### SSE PLC ANNUAL REPORT 2022 Powering change together ### SSE PLC ANNUAL REPORT 2022 Powering change together ## Powering ## change ## together ### SSE PLC ANNUAL REPORT 2022 | Strategic | Directors’ | Financial | | --- | --- | --- | | Report | Report | Statements | | Overview of the year 1 | Chair’s introduction 114 | Alternative Performance Measures 204 | | Our strategy 2 | Governance at a glance 116 | Consolidated income statement 214 | | Chair’s introduction 6 | Board of Directors 118 | Consolidated statement of | comprehensive income 215 Chief Executive’s review 8 Group Executive Committee 123 Consolidated balance sheet 216 About our business 10 Board leadership and company purpose 124 Consolidated statement of changes in equity 217 Our business model 12 Division of responsibilities 142 Consolidated cash flow statement 218 Our business explained 14 Composition, succession and evaluation 143 Notes to the consolidated financial statements 219 Our business goals for 2030 18 Nomination Committee Report 145 Accompanying information 290 Key performance indicators 20 Audit, risk and internal control 152 Company balance sheet 324 Our strategy in action 22 Audit Committee Report 152 Company statement of changes in equity 325 Sector review 28 Energy Markets Risk Committee Report 162 Notes to the Company financial statements 326 Our stakeholders 32 Safety, Sustainability, Health and Environment Advisory Committee Report 164 Independent auditor’s report 336 A sustainable approach 40 Remuneration 168 Consolidated segmental statement 347 Risk-informed decision making 68 Remuneration Committee Chair’s statement 168 CSS audit opinion 353 Principal Risks and uncertainties 71 Directors’ Remuneration Policy 172 Shareholder information 355 Financial review 82 Remuneration at a glance 182 Operating review 95 Annual report on remuneration 184 Section 172 and non-financial information statements 110 Other statutory information 200 Statement of Directors’ responsibilities in respect of the annual report and the financial statements 203 ## What we do. SSE provides energy needed today ## while building a better world of energy for tomorrow. ## We develop, build, operate and invest in low-carbon ## electricity infrastructure in support of the transition ## to net zero. This includes onshore and offshore wind, ## hydro power, flexible thermal generation, electricity ## transmission and distribution networks, and localised ## energy systems. We also provide energy products and ## services for businesses and other customers. ### Using our complete ### Powering ### reporting suite ### Throughout this report you can find links change ### to our complementary suite of reporting together SSE PLC SUSTAINABILITY REPORT 2022 by following these icons:  online at sse.com/annualreport2022  in other SSE publications  within another section of this report Electronic tagging (ESEF) Alternative Performance Measures Measurement restatements In accordance with European Single Electronic Format SSE assesses the performance of the Group using a The Annual Report reflects a number of structural (‘ESEF’) requirement that UK-listed companies provide variety of performance measures. These measures changes within SSE plc in this reporting year. their primary financial statements in standardised are not all defined under IFRS and are therefore These include the disposal of its Contracting machine-readable format, SSE’s 2022 Annual Report termed ‘non-GAAP’ measures. A reconciliation from and Rail business; the formation NEOS Networks, and Accounts are published as an XHTML tagged these non-GAAP measures to the nearest prepared a standalone joint venture Telecoms business; document which can be found on sse.com  measure in accordance with IFRS is presented and and the sale of SSE’s stake in SGN. In addition, described on pages 204 to 212 . The Alternative the report measures progress against 2030 Goals Our front cover Performance Measures SSE uses might not be as were prior to their revision in early 2022. Jennifer Ross, one of SSE Renewables’ maintenance directly comparable with similarly titled measures engineers on the Sloy/Awe hydro scheme, pictured used by other companies. at Loch Sloy. STRATEGIC REPORT ### Overview of the year ### Financial Operating profit ### highlights In the face of exceptional macro-economic conditions, SSE saw strong financial ## £1,536.8m performance in 2021/22 thanks to its resilient business model, Adjusted solid operational delivery and good progress on its strategy. More on page 82  ## £3,755.4m Reported ### Non-financial highlights | Profit before tax | Earnings per share | Safety (TRIR) per 100,000 | Economic contribution | | --- | --- | --- | --- | | | | hours worked | UK/ROI | | £1,164.0m | 95.4p | | | | | | 0.17 | £5.8bn/ | | Adjusted | Adjusted | | | ## €438m | £3,482.2m | 241.6p | | --- | --- | | Reported | Reported | | Adjusted investment and capex | Dividend | | £2,073.7m | 85.7p | (after refunds, including acquisitions) ## The Net Zero Acceleration ## Programme p4 SSE is leading the way on decarbonisation of the energy system through its fully-funded £12.5bn investment plans to 2026 and ambitious business targets aligned to a 1.5°C global warming pathway. ## Our strategy ## in action p22 Through record levels of investment, timely delivery of project milestones, expanding the development pipeline overseas, building networks fit for net zero and pioneering transitional lower-carbon technologies in thermal generation, SSE is making strides in delivery of its strategy. 1SSE plc Annual Report 2022 STRATEGIC REPORT ### Our strategy OUR PURPOSE ## To provide energy needed ## today while building a better ## world of energy for tomorrow. OUR STRATEGY ## Develop ## To create value for shareholders ## and society in a sustainable way ## by developing, building, operating CO 2 ## and investing in the electricity ## infrastructure and businesses ## needed in the transition to net zero. OUR GOALS ## With an eye to net zero, ## in 2022 SSE revised its Cut carbon ## intensity by 80% ## interim goals aligned to ## the UN’s SDGs for 2030. More on pages 18 and 19  OUR VALUES ## All of this is underpinned ## by a set of core values ## Safety Service ## designed to guide decisions ### If it’s not safe, We are a company ### we don’t do it. that customers ## and actions in SSE. ### can rely on. 2 SSE plc Annual Report 2022 OUR VISION ## To be a leading energy ## company in a net zero world. ## Build Operate ## The Net Zero Acceleration Programme ## Invest ## Increase renewable Enable low-carbon Champion a fair and ## energy output fivefold generation and demand just energy transition ## Efficiency Sustainability Excellence Teamwork ### We focus on what We do things We continually We work together, ### matters. responsibly to add improve the way respect each other and ### CO ### 2 long-term value. we do things. make a difference. 3SSE plc Annual Report 2022 Our strategy # SSE's Net Zero Acceleration Programme A fully-funded plan to 2026 Planned investment £12.5bn 7-10% Adjusted EPS CAGR growth projected by March 2026 from 2020/21 baseline of 87.5p Capital allocation ![img-0.jpeg](img-0.jpeg) +5% Rebased dividend at 60p from 2023/24 to grow at least 5% p.a. to March 2026 ![img-1.jpeg](img-1.jpeg) A growth-focused dividend policy >10% Networks RAV growth of +10% gross CAGR ![img-2.jpeg](img-2.jpeg) +100% renewables capacity growth, delivering 4GW addition to 8GW net ![img-3.jpeg](img-3.jpeg) Doubling to 8GW capacity 4 SSE plc Annual Report 2022 | Ambitions to | 5x | >£14bn | | --- | --- | --- | | | increase in renewables output to | Total networks RAV by 2031 | | 2031 and beyond | 50Twh p.a. plus maintaining a 15GW | | | In support of SSE’s acceleration to net zero, | pipeline with 1GW net additions annually | | ambitious business growth targets have been set for renewables and networks (see right) and medium- and long-term climate goals have been revised (see below) 50TWh to align to the power sector’s global warming criteria of... £8.2bn (2021/22) ## 1.5°C ## 5x >£14bn (to 2031) Total networks RAV More on pages 18 to 19  ## A net zero roadmap to 2050 | Short-term investment cycle | | Medium-term targets | | Long-term transition plan | | --- | --- | --- | --- | --- | | • Fully-funded £12.5bn capex to 2026 | | New, interim science-based climate | | Commitment to achieving net zero | | | at the heart of SSE’s Net Zero | goals to 2030: | | greenhouse gas (GHG) emissions | | | Acceleration Programme. | • Cut carbon intensity by 80%; | | across all SSE operations by 2050 at | | • Growth-focused plan will account for | | • Increase renewable energy | | the latest, covering scope 1, 2 and 3 | | | around 20% of the UK’s revised 50GW | | output fivefold; | GHG emissions. | | | offshore wind target and 20% of UK | • Enable low-carbon generation | | | | | electricity networks investment. | | and demand; | | • Champion a fair and just energy transition. 5-YEAR 10-YEAR 30-YEAR 5SSE plc Annual Report 2022 STRATEGIC REPORT ### Chair’s introduction ## Fulfilling ## SSE’s ## potential ### 2021/22 was marked by extreme weather events, ### the ongoing impacts of the pandemic, and most ### recently the invasion of Ukraine. These combined ### to create extraordinary energy market volatility, security ### of supply concerns, affordability challenges, operational ### complexities and financial distress in the value chain. ### Through it all SSE delivered on its purpose and ### demonstrated resilience and growth potential – ### continuing to establish the Group as a clean energy ### champion in the UK and Ireland. Within this report, we aim for high standards level of the energy price cap in Great of disclosure to help our stakeholders Britain, and prices also increasing in Ireland, understand how we create value and fulfil reflecting soaring wholesale gas prices. And, our social contract. As part of that, we set latterly, energy security has been in sharp ## £7m out how my fellow Directors and I have focus as the world responds to Russia’s exercised our duties under Section 172 of the deeply concerning aggression in Ukraine. The approximate amount being Companies Act to promote the long-term invested daily by SSE as part of the success of the Company with consideration Operationally there have also been Net Zero Acceleration Programme to the views of all stakeholders. challenges, with an ever-changing outlook on the coronavirus pandemic, market | For SSE, that means being a purpose-led | volatility and extreme weather events. | Strategic evolution | | --- | --- | --- | | company that seeks profitable solutions | Throughout all this the Company has | The transition to net zero will require | | to the problems faced by people and our | shown resilience, responsiveness, and | accelerating investments in the kind of | | planet – and we were tested on both fronts | continued strong performance that is | low-carbon assets and infrastructure which | | during 2021/22. | described in the following pages. | already form the core of our business. The | operating context is moving quickly as the | Resilience through turbulence | On behalf of the Board, I would like to | requirements of net zero come into focus, | | --- | --- | --- | | It was a year which highlighted the distinct | thank all of SSE’s c.11,000 employees, | and competitors and governments move | | but interrelated challenges facing the energy | whether working in the field, in offices or, | fast to position themselves for success. | | sector. First, the climate crisis was strongly | indeed, at home, for their efforts over | A desire to strengthen energy security in | | in focus as the UK hosted COP26 where | this challenging year in ensuring SSE | many countries of the world in light of recent | | SSE was a proud Principal Partner. Soon | fulfilled its purpose of providing energy | events accelerates this further and creates | | afterwards, concerns over affordability and | needed today while building a better | even greater potential for investment and | | the cost of living intensified with Ofgem | world of energy for tomorrow. | growth in electrification and renewable | | announcing a significant increase to the | | energy. Against such a challenging and | fast-moving backdrop, having a clear 6 SSE plc Annual Report 2022 ### “ In the context of the climate emergency, it is vital that ### we align our activities with a pathway consistent with ### limiting global warming to 1.5°C, and to recognised ### global frameworks. For that reason, we are proud to have ### enhanced our 2030 goals this year, which are aligned ### with the UN’s Sustainable Development Goals.” | purpose is vital in guiding decision-making | But it is also paramount that our | Looking ahead | | --- | --- | --- | | and this was central for the Board as | shareholders’ views are heard on our | It is clear that global ambition for a clean | | we carried out the strategic review that | progress towards net zero. We published | energy transition that can deliver net zero | | culminated in SSE’s Net Zero Acceleration | our Net Zero Transition Plan in March and | while bolstering energy security and | | Programme, published in November. | now we have to progress it. We recognise | maintaining affordable prices will only | | | that there is a long way to go and we | intensify. SSE sits at the heart of that set of | | Over a period of several months, we | don’t yet have all the answers; but the plan | challenges, and our portfolio is fully aligned | | undertook a comprehensive process | gives our best current view and, critically, | with the opportunities which will emerge. | | to identify the strategic response to this | is open about the challenges to enable | We will remain agile and focused on value | | changing environment that would enable | constructive debate. We look forward to | creation within that context, and we will | | SSE to fulfil its potential and optimise value | receiving shareholder feedback ahead of | meet our purpose of providing energy | | for shareholders and society. Recent events | the AGM in July. | needed today while building a better world | | in Ukraine have served to strengthen and | | of energy for tomorrow. | | reinforce the conclusions. | A big part of holding ourselves accountable | | | | is taking a leadership position on disclosure. | To close, I can confirm that this Strategic | | We have continued to reshape the Group, | We adopted TCFD reporting ahead of | Report and the associated Section 172 | | divesting our investments in gas production | time on a voluntary basis back in 2018 | Statement on page 110  have been | | and gas distribution, while focusing and | and will continue to be proactive in our | approved by the Board in line with the | | accelerating investments into renewables, | reporting. This Strategic Report builds on the | Companies Act 2006. | | including international opportunities. | work done in recent years to maximise the | | | We see substantial investments required | transparency of our stakeholder interactions | | | to build networks for net zero, flexible | and delivery of our social contract. | | generation and storage technologies | including pumped hydro storage, solar | A critical stakeholder group is SSE’s | | | --- | --- | --- | | and batteries. And we see increased | employees, and the Board continued to | | | opportunities for lower-carbon thermal | engage regularly with them through the | Sir John Manzoni | | generation as part of the energy mix. SSE | year. I’ve been struck by the strength of | Chair, SSE plc | | has options in every part of the net zero | SSE’s culture, and it is clearly an important | 24 May 2022 | | electricity infrastructure value chain. | factor in the Company’s resilience to the | | challenges that have been posed in the These are all growth businesses and the recent past. We remain determined to potential in new geographies is significant become an even more diverse and inclusive as we have seen through our recent company and more details on our efforts in SSE’s culture, and the people who underpin expansion into the Japanese offshore and that respect are set out later in this report. it such these apprentices at Peterhead Southern European onshore wind markets. power station, are the key to the Group’s There is more to come as we continue ongoing success. to evolve, but our Net Zero Acceleration Programme means we have a clear, fully-funded plan that will create real value over the next five years and set us up for further growth later in the decade. The landscape will continue to change at pace and we therefore view the Net Zero Acceleration Programme as the beginning, not the end, of our strategic evolution. ### Holding ourselves accountable In the context of the climate emergency, it is vital that we align our activities with a pathway consistent with limiting global warming to 1.5°C, and to recognised global frameworks. For that reason, we are proud to have enhanced our 2030 Goals this year, which are aligned with the UN’s Sustainable Development Goals. 7SSE plc Annual Report 2022 STRATEGIC REPORT ### Chief Executive’s review ## Leading the way ## to net zero ### The right business mix ### Having led the refocusing of SSE’s strategy and from his Once again a resilient mix of market-based and economically-regulated businesses ### leadership position in its execution, SSE’s Chief Executive, shielded the Group against the worst of ### Alistair Phillips-Davies, looks back on an exceptional year the shocks reverberating through the economy. ### of delivery and ahead to a decade of growth to come. SSE’s business model is based around The pages of this report tell a story building a better world of energy for the assets and capabilities required for of operational delivery and financial tomorrow. With the rest of the executive the global transition to an electrified, performance that reflects the strides we are team, I’m immensely proud of the way our net zero system. This is the result of the making in execution of our strategy and the colleagues have responded and very highly successful disposals programme value we are creating for shareholders and grateful for what they have achieved. and targeted investments which have society. We are putting the investment plans created a group with the capabilities within our Net Zero Acceleration Programme Keeping those people out of harm’s way and projects to create value right across to work, pursuing growth options and remains our number one priority and the clean electricity value chain. SSE spending nearly £7m a day on the clean we go into 2022/23 with a renewed focus is an ESG-aligned growth investment electricity infrastructure that is so important on safety and wellbeing after a year of opportunity; with an attractive blend of to tackling climate change. increased operational activity unfortunately regulated and market-based income saw 14 more injuries than in 2020/21. streams across a very deliberately | Progress made in 2021/22 gives us | | chosen, integrated mix of businesses | | --- | --- | --- | | confidence in our strategic direction | Our skilled and increasingly diverse | | | and optimism about meeting the | c.11,000-strong workforce is central to | | Through these businesses, we continued to ambitious new 2030 Goals set out on our success and as we grow we need even work on long-term solutions to problems pages 18 and 19 . But the year had more people. We will be creating 1,000 faced by the sector that have been brought challenges too: it presented us with new jobs a year on average over the course into stark relief by geopolitical events. As uncertainty and day-to-day restrictions of our five-year capex plan. These are policymakers are seeking to break the link brought by the coronavirus outbreak, a critical, high-quality jobs in regional areas, between global energy markets and the cost post-pandemic energy crisis exacerbated in many cases transitioning skilled people of living, our investment in indigenous, lower- by war in Europe and exceptional weather from high-carbon to low-carbon roles. carbon power sources and greater flexibility events that tested the resilience of our is decarbonising the energy system, reducing electricity distribution networks. We have the right management too, with dependence on imported gas and supporting business leaders who are the best in their a just transition to net zero. fields, including new, highly-experienced ### The right people managing directors bringing renewed Through it all SSE’s direct employees and In a year of strategic delivery high points, delivery impetus to SSE Renewables and contractors have stuck to the task of it was perhaps fitting that it closed with the SSE Thermal. providing energy needed today while completion of our SGN stake sale, marking 8 SSE plc Annual Report 2022 | the end of a disposals programme that | be revised upwards, connected generation | SSE’s development pipeline includes critical | | | --- | --- | --- | --- | | helped us refocus the Group to better | in SSEN Transmission’s licence area could | flexibility offered by Coire Glas, the UK’s | | | deliver on our purpose. | increase from 8GW today to 25GW by | largest pumped hydro storage project. | | | | 2030, and we forecast gross RAV to reach | Keadby 2 CCGT will displace less efficient | | | It was against this backdrop that we were | around £12bn over a similar timeframe. | plant and has potential for hydrogen | | | able to engage actively from our leadership | Unlocking the renewables upon which | blending. Further growth will come for | | | position as a national clean energy champion | government net zero targets in the UK | SSE Thermal with planned CCS plants at | | | at the COP26 summit in Glasgow. We came | depend is at the heart of a RIIO-T2 business | Keadby and Peterhead which, together, | | | away from the event with the firm conviction | plan that SSEN Transmission is already | could capture up to 3m tonnes of CO | a | 2 | that our strategy is the right one for meeting | delivering on. | year – 10% of the UK Government’s 2030 | | --- | --- | --- | | the challenges of holding global warming to | | target – and play an important balancing | | a 1.5°C pathway and creating opportunities | In our electricity distribution business, | role. Plans are also progressing for a | | for sustainable growth. | strategic planning around network | Keadby hydrogen plant and a potential | | | resilience was drawn on heavily in the year | large-scale hydrogen storage facility | | | in the response to six exceptional weather | at Aldbrough. | ### Realising Renewables’ ambition events in 12 weeks. The scale of the storm Some of those opportunities are in markets damage inspired heroic efforts from SSEN SSE’s Net Zero Acceleration Programme abroad and, as described on page 25 , Distribution’s employees. In response to is the framework behind the strategic SSE Renewables’ ambitions are taking the storms around 2,500 people across progress described above and it forms the shape in Japan, the US, and most recently operational and welfare teams worked foundations of a decade of unprecedented in Southern Europe where we are securing tirelessly to safely reconnect 435,000 growth. Assuming a continued supportive a foothold with the acquisition of Siemens affected households and businesses and policy environment, our net investment Gamesa Renewable Energy’s development provide support to affected communities. into vital UK and Ireland infrastructure platform which includes 3.9GW of onshore | wind and 1GW of solar and batteries. | | could exceed £25bn over the next 10 years, | | --- | --- | --- | | | Our economically-regulated electricity | creating jobs and addressing the energy | | | networks have evolved into powerful | crisis. Our immediate task is to fully optimise | Closer to home, our joint ScotWind seabed vehicles for growth. The RIIO-T2 and the opportunities that arise from net zero, auction bid with partners Marubeni and CIP RIIO-ED2 business plans have huge using our world-class capabilities, assets succeeded in winning our preferred site capex requirements and our plans for and businesses to fulfil the responsibility we and took SSE’s secured pipeline to 11GW. bringing in financial partners will enable have for creating shareholder and societal And in projects under construction, us to maximise growth not only in the value over the long term. progress is being made on Dogger Bank, distribution and transmission businesses, Seagreen and Viking wind farms. but across the wider Group. This progress supports our plans for a | doubling of net renewables installed | Flexibility for the future | | | --- | --- | --- | | capacity to 8GW up to 2026. And this is the | The transition to a decarbonised | | | | energy system, with renewables | Alistair Phillips-Davies | platform for targets including a fivefold at its core, connected to consumers via Chief Executive increase in renewables output to 50TWh, technologically advanced networks, will 24 May 2022 and maintaining a sustained renewables pipeline in excess of 15GW by 2031. also require flexible plant, lower-carbon thermal generation and energy storage. ### Networks fit for net zero ### Connecting ScotWind will sharpen “Our net investment into vital UK and Ireland infrastructure an already steep growth trajectory for ### could exceed £25bn over the next 10 years, creating jobs and SSEN Transmission. Based on the System ### Operator’s forecasts, which are likely to addressing the energy crisis.” ## 15GW SSE’s target for a sustained renewables development pipeline by 2031 Alistair meets the project team at Keadby 2, Europe’s most efficient CCGT, which will displace older, more carbon intensive power plant off the UK energy system. 9SSE plc Annual Report 2022 STRATEGIC REPORT ### About our business ## Contributing across the ## energy value chain ## SSE has a resilient and highly complementary business model ## built on a mix of market-based and economically-regulated ## businesses, supported by effective Group Services. ### A strategically coherent business mix focused on net zero ### Decarbonising generation Enabling electrification ### - SSE Renewables - SSEN Transmission- SSE Thermal ### (wind and hydro) - Gas Storage ### - Energy Portfolio ### Management ### Economically regulatedMarket based ### Strategic capabilities and opportunities Strategic capabilities and opportunities Generation mix provides resilience to the Group plus Solid, index-linked returns with revenues and RAV linked flexibility and balance to the electricity system to CPIH/RPI Sector-leading expertise in development and build Market-leading growth in transmission through of renewables infrastructure connecting renewables and network reinforcements Developer premium provides funding optionality Proven expertise in large-scale capital project through timely sell-downs management Thermal transitioning into lower-carbon flexible Ability to deploy innovation and technology at scale generation for the future and supporting security in support of net zero ambitions of supply with gas storage 10 SSE plc Annual Report 2022 ## Together, as a Group, these businesses are perfectly positioned to capture the ## substantial growth opportunities generated by driving and accelerating the net zero ## agenda through electricity infrastructure. ### Providing energy solutions ### - SSEN Distribution - SSE Business Energy ### - SSE Airtricity ### - Distributed Energy ### Market based ### Strategic capabilities and opportunities Extensive experience in regulatory and wider societal Market-based revenue streams engagement The Group’s shopfront for green energy solutions Increased consumer demand and electrification requiring distribution investment response Route to market for green PPAs Provides financial strength and stability to the Group Provides natural hedge for generation output Offers funding opportunities through equity partnering Net zero aligned distributed energy solutions and battery and solar technologies 11SSE plc Annual Report 2022 STRATEGIC REPORT ### Our business model ## Creating long-term value for ## stakeholders and wider society ## How we do itWho and what we rely on • SSE identifies the need for new electricity ## Our six key stakeholder groups infrastructure in domestic and overseas markets, then works with like-minded partners to deploy proven and innovative technologies to grow | Employees | Number of direct | DevelopOperateInvest | its development pipeline for the benefit of all | | --- | --- | --- | --- | | SSE’s strategy and success are dependent | employees | | stakeholders. It uses its competitive advantage | | on the shared talent, diversity, innovation | | | and experience in navigating regulatory | | and values of the people it employs. | c.11k | | and planning processes to secure quality | development sites and required permissions. ### Shareholders and Market cap ### debt providers ## £18.6bn SSE must be well-financed, with the ability to • SSE draws on a rich heritage in the remunerate shareholders for their investment, at 31 March 2022 construction of large capital projects. It has a secure debt at competitive rates and grow reputation for delivering quality, world-class ### Build the business. assets on time and on budget and is currently building more offshore wind than anyone else | Energy customers | Networks and supply | in the world. With its partners, SSE is using | | --- | --- | --- | | Consumers create demand for the energy | customers | technology on construction projects that | | and services SSE provides and set the tone | | support the transition to net zero and reduce | | for our purpose. | £4.98m | costs to consumers over the long-term. | | Government and regulators | Investment in | | | SSE relies on policy frameworks and public | infrastructure (capex) | | • SSE operates assets in a responsive and services that support investment in critical responsible way that meets the needs of energy ## national infrastructure, are fair on customers £2.1bn users. It invests in asset resilience and holds a and maintain the momentum behind net zero. robust commitment to the safety and wellbeing of the people and environments impacted | NGOs, communities, society | Investment in | by its activities. SSE also strives for efficiency | | --- | --- | --- | | SSE needs the support of the communities | communities | to maximise shareholder return through | | it works in and the backing of civil society | | operational excellence and the implementation | | in pursuit of a just transition to net zero. | £11.2m | of innovation, learning and technology. | | Suppliers, contractors, partners | Suppliers on strategic | | | SSE relies on a healthy supply chain and | relationship | | • SSE invests in low-carbon infrastructure through works with partners whose capabilities offer management its £12.5bn five-year investment and capital synergies for innovative project development programme expenditure plan. This plan, which is central to and efficient ownership structures. SSE’s Net Zero Acceleration Programme, is fully ## 34 funded and underpinned in part by financial partnering to unlock value and debt secured at efficient rates to optimise growth. SSE exercises More on page 32  capital discipline to invest only where returns are expected to be greater than the cost of capital. ## Natural resources Science-based carbon targets aligned to From wind and water used to produce ## 1.5°C energy, to materials used to build energy infrastructure, natural resources are See pages 56 to 57 . essential to SSE’s value creation. 12 SSE plc Annual Report 2022 Why we do it ![img-4.jpeg](img-4.jpeg) The value we create Employees Number of roles advertised 3,195 Shareholders and debt providers Dividend 85.7p Energy customers SSE Airtricity Net Promoter Score 36% Government and regulators Taxes paid UK/Ireland £335m/€46m NGOs, communities, society Community projects supported 1,078 Suppliers, contractors, partners Economic contribution UK/Ireland £5.8bn/€438m Natural resources Scope 1 and 2 emissions cuts 18% SSE plc Annual Report 2022 13 STRATEGIC REPORT ### Our business explained ## Optimal business mix for ## growth and value creation RENEWABLES ## SSE Renewables ## Develops, builds, operates and invests in assets ## that generate electricity from renewable sources. Who it does it for For electricity customers across the GB and Ireland markets, who are increasingly seeking lower-carbon sources of energy. ## 2.5x How it supports net zero Develops and generates zero-carbon electricity more capital allocated to growing SSE Renewables at large scale from onshore and offshore wind compared to the previous capex plans farms and provides clean flexible power from hydro schemes. How it is remunerated Through the wholesale energy market, ancillary services market, Capacity Market, Balancing Mechanism revenue from hydro output, power purchase agreements, and government support ## 50TWh schemes for renewable energy. is the targeted fivefold increase in renewables output to 2031 More on page 100  14 SSE plc Annual Report 2022 NETWORKS ## SSEN Transmission SSEN Distribution ## Owns, operates and Owns, operates and ## maintains the electricity maintains the electricity ## transmission network distribution networks ## in the North of Scotland. in the North of Scotland ## and central southern ## England. Who it does it for Who it does it for Electricity generators, large electricity demand For the homes, businesses, generators and service customers and ultimately all electricity customers across providers that are connected to, or are seeking a GB. connection to, its distribution networks and electricity customers in its operating areas. How it supports net zero Connecting sources of renewable electricity generation How it supports net zero to the national grid and transporting that clean Through the timely connection of local renewables and electricity to areas of demand. the co-ordinated delivery of network investment and flexible solutions to alleviate network constraints and allow for further electrification. How it is remunerated Through economically regulated returns that are recovered from electricity generators and customers How it is remunerated and potentially enhanced through efficient delivery. Through economically regulated returns, recovered from customers and connecting parties. Additional earnings through efficient delivery of investment and targeted, performance-related incentives. More on page 96  More on page 98  15SSE plc Annual Report 2022 STRATEGIC REPORT ### Our business explained continued FLEXIBLE GENERATION/ENERGY SOLUTIONS ## SSE Thermal Distributed Energy What it does What it does Generates electricity from thermal sources in a reliable way, supporting Following the sale of its Contracting balancing of the electricity systems in GB and Ireland. SSE Thermal’s assets arm, SSE Enterprise is now referred play a key transitional role in the SSE Group and across the wider energy to as Distributed Energy, reflecting system. While providing much-needed system flexibility to ensure security the focus of the business on investing and stability of supply in the short term, the business is also actively pursuing in, building and connecting localised options to decarbonise its generation fleet progressively over the long flexible energy infrastructure. The term. In addition, SSE Thermal’s Gas Storage business holds around 40% former SSE Enterprise entity also of the UK’s conventional underground storage capacity, which provides develops solar and battery projects, time-critical response to unpredictable weather conditions and energy operates heat networks, and market fluctuations. offers integration, aggregation and trading capability. Who it does it for Who it does it for For electricity suppliers, traders and other generators through the energy The public sector and commercial market; for the national grid; and ultimately all electricity customers across and industrial markets in the UK and GB. SSE Thermal’s assets provide valued flexibility to the energy system. Ireland. It provides digital services for buildings, cities and businesses. How it supports net zero Produces progressively lower-carbon electricity and electricity system How it supports net zero support to enable net zero transition. Facilitates increasing levels of Through offering services that bring renewable electricity by offering flexibility to balance renewables’ low-carbon, on-site generation, natural variability. SSE’s Thermal’s Gas Storage assets have potential to storage and delivery flexibility be repurposed to hold lower carbon gases in future, including hydrogen. close to the point of use. Diverse And the strategic value of gas storage has been brought into stark relief capabilities (battery, solar, EV by recent geo-political events and the increasing focus on home-grown infrastructure, district heating alternatives to dependence on imported fossil fuels. and networks infrastructure deployment) offer a local ‘whole How it is remunerated system’ approach. Through the wholesale energy market, Capacity Market and ancillary services market. Also through responding to forward market volatility and How it is remunerated receiving balancing market revenue from the timely flexibility provided by Through the open B2B market, generation and storage. Capacity Market revenue, CPPAs and public and private sector tenders. More on page 108 More on page 103  16 SSE plc Annual Report 2022 CUSTOMER GROUP SERVICES ## SSE Business Energy Portfolio Corporate ## Energy and Management ## SSE Airtricity What it does What it does What it does SSE Business Energy and SSE Combines trading skills and deep Provides cost-effective shared HR, legal, finance, IT, Airtricity provide energy and related market insights to drive value by procurement, investor relations, corporate affairs and services to households, businesses providing energy trading, risk other services. Ensures compliance with SSE’s regulatory and public sector organisations management and settlement requirements as a listed company. Develops a strategic across Great Britain and the island services, and wider analytical framework that maintains the Group’s focus on net zero of Ireland. support and insights, including through targeted acquisitions and non-core disposals. Business Unit advice on long-term Provides finance and capital allocation to fund growth. market decisions. Offers the regulatory and policy insight required to navigate each stage of the energy value chain. Who it does it for Who it does it for Who it does it for For domestic and business For SSE’s Business Units and the For the SSE Group’s Business Units and their stakeholders. customers in the Republic of Ireland SSE Group. and Northern Ireland, and business How it supports net zero customers in Great Britain. How it supports net zero Through the advancement and promotion of SSE’s Provides efficient route-to-market sustainability and ESG credentials, and delivery of a net How it supports net zero for low-carbon electricity, supports zero-focused strategy. Increases the accessibility of system balancing and provides green energy solutions through energy solutions for business How it is remunerated the provision of customer-driven energy customers. The Group services function is funded by Business Units propositions and acts as a partner through a recharge model and corporate unallocated costs to customers and stakeholders as How it is remunerated as set out in SSE’s Financial Statements. they seek ways to respond to the Receives fees for providing energy climate crisis. trading services to other parts of the Group. How it is remunerated OUR OPERATING MODEL Competing for customers and direct billing to them and third party intermediaries (GB), and through A well-established operating model supports state-supported schemes (ROI). SSE’s primary focus on the transition to net zero. The Business Units described on these pages are equipped with the resources needed to meet operational and strategic objectives, and the autonomy required for effective decision making. They are supported by Group Services functions that provide shared services and targeted business partnering. The segmental breakdown that SSE reports against is intended to drive efficiency and provide shareholder visibility of assets and earnings. More on page 109 More on pages 106 and 107  17SSE plc Annual Report 2022 STRATEGIC REPORT ### Our business goals for 2030 ## Looking back ## at 2021/22 ## Measuring ## Cut carbon ## intensity by 60% ## our progress Carbon intensity of electricity generated increased slightly in 2021/22. However, good progress was made in both renewables growth and paving a way forward for lower- ## SSE’s four core business goals for carbon thermal generation. Plans progressed in the development of two new power stations equipped with ## 2030 provide important interim carbon capture technology with both projects moving ## milestones on the journey to net forward to differing degrees in the UK Government’s process to encourage and support the most competitive carbon ## zero and place sustainability firmly capture plants in the pursuit of net zero ambitions. ## at the heart of its business strategy. ## In February 2022, SSE refreshed the ## 2030 Goals to reflect its increased ## ambitions. 2020/21 is the last year ## Treble renewable ## progress will be measured against ## energy output ## the original goals shown opposite. Excellent progress was made on key offshore projects, including reaching financial close on Dogger Bank C and construction progressing at Seagreen and Dogger Bank A ### Accelerating business ambition and B. SSE Renewables, along with partners, also won rights to The 2030 Goals address climate change and are develop what will become one of the world’s largest floating aligned to the UN’s Sustainable Development Goals. offshore wind farms in the January ScotWind leasing round. Since SSE set its first 2030 Goals in early 2019, the pace With the acquisition of renewables development platforms and scale of climate action has increased considerably. in Japan and Southern Europe, SSE is also building pipeline The imperative to accelerate pathways to net zero options in carefully chosen international markets. has provided SSE with significant opportunities for investment and growth. SSE has also set new 1.5°C- aligned carbon targets and published its £12.5bn Net Zero Acceleration Programme out to 2026. This increasing ambition means that SSE’s 2030 Goals set ## in 2019 were no longer as ambitious and stretching as Help accommodate 10m electric they once were. ## vehicles In February 2022, SSE announced updated 2030 Goals SSEN Distribution progressed a number of key innovation reflecting an accelerated decarbonisation pathway and projects with partners to support flexible markets and future ensuring its targets remain stretching to the end of the infrastructure provision for the mass adoption of electric decade (see page 5 ). vehicles (EVs), including becoming one of the founding partners of a new international global smart grid partnership. ### Progress against the 2030 Goals To demonstrate its commitment to the 2030 Goals, performance against them is linked to executive remuneration. As the 2030 Goals were refreshed in February 2022, 2021/22 performance was measured against the previous goals. A summary of this progress is outlined opposite, with more detail available in the Remuneration Committee’s Report from page 168 . Performance against the new 2030 Goals will be ## Champion Fair Tax measured from 2022/23 onwards. ## and a real Living Wage SSE maintained its Fair Tax Mark accreditation for the eighth consecutive year and published its Talking Tax 2021 report. It achieved ongoing accreditation of the real Living Wage, completed its first year of Living Hours accreditation, and is beginning work to roll the new accreditation out in its supply chain. More on page 45  18 SSE plc Annual Report 2022 ## New goals for ## 2022/23 onwards ### Our progress Reduction in GHG GHG emissions from emissions from electricity generation electricity generation ## 5.7MtCO e ### 2 ## 19% Cut carbon ## intensity by 80% ### Our progress Renewable generation Renewable energy output 2021/22* capacity in construction at 31 March 2022** ## 9.5TWh ## Increase renewable ## 2.4GW ## energy output fivefold ### Our progress SSEN Distribution has Electric vehicles registered in SSEN Distribution licence areas ## 12 ## strategic partnerships c.56,000 ## Enable low-carbon and initiatives exploring smart grid solutions to ## generation and demand support low-carbon technologies ### Our progress ## 8 1st year Consecutive years of Fair of being Living Hours accredited Tax Mark accreditation ## Champion a fair and ## 9 ## just energy transition Consecutive years of being Living Wage accredited * Includes pumped storage, biomass and constrained off wind in GB. ** Based on equity share. 