Centrica shares drop after SSE price freeze receives warm welcome
SSE’s business plan and price freeze until 2016 has proved popular across the board today.
Unless you’re in the renewable energy camp, who are pretty peeved that the energy firm is cutting its offshore wind portfolio to offset said price freeze.
Politicians were battling to take credit for the consumer-friendly move at PMQs, with Labour leader Ed Miliband quizzing prime minister David Cameron on whether he’d changed his stance. After all it was Labour who in September pledged to freeze prices if elected, firing up the energy debate.
“It is hugely welcome in this country that energy companies are cutting and freezing their bills,” said Cameron, boasting that it was the government’s rolling back of green crap that prompted SSE’s decision.
Interestingly, the market has responded well to the plans – a marked contrast to when Red Ed mooted a price freeze. Analysts were generally negative on such a move back then, but now that SSE has combined them with divestments it seems to have quelled concerns.
Obviously the next question will be whether the rest of the big six energy companies follow suit. It may be a big six, but with only two of the companies in the FTSE 100 it is British Gas owner Centrica that will be under particular scrutiny. Its shares are down over 1.5 per cent.
Centrica isn’t committing to anything just yet: “SSE’s move is competition in action. In a competitive market, we always look at how we respond,” a spokesperson told City PM
SSE has given a relatively flat earnings outlook, which it will have to fight pretty hard to maintain in the face of market challenges and political risks ahead.
But it is trying to keep investors sweet by vowing to increase its dividend at least at the rate of inflation.
The other significant part of SSE’s business plan, aside from the price freeze and cost-cutting strategy, is its decision to implement a “legal separation of the businesses within SSE’s retail and wholesale segments”.
Note that this doesn’t say anything about not selling to itself, but it’s sure to be a welcome move in the interests of transparency.