AS energy giant SSE tries to repair the damage caused to Shetland electricity lines amid the recent wintry blast overseas investors are looking forward to generating big returns in its power networks business, which consumers will subsidise.

Perth-based SSE has had a torrid time trying to restore power to around 2,000 homes on Shetland, which were cut off after overhead lines broke under the weight of ice and snow.

The “significant” challenges it faced came weeks after the firm sold a 25 per cent stake in its electricity transmission networks business to the Ontario Teachers Pension Plan Board for an eye-catching £1.5 billion.

SSE plans to use the funds raised to support continued hefty investment in renewable generation assets such as windfarms.

Ontario Teachers appeared delighted to buy in to the business, which operates power lines that provide the central spine of the country’s transmission network. It is expected to play a key role in the development of the infrastructure required to carry renewable energy generated by firms such as SSE off Scotland to population centres hundreds of miles away.

“SSEN Transmission is one of Europe’s fastest growing transmission networks,” said Ontario Teachers. “Its network stretches across some of the most challenging terrain in Scotland – from the North Sea and across the Highlands – to deliver safe, reliable, renewable energy to demand centres across the UK.”

SSE also operates a distribution business that links homes to central networks, which wasn’t covered by the Ontario Teachers networks deal.

Some pundits said the fact it took SSE more than a year to close the transmission networks deal suggested the business had not generated as much interest as hoped.

Others, however, feel the decision made by a Canadian pension fund to commit so much to the networks business provides a notable vote of confidence in its prospects at a time when other asset classes may appear attractive. The yields investors can enjoy on low risk gilts issued by the UK Government have risen sharply amid the surge in inflation fuelled by Russia’s war on Ukraine.

SSE’s transmission networks business is set to generate secure long-term returns on billions of pounds of investment in a regulated industry that features big barriers to entry.

Following its latest price-setting review, the regulator, Ofgem, decided in December 2020 that SSE and others should be able to net returns of 4.3 per cent on networks investments. Spanish-owned ScottishPower also has a big networks business.

Ofgem said the settlement would result in a 40% reduction in the rates of return achieved by firms and would cut £10 a year from the average domestic bill. These include around £100 in respect of networks costs. Ofgem was confident, nonetheless, that the settlement would help unlock £30 billion investment in a clean and reliable energy system.

SSE, ScottishPower and other networks operators were outraged by the move and took their case to the competition regulator, the CMA, which offered only minor concessions.

However, last month Ofgem appeared to succumb to pressure to increase the returns firms can make on investment in local distribution facilities. It settled on a 5.23% return rate, after initially proposing 4.75%.

The transmission networks and distribution settlements will remain in place until 2026 and 2028 respectively providing the kind of certainty investors such as pension funds want.

It is notable that SSE struck the transmission deal months after it sold its stake in the SGN gas networks business to Ontario Teachers and Canada’s Brookfield Asset Management in a £1.2bn transaction.

After increasing its stake in SGN to 37.5%, from 25%, through the deal, Ontario Teachers said: “This investment can contribute to the financial security of our members while also supporting a critical infrastructure asset that will require additional capital to help it transform for a low-carbon future.”

With many consumers struggling to pay their bills, such comments will leave people wondering why we are allowing overseas investors to make so much money in the energy infrastructure business.

Ontario Teachers also did well by investing alongside SSE in support of the official drive to have smart meters installed in the UK’s homes and businesses, which has fallen woefully short of expectations.

In September 2020 SSE and Ontario Teachers sold their stakes in the MapleCo smart meter operation to the Equitix private equity business. SSE booked a £72m profit on the deal.

The latest official report on take-up rates found only 54% of meters in Britain were smart or advanced at September 30.

Some might say the onus is on UK institutions to ensure that pension scheme members in the country get their share of the profits that will be made by firms that position themselves to capitalise on the net zero drive.

Rishi Sunak and Boris Johnson last year urged pension funds to support huge investment in infrastructure in the UK.

But some funds have complained about being outbid by overseas players amid the relative scarcity of deals to date.

In March the Government launched a reform drive to make it easier for pension funds to invest in illiquid assets such as energy networks.

Might it not be cheaper and simpler for the Government to fund the investment required itself?

Armies of well-paid bankers, lawyers and accountants are employed on energy sector deals.

It is ironic that SSE completed the transmission networks stake sale months after coming under fire itself from an overseas investor.

Last year Elliott Investment Management called for SSE to be broken up claiming its networks and power generation businesses do not belong together.

Elliott, which has headquarters in Florida, claimed the management team led by Alistair Phillips-Davies had deprived SSE shareholders of £5bn of value by maintaining a group structure that meant its shares were undervalued by the market.

After sticking to their guns, SSE bosses can claim to have been vindicated by the group’s recent performance. SSE grew first half operating profits by 90%, to £716m from £376m. The networks business grew profits by 17%, to £210m from £181.7m.

SSE shares sold for 1,688.5p yesterday compared with 1,609p in December last year. However, some people in Scotland may worry the success SSE has achieved and the scale of its windfarm portfolio could encourage a predator that wants to bulk up in renewables to pounce on the group.

Oil giants Shell and BP underlined their ambition to build big renewables businesses by bidding successfully for acreage in the landmark ScotWind round last year. With a stock market valuation of around £18.3 billion SSE is a big fish by Scottish standards. But that valuation makes it a relative minnow compared with Shell and BP, which have market capitalisations of around £160bn and £80bn respectively.