19SSE plc Annual Report 2022 STRATEGIC REPORTSTRATEGIC REPORT ### Key performance indicators ## Resilience ## and growth ## SSE uses a number of financial and non-financial measures to track progress against its ## strategy to create value by developing, building, operating and investing in electricity ## infrastructure and businesses needed for net zero. ## Financial KPIs DIVIDEND PER SHARE ADJUSTED AND REPORTED EARNINGS ADJUSTED AND REPORTED PROFIT (PENCE) PER SHARE (PENCE) BEFORE TAX (£M) 85.7 95.4 1,16 4 241.6 3,482.2 81.0 78.4 948.9 206.3 2,418.0 80.0 83.6 888.3 40.6 497.4 Adjusted Reported Adjusted Reported Strategic relevance: SSE remunerates Strategic relevance: Adjusted EPS gives a Strategic relevance: SSE’s objective is to earn a shareholders’ investment through the payment meaningful measure of financial performance sustainable level of profit over the medium term. of dividends. over the medium term. Performance: Profits made in 2021/22 reflect the Performance: The recommended full-year Performance: Results in 2021/22 are attributable resilience of SSE’s balanced mix of businesses dividend for 2021/22 is in line with SSE’s five-year to strong performance across a number of SSE’s while the significant rise in reported figures dividend plan to 2023. Business Units in volatile market conditions. relates to net reversal gains on unsettled forward contracts and reversal of historic impairment charges in Thermal and Gas Storage. ADJUSTED AND REPORTED OPERATING PROFIT COMBINED NETWORKS REGULATED ASSET ADJUSTED INVESTMENT, CAPITAL BY BUSINESS (£M) VALUE (£M) AND ACQUISITIONS (£M) Adjusted 380.5 351.8 568.1 8.2 2,073.7 2022 Reported 380.5 351.8 427.8 2022 7.4 912.0 Adjusted 220.9 275.8 731.8 2021 Reported 7.2 1,442.9 220.9 275.8 856.0 Transmission Distribution Renewables Strategic relevance: SSE’s purpose is built on Strategic relevance: SSE’s ownership of three Strategic relevance: SSE applies strict financial the strategic logic of a renewables and regulated economically-regulated electricity networks discipline that supports investment in assets that networks core that shares common skills and gives the Group steady, index-linked revenue. are expected to provide returns that are greater capabilities in pursuit of net zero. than the cost of capital. Performance: Inflation hitting 30-year highs | | Performance: Combined, SSE’s renewables and | in the course of 2021/22, combined with | Performance: The good progress made | | --- | --- | --- | --- | | | electricity networks businesses accounted for | acceleration of network build-out and | in execution of the Net Zero Acceleration | | | nearly 85% of Group adjusted Operating Profit. | reinforcement, contributed to higher | Programme resulted a record investment | | 2022 2022 | | RAV values in the year. 2020 and 2021 | year for the Group. | data restated to exclude SGN. | 2022 2022 2022 | | --- | | 2021 2021 | | 2021 2021 2021 | 20 SSE plc Annual Report 2022 2020 2020 2020 2020 2020 2021 ## Non-financial KPIs RENEWABLE OUTPUT SCOPE 1 GHG INTENSITY (GWH)* (GCO E PER KWH) 2 ### More information 9,496 259 SSE’s social contribution: page 58  Financial Review: pages 82 to 94  10,242 256 Transmission Operating Review: pages 96 to 97  11,442 290 Distribution Operating Review: pages 98 to 99  Strategic relevance: Renewables assets Strategic relevance: As a significant generator Renewables Operating Review: are core to SSE’s business strategy, which is of electricity, SSE must reduce the impact of pages 100 to 102  centred around the net zero transition. SSE its operations and has set science-based has a goal of increasing renewable output targets aligned to a 1.5°C pathway. fivefold by 2030. Performance: SSE’s scope 1 GHG intensity | Performance: SSE’s renewable output | increased by 1.2% between 2020/21 and | | --- | --- | | decreased due to unfavourable weather | 2021/22. SSE remains on track to achieve its | | conditions but this was offset by strong | target to reduce intensity by 72.5% between | | performance in hydro and pumped storage | 2017/18 and 2030. | in volatile markets. * Includes pumped storage, biomass and constrained off wind in GB. ADJUSTED EBITDA JOBS SUPPORTED IN UK AND IRELAND TOTAL RECORDABLE INJURY RATE PER (£M) 100,000 HOURS WORKED (EMPLOYEES AND CONTRACTORS COMBINED) 2, 257. 2 47,130 0.17 1,995.3 43,560 0.15 1,932.3 60,550 0.16 | Strategic relevance: Extracting interest, tax, | Strategic relevance: SSE relies on the people | Strategic relevance: Safety is SSE’s No. 1 | | --- | --- | --- | | depreciation and amortisation from earnings | that work for it in order to operate, with its | value, and everybody in the Company | | provides a useful measure of SSE’s operational | activities supporting jobs in both urban and | operates to the safety licence of “if it’s | | performance. | rural areas. | not safe, we don’t do it”. | | Performance: EBITDA in 2021/22 reflects the | Performance: Through its operations in | Performance: A surge in construction | | strong operational performance achieved by | the UK and Ireland, in 2021/22 SSE supported | associated with SSE’s record capex in the | | SSE’s balanced mix of businesses. | 45,290 and 1,840 jobs respectively. | year and increased activity following the | recovery from coronavirus unfortunately led to rise in TRIR. ADJUSTED AND REPORTED CAPEX BY CORE ECONOMIC CONTRIBUTION IN UK/IRELANDTAXES PAID IN THE UK/IRELAND BUSINESS, BEFORE REFUNDS (£M) £335m £5.8bn Adjusted 614.4 364.8 674.3 €46.4m €438m 2022 Reported | | | | 614.4 | | 456.1 | | 458.4 | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 2022 | | | | | | | | £379m | | £5.2bn | | Adjusted | | | | | | | | €20.4m | | €439m | | | | | 435 .2 | | 350.8 | | (134.3) | | | | | | 2021 Reported 436.2 412.6 223.9 £422m £5.7bn €18.1m €650m Transmission Distribution Renewables UK Ireland UK Ireland | | Strategic relevance: The primary focus of SSE’s | Strategic relevance: Taxes support the public | Strategic relevance: SSE depends on a healthy | | --- | --- | --- | --- | | | capex plans is investment in the low-carbon | services everyone relies on. When companies | and thriving economy to enable its business | | | electricity assets and infrastructure needed to | do well, they should share their success with | success, which is why it calculates the value | | | achieve net zero. | society through the payment of taxes. | it adds to UK and Irish GDP each year. | | | Performance: SSE’s renewables and networks | Performance: A small reduction in total taxes | Performance: SSE’s GDP contribution in | | | businesses accounted for around 87% of capex. | paid reflects the planned disposals of | Ireland remained consistent with 2020/22, | | | Over the course of current five-year plan capital | non-core business areas during 2021/22, | while its contribution in the UK increased | | 2022 2022 | expenditure will be split 40:40:20 between | changes in energy use by customers and | in the year, in line with a surge in Net Zero | | | renewables; networks; and thermal/other | outages at some generation sites. | Acceleration Programme-related investment. | | 2022 2022 2022 2022 2022 | | | | respectively. 2021 2021 2021 2021 2021 2021 2021 21SSE plc Annual Report 2022 2020 2020 2020 2020 2020 2020 2020 2021 STRATEGIC REPORT ### Our strategy in action ## Execution and ## acceleration ## SSE is developing, building, operating ## and investing in a well-balanced mix of ## assets and businesses. The coming pages ## highlight how that strategic focus is making ## a meaningful difference in the transition ## to net zero through delivery of clean ## electricity infrastructure. ## Investing in a ## net zero future The completion of the sale of SSE’s remaining 33.3% stake in SGN marked the final step in a strategic disposals programme announced in June 2020 to streamline the Group and sharpen its focus on net zero. The sale in March realised nearly £1.3bn in cash proceeds. SGN had been a good investment for the Group, delivering a return on investment of over 18% from an initial outlay in 2005 of £505m for a 50% stake, however it had become a purely financial interest less aligned with the Group’s focus on electricity. The disposals programme overall achieved headline consideration of over £2.8bn, significantly in excess of the original £2bn target. Gas networks are no longer part of SSE’s strategic plans, but regulated electricity distribution and transmission networks businesses continue to be key drivers of net zero and engines of growth for the Group. Plans were outlined in the Net Zero Acceleration Programme to sell minority stakes in SSEN Transmission and SSEN Distribution, extending a partnering approach that has worked well in SSE Renewables to networks to fund growth and unlock opportunities across the Group. These plans are now progressing with a sales process initiated with banking advisers in Spring 2022 on a 25% share in SSEN Transmission. While these are high-quality, strategically important businesses and SSE will retain control, the scale of potential growth and the associated investment required mean that bringing in minority partners will create greater long-term value by enabling SSE to harness this significant growth whilst maintaining an attractive balance of capital allocation across the Group. 22 SSE plc Annual Report 2022 ## Engaging from a ## position of strength SSE is focused on being part of the solution to the climate crisis, with the capabilities, businesses and assets to create value from efforts to tackle global warming. It is very deliberately aligned to prevailing government policy direction, with net zero at the heart of the business. COP26, where the UK Government asked SSE to participate as a Principal Partner, served to highlight the critical importance and global relevance of the Group’s strategy. The war in Ukraine has brought into sharp focus the need for greater energy security, prompting European countries urgently to reduce their reliance on fossil fuel imports. In this context, governments are recognising it is more important than ever that indigenous low-carbon investment is expedited to keep energy affordable and secure. SSE welcomed the UK Government’s net zero and energy security strategies, which give a clear signal to low-carbon investors and developers to keep investing at the scale needed to achieve net zero by 2050 and support more immediate energy security. And SSE also takes the support received at the 2021 AGM for an annual vote on its Net Zero Transition Report as a clear signal of ongoing shareholder support for its strategic decarbonisation efforts. The Net Zero Acceleration Programme aligns SSE with 1.5°C science-based targets and positions it to enable around 20% of the UK’s 50GW offshore wind target by 2030, and over 20% of upcoming UK electricity networks investment, whilst leading investments in flexibility and exporting our renewables capabilities overseas. The urgency of the climate emergency from COP26 and the resulting Glasgow Pact is clear. SSE believes that decarbonisation of the energy system could go further and faster and at the summit it was able to make that case on the world stage. SSE’s credentials as a world- class renewables developer (main image) gave SSE a voice at COP26 where Finance Director, Gregor Alexander, caught up with UN Special Envoy on Climate Action and Finance, Mark Carney (right). 23SSE plc Annual Report 2022 STRATEGIC REPORT ### Our strategy in action continued ## Powering on with ## Group delivery The 2021/22 year marked a number of significant project A landmark year of delivery for SSEN saw the completion of milestones across the SSE Group. SSE Renewables made good distribution network upgrades throughout the North of Scotland progress at Seagreen, the world’s deepest, fixed-bottom wind and central southern England. SSEN Transmission meanwhile farm, and offshore construction commenced at Dogger Bank, made significant progress in 2021/22, building out critical network currently the world’s biggest offshore wind farm at 3.6GW. infrastructure to unlock renewable generation in the North of Construction has also progressed on the 443MW Viking onshore Scotland. This included the completion of Tealing substation wind farm, one of the highest yielding in Europe, which remains in January, which will enable the connection of the Seagreen on track for completion in autumn 2024. offshore wind farm. Phase one construction milestones were also reached on major projects including Rothienorman substation and SSER’s capital investment programme to extend the life of large the Inveraray-Crossaig reinforcement, while construction began flexible hydro assets has also progressed, with repowering works on the 275kV Kinardochy substation in November 2021. Substantial commencing at Tummel Bridge in April to extend the life of the progress was also made on the pioneering Shetland HVDC link iconic power station beyond 2060. project, which is on track to connect the islands to the main GB energy system for the first time by 2024. Commissioning of SSE Thermal’s 893MW Keadby 2, which will become one of the world’s most efficient CCGT power stations, Significant progress has also been made by the newly refocused started in October 2021 and full commercial operation is targeted Distributed Energy business on developing and operating battery for October 2022, Works are also progressing well at a 50MW and solar technologies at scale, including the acquisition of a energy-from-waste facility, Slough Multifuel, which remains on 50MW battery site in Salisbury. Existing grid connections at former track to be commissioned by late 2024. coal-fired sites also put SSE in a relatively unique position to deploy battery storage at scale and pace, with 150MW opportunities being considered at Ferrybridge and Fiddlers Ferry. The secured solar and battery pipeline is now 380MW, with more than a 1GW of other opportunities being evaluated. | Europe | SSE-Pacifico | | --- | --- | | Acquisition of c.3.9GW | 10GW offshore | | SGRE onshore wind | development | | platform | prospects | Japan ## North ## America Permanent SSE base established in Boston 24 SSE plc Annual Report 2022 Work such as this resilience survey in Killin is part of SSEN Transmission’s efforts to ensure a network fit for net zero. ## Growing our ## renewables pipeline The Net Zero Acceleration Programme promises a trebling of SSE’s In Europe, SSE entered tender bids for the 1.4GW Hollandse Kust renewables capacity by 2031 with early delivery already under way. (west) wind farm development zone in the Netherlands; a 50/50 SSE is currently building more offshore wind than anyone else in joint venture with Acciona is progressing in Spain and Portugal; the world and its renewables business continues to expand its application has been made, also with Acciona, for offshore sector leading pipeline, now standing at 11GW with opportunities development rights in the Baltic Sea in Poland; and most recently in development to grow this to a sustained target of 15GW. In it acquired Siemens Gamesa Renewable Energy’s (SGRE) Southern January 2022, SSE and its partners Marubeni and CIP celebrated Europe wind, solar and batteries development platform. The SGRE success in Crown Estate Scotland’s ScotWind seabed leasing portfolio includes c.3.9GW of onshore wind development projects auction. This was SSE’s preferred site and, once constructed, – around half located in Spain with the remainder across France, will become one of the largest floating wind projects in the world Italy and Greece – with scope for up to 1GW of additional with a potential capacity of at least 2.6GW. co-located solar development opportunities. SSE Renewables also takes on a team of around 40 employees who bring considerable Plans to export SSE’s significant capabilities to overseas markets local knowledge and expertise to complement the substantial gained momentum with the acquisition of an 80% interest in an experience of the existing SSE team in delivering major projects. offshore wind development platform in Japan. The new joint ownership company, SSE Pacifico, will pursue the development Emerging international options present pipeline opportunities; of offshore wind projects in Japan. SSE has taken initial steps into however, capital discipline will continue to guide investment the emerging US offshore market, establishing a permanent base decisions. in Boston better to pursue options. SSE also has consent for the UK’s largest pumped storage hydro project at Coire Glas and there has been material progress in the policy and regulatory environment for such vital long-duration storage schemes. 25SSE plc Annual Report 2022 STRATEGIC REPORT ### Our strategy in action continued ## Building networks ## fit for net zero With electricity demand expected to more than need for more than £5bn of investment in electricity double by 2050, regulated electricity networks transmission infrastructure in the North of Scotland to are at the heart of the transition to net zero. SSEN maintain a pathway for net zero. These investments Transmission and SSEN Distribution continue to be and the clear need to accelerate reinforcements to critical to SSE’s strategy and balanced business mix. unlock ScotWind start to provide a clear line of sight The Net Zero Acceleration Programme will enable on and tangible progress towards 2031 RAV growth SSE to deliver over 20% of all planned UK electricity forecasts for SSEN. networks investment, increasing Regulated Asset Value (RAV) to £9bn by 2026 (net of proposed 25% SSEN Distribution could see a trebling of demand minority stake sales). in its network areas by 2050, with seismic shifts in consumption already in progress as electric vehicles SSEN Transmission has made substantial progress this and heat pumps rapidly scale up this decade. The year on major projects within its capital delivery likely load expenditure required to keep pace with programme, including the landmark Shetland HVDC these changes informed the final business plan for Link. With options for substantial growth over and the 2023-28 RIIO-ED2 price control period, submitted above capital expenditure plans approved under the to Ofgem in December 2021. RIIO-T2 price control, projects such as the Eastern HVDC, North Argyll and Skye reinforcement are The almost £4bn plan sets out how improvements will expected to progress through the Needs Case be delivered for customers and network investment assessment process. accelerated to power communities to net zero. The plan also proposes £900m of additional potential In January 2022, National Grid Electricity System investment under regulatory Uncertainty Mechanisms Operator (NGESO) published its annual Networks to help protect customers and provide the necessary Options Assessment (NOA), which indicated the flexibility as opportunities and policy evolves. 26 SSE plc Annual Report 2022 ## Pioneering CCS ## and hydrogen While renewable generation and enabling electricity In total, the two lower-carbon power stations at Keadby networks are at the heart of the Net Zero Acceleration and Peterhead would capture up to three million tonnes Programme, it is clear that flexible low-carbon power of CO a year – 10% of the UK Government’s 2030 target. 2 will be vital to ensure security of supply when the wind They form part of SSE’s ambitions for the coming decade doesn’t blow and the sun doesn’t shine. and the submission represents significant progress on delivering SSE’s strategy. That is why carbon capture projects, like those SSE is developing in partnership with Equinor at Keadby and SSE Thermal and Equinor are also working in collaboration Peterhead, are so important. With thermal generation on two further projects in the Humber: Keadby Hydrogen continuing to be relied upon to meet electricity system would be the world’s first 100% hydrogen-fuelled power demand, the UK Government clearly recognises the station while Aldbrough, located in East Yorkshire, could pivotal role CCS will play in helping to achieve net zero be one of the world’s largest hydrogen storage facilities. targets, and SSE Thermal has made substantial progress this year in developing these projects. In January 2022, Hydrogen storage is expected to play an important role in both Keadby and Peterhead Carbon Capture and Storage a low-carbon hydrogen economy, balancing supply and projects were submitted into Phase 2 of the UK demand with hydrogen produced using carbon capture Government’s Cluster Sequencing Process, with and electrolytic technologies. outcomes expected to be announced in mid-2022. While Keadby 2 (pictured) will be operational in 2022, plans for CCS plants at nearby Keadby 3 and Peterhead in Scotland could play vital transitional roles in the future. 27SSE plc Annual Report 2022 STRATEGIC REPORT ### Sector review ## Navigating a ## turbulent world ## Having ridden out the worst of the global coronavirus ## outbreak, the energy sector was hit in 2021/22 first ## by a post-pandemic spike in demand and then the ## market repercussions of the war in Ukraine. This sector ## review outlines the events that have focused industry, ## government and consumer minds on the issues of ## affordability, energy security and the climate crisis. GLOBAL INSTABILITY Coire Glas would offer 30GWh of pumped storage – doubling what is currently available in the UK. ## War in Europe ## deepens cost ## of living crisis Despite COP26 and progress on net zero, the year was, again, dominated by uncertainty related to coronavirus and a post-pandemic energy crisis exacerbated by the Russian invasion of Ukraine. Soaring energy prices caused inflation to spike across the world, hastening a cost of living crisis amid global energy security concerns. The commercial impact of a prolonged conflict in Ukraine is difficult to predict but SSE has so far been served well by a prudent hedging approach. SSE does not have any energy supply contracts with Russian counterparties, and ceased trading activities with these entities after the invasion of Ukraine. The true cost of war is the devastating humanitarian impact and in response to the conflict SSE contributed £1m to the Disasters Emergency Committee. Governments rapidly introduced measures to support consumers, strengthen resilience and reduce fossil fuel import dependence. The UK Government’s British Energy Security Strategy committed to a rapid scaling up of investment in indigenous renewable generation to support UK energy independence. 28 SSE plc Annual Report 2022 THE CLIMATE EMERGENCY ## Growing political ## resolve on net zero COP26 demonstrated a growing consensus In February, the Department for Business, Crown Estate Scotland’s January ScotWind on the need to tackle climate change. The Energy and Industrial Strategy (BEIS) announcement saw seabed totalling 2 | Glasgow Climate Pact set out the need to | announced that Contracts for Difference | 7,000km | allocated for up to 25GW of | | --- | --- | --- | --- | | scale up clean power and energy efficiency, | (CfD) auctions would be held annually | offshore wind in Scottish waters, while the | | | to phase down unabated coal power | from 2023 to speed up the UK’s adoption | Scottish Government this year proposed | | | generation and to phase out inefficient fossil | of renewable power. In October, the UK’s | to double onshore wind capacity, with | | | fuel subsidies. The message from COP26 | mid-decade CCS ambitions received a | an additional 8-12GW targeted by 2030. | | | was clear: the energy sector must lead the | boost with the announcement of two | And even more recently, the British Energy | | | way on decarbonisation in the 2020s to hold | ‘Track 1’ industrial clusters, including | Security Strategy signalled a bringing | | | global warming to a 1.5°C pathway. | the Humber cluster, as well as a further | forward of a support mechanism for | | | | reserve cluster in Scotland. | long-duration storage projects like SSE’s | | | The year also saw significant | | at Coire Glas. | | domestic progress on net zero. Major announcements were made in the UK on carbon capture and storage (CCS), onshore wind, offshore wind and on the decarbonisation of heat. ## 2 ## 7,000km Allocated seabed for up to 25GW of offshore wind in Scottish waters SSE’s thermal fleet, which includes 735MW Medway power station, is providing critical flexibility in the transition to net zero. INNOVATION AND TECHNOLOGY ## Driving down the cost ## of decarbonisation | Technological innovation has created vast | High wholesale prices meant that, if all the | | --- | --- | | efficiencies and opportunities in the energy | UK’s CfD-awarded wind farms due to be | | sector and continues to be the driving force | built by 2027 had been operating under their | | behind the net zero transition. | CfDs over the winter months of 2021/22, | they would have made over £7bn of | Fast paced innovation is helping to support | payments back to the scheme administrator | | --- | --- | | affordability in the shift to a low-carbon | that would have helped reduce future | | world at a crucial time for consumers. | energy bill costs for consumers. | | Advances in technology and larger turbine | Meanwhile, SSE marked major developments | | capacities have made wind power the most | in technology, including commissioning of | | cost-efficient source of generation, with | Europe’s most efficient CCGT, Keadby 2 in | | Contract for Difference (CfD) prices for | the Humber. Green hydrogen also took a | | offshore wind falling from over £140/MWh | significant step forward, as SSE Renewables | | to less than £50. | and Siemens Gamesa announced the | co-location of an electrolyser and battery storage facility at Gordonbush wind farm in the Scottish Highlands. 29SSE plc Annual Report 2022 STRATEGIC REPORT ### Sector review continued ENERGY REGULATION offshore wind projects and the transmission network upgrades required to deliver the ## The need for a climate UK’s flagship 50GW offshore wind target. ## focused framework More widely, other significant reforms either initiating or concluding include the introduction of a Future System Operator Amid the energy sector’s strong, positive Looking ahead, 2022-23 will be an (FSO), distribution network flexibility, trends, the regulatory environment remains important year as policymakers and competition in transmission networks, challenging. Industry engagement with regulators respond to the near-term impacts market mechanisms and frameworks for regulators continues to focus on the need of the energy affordability crisis, while long duration electricity storage, CCUS/ for an enabling regulatory framework to be putting in place frameworks to unlock new Hydrogen and heat networks, many of established for the delivery of net zero. In low carbon technologies. Wider market and which will be included in the UK’s upcoming the UK, there remains a need for Ofgem’s regulatory reforms are already under way to Energy Bill in summer 2022. For the longer statutory duties to be amended to facilitate enable delivery of net zero at lowest cost term, BEIS will also initiate a Review of net zero and timely decision-making, and and reduce exposure to global fossil fuel Electricity Market Arrangements (REMA) in the Government has signalled its intention markets. The UK Government’s Offshore mid-2022, which seeks to reform the GB to address this. Transmission Network Review (OTNR) will electricity market to achieve a cost-efficient, conclude with a Holistic Network Design low carbon power system by 2035. Specific regulatory issues emphasised setting out grid connection dates for in 2021-22 included the development of a support mechanism for long duration electricity storage and the need to reform transmission charges to enable further investment in Scotland and northern England. Consumer affordability issues were also prominent, with changes to strengthen supplier financial resilience and cost recovery arising from supplier failure framing dialogue between the regulator and industry. SSE has engaged with the regulator in relation to networks price controls and uncertainty mechanisms to unlock the level of investment required to deliver decarbonisation and renewables targets. CAPITAL MARKETS Turbine jackets ready for installation at Dogger Bank, the world’s biggest offshore wind farm. ## The greening of ## debt and equity | The inherent value in developing and | At the same time, both debt and equity | | | --- | --- | --- | | operating low-carbon infrastructure is | investors are beginning to recognise | | | increasingly recognised by investors | the risks and opportunities from climate | | | beyond those with an Environmental, | change, supported by initiatives such as | | | Social and Governance (ESG) focus. This is | the Task Force on Climate-related Financial | 6 | | demonstrated by the influx of capital to the | Disclosures (TCFD). This means capital is | | exceptional weather events in 12 weeks low carbon sector, with growing investment increasingly flowing to projects and debt interest from oil majors and greater direct is attracted to green bonds that are well investment from infrastructure funds and positioned to benefit from the low-carbon institutional investors. This is creating strong transition, and less exposed to the opportunities for SSE in financial partnering downsides associated with more and it supports creating value from emissions-intensive assets. successful development and operation of assets. 30 SSE plc Annual Report 2022 EXTREME WEATHER ## Adapting to ## exceptional events | The energy sector finds itself on the | impact of exceptional weather is felt by | taken by the Energy Portfolio Management | | --- | --- | --- | | front line of altered and extreme weather | electricity networks and last year no fewer | business and purchasing decisions by the | | conditions that are accompanying climate | than six exceptional weather events in | Procurement team. | | change. Changes in rainfall and wind | 12 weeks tested the resilience of SSEN | | | patterns are felt right across the SSE Group. | Distribution’s operations in both Scotland | Climate adaptation strategies are becoming | | 2021/22 saw less wind and rain than the | and England (see page 66 ). | an increasingly important feature of | | previous year, with April-September rainfall | | government and business decision-making. | | in its hydro catchment areas at the lowest | SSE has established crisis management | For SSE, boosting weather resilience and | | level since records began in 1950. | measures to mitigate the impact of severe | assessing climate adaptation requirements | | | weather on critical national infrastructure | are essential to the ongoing resilience of all | | For its energy-focused businesses, | and it has meteorological expertise to | its operational businesses. | | erratic weather can determine the output | forecast coming events. This forecasting | | | from renewables assets, the balancing | not only allows SSE to mobilise operational | | | requirements placed on flexible plant and | teams in good time to support energy | | | energy demand from customers. The full | customers, it also informs trading positions | | Engineers clear the damage inflicted on SSEN Distribution’s northern patch by Storm Arwen. 31SSE plc Annual Report 2022 STRATEGIC REPORT ### Our stakeholders ## Working for ## stakeholders ### The role of engagement ## The following pages describe the engagement SSE SSE recognises that a sustainable strategy ## undertakes with its stakeholders to enable it to fulfil its is one that reflects stakeholder views and input. It promotes an open and transparent ## purpose, deliver its strategy and create lasting value. approach to engagement, which is supported by accountability at both Group and Business Unit level for demonstrating how stakeholders have been considered in long-term plans and day-to-day ### Our key stakeholder groups decision making. Information on our key stakeholder groups is highlighted by the yellow icon below throughout the Report. ### SSE’s key stakeholder groups ### Employees Shareholders Energy ### and debt providers customers Why we engage: Why we engage: Why we engage: Engagement helps SSE attract, retain We engage to ensure confidence and Dialogue aims to support the and develop a diverse and talented support from those that invest in and transition to a decarbonised energy workforce now and for the future. lend to SSE. system in a fair and affordable way. Input to SSE: Input to SSE: Input to SSE: Talent, skills, values and output. Provision of finance, strategic Customer priorities and expectations. direction and stewardship. Value created: Value created: Inclusive, fulfilling and high- Value created: Reliable and inclusive provision of performing workplace, training Sustainable return on investment. services now and in the future. and skills development. 32 SSE plc Annual Report 2022 | This approach derives from the following | model framework on pages 12 to 13  and | understanding of where further | | --- | --- | --- | | definition: The purpose of stakeholder | set out in detail on the following pages. | opportunities or risks exist. Examples of | | engagement in SSE is to ensure that the | | these measurements are shown in the | | perspectives, insights and opinions of | | business model on pages 12 to 13  | ### Engagement methods stakeholders are understood and taken and overleaf. SSE adopts a range of engagement methods account of when key operational, to build constructive relationships and a investment or business decisions are SSE’s approach results in stakeholder dynamic, two-way dialogue that tracks being taken, so that those decisions: influence within, and validity of, business priorities and understanding on specific • are more robust and sustainable in plans and supporting objectives. stakeholder issues. themselves; and • support SSE’s strategic approach The framework set by the Board in which These methods exist in a strategic of creating value for shareholders decision making takes place is explained on framework that sees a combination and society. page 134 . It confirms that consideration of of business-led and Board-level SSE’s purpose, vision, strategy and values, engagement and is reflective of legislative and its interconnectivity with stakeholders ### SSE’s key stakeholder groups and regulatory requirements. This approach should drive appropriate outcomes. A long-understood social contract is characterised, for example, by the informs SSE’s view that its stakeholders are dedicated stakeholder forums in SSE’s Situations will exist where not every people, communities and organisations networks businesses. Details of just some stakeholder interest can be addressed in with an interest in its purpose, strategy, of the engagement methods deployed, and full, however stakeholder regard continues operations and actions and who may be views captured during 2021/22 are covered to the fullest extent possible. affected by them. on pages 34 to 39 . Given that stakeholder considerations The relationship with key stakeholders A single metric cannot define the success are embedded in SSE’s definition of a is two-way, with SSE relying on a range or otherwise of a stakeholder relationship. healthy business culture, demonstrating of inputs, in return for which value is However, by considering the size of the the influence of stakeholders and the generated. An overview of the reciprocal stakeholder group, extent of engagement consideration given to them remains a nature of SSE’s relationship with its and value returned – financial or non- focus across this Annual Report and the stakeholders is illustrated by the business financial – certain measurements can aid accompanying Sustainability Report. ### SSE’s key stakeholder groups ### Government NGOs, communities Suppliers, contractors ### and regulators and civil society and partners Why we engage: Why we engage: Why we engage: Constructive engagement aims to Working openly and progressively Fostering healthy reciprocal ensure fair energy sector frameworks seeks to support the achievement of relationships helps SSE to ensure it for energy customers and investors. shared goals with societal benefit. achieves the greatest all-round value from its investments and activities. Input to SSE: Input to SSE: Public policy and regulatory Distinctive social, environmental and Input to SSE: frameworks. energy-related perspectives. Quality goods and services and investment. Value created: Value created: Considered and expert sector views; Robust social contract through which Value created: delivery of policy and regulatory aims. value is shared. Sustainable relationships, value creation and partnership expertise. 