It is quite something when a company overturns all the rules of the stock market in one day. Have the markets reached such a dizzy state that any changes are magnified in the share price – either up or down? Or is steady state transmission the new sexy investment?
SSE's pivot to transmission last week was met with a 17% increase in its share price on the day. And that is not all. Since September the share price has risen from just over £1,600 to just under £2,000 before last week's announcement to hover around £2,250 now – quite a jump in two and a half months – particularly when you consider the company posted a 28% year-on-year drop in first-half adjusted pretax profit to £521.5m for the six months ended September 30. At the same time the company announced a £2bn rights issue, not normally an event which sends the shares jumping up – indeed usually the reverse.
Was the previous strategy so awful that the shareholders were jumping for joy with the new plans? Probably not. SSE announced its new £33bn investment programme to 2030 with 80% of the funding going to transmission and 20% to the rest including renewables and thermal. This compares to 50/50 in the plan to 2025 put in place at a time when renewables were the hot ticket and building transmission was almost an obligation. How times have changed.
The SSE six-month results were hit by lower output and unfavourable weather conditions. Are we back to the days when insurance companies always blamed the weather, a bad winter, every year with high insurance claims leading to lower profits?
Across Europe the weather, that is low wind, has apparently not been too good for renewables this year. Low wind seems to be a perennial problem. It always seems to be low, since the days of the first wind-backed credit rating challenged project bonds, to now. Perhaps that is unfair, we journalists don't notice the good wind reports; only the bad ones. But I do remember asking wind experts from time to time, why not lower than the wind forecasts as opposed to the wind itself being low?
RWE was another last week to report low wind this year due to usually low wind in 2025. Still, never mind, it managed to pull off the same trick as SSE. In its nine-month results, Ebitda was down 13% to €3.48bn, although this figure was higher than expected, but the shares jumped 9% – indeed they have risen to their highest level since March 2011 when Angela Merkel decided to cancel Germany's nuclear fleet in the light of the Fukushima disaster in Japan.
RWE's shares have followed a similar path to SSE's in recent months – from €35.50 in mid-September to €43 last week and on to about £46 now. RWE had its transmission turbo charged in September when it bought Apollo into help fund its grid upgrades in Germany via Amprion. But last week saw a new share kicker coming into the mix – data centres and coal-fired power stations. Well, not current coal plants but old coal-fired power sites which the large utilities must have thought to be worthless are now worth tidy packet.
Coal-fired power stations needed water and power grid access in the 20th century and by a happy coincidence so do the current commercial stars of the 21st century – data centres. So just stick a data centre on an old site – although presumably there is some site clearance needed. RWE announced a £225m sale on an unnamed UK site, why not say it is Didcot, and said it had 10 more sites in the UK, Germany and the Netherlands.
This week EDF joined the party by selecting InfraCapital Partners and Iliad Group joint venture Opcore to develop a data centre of several hundred megawatts on the site of the former Montereau-Vallee-de-la-Seine coal-fired power plant near Paris. Funny, I thought EDF was all nuclear.
Spare a thought, however, for previous commercial star of the 21st century – offshore wind. Northland Power's shares have risen this year from C$18 to C$26 but fell right back down to C$18 when it reported its nine-month results. Indeed, unlike SSE and RWE, it found good wind in its sails and its Q3 revenue from energy sales came in at US$554m, up from US$491m a year earlier, while adjusted Ebitda rose 13% to US$257m.
But losses, which are important too, widened to US$456m from US$191m a year earlier, reflecting a US$527m impairment on the Nordsee One offshore wind farm, which will transition from Germany’s subsidised tariff regime to market pricing by 2027. That was presumably to be expected, but in addition delays to commissioning the turbines at the 1GW Hai Long offshore wind project in Taiwan could impact the pre-completion revenues of the company by US$150m–$200m.
When you are on a roll, you are on a roll. When not, oops.
