Utility Week

UTILITY Week 20th February 2015

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UTILITY WEEK | 20Th - 26Th FEbrUarY 2015 | 21 Finance & Investment This week Severn Trent results on track despite costs Efficiency improvements will help water company offset impact of inflation and rising operating costs Severn Trent expects its costs to rise year on year but will still deliver full year results in line with shareholder expectations. In its latest trading update the water company said its oper- ating costs are expected to rise year on year "due to the impact of inflation and quasi taxes". But Severn Trent said these costs will be partially offset by efficiency improvements. For the latest financial year the dividend policy for the company is set at 84.90 pence, representing growth of 5.6 per cent year on year. But from 2015-20 the company will implement its new dividend policy aer it accepted Ofwat's final price control determinations for the period, which will cut customer bills from an average of £333 to £329 over five years. The company confirmed on Friday that the 2015/16 dividend will be set at 80.66 pence, a reduction of 5 per cent. The policy will then be to grow the dividend annu- ally at no less than RPI until March 2020. The company anticipates its operating expenditure will be in line with expectations and the level set in Ofwat's AMP5 determinations. Net capital expenditure will remain steady at £530-545 million and the level of expected net infrastructure renewals expenditure included in capital investment is set to remain between £130 million and £140 million. An ongoing restructure is nearing completion and will give rise to an expected exceptional charge of £25-30 million in the second half of the year. It will, however, save about £20 million a year from 2015/16. JA ELEcTrIcITY EDF confirms Hinkley delay French energy giant EDF has confirmed reports that a final investment decision on its £24.5 billion Hinkley Point C nuclear project will be delayed until aer the UK general election. The UK's first new nuclear project in a generation was expected to receive the go-ahead from investors in March this year. The company said it was working with the government to finalise documents, this would "allow a final investment decision to be possible in the next few months". It added that "progress is being made with Chinese partners on all aspects of their nuclear industrial co- operation in the UK". Also, the company reported an earnings fall of 8.5 per cent year on year in 2014 to €1,941 million, mainly the result of unplanned outages at nuclear stations in Heysham and Hartle- pool last summer. EnErgY £60m for local green energy projects Business secretary Vince Cable has announced an investment of £60 million in new UK com- munity-scale renewable energy projects. Of this, £50 million will be provided by the UK Green Investment Bank (GIB) and the Strathclyde Pension Fund (SPF) will invest a further £10 million. Power generation company Albion Community Power (ACP), will invest the capital on behalf of GIB and SPF. The firm hopes to attract a further £40 million from co-investors to take the total to £100 million. The finance will provide equity funding of £1-10 million for projects including run-of-the- river hydropower, onshore wind on brownfield sites, and biogas projects. The first will be a 2MW hydropower project on the River Allt Coire Chaorach. EnErgY Developers exploit subsidy loophole Small scale wind developers are cashing in on a subsidy loophole by underestimating the capacity of the installed turbines to take advantage of a scheme to sup- port low-capacity projects, says think-tank IPPR. The IPPR says developers "derate" wind projects to qualify for the feed-in tariff designed for 100-500kW projects. "By installing derated tur- bines, developers are making larger profits off a feature of the scheme that was designed to support small-scale projects," the think-tank said in a report. It added: "Each derated turbine will earn £100,000 in 'excess subsidy' each year." Operating costs to rise year on year Stock watch 25 24.5 24 23.5 23 EDF sharE pricE, 11 FEbruary - 17 FEbruary 11 Feb 12 Feb 13 Feb 16 Feb 17 Feb 25 24 23 22 21 EDF sharE pricE, DEcEmbEr 2014 - FEbruary 2015 Dec 2014 Jan 2015 Feb 2015 EDF shares fell by 4.5 per cent after the French group's financial statement on 12 February, despite broadly positive results. RBC Capital analyst Martin Young said: "Yes, there are uncertainties, but [regulated] tariffs were never going to be solved today, and we do not believe that the equity story has taken a turn for the worse based on today's release." "We would use this as an opportunity to top up," he added.

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