33SSE plc Annual Report 2022 STRATEGIC REPORT ### Our stakeholders continued ## Employees ## Engagement helps SSE attract, ## retain and develop a talented ## workforce now and for the future. | How we engage | | Material issues raised in 2021/22 | | | --- | --- | --- | --- | | Group engagement | | • Employee wellbeing, support and resilience. | | | • Multi-channel Leader-led Engagement | | • SSE’s employee offering: reward, benefits, inclusivity, | | | | Programme and business-specific updates. | | flexibility. | | • Group-wide employee survey to assess | | • Engagement with inclusion and diversity strategy. | | | | engagement levels. | • Engagement with strategy and the Net Zero | | | • Continuous assessment of sentiment and strategic | | | Acceleration Programme. | | | understanding through post-event polling. | • Engagement with SSE’s approach to a just transition | | | • Data from employee exit surveys. | | | to net zero. | | • Formal engagement with trade unions. | | • Senior leader visibility and engagement. | | • The opportunity for all colleagues to have a say and | Board engagement | | | make a difference within SSE. | | --- | --- | --- | --- | | • Active participation in SSE’s Leader-led | | • Being supported to make decisions centred around | | | | Engagement Programme and mentoring of talent. | | doing the right thing. | | • Site visits and virtual engagement sessions. | | • How employees could engage with and support | | | • Complementary and focused work | | | SSE’s Principal Partner role at COP26. | of SSE’s Non-Executive Director for Employee Engagement. ### • Continuous feedback on employee sentiment Priorities for 2022/23 and the support being provided. • Engagement on purpose, vision, strategy and culture. More on pages 137 to 139  • Improving inclusion and diversity. • Engagement on just transition. • Articulation of what it means to work for SSE (employer brand), and the employee experience ### Key developments 2021/22 end-to-end. • Ways of working implemented that draw on • Enhanced, interactive digital channels including lessons learnt through the pandemic and meet “always on” feedback functionality. employee expectations for greater flexibility. • Support through the transition to post pandemic • Agreement struck on pay progression for ways of working. unionised employees. • Recruiting the people needed to deliver on SSE’s net • Active engagement with employees on zero ambitions. a just transition. MEASURING ENGAGEMENT AND VALUE CREATED Engagement in action case Employee engagement score SSE’s new Climate Academy SSE’s just transition approach studies, see pages 61 and 139  informed by | 76% | 82% | 82% | | | | --- | --- | --- | --- | --- | | | | | 4,315 | >150 | | | | | employees attended | ex-high-carbon employees | | 2019/20 | 2020/21 | 2021/22 | | | who gave their insights 34 SSE plc Annual Report 2022 ## Shareholders and ## debt providers ## To ensure confidence and ## support from those that invest ## in and lend to SSE. ### Key developments | How we engage | | Material issues raised in 2021/22 | | 2021/22 | | | --- | --- | --- | --- | --- | --- | | Group engagement | | • Financial and ESG performance. | | • Initiation of a Shareholder | | | • Responding to queries from | | • The merits of SSE’s balanced mix of | | | Engagement sub-Committee | | | shareholders and debt providers and | | businesses versus the option to separate | | to ensure equitable | | | holding meetings with all types of | | the renewables business. | | understanding of shareholders’ | | | investors on an ongoing basis. | • The optimal way to fund the Group’s | | | priorities surrounding | | • Communicating shareholder and debt | | | capex opportunity and the option to | | long-term direction, and | | | provider views to SSE’s senior | | raise equity versus the proposed | | reflection of shareholder views | | | management teams. | | networks stake sale. | | in SSE’s strategic ambitions. | | • Engagement with environmental, social | | • Balancing growth and income in the | | • Plans for a rebased dividend as | | | | and governance (ESG) ratings agencies | | context of shareholder remuneration. | | part of SSE’s Net Zero | | | that many investors and debt providers | • Returns and competitive pressure, | | | Acceleration Programme. | | | rely on to gauge sustainability credentials. | | particularly in renewables. | • Shareholder support for an | | | | | • Optimal capital allocation across the | | | annual vote on SSE’s Net Zero | | Board engagement | | | Group’s businesses. | | Transition Report from 2022. | | • A programme of Director-investor | | • Linking refreshed strategic ambition | | • Shareholder consultation on | | | | meetings covering key financial | | within SSE’s Remuneration Policy review. | | SSE’s approach to Executive | | | announcements, long-term priorities | | | | Remuneration. | and specific issues at investors’ request. | • Participation in virtual and physical | | Priorities for 2022/23 | | | --- | --- | --- | --- | | | investor conferences. | • Reinforce shareholder and debt | | | • Monthly Board updates on investor and | | | providers understanding of SSE, | | | financial market sentiment. | | including its business mix, leadership | | • Detailed reporting of shareholder | | | approach, index linked assets and | | | feedback during and after Half- and | | earnings and ESG credentials. | | | Full-year Results roadshows. | • Improve external understanding | | | • Bi-annual updates from SSE’s brokers. | | | surrounding the role and value of flexible | | • Executive Director engagement with | | | generation plant and the electricity | | | credit ratings agencies used by debt | | networks businesses. | | | providers. | • Annual governance meetings between | | | • Engagement with shareholders at SSE’s | | | the Chair and shareholders. | Annual General Meeting. More on page 135  MEASURING ENGAGEMENT AND VALUE CREATED Engagement in action case Dividend per share Earnings per share One-to-one investor sessions 2021/22 studies, see pages 48, 128 and 136  | 85.7p | | 95.4p | | | --- | --- | --- | --- | | 81.0p | 78.4p | | 153 | | 80.0p | 83.6p | | | 2022 2022 35SSE plc Annual Report 2022 2021 2021 2020 2020 STRATEGIC REPORT ### Our stakeholders continued ## Energy customers ## Dialogue aims to support the transition ## to a decarbonised energy system in ## a fair and affordable way. ### Key developments | How we engage | | Material issues raised in 2021/22 | | 2021/22 | | | --- | --- | --- | --- | --- | --- | | Group engagement | | • Affordable and accessible energy in the | | • The impact of the rising | | | • SSE directly serves energy customers in | | | context of ongoing market volatility and | | cost of living on SSE’s | | | the domestic (all-island Irish) and | | increasing international instability. | | energy customers. | | | business-to-business (UK and Ireland) | • Responsiveness to need and | | • Supporting customers through | | | | energy supply markets and provides grid | | vulnerability with particular focus on | | the impact of exceptional | | | connection to non-direct networks | | impact of exceptional weather events. | | weather events on | | | customers in its Distribution and | • Quality customer service. | | | networks resilience. | | | Transmission operating licence areas. | • Using energy efficiently. | | | | | • Engagement methods include dedicated | | • Costs and benefits of the ED2 | | | | | | panels to ensure the perspectives of | | business plan. | | | vulnerable customers are considered and forums to engage with large | | business customers. | Priorities for 2022/23 | | | --- | --- | --- | --- | | • SSE also monitors a wide range | | • Sharp focus on cost of living means | | | | of indicators of performance and | | there is a need to increase support for | | | customer sentiment. | | SSE’s vulnerable customers. | | • SSE works with third parties actively to | | • Enhanced focus on emergency | | | | identify and make provision for customer | | customer support following increased | | | vulnerability, including through | | frequency of extreme weather events. | | | encouraging eligible customers to be | • Improved customer satisfaction | | | | added to the Priority Services Register. | | and service. | • Updated customer strategy being Board engagement reviewed and implemented in SSEN • Board updates from each SSE business Transmission for connection customers on the stakeholder factors which are i.e. generators. driving business direction and propositions. • Board monitoring of customer performance to ensure delivery of an appropriate level of service and investment. MEASURING ENGAGEMENT AND VALUE CREATED Engagement in action case Customers on SSEN Distribution’s Stakeholder engagement events held SSE Airtricity Net Promoter Score study, see page 66  Priority Services Register (PSR) by SSEN Distribution (domestic customers) 768,104 827 36% 770,844 870 746,821 765 2021 2022 2022 36 SSE plc Annual Report 2022 2021 2021 2020 2020 ## Government and ## regulators ## Constructive engagement aims to ## ensure fair energy sector frameworks ## for energy customers and investors. | How we engage | | Material issues raised in 2021/22 | | | --- | --- | --- | --- | | Group engagement | | • Cost-effective delivery of low carbon infrastructure. | | | • Through SSE’s Political Engagement Policy under | | • Fair treatment of energy customers. | | | | which it makes representations to the institutions of | • Security of supply and critical infrastructure | | | | government in a politically neutral way consistent | | provision. | | | with the company’s core purpose. | • The RIIO-T2 and RIIO-ED2 business plans. | | | • Ongoing constructive dialogue with Ofgem | | • Flexible networks and the transition to Distribution | | | | on networks regulatory price controls, market | | Network Operator. | | | design and carbon pricing, CCS and hydrogen. | • Engagement on market design, carbon pricing and | | | • Panel discussions and thought leadership reports to | | | support mechanisms. | engage stakeholders with key issues. | Board engagement | | Priorities for 2022/23 | | | --- | --- | --- | --- | | • Board oversight of the implementation | | • Required investment in electricity network | | | | of SSE’s Political Engagement Policy and | | infrastructure to deliver a net zero energy system. | | | corresponding advocacy priorities. | • Flexible networks and the transition to DSO. | | | • Monitoring of engagement activity and | | • Engagement focused on energy market reform | | | | responses to regulators to ensure that strategic, | | including role of Electricity System Operator, | | | financial, investment and operating frameworks | | role of Ofgem, competition and policy conducive | | | remain aligned to the external landscape. | | to investment. | • Support mechanisms/framework to enable cost-effective delivery of low carbon/zero carbon ### Key developments 2021/22 generation and maintain security of supply (Coire • Through SSE’s Principal Partnership of COP26 Glas, CCS/hydrogen, heat networks etc). it was able to build key strategic relationships • Establishing high-quality teams able to engage with and support a number of climate-linked policy government and regulatory stakeholders in new announcements. jurisdictions, in line with SSE’s international expansion plans. MEASURING ENGAGEMENT AND VALUE CREATED Engagement in action case Direct COP-related engagements Public endorsements of SSE’s net zero New strategic partnerships formed studies, see pages 23, 29 strategy and 46  ## 150 14 20 37SSE plc Annual Report 2022 STRATEGIC REPORT ### Our stakeholders continued ## NGOs, communities ## and civil society ## Working openly and progressively seeks to ## support the achievement of shared goals ## with societal benefit. ### Key developments | How we engage | | Material issues raised in 2021/22 | | 2021/22 | | | --- | --- | --- | --- | --- | --- | | Group engagement | | • Environmental protection and | | • Setting of interim business | | | • Partnering with key NGOs to deliver | | | decarbonisation. | | goals within the UN | | | social and environmental benefits for the | • A fair and just transition to net zero. | | | Sustainable Development | | | communities in which SSE operates. | • Cost of living crisis. | | | Goals framework. | | • Community consultation events | | • Employment standards, including Living | | • Customer vulnerability and | | | | throughout the year to gather feedback | | Wage and inclusion and diversity. | | fuel poverty. | | | on projects and business plans. | • How SSE shares value with local | | | | | • Collaboration with academic | | | communities and wider society. | | | | | partnerships to inform strategic | • Responsible behaviour of large | | | | | | decision-making and knowledge sharing | | businesses. | | | on policy, energy systems and innovation. ### Priorities for 2022/23 Board engagement • Continued advocacy and support for • Review of SSE goals set within the addressing energy affordability and fuel UN Sustainable Development Goals poverty. framework and oversight of associated • A fair and just transition to net zero. strategic delivery plans. • Decarbonisation of the energy system. • Due consideration of the local • Work between SSEN Transmission and community benefits of large capital other network operators on a project investment. standardised approach to social return on investment. MEASURING ENGAGEMENT AND VALUE CREATED Engagement in action case Stakeholders consulted as part of ED2 Communities directly engaged with Strategic academic partnerships study, see page 67  business plan process through SSE Renewables’ community investment funds ## >25,000 127 5 38 SSE plc Annual Report 2022 ## Suppliers, contractors ## and partners ## Fostering healthy reciprocal relationships ## helps SSE to achieve the greatest all-round ## value from its investments and activities. | How we engage | | Material issues raised in 2021/22 | | | --- | --- | --- | --- | | Group engagement | | • Management and mitigation of health and safety | | | • Regular meetings as part of SSE’s Supplier | | | risks on sites. | | | Relationship Management (SRM) programme are | • Economic opportunities in local supply chains. | | | | held to discuss material issues for both companies. | • Mitigation and management of social and | | environmental impacts. Board engagement • Project design and innovation. • Executive Director meetings with strategic • Effective governance and operations. partners and suppliers. • Fair expectation in the delivery of projects and • Board updates on joint venture project prompt payment. strategy and progress in domestic and • Energy sector resource gaps. international markets. • Third party labour practices in emerging technologies. | Key developments 2021/22 | | Priorities for 2022/23 | | | --- | --- | --- | --- | | • Creation of the Powering Net Zero Pact to | | • The key focus areas of the Powering Net Zero Pact, | | | | progress a just energy transition for the power | | namely: net zero, natural world, circular economy, | | | sector by focusing on key areas of ambition. | | fair work and valuing communities. | | • A notable output from the SRM programme | | • Industry understanding of Scope 3 emissions. | | | | was an increased focus on local content to | • Development of sustainable policies and | | | | encourage UK investment. This engagement | | enhanced collaboration to implement more | | | continues in all areas of SSE’s supply chain, | | sustainable practices. | | | from international turbine and cable | • Enhancing health and safety standards. | | | | manufacturers to more localised civil | • Supply chain resilience and managing the impact of | | | | contractors. | | inflation across SSE’s development pipeline. | • Interaction through the SRM programme presents opportunities to engage with the supply chain on value-adding areas such as innovation, engineering and sustainability, and allows SSE to work closely with suppliers to ensure visibility on latest technologies and efficiency improvements. MEASURING ENGAGEMENT AND VALUE CREATED Engagement in action case | Suppliers on SSE’s strategic | Strategic suppliers that, with SSE, | | | | --- | --- | --- | --- | | | | Leadership status | study, see page 59  | | relationship management programme | are founding partners of the Powering | | | Net Zero Pact ### achieved for supply 34 ### chain engagement 28 ### with CDP for its 2021 ## 10 13 ### submission. 2022 39SSE plc Annual Report 2022 2021 2020 STRATEGIC REPORT ### A sustainable approach ## Powering ## sustainable ## change ### “Sustainable outcomes do not happen by accident. They are the result ## Sustainability ### of careful decision making that ensures social, environmental and ## highlights ### economic impacts are balanced and enhance value. 2021/22 was an ### important year to that end, not least in developing detailed action plans ### SSE’s approach to ### that support the achievement of net zero. Predicting and pre-empting sustainability See more on page 41  ### negative social impacts from the energy transition to net zero was a ### focus of SSE’s attention too.” ### Protecting the ### environment Rachel McEwen Climate-related financial Chief Sustainability Officer disclosures. See more on page 42 to 55  Conserving the natural environment. See more on pages 56 to 57  ## Powering SSE’s social ## change contribution Generating value across ## together SSE PLC SUSTAINABILITY REPORT 2022 society. See more on pages 58 to 59  Guaranteeing fair work and good jobs. See more on pages 60 to 65  Providing access to affordable and clean energy. See more on pages 66 to 67  SSE’s Sustainability Report 2022 SSE’s Sustainability Report 2022 is the sister document to the Annual Report 2022. It provides enhanced disclosure of SSE’s policies, practices and performance against its key economic, social and environmental impacts and goals. 40 SSE plc Annual Report 2022 40 ## SSE’s approach to Sustainability ### Driven by SSE’s strategy “...creating value for shareholders and society...” ### Aligned to shared value global framework United Nations Sustainable Development Goals (SDGs) Four highly material SDGs linked to SSE'S 2030 Goals ### SSE’s 2030 Goals | Cut carbon | | Increase renewable | Enable low-carbon | | Champion a fair and | | | --- | --- | --- | --- | --- | --- | --- | | intensity by 80% | | energy output fivefold | generation and demand | | just energy transition | | | Reduce scope 1 carbon | | Build a renewable energy | Enable at least 20GW of | | Be a global leader for the | | | intensity by 80% by 2030, | | portfolio that generates at | renewable generation | and | just transition to net zero, | | | compared to 2017/18 levels, | | least 50TWh of renewable | facilitate around 2 million | | with a guarantee of fair work | | | to 61gCO | e/kWh. | electricity a year by 2030. | EVs and 1 million heat | | an | d commitment to paying | 2 pumps on SSEN’s electricity fair tax and sharing networks by 2030. economic value. ### Materiality established Three further material SDGs linked to SSE’s Environmental Strategy Environmental management and governance ### SSE’s Natural environmentResource use ### Environment ### Strategy | A sustainable business strategy | SSE refreshed its 2030 Goals in February | already under way to implement TCFD- | | --- | --- | --- | | The UN’s 17 Sustainable Development | 2022 to reflect SSE’s increasing net zero | aligned disclosure rules, expanding the | | Goals (SDGs) are the global blueprint for | ambitions. More information on SSE’s | scope to cover wider sustainability topics | | a sustainable future. SSE believes they | sustainability framework can be found in | beyond climate change, and will include | | provide a useful framework through which | the Sustainability Report 2022 . | requirements for listed companies to | | to align its strategic business objectives | | publish net zero transition plans. Ahead of | | with societal objectives. | Developments in sustainability | these requirements, SSE published its own | Net Zero Transition Plan in March 2022, ### reporting standards Since 2019, SSE has aligned its business one of the aims of which is to stimulate At COP26, in November 2021, the creation strategy to the SDGs most material to its enhanced engagement with shareholders of the new International Sustainability business. The schematic above depicts the and other stakeholders. Standards Board (ISSB) by the International flow of sustainability from SSE’s objective Financial Reporting Standards (IFRS) ### set in its strategy statement to “create Aligning with external frameworks Foundation was announced. Most of the value for shareholders and society” with SSE is a signatory to the United Nations international standard setters have indicated UN SDGs providing the framework to guide Global Compact (UNGC), incorporating their support for the ISSB and SSE hopes the creation of shared value. Within this the Ten Principles of the UNGC into its this will be an important step towards framework SSE has identified four SDGs approach to business, and aligns disclosures providing the clarity that companies which are highly material to the business, and KPIs in its Sustainability Report to are seeking around globally aligned and to which it has linked its four core international non-financial reporting sustainability reporting standards. 2030 Goals, and a further three material standards, including the Global Reporting SDGs, which are focused on the Initiative (GRI) and the SASB Standards. SSE The UK Government has endorsed the ISSB environment and guide the pillars also actively engages with key investor ESG approach, indicating its intentions to use of SSE’s environment strategy. ratings agencies and investor-led initiatives. the standards as the framework for the new UK Sustainability Disclosure Requirements Detail of SSE’s performance in these ratings can be found at sse.com/sustainability . (UKSDR). The UKSDR will build on measures 41SSE plc Annual Report 2022 STRATEGIC REPORT ### A sustainable approach continued ## Protecting the ## environment ### The twin challenges of climate change and the decline in nature are ### the greatest threats facing the future of humankind. Addressing the ### challenge of climate change is the most material action SSE can take ### to reduce its impact on the environment, however it also has wider ### environmental impacts that must be carefully managed. ## Climate-related ## financial disclosures The Task Force on Climate-related Financial ### Disclosures (TCFD) was established by the Mandated climate-related it will carry out over the course of Financial Stability Board to improve reporting 2022/23 with a view to disclosing in ### financial disclosure in the UK of climate-related risks and opportunities. 2023. SSE further believes there is an SSE is required to report against the TCFD SSE has structured its climate disclosures opportunity for increasing maturity of recommendations and recommended according to the TCFD recommendations all TCFD disclosures and will actively disclosures in its Annual Report covering since 2018 believing that good quality seek feedback from shareholders and the financial year ended 31 March 2022 information about its climate-related risks stakeholders on best practice. according to the Financial Conduct and opportunities supports shareholders to Authority (FCA) listing rule LR 9.8.6 R(8). make long-term investment decisions. Compliance is indicated against the The rule requires relevant companies recommended disclosures in the relevant to report on a ‘comply or explain’ basis sections using the following key: against the TCFD recommendations. SSE is compliant with the TCFD Compliant recommendations and recommended disclosures, with the exception of Partially compliant recommended disclosure Strategy 2.c Not compliant where it explains on page 48  the work ### Task Force on Climate-related ### Financial Disclosures (TCFD) recommendations | 1. Governance | | | 2. Strategy | | | 3. Risk | 4. Metrics and | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Disclose the | Disclose the actual | | management | | | | targets | | | organisation’s | | and potential | Disclose how the | | | Disclose the metrics | | | governance around | | impacts of climate- | | | organisation | | and targets used to | | | climate-related risks | | related risks and | | identifies, assesses, | | | assess and manage | | | and opportunities. | | opportunities on the | | | and manages | | relevant climate- | | | | | | organisation’s | climate-related risks. | | | related risks and | | | | | businesses, strategy, | | | | | opportunities where | | | | | | and financial | | | | such information | | | | | | planning where | | | | | is material. | such information is material. More on page 43  More on page 45  More on page 49  More on page 54  42 SSE plc Annual Report 2022 ## Governing climate-related risks and opportunities ### Board oversight of climate issues Zero Acceleration Programme; and the Net The Board establishes SSE’s purpose, vision Zero Transition Plan. and strategy with due consideration given | to all material influencing factors including | Board Committee support is provided on | | | | --- | --- | --- | --- | | those related to climate change. | climate-related issues in the following ways: | | Meeting TCFD recommended | | | • The Nomination Committee ensures the | | disclosures: | | The Board assessment of climate-related | | Board possesses the correct depth and | | | | | balance of capabilities to support SSE’s | 1. Governance | matters is informed through presentations across dedicated strategy sessions and long-term position, including the a) Describe the board’s oversight of within Board meetings, which cover the expertise to assess the impact of climate climate-related risks and substance of the physical and transitional change (see pages 145 to 151 ). opportunities. opportunities and risks associated with • The Audit Committee supports the Board on matters relating to financial reporting, b) Describe management’s role in climate change (see page 133  ). This internal control and risk management. assessing and managing climate- approach is consistent with SSE’s net The Committee reviews the integrity of related risks and opportunities. zero-aligned strategic objectives and the presence of climate-related issues across SSE’s climate-related financial reporting vast areas of Board work. and the process used to develop SSE’s TCFD-aligned disclosures (see pages 152 to 161 ). related pay for SSE’s Executive Directors The Board’s assessment of risk is reflected • The remit of the Safety, Sustainability, (see pages 168 to 199 ). both in the strategic decisions it takes, and in the identification of the Group Principal Risks Health and Environment Advisory Committee (SSHEAC) was expanded in The Board-agreed division of and emerging risks which have the ability the year to oversee SSE’s climate responsibilities across key areas of SSE’s to affect achievement of agreed strategic adaptation and resilience plans (see Governance Framework, are set out in: objectives and, in turn, long-term success. pages 164 to 167 ). the Board’s Schedule of Reserved Matters; • The Remuneration Committee supports the Terms of Reference of the Board Within financial year 2021/22, the Board implementation of Board approved policy Committees and the Group Executive considered and approved accelerated on climate related opportunities and risks, Committee; and the role profiles for key science-based emission targets; revised through inclusion of sustainability-linked Board roles. See sse.com  and pages 124 business goals to 2030 aligned to the UN metrics and targets within performance and 142 . Sustainable Development Goals; the Net ## Structured governance pathways Board of Directors Sets SSE’s purpose, vision and strategy with oversight of SSE’s most material sustainability impacts, risks and opportunities, including climate change. Board Level Nomination Committee Audit Committee Responsible for Board appointments and the balance Oversees the assurance model and integrity of SSE’s climate-related of capabilities to assess SSE’s long-term situation. financial disclosures in SSE’s Annual Report. SSHEAC Remuneration Committee Oversees SSE’s climate adaptation and Responsible for remuneration policy including climate factors within resilience plans. performance related pay. Executive Group Executive Committee Group Risk Committee Level Responsible for the implementation of strategy, Responsible for reviewing and recommending the processes, controls including sustainability policies and practice relating to and content of climate-related financial disclosures. climate change. TCFD Steering Group Responsible for advising and steering the development of comprehensive and fair, balanced and Business Level understandable climate-related financial disclosures. TCFD Working Group Responsible for the production of SSE’s climate-related opportunity and risk disclosures, including financial impacts and ensuring appropriate stakeholder input. 43SSE plc Annual Report 2022 STRATEGIC REPORT ### A sustainable approach continued ### Protecting the environment continued ### Role of senior management The Group Risk Committee (GRC) monitors ### Strategy is implemented by the Group all Group risks on a periodic basis and Aligning incentives Executive Committee through the ensures that the Business Units are managing ### to climate outcomes operational management of SSE’s Business the risks for which they are responsible. The SSE’s approach to Executive Units and monitoring of performance in line GRC has overall responsibility for ensuring Remuneration reflects the role of with agreed plans. This includes ensuring the right mechanisms are in place for sustainability and climate-related that business decisions are being taken in managing all risks, including climate-related considerations within SSE’s purpose line with the parameters set by the Board, risk and opportunities. Reporting to the GRC and strategy, with sustainability-linked such as SSE’s 2030 Goals and science- is a TCFD Steering Group, comprising of metrics and targets an element of based targets, and for monitoring new and representatives from Group Finance, Group performance related pay. To date, emerging issues that require escalation. Risk and Sustainability, focused on advising, performance has been assessed steering and governing the development of against the framework of SSE’s 2030 As Chair of the Group Executive Committee fair, balanced and understandable climate- Goals, which the Remuneration the Chief Executive retains responsibility related financial disclosures. Committee is seeking to strengthen for the management of climate-related through its current Policy review. initiatives under agreed strategy and in turn, SSE has a set of Group Policies applicable driving progress. In support of this, the Chief across its entire organisation, of which More on page 169  | Executive agrees the annual objectives for | Climate Change and Sustainability are two. | | | --- | --- | --- | | the Chief Sustainability Officer who is a | Policies are reviewed and endorsed by | | | direct report. The Chief Sustainability | Group Executive Committee and approved | | | Officer advises the Board, Group Executive | by the Board annually. Compliance with | | | Committee, Group Risk Committee and | Group policies is also considered as part | SSE’s key developments in | | Business Units on climate-related matters | of the annual review of the effectiveness | 2021/22: | | and progress under the stated Net Zero | of the system of internal control | | • Board approves SSE’s Net Zero Transition Plan. (see page 161  ). Transition Plan, which can be found at sse.com/sustainability . • Audit Committee now approves SSE’s assurance arrangements for its TCFD disclosures, see pages 153 and 155 . • Board consideration of net zero in strategic development and principal decisions, see pages 126 to 133 . ### Timeline of climate governance in 2021/22 Some of the key decisions taken in the year; for further decisions made during the year, see pages 126 to 131  – Directors’ Report: ### Board-level | Board approval | SSHEAC review | Board approval | Board approval | Audit Committee | Board approval | | --- | --- | --- | --- | --- | --- | | of management- | of climate | of the Net Zero | of SSE’s updated | approval of SSE’s | of SSE’s Net Zero | | sponsored climate | adaptation plans. | Acceleration | 2030 business | approach to | Transition Plan. | | resolution | | Programme. | goals. | climate-related | | | proposed at the | | | | financial | | | 2021 Annual | | Board approval | | disclosures | | | General Meeting. | | of accelerated | | and associated | | | | | science-based | | assurance | | | | | targets. | | arrangements. | | MAY 2021 OCT 2021 NOV 2021 JAN 2022 FEB 2022 MAR 2022 Recommended Recommended Group Risk Recommended ### Executive-level | Board approval | Board approval | Committee | Board approval | | --- | --- | --- | --- | | of accelerated | of SSE’s updated | approval of | of SSE’s Net Zero | | science-based | 2030 business | SSE’s governance | Transition Plan. | | targets which | goals linked to the | and controls for | | | aligned to the | UN SDGs placing | climate-related | | | SBTi 1.5°C power | climate change at | financial | | | sector guidance. | the centre of SSE’s | disclosures. | | strategy, targets and actions. 44 SSE plc Annual Report 2022 ## A strategy to support net zero ### Providing profitable Sustainability Reports. A standalone summary Net Zero Transition Report has ### solutions to climate change also been published to aid stakeholder Through the delivery of its purpose SSE is engagement, which can be found at directly addressing the energy transition to sse.com/sustainability . Meeting TCFD recommended net zero and reflecting society’s priorities on disclosures: climate change. It achieves this through its ### strategy of developing, building, operating Advocating for climate action ### 2. Strategy and investing in the electricity infrastructure SSE actively and positively advocates for and businesses needed in the transition to more ambitious climate change policy to a) Describe the climate-related risks net zero. achieve net zero, with a significant focus for and opportunities the organisation advocacy activities in 2021/22 being linked has identified over the short, With SSE’s direct emissions (scope 1) cut to its Principal Partnership on COP26. SSE medium, and long term. by 78% since their peak in 2006/07, SSE conducts its advocacy in line with the goals b) Describe the impact of climate- has a well established decarbonisation of the Paris Agreement and its own net related risks and opportunities strategy and has been transitioning its zero strategy. It reviews trade association on the organisation’s businesses, electricity generation portfolio to one membership annually to ensure that the strategy, and financial planning. | dominated by renewable and low-carbon | organisations of which it is a member also | | | --- | --- | --- | | thermal sources of generation. | advocate in line with the ambitions of the | c) Describe the resilience of the | | | Paris Agreement. In December 2021, it | organisation’s strategy, taking into | | SSE’s goal is to achieve net zero GHG | published the results of this annual review | consideration different climate- | | emissions across its scope 1 and scope 2 | for the first time. Detail of advocacy | related scenarios, including a | | emissions by 2040 (subject to security of | activities undertaken across 2021/22 can | 2°C or lower scenario. | | supply requirements) and for remaining | be found throughout the Strategic Report | | | scope 3 emissions by 2050. These long- | of this Annual Report (pages 1 to 94 ) and | | | term net zero ambitions are supported by | in SSE’s Sustainability Report 2022. | | All five of SSE’s most material climate- interim science-based targets aligned to related opportunities as outlined on ### a 1.5°C pathway. Progress against these Investing in the net zero transition pages 51 to 52  are factored into this targets is outlined on pages 54 to 55 . In November 2021, SSE announced its Net strategic capital investment plan. In Zero Acceleration Programme, which 2021/22, SSE invested £2.1bn of this ### A plan for a net zero transition includes a £12.5bn, fully-funded capital planned £12.5bn capital investment. SSE’s In March 2022, SSE published its Net Zero investment plan between 2021 and 2026 future capital investment plans, including Transition Plan. The Plan clearly sets out alongside ambitious 2031 targets, aligned those for any thermal assets, will be based for stakeholders the key actions SSE will with net zero. The Programme is the on clear internal investment criteria, which take to drive progress towards its net zero practical application of SSE’s strategy and ensures alignment to SSE’s commitment to ambitions and its interim science-based seeks to cement SSE’s position as a national its core 2030 business goals including the targets aligned to a 1.5°C pathway. clean energy champion, enabling the targeted reductions in GHG emissions. contribution of around 20% of the UK’s | SSE will disclose annual progress against | revised 50GW offshore wind target and | | --- | --- | | this plan through its Net Zero Transition | over 20% of the required investment in | | Report, which will be subject to shareholder | UK electricity networks, whilst deploying | | vote each year. Progress in 2021/22 is | flexibility solutions to secure electricity | | disclosed across SSE’s Annual and | supplies and exporting SSE’s renewables | capabilities overseas. ### Net Zero Transition Plan pathway S1 Scope 1 S2 Scope 2 S3 Scope 3 2025 2035 2050 Target Short term (to 2025) Medium term (2025 – 2035) Long term (2035 – 2050) | Engage with 50% | Reduce the carbon | Reduce absolute | | Reduce absolute | Net zero for SSE’s | | Net zero for all SSE’s | | --- | --- | --- | --- | --- | --- | --- | --- | | of suppliers by | intensity of scope 1 | scope 1 and 2 GHG | | GHG emissions from | scope 1 and 2 | | remaining scope 3 | | spend to set an | GHG emissions by | emissions by 72.5% | | use of products sold | emissions by 2040. | | emissions by 2050. | | SBT by 2024. | 80% by 2030, from | by 2030 from a | | by 50% by 2034 from | | | | | | 2017/18 baseline. | 2017/18 base year. | | a 2017/18 base year. | | | | | S3 S1 | | | S2S1 | S3 | | S2S1 | S3 | Note: for definitions of scopes 1, 2 and 3 SSE follows the GHG Protocol. For further information on SSE’s GHG and Water reporting criteria see sse.com/sustainability . 45SSE plc Annual Report 2022 STRATEGIC REPORT ### A sustainable approach continued ### Protecting the environment continued ENGAGEMENT IN ACTION GOVERNMENT AND REGULATORS SSE’s Gregor Alexander and Alistair Phillips- ## FURTHER AND FASTER AT COP26 Davies with Chancellor Rishi Sunak at COP26. | The cornerstone of SSE’s engagement | Crucially, SSE was able to support | | --- | --- | | with government and regulators in | a number of COP-linked policy | | 2021/22 was the Company’s Principal | announcements through its advocacy | | Partnership with the UK Government | for decarbonisation of the energy sector | | on COP26. SSE was able to showcase | to go further and faster. In the months | | its standing as a national clean energy | following COP26, positive engagement, | | champion in what was a significant | including meetings with the Secretary | | stepping up of engagement activity | of State for Department of Business, | | in the lead-up to, during and after the | Energy and Industrial Strategy and the | | Glasgow event. Through more than | Prime Minister, continued to maintain | | 150 direct COP-related engagements, | political resolve on the Glasgow Pact | | SSE established 50 new business | and highlight SSE’s role in delivering | | relationships, received more than 20 | national net zero targets. | public endorsements from stakeholders, and formed 14 new partnerships. | Financing climate strategies | simpler, transparent and auditable. SSE has | | different measures were: adjusted operating | | --- | --- | --- | --- | | SSE understands that investors are | made the case that: | | profit, 84%; adjusted investment and capital | | increasingly looking for robust mechanisms | • Any inclusion of gas generating activities | | expenditure, 86%; and, revenue, 30%. | | through which they can ensure their | | within the UK Taxonomy should demand | | | investments are sustainable and take | | carbon abatement; | The reason that SSE’s taxonomy-eligible | | account of climate-related risks. To support | • The operational expenditure metric be | | activity appears low in relation to its | | the growth of green finance, SSE also has | | replaced with alternative metrics which | revenue, is primarily due to Energy Portfolio | | pursued a strategy of issuing green bonds | | are clearly defined and auditable, such as | Management trading activity and the sale of | | to fund its net zero investment plans. SSE | | operating profit and loss metric which is | power to end customers, both of which are | | has issued four green bonds, with the total | | captured within the UK adopted IFRS | high volumes, with pass through costs and | | outstanding at £2bn which reaffirms SSE’s | | financial reporting standards; | lower margins than in larger businesses such | | position as the largest issuer of green | • To ensure all relevant economic activity | | as renewables generation and networks | | bonds in the UK corporate sector. | | is captured, activities measured should | businesses. SSE believes that revenue is a | | | | encompass projects within joint control, | poor measure in assessing its economic | | | | such as equity investments into large | activity and that the most appropriate | ### Aligning to taxonomy definitions scale offshore wind farm projects. measures of its taxonomy-eligible economic ### A developing UK Taxonomy activity are in relation to its capital SSE supports the development of ### Assessing SSE’s activities investment and its operating profit. sustainable finance beyond green and To provide stakeholders with an initial sustainable debt markets. The establishment indication of SSE’s economic activities The taxonomy non-eligible activities are of a European Taxonomy is an important according to taxonomy criteria, SSE has associated with SSE’s thermal generation step forward in defining environmentally undertaken preliminary work to assess its and gas storage businesses. Other activities sustainable economic activity within activities using the eligible activities of the EU that do not currently align may qualify for equity markets and, as a UK-listed energy Taxonomy as a basis. The table on page 47  taxonomy alignment in the future. company, SSE is looking forward to the provides an illustration of SSE’s taxonomy establishment of a UK Taxonomy based aligned activities. Taxonomy eligible activities Providing the UK Taxonomy does not on the broad principles established by the in 2021/22 are from SSE’s onshore and deviate significantly from the EU model, EU. In support of a consistent, although offshore wind generation, hydro (run of river SSE expects its assessment of its taxonomy UK-appropriate, taxonomy, SSE engaged and pumped storage) as well as its networks eligible activities disclosed on page 47  to constructively with several stakeholders transmission and distribution activities. be consistent with a future UK framework. in 2021/22, including HM Treasury and In 2021/22, the proportion of SSE’s the Department of Business, Energy and taxonomy-eligible activities across the Industrial Strategy to suggest ways in which the UK Taxonomy could be developed to be 46 SSE plc Annual Report 2022 ### Financial impact of SSE's taxonomy activities | SSE's reported segments (a) | Taxonomy eligible activity(a) | Revenue (b) | Adjusted operating profit (c) | Adjusted investment and capital expenditure (d) | | --- | --- | --- | --- | --- | | Total taxonomy eligible activities | 2,615.3 | 30 | 1,294.8 | 84 | | Taxonomy non-eligible activities | 1,566.5 | 18 | 331.4 | 22 | | Total taxonomy partially/not-aligned activities | 4,426.5 | 51 | (89.4) | (6) | | Total continuing operations | 8,608.2 | 100 | 1,536.8 | 100 | ### Taxonomy eligible activities at a glance Revenue ![img-5.jpeg](img-5.jpeg) Adjusted operating profit ![img-6.jpeg](img-6.jpeg) Adjusted investment and capital expenditure ![img-7.jpeg](img-7.jpeg) Assumptions Linkage principle Materiality UK taxonomy eligibility Proxies SSE plc Annual Report 2022 47 STRATEGIC REPORT ### A sustainable approach continued ### Protecting the environment continued | Material climate impacts | SSE has aligned its disclosures related to | consideration different climate related- | | --- | --- | --- | | SSE assesses the climate impact on its | opportunities to its Net Zero Acceleration | scenarios. SSE is still in the process of | | operations over the short (up to three | Programme out to 2026, where opportunities | developing appropriate macro enterprise- | | years), medium (four to 10 years) and long | are more certain. Beyond this date a | level climate scenarios, building on climate | | term (up to 30 years) from the perspective | description of further opportunities has been | scenario analysis performed in the past, | | of market, policy or regulatory transition | provided, though these have not been | with a view to complying from 2023. SSE’s | | risks and opportunities and the physical | quantified due to the inherent uncertainty in | previous reports, Post Paris, published in | | risks of a changed climate. | longer-term forecasting. Risks identified have | July 2017, and Transition to Net Zero, | | | been quantified based on SSE’s exposure to | published in November 2019, assessed the | | Material climate-related opportunities and | the risk as at 31 March 2022. | resilience of SSE’s electricity businesses | | risks (pages 50 to 53 ) have the potential | | and gas businesses to different warming | | to significantly impact SSE’s business, | Further information on each climate-related | scenarios respectively. These reports | | strategy and financial planning. | opportunity and risk is also presented in | can be found at sse.com/sustainability | | | SSE’s Sustainability Report 2022  and CDP | sse.com/sustainability . | | The material opportunities (pages 50 | Climate Change Programme submission. | | to 51 ) relate to the role that renewables, ### transmission and distribution electricity Explaining recommended SSE’s key developments in ### networks, and thermal play in supporting 2021/22: ### disclosure Strategy 2.c the transition to net zero. The material risks SSE believes it is partially compliant with • SSE announced its £12.5bn Net (pages 52 to 53 ) are associated with the TCFD recommended disclosure Strategy Zero Acceleration Programme physical impacts of extreme or changing 2.c as it describes the resilience of the aligned to its net zero ambitions, weather conditions on renewable and organisation to the key identified climate- see pages 4 to 5 . network operations; alongside transition related risks on pages 52 and 53 . • SSE set accelerated science-based risks related to renewable wholesale prices However, these risks followed a process of targets aligned to a 1.5°C pathway, and resilience of thermal power generators bottom up analysis and therefore does not see pages 54 and 55 . to changing policy. meet the specific requirement to take into • SSE reviewed its climate-related risks and opportunities in its Annual Report, see pages 50 to 53 . ENGAGEMENT IN ACTION SHAREHOLDERS AND DEBT PROVIDERS ## ENHANCING CLIMATE ENGAGEMENT WITH SHAREHOLDERS | Having worked closely with investor | of the votes cast in favour and | targets and actions to allow for clear | | --- | --- | --- | | group Climate Action 100+ over | established a framework for SSE to | and simple disclosures which will | | 2020/21, SSE proposed an enabling | propose a resolution at each AGM for | facilitate high quality engagement. | | resolution to its July 2021 Annual | shareholders to receive, consider and | Ahead of the 2022 AGM, SSE will | | General Meeting (AGM) asking | express non-binding advisory approval | undertake a programme of shareholder | | shareholders to accept and approve | of SSE’s Net Zero Transition Report. To | engagement on the Net Zero Transition | | the Company’s proposal to adopt a plan | aid the vote, SSE published a Net Zero | Report, which will be published in | | to become net zero across its scope | Transition Plan in March 2022, from | June 2022. | | 1, 2 and 3 GHG emissions by 2050 or | which its Net Zero Transition Reports | | | sooner. The resolution received 99.96% | will be based. The Plan sets out defined | | 48 SSE plc Annual Report 2022 ## Climate-related opportunity ## and risk management Meeting TCFD recommended ### Identifying and assessing climate- occurrence for each opportunity and disclosures: risk. This assessment led to the definition ### related opportunities and risks ### of the final list of material climate-related 3. Risk Management SSE’s Group Risk Management Framework risks and opportunities for SSE (pages 50 is complemented by a specialist, and a) Describe the organisation’s to 53 ). longer-term, TCFD climate-related risk processes for identifying and assessment process that provides the assessing climate-related risks. ### framework for the identification and Managing climate-related b) Describe the organisation’s ### assessment of climate-related opportunities and risks processes for managing climate- opportunities and risks. SSE has a series of actions that enable it to related risks. realise the climate-related opportunities | To identify and assess climate-related | and has a set of controls and financial | c) Describe how processes for | | --- | --- | --- | | opportunities and risks SSE used the | mitigations in place to reduce the climate- | identifying, assessing, and managing | | outputs from senior business leader | related risks. This risk management section | climate-related risks are integrated | | assessments of climate opportunity and | (pages 49 to 53 ) combined with SSE’s | into the organisation’s overall | | risk alongside risk assessment workshops | Sustainability Report 2022 and CDP | risk management. | | held by business units to test relevance, | Climate Change response provides further | | | materiality and potential financial impact of | information on these actions and controls. | | climate issues. Following the completion of ### these activities a long list of climate-related SSE’s key developments in ### Integrated climate-related ### opportunities and risks was identified. 