ­Duddon Sands facility, west of Barrow-in-Furness.

The company said that overall UK investment was on track to reach around £3.2 billion in 2014-16.

In its UK networks business, earnings rose 10.5 per cent to €727.3m thanks to higher revenues from an expanding asset base as it continues with its £2.8bn investment programme in distribution networks and £2.6bn investment in transmission networks. Net profit in the division was down to €336.5m from €438.2m.

Overall, Bilbao-based Iberdrola reported earnings before interest, tax, depreciation and amortisation up 1.4 per cent year-on-year to €5.21bn in the nine months to 30 September, slightly ahead of consensus forecasts.

Net profit was €1.83bn in the period, down 19.5 per cent from the first nine months of 2013.

Iberdrola said it was set to exceed a 2014 earnings target of €6.6bn despite the impact of a drought in Brazil and new Spanish energy regulations.

Spain’s energy reforms, which aim to cut a massive tariff shortfall in the regulated power system, have affected Iberdrola’s earnings since 2011.

Angry over the painful reforms, Iberdrola chairman Ignacio Sanchez Galan, pictured below, has vowed to cut domestic investments drastically and boost exposure abroad, especially in the United States and Mexico.

The company has debts of €26bn but said that this would be reduced to €24.7bn by the end of the year, meeting its targets two years ahead of schedule.

Earlier this month ScottishPower said Longannet’s location meant it was at a disadvantage when competing against English plants in bidding for energy generating capacity to meet the UK’s needs in 2018-19. It said financial changes were needed to avert the threat of closure. Investment of more than £200m has been made in the Longannet site in recent years, including £30m last summer on boiler upgrades.