A sustainable business must also be economically successful, generating profit for future investment and growth and creating value for its shareholders.
At ScottishPower, in common with other companies in the IBERDROLA Group, we are committed to achieving strong economic results while observing the highest standards of corporate governance and being mindful of the social and environmental impacts of our activities.
ScottishPower’s economic success has a direct bearing on the lives of many of our stakeholders. Although we are now part of the IBERDROLA Group, which is not listed on the London Stock Exchange, many leading UK pension and investment funds hold our shares, so many thousands of British people benefit directly from our strong financial performance through their pensions and investments.
We also support the regional and national economies through the direct and indirect employment of thousands of people, contributing tax revenues to the UK Treasury and through our significant procurement of goods and services.
Once again, energy suppliers in the UK were criticised by consumer organisations during 2010 for the prices they charge customers for electricity and gas. However, energy bills reflect not only the price of fuel – they include the costs of producing and transporting energy, along with mandatory government programmes designed to reduce carbon, improve the energy efficiency of customers’ homes and provide help for vulnerable customers.
Over the next 10 years we can expect to see unprecedented change in the electricity industry as we move to lower carbon sources of energy. The regulator, Ofgem, estimates that investment of around £200 billion will be needed in the next 10 years to secure energy supplies and meet climate change targets.
Ofgem also expressed concern about the effect of this unprecedented level of investment on consumer bills, which may mean that more customers are tipped into fuel poverty.
UK energy suppliers face the major challenge of trying to strike the difficult balance between generating profit for investment in energy assets and the significant levels of funding required for Government programmes, while maintaining affordability for customers.
We are investing significantly in developing our networks and adapting them to support low carbon generation and we are investing in the roll-out of Smart Meters and offering advanced energy monitors, which will help customers to reduce their energy bills, through managing their energy consumption in the most efficient way possible.
We are also working to alleviate fuel poverty, through our social spend and energy efficiency programmes, which totalled around £60 million during 2010.
Looking ahead, we await the outcome of the UK Government’s Electricity Market Reforms, the aim of which will be to stimulate investment in low carbon technologies by providing a level of certainty for investors, while maintaining security of supply.
Measures proposed in the reforms include introducing a carbon floor price, capacity payments and a new Emissions Performance Standard, along with the creation of a Green Investment Bank to provide finance for green energy projects.
In addition, existing customer carbon reduction and energy efficiency programmes will be discontinued to make way for the introduction of the Government’s flagship Green Deal, the aim of which is to encourage energy efficiency improvements in properties, which will be paid for over time by savings in home energy bills.
This will be supported by a new Energy Company Obligation, which from 1st April 2011 replaces energy suppliers’ existing voluntary social spend programmes to alleviate fuel poverty with a mandatory spending programme.
During 2010 the margins made by energy supply companies continued to be eroded, and this continued into the first quarter of 2011. A report by NERA Economic Consulting on behalf of Energy UK states that between December 2010 and March 2011, the average margin a company makes on an electricity customer fell from £26 to £21, while margins on gas and dual fuel customers fell substantially to minus £9 and minus £30, respectively.
During the year we welcomed an announcement that regulator Ofgem was to undertake a review of the transmission charges levied on companies for using Britain’s high voltage electricity network. We have lobbied on this issue for several years, as we believe the current regime is disadvantageous to generators in Scotland.