2021/22: ### risk assessment SSE’s Group Risk Management Framework • Group Risk Committee approves To test the relevance of the long list of (page 161 ) ensures the management of the process and controls of climate-related opportunities and risk, risks that can threaten the achievement of SSE’s climate-related risk and the risk approach used climate-related SSE’s strategic objectives, including those opportunities, see page 44 . trends in the external environment, that are related to climate change. Climate • SSE’s climate-related physical stakeholder perspectives (including Change is one of SSE’s Group Principal risks were assessed as part of the regulatory requirements); internal risk Risks, with scenarios related to both Group Risk Management process, assessment outputs and climate-related physical and transition risks posed by see pages 68 to 81 . influencing factors in the Group Risk climate change included as part of SSE’s Management framework. • SSE achieved an ‘A’ for its CDP viability assessment (page 70 ). Climate- Climate Change disclosure, related influencing factors and key To test materiality a significance test which provides detail on its developments continue to be considered was conducted that assessed potential TCFD disclosures. See sse.com/ against all relevant Group Principal Risks financial impact and the likelihood of sustainability  for the submission. (pages 71 to 81 ). ### Material climate-related opportunities and risks The following tables, on pages 50 to 53 , present SSE’s quantification of the potential financial impact of its material climate-related opportunities and risks. More detail to these disclosures is presented in SSE’s CDP Climate Change Programme submission 2022. For the opportunities and risks identified, where relevant, SSE has outlined the time frame for investment in climate-related activities as well as the time frame for the impact of that investment, when the benefits will be realised. The time frames are: • Short term (up to three years) • Medium term (four to 10 years) • Long term (up to 30 years) These time frames have been determined based on a number of factors, including: SSE’s Net Zero Acceleration Programme; market, policy and regulatory frameworks; and forecasted physical impacts of climate change. 49SSE plc Annual Report 2022 # A sustainable approach Protecting the environment # Climate-related opportunities | VALUABLE FLEXIBLE HYDRO | Investment: Impact: | | --- | --- | | Context of the opportunity | | | How SSE can realise this opportunity | Potential financial impact | | --- | --- | | ACCELERATED TRANSMISSION GROWTH | Investment: Impact: | | --- | --- | | Context of the opportunity | | | How SSE can realise this opportunity | Potential financial impact | | --- | --- | 50 SSE plc Annual Report 2022 ACCELERATED WIND INVESTMENT Investment: Impact: Context of the opportunity How SSE can realise this opportunity Potential financial impact DRIVING DISTRIBUTION TRANSFORMATION Investment: Impact: Context of the opportunity How SSE can realise this opportunity Potential financial impact VALUABLE FLEXIBLE THERMAL Investment: Impact: Context of the opportunity How SSE can realise this opportunity Potential financial impact SSE plc Annual Report 2022 51 # A sustainable approach Protecting the environment # Climate-related risks | VARIABLE WIND GENERATION RISK | Impact: | | --- | --- | | Factors that impact business | | | Potential impact to SSE | Potential financial impact | | --- | --- | | STORM DAMAGE NETWORK RISK | Impact: | | --- | --- | | Factors that impact business | | | Potential impact to SSE | Potential financial impact | | --- | --- | 52 SSE plc Annual Report 2022 ACCELERATED GAS CLOSURE RISK Impact: Medium term ### Factors that impact business More aggressive climate change policy may bring forward the closure of unabated gas generation from 2030. The UK Government’s Net Zero Strategy outlines plans to decarbonise the power sector by 2035 with a target of 95% of GB electricity to be low carbon by 2030. It is plausible that to meet climate change commitments the UK Government (and potentially the Irish Government too) may strengthen climate change policies to require unabated gas generation to cease in the 2030s. ### Potential impact to SSE Potential financial impact SSE’s existing 5.3GW fleet of installed gas- and oil-fired generation Due to market conditions during FY21/22, the short term value of will be nearing the end of its expected life by the end of the 2020s. these assets has increased, resulting in the reversal of historic However, 2.3GW of Combined Cycle Gas Turbine (CCGT) capacity impairments to unabated gas plant of £331.6m. Following this will still be in operation in 2030. impairment reversal, the value of unabated gas plant as of 31 March 2022 was £1.1bn. This includes Keadby 2, Great Island and legacy It is a plausible scenario that this capacity will not be able GB CCGTs. Of SSE’s legacy CCGTs, the current financial to generate beyond 2030 without low-carbon abatement assumption is that these will either close by 2030, or SSE will not technology. For assets currently assumed to have a life beyond have a carrying value in the joint venture investment beyond 2030. 2030, it is possible that SSE could invest further in low-carbon abatement technology to prolong their life beyond this date. The potential impact of this policy change to SSE’s impairment model at 31 March 2022 would be an impairment of £41.5m to However, for the purposes of quantifying this risk, it is assumed Great Island and no impairment to Keadby 2 if it were assumed that the financial impact of this policy change is the early closure these plant would close in 2030 (see note 15). In addition to an of the remaining gas assets in 2030. impairment charge, SSE’s decommissioning provisions would reduce by £8.4m at 31 March 2022 if the forecast closure date was brought forward (see note 20). WIND-CAPTURE MARKET RISK Impact: Medium term ### Factors that impact business In net zero consistent scenarios, the price wind energy can capture is forecast to reduce as more marginal cost wind generation is connected. All credible pathways to net zero in the UK and beyond assume the dramatic scaling up of wind (especially offshore) generated electricity. This significant growth in wind power output without a corresponding increase in demand represents a potential climate- related transition risk. As wind generation capacity increases, the market (and SSE) expects the average electricity price which wind power receives (‘wind capture price’) to be less than the average price for electricity (‘baseload price’). As wind becomes the dominant source of electricity output it will define the market price, so the volatility of electricity prices correlates to wind output, both high and low. While this is expected in the medium term, and is factored into investment decisions, there is a risk that this lower average price for wind output is more extreme than what the market (or SSE) expects. In the long term, and with careful market design reform, the effect of the wind capture price will stabilise as more low carbon technologies adapt their patterns of demand according to the price signal sent by the market. In its British Energy Security Strategy, the UK Government committed to a Review of Electricity Market Arrangements which will seek, among other things, to ensure future low-carbon generation is fairly remunerated. ### Potential impact to SSE Potential financial impact The effect of a wind capture price only materially impacts wind The book value of the Group’s wind assets at 31 March 2022 is generation that is fully exposed to market prices (or ‘merchant’ £4.0bn. A sensitivity to the wind goodwill impairment model was wind output), as it is not supported by government-backed fixed performed with a sustained 10% reduction to wind capture price. price mechanisms such as the Contracts for Difference. This sensitivity scenario indicated significant headroom on the Assuming a build out rate of wind generation assets in SSE’s carrying value of the assets (see note 15). renewable project pipeline page 85 , it is assumed there will be 10TWh of merchant wind output in 2029/30. The scale of any impact of a change to the expected wind capture price would therefore be a function of the assumed wind capture price and the amount of merchant wind electricity generated. 53SSE plc Annual Report 2022 STRATEGIC REPORT ### A sustainable approach continued ### Protecting the environment continued ## Targeting improved climate performance ### Carbon performance table Meeting TCFD recommended This table, taken in conjunction with the energy use information in the Energy use table disclosures: on page 57 , represents SSE’s disclosures in line with the UK Government Streamlined ### Energy and Carbon Reporting requirements. It details SSE’s direct and indirect GHG 4. Metrics and Targets emissions (scopes 1, 2 and 3) performance (measured in million tonnes of carbon dioxide a) Disclose the metrics used by the equivalent – MtCO e), provided as total emissions as well as split out by UK and Irish 2 organisation to assess climate- activity. It also provides a carbon intensity measure based on direct GHG emissions related risks and opportunities released for each unit of electricity SSE produced. For more information on SSE’s GHG in line with its strategy and risk emissions data and how it is produced, see SSE’s GHG and Water reporting criteria management process. available at sse.com/sustainability . b) Disclose Scope 1, Scope 2, and, Unit 2021/22 2020/21 if appropriate, Scope 3 greenhouse (A) (B) Total GHG emissions MtCO e 9.93 11.03 gas (GHG) emissions, and the 2 (A) (B) related risks. Scope 1 GHG emissions – MtCO e 5.75 7.10 2 total (UK/Ire) (4.22/1.53) 6.00/1.10 c) Describe the targets used by the organisation to manage climate- | | | | | | (A) | | | (B) | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Scope 2 GHG emissions – | MtCO | e | | 0.49 | | | 0.54 | | | | | | 2 | | | | | | | related risks and opportunities | | total (UK/Ire) | | | (0.49/<0.01) | | | (0.54/<0.01) | | | | and performance against targets. (A) (B) Scope 3 GHG emissions – MtCO e 3.69 3.39 2 total (UK/Ire) (2.86/0.83) (2.66/0.73) (A) Scope 1 GHG emissions intensity gCO e/kWh 259 256 2 | Total renewable generation | | GWh | | 8,799 | | 9,649 | SSE’s total GHG emissions decreased by | | --- | --- | --- | --- | --- | --- | --- | --- | | | 1 | | | | | | 10% between 2020/21 and 2021/22. The | | output | – total (UK/Ire) | | (7,602/ 1 ,197) | | (8,295/1,354) | | | most material contributing factor was the Total non-renewable generation GWh 13,356 18,045 reduction in energy demand as a result of 2 output – total (UK/Ire) (10,394/2,962) (15,612/2,433) market conditions and the weather which Total generation output – GWh 22,155 27,694 led to this reduction in GHG emissions. total (UK/Ire) (17,996/4,159) (24,014/3,680) Although SSE’s GHG emissions fell over 2021/22, the impact of weather and 1 Totals include pumped storage and biomass output, and exclude GB constrained off wind. demand can create exceptional years of 2 Includes 100% output from Seabank power station up to 31 September 2021 when SSE’s power purchase change. SSE’s overall strategy is to cut GHG agreement to purchase ended, and then excludes output from SSE’s 50% ownership share from October emissions in line with its 1.5°C-aligned 2021 onwards. carbon targets and its 2030 Goals. (A) This data was subject to external independent assurance in 2022. The Limited Assurance Report can be found at sse.com/sustainability . (B) This data was subject to external independent assurance in 2021. The Limited Assurance Report can be Between 2020/21 and 2021/22, GHG found at sse.com/sustainability . emissions arising from electricity generation fell by 19%. These emissions continue to make up 99% of SSE’s scope 1 emissions. | Increasing climate ambition | this new 1.5°C pathway and approved by | This was predominantly a result of two | | | --- | --- | --- | --- | | In 2021/22 SSE announced more stretching | the SBTi. Progress against these more | factors: | | | climate targets, ensuring its ambitions | stretching SBTi-approved targets is detailed | | | | continue to align to the developing climate | within this section and makes up part of | 1. The ending of SSE’s power | | | science. SSE is now targeting net zero GHG | SSE’s progress against its Net Zero | | purchase agreement contract with | | emissions across its scope 1 and scope 2 | Transition Plan. | | Seabank gas-fired power station on | | emissions by 2040 (subject to security of | | | 30 September 2021. As a result 50% of | | supply requirements) and for remaining | In October 2021, SSEN Distribution became | | emissions from this power station are | | scope 3 emissions by 2050. | the first UK Distribution Network Operator | | now reported in SSE’s scope 3 GHG | | | to set science-based targets in line with a | | emissions category, based on SSE’s | | On its pathway towards its longer-term net | 1.5°C pathway, verified by the SBTi. These | | ownership share; and | | zero ambitions, SSE has a series of carbon | targets play an important role in supporting | | | | targets which are approved by the Science | the SSE Group’s net zero ambitions, | 2. Output from SSE’s thermal generation | | | Based Targets Initiative (SBTi). Originally set | alongside the 1.5°C-aligned, SBTi-approved | | plant* was 26% lower compared to | | in April 2020, these targets were aligned to | carbon targets set by SSEN Transmission in | | the previous year, due to planned | | a ‘well below 2°C’ pathway which was the | August 2020. | | and unplanned outages and market | | most stretching pathway for the power | | | conditions. | | sector available from SBTi at the time. Since | GHG emissions performance | | | * Includes 100% output from Seabank power then, the SBTi has published a new pathway In 2021/22, SSE’s total GHG emissions station up to 31 September 2021 when SSE’s for the power sector, allowing electric consisted of 58% scope 1 emissions, 5% power purchase agreement to purchase ended, utilities to set science-based targets in line scope 2 emissions and 37% scope 3 and then excludes output from SSE’s 50% with a 1.5°C pathway. In November 2021, emissions. ownership share from October 2021 onwards. SSE announced updated targets aligned to 54 SSE plc Annual Report 2022 SSE’s total scope 1 and 2 GHG emissions GENERATION OUTPUT AND SCOPE 1 GHG EMISSIONS combined were 6.24MtCO e in 2021/22, 2 an 18% reduction from the previous year and 44% reduction from the 2017/18 base year of SSE’s SBTi-approved carbon target 35,000 to reduce absolute scope 1 and 2 GHG emissions by 72.5% between 2017/18 and 30,000 9 e) 2030. Overall, SSE’s scope 1 and 2 GHG 25,000 emissions have reduced significantly 20,000 6 compared to the base year, reflecting lower output from thermal power stations and 15,000 the closure of SSE’s last coal-fired power (million tonnes CO 10,000 3 Scope 1 GHG emissions plant in March 2020. 5,000 Total scope 3 emissions increased by 9% between 2020/21 and 2021/22. This is due to the inclusion of 0.3MtCO e emissions 2 from Seabank gas-fired power station from Renewables output Coal output Gas and oil output* Multifuel output Scope 1 GHG emissions October 2021 onwards. Previously, the * In 2021/22, oil-fired generation output contributed around 6% of gas and oil output. power purchase agreement between Seabank and SSE required emissions | associated with Seabank to be accounted | increased to 40% from 35% in 2020/21. | | | --- | --- | --- | | as scope 1 emissions. From the end of the | The fall in thermal output did not result in | SSE’s key developments in | | power purchase agreement in September | a corresponding fall in the GHG emissions | | ### 2021/22: 2021, the emissions from Seabank are intensity, because there was increased • SSE total scope 1 GHG emissions defined as scope 3 emissions according to generation output from the most intensive reduced by 10%, see page 54 . | SSE’s continuing 50% ownership share. | generating plant in SSE’s portfolio, including | | | | --- | --- | --- | --- | | | from carbon intensive peaking plant in | • SSE’s Net Zero Transition Plan sets | | | | Ireland. | | it GHG targets and actions, see | GHG emissions from gas sold to sse.com/sustainability . customers, which contribute 62% of SSE’s | scope 3 emissions in 2021/22, decreased | SSE remains on track to achieve its | | • SSE’s Net Zero Transition Report | | | --- | --- | --- | --- | --- | | by 3%. This was a result of lower market | SBTi-approved target to reduce scope 1 | | | summarises SSE’s disclosed | | demand. This means GHG emissions | GHG emissions intensity by 80% between | | | progress against its Net Zero | | from gas sold have reduced by 10% from | 2017/18 and 2030, having reduced it by | | | Transition Plan, see sse.com/ | | 2017/18. SSE’s SBTi-approved target is to | 16% in 2021/22 from the 2017/18 base year | | | sustainability . | | reduce GHG emissions from gas sold by | levels of 307 gCO | e/kWh. | | | 2 50% between 2017/18 and 2034. Change in SSE’s scope 1 GHG emissions Change in SSE’s scope 1 and 2 GHG intensity since 2017/18 emissions since 2017/18 ## -16% ## -44% ### Working with supply chain | Scope 1 GHG emissions intensity | | partners to drive climate action | | --- | --- | --- | | SSE’s scope 1 GHG emissions intensity | | One of SSE’s SBTi-approved targets is to | | increased by 1% to 259gCO | e/kWh from | engage with 50% of suppliers (according to | 2 256gCO e/kWh the previous year. There financial expenditure) to set their own 2 are a series of factors that contribute to the science-based targets by 2024. Following on calculation of carbon intensity. from the workshops held in 2020/21, which facilitated dialogue around science-based | | Output from SSE’s renewable generation | targets, during 2021/22, SSE continued to | | | --- | --- | --- | --- | | | portfolio (inc. pumped storage and | engage with key suppliers through direct | | | | biomass) fell to 8.8TWh in 2021/22, from | engagement and hosted a live webinar, | | | | 9.6TWh the previous year. This was driven | in partnership with the Supply Chain | | | | by exceptionally still and dry weather | Sustainability School, on the topic of | | | | conditions, with the summer of 2021 being | carbon. At 31 March 2022, 48% of SSE’s | | | 40,000 | | | 12 | | | one of the least windy across most of the | suppliers (by value) had set or committed | | | | UK and Ireland and one of the driest in SSE’s | to set their own science-based targets | | | | Hydro catchment areas in the last 70 years. | through the SBTi. Over 2021/22, SSE and | | 2 CDP Supply Chain collaborated to deliver | Output from SSE’s thermal generation | its first supplier webinar focusing on carbon | | --- | --- | | also fell, and by a greater extent than for | reporting, which reached over 50 key | | renewables output. This meant that the | suppliers and contributed to the highest | | proportion of total generation output | supplier response rate SSE has had since | | contributed to by renewable generation | beginning supply chain reporting. | Generation output (GWh) 55SSE plc Annual Report 2022 17/18 18/19 19/20 20/21 21/22 STRATEGIC REPORT ### A sustainable approach continued ### Protecting the environment continued ## Conserving the ## natural environment ### A strategy for environmental Managing water use impact, water abstracted volumes are Water plays a significant role in SSE’s also provided in the table excluding hydro ### protection operations, being used in the energy generation data. SSE’s total water abstracted While SSE’s GHG emissions are its most production process including as a coolant excluding hydro operations also fell over material environmental impact, it also has in power stations and a source for power this period. This was predominantly due to wider impacts on the natural world that generation in hydroelectric generators. SSE a reduction in thermal generation output must be carefully managed. SSE considers also uses water as an amenity in its buildings. which resulted in a corresponding fall in these environmental impacts through its water abstracted. Environment Strategy, which sits within SSE’s sustainability hierarchy outlined on SSE has robust policies and processes in page 39 . The strategy is founded on place, and works closely with environmental Total water abstracted by SSE (excluding 3 robust environmental management and regulators, to ensure that it uses water in a hydro generation) (million m ) governance, with three core environmental sustainable way in its operations. SSE has an Fresh water (rivers and groundwater) SDGs providing the framework for ongoing investment programme within its Brackish and estuarine water | sustainable environmental development: | hydro operations to improve efficiency, | | --- | --- | | SDG14 Life Below Water; SDG15 Life Above | enhance water capture and minimise spill | | Land; and, SDG12 Responsible | from its plant. None of SSE’s thermal and | | Consumption and Production. | hydro generation assets impact on water | stressed areas, as defined by the relevant Detail on SSE’s environmental impacts and environmental regulators in the jurisdictions how it is managing them is outlined in this in which they operate. ## 819 ## 777 section, as well as in SSE’s Sustainability Report 2022 . In 2020/21, total water abstracted by SSE 3 fell to 23,896 million m from 26,032 3 million m the previous year. This was ### Protecting the natural 13.6 1.9 largely due to a reduction in water passing ### environment 2020/21 2021/22 through SSE’s hydro generation plant as a SSE operates in some of the UK and result of lower levels of rainfall compared Ireland’s most remote areas which are to the previous year. The vast majority (97%) home to a wide variety of valuable Total water consumed also fell significantly of water abstracted in 2021/22 was used in ecosystems and habitats. It works to over this period, by over 78%. This was due SSE’s hydro generation operations. This manage its impacts of its activities to to reduced output from thermal generation water is technically recorded as abstracted, ensure it protects and, where possible overall, as well as a proportional reduction but it passes through turbines to generate enhance these environments. in the output from thermal power plant with electricity and is returned to the cooling systems that have evaporative environment almost immediately, All of SSE’s Business Units have signed losses of water. and therefore has minimal environmental up to no net loss in biodiversity by 2023 impact. To help stakeholders to understand and net gain in biodiversity by 2025 on a more proportionate environmental onshore Large Capital Projects. As part of its approach to biodiversity net gain, SSEN Transmission is implementing Unit 2021/22 2020/21 its optioneering toolkit which allows Water use consideration of biodiversity at the earliest | | | | 3 | | (A) | | | * | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | stages of development and which has won | Total water abstracted Million m | | | 23,896 | | 26,032 | | | | a number of external awards. | | | 3 | | | | | | | | Total water abstracted | Million m | | | 779 | | 832 | | (exc. hydro generation) With the increasing focus on how to 3 Freshwater abstracted (rivers and groundwater) Million m 1.9 13.6 effectively value nature, which has included (exc. hydro generation) the publication of the Taskforce for Nature-related Finance Disclosures (TNFD) 3 (A) * Total water returned Million m 23,895 26,028 Beta framework in March 2022, SSE is closely 3 (A) * Total water consumed Million m 0.8 3.9 monitoring developments in this area and is now a member of the TNFD Forum, a (A) This data was subject to external independent assurance in 2022. For the limited assurance opinion multi-disciplinary consultative group of over see sse.com/sustainability . 350 members, to help inform its next steps. * This data was subject to external independent assurance in 2021. In 2021/22, additional data points and You can read more about SSE’s initiative minor amendments to methodologies has resulted in some 2020/21 figures being restated. For the Limited Assurance Report see the limited assurance opinion see sse.com/sustainability . to protect and enhance the natural environment in its Biodiversity Report and Sustainability Report 2022 . 56 SSE plc Annual Report 2022 | SSE’s energy consumption | SSE’s ‘Better Off’ behaviour change | double energy productivity associated with | | --- | --- | --- | | Between 2020/21 and 2021/22, the energy | campaign, alongside its investment of | office and depot buildings by 2030 from a | | SSE purchased for use in its assets (offices, | £12.8m since 2011/12 in energy efficiency | 2011 baseline. From 1 April 2022 onwards | | depots, thermal power stations, gas storage | and building renewable generation | SSE will revise its annual reduction target to | | facilities, and data centres) fell by around | programmes, has helped to reduce carbon | 7.19% against a 2020/21 baseline, to align | | 16%, from 234GWh to 196GWh. | emissions from energy used in its facility | with its ambition of achieving a net zero | | | managed offices by 42% since 2017/18. | non-operational buildings (offices, depots | | Energy consumed in SSE’s thermal power | SSE is a member of the Climate Group’s | and data centres) estate by 2035. | | stations and gas storage facilities fell by | EP100 initiative to encourage businesses to | | 17% compared to 2020/21. This was largely due to a fall in electricity consumed at Unit 2021/22 2020/21 the now closed Fiddler’s Ferry coal-fired power station, as decommissioning activity Energy use* reduced, and a reduction in energy (A) Purchased heat from non-renewable sources GWh 3.3/0.08 3.6/0.14 consumption at SSE’s Aldborough gas – UK/Ire storage facility. Purchased electricity from renewable sources GWh 73.3/0.98 87.3/0.9 Energy consumed in SSE’s offices, depots – UK/Ire and data centres also fell slightly. Despite Purchased electricity from non-renewable GWh 118.6/0 142.4/0 an increase in numbers of employees sources – UK/Ire working from home due to the pandemic, energy consumption in SSE’s facility (A) This data was subject to external independent assurance in 2022. For the limited assurance opinion see managed offices has not reduced sse.com/sustainability . significantly due to the need to maintain * This information, taken in conjunction with the Carbon performance summary table on page 54 , buildings to meet heating and ventilation represents SSE’s disclosures in line with the UK Government Streamlined Energy and Carbon industry and government guidelines for Reporting requirements. the safe operation of buildings. | | Managing air emissions | In 2021/22, SSE’s sulphur hexafluoride (SF | ) | | --- | --- | --- | --- | | During 2021/22, SSE invested in a range | | | 6 | | | In 2020/21, SSE’s thermal generation sites | emissions increased slightly to 305kg from | | of energy efficiency measures including | | emitted 4,573 tonnes of nitrogen oxides | 295kg the previous year. SF | is widely used | | --- | --- | --- | --- | | a programme of LED lighting upgrades to | | | 6 | | | (NOx), compared 4,106 tonnes the previous | by the electricity industry around the world | | depot sites. Over this period, SSE purchased year, an increase of around 11%. Emissions due to its insulating properties and 100% of its electricity for use in its facility | | of sulphur dioxide (SO | ) more than doubled | therefore its ability to keep people safe | | --- | --- | --- | --- | | managed offices from renewable sources, | | 2 | | | | to 3,021 tonnes, from 1,378 tonnes the | | from electrical ‘arcing’, however it is a | backed by renewable guarantees. In previous year. In addition, particulate potent greenhouse gas (GHG). SSE has a 2020/21, 39% of the electricity that SSE emissions (PM10) rose to 277 tonnes, from number of initiatives to reduce GHG purchased for its assets was from renewable | | 182 tonnes in 2020/21, and mercury | emissions from SF | | in its networks, | | --- | --- | --- | --- | --- | | sources, up from 29% the previous year. | | | | 6 | | | emissions to air decreased significantly | including working with suppliers to install | | | | | from 19.5kg in 2021/21, to 1.9kg in 2021/22. | SF | -free alternatives across its electricity | | 6 transmission network. You can read more The rising trend across three of these key about what SSE is doing to reduce the ### Data assurance and air emission sources, reflects the increased impact of SF in its business activities in its 6 ### environmental metrics demand for oil-fuelled peaking plant in Sustainability Report 2022  and its Net SSE takes an integrated approach Ireland that arose as a result of the need Zero Transition Plan. towards assurance utilising internal to balance the grid. audit and external assurance providers to ensure accurate, complete disclosures. Where data has been externally and independently Unit 2021/22 2020/21 assured, this has been noted in the Air emissions relevant tables. In all other areas, data is identified and disclosed Sulphur dioxide (SO2) – thermal generation Tonnes 3,021 1,378 according to SSE’s internal processes, Nitrogen oxide (NOx) – thermal generation Tonnes 4,573 4,106 guided by environmental regulations where appropriate. Sulphur hexafluoride (SF6) – thermal generation kg 305 295 and electricity transmission and distribution activities Particulates emissions (PM10) from thermal generation assets Tonnes 277 182 Mercury emissions from thermal generation kg 1.9 19.5 assets 57SSE plc Annual Report 2022 STRATEGIC REPORT SSE’s major investments in projects like ### A sustainable approach continued Dogger Bank, Seagreen and Viking wind farms. SSE supported a total of 47,130 jobs across the UK and Ireland in 2021/22. SSE also publishes socio-economic analysis for individual projects. Over 2021/22, SSE published reports on the socio-economic impact of Keadby 3 ## SSE’s social and Peterhead 2 CCGT plants. All socio- economic reports for the SSE Group and at a project-level can be found on sse.com/sustainability/reporting . ## contribution ### Paying a fair share of tax SSE has long recognised that paying a fair share of tax is part of its social ## Following its publication of the world’s first licence to operate and right to make a profit. SSE has been accredited with the ## company Just Transition Strategy, SSE has been Fair Tax Mark since 2014. This means the ## ranked top in the World Benchmarking Alliance’s Fair Tax Foundation has independently assessed it as having a responsible and ## just transition assessment. Continued leadership transparent approach to paying tax, ## on a transition to net zero which happens in a way and that SSE explicitly rules out the use of tax havens or an aggressive approach ## that is fair and just for workers, communities and to tax avoidance. ## consumers is a key strategic objective for SSE. Over 2021/22, SSE’s total tax contribution was £944m, split between £375m in taxes paid (including £70m paid in corporation ## Generating value tax) and £569m in taxes collected. This is a decrease of 5.5%, 5.6% and 5.4% respectively compared to 2020/21. This small reduction was the result of three ## across society key drivers: (1) 2020/21 tax figures include the tax contribution from SSE Contracting | Contribution to GDP and jobs | economies for the last 11 years. In total | over the full financial year, whereas the | | --- | --- | --- | | With a £12.5bn Net Zero Acceleration | over 2021/22, SSE added £5.8bn to UK | disposal of this business in 2021/22 | | Programme, the way this money is invested | GDP, of which over £2bn was in Scotland, | means that the tax contribution from | | can deliver significant economic benefits | and €438m to Irish GDP. While the | SSE Contracting was only included up | | to communities and businesses in the | contribution to Irish GDP was consistent | to 30 June 2021; (2) environmental | | places SSE operates within. To understand | with last year (2020/21: €439m), this | taxes paid were lower this year due to | | its wider socio-economic contribution, | represents an increase of 36% increase in | outages at some generation sites; and | | SSE has commissioned PwC to measure | the Scottish GDP contribution (2020/21: | (3) environmental taxes collected were | | the value it adds to GDP and the jobs it | £1.5bn) and a 12% increase in the UK GDP | lower due to lower energy usage by | | supports across the Scottish, UK and Irish | contribution (2020/21: £5.2bn), driven by | business customers. | ## 2021/22 UK and Irish GDP contribution, jobs supported and taxes paid | UK contribution to GDP | UK jobs supported | UK taxes paid | | --- | --- | --- | | £5.8bn | 45,290 | £335m | | 2020/21: £5.2bn | 2020/21: 41,400 | 2020/21: £379m | | Ireland contribution to GDP | Ireland jobs supported | Ireland taxes paid | | --- | --- | --- | | €438m | 1,840 | €46.4m | | 2020/21: €439m | 2020/21: 2,160 | 2020/21: €20.4m | 58 SSE plc Annual Report 2022 ### Further information on SSE’s tax Finally, collaboration with its supply Delivering local opportunities contribution can be found in the chain partners is central to delivery ### and community investment Sustainability Report 2022. Each year SSE of SSE’s sustainable procurement strategy. An integral part of a just transition is also publishes a Talking Tax report which Sustainability is now an agenda item at all delivering opportunities and sharing provides detailed information on the taxes Strategic Relationship Management (SRM) value locally. SSE primarily does this in it pays in every jurisdiction it operates meetings. With 34 SRM suppliers, each two ways: providing local jobs and supply within, with disclosure of its tax strategy is required to provide a detailed annual chain investment; and granting direct funds and approach. SSE’s Talking Tax reports can business update inclusive of sustainability. for community projects. With the level be found on sse.com/sustainability . SSE has also been working with a number of ambition and action needed to reach of these suppliers to develop and launch net zero, there are many opportunities to ### Targeting sustainable supply chains the new global Powering Net Zero Pact deliver sustainable, competitive domestic An overhaul of SSE’s sustainable (see case study below.) supply chains which maximise local | procurement strategy began in 2020, | | economic benefits. Information on SSE’s | | --- | --- | --- | | recognising the opportunity for | Embedding sustainability | focus on supporting local supply chains can | | an increased focus on social and | through Large Capital Projects | be found in the Sustainability Report 2022. | | environmental value through its supply | SSE undertook an initiative over 2021/22 | | | chain. SSE’s new Sustainable Procurement | to ensure its Large Capital Projects (LCPs) | Over 2021/22, £9.7m of community | | Code and accompanying Supplier | are designed and constructed to enable the | investment grants were administered | | Guidance document were published in | journey to net zero, deliver socio-economic | by SSE Renewables (2020/21: £10.2m). | | April 2021, with both documents available | benefits and facilitate a just transition. The | This financed 1,048 community projects | | on SSE’s website. All suppliers working with | newly updated LCP Governance Manual | across the UK and Ireland, including | | SSE must sign-up to the new Code which | now includes guidance and requirements | more than 130 rural jobs, 96 scholarships | | aligns to the Group’s overall sustainability | to embed sustainability through SSE’s LCPs, | and 108 community projects which | | approach and UN’s SDGs most material | ensuring sustainability risks are mitigated | enhance local net zero ambitions. Detailed | | to the Company. The Code sets out in | and sustainability opportunities maximised | disclosure on this funding can be found | | detail the sustainability requirements | across 10 sustainability criteria. From 1 April | on sserenewables.com/communities . | | and expectations for SSE’s suppliers. | 2022, a Sustainability Assessment and | In addition to this direct community | | | Action Plan (SAAP) is required for all new or | investment through renewables projects, | | Over 2021/22, SSE has also embedded | early development projects, ensuring that | almost £500,000 was administered to | | risk-based sustainability questions within | sustainability is incorporated into all phases | communities through SSEN’s Resilient | | its new sourcing system for all tender events | of major project development, construction | Communities Fund, and a further £1m was | | to support the consideration of sustainability | and operation. Guidance, training and | donated by SSE directly to the Disasters | | more fully throughout the supply chain, with | additional resources for project teams were | Emergency Committee in support of | | a weighting of up to 20% for sustainability | also developed to support the roll-out of | humanitarian aid in Ukraine. | | criteria. Registration and pre-qualification | this new approach. While sustainability has | | | questionnaires have also been reviewed to | always been a key consideration in SSE’s | | | include enhanced sustainability questions. | LCP activity, this work has helped to | | | Recognising the need for improved | formalise it as part of the overall | | | sustainability data capture from its suppliers, | governance approach. | | SSEN Transmission also launched its new supply chain reporting tool in 2021/22. ENGAGEMENT IN ACTION SUPPLIERS, CONTRACTORS AND PARTNERS ## INTRODUCING THE POWERING NET ZERO PACT | The Powering Net Zero Pact (‘the Pact’) | agree areas of focus, shared | commitment and area for collaboration. | | --- | --- | --- | | is a new initiative created by SSE with | commitments and topics for future | For example, to achieve net zero, Pact | | a group of other leading companies | collaboration. Together the founding | signatories commit to working towards | | working across the power sector, | partners operate in over 100 countries, | 1.5°C science-based carbon targets by | | which was developed as a legacy of | employ more than 240,000 people | 2025 and will participate in a working | | COP26. The Pact aims to bring together | globally, had a combined turnover in | group focused on the quantification of | | companies across all tiers of the power | 2021 of around £56bn, and work with | scope 3 carbon emissions. | | sector globally to achieve a fair and just | approximately 120,000 suppliers. | | | energy transition to net zero. | | The Powering Net Zero Pact launched | | | The Pact focuses on five areas of | in Glasgow in May 2022, six months on | | Over a six-month period, the 11 | ambition: (1) achieving net zero carbon | from COP26. Any company involved in | | founding partners of the Pact – which | emissions; (2) protecting and enhancing | the power sector which shares the | | alongside SSE includes: Balfour Beatty; | the natural environment; (3)transitioning | ambition of the Pact can become a | | DEME Group; GE Renewables; Hitachi | to a circular economy; (4) guaranteeing | signatory. More information can be | | Energy; NKT; RJ McLeod; Siemens | fair work and sustainable jobs; and (5) | found on sse.com/sustainability/ | | Energy; Siemens Gamesa; Subsea 7; | adding value to local communities. | poweringnetzeropact . | | and Vestas – met on a regular basis to | Each area of ambition has a shared | | 59SSE plc Annual Report 2022 STRATEGIC REPORT ### A sustainable approach continued ### SSE’s social contribution continued ## Guaranteeing fair work ## and good jobs | Growing green jobs | labour standards in line with its responsible | • Decent notice periods for shifts of | | | --- | --- | --- | --- | | The scale of growth needed to deliver SSE’s | employer ethos, going beyond minimum | | at least four weeks, with guaranteed | | net zero ambitions will result in significant | standards to ensure that those that work for | | payment if shifts are cancelled within | | employment opportunities. SSE plans to | it, either directly or on its behalf through its | | this notice period; | | create 1,000 jobs every year to 2026. | supply chain, are treated fairly and with | • The right to a contract that reflects | | | Opportunities will be created for new | dignity and respect. | | accurate hours worked; and | | employees across a range of positions in | | • A guaranteed minimum of 16 hours a | | | many different areas across the UK, Ireland | Protecting health and safety | | week (unless the employee requests | | and beyond. | Safety remains SSE’s first priority with the | | otherwise). | objective that ‘everyone gets home safe’. | The sharpening of SSE’s strategic focus | In the 2021 all-employee Great Place to | Since its accreditation as a Living Hours | | --- | --- | --- | | around electricity infrastructure and net | Work survey which had a 77% response | employer in March 2021, SSE has been | | zero saw it continue with planned disposals | rate, 92% of employees said that they work | working to roll-out this enhanced standard | | of non-core business areas over 2021/22. | in a safe and healthy work environment and | across its supply chain. It also continues | | These changes, which impacted around | 90% said that SSE makes it easy for people | to be a member of the Living Wage | | 2,300 employees, were undertaken with | to do the right thing on Safety, Health | Foundation’s Living Hours Steering Group | | full consultation with impacted employees | and Environment. | where it provides advice and a business | | and employee representatives. | | perspective on how to grow the | | | Over 2021/22, SSE achieved 254 Safe | accreditation initiative. | | Due to the disposal of certain business | Days (days where there were no minor, | | | areas, SSE’s headcount reduced from | serious or major SSE or contractor safety | Recognising the issue of work security | | 12,489 at the end of 2020/21 to 10,754 | or environmental incidents or any incident | more broadly, the vast majority of SSE | | at the end of 2021/22. However, to meet | with high potential for harm to people or | employees are on permanent contracts. | | the demand of its other growing Business | the environment) and reported a Total | In 2021/22, 94.4% of employees were | | Units, the total number of people joining | Recordable Injury Rate (TRIR) for employees | on permanent contracts, 0.6% were on | | SSE rose from 1,529 in 2020/21 to 2,290 | and contractors combined of 0.17 per | non-guaranteed or short hour contracts, | | in 2021/22. This means that SSE filled a | 100,000 hours worked. The number of Safe | and 5% were on temporary contracts. | | total of 3,195 positions across internal and | Days decreased and the TRIR increased in | | | external recruitment over 2021/22, an | 2021/22 compared to 2020/21. SSE believes | Developing employees from within | | increase of 43% from 2020/21. The size | this is a result of employees continuing to | SSE’s investment in learning, training and | | of SSE’s contingent workforce reduced | manage the implications of the coronavirus | development increased to £7.5m in | | between 2020/21 and 2021/22, from 1,950 | pandemic and changes in working patterns, | 2021/22 from £6.8m in 2020/21. Average | | to 1,767 people. This is attributed in part to | including a significant increase in contractor | training hours per full-time employee also | | the reshaping of the business and in part to | hours. Support for employees during the | returned to near pre-pandemic levels | | the impact of the IR35 tax regulations. | coronavirus pandemic continued over | (2021/22: 20.7, 2020/21: 9, 2019/20: 23.4), | | | 2021/22. | with 84.2% of SSE’s employees receiving | | SSE’s employee retention levels in 2020/21 | | some form of training over the year. | | were historically high. As stated in the | Further information on SSE’s health and | | | Annual Report 2021, this was largely | safety performance over 2021/22 is provided | In addition, while the number of people on | | attributed to the coronavirus crisis and | in the Safety, Sustainability, Health and | one of SSE’s pipeline programmes | | consequential reduced activity within the | Environment Advisory Committee report | (apprenticeships, technical skills trainee | | wider labour market. Coinciding with the | on pages 164 to 167  and in the | programmes, graduate programmes, | | easing of coronavirus restrictions, SSE’s | Sustainability Report 2022 . | conversion programmes and other pipeline | | 2021/22 retention levels have decreased | | programmes) remained relatively static | | compared from 2020/21, from 92.1% to | Paying the real Living Wage | (2021/22: 465 individuals, 2020/21: 470 | | 90.5%, however this remains higher than | SSE has been a Living Wage accredited | individuals), the decrease in SSE’s headcount | | the 2019/20 retention rate of 88.0%. SSE’s | employer in the UK since 2013 and has paid | meant that this actually represented a notable | | 2021/22 voluntary turnover rate was 7.8% | the Living Wage in Ireland since 2016. SSE | increase in the proportion of SSE’s workforce | | (2020/21: 3.6%, 2019/20: 6.5%). Attraction | began chairing Living Wage Scotland’s | on a pipeline programme, rising from 3.8% to | | and retention of employees remains a key | Leadership Group in April 2021 and the | 4.3%. Investment in pipeline programmes | | focus for SSE. | company is now beginning to explore | also increased to £9.8m in 2021/22 from | | | how it extends its commitment to paying | £9.0m in 2020/21. This brings SSE’s total | | | workers a real Living Wage beyond just the | investment in pipeline programmes over | ### Committed to leading UK and Ireland. the last three years to just under £30m. ### labour standards Creating job opportunities is an important Guaranteeing secure working hours More information on SSE’s approach to element of the just transition to net zero, Living Hours guarantees workers with fair learning and development and its training however ensuring these are high-quality jobs and secure working hours alongside a real programmes can be found in its is equally important. SSE implements robust Living Wage, specifically requiring: Sustainability Report 2022. 