AS the Chancellor Rishi Sunak prepared for the spending review announced yesterday, an update from SSE provided a reminder of how important it is that any subsidies provided to firms are necessary and effective.

Given the pressure on public finances and households resulting from the coronavirus crisis, that applies whether support comes from governments or consumers.

Perth-based SSE posted a £418 million underlying operating profit for the six months to September, a period in which the economy shrank disastrously and hundreds of thousands of people lost their jobs.

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SSE was able to shrug off a £115m hit to profit resulting from the coronavirus, which it warned could rise to £250m for the full year.

The group did not feel it needed to change a generous dividend policy that was introduced in 2019. It is still targeting dividend increases in line with inflation during the current year and in the two following years.

The interim dividend increased to 24.4p per share, up from 24p. The full year payment is due to be at least 80p

If SSE shares remain at around 1380p that would leave buyers in line to enjoy a yield of six per cent, a tidy return when savers are getting less than 1% on deposits.

SSE’s chief executive, Alistair Phillips-Davies, said the results covered “yet another period of strong operational performance and strategic progress in establishing SSE group as the UK and Ireland’s pre-eminent green energy company”.

The company has decided to focus on renewable energy generation and related transmission networks under Mr Phillips-Davies.

It exited the controversial retail business in January by selling its household supply arm to Ovo for £500m.

Mr Phillips-Davies said SSE will continue to invest in gas-fired power for the time being because it can be used to balance out fluctuations in the amounts of power generated from renewable sources and is cleaner than coal.

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But he made clear that SSE reckons the biggest prize lies in renewables.

The company said it expects to treble its renewable output by 2030.

It is making progress with a £7.5 billion investment plan under which it plans to build the huge Seagreen windfarm off Angus and a similarly massive one in Shetland.

Environmental campaigners in Shetland are not happy about the prospect of the Viking development but SSE feels its projects will form an important part of the effort to achieve net zero carbon emissions.

In a call with reporters, however, Mr Phillips-Davies made clear that SSE will only back projects on which it expects to achieve strong returns.

He renewed calls for the regulator Ofgem to back down in the row about the level of returns that energy firms should be able to make on their investment in networks.

In July, Ofgem said it wanted to curb the returns firms can expect to generate on investment in networks at around 4%.

Mr Phillips-Davies said Ofgem’s brief should be amended to include an explicit commitment to supporting the net zero drive.

But people are entitled to ask whether a commitment to net zero involves allowing energy firms to generate returns that others could only dream of.

The Bank of England may leave the base rate at 0.1% for a long time.

The numbers involved in network development may be big and the technical challenges considerable but returns on investment are effectively secured for years under the price control regime.

At the end of the day the costs will be picked up by consumers through their energy bills.

The same applies when it comes to encouraging investment in offshore windfarms.

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The UK Government has just launched the latest round of the Contracts for Difference programme. This provides support for firms to develop new windfarms by guaranteeing the price they will get for output from them.

The round could get a strong response. A variety of firms have shown in recent months that they regard investment in windfarms off the UK as an attractive prospect.

Total bought into SSE’s Seagreen development off Angus in June. Equinor is partnering SSE in the Dogger Bank development off eastern England, which is set to become the world’s biggest.

Boris Johnson held out the prospect that the UK will be producing enough offshore wind to power every home by 2030 when he announced his 10-point plan for a Green Industrial Revolution last week.

That must not mean allowing firms that develop or operate windfarms to benefit from subsidies that are not required.

Contracts for Difference must only be awarded at rates that recognise that the costs of developing offshore windfarms have been falling.

The Government must remember what happened in respect of onshore windfarms, which were excluded from the CFD regime in 2015.

The move provoked outrage but firms continued to invest in windfarms in significant numbers.

In March, Boris Johnson relented to pressure to allow onshore windfarms to benefit from CFDs again.

There has been fresh evidence that firms regard onshore wind as an extremely attractive investment proposition in recent days.

Last week, Vattenfall unveiled plans for a development near Oban that would feature around 26 turbines, with a blade-tip height of up to 200 metres.

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Specialist investors such as the Renewables Infrastructure Group and Greencoat UK Wind appear keen to bulk up on Scottish windfarms.

Other aspects of the update from SSE provided a reminder of the benefits that firms in the energy sector enjoy under official programmes.

SSE noted the rate of tax it pays in the current year based on adjusted profit before tax is forecast to be around 11%, compared with 11.2% last time.

The group said its adjusted current tax rate continues to be less than the headline rate of corporation tax in the UK of 19%, “primarily due to the impact of tax allowances available on the Group’s capital investment programme”.

SSE recorded a £72m gain on the sale of a stake in the MapleCo smart meter business in the first half.

The group and partners such as the Ontario Teachers Pension Plan struck a deal in September to sell MapleCo to funds managed by Equitix Investment Management.

Private equity investors have shown strong interest in firms that supply smart meters to consumers.

They can generate steady long-term returns on the supply of smart meters, which the UK Government has decided all homes should have to help tackle climate change.

In June, Glasgow-based Smart Metering Systems reiterated plans to increase dividend payments that it announced soon after selling a portfolio of meters to Equitix in a £291m deal.

However, the take-up rate for smart meters has fallen well below expected levels. In the last quarterly update on the roll-out programme, the Government said only 39% of meters qualify as smart. It noted: “The number of smart meters operating in smart mode at the end of Q2 2020 is almost unchanged from the previous quarter (an increase of 0.4%). This is expected due to low levels of new installations as energy suppliers focussed on emergency metering work due to the disruption caused by coronavirus.”

Add in concerns about valuable wind turbine manufacturing contracts being awarded to overseas firms rather than domestic players and the onus really is on energy giants to demonstrate the value they are generating for ordinary people in the UK.