60 SSE plc Annual Report 2022 | Boosting inclusion and diversity | which it works with through the Joint | flexible working arrangements, 21 weeks | | --- | --- | --- | | SSE understands that greater inclusion | Negotiating and Consultative Committee | of fully-paid maternity leave, all-employee | | and diversity is central to its success going | and through regular on-going dialogue. | share plans, a holiday purchase scheme, | | forward, which is why it has reviewed | In 2021/22, 54.2% of SSE’s total direct | cycle-to-work schemes, salary sacrifice | | and refocused efforts over 2021/22 to | workforce were covered by collective | low emissions car scheme, and technology | | accelerate progress. Detail can be found on | bargaining agreements. | loans. 96% of SSE’s employees participated | | the inclusion and diversity section of this | | in one of its pension schemes over | | report (see pages 64 and 65  and within | Broader incorporation of employee voice | 2021/22. | | SSE’s Inclusion and Diversity Report 2022, | is recognised by SSE as an important part | | | available on sse.com/sustainability/ | of decision-making and strategy. See | Transparency of workforce disclosure | | reporting . | the stakeholder engagement section on | SSE provides open disclosure on its direct | | | employees on page 34  and the case | and supply chain workforce. In 2021/22, | | Valuing employee voice | study below for more information. | the company participated in the investor- | | Everyone that works for SSE has the | | led Workforce Disclosure Initiative (WDI) | | fundamental right to freedom of | Providing employee benefits | survey for the sixth consecutive year, | | association and to join a trade union. SSE | SSE offers a wide range of employee | remaining in the 10% of submissions for | | has four recognised trade union partners | benefits, detailed on careers.sse.com/ | open disclosure. | | (Prospect, Unite, Unison and the GMB) | employee-benefits . This includes | | ENGAGEMENT IN ACTION EMPLOYEES ## SUPPORTING WORKERS TRANSITION ## FROM HIGH TO LOW-CARBON CAREERS | Over 2021/22, SSE undertook wide- | report, ‘From Principles to Action’, | jointly with one of SSE’s recognised | | --- | --- | --- | | ranging stakeholder engagement on its | looks specifically at how best to | trade union partners, Prospect. SSE has | | just transition approach. This included | support workers make the move from | also created a new page on its careers | | meeting and consulting with policy | high to low-carbon careers. It outlines | website specifically designed for those | | makers, trade union partners, suppliers, | 20 commitments for SSE as well as | interested in joining the company from | | oil and gas companies, investors, | 10 recommendations for industry and | high-carbon sectors. | | academics, and industry and skills | 10 recommendations for Government. | | | bodies. Most importantly though, | It also includes 137 individual pieces | | | SSE sought insights from its own | of advice from SSE employees that | | | employees. | have made the transition, verbatim | | and uncensored. JUST TRANSITION: Using SSE’s 2021 Great Place to Work FROM PRINCIPLES survey, the company established that At an industry and government level, TO ACTION Supporting workers transition from more than 1 in 5 of all employees had these recommendations include high to low-carbon careers | previously worked in high-carbon | developing ‘all energy’ frameworks for | | --- | --- | | roles, rising to as high as a third of | skills, fair work terms where there is | | all employees in certain parts of the | public sector support for climate action, | | business such as SSE Renewables. | and making sure net zero sector plans | | To understand the drivers of change, | embed the concept of a just transition. | | and what SSE could do better to further | For SSE, commitments include things | | attract and retain people from high- | like not asking for industry-specific | | carbon industries, the Company | experience unless it is genuinely | | undertook qualitative research with | required, piloting an engineering | | employees that had previously worked | conversion programme, and paying for | | in high-carbon roles. Over 150 of these | workers to develop the skills they need. | employees answered a detailed just | transition survey, providing SSE with rich | SSE has continued to work with its | | | --- | --- | --- | | information about their experiences and | employees on its just transition | | | offering feedback for the company. | approach. Beginning in March 2022, a | SSE’s Just Transition Strategy, its ‘From Principles | | | programme of just transition employee | to Action’ report and wider information on its | just transition approach is available on sse.com/ These findings, and the wider focus groups commenced to gather sustainability/just-transition . | engagement with other stakeholders, | deeper insights on the opportunities | | --- | --- | | were used to inform SSE’s second | and challenges from a worker | | report on the just transition which was | perspective. This included an employee | | published in September 2021. This | focus group session in March 2022 held | 61SSE plc Annual Report 2022 STRATEGIC REPORT ### A sustainable approach continued ### SSE’s social contribution continued ### Promoting and maintaining Register, Corporate Hospitality Procedure, Theft/Bribery/Integrity/Money Laundering/ and iComply portal. Corruption); 27% related to HR (Bullying/ ### a healthy business culture Harassment/Victimisation); 4% related to SSE is a business growing and changing for a Specific responsibility for financial crime Inclusion and Diversity (Racism/ net zero world. Underpinning this is a strong horizon scanning, regulatory news and Discrimination/Unfair Treatment); 50% commitment to a healthy business culture preparing internal financial crime updates related to Health and Safety (General that supports people to do the right thing. sits with SSE’s Group Anti Financial Crime Safety/Covid-19/Environmental/Product Officer, with each of SSE’s business units Contamination); 2% related to Drugs/ SSE’s guide to good business ethics is having their own Anti Financial Crime Alcohol; and 0% related to Regulatory updated regularly, and underwent a full Officer that provide further support and Compliance. review over 2021/22. The guide applies guidance. SSE’s Anti-Corruption and both to direct employees and those that Financial Crime Committee reports directly All of these reports of wrongdoing were work on SSE’s behalf. It is promoted to all into the Group Risk Committee and is passed on for formal investigation. one employees through SSE’s internal responsible for driving adherence and resulted in dismissal; four resulted in communication channels and mandatory monitoring implementation of SSE’s Group warnings issued; five resulted in no action elearning modules, and is highlighted to Corruption and Financial Crime Prevention taken; one was subsequently investigated suppliers on page 1 of SSE’s Sustainable Policy which is also publicly available. as a grievance; 10 were investigated and Procurement Code. Topics covered include partly substantiated but with no action bribery and corruption, fair competition, To ensure a constant minimum standard taken; 19 were investigated but with the business separation, engagement with across SSE’s workforce on good business case was not proven; four resulted in an politicians and regulators, modern slavery, ethics, SSE has a suite of mandatory ethics initial investigation establishing that there safeguarding the environment, managing and compliance training modules. This was insufficient evidence to proceed data and cyber security. SSE’s ‘Doing the includes modules on Fraud Awareness, further; and eight cases could not be Right Thing’ guide is publicly available on Bribery and Anti-Corruption, and Anti- investigated due to insufficient information sse.com/sustainability/policies-and- Money Laundering and Financial Sanctions to establish the nature, cause, location or assurances . which all employees must complete otherwise of the allegation being provided. bi-annually, with additional modules on In addition to this overall guide, guidance competition law and REMIT for selected Encouraging a ‘speak up’ culture is and supporting documents to help employees. fundamental to an ethical business culture. employees do the right thing include SSE’s People that work for SSE or on its behalf Financial Crime Guide, Anti-Financial Crime A review of cultural metrics is undertaken are encouraged to speak up without fear of Framework, Group Inherent Fraud Risk | by SSE’s senior leadership and a review of | retribution. SSE’s Speak Up Aftercare | | --- | --- | | SSE’s cultural dashboard is undertaken by | Programme has been designed to promote | | the Board twice annually (see page 141 ). | good communication with people who | speak up and reassurance that there will be ### Reporting and investigating no detriment for anyone speaking up in good faith. The Programme takes the form ### wrongdoing of a survey that is issued at the point of ### DOING THE While SSE aims to reinforce a healthy initial complaint, at 90 days and then at 180 culture at all levels of the organisation, it ### RIGHT THING days. Each survey is slightly different, knows that sometimes things go wrong. SSE’s guide to good having been designed to ensure that there business ethics The company therefore has an is opportunity to highlight detriment in any independent whistleblowing channel, form, provide an outlet for discussion and SafeCall, as well as internal channels which resolutions, and also seek feedback for SSE employees can use to speak up against on the user experience, ease of reporting, wrongdoing. SSE’s Group Whistleblowing what went well and to constantly improve Policy is available on sse.com/ the service we are offering. sustainability/policies-and-assurances , with the effectiveness of SSE’s ### whistleblowing arrangements reviewed Targeting modern slavery risk twice yearly by the GEC and the Board. Protecting human rights and mitigating against the risk of modern slavery is the | Over calendar year 2021, there were 52 | foundation of any good business and a fair | | --- | --- | | reports of wrongdoing made through SSE’s | and just transition to net zero. Over | | speak up channels, a 21% decrease from 66 | 2021/22, SSE continued to increase focus | | reports over calendar year 2020 which is | on this issue through delivery of its targeted | | understood to be driven primarily by the | Modern Slavery Action Plan. This Action | | impacts of Covid-19. Of these 52 reports: | Plan was created in 2020/21 following a | SSE’s ‘Doing the right thing’ guide to good business 17% related to Dishonest Behaviour (Fraud/ gap analysis of its human rights approach ethics is available on sse.com/sustainability . 62 SSE plc Annual Report 2022 | by experts Stronger Together, with detail | | • Stronger Together carried out two | | • Active collaboration with peers through | | | --- | --- | --- | --- | --- | --- | | of this process provided in SSE’s Modern | | | on-site human rights assessments | | the Utilities Against Slavery group, | | Slavery Statement 2021. | | | during the construction of two major | | facilitated by the Slave Free Alliance, and | | | | | SSE projects in the UK; | | SSE’s partnership with the Supply Chain | | Key developments over 2021/22 are | | • Enhanced engagement and further | | | Sustainability School. | | highlighted below, with further information | | | commitment to collaborate on modern | | | | reported within SSE’s Modern Slavery | | | slavery in global supply chains with | SSE ranked 2nd out of 47 companies in the | | | Statement 2022 which will be published on | | | strategic suppliers (see Powering Net | utilities sector in the Global Child Forum | | | the sse.com  homepage in August 2022. | | | Zero Pact case study on page 59 ); | and the Boston Consulting Group’s The | | | | | • Roll-out of employee awareness raising | | State of Children’s Rights and Business 2021 | | | • Major initiative undertaken to embed | | | and development of bespoke learning | Benchmark. The benchmark assesses a | | | | sustainability, including human rights, | | pathways for priority employees; | total of 832 companies’ approaches to | | | | through SSE’s Large Capital Projects | • Creation of a Human Rights Working | | human rights issues affecting children, | | | | governance process (see page 59 ); | | Group, which reports on progress to | using publicly available information. | | | • Deep-dive risk assessments of the | | | SSE’s Human Rights Steering Group; | | | supply chains of two major infrastructure projects undertaken by Stronger Together; SSE sees proactive stakeholder engagement – like this school visit to Viking wind farm – as key to a healthy business culture. 63SSE plc Annual Report 2022 A sustainable approach SSE's social contribution ## SSE's enhanced Inclusion and Diversity Strategy ![img-8.jpeg](img-8.jpeg) SSE's Inclusion and Diversity Report 2022 sse.com/sustainability/reporting Inclusion and Diversity Report 2022 1. Ambition: setting measurable goals 2022 gender pay gap Inclusion and Diversity Report 2022 UK (93% of SSE's total 2021/22 workforce) Mean gender pay gap: 13.2% 2021: 16.5% Median gender pay gap: 18.0% 2021: 18.3% Ireland (7% of SSE's total 2021/22 workforce) Mean gender pay gap: 18.4% 2021: 18.9% Median gender pay gap: 25.6% 2021: 27.1% 64 SSE plc Annual Report 2022 ### SSE’s Gender Ambitions score of 9/10 for both “Helpful to pupils’ learning” and “Helpful to pupils’ career 24 May 2022³ 31 March 2022 31 March 2021 aspirations” from the host teachers. % Female % Female % Female (Male/Female (Male/Female (Male/Female Gender split of: Year Ambition headcount) headcount) headcount) ## 3. Inclusive processes: Group Executive – – 20% 25% 25% ## embedding best practice Committee (GEC)¹ (8/2) (6/2) (6/2) Developing robust policies and processes, GEC¹ and direct reports 2025 40% 34.2% 22.4% 25% to embed inclusion and diversity, ensures (excl. administrative roles) female (52/27) (45/13) (39/13) SSE creates a workplace that supports all Leadership Group² 2030 40% – 23.7% 20.2% employees and future employees. SSE female (681/212) (649/164) believes improved diversity characteristics are a result of embedding best practice into All employees 2030 33% – 28.8% 26.4% existing process and routinely reporting on female (7,658/3,096) (9,190/3,299) key drivers of inclusion. 1 In the context of gender reporting, the GEC includes all members of the GEC and the Company Secretary. A “Hiring for Difference” scorecard, which is This is the definition of senior managers in SSE for the purposes of s414C(8)(c)(ii). reviewed by the Group Executive Committee 2 Employees in SSE’s senior level pay grades. 3 24 May 2022 is the last practicable day for inclusion in the Annual Report 2022. and Board quarterly, shows progress against targets on the percentage of diverse recruitment panels, number of roles openly | Leadership Team following Stephen | collective leadership confidence to create | advertised, and the promotion of flexible | | --- | --- | --- | | Wheeler’s appointment as MD, SSE | the right environment, and lead inclusively. | working for senior hires. Over 2021/22, these | | Renewables in January 2022; and the | | metrics have improved significantly to over | | Director of HR and Director of Corporate | This included the ‘Igniting Inclusion | 90% for each, with the number of diverse | | Affairs and Strategy, becoming full members | Development Programme’, developed in | panels more than doubling since April 2021. | | of the Group Executive from their previous | partnership with Ashridge Business School, | | | positions of Regular Attendee. As a result, | which provided insights, education, and | In addition, using diverse job candidate | | female representation in the GEC has | discussion on: the Neuroscience of Inclusion | short-lists has improved from 33% in Q1 | | decreased from 25% to 20%, but has risen | and Diversity; Growth Mindsets; and | 2021/22 to 80% in Q4 2021/22. SSE | | across the Group Executive Committee and | Psychological Safety. 186 senior leaders | increased its hiring rate of women into its | | Direct Reports from 22.4% to 34.2%. | participated in this programme, with 94% | Leadership Group (around 900 employees), | | | of those who responded to the feedback | from 15% over 2020/21 to 32% over | | SSE considers external benchmarking | survey on the three sessions reporting a | 2021/22, and as a result the female | | when setting ambitions, which includes | better understanding of the topics, and 95% | representation in SSE’s Leadership Group | | the FTSE Women Leaders Review, the | felt more confident in applying their learning. | has increased from 20.0% to 23.7%. In | | successor to the Hampton Alexander, as | | addition, SSE prioritised transferable skills | | well as the Workforce Disclosure Initiative, | SSE has dedicated internal webpages | in job descriptions, over technical skills, | | the Bloomberg Gender Equality Index, and | which act as a central point of resource for | to increase the diversity of job applicants. | | the UN Women’s Empowerment Principles | all employees. This includes best practice | This was done through facilitated | | gap analysis tool. | materials, webinar recordings, learning | workshops which challenged the details, | | | materials, employee blogs and vlogs to talk | tasks, and key requirements of job roles. | | Supplementing its externally disclosed | about experiences, and manager guides to | | | gender ambitions, SSE tracks progress | support employees and managers with how | | ## 4. Employee voice: | against a wider range of diversity metrics, | to create an inclusive workplace. | | | --- | --- | --- | | including the proportion of women, ethnic | | actively listening | | minority, disabled and LGBTQ+ employees. | SSE developed a Strategic Secondary School | Listening to SSE’s employee voice helps | | Senior leaders have a quarterly focus on | network across 25 priority locations, offering | to build trust with its employees, drives | | progress against broader internal inclusion | a bespoke programme based on Tomorrow’s | innovation, and focuses business priorities. | | and diversity ambitions. These metrics are | Engineers STEM Code to inspire and | It also helps employees feel valued, | | reviewed by the GEC twice yearly and by | showcase the range of opportunities within | resulting in better job satisfaction and | | the Board annually, with the company | the energy sector. The secondary schools | increased opportunities for development. | | exploring options for setting diversity | are chosen by indicators such as high levels | Over 2021/22 SSE has listened to | | ambitions beyond gender. | of Black, Asian and Minority ethnicities, areas | employees’ lived experiences on subjects | | | of deprivation, gender imbalance in STEM | such as graduate recruitment and used this | | | subjects, and attainment gaps or rurality. | to drive inclusion and diversity forward | ## 2. Education and by influencing the breadth and types of ## development: focusing SSE is currently working with its social universities that it engages with as well as mobility education partner, Teach First, to how information about SSE is positioned. ## on behaviours build a Just Transition themed programme Senior leadership commitment to inclusion for all primary schools throughout the UK SSE’s ‘Belonging Communities’ aim to and diversity is paramount for delivering and Republic of Ireland. The content for both unite employees by encouraging open change, and SSE’s leaders have a primary and secondary is curriculum aligned, and constructive discussion. Focus groups responsibility to build a culture of belonging inclusive and demonstrates diversity. were carried out over 2021/22 with several for all. To support its senior leaders to do Belonging Communities, exploring how this, SSE invests in behavioural change There are 38 secondary school Strategic external best practices compare to lived initiatives and resources. Partnerships with a STEM Volunteer experiences to create bespoke plans of community of 365 across the Businesses, action to help SSE be even more inclusive. In 2021/22, SSE provided a series of geographic spread and various disciplines. In educational interventions to ensure that 2021/22 SSE delivered over 159 educational inclusion and diversity is prioritised, build interventions across the UK, with an average 65SSE plc Annual Report 2022 STRATEGIC REPORT ### A sustainable approach continued ### SSE’s social contribution continued ## Providing access to affordable ## and clean energy ### Avoiding the next energy crisis Responding to the customers with energy efficiency With post-pandemic market tightness and measures, including some free of charge ### affordability challenge the Russian invasion of Ukraine, energy energy upgrades to those experiencing fuel SSE recognises the huge challenges prices have been at generational highs poverty, see the next page. faced by its customers during the current | feeding into a cost-of-living crisis that looks | affordability crisis. Over winter 2021/22, | | | --- | --- | --- | | to continue until at least spring 2023. SSE | SSE Airtricity provided up to €500,000 of | Providing an inclusive service | | has engaged widely with governments, | funding for customers requiring additional | SSEN Distribution attained the British | | devolved administrations, regulators, and | support. The company has also established | Standard for inclusive service provision | | other stakeholders, both bilaterally and | a €1m fund to directly support customers | (BS 18477) for the sixth year in a row in | | through its trade associations, to inform | who may be struggling to pay their bills. | 2021/22. This was achieved through | | options for near term alleviation of the | The business also made a donation of €1m | rigorous assessments to ensure SSEN’s | | impact of rising energy bills on households | to a trusted all-island charity partner to | policies, procedures and services are | | and businesses in the UK and Ireland, | support hard-to-reach cohorts struggling | accessible and fair to all customers. | | particularly the most vulnerable. | with the cost of living. In May 2022 a price | | | | promise was announced by SSE Airtricity | SSEN Distribution’s Priority Services | | To help reduce the economy’s exposure to | to hold energy tariffs for existing domestic | Register (PSR) also provides help to those | | gas imports in the medium term, SSE has | financially vulnerable customers in Ireland | who need it most on the rare occasions | | worked closely with governments, including | for the remainder of the year. | there is a power cut. Throughout 2021/22, | | on the UK’s British Energy Security Strategy, | | SSEN has been encouraging customers to | | to ensure its £12.5bn Net Zero Acceleration | SSE Airtricity has also expanded the range | sign up to the PSR, raising awareness of | | Programme (NZAP) can have the greatest | of external stakeholders it works with to | free additional services via podcasts, | | impact in reducing energy costs. To help | include agencies working directly with | events, posters, and partnerships. The PSR | | protect the UK and Ireland from the next | customers in financial difficulty. The | had 768,104 people registered on it in at | | energy crisis, SSE has commissioned | development of these partnerships has | the end of 2021/22 (2020/21: 770,844). | | independent analysis to inform developing | helped support direct referrals and | This covers 71.3% of eligible households | | plans which aim to reduce costs, gas and | provided better support for customers | in SSEN’s distribution network areas, | | carbon as soon as possible. | who are struggling. SSE is also supporting | an increase from 68.5% in 2020/21. | ENGAGEMENT IN ACTION ENERGY CUSTOMERS ## RESPONDING TO EXCEPTIONAL ## WEATHER EVENTS | In response to a 2021/22 winter of | Priority Services Register, which had | In recognition of the hardship caused | | --- | --- | --- | | consecutive exceptional weather | been extended in response to the | for customers by these extreme | | events, SSEN Distribution teams worked | coronavirus pandemic, was used | weather events, SSEN has boosted its | | tirelessly to maintain supply with a | extensively by dedicated outreach teams | Resilient Communities Fund to a total | | particular focus on supporting isolated | to proactively engage via phone and text | of £2m across licence areas. | | and vulnerable customers. Between | message with vulnerable customers. | | | November 2021 and February 2022, | Engagement with impacted customers | | | SSE’s network areas in both north and | was further enhanced on the ground by | | | south were tested by six exceptional | good attendance at around 90 Local | | | weather events, including back-to-back | Resilience Partnership meetings. In | | | named storms with three storms | addition to the reconnection efforts by | | | occurring in just one week. | operational teams, localised support was | | provided through door-to-door welfare In the aftermath of storms Arwen, Malik, checks and the provision of more than Corrie and Eunice, around 430,000 140,000 hot meals and drinks. customers were affected and SSEN’s 66 SSE plc Annual Report 2022 ### Helping homes and 2021, SSE also launched the Green EV tariff, delivering net zero at a local level and which supports businesses running on, or share key learnings from innovation ### businesses go green switching to, electric vehicles and enables projects, facilitate discussions around SSE Energy Customer Solutions is them to charge fleets with 100% renewable challenges and support a collaborative committed to supporting customers and electricity. In response to feedback from transition to a decarbonised future. In broader communities to work towards a SMEs which showed 84% considered addition to tackling climate change this cleaner, greener future. product sustainability as an important partnership benefits consumers by building procurement choice but 50% were unsure resilient communities. In March 2022, building upon the success of actions required, SSE launched its new of existing partnerships with An Post and ### Energy Solutions website. The site provides Increasing accessibility of electric several Local Authorities across the a knowledge centre for customers to ### country, SSE Airtricity became the first vehicles with Equal EV access the range of products available from nationally accredited one-stop-shop A core element of the just transition to net SSE, and assist them with reducing the for home energy upgrades with the zero is ensuring it is cost-effective, secure carbon footprint of their businesses and Sustainable Energy Authority of Ireland and inclusive for all. This means ensuring supply chains. | (SEAI). As part of this initiative, in April 2022 | | opportunities are open to all customers and | | --- | --- | --- | | SSE Airtricity committed to delivering home | | infrastructure is developed in a fair and | | energy upgrades to up to 600 homes | Unlocking local solutions through | accessible manner. Over 2021/22, SSEN | | experiencing fuel poverty free of charge. | global partnerships | Distribution continued its partnership with | | SSE Airtricity has also been awarded the | As part of its COP26 legacy and inspired by | leading charity Disabled Motoring UK to | | contract to install the first communal heat | Project LEO, the most ambitious and | support more blue badge holders to get on | | pump system in Ireland, where 44 of the | holistic smart grid trial in the UK, SSEN | the road with EVs, and worked with Energy | | 88 units are assisted living centres. | developed a new global smart grid | Systems Catapult (ESC) on the second phase | | | partnership. Discussions with global and | of the Equal EV project. Equal EV aims to | | During 2021/22, SSE’s business customers | community partners resulted in the launch | overcome the four key barriers preventing | | on green products grew from 6% to almost | of the International Community for Local | disabled motorists from making the switch | | 30%. Over the year, the business ensured | Smart Grids (ICLSG). The ICLSG consists of | and benefitting from low carbon transport. | | that customers joining or rolling onto new | electricity distribution companies from the | This includes: (1) accessibility of charging | | fixed contracts were provided with 100% | UK, Australia, Italy and Japan, with SSEN, | points; (2) costs of modifications; (3) range | | renewable electricity, matched with | Ausgrid and Enel as founding partners. | anxiety; and (4) lack of support with | | independently verified and assured output | These companies have joined forces to | charging compatibilities. In March 2022, | | from SSE’s UK wind farms and hydro plants. | revolutionise and support communities to | SSEN and ESC produced their first Equal EV | | In May 2021, a simplified Corporate Power | engage with electricity grids of the future. | report which maps out customer journeys | | Purchase Agreement (CPPA) approach was | Launched at COP26, the University of | for people with disabilities and identifies | | announced to enable a wider range of | Oxford-led initiative in cooperation with | how available and emerging technologies | | customers to purchase energy directly | the Enel Foundation, will bring together | can mitigate the barriers and challenges | | from SSE’s renewable assets, giving | electricity networks and community energy | identified in the project’s first phase. | | customers fully traceable access to 100% | groups, scientists, and practioners from | | | renewable energy. Finally, in September | across the world to remove barriers to | | ENGAGEMENT IN ACTION NGOS, COMMUNITIES, CIVIL SOCIETY ## BUILDING A SENSE OF ## COMMUNITY AROUND RIIO-ED2 | Communities are at the core of SSEN | COP26 provided a forum to engage on | | --- | --- | | Distribution’s RIIO-ED2 business plan | SSEN Distribution’s role in a smart and | | for the next price control. An extensive | fair transition to net zero through delivery | | stakeholder engagement programme in | of its ED2 plan. ED2 also featured in the | | 2021/22 gave more than 25,000 people | business’s established engagement | | the opportunity to have a say on the | framework which includes a Stakeholder | | plan, shaping 64 outputs. The process | Advisory Panel (meets quarterly); an | | featured qualitative and quantitative | ED2 Customer Engagement Group | | research, and ‘Citizens Juries’ were held | (met six times in the year); Inclusive | | on key ED2 topics such as sustainability | Service Panels (met three times) and | | and innovation while the Managing | Connections Expert Customer Panels. | Director hosted a roundtable with fuel poverty charities, the regulator and consumer groups in November 2021. 67SSE plc Annual Report 2022 STRATEGIC REPORT ### Risk-informed decision making ## Managing SSE’s ## Principal Risks ## The execution of SSE’s strategy and delivery ## of its purpose are dependent on the effective ## identification, understanding and mitigation ## of the Group’s Principal Risks. | SSE’s established Risk Management | need to attract the investment required for | technological developments and capital | | --- | --- | --- | | Framework and the wider system of internal | the transition to net zero. | flow and aims to do so in a way that | | control described on page 161  of the | | reflects the expectations of SSE’s key | | Directors’ Report continued to inform | SSE has also continued to deliver significant | stakeholder groups. | | strategic decision making in 2021/22. | strategic progress through its disposal | | | | programme, with proceeds in the region | These material influencing factors also | | As highlighted in the Chair’s Statement | of £2.8bn secured to date against the | have an impact on the nature and extent | | on pages 6 and 7  and in the sector | target set in June 2020. | of risks the Board is willing to take to meet | | review on pages 28 to 31  throughout | | these objectives, and related mitigation | | 2021/22 SSE met and managed a number | These factors along with ongoing war in | strategies adopted by the Group. Material | | of challenging external factors with | Ukraine that has exacerbated the already | changes in the nature and potential | | extreme storms, the climate emergency, | intensified market volatility, security of | impacts of SSE’s Group Principal Risks | | unprecedented and sustained volatility | supply concerns and affordability pressures | are regularly assessed with appropriate | | in energy markets and the ongoing | formed the basis of the full review of SSE’s | mitigations implemented where necessary. | | pandemic featuring heavily in strategic | Principal Risks that took place during the | | | risk discussions. | financial year. | Overseeing risk | The Group Executive Committee and its | Despite these significant challenges, SSE | Board considerations | sub-committees have responsibility for | | --- | --- | --- | | has made substantial progress this year on | Effective identification, understanding | overseeing SSE’s Principal Risks. During | | major projects within its capital delivery | and mitigation of Principal Risks underpins | the third quarter of SSE’s financial year, | | programme, including the landmark | the Board’s approach to setting strategic | an assessment of each Principal Risk is | | Shetland HVDC Link, with options for | objectives for SSE and informing strategic | completed by the assigned oversight | | substantial growth over and above capital | decision making. The Board aims to | committee. This assessment requires | | expenditure plans approved under the | consider all material influencing factors and | committee members to provide | | RIIO-T2 price control, seeking to balance | key external trends in the energy market, | commentary on contextual changes to the | | affordability for energy consumers with the | including those relating to climate change, | risks, consider whether over the course of | the year the risks have become more or less material based on impact and likelihood ## Principal Risk Self Assessment Process and to confirm procedures and policies are in place for controlling risks. Consideration is also given to emerging risks and whether Individual Risk any of those identified have the potential to Reviews become a Principal Risk to the business in the medium to long-term. These responses are then consolidated Outputs: Actions into reports, one for each Principal Committee Self and Risk Risk, which are presented back to the Assessments Disclosures committees along with the results of provisional viability testing and analysis of relevant, current management information and key information relating to Business Unit Principal Risks and controls. These reports form the basis for the committees to discuss and confirm the risk trend ### CO 2 Executive (more, less or equally material), overall Board Committee effectiveness of the risk control and Assessment Assessment monitoring environment, and whether any additional control improvement actions are required. This is an inclusive and iterative 68 SSE plc Annual Report 2022 Key ## Group Principal Risks The graphic below illustrates SSE’s 11 Group Principal Risks positioned on a relative basis Risk has increased in materiality against the output of the Principal Risk Self-Assessment process based on the residual risk score (impact vs likelihood) of each risk and the potential impact on Group Viability based Risk has not changed significantly on critical risk scenarios developed with business experts. Risk has reduced in materiality ### SSE’s 11 Group Principal Risks HighLow 1. Energy affordability** 1 2. Politics, regulation 2 and compliance 3. Cyber security 3 and resilience 4. Commodity prices 4 5. Climate change 5 6. Speed of change 6 7. Energy infrastructure Residual Risk Score 7 failure 8. People and culture 8 9. Large capital projects 9 management 10. Safety and the 10 environment* 11. Financial liabilities 11 Potential Impact on Group Viability MoreLess * Safety remains SSE’s most important value, and management of this risk remains SSE’s highest priority. ** It should be noted that Energy Affordability is particularly closely linked to – and therefore impacted by – Politics, Regulation and Compliance and Commodity Prices. | process that results in considered and | An essential tenet of SSE’s Risk | People and Culture, Politics, Regulations | | --- | --- | --- | | objective outputs and a robust assessment | Management process is the consideration | and Compliance and Speed of Change. | | of Principal Risks. | of potential emerging risks and whether | | | | any of those identified have the potential | Important revisions have also been made | | The outputs from these committee | to become a Group Principal Risk in the | to the descriptions of each of the Principal | | assessments are then presented to the | medium to long-term. As such, following | Risks to take account of key developments | | Group Executive Committee for full | the 2021/22 review process and due to | and corresponding mitigations that were | | review, with any emerging risks or | the development of a Joint Venture | introduced during the year. Full details of | | additional material changes resulting | Governance framework throughout the | the Group Principal Risks are available on | | from this being proposed to the Board. | year, the emerging risk “Joint Venture and | pages 71 to 81 . | Partner Management” was not retained as | 2021/22 review outcome | an emerging risk. Joint Venture and Partner | | --- | --- | | Following the 2021/22 annual review process, | Governance has however been included as | | the number of Principal Risks to the Group | a key mitigation against the Group Principal | | remains at 11 with one revision of note. | Risks of Large Capital Project Management, | 69SSE plc Annual Report 2022 STRATEGIC REPORT ### Risk-informed decision making continued ### Managing SSE’s Principal Risks continued | Risk Appetite Statement | | for risks brought on by insecure actions | taking into account its current position, | | --- | --- | --- | --- | | No business is risk free and indeed the | | including those relating to cyber security. | the Principal Risks facing the Group and | | achievement of SSE’s strategic objectives | | In areas where SSE is exposed to risks | the control measures in place to mitigate | | necessarily involves taking risk. SSE will | | for which it has little or no appetite, | each of them. In particular the Directors | | however only accept risk where it is | | even though it has implemented high | recognise the significance of the strong | | consistent with its core purpose, strategy | | standards of control and mitigation, the | balance sheet and total undrawn committed | | and values; is well understood; can be | | nature of these risks mean that they | lending facilities of £1.5bn – with £1.3bn | | effectively managed; is in line with | | cannot be eliminated completely. | committed to March 2026 and £0.2bn | | stakeholder expectations and offers | | | committed to October 2026. The Group is | | commensurate reward. | In determining its appetite for specific risks, | | an owner and operator of critical national | | | the Board is guided by three key principles: | | infrastructure and has a proven ability to | | The sectors in which SSE operates continue | | | maintain access to capital markets during | | to be subject to a high degree of political, | 1. Risks should be consistent with SSE’s | | stressed economic conditions. The Group | | regulatory and legislative risk as well as | | core purpose, financial objectives, | has demonstrated this through securing | | risks arising from other developments and | | strategy and values; | £1.2bn of funding since April 2021 including | | change including technology, the impact | 2. Risks should only be accepted where | | the issuance of a 1bn Euro Hybrid bond in | | of competition, stakeholders’ evolving | | relevant approvals have been attained | April 2022. Further detail relating to planned | | expectations and climate change. | | through the Governance Framework to | funding is available in A6.3 Accompanying | | | | confirm appropriate reward is achievable | Information to the Financial Statements in | | Furthermore, each of SSE’s Business | | on the basis of objective evidence and in | the Annual Report and Accounts. | | Units have differing levels of exposure | | a manner that is consistent with SSE’s | | | to additional risks. For example, the | | purpose, strategy and values; and | The Group has a number of highly attractive | | Transmission and Distribution businesses | 3. Risks should be actively controlled and | | and relatively liquid assets – including a | | are largely economically regulated and are | | monitored through the appropriate | regulated asset base which benefits from a | | characterised by relatively stable, inflation | | allocation of management and other | strong regulated revenue stream as well as | | linked cash flows while the SSE Renewables | | resources, underpinned by the | the operational wind portfolio – which | | business benefits from cash flows linked | | maintenance of a healthy business culture. | provide flexibility of options. This has been | | to government-mandated renewables | | | demonstrated through the success of the | | subsidies. Those Business Units that | The Board has overall responsibility for | | programme of disposals set out by the Group | | generate and trade energy are also exposed | determining the nature and extent of the | | in June 2020 with £2.8bn secured to date. | | to significant medium to long-term energy | risk it is willing to take to achieve strategic | | | | market and commodity risks in operational | objectives and for ensuring that risks are | | To help support this Statement, over the | | and investment decision making. | managed effectively across the Group. | | course of the year a suite of severe but | plausible scenarios has been developed for | The key elements of SSE’s Strategic | | Viability Statement | each of SSE’s Principal Risks. These scenarios | | --- | --- | --- | --- | | Framework – including the focus on | | SSE provides the energy needed today | are based on relevant real life events that | | regulated energy networks and renewable | | while building a better world of energy | have been observed either in the markets | | sources of energy, particularly clean | | for tomorrow. It develops, builds, operates | within which the Group operates or related | | electricity, complemented by flexible | | and invests in low-carbon infrastructure | markets globally. Examples include critical | | thermal generation and business energy | | in support of the transition to net zero, | asset failure resulting in sustained impacts | | sales – and its financial objective in relation | | including onshore and offshore wind, | to network assets (for Energy Infrastructure | | to dividend growth are fully reflective of its | | hydro power, electricity transmission and | Failure); changes to key government energy | | risk appetite. | | distribution networks, localised flexible | policies (for Politics, Regulation and | | | | energy systems alongside providing energy | Compliance); and the physical impacts | | Fundamentally: | | products and services for businesses and | of climate change on distribution assets | | • SSE’s strategy is to create value for | | other customers. The delivery of SSE’s | through more frequent and increasingly | | | shareholders and society in a sustainable | purpose and execution of its strategy | severe storm events (for Climate Change). | | | way by developing, building, operating | depends on the skills and talent of a diverse | | | | and investing in the electricity | workforce, the quality of its assets and the | Scenarios are stress tested against forecast | | | infrastructure and businesses needed | effective identification, understanding and | available financial headroom and in | | | in the transition to net zero. | mitigation of risk. | addition to considering these in isolation, | | • SSE has a clear understanding of the | | | the Directors also consider the cumulative | | | risks and opportunities in the Great | As required within provision 31 of the UK | impact of different combinations of | | | Britain and Ireland energy markets | Corporate Governance Code, the Board | scenarios, including those that individually | | | and these markets therefore continue | has formally assessed the prospects of the | have the highest impact. | | | to provide the Group’s geographic | Company over the next four financial years | | | | focus, with any expansion into new | to the period ending March 2026. The | Upon the basis of the analysis undertaken, | | | international markets being subject | Directors have determined that as this time | and on the assumption that the fundamental | | | to especially rigorous scrutiny and | horizon aligns with the Group’s Net Zero | regulatory and statutory framework of the | | | ensuring that the appropriate | Acceleration Programme, which includes a | markets in which the Group operates does | | | governance arrangements which are | fully funded capital investment programme | not substantively change, and the Group | | | consistent with the Group’s values and | to 2026, a greater degree of confidence | continues to be able to refund its debt at | | | strategic goals are in place. | over the forecasting assumptions modelled | maturity, the Directors have a reasonable | | • Safety is SSE’s first value and it has no | | can be established. | expectation that the Group will be able to | | | appetite for risks brought on by unsafe | | continue to meet its liabilities as they fall | | | actions, nor does it have any appetite | In making this statement the Directors have | due in the period to March 2026. | considered the resilience of the Group 70 SSE plc Annual Report 2022 ### Principal Risks and uncertainties ## Group Principal Risks Linkage to Strategy Develop Build Operate Invest 2030 Goals Cut carbon Increase renewable Enable low-carbon Champion a fair and intensity by 80% energy output fivefold generation and just energy transition demand CLIMATE CHANGE ### What is the risk? Oversight The risk that SSE’s strategy, investments or operations are deemed to have an unacceptable Group Executive Committee future impact on the natural environment and on national and international targets to tackle climate change. | Material influencing factors | | Key developments | | Key mitigations | | | --- | --- | --- | --- | --- | --- | | • The impact of physical risks associated | | • In its role as a Principal Partner to | | • Policy Link: SSE Climate Change Policy | | | | with climate change, such as severe | | the UK Government at COP26, SSE | | and SSE Sustainability Policy. | | | adverse weather that causes damage or | | highlighted the critical importance and | • SSE provides transparent disclosures of its | | | | interrupts energy supply of generation. | | global relevance of the Group’s strategy | | governance around climate-related risks | | • The speed of technological | | | of creating value for shareholders and | | and opportunities to allow its stakeholders | | | developments. | | society in a sustainable way required | | to properly assess its performance in | | • Transitional risks relating to developments | | | in the transition to net zero. More | | managing climate related issues. | | | in political and regulatory requirements | | information on COP26 is available on | • The Group Executive Committee is | | | | related to the products and services that | | page 46  of the Sustainability Report. | | responsible for implementing the Group | | | SSE provides. | • Within 2021/22, the Board considered | | | strategy set by the Board and driving | | • Ensuring the continuation of Large | | | and approved accelerated science- | | climate-related performance programmes | | | Capital Projects which are fundamental | | based greenhouse gases (GHG) emission | | across the organisation. The Chief | | | to Group net zero targets. | | targets, revised business goals to | | Sustainability Officer is responsible for | | • Global and domestic policies including | | | 2030 aligned to the UN Sustainable | | advising the Board, Group Executive | | | those published by the UK’s Committee | | Development Goals (SDGs), the Net Zero | | Committee and businesses on climate- | | | on Climate Change relating to the 6th | | Acceleration Programme, and the Net | | related matters and provides support in | | | carbon budget for the period 2032 | | Zero Transition Plan. | | the implementation of relevant initiatives | | | and 2037. | • In March 2022, SSE published its Net | | | across the Group. | | • Political and regulatory engagement. | | | Zero Transition Plan. The Plan clearly | • The TCFD Steering Group, which | | | • Plans to transition to a decarbonised | | | sets out for stakeholders the key actions | | consists of representatives from Finance, | | | energy system. | | SSE will take to drive progress towards | | Group Risk and Sustainability conducts | | | | | its net zero ambitions and its interim | | an annual review of the outputs of the | | | | | science-based targets aligned to a 1.5°C | | climate-related risk and opportunity | | | | | pathway. SSE will disclose annual | | assessment process and assesses the | | | | | progress against this plan through | | potential financial impact of key risks | | | | | Net Zero Transition Report. | | and opportunities in a fair, balanced | and understandable way. This is then reviewed and approved by the Group Risk Committee. • SSE’s approach to Executive Remuneration reflects the role of sustainability and climate-related considerations within SSE’s purpose and strategy, with sustainability-linked metrics and targets an element of performance related pay. To date, performance has been assessed against the framework of SSE’s 2030 Goals, which the Remuneration Committee is seeking to strengthen through its current Policy review. ### Linkage to Strategy: Aligned to 2030 Goals: 71SSE plc Annual Report 2022 STRATEGIC REPORT ### Principal Risks and uncertainties continued ### Group Principal Risks continued COMMODITY PRICES ### What is the risk? Oversight The risk associated with the Group’s exposure to fluctuations in both the physical volumes Group Risk Committee and price of key commodities, including electricity, gas, CO permits, oil and related 2 foreign exchange values. | Material influencing factors | | Key developments | | Key mitigations | | | --- | --- | --- | --- | --- | --- | | • Global geopolitical events. | | • Managing the impacts of significant | | • Policy Link: An asset-by-asset approach | | | • Weather-associated seasonal | | | global geopolitical events. | | to hedging strategy that ensures trading | | | fluctuations in demand, supply and | • Managing the impacts of significant | | | positions cannot have a material impact | | | generation capabilities which may not | | fluctuations in commodity prices, foreign | | on SSE Group earnings. The latest | | | be in line with historical trends, and | | exchange values and strong economic | | update on SSE’s hedging approach can | | | which may or may not be associated | | demand combined with more extreme | | be found in the Financial Review section | | | with climate change both in Great Britain | | weather conditions, has increased | | of the Annual Report and Accounts. | | | and globally. Further detail is available on | | electricity demand and strained | • The Group Energy Markets Exposure | | | | page 31  of the Strategic Report. | | commodity supply chain resulting in | | Risk Committee has operational | | • Generation technology advancements. | | | wholesale energy prices reaching an | | oversight of commodity positions; | | • Global and domestic political change. | | | all-time high. | | reporting to the Board Energy Markets | | • European generation outputs and | | | | | Risk Committee that has responsibilty for | | | availability. | | | | monitoring the ongoing effectiveness | | • International and national agreements | | | | | of Group hedging arrangements. For | | | on climate change. | | | | further details please see pages 162 | | • International flows of fuel. | | | | | and 163 . | | • Fluctuations in foreign exchange values. | | | | • SSE uses VaR and PaR measures to | | | • Fluctuations in the global supply and | | | | | monitor and control exposures. Trading | | | demand of fuel. | | | | limits are reviewed regularly by the | | • Global economic growth. | | | | | Energy Markets Risk Committee, with | consideration given to changes in the material influencing factors noted above, before being approved by the Board. • SSE’s Energy Economics team provides commodity price forecasts which are used to inform decisions on trading strategy and asset investment. • SSE utilises hedging instruments to minimise exposure to fluctuations in foreign exchange markets, details of which are available in the Financial Statements section of the Annual Report and Account. ### Linkage to Strategy: Aligned to 2030 Goals: 72 SSE plc Annual Report 2022 Linkage to Strategy Develop Build Operate Invest 2030 Goals Cut carbon Increase renewable Enable low-carbon Champion a fair and intensity by 80% energy output fivefold generation and just energy transition demand CYBER SECURITY AND RESILIENCE ### What is the risk? Oversight The risk that key infrastructure, networks or core systems are compromised or are Group Risk Committee otherwise rendered unavailable. ### Material influencing factors Key developments Key mitigations • Software or hardware issues, including • Ensuring resilience of systems and • Policy Link: SSE Cyber Security Policy telecom network, connectivity and processes associated with divestments and SSE Data and Information power supply interruption. as well as international mergers and Management Policy. • Geopolitical events. acquisitions. • Key technology and infrastructure risks • Ineffective operational performance, • Ensuring the continued security are incorporated into the design of for example, breach of information and resilience of Critical National systems and are regularly appraised with security rules or poor management Infrastructure given the heightened threat risk mitigation plans recommended. of resilience expertise. of malicious cyber-attack, particularly the • SSE conducts regular internal and • Employee and contractor understanding increased volume and sophistication of third-party testing of the security of its and awareness of information security ransomware attacks and the heightened information and operational technology requirements. threat of cyber-attacks following the networks and systems. • Malicious cyber-attack. Russian invasion of Ukraine. • Continued strengthening and embedding of the cyber risks and controls framework to continue to identify threats and reduce exposures through, for example, improved use of data analytics and further migration from unsupported systems. • Significant longer term Security Programme investment and planning which seeks to strengthen the resilience of the systems on which SSE relies. • IT Service Assurance works with individual Business Units to form and agree appropriate service level agreements for business-critical IT services. • Business continuity plans are reviewed in response to changes in the threat to the Group and regularly tested. ### Linkage to Strategy: Aligned to 2030 Goals: 73SSE plc Annual Report 2022 STRATEGIC REPORT ### Principal Risks and uncertainties continued ### Group Principal Risks continued ENERGY AFFORDABILITY ### What is the risk? Oversight The risk that energy customers’ ability to meet the costs of providing energy, or their Group Risk Committee ability to access energy services is limited, giving rise to negative political or regulatory intervention that has an impact on SSE’s core regulated Networks and Renewables businesses. | Material influencing factors | | Key developments | | Key mitigations | | | --- | --- | --- | --- | --- | --- | | • Technology changes and innovations to | | • SSE remains committed to the supply of | | • Policy Link: SSE Sustainability Policy. | | | | develop sustainable infrastructure and | | affordable and accessible energy in its | • SSE Airtricity continues to focus on | | | | energy solutions. | | customer businesses and responsive to | | helping customers reduce their carbon | | • Supply chain cost management. | | | the needs of those who count on the | | output and to save on energy costs. | | • Public policies, including those aimed | | | safe and reliable running of resilient | | Through partnerships with local | | | at reducing carbon emissions and | | electricity networks. | | authorities, the Sustainable Energy | | | energy consumption. | • In 2020, SSE Airtricity established a | | | Authority of Ireland (SEAI) and others, | | • Accessibility to energy and related | | | Generation Green Home Upgrade, the | | SSE Airtricity Energy Services has been | | | services for all. | | first utility company to launch a retrofit | | delivering large-scale energy efficiency | | • Increased focus on energy security in | | | solution. In 2021 SSE supported almost | | retrofit projects for homes across | | | response to current geopolitical events. | | 800 customers (including fuel poor | | Ireland. | | • Required investment in the upgrading of | | | customers) to retrofit their homes and | • Robust stakeholder engagement across | | | | the UK’s energy infrastructure to achieve | | improve energy efficiency by bringing | | Government, regulators and relevant | | | net zero. | | the homes up by an average BER of B2. | | counterparties. | | • Political interventions. | | • Investment in indigenous, low-carbon | | • SSE continues to advocate for | | | • Macro-economic impacts on household | | | power sources and greater flexibility will | | progressive policies that will help bring | | | and business incomes, including the | | help reduce the amount of imported gas | | forward necessary investment in | | | removal of the energy price cap. | | the UK and Ireland needs. | | low-carbon infrastructure at lowest cost | | • Fluctuations in the cost of fuels. | | | | | to reduce customers’ exposure to gas | | • Supplier and customer failures and | | | | | price volatility and deliver net zero | | | related bad debt. | | | | affordability. | ### Linkage to Strategy: Aligned to 2030 Goals: 74 SSE plc Annual Report 2022 Linkage to Strategy Develop Build Operate Invest 2030 Goals Cut carbon Increase renewable Enable low-carbon Champion a fair and intensity by 80% energy output fivefold generation and just energy transition demand ENERGY INFRASTRUCTURE FAILURE ### What is the risk? Oversight The risk of national energy infrastructure failure, whether in respect of assets owned by Group Executive Committee SSE or those owned by others which SSE relies on, that prevents the Group from meeting its obligations. | Material influencing factors | | Key developments | | Key mitigations | | | --- | --- | --- | --- | --- | --- | | • Severe adverse weather that causes | | • In November 2021, SSE launched a Net | | • Policy Link: Business Unit Asset | | | | damage or interrupts energy supply or | | Zero Acceleration Programme to | | Management Policies. | | | generation. | | accelerate clean growth and lead the | • SSE assesses the climate impact on its | | | • Longer term changes in climate patterns | | | transition to net zero. | | operations over the short, medium and | | | cause sustained higher temperatures | • The Net Zero Acceleration Programme is | | | long term from the perspective of | | | that may result in lower rainfall and | | the optimal pathway to value creation. It | | market, policy or regulatory transition | | | reduced wind impacting renewable | | positions SSE as a national clean energy | | risks and opportunities and the physical | | | generation output. | | champion with the scale to contribute | | risks of a changed climate. | | • Government policy regarding the | | | around 20% of the UK’s revised 50GW | • SSE’s dedicated Engineering Centre of | | | | operation of the energy network which | | offshore wind target and over 20% of | | Excellence reviews and develops plans | | | relates to security of supply. | | upcoming UK electricity networks | | to ensure the ongoing integrity of its | | • Failures in any aspect of the Great Britain | | | investment, deploy flexible solutions to | | generation assets is maintained. | | | national critical infrastructure. | | keep the lights on, whilst exporting its | • Targeted investment plans to ensure the | | | • SSE invests in low-carbon infrastructure | | | renewables capabilities overseas. | | ongoing health and integrity of network | | | in support of the transition to net zero. | • With electricity demand expected to | | | assets. | | • Continuing access to the European | | | more than double by 2050, regulated | • Crisis management and business | | | | energy markets and continued inclusion | | electricity networks are at the heart of | | continuity plans are in place across the | | | of Northern Ireland in the all-island | | the transition to net zero. SSEN | | Group. These are tested regularly and | | | Single Electricity Market. | | Transmission and SSEN Distribution | | are designed for the management of, | | • Appropriate asset management and | | | continue to form a key part of the | | and recovery from, significant energy | | | necessary upgrading works of both | | low-carbon electricity core of SSE. The | | infrastructure failure events. Where there | | | generation and network assets. | | Net Zero Acceleration Programme could | | are material changes in infrastructure (or | | • Malicious attack on the Great Britain | | | increase total networks Regulated Asset | | the management of it) additional plans | | | energy infrastructure. | | Value (RAV) to between £8bn and £10bn | | are developed. | | • Energy network balancing mechanisms. | | | by 2031. | • SSE continues to be an active participant | | | • Continued availability of competent | | | | | in national security forums such as the | | | personnel. | | | | Centre for the Protection of National | | • Continued availability of key systems. | | | | | Infrastructure (CPNI). | • Flexible and reliable power will continue to be required to back up wind and solar generation, ensuring security of supply across the UK. In line with its commitment to a net-zero future, SSE is actively progressing plans to deliver new low-carbon capacity to play this critical role, with CCS and pumped storage hydro projects in development. ### Linkage to Strategy: Aligned to 2030 Goals: 75SSE plc Annual Report 2022 STRATEGIC REPORT ### Principal Risks and uncertainties continued ### Group Principal Risks continued FINANCIAL LIABILITIES ### What is the risk? Oversight The risk that funding is not available to meet SSE’s financial liabilities, including those Group Risk Committee relating to its defined benefit pension schemes, as these fall due under both normal and stressed conditions without incurring unacceptable costs or risking damage to its reputation. | Material influencing factors | | Key developments | | Key mitigations | | | --- | --- | --- | --- | --- | --- | | • Ongoing commitment to an investment | | • Proceeds in the region of £2.8bn | | • Policy Link: SSE Financial Management | | | | grade credit rating. | | secured against the disposal programme | | Policy. | | • Global macro-economic changes and | | | target set in June 2020. | • Committed borrowings and facilities are | | | | subsequent volatility in foreign exchange | • In May 2021, HMRC awarded SSE a | | | always available equal to at least 105% of | | | markets. | | formal Low Risk Rating which remains in | | forecast borrowings over a rolling | | • Fluctuations in interest rates and inflation | | | place for three years. The Low-Risk | | 6-month period. | | | which influence borrowing costs. | | Rating was awarded following HMRC | • SSE seeks to maintain a diverse and | | | • Defined benefit pension scheme | | | review of the risk and control | | innovative portfolio of debt to avoid | | | performance including the impact of | | information relating to tax management | | over-reliance on any one market. This | | | fluctuations in gilt yields on the value of | | across the Group. | | allows it to build relationships with, and | | | scheme liabilities. | | | | create competition between, debt | | • Counterparty credit limit exposures. | | | | | providers. | • Each of SSE’s defined benefit pension schemes has a Board of Trustees which acts independently of the Group. • The approval of all material counterparty credit limits is a matter reserved for the Board. • To support the growth of green finance, SSE also has pursued a strategy of issuing green bonds to fund its net zero investment plans. SSE has issued four green bonds, with the total outstanding at £2bn which reaffirms SSE’s position as the largest issuer of green bonds in the UK corporate sector. ### Linkage to Strategy: Aligned to 2030 Goals: 76 SSE plc Annual Report 2022 Linkage to Strategy Develop Build Operate Invest 2030 Goals Cut carbon Increase renewable Enable low-carbon Champion a fair and intensity by 80% energy output fivefold generation and just energy transition demand LARGE CAPITAL PROJECTS MANAGEMENT ### What is the risk? Oversight The risk that SSE develops and builds major assets that do not realise intended benefits or Group Large Capital Projects Committee meet the quality standards required to support economic lives of typically 25 to 60 years within forecast timescales and budgets. | Material influencing factors | | Key developments | | Key mitigations | | | --- | --- | --- | --- | --- | --- | | • Appropriate contractual arrangements | | • Over 2021/22 SSE undertook a major | | • Policy Link: SSE’s Large Capital Projects | | | | which meet the requirements of any | | project to ensure its Large Capital | | Governance Framework manual ensures | | | jurisdiction in which SSE operates. | | Projects are designed and constructed | | that all major capital investment projects | | • New or unproven technology. | | | to enable the journey to net zero. From | | for the Group are governed, developed, | | • Appropriate and effective budget | | | the 1 of April 2022, a Sustainability | | approved and executed in a consistent | | | management. | | Assessment and Action Plan (SAAP) is | | and effective manner, with full | | • All aspects of supply chain management, | | | required for all new or early | | consideration of best practice project | | | including those relating to human rights, | | development projects, ensuring | | delivery. The manual, which was | | | modern slavery and labour standards as | | sustainability is incorporated into all | | reviewed in detail during the year, with | | | well as supply chain impacts associated | | phases of major project development, | | support from a specialist third party, | | | with new entities, new assets and a new | | construction and operation. For further | | provides common standards across the | | | network structure created by joint | | details please see the Sustainability | | Group and incorporates continuous | | | ventures and Brexit. | | Report. | | improvement practices. | | • Availability of competent contractors in | | • SSE’s Net Zero Acceleration Programme, | | • The Large Capital Project Services | | | | any jurisdiction in which SSE operates. | | establishes a five year £12.5bn investment | | function employs dedicated quality and | | | | | plan to deliver the low-carbon energy | | assurance teams who perform in-depth | | | | | infrastructure. | | quality reviews. | | | | • Continued Progress with SSE’s flagship | | • In major projects, SSE generally | | | | | | projects including Seagreen, Viking, | | manages insurance placement by | | | | | Shetland HVDC link and Dogger Bank. | | organising owner-controlled insurance. | | | | • Between 2021 and 2026, SSE’s Net Zero | | | This strategy allows it to have greater | | | | | Acceleration Programme establishes a | | control and flexibility over the provisions | | | | | plan to invest around £4.3bn in onshore | | in place. SSE also sees the insurance | | | | | and offshore wind projects. In addition, | | market as an important source of | | | | | SSE has an important development | | information on the reliability of | | | | | option for large scale, long duration | | technology and uses this to inform the | | | | | pumped hydro storage at Corie Glas in | | design process of major projects. | | | | | the Scottish Highlands. | • Appropriate Governance arrangements, | | including those relating to Joint Venture and Partner Management. ### Linkage to Strategy: Aligned to 2030 Goals: 77SSE plc Annual Report 2022 STRATEGIC REPORT ### Principal Risks and uncertainties continued ### Group Principal Risks continued PEOPLE AND CULTURE ### What is the risk? Oversight The risk that SSE is unable to attract, develop and retain an appropriately skilled, diverse Group Executive Committee and responsible workforce and leadership team, and maintain a healthy business culture which encourages and supports ethical behaviours and decision-making. | Material influencing factors | | Key developments | | Key mitigations | | | --- | --- | --- | --- | --- | --- | | • Rewarding employee contributions | | • SSE has been a Living Wage accredited | | • Policy Link: SSE Employment Policy and | | | | through fair pay and benefits. | | employer in the UK since 2013 and paid | | SSE Whistleblowing Policy. | | • Acquisition of competent skills and | | | the Living Wage in Ireland since 2016. In | • SSE has a detailed Inclusion and Diversity | | | | resources to support growth plans in | | March 2021 SSE gained the Living Hours | | plan, progress against which is reviewed | | | international markets. | | employer accreditation. SSE also | | and monitored by SSE’s Group Executive | | • SSE embraces cultural diversity in the | | | continues to be a member of the Living | | Committee on a regular basis. Further | | | workplace and recognition of the value | | Wage Foundation’s Living Hours Steering | | details are available on pages 64 and | | | and benefit of having an inclusive and | | Group. Further details on page 60 . | | 65  and on page 138  of the | | | diverse workforce. | • During 2021/2022 SSE undertook wide | | | Directors’ report. | | • A responsible employer ethos. For full | | | ranging stakeholder engagement on its | • SSE Governance arrangements, | | | | details please see the Sustainability | | just transition approach from key | | including those relating to JV and | | | Report. | | stakeholders and through SSE’s 2021 | | Partner Management. | | • Clearly defined roles, responsibilities and | | | all-employee survey. The findings of this | • There are a wide range of tools and | | | | accountabilities for all employees. | | survey and the wider engagement with | | services available to all employees to | | • Availability of career development | | | other key stakeholders were used to | | support mental health and wellbeing, | | | opportunities and appropriate | | inform a new report, published in | | including those provided as part of the | | | succession planning that recognises | | September 2021 which focused on | | Employee Assistance Programme. | | | potential future skills shortages. | | moving from principles to action. This | | Further details on careers.sse.com/ | | • Clear personal objectives and | | | follows on from SSE’s Just Transition | | employee-benefits . | | | communication of the SSE set of values. | | Strategy, published in November 2020. | • “Doing the Right Thing, a guide to ethical | | | • A focus on ethical business conduct and | | • SSE’s Just Transition Strategy was the | | | business conduct”, explicitly outlines the | | | creating a culture in which employees | | world’s first business strategy for a Just | | steps employees should take to ensure | | | feel confident to speak up when they | | Transition to net zero. The new report | | their day-to-day actions and decisions | | | suspect wrongdoing. | | published in September 2021, outlines | | are consistent both with SSE’s values and | | • The health and wellbeing of all | | | SSE’s 20 commitments, ten | | ethical business principles. SSE | | | employees (see the Sustainability Report | | recommendations for industry and ten | | employees can report incidents of | | | for further detail). | | recommendations for government to | | wrongdoing through both internal and | | • Clear and well-structured employee | | | support workers transition from high to | | external mechanisms. SSE uses an | | | communications. | | low-carbon careers. More information | | independent “Speak Up” phone line and | | | | | on SSE’s Just Transition Strategy is | | email service, hosted externally by | | | | | available on sse.com . | | SafeCall, through which incidents can be | reported. • SSE’s business leaders are required to undertake regular succession planning reviews. At a Group level, SSE continues to develop its approach to the management of talent. ### Linkage to Strategy: Aligned to 2030 Goals: 78 SSE plc Annual Report 2022 Linkage to Strategy Develop Build Operate Invest 2030 Goals Cut carbon Increase renewable Enable low-carbon Champion a fair and intensity by 80% energy output fivefold generation and just energy transition demand POLITICS, REGULATION AND COMPLIANCE ### What is the risk? Oversight The risk from changes in obligations arising from operating in markets which are subject Group Risk Committee to a high degree of regulatory, legislative and political intervention and uncertainty. | Material influencing factors | | Key developments | | Key mitigations | | | --- | --- | --- | --- | --- | --- | | • SSE’s most significant contribution is to | | • In April 2022, the UK Government | | • Policy Link: SSE Political and Regulatory | | | | align with the Paris Agreement goal and | | published the British Energy Security | | Engagement Policy. | | | aim to achieve net zero greenhouse gas | | Strategy which builds upon the Prime | • The Group has dedicated Corporate | | | | emissions by at least 2050. | | Minister’s Ten Point Plan for a Green | | Affairs, Regulation, Legal and | | • Material changes to regulatory | | | Industrial Revolution. SSE is working to | | Compliance departments that provide | | | frameworks in any jurisdiction in which | | deliver the renewables capacity, the | | advice, guidance and assurance to each | | | SSE operates. | | network infrastructure, lower carbon | | business area regarding the | | • Government intervention into the | | | thermal generation and energy storage | | interpretation of political, regulatory and | | | structure of the energy sector in any | | needed to meet the ambition of the | | legislative change. These teams take the | | | jurisdiction in which SSE operates. | | paper. | | lead in engagement with regulators, | | • Constitutional uncertainty in any | | • SSE’s Net Zero Transition Plan, published | | | politicians, officials, and other such | | | jurisdiction in which SSE operates. | | in March 2022, outlines SSE’s strategy to | | stakeholders. | | • Changes in financial, employment, | | | develop, build, operate and invest in | • SSE has a clear Political Engagement | | | | safety and consumer legislation and | | low-carbon electricity infrastructure for | | Policy that sets out principles for any | | | regulation and the impact of these | | many decades to come whilst | | employees who make representations to | | | changes on business-as-usual activities | | maintaining high standards of safety and | | institutions of governments or to | | | in any jurisdiction in which SSE operates. | | reliability for energy consumers. More | | legislatures on the Company’s behalf. | | | | | information on SSE’s Net Zero Transition | • SSE Governance arrangements, | | | | | | Plan is available on sse.com . | | including those relating to JV and | Partner Management. • The Group puts in place dedicated project teams to manage all aspects of significant regulatory and legislative change. • There is regular engagement with the Board and Group Executive Committee on political and regulatory developments which may impact SSE’s operations or strategy. Further details are available on page 132  of the Directors’ Report. ### Linkage to Strategy: Aligned to 2030 Goals: 79SSE plc Annual Report 2022 STRATEGIC REPORT ### Principal Risks and uncertainties continued ### Group Principal Risks continued SAFETY AND THE ENVIRONMENT ### What is the risk? Oversight The risk of harm to people, property or the environment from SSE’s operations. Group Safety, Health and Environment Committee | Material influencing factors | | Key developments | | Key mitigations | | | --- | --- | --- | --- | --- | --- | | • Clear and appropriately communicated | | • In 2021/22, the Safety, Sustainability, | | • Policy Link: SSE Safety and Health Policy | | | | safety processes. | | Health and Environment Advisory | | and SSE Environment Policy. | | • Regular and documented training. | | | Committee (SSHEAC) reviewed the | • Safety is the Group’s No. 1 value with | | | • Adverse weather. | | | Safety, Health and Environment Strategy | | Board oversight being provided by the | | • The size, scale, complexity and number | | | for the next five years. As part of the | | Safety, Sustainability, Health and | | | of projects under way. | | SSHEAC review the following focus areas | | Environment Advisory Committee | | • Challenging geographic locations. | | | were set out (a) strengthening of | | (SSHEAC). | | • Appropriate task and asset risk | | | controls and assurance; (b) enablers to | • Crisis management and business | | | | assessment. | | help people do the right thing; and (c) | | continuity plans are in place across the | | • Safety culture – “if it’s not safe, we don’t | | | drive progress with SSE’s eight Enduring | | Group. These are tested regularly and | | | do it”. | | Goals for safety. | | are designed for the management of, | | • Clear, effective and regular | | • The remit of the Safety, Sustainability, | | | and recovery from, significant safety and | | | communications of all relevant safety | | Health and Environment Advisory | | environmental events. | | | updates. | | Committee (SSHEAC) was expanded in | • Each business carries out regular SHE | | | • Competent employees and contractors. | | | the year to oversee SSE’s climate | | assurance reviews of the risks faced, the | | | | | adaptation and resilience plans. | | controls in place and the monitoring that | is undertaken. • SSE’s dedicated Engineering Centre of excellence reviews and develops plans to ensure that the integrity of its generation assets is maintained. ### Linkage to Strategy: Aligned to 2030 Goals: 80 SSE plc Annual Report 2022 Linkage to Strategy Develop Build Operate Invest 2030 Goals Cut carbon Increase renewable Enable low-carbon Champion a fair and intensity by 80% energy output fivefold generation and just energy transition demand SPEED OF CHANGE ### What is the risk? Oversight The risk that SSE is unable to keep pace with the speed of change affecting the sector and Group Executive Committee markets in which it operates and so fails to meet the evolving expectations of its stakeholders or achieve its strategic objectives. | Material influencing factors | | . | Key developments | | Key mitigations | | | --- | --- | --- | --- | --- | --- | --- | | • Geopolitical events. | | | • SSE is spending £7m a day on assets and | | • Policy Link: SSE Operating Model Policy. | | | • Fast developing customer needs and | | | | infrastructure to decarbonise the energy | • The Board sets the risk appetite of the | | | | expectations in relation to efficient, | | | system through the Net Zero | | Group and approves and regularly | | | innovative and flexible products and | | | Acceleration Programme and actively | | reviews the Group’s commercial | | | services. | | | progressing plans to secure flexible and | | strategy, business development | | • Technological developments and | | | | reliable power generation with CCS and | | initiatives and long-term options | | | innovation. | | | pumped storage hydro projects in | | ensuring alignment of risk appetite and | | • Net-zero strategic goals. | | | | development. | | strategic objectives. | | • Increased competition from market | | | • The 2021/22 year marked several | | • SSE’s revised Group operating model has | | | | entrants including international oil | | | significant project milestones for SSE | | been designed to ensure dynamic and | | | companies. | | | Renewables, including progress made at | | efficient decision-making, empowered | | • Longer term capital investment plans | | | | Seagreen, the world’s deepest, fixed | | and accountable delivery of Business | | | and budgets. | | | bottom wind farm, and offshore | | Unit strategies and to fulfil SSE’s purpose | | • The size, scale and number of change | | | | construction commencing at Dogger | | to provide energy needed today while | | | programmes underway, including those | | | Bank, currently the world’s biggest | | building a better world of energy for | | | relating to regulatory or legislative | | | offshore wind farm. | | tomorrow. Details of SSE’s decision | | | requirements in any jurisdiction in which | | • Plans to export SSE’s significant | | | making framework are available on | | | SSE operates. | | | capabilities to overseas markets gained | | page 134  of the Directors Report. | | • Governance and decision-making | | | | momentum with the acquisition of an | • The Group Executive Committee is | | | | frameworks, including those relating to | | | 80% interest in an offshore wind | | responsible for ensuring that Business | | | JV and Partner Management. | | | development platform in Japan. The | | Unit strategies are consistent and | | | | | | new joint ownership company, SSE | | compatible with the overarching Group | | | | | | Pacifico, will pursue the development of | | strategy and its vision to be a leading | | | | | | offshore wind projects in Japan. | | energy provider in a net zero world. | ### Linkage to Strategy: Aligned to 2030 Goals: 81SSE plc Annual Report 2022 STRATEGIC REPORT ### Financial review ## Delivering for ## shareholders ### Financial performance in 2021/22 underscores the value- ### creation potential of SSE’s Net Zero Acceleration Programme. | The strong operational performance | infrastructure needed to maintain a 1.5°C | pleased with their positive response. SSE’s | | --- | --- | --- | | outlined in this Annual Report and Accounts | pathway on global warming. Thanks to | S&P credit rating remains at BBB+ ‘stable | | has enabled us to meet our financial | strong operational performance, adjusted | outlook’ and our Moody’s rating remains | | objectives in what was a challenging year. | operating profit increased by 15% to around | at Baa1, having been updated to ‘stable | | And SSE’s conviction that a deliberately- | £1.5bn. And adjusted EPS was up 22% to | outlook’ after the announcement of our | | integrated and well-balanced group of | 95.4p reflecting our strong performance in | plans in November 2021. | | market-based and economically-regulated | the year. | | | businesses offers the optimal route to value | | Our financial strength is critical in enabling | | creation for shareholders has again been | We have now updated our adjusted EPS | us to take forward projects of the size and | | borne out in 2021/22. | CAGR target for 2026 from between 5-7% | scale society needs, such as Berwick Bank | | | to between 7-10% due to confidence | which will be larger even than the world’s | | We are proposing payment of a full-year | derived from strong delivery in 2021/22; | largest wind farm that we are currently | | dividend of 85.7p, in line with plan, and we | higher inflationary forecasts; anticipation | building at Dogger Bank. | | remain committed to our existing five-year | of continued volatile and high energy | | | dividend plan to 2023, which targets | commodity prices; and evidence of | Overall, this year has underscored the | | dividend increases in line with RPI each | increased value creation potential from | advantages of a balanced, integrated | | year as set out on page 4 . | flexibility provided by SSE’s thermal and | business – giving investors strong returns | | | hydro generation, and gas storage assets. | in clearly volatile times and leaving us | | We completed our £2bn-plus disposals | | well positioned to take forward emerging | | programme announced in June 2020 | We have financed ourselves robustly in | opportunities across the clean energy | | with the sale of our remaining financial | uncertain times with good liquidity. We | value chain. | | stake in SGN for nearly £1.3bn in cash | have a stable debt profile and our financing | | | proceeds. Overall we achieved headline | strength has enabled us to be nimble in the | | | consideration of over £2.8bn from our | acquisition and partnering decisions we | | | disposals programme, significantly in | have made. | | | excess of the original £2bn target and | | Gregor Alexander | | this is reflected in the disparity in adjusted | Our balance sheet remains strong, | Finance Director | | and reported metrics for the year. | supported as it is by word-class assets | 24 May 2022 | and investment-grade credit metrics. The Over the course of the year we invested credit rating agencies reviewed our Net a record level of £2.1bn in the assets and Zero Acceleration Programme and we were 82 SSE plc Annual Report 2022 ### Group Financial Review ### Year to 31 March 2022 This Group Financial Review sets out the financial performance of the SSE Group for the year ended 31 March 2022. See also the separate sections on Group Financial Outlook, 2022/23 and beyond and Supplemental Financial Information. The definitions SSE uses for adjusted measures are consistently applied and are explained in the Alternative Performance Measures section of this document, before the Financial Statements. ### Key financial metrics (continuing operations) Adjusted Reported | March | | March | | March | | March | | | --- | --- | --- | --- | --- | --- | --- | --- | | 2022 | | 2021 | | 2022 | | 2021 | | | | £m | | £m | | £m | | £m | Operating profit from continuing operations 1,536.8 1,333.5 3,755.4 2,654.9 Net Finance costs (372.8) (384.6) 273.2 (236.9) Profit before Tax 1,164.0 948.9 3,482.2 2,418.0 Current Tax charge (107.1) (85.9) (882.8) (224.3) Effective current tax rate (%) 9.2 9.1 25.4 9.3 Profit after Tax on continuing operations 1,056.9 863.0 2,599.4 2,193.7 Less: hybrid equity coupon payments (50.7) (46.6) (50.7) (46.6) Profit after Tax from continuing operations attributable to ordinary shareholders 1,006.2 816.4 2,548.7 2,147.1 EPS from continuing operations (pence) 95.4 78.4 241.6 206.3 Number of shares for basic/reported and adjusted EPS (million) 1,055.0 1,040.9 1,055.0 1,040.9 Shares in issue at 31 March (million)** 1,067.6 1,043.0 1,067.7 1,043.0 * Comparative information has been re-presented to reflect the classification of Scotia Gas Networks as a discontinued operation and the changes to segmental disclosures made in the year (see note 1.2 of the Financial Statements). ** Excludes treasury shares. ### Dividend per Share March March 2022 2021 Interim Dividend (pence) 25.5 24.4 Final Dividend (pence) 60.2 56.6 Full Year Dividend (pence) 85.7 81.0 83SSE plc Annual Report 2022 STRATEGIC REPORT ### Financial review continued ### Operating profit performance 2021/22 ### Business-by-business segmental Adjusted Reported | March | | March | | March | | March | | | --- | --- | --- | --- | --- | --- | --- | --- | | 2022 | | 2021 | | 2022 | | 2021 | | | | £m | | £m | | £m | | £m | Operating profit/(loss) SSEN Transmission 380.5 220.9 380.5 220.9 SSEN Distribution 351.8 275.8 351.8 275.8 Electricity networks total 732.3 496.7 732.3 496.7 SSE Renewables 568.1 731.8 427.8 856.0 SSE Thermal 306.3 160.5 630.1 775.3 Gas Storage 30.7 (5.7) 125.4 2.8 Thermal Total 337.0 154.8 755.5 778.1 Business Energy (GB) (21.5) (24.0) (21.5) (3.9) SSE Airtricity (NI and Ire) 60.4 44.0 60.4 50.0 Energy Customer Solutions Total 38.9 20.0 38.9 46.1 Energy Portfolio Management (16.8) 18.4 2,083.6 608.5 Distributed Energy (10.9) (27.0) (29.2) (76.1) Neos (16.1) (2.8) (140.0) (14.1) Corporate unallocated (95.7) (58.4) (113.5) (40.3) Total operating profit from continuing operations 1,536.8 1,333.5 3,755.4 2,654.9 Net finance costs (372.8) (384.6) (273.2) (236.9) Profit before tax from continuing operations 1,164.0 948.9 3,482.2 2,418.0 Discontinued operations: Gas Production Assets 101.4 33.0 (19.4) 33.0 Scotia Gas Networks 21.0 173.0 495.4 88.6 Total operating profit/(loss) from discontinued operations 122.4 206.0 476.0 121.6 * Comparative information has been re-presented to reflect the classification of Scotia Gas Networks as a discontinued operation and the changes to segmental disclosures made in the year (see note 1.2 of the Financial Statements). In order to present the financial results and performance of the Group in a consistent and meaningful way, SSE applies a number of adjusted accounting measures throughout this financial report. These adjusted measures are used for internal management reporting purposes and are believed to present the underlying performance of the Group in the most useful manner for ordinary shareholders and other stakeholders. The definitions SSE uses for adjusted measures are explained in the Alternative Performance Measures section before the Financial Statements. A reconciliation of adjusted operating profit by segment to reported operating profit by segment can be found in note 5.1(ii) to the Financial Statements. Segmental EBITDA results are included in note 5.1(v) to the Financial Statements. 84 SSE plc Annual Report 2022 | Impact from market volatility | more than sufficient liquidity to manage | impact of coronavirus in FY21 which will be | | --- | --- | --- | | The Group reduces direct exposure to | these increased collateral requirements. | recovered in FY23. In FY22, higher allowed | | short term commodity price volatility | | revenue and an over-recovery of £17m | | through its business mix, the disciplined | SSE Business Energy and SSE Airtricity | were partially offset by a £51m increase in | | application of its clearly defined approach | (aside from Northern Ireland, where SSE | operating costs, c£40m of which related to | | to hedging and low VAR trading limits. | Airtricity is subject to a regulatory pricing | expenditure incurred managing the impact | | Nevertheless, the higher and more volatile | mechanism) are not subject to a regulated | of several severe weather events during | | gas and power market prices, combined | price cap and therefore variable tariffs are | the year. | | with increasing inflation rates have had | adjusted dynamically and fixed tariff rates | | | some impact upon SSE’s businesses which | are reset for new customers as wholesale | SSE Renewables: Adjusted operating profit | | can be summarised as follows: | costs increase or decrease. Although the | decreased by 22% to £568.1m, compared to | | | businesses are insulated against gas price | £731.8m, mainly as developer profits of | | SSEN Transmission and SSEN Distribution | rises insofar as they are fully hedged, there | £64m from a 10% stake disposal in Dogger | | operate under a regulatory price control | are external circumstances that would | Bank C on 10 February 2022 were lower than | | framework which is set by Ofgem. Returns | result in hedge adjustments such as | the £226m of developer profits in the prior | | under this framework have no direct | weather, supplier failures and broader | year. Excluding developer profits, operating | | relationship to gas and power market | economic conditions. A dynamic | profit was broadly flat as exceptionally still | | prices, however both allowed revenues | forecasting approach has been in place to | and dry weather in the summer months led | | and Regulated Asset Values are index linked | quickly respond to volume changes. In | to a decrease in output of 7% or 0.7TWh | | (Transmission to CPI(H). Distribution to RPI | relation to Airtricity, vertical integration of | compared to the prior year, offset by strong | | (for ED1 price control) and CPI(H) (for ED2 | generation and customer businesses in the | financial performance from hydro and | | price control)). | Irish market limits commodity exposures | pumped storage in volatile markets. The | | | with some benefit received through REFIT | financial impact of lower output – equivalent | | Within SSE Renewables, in periods where | receipts on legacy wind assets. | to 13% or 1.4TWh below planned levels | | wind volume output was significantly | | – included the cost of buying back hedged | | lower than expected, excess forward sale | Finally, SSE Group is well funded with | volumes at high market prices. | | contracts had to be ‘bought back’ in the | a strong investment grade credit rating, | | | market at higher prices, further reducing | a high proportion of the £8.6bn adjusted | In addition to the factors outlined above, | | the trading result. | net debt (c.96%) is fixed rate and the long | reported operating profit of £427.8m | | | average maturity of SSE’s debt is 6.8 years. | compared to £856.0m which included | | For SSE Thermal (as well as the Hydro | The Group has been successful in | one-off exceptional gains of £214.5m. In | | plant within SSE Renewables), value has | challenging debt markets, issuing a €1bn | addition, reported operating profit was also | | come from the ability of the plant to | Hybrid and £350m Private Placement post | impacted by a £21.5m increase in joint | | respond to market conditions and provide | year-end. SSE’s balance sheet strength | venture share of interest and tax charges | | vital balancing services to provide security | allows the Group to meet additional | and the impact of the UK Corporation tax | | of supply and flexibility in higher, more | collateral increases on higher and volatile | rate change on deferred tax balances in | | volatile market conditions. The current | commodity contracts, while the high | joint ventures. | | market conditions are therefore generally | proportion of fixed rate debt provides robust | | | positive for these businesses, although this | financing in an inflationary environment. | SSE Thermal: adjusted operating profit | | is dependent upon plant availability at times | | increased 91% to £306.3m, compared to | | of system stress. | Operating profit | £160.5m. This increase was mainly due to | | | Adjusted and reported operating profit/ | higher achieved spark spread, including | | Both EPM and Gas Storage, through | losses in SSE’s business segments for the | buying back forward power sales on high | | their respective exposure to unsettled | year to 31 March 2022 are set out below; | wind days, and strong performance in the | | commodity contracts and physical gas | comparisons are with the same period to | balancing market. This was partially offset | | inventory, have experienced significant | 31 March 2021 unless otherwise stated. | by non-recurring developer profits on the | | positive unrealised mark-to-market | | disposal of a 50% stake in Slough Multifuel | | remeasurement gains in the year. However, | SSEN Transmission: Adjusted and reported | in the prior period, lower profit contribution | | EPM is not expected to realise significant | operating profit increased by 72% to | following divestment of Ferrybridge | | gains upon settlement of the contracts, | £380.5m. This was mainly due to higher | Multifuel and increased depreciation | | as they are largely offset by significant | allowed revenues in FY22 (the first year | following the part-reversal of historic | | adversely marked-to-market ‘own use’ | of the RIIO-T2 price control) resulting from | impairment charges at the half year. | | operating derivatives which are excluded | an increased proportion of higher totex | | | from disclosure as remeasurements under | allowances received through the ‘fast | Reported operating profit decreased to | | IFRS 9. In addition, for EPM, market volatility | money’ mechanism, and an over-recovery | £630.1m from £775.3m in the prior year | | and retail energy supplier failure has resulted | of £9m, as timing impacts passed from the | which had included one-off gains of | | in a significant increase in the collateral | Electricity System Operator to Transmission | £669.7m on the sale of Multifuel Energy | | requirements necessary to allow the | Operators. This higher revenue was partially | and £21.3m on Slough Multifuel offset by | | businesses to continue to trade with | offset by increases in operating costs and | a £58.1m exceptional impairment charge | | counterparties and on exchanges as | depreciation charges, as the business | for Great Island CCGT. In addition to the | | required. To date these increased collateral | continues to expand its operational | factors affecting operational performance | | requirements have generally been managed | capability and asset base. | highlighted above, the reported result | | by issuing new Letters of Credit, Guarantees | | reflects the associated impairment reversal | | and Performance Bonds, however exchange | SSEN Distribution: Adjusted and reported | of £331.6m to the carrying value of SSE’s | | cash collateral requirements have been | operating profit increased by 28% to | CCGT assets following higher forward price | | subject to volatility in recent months. The | £351.8m compared to £275.8m which | curves, alongside other minor tax and | | Group closely monitors this and maintains | | interest movements. | was lower than expected due to a c.£40m 85SSE plc Annual Report 2022 STRATEGIC REPORT ### Financial review continued | Gas Storage: Adjusted operating profit of | Reported operating profit was also £60.4m, | Reported operating loss of £(113.5)m reflects | | --- | --- | --- | | £30.7m, compared with a prior year loss of | compared to £50.0m profit in the prior year | the above factors together with a £(13.1)m | | £(5.7)m. SSE continues to operate the plant | which included a £6.0m release of excess | revaluation adjustment to the legacy Gas | | on a merchant basis, with the ability to | bad debt provisioning originally expected | Production decommissioning provision, part | | capture positive gas price spreads during | to arise from coronavirus impact. | of Corporate unallocated following the | | periods of heightened market volatility. | | business disposal in the year, and other | | The operating result for the period reflects | Energy Portfolio Management: Adjusted | minor tax and interest movements. | | continued volatile market conditions, which | operating loss of £(16.8)m, compared to an | | | allows Gas Storage to optimise the value | adjusted operating profit of £18.4m which | Adjusted earnings per share | | from storage of physical gas against | included a net £20.4m income from legacy | To monitor its financial performance over | | changes in the spread between summer | Gas Production hedges. The operating loss | the medium term, SSE reports on its | | and winter prices. | is primarily due to a legacy power contract | adjusted earnings per share measure. This | | | with Ovo which fully unwound during | measure is calculated by excluding the | | Reported operating profit of £125.4m | the year in a higher commodity price | charge for deferred tax, interest costs on | | included an impairment reversal of £97.3m | environment. EPM continues to expect | net pension liabilities, exceptional items, | | as a result of improved operating prospects | to earn a small adjusted operating profit | valuation movements on the retained Gas | | given projected gas price volatility, together | through service provision to those SSE | Production decommissioning liabilities, | | with a £(2.6)m revaluation loss on gas held | businesses requiring access to energy | depreciation on fair value adjustments and | | in storage, compared to a revaluation gain | markets. | the impact of certain remeasurements. | of £8.5m in the prior year. | | Reported operating profit of £2,083.6m | SSE’s adjusted EPS measure provides an | | --- | --- | --- | | SSE Business Energy: Adjusted operating | reflects a material net remeasurement gain | important and meaningful measure of | | loss of £(21.5)m has slightly improved | in the year on unsettled fair value forward | underlying financial performance. In | | compared with an adjusted operating loss | commodity contracts, under IFRS 9. In line | adjusting for the items mentioned, adjusted | | of £(24.0)m last year. Both years have been | with reporting in previous years, this result | EPS reflects SSE’s internal performance | | impacted by significant volatility; the prior | excludes an adverse remeasurement of ‘own | management, avoids the volatility | | year result included approximately £24m | use’ contracts of approximately £2.0bn | associated with mark-to-market IFRS 9 | | of losses on early settlement of excess | which largely offsets the IFRS 9 gain. | remeasurements and means that items | | commodity hedges linked to Covid, while | | deemed to be exceptional due to their | | the current year has borne non-recoverable | SSE Distributed Energy: An adjusted | nature and scale do not distort the | | BSUoS costs of around £20m and £14m | operating loss of £(10.9)m was reported, | presentation of SSE’s underlying results. | | of additional mutualisation costs due to | compared with an adjusted operating loss | For more detail on these and other | | a significantly higher number of supplier | of £(27.0)m which included an impact | adjusted items please refer to the | | failures. These were partially offset by an | from coronavirus. This reporting segment | Adjusted Performance Measures | | improvement in bad debt recovery of £14m | includes the result from the Contracting and | section of this statement. | | as the economy emerged from the impact | Rail business, which remains reported within | | | of coronavirus. The underlying business | this segment up to the point of disposal on | In the year to 31 March 2022, SSE’s | | remains stable with a solid customer book. | 30 June 2021. The segment no longer | adjusted earnings per share on continuing | | | includes Out of Area Networks, which | operations was 95.4p. This compares | | Reported operating loss was also £(21.5)m, | is now reported within the Distribution | to 78.4p for the year to 31 March 2021 | | compared to £(3.9)m loss in the prior year | segment, and Neos Networks JV, which | (restated for SGN disposal – 87.5p | | which included a £20.1m release of excess | has been separately presented below. | previously reported) and reflects the | | bad debt provisioning originally expected | | movements in adjusted operating profit | | to arise from coronavirus impact. | Reported operating loss of £(29.2)m | outlined in the section above. | reflects the above factors together with SSE Airtricity: Adjusted operating profit an exceptional loss on disposal of £18.3m ## Group financial outlook – increased to £60.4m compared to £44.0m upon completion of the sale of Contracting in the previous year, with the increased and Rail. ## 2022/23 and beyond profit due to £51m of higher generation ### Key points for 2022/23 receipts on wind assets which are Neos Networks JV: SSE’s remaining 50% The group has enjoyed a strong start to contracted through Airtricity. This was share in the Telecoms business Neos delivery of the targets it set out in its Net partially offset by a £25m adjustment in Networks recorded an adjusted operating Zero Acceleration Programme with thermal relation to historic use of system costs. loss of £(16.1)m compared with £(2.8)m in and hydro plant performing particularly FY21. The reported loss of £(140.0)m well in the second half of 2021/22. The business has grown customer numbers includes both an impairment of £(106.9)m year on year but seen a drop in customer and an adjustment to original transaction SSE’s focus continues to be on long-term, margins as energy prices increased; consideration. sustainable financial performance. Through commodity costs increased significantly in high levels of investment expected in the year and were managed through our Corporate unallocated: Adjusted operating Transmission, a step up in profits expected approach to hedging and where necessary loss of £(95.7)m compared with £(58.4)m, in Thermal generation and an expected through tariff increases. reflecting a natural reduction in external return to normal weather for Renewables, revenues as enduring service agreements SSE is confident about delivery of strong with recently divested businesses roll-off, earnings growth for this financial year, together with higher central costs including specifically: increased Group IT costs as the Group accelerates its investment in digitalisation. 86 SSE plc Annual Report 2022 ### • For SSEN Transmission: SSE expects to Supplemental financial information report strong growth in adjusted EBIT ### Adjusted investment and capex summary with a 20% increase in allowed revenues under the RIIO-T2 price control, as the March March March 2022 2022 2021 network continues to expand its Share % £m £m operational capability and asset base; SSEN Transmission 30 614.4 435.2 • For SSE Renewables: assuming normal SSEN Distribution 18 364.8 350.8 weather and plant availability, SSE expects Regulated networks total 48 979.2 786.0 to report generation output of 11.4TWh, | | including 0.9TWh from Seagreen; and | SSE Renewables 39 811.0 294.3 | | --- | --- | --- | | • For SSE Thermal and Gas Storage: | | SSE Thermal 6 129.3 106.5 | | | assuming normal plant availability | Gas Storage – 2.1 1.9 | | | and excluding the benefit of Keadby 2, | Thermal Total 6 131.4 108.4 | SSE expects to report adjusted EBIT for Energy Customer Solutions 2 39.8 31.2 2022/23 of at least £337m, the same Energy Portfolio Management – 2.4 2.1 level as 2021/22. Gas Production* – – 26.8 Distributed Energy 1 26.6 17.6 Taking the above into account SSE currently Corporate unallocated 4 78.7 74.2 expects to report full year adjusted earnings per share of at least 120p. Adjusted investment and capital expenditure, The Group remains committed to its before refunds 100 2,069.1 1,340.6 five-year dividend plan to March 2026 and is recommending a 2022/23 full-year dividend Project finance development expenditure refunds (136.7) (428.6) of 85.7 pence in line with that plan. Adjusted investment and capital expenditure 1,932.4 912.0 Capital expenditure and investment is expected to total in excess of £2.5bn in 2022/23 (including acquisitions but net of Acquisitions 141.3 – project finance development expenditure refunds) assuming the recent Southern Adjusted investment, capital and European acquisition successfully acquisitions expenditure 2,073.7 912.0 completes as planned. This is consistent with maintaining SSE’s target net debt to * Discontinued operation, the Gas Production business was disposed on 14 October 2021. EBITDA ratio of 4.5 times or below. ### Disposal of minority Progress in SSE’s capital ### Update to net zero ### stake in networks expenditure programme ### acceleration programme SSE continues to regard partnering as vital During the year to March 2022, SSE’s In November 2021 SSE set out that it for the future and an important means adjusted investment, capital and acquisition expected to deliver adjusted EPS CAGR of unlocking future opportunities in its expenditure, which now includes equity on the 87.5 pence reported for the year businesses. expenditure on acquisitions per above, ended March 2021 (before restatement) of totalled £2,073.7m, an increase of 127% between 5-7% in the period to 31 March In line with the modelling assumption compared with the prior year and 2026. This was underpinned by index-linked in its Net Zero Acceleration Programme, representing the highest ever investment revenue streams driving 60% of EBITDA and announced in November 2021, the Group recorded by the Group. Almost £2bn of this was after a modelling assumption of a 25% has recently initiated a sales process with was invested within SSE’s Renewables, minority interest disposal of Transmission banking advisers for a 25% share of the SSEN Thermal and Networks businesses, all and Distribution during FY24. Transmission business which is expected which are fundamental to delivery of the to formally commence in Summer 2022. UK’s net zero ambitions. In summary: SSE now expects to deliver an adjusted EPS Given the SSEN Distribution business is • Excellent progress was made in SSEN CAGR of between 7-10%* over the same currently progressing its ED2 price control Transmission’s investment programme, period as a result of: confidence derived negotiations, a decision on the timing of a with a total of £614.4m invested in from strong delivery in 2021/22; higher similar stake sale will be made later in the building out and reinforcing the network RPI forecasts; higher and more volatile financial year. in the North of Scotland. Work was energy commodity prices; and evidence completed on Tealing Substation of increased value creation potential from While these are high-quality, core Extension, required to facilitate the flexibility provided by SSE’s Thermal and businesses and SSE will retain control, connection of Seagreen to the grid. Hydro generation, and gas storage assets. | | the scale of potential growth and the | In addition, construction is well under | | --- | --- | --- | | * Using the same baseline adjusted EPS of 87.5p | associated investment required mean that | way on the link between Shetland and | | (before restatement for SGN disposal) and | bringing in non-controlling partners will | mainland Scotland, which will see a | continuing to model a 25% minority interest disposal create greater long-term value by enabling submarine cable laid in order to transmit of Transmission and Distribution during FY24. SSE to harness this significant growth whilst power beneath the seabed between maintaining an attractive balance of capital converter stations at Weisdale Voe on allocation across the Group. Shetland and Noss Head in Caithness. 87SSE plc Annual Report 2022 STRATEGIC REPORT ### Financial review continued ### • SSEN Distribution continued its capital SSE Renewables – GB wind and hydro investment programme across both the Forward power prices and volatility have been increasing, driven by supply-demand north and south networks, with a total tensions, the acceleration in carbon pricing, nuclear outages and closures and the spend of £364.8m, mainly on strategic reconfiguration of the merit order in both GB and Ireland. These trends have been amplified investment and construction in both the by scarcity concerns across Europe. In response to this, SSE Renewables has increased its north and south regions, as well as hedge position against its target volume for financial years 2023/24 and 2024/25. progressing the replacement of the submarine cable between Skye and In order to show this hedge acceleration, the table below has been updated to show the Harris. All of which is designed to deliver position at 18 May 2022 for those periods. improvements for customers. As at 31 March 2022 As at 18 May 2022 • Significant further capex was deployed 2021/22 2022/23 2023/24 2024/25 2025/26 on SSE Renewables’ flagship projects, | including nearly £500m investment on | Wind Expected volume – TWh 4.2 5.3 6.8 8.4 8.7 | | | --- | --- | --- | | Seagreen, Scotland’s largest offshore | | Volume hedged – % 85% 91% 78% 37% 1% | | wind farm, and around £100m on Viking | | Hedge price – £MWh £48 £54 £69 £105 £108 | onshore wind farm, which will be one of | Europe’s most productive onshore wind | Hydro Expected volume – TWh 3.6 3.5 3.7 3.8 3.8 | | | --- | --- | --- | | farms, once complete. In addition, | | Volume hedged – % 83% 85% 70% 38% 1% | | progress was made at the 30MW Lenalea | | Hedge price – £/MWh £50 £63 £74 £110 £108 | onshore wind farm in County Donegal and the 38MW Gordonbush Extension | | onshore wind farm in Sutherland was | The expected volumes include anticipated | For wind energy output, SSE’s established | | --- | --- | --- | --- | | | commissioned during the year. | volumes from SSE’s wind farms in | approach to hedging seeks to account for | | • Investment in SSE Thermal was focused | | construction, Seagreen (pre CFD) and Viking. | the effect of the ‘wind capture price’ by | | | on the final stages of the 893MW Keadby | No volumes have been included for Dogger | targeting a hedge of less than 100% of its | | | 2 CCGT, with commissioning started in | Bank wind farm. Seagreen accounts for | anticipated wind energy output for the | | | October 2021 and full commercial | approximately 0.9TWh in 22/23 and 2.5TWh | coming 12 months. The targeted hedge | | | operation expected 1 October 2022. | in each of 23/24, 24/25 and 25/26 with Viking | percentage is reviewed and adjusted as | | | | accounting for 1.6TWh in 24/25 and 1.9TWh | necessary to reflect any changes in future | | In April 2022, an incident occurred on a | | in 25/26. These volumes represent SSE’s | market and wind capture insights. The last | | sub-contractor S7000 installation vessel | | most up to date view of the output from | such revision occurred in May 2021, with at | | which is contracted to the Seagreen | | Seagreen taking account of recent issues | least 90% of the anticipated energy output | | offshore wind farm construction project. | | encountered by the S7000 installation | from wind for the coming twelve months | | The project team are working closely with | | vessel. In the event that further construction | being hedged from that date. | | contractors to manage and mitigate project | | delays result in a shortfall against wind | | | impacts and the project is currently | | hedged volumes, it is expected that the | The approach to hedging hydro energy | | expected to achieve first power in July 2022 | | exposure will continue to be managed | output remains unchanged at approximately | | and full commercial operation in April 2023. | | within the wider SSE generation portfolio. | 85% of its forecast energy output for the | coming 12 months. The table excludes additional volumes and ### SSE’S hedging position income for BM activity, ROCs, ancillary UK Business Energy: The business supplies ### at 18 May 2022 services, pre-commissioning, capacity electricity and gas to business and public SSE has an established approach to hedging mechanism and shape variations. It also sector customers. Sales to contract through which it generally seeks to reduce excludes volumes and income relating to customers are 100% hedged: at point of its broad exposure to commodity price Irish wind output, pumped storage and CfDs. sale for fixed contract customers; upon variation at least 12 months in advance of instruction for flexi contract customers; delivery. As market conditions change, SSE Energy output hedges for both wind and and on a rolling hedge basis for tariff may decide to alter its hedging approach in hydro are progressively established over the customers. response to any changes in its exposure 36 months prior to delivery (although the profile. SSE will continue to provide a extent of hedging activity for future periods Given the pricing and macro-economic summary of its current hedging approach, depends on the level of available market context Business Energy is dynamically including details of any changes in the depth and liquidity). Target hedge levels monitoring nearer term consumption period, within its Interim and Full-year continue to be achieved through the forward actuals for any early signs of demand Results statements. sale of either electricity, or gas and carbon variability, and adjusting future volumes equivalents (assuming a constant 1MWh : hedged accordingly. A summary of the hedging position for 69.444 th and 1MWh : 0.3815 te/MWh each of SSE’s market-based businesses conversion ratio between commodities), GB Thermal: In the six months prior to is set out above. with the balance determined by the optimal delivery, SSE aims to hedge all of the hedge price across those markets. This expected output of its CCGT assets, having Volumes are based on average expected approach aims to reduce the exposure of progressively established this hedge over output, and the contracted hedge price is renewables assets to volatile spot power the preceding eighteen months. Hedging either at 31 March or 18 May as noted in the market outcomes whilst still providing an activity depends on the availability of table above. underlying commodity price hedge. sufficient market depth and liquidity, which can be limited, particularly for periods further into the future. 88 SSE plc Annual Report 2022 # Summarising movements on exceptional items And certain remeasurements Exceptional items Gas Storage: Disposals of non-core assets: Impairments and other exceptional items Energy Portfolio Management (EPM): | | 323.9 | | --- | --- | | Total exceptional items | 305.0 | # Certain remeasurements Ireland: | Total | 2,118.8 | | --- | --- | Commodity stocks held at fair value Operating derivatives SSE plc Annual Report 2022 89 STRATEGIC REPORT ### Financial review continued | Financing derivatives | These remeasurements are presented | reported results also reflect the reversal | | --- | --- | --- | | In addition to the positive movements | separately as they do not represent | of historic SSE Thermal and Gas Storage | | above, a positive movement of £21.0m was | underlying business performance in the | impairment charges of £428.9m as well as | | recognised on financing derivatives in the | period. The result on financing derivatives | other pre-tax exceptional items totalling | | year to 31 March 2022, including SSE’s | will be recognised in adjusted profit before | £(123.9)m as detailed within note 7 of the | | share of joint venture financing derivative | tax when the derivatives are settled. | Financial Statements. | remeasurements, and related to mark-to- ### market movements on cross-currency Reported profit before tax Reported results in the prior year reflected swaps and floating rate swaps that are pre-tax exceptional and certain re- ### and earnings per share classed as hedges under IAS 39. These measurement gains of £1,503.7m recognised Taking all of the above into account, hedges ensure that any movement in the which were driven by a combination of reported results for the year to 31 March value of net debt is predominately offset by progression with the Group’s £2bn plus 2022 are significantly higher than the a movement in the derivative position. The non-core asset disposal programme and previous year. In addition to the £2,118.8m adjustment was primarily driven by weaker IFRS 9 remeasurements on operating cumulative net gain on forward commodity, Sterling against the Dollar partially offset by derivatives. gas inventory and financing derivative fair stronger Sterling against the Euro. value remeasurements noted above, ### Financial management and balance sheet ### Debt metrics | March | | September | | March | | | --- | --- | --- | --- | --- | --- | | | 2022 | | 2021 | 2021 | | | | £m | | £m | | £m | Net Debt/EBITDA* 4.0 N/A 4.7 Adjusted net debt and hybrid capital (£m) (8,598.2) (9,611.4) (8,898.9) Average debt maturity (years) 6.8 7.2 7.4 Adjusted interest cover (times) 4.0 1.6 3.5 Average interest rate for the period (excluding JV/assoc. interest and all hybrid coupon payments) 3.29% 3.35% 3.12% Average cost of debt at period end (including all hybrid coupon payments) 3.81% 3.89% 3.75% * Note: Net debt represents the group adjusted net debt and hybrid capital. EBITDA represents the full year group adjusted EBITDA, less £125.4m (at March 2022) for the proportion of adjusted EBITDA from equity-accounted Joint Ventures relating to project financed debt. ### Net finance costs reconciliation | March | | March | | | --- | --- | --- | --- | | 2022 | | 2021 | | | | £m | | £m | Adjusted net finance costs 372.8 384.6 Add/(less): Lease interest charges (30.4) (35.3) Notional interest arising on discounted provisions (5.7) (3.8) Hybrid equity coupon payment 50.7 46.6 Adjusted finance costs for interest cover calculation 387.4 392.1 ### SSE Principal Sources of debt funding | March | | September | | March | | | --- | --- | --- | --- | --- | --- | | | 2022 | | 2021 | 2021 | | | | £m | | £m | | £m | Bonds 55% 58% 58% Hybrid debt and equity securities 21% 22% 24% European investment bank loans 7% 7% 8% US private placement 9% 9% 8% Short-term funding 5% 1% 0% Index-linked debt 3% 3% 2% % Of which has been secured at a fixed rate 96% 100% 98% Rating Agency Rating Criteria Date of Issue Moody’s Baa1 ‘negative outlook’ ‘Low teens’ Retained Cash Flow/Net Debt November 2021 Standard and Poor’s BBB+ ‘outlook stable’ About 18% Funds From Operations/Net Debt November 2021 90 SSE plc Annual Report 2022 Maintaining a strong balance sheet Debt summary as at 31 March 2022 Adjusted net debt and hybrid capital Hybrid bonds summary as at 31 March 2022 Hybrid coupon payments Total hybrid coupon £60m £60m £66m £82m SSE plc Annual Report 2022 91 STRATEGIC REPORT ### Financial review continued | SSE’s March 2015 and July 2020 hybrid | were £372.8m in the year to 31 March 2022, | borrowings. This continued strong cash | | --- | --- | --- | | bonds are perpetual instruments and are | compared to £384.6m in the previous year | position will allow SSE to meet its near- | | therefore accounted for as part of equity | after restatement for SGN related finance | term debt repayment and capital | | within the Financial Statements but, as in | costs. The relatively stable level of finance | investment needs as set out above. | | previous years, have been included within | costs from year to year, despite periods of | | | SSE’s ‘Adjusted net debt and hybrid capital’ | high inflation, reflects the high proportion | As the fair value of forward commodity | | to aid comparability. The March 2017 hybrid | of fixed rate debt held by the Group. | contracts has moved from an ‘in the | | bonds which have been called and will be | | money’ position in the prior year to an | | settled in 2022/23 had a fixed redemption | Reported net finance costs were £273.2m | ‘out the money’ position in the current year, | | date and have therefore been debt | compared to £236.9m, after restatement | the related collateral required has similarly | | accounted and included within Loans | for SGN related finance costs, reflecting | unwound. At 31 March 2022, £74.7m of | | and Other Borrowings; as such they | a £34.6m year-on-year change in the | cash was provided as collateral to third | | were already part of SSE’s adjusted net | mark-to-market revaluation of financing | parties compared to £37.1m held as | | debt and hybrid capital. | derivatives held at fair value. | collateral from third parties on these | ‘in the money’ contracts in the prior year. ### The coupon payments relating to the equity Summarising cash and ### accounted hybrid bonds are presented as Revolving credit facility/ ### cash equivalents distributions to other equity holders and are ### At 31 March 2022, SSE’s adjusted net debt short term funding reflected within adjusted earnings per share included cash and cash equivalents of SSE has £1.5bn of committed bank facilities when paid. The coupon payments on the £1.0bn, down from £1.6bn at March 2021 in place to ensure the Group has sufficient debt accounted hybrid bonds are treated which reflects the continued strong cash liquidity to allow day-to -day operations as finance costs under IFRS 9. | | generation from operating activities, | and investment programmes to continue in | | --- | --- | --- | | | offset by a significant increase in capital | the event of disruption to Capital Markets | | Managing net finance costs | investment, a reduction in year-on-year | preventing SSE from issuing new debt for a | | SSE’s adjusted net finance costs – including | disposal proceeds as the June 2020 | period of time. These facilities are set out in | | interest on debt accounted hybrid bonds | non-core asset disposal programme | the table below. | | but not equity accounted hybrid bonds – | came to an end and a net repayment of | | Date Issuer Debt type Term Value Mar 19 SSE plc Syndicated Revolving Credit Facility with 10 Relationship Banks 2026 £1.3bn Oct 19 SSE plc Revolving Credit Facility with Bank of China 2026 £200m ### The facilities can also be utilised to cover As a matter of policy, a minimum of 50% Ensuring a strong debt structure short-term funding requirements; however, of SSE’s debt is subject to fixed rates of ### through medium- and long-term they remain undrawn for most of the time interest. Within this policy framework, SSE ### borrowings and at 31 March 2022 they were both borrows as required on different interest The ability to raise funds at competitive undrawn. bases, with financial instruments being rates is fundamental to investment. used to achieve the desired out-turn SSE’s fundraising over the past five years, Both facilities are classified as sustainable interest rate profile. At 31 March 2022, 96% including senior bonds, hybrid capital and facilities with interest rate and fees paid of SSE’s borrowings were at fixed rates. term loans, now totals £7.7bn and SSE’s dependant on SSE’s performance in objective is to maintain a reasonable range environmental, social and governance Borrowings are mainly in Sterling and of debt maturities. Its average debt maturity, matters, as assessed independently by Euros to reflect the underlying currency excluding hybrid securities, at 31 March Vigeo Eiris. denomination of assets and cash flows 2022 was 6.8 years, down from 7.4 years within SSE. All other foreign currency at 31 March 2021. This movement reflects In addition to these committed bank borrowings are swapped back into either the £2.1bn of debt maturing in the next 12 facilities, the Group has access to £100m Sterling or Euros. months and is forecast to return to 7.5 years of uncommitted bank lines and a £15m during 2022/23. SSE’s average cost of debt overdraft facility. Transactional foreign exchange risk is now 3.81%, compared to 3.75% at arises in respect of procurement contracts, 31 March 2021. ### Maintaining a prudent fuel and carbon purchasing, commodity hedging and energy portfolio management ### treasury policy ### Going concern operations, and long-term service SSE’s treasury policy is designed to be The Directors regularly review the Group’s agreements for plant. prudent and flexible. In line with that, cash funding structure and have assessed that from operations is first used to finance the Financial Statements should be SSE’s policy is to hedge any material regulatory and maintenance capital prepared on a going concern basis. transactional foreign exchange risks expenditure and then dividend payments, through the use of forward currency with investment and capital expenditure for In making their assessment the Directors purchases and/or financial instruments. growth generally financed by a combination have considered sensitivities on the Translational foreign exchange risk arises in of cash from operations, bank borrowings forecast future cashflows of the Group for respect of overseas investments; hedging and bond issuance. In 2021/22 growth was the period to 31 December 2023 resulting in respect of such exposures is determined also financed by disposal proceeds. from the current volatile market conditions; as appropriate to the circumstances on a the Group’s credit rating; the success of the case-by-case basis. Group’s disposal programme through 92 SSE plc Annual Report 2022 | 2020/21 and 2021/22; and the successful | The Directors have also assessed that the | private placement market in addition to the | | --- | --- | --- | | issuance of £1.2bn of hybrid equity and | Group remains able to access Capital | Group’s existing liquidity with £1.5bn of | | private placement debt issued since the | Markets, as demonstrated by the £3.7bn of | undrawn committed borrowing facilities. | | March 2022 financial year end. The | debt issued over the last 24 months. There | | | Directors have also considered the Group’s | is also an expectation of continued | | | obligations under its debt covenants, with | availability of the Commercial Paper market | | | projections to 31 December 2023 | along with future available liquidity in the | | supporting the expectation that there will be no breaches. ### SSE’s principal joint ventures and associates SSE’s financial results include contributions from equity interests in joint ventures (“JVs”) and associates, all of which are equity accounted. The details of the most significant of these are included in the table below. This table also highlights SSE’s share of off- balance sheet debt associated with its equity interests in JVs which totals less than £2.5bn as at 31 March 2022. SSE share of external SSE Shareholder loans 1 SSE principal JVs and associates Asset type SSE holding debt as at 31 March 2022 as at 31 March 2022 Seabank Power Ltd 1,234MW CCGT 50% No external debt No loans outstanding Marchwood Power Ltd 920MW CCGT 50% No external debt £39m Clyde Windfarm (Scotland) Ltd 522MW onshore wind farm 50.1% No external debt £127m Dogger Bank A Wind Farm Up to 1,200MW offshore wind farm. 40% £532m Project financed Dogger Bank B Wind Farm Up to 1,200MW offshore wind farm. 40% £364m Project financed Dogger Bank C Wind Farm Up to 1,200MW offshore wind farm. 40% £185m Project Financed 2 Seagreen Windfarm Ltd 1,075MW offshore wind farm 49% £570m £477m Seagreen 1a Ltd Offshore wind farm extension 50% No external debt £9m Lenalea Wind Energy Ltd 30MW of onshore windfarm 50% No external debt £3m Beatrice Offshore Windfarm Ltd 588MW offshore wind farm 40% £736m Project financed Cloosh Valley Wind Farm 105MW onshore windfarm 25% £25m Project financed (part of Galway Wind Park) Neos Networks Ltd Private telecoms network 50% No external debt £91m Slough Multifuel Ltd 50MW energy-from-waste facility 50% No external debt £63m Stronelairg Windfarm Ltd 228MW onshore wind farm 50.1% No external debt £88m Dunmaglass Windfarm Ltd 94MW onshore windfarm 50.1% No external debt £47m Notes: 1 Greater Gabbard, a 504MW offshore windfarm (SSE share 50%) is proportionally consolidated and is reported as a Joint Operation with no loans outstanding. 2 For accounting purposes, £205m of the £477m of SSE Shareholder loans advanced to Seagreen Windfarm Limited as at 31 March 2022 have been classified as equity. | Taxation | services SSE relies upon. Therefore, SSE’s | | In 2021/22 SSE also paid €46.4m of taxes in | | --- | --- | --- | --- | | SSE is one of the UK’s biggest taxpayers, and | tax policy is to operate within both the | | Ireland, compared to €20.4m the previous | | in the PwC survey published in November | letter and spirit of the law at all times. | | year, due to increased profits in SSE’s Irish | | 2021 was ranked 16th out of the 100 Group | | | businesses. Ireland is the only country | | of Companies in 2021 in terms of taxes | In December 2021, SSE published ‘Talking | | outside the UK in which it currently has | | borne (those which represent a cost to the | Tax 2021: Tax as a driver for change’ report. | | significant trading operations. SSE’s | | company, and which are reflected in its | It did this because it believes building trust | | operations elsewhere are still at an early | | financial results). | with stakeholders on issues relating to tax is | | stage and are not yet paying material | | | important to the long-term sustainability of | | amounts of tax. | | SSE considers being a responsible taxpayer a | the business. | | | | core element of its social contract with the | | | As with other key financial indicators, SSE’s | | societies in which it operates. SSE seeks to | In the year to 31 March 2022, SSE paid | | focus is on adjusted profit before tax and, in | | pay the right amount of tax on its profits, in | £335.3m of taxes on profits, property taxes, | | line with that, SSE believes that the adjusted | | the right place, at the right time, and was the | environmental taxes, and employment | | current tax charge on that profit is the tax | | first FTSE 100 company to be awarded the | taxes in the UK, compared with £379.0m in | | measure that best reflects underlying | | Fair Tax Mark. While SSE has an obligation | the previous year. The reduction in total | | performance. SSE’s adjusted current tax | | to its shareholders, customers and other | taxes paid in 2021/22 compared with the | | rate, based on adjusted profit before tax, | | stakeholders to efficiently manage its total | previous year was primarily due to: | | was 9.2%, compared with 9.1% in 2020/21 | | tax liability, it does not seek to use the tax | • The sale of SSE’s Contracting business in | | on the same basis. Total deferred tax for | | system in a way it does not consider it was | | June 2021. Only three months of profit | the period increased to £797.4m from | | meant to operate, or use tax havens to | | taxes, property taxes and employment | £145.4m and was principally driven by the | | reduce its tax liabilities. | | taxes are included in relation to that | tax effect on the significant mark-to- | | | | business in 2021/22 compared with | market valuation movement on derivative | | Under its social contract SSE has an | | a full year in 2020/21; | contracts, in addition to a £244.7m | | obligation to the society in which it | • Lower Climate Change Levy being paid | | adjustment relating to the tax rate change | | operates, and from which it benefits – for | | as a result of outages at SSE’s gas-fired | to 25% which was substantively enacted on | | example, tax receipts are vital for the public | | power stations. | 24 May 2021. | 93SSE plc Annual Report 2022 STRATEGIC REPORT ### Financial review continued ### Pensions ### Contributing to employees’ pension schemes – IAS 19 March September March 2022 2021 2021 Pension scheme asset recognised in the balance sheet before deferred tax £m 584.9 501.7 543.1 Pension scheme liability recognised in the balance sheet before deferred tax £m – (63.7) (186.1) Net pension scheme asset recognised in the balance sheet before deferred tax £m 584.9 438.0 357.0 Employer cash contributions Scottish Hydro Electric scheme £m 1.0 0.5 1.1 Employer cash contributions Southern Electric scheme £m 58.0 30.7 55.2 Deficit repair contribution included above £m 40.9 20.4 37.9 | In the year to 31 March 2022, the net | actuarial gains of £221.9m, in particular | retains exposure to volatility in active | | --- | --- | --- | | surplus across SSE’s two pension schemes | the impact of higher discount rates, and | employees. During the year the SHEPS | | increased by £227.9m, from £357.0m to | deficit repair contributions exceeding | surplus decreased by £25.6m. | | £584.9m, primarily due to actuarial gains | service costs. | | | of £197.3m and contributions made to the | | Additional information on employee pension | | schemes offset by current service costs. | The Scottish Hydro Electric Pension | schemes can be found in note 23 to the | | | Scheme (‘SHEPS’) has insured against | Financial Statements. | | The valuation of the Southern Electric | volatility in its deferred and pensioner | | | Pension Scheme (‘SEPS’) increased by | members through the purchase of ‘buy-in’ | | | £253.5m in 2021/22 primarily due to | contracts meaning that the Group only | | 94 SSE plc Annual Report 2022 ### Operating review ## Business Unit ## operating review ## SSE’s strategy is delivered through a focused mix of market-based ## and economically-regulated energy businesses. SSE’s businesses ## are key to enabling a net zero economy, have significant growth ## potential and, importantly, fit together. With common skills and ## capabilities in the development, building and operation of world- ## class, highly technical electricity assets, there are strong synergies ## between them. SSE’s business mix is very deliberate, highly ## effective, fully focused and well set to prosper on the journey ## to net zero and beyond. ## The review of the Business Units that follows provides ## visibility of performance and future priorities. 95SSE plc Annual Report 2022 STRATEGIC REPORT ### Operating review continued ## SSEN ## Transmission ### SSEN Transmission key performance indicators ### “The future for our business March March 2022 2021 ### has never been brighter: SSEN Transmission ### National Grid’s Network Transmission adjusted and reported operating profit – £m 380.5 220.9 ### Regulated Asset Value (RAV) – £m 4,155 3,631 Options Assessment has Renewable Capacity connected to SSEN Transmission Network – MW 7,790 6,750 ### set out the critical need for Transmission adjusted investment and capital expenditure – £m 614.5 435.2 ### further network development ### In addition to exceptional operational and the British Energy Security ### SSEN Transmission overview SSEN Transmission owns, operates and performance in the year, SSEN Transmission ### Strategy calls for faster, more develops the high voltage electricity continues to deliver against its strategic ### transmission system in the North of objective to enable the transition to strategic network build-out Scotland and its islands. Over the duration a low-carbon economy as it builds a ### to connect the renewables | of the five-year RIIO-T2 price control, which | network for net zero in the North of | | | --- | --- | --- | | began in April 2021, total expenditure by | Scotland. The RIIO-T2 period is expected | needed for net zero.” | | SSEN Transmission is expected to reach at | to deliver significant growth in the capacity | | | least £2.8bn (the Certain View) which would | of renewables connected to SSEN | Rob McDonald | | take Transmission RAV to in excess of £5bn | Transmission’s network, from under 7GW | Managing Director, | | by the end of RIIO-T2. | at the start of RIIO-T2 to around 14GW | SSEN Transmission | by March 2026. This includes growth of | In addition to the Certain View expenditure, | around 1GW in 2021/22, which brings the | | --- | --- | | under Ofgem’s Uncertainty Mechanisms | total installed capacity connected to the | | changes to the allowed revenue are | North of Scotland transmission network to | | permitted during the price control period to | around 9GW, of which just under 8GW is | | reflect additional investment requirements, | from renewable sources. SSEN Transmission | | when their need or expected timeframe are | is well on its way to delivering its RIIO-T2 | | not known at the outset. These Uncertainty | goal to transport the renewable electricity | | Mechanisms are used to fund further | that powers 10m homes, which will be met | | upgrades to the network during the price | once the installed capacity of renewables | | control period, when there is more certainty | reaches 10GW. | around the scope of work required. This investment plays a pivotal role in providing This forecast growth in renewables will be critical national infrastructure and to enabled by a series of strategic investments maintain network reliability for the in new and upgraded infrastructure. communities SSEN Transmission serves Excellent progress continues to be made as it delivers a network for net zero. on the Shetland HVDC transmission link, which has now been in construction for over 18 months and will see Shetland ### Operational delivery connected to the GB transmission system SSEN Transmission has made a strong for the first time, enabling the connection start in delivering against its regulatory of renewables and supporting Shetland’s settlement during the first year of the new future security of supply. The substation five-year RIIO-T2 price control period. and convertor station sites at Kergord Building on its strong track record of (Shetland) and switching station at Noss consistently delivering over 99.99% network Head (Caithness) are taking shape, with all reliability – and in line with its RIIO-T2 goal main building structures now complete. to aim for 100% transmission network Cable installation preparatory works have reliability for homes and businesses – in also progressed well, with all land cable 2021/22, SSEN Transmission achieved the ducting now in place and the first phase of full reward of £0.7m through the Energy subsea boulder clearing successfully Not Supplied Incentive. This is the second completed. Subsea cable installation works consecutive year SSEN Transmission has will follow from 2022/23, alongside the fit achieved the full Energy Not Supplied out of substation and convertor station Incentive available and the 2021/22 reward buildings, with the project on track for will be reflected in revenue in 2023/24. completion and energisation in 2024. 96 SSE plc Annual Report 2022 Growth opportunities beyond RIIO-T2 Growth opportunities in RIIO-T2 SSE plc Annual Report 2022 97 STRATEGIC REPORT ### Operating review continued ## SSEN ## Distribution ### SSEN Distribution key performance indicators ### “We are progressing a March March 2022 2021 ### stakeholder-led plan for SSEN Distribution ### RIIO-ED2 that balances Distribution adjusted and reported operating profit – £m 351.8 275.8 ### Regulated Asset Value (RAV) – £m 4,054 3,792 investment in net zero with Distribution adjusted investment and capital expenditure – £m 364.8 350.8 ### the need to keep costs down Electricity Distributed – TWh 37.6 36.1 ### Customer minutes lost (SHEPD) average per customer 57 57 for customers. We look Customer minutes lost (SEPD) average per customer 42 44 ### forward to the Ofgem’s final Customer interruptions (SHEPD) per 100 customers 56 64 ### Customer interruptions (SEPD) per 100 customers 42 48 determinations and hope very ### much that they match the ### SSEN Distribution overview 2021/22 investment has included a ### decarbonisation ambitions | SSEN Distribution, operating under licence | multi-million pound upgrade to an essential | | | --- | --- | --- | | as Scottish Hydro Electric Power Distribution | section of Hampshire’s infrastructure in | set out in the British Energy | | plc (SHEPD) and Southern Electric Power | Fareham, completed in January 2022; and | | ### Security Strategy.” Distribution plc (SEPD), is responsible for a substantial programme of works to boost safely and reliably maintaining the electricity power supplies to homes and businesses on Chris Burchell distribution networks supplying over 3.8m the Isle of Wight comprising the complete Managing Director, homes and businesses across central refurbishment of two 132kV transformers SSEN Distribution | southern England and the North of | along with the replacement of two 33kV | | --- | --- | | Scotland. SSEN Distribution’s networks | circuit breakers. In the North of Scotland, | | cover the greatest land mass of any of the | work commenced on a £9.5m project to | | UK’s Distribution Network Operators over | boost the resilience and reliability of the | | 75,000km² of extremely diverse terrain. | network around Aultbea and Ullapool, and | a £7m investment programme to enhance In December 2021, SSEN Distribution security of supply across Tayside. published its RIIO-ED2 Final Business | Plan for 2023 to 2028. Titled ‘Powering | Incentive performance remains a revenue | | --- | --- | | Communities to Net Zero’ it sets out the | driver and SSEN prioritises improving | | £3.99bn of flexibility and network investment | reliability of network performance and | | required to accelerate net zero in a way that | supporting a positive customer experience. | | is efficient and affordable. | Under the RIIO regulatory regime, and | the Interruptions Incentive Scheme (IIS), SSEN Distribution is incentivised on its ### Operational delivery performance against the loss of electricity SSEN Distribution continues to undertake supply through the recording of Customer a major capital investment programme Interruptions (CI) and Customer Minutes across both its networks, delivering Lost (CML) which includes both planned significant improvements for customers and unplanned supply interruptions. These and increasing its Regulated Asset Value. incentives will typically be collected two In the 12 months to 31 March 2022, the years after they are earned. business invested £364.8m, bringing the total invested since the beginning of the The winter of 2021/22 saw six exceptional RIIO-ED1 price control to around £2.3bn. weather incidents which had a major This is part of a forecast £2.7bn investment impact on SSEN Distribution’s network, throughout the RIIO-ED1 period, causing in excess of 2,600 points of supporting future earnings through RAV damage. In total, 10 Met Office Weather growth. This includes progressing £41m of Warnings were in place last winter for both strategic investment approved through the licence areas. Green Recovery programme in 2021. 98 SSE plc Annual Report 2022 | Whilst SSEN Overall Customer Satisfaction | alignment with the British Energy Security | The Scottish Government’s January 2022 | | --- | --- | --- | | (CSAT) is broadly in line with last year at 87%, | Strategy and fundamentally its approach to | publication, A Network Fit For The Future: | | the incentive reward has been impacted due | delivering the necessary strategic investment | Draft Vision for Scotland’s Public Electric | | to the unprecedented storm season. The | for networks to be an enabler, rather than | Vehicle Charging Network, confirmed its | | volume of calls presented during the winter | a blocker, of net zero. SSEN Distribution | desire to enable new models of public | | period (October to February) was equivalent | continues to engage proactively with Ofgem | electric vehicle chargepoint financing and | | to a normal year’s worth of calls, resulting in | and government on achieving a fair ED2 | delivery, focused on public and private | | reduced customer satisfaction metrics. As a | outcome that protects current and future | partnerships, to support and coordinate | | result, the overall incentive reward under the | consumers, and delivers the outcomes | investment. In March 2022, the UK | | Broad Measure of Customer Satisfaction | customers want at a pace consistent with | Government’s EV Infrastructure Strategy | | reduced in 2021/22 to £2.7m from £4.9m | a rapid growth environment. | set out ambitions for EV chargepoints to | | the previous year. It is expected that | | be seamlessly integrated into a smart | | a best ever score from the Stakeholder | The proposals within SSEN Distribution’s | energy system with at least 300,000 public | | Engagement and Customer Vulnerability | Final Business Plan for ED2 are a key part of | chargepoints installed by 2030. By this | | (SECV) incentive will be achieved, which | SSE’s Net Zero Acceleration Programme. The | date, the 2021 DFES projects that SSEN | | would result in an increased incentive | plan was co-created with stakeholders and | Distribution’s licence areas could support | | revenue from £1.6m to £1.9m. | this engagement will continue to ensure that | up to 10.8GW of electric vehicle charging | | | their ambitions are reflected in the process. | capacity. SSEN Distribution has set out | | For financial performance commentary | The Final Business Plan proposes a total base | investment plans to help provide the | | please refer to the Group Financial Review. | expenditure of £3.99bn representing a 32% | increased capacity needed to enable these | | | increase over an equivalent timeframe | projections and to ready its network to | | Growth opportunities in RIIO-ED2 | in RIIO-ED1, and reflecting additional | facilitate 1.3m electric vehicles by 2028. | | As a provider of critical national | requirements for customers over the five | | | infrastructure, SSEN Distribution is playing | years to 2028. The proposed baseline spend | | | a vital role in accelerating the transition to | provides a low-regret foundation enabling all | | | net zero. The business is on track to deliver | scenarios and optionality, without which | | | its key ED1 outputs and, in October 2021, | DNOs risk becoming a blocker to customer | | | became the first DNO to set a 1.5°C-aligned | demands for EV and heat pump connections | | | target accredited by the Science Based | through ED2 and beyond and increasing | | | Target initiative. | costs for future generations. | | | In April 2022, the UK Government’s British | Late 2021 saw much-awaited publications | | | Energy Security Strategy recognised the | and strategies related to heat | | | importance of strategic network investment | decarbonisation. The UK Government | | | which is essential to meeting the expected | confirmed its ambition to upscale the | | | demand growth in RIIO-ED2 and future | installation of heat pumps to at least | | | price control periods. DNOs will unlock | 600,000 a year by 2028 and to make its | | | billions of pounds in investment in wider | Boiler Upgrade Scheme available for early | | | economic benefits for a net zero future. | adopters, while the Scottish Government | | has set a 2030 target for at least 1m homes | SSEN Distribution now awaits Ofgem’s draft | to have switched to zero emissions heat. It | | --- | --- | | determination on its ambitious, stakeholder- | is anticipated that there will be over 800,000 | | led business plan for the RIIO-ED2 period. | heat pumps across SSEN Distribution’s | | This will be an acid test of the regulator’s | networks by the end of RIIO-ED2. The | Final Business Plan sets out the required investment to ready the network for net zero, consistent with this projection. 99SSE plc Annual Report 2022 STRATEGIC REPORT ### Operating review continued ## SSE ## Renewables ### SSE Renewables key performance indicators ### “We are getting on with March March 2022 2021 ### delivering the flagship wind SSE Renewables ### projects that underpin the Net Renewables adjusted operating profit – £m 568.1 731.8 ### Renewables reported operating profit – £m 427.8 856.0 Zero Acceleration Programme Renewables adjusted investment and capital expenditure before ### and broadening our pipeline refunds – £m 811.0 294.3 ### Generation capacity – MW horizons with ventures in Onshore wind capacity (GB) – MW 1,285 1,247 ### exciting new markets. All of Onshore wind capacity (NI) – MW 122 122 ### Onshore wind capacity (ROI) – MW 567 567 this is made possible thanks Total onshore wind capacity – MW 1,974 1,936 ### to a fully-funded capex plan Offshore wind capacity (GB) – MW 487 487 ### Conventional hydro capacity (GB) – MW 1,159 1,159 backed by a large, balanced Pumped storage capacity (GB) – MW 300 300 ### group of businesses.” Total renewable generation capacity (inc. pumped storage) – MW 3,920 3,882 | Contracted capacity 2,792 2,792 | Stephen Wheeler | | --- | --- | | Generation output – GWh | Managing Director, | | Onshore wind output (GB) – GWh 2,502 2,377 | SSE Renewables | Onshore wind output (NI) – GWh 264 282 Onshore wind output (ROI) – GWh 1,196 1,354 Total onshore wind output – GWh 3,962 4,013 12 months. Offshore wind speeds returned Offshore wind output (GB) – GWh 1,430 1,845 to average after low wind speeds in the Conventional hydro output (GB) – GWh 3,107 3,476 first half of the year, resulting in improved Pumped storage output (GB) – GWh 227 244 volumes. Total renewable generation (inc. pumped storage) – GWh 8,726 9,578 Total renewable generation (also inc. constrained off) – GWh 9,423 10,171 As part of SSE Renewables’ continued investment into its asset management Note 1: Capacity and output based on 100% of wholly owned sites and share of joint ventures capabilities, it has just been awarded Note 2: Contracted capacity includes sites with a CfD, eligible for ROCs, or contracted under REFIT certification in the ISO55001 standard Note 3: Onshore wind output excludes 469GWh of constrained off generation in 2021/22 and 592GWh in for asset management for its operational 2020/21; Offshore wind output excludes 228GWh constrained off generation in 2021/22 and 1GWh organisation. in 2020/21 Note 4: Onshore wind capacity in GB reflects the commissioning of Gordonbush Extension in August 2021 Note 5: Biomass capacity of 15MW and output of 73GWh in 2021/22 and 71GWh 2020/21 is excluded, with the For financial performance commentary associated operating profit or loss reported within Distributed Energy please refer to the Group Financial Review. ### SSE Renewables overview performed very strongly across the year, ### Construction programme SSE Renewables comprises the Group’s with availability at an all-time high between All three phases of the world’s largest existing operational assets and those under December and March and providing much offshore wind farm at Dogger Bank development in onshore wind, offshore needed flexible peak capacity to the market. (each 1,200MW, SSE share 40%) remain on wind, flexible hydro electricity, run-of-river In addition, Foyers pumped hydro station track. Onshore works are continuing, and hydro electricity and pumped storage. Its was fully available through periods of very offshore construction is now under way operational offshore wind installed capacity high demand. with installation of the HVDC export cables is 487MW with its onshore wind and hydro for Dogger Bank A. Dogger Bank C reached electric installed capacity at 1,936MW and Despite natural wind resources being financial close in December 2021, and 1,459MW respectively. below normal yearly averages, a steady in February 2022, SSE Renewables and second half of the year – coupled with high Equinor each sold a 10% share in this plant performance to maximise production ### Operational delivery third phase to Eni. – led to a year-end position of onshore SSE Renewables’ hydro assets continue wind volumes at 88% of planned volume. to play an important role in providing On Seagreen 1 (1,075MW, SSE share 49%) cost-effective, low-carbon flexibility to there are currently 21 jackets and turbines Offshore, Beatrice saw excellent availability the system, which is providing additional installed on what will be the world’s deepest, in the second half and Greater Gabbard diversified revenue streams. Hydro assets fixed-bottom offshore wind farm once saw improved turbine availability over the operational. The offshore substation platform is successfully installed and 100 SSE plc Annual Report 2022 | commencing commissioning works. All | Growth opportunities – domestic | leasing process as part of a consortium | | --- | --- | --- | | onshore cabling works and export cable | SSE Renewables’ core markets of the | with Marubeni Corporation and CIP | | installation is progressing as planned. SSE | UK and Ireland still offer considerable | (Copenhagen Infrastructure Partners). The | | currently expects first power in July with | opportunities for growth over the near, | up to 2.6GW site (SSE Renewables share | | commercial operations by mid-April 2023. | medium and long term. | 40%) in the E1 Zone in the Firth of Forth will | | In April 2022, an incident occurred on a | | be one of the largest floating wind projects | | sub-contractor S7000 installation vessel | Near term, onshore wind growth can be | in the world and aims to start generating by | | which is contracted to the Seagreen project. | delivered through SSE Renewables’ | 2030. This will play an important part in | | The project team is working closely with | consented sites at Strathy South (208MW) | meeting the UK Government’s increased | | contractors to manage and mitigate project | and Tangy repower (57MW) in Scotland. | floating wind target of 5GW by 2035. | | impacts. Seagreen 1 is eligible to participate | Yellow River (104MW) in Ireland was | | | in the UK CfD Allocation Round 4 (AR4). Bids | provisionally successful in the May 2022 | SSE Renewables also aims to contribute | | are due to be submitted by 15 June 2022 | RESS-2 auction in Ireland and will now | additional capacity needed to meet | | with the results of the auction expected by | progress towards a final investment | Ireland’s offshore wind target of 5GW by | | 8 July 2022. | decision. Consent applications have been | 2030. Following the introduction by the | | | submitted to the Scottish Government for | Irish Government of the Maritime Area | | Construction is progressing well on Viking | Bhlaraidh Extension (in excess of 100MW), | Planning (MAP) Act in December 2021, | | (443MW) with almost all of the access tracks | and Achany Extension (in excess of 80MW). | SSE Renewables will now progress Arklow | | completed and 83 of 103 bases excavated. | | Bank Wind Park 2 via this new consenting | | Work on the DC substation is continuing | Offshore, near-term growth is expected | regime. The revised project will proceed | | with the first two transformers due to be | to come from the consented Seagreen 1A | with an increased capacity of 800MW. | | delivered by June 2022. Turbines will be | (500MW, SSE Renewables share 49%), | Subject to securing the necessary consents | | installed in early 2023 and completion is | which is an extension to the Seagreen 1 | and if successful in the first Offshore | | planned for July 2024. Viking is expected to | offshore wind site. Seagreen 1A is eligible | Renewable Energy Support Scheme | | be amongst the highest-yielding onshore | to participate in AR4. Should a Financial | (ORESS) auction, expected at the end of | | wind farms in Europe, producing almost | Investment Decision (FID) be reached, | 2022, Arklow Bank Wind Park 2 could be | | 2TWh annually. It is also eligible to enter | it could be operational by 2025/26. | operational by 2028. | AR4. | | In the medium term, out to the end of the | A foreshore licence has been secured | | --- | --- | --- | | At Lenalea wind farm (30MW, SSE share | decade, there is a wealth of opportunities. | for site investigations for the 1,000MW | | 50%) in Ireland, construction is progressing | In addition to the UK’s increased offshore | Braymore Wind Park project off the | | and is to be commissioned in late 2022/ | target of 50GW by 2030, from 40GW noted | north-east coast and an application has | | early 2023. | above, the British Energy Security Strategy | been submitted for the 1,200MW Celtic Sea | | | set out a raft of measures which will see | Array off the south-east coast. Celtic Sea | | In July 2021, Beatrice Offshore Wind Farm | permitting of offshore wind projects | Array and Braymore Wind Park will both | | Limited, a joint venture owned 40% by | accelerated. SSE Renewables’ unrivalled | apply for a Marine Area Consent (akin to | | SSE Renewables, agreed divestment of its | offshore wind pipeline will play a key role | a seabed lease) in the Irish Government’s | | Offshore Transmission Owner assets at an | in meeting this new target. | next phase, expected in 2023. | asset value of £437.9m and full asset transfer | took place on 5 August 2021. | SSE Renewables is working towards a | Onshore, there continues to be positive | | --- | --- | --- | | | consent application submission in Q3 2022 | progress on SSE Renewables’ consented | | Gordonbush Extension (38MW), SSE’s | for the up to 4.1GW Berwick Bank wind | Coire Glas pumped hydro storage project | | first merchant onshore wind project, was | farm with the aim of securing consent in | (up to 1,500MW). Coire Glas would double | | fully commissioned and handed over to | 2024 and being operational around the end | the current amount of electricity storage | | operations following its official opening in | of the decade. | capacity in Great Britain and create energy | | August 2021. | | storage capacity of 30GWh, equivalent to | | | North Falls wind farm (up to 504MW, | powering around 3m homes for up to 24 | | In Hydro, investment in works to modify | SSE Renewables share 50%), which is an | hours. The British Energy Security Strategy | | three key stations, Sloy, Glendoe and | extension to the Greater Gabbard wind farm | identified the importance of long duration | | Errochty, has started and will increase the | off the east coast of England, continues to | storage, and a policy decision in response | | capability of these stations in providing | progress with local consultation under way | to the BEIS call for evidence on possible | | essential services to the grid. And in April | for a potential grid connection in North | policy interventions, such as cap and floor | | 2022, a £50m investment to upgrade | Essex. North Falls could also be operational | mechanism to support long duration | | Tummel Bridge power station commenced | by 2030. | storage, is expected imminently. Subject | | which will increase the station’s potential | | to the outcome of these policy decisions, | | power output from 34MW to 40MW, with a | SSE Renewables has added its first floating | Coire Glas could progress to an FID decision | | return to service expected in Autumn 2023. | offshore wind project to its domestic | by 2023/24 with the objective of being | | | pipeline with the success in Crown Estate | completed before the end of the decade. | Scotland’s ScotWind offshore wind seabed 101SSE plc Annual Report 2022 ## Operating review ### SSE Renewables project pipeline Due FID or in Construction Consented Requiring consent ### Growth opportunities – international Future prospects* 102 SSE plc Annual Report 2022 # **SSE Thermal** **SSE Thermal key performance indicators** | | March 2022 | | --- | --- | | SSE Thermal | 306.3 630.1 129.3 | | Generation capacity – MW | 3,975 1,292 | | Total thermal generation capacity – MW | 5,267 | | Generation output – GWh | 11,303 2,962 | | Total thermal generation – GWh | 14,265 | ![img-9.jpeg](img-9.jpeg) # **SSE Thermal overview** Catherine Raw Managing Director, SSE Thermal # **Operational delivery** SSE plc Annual Report 2022 103 STRATEGIC REPORT ### Operating review continued The following agreements have been awarded through competitive auctions: ### SSE Thermal capacity contract awards Station Asset type Station capacity SSE share Capacity obligation Medway (GB) CCGT 735MW 100% To September 2023 Keadby (GB) CCGT 755MW 100% To September 2026 Keadby 2 (GB) CCGT 893MW 100% 16-years commencing October 2022 Peterhead (GB) CCGT 1,180MW 100% To September 2026 Seabank (GB) CCGT 1,234MW 50% To September 2026 Marchwood (GB) CCGT 920MW 100% To September 2026 Slough Multifuel Energy from Waste 50MW 50% 15-years commencing October 2024 Great Island (Ire) CCGT 464MW 100% To September 2026 Rhode (Ire) Gas/oil peaker 104MW 100% To September 2026 Tawnaghmore (Ire) Gas/oil peaker 104MW 100% To September 2026 Tarbert (Ire) Oil 620MW 100% To September 2023 Capacity contracts are based on de-rating factors issued by the delivery body for each contract year, therefore will not directly match SSE’s published station capacity. Capacities stated reflect Transmission Entry Capacity. Marchwood (SSE equity share 50%) tolling arrangement means SSE receives 100% of economic benefit from capacity contract. Keadby 1 has capacity obligation in 2022/23 and 2025/26 but none in 2023/24 or 2024/25 contract years. Keadby 2 16 year obligation comprised of a T-1 and a 15 year contract. | Growth opportunities | 2030, including two by the middle of this | hydrogen production by 2030. SSE Thermal | | --- | --- | --- | | Delivering lower-carbon flexibility is a | decade, was galvanised in its CCUS Investor | is also involved in Project Cavendish, | | key pillar of SSE’s Net Zero Acceleration | Roadmap which emphasised that the | an initiative to promote the Isle of Grain | | Programme. Developing more efficient | technology is a necessity not an option | as a location for a low-carbon hydrogen | | alternatives to the existing CCGT fleet will | to deliver net zero emissions by 2050. | economy. This could provide the | | be vital to deliver SSE’s goal to cut carbon | Published in April 2022, it also confirmed | opportunity to bring low-carbon hydrogen | | intensity by 80% by 2030 and achieve its | its intention to engage with industry on the | to SSE’s Medway site. | | science-based carbon reduction targets, | ‘Track 2’ process this calendar year. | | | aligned with a 1.5°C global warming | | Commissioning of Keadby 2, SSE Thermal’s | | scenario. SSE Thermal is developing | In November 2021, the UK Government | 893MW CCGT, started in October 2021 and | | projects using carbon capture and storage | launched the second phase of the Cluster | full commercial operation is targeted for | | (CCS) and hydrogen; technologies which | Sequencing Competition to identify which | 1 October 2022. Keadby 2 brings Siemens’ | | will be critical to society in the transition to | projects would be supported to connect to | cutting-edge turbine technology to the UK; | | net zero, enabling enhanced renewables | Track 1 clusters; this process was also open | this first-of-a-kind turbine will be Europe’s | | deployment by balancing the system. | to projects seeking a connection into the | most efficient CCGT and will displace | | | ‘reserve’ Scottish Cluster. SSE Thermal | older, more carbon intensive plant on the | | In 2021/22 SSE Thermal progressed its | submitted applications for Keadby Carbon | system. It is capable of being upgraded to | | carbon capture power stations, which | Capture Power Station, seeking to connect | decarbonise the system further, through | | it is co-developing with Equinor, through | into the East Coast Cluster, and Peterhead | hydrogen blending or carbon capture | | the planning process. In June 2021, SSE | Carbon Capture Power Station, seeking to | and storage. | | Thermal submitted a planning application | connect into the Scottish Cluster. Successful | | | for Keadby Carbon Capture Power Station | projects will secure a Dispatchable Power | Keadby 2 also provides a testing ground for | | to the UK’s Planning Inspectorate. In March | Agreement; a revenue support scheme | SSE Thermal’s new digital strategy to deliver | | 2022 SSE Thermal submitted a planning | designed by the UK Government. A decision | intelligent asset management, building | | application for Peterhead Carbon Capture | on which projects will progress into | on the digital capabilities already used to | | Power Station to Scotland’s Energy | negotiations is expected from July 2022. | manage the SSE Thermal fleet. Using data | | Consents Unit. | | and technology, the digital strategy aims | | | Low-carbon hydrogen will be an important | to enhance asset management and | | In October 2021 the UK Government | facet of a net zero economy. The UK | maintenance capabilities. | | announced that the East Coast Cluster – | Government’s inaugural hydrogen strategy, | | | comprising the Humber and Teesside | published in August 2021, highlighted the | | | regions – and the HyNet Cluster in | role it will play in providing flexible energy | | | north-west England would be Track 1 | for power, heat and transport and the need | | | clusters, or the first clusters supported | for large hydrogen storage facilities. SSE | | | to deploy shared CCS infrastructure by | Thermal is continuing to develop low- | | | the middle of this decade. The Scottish | carbon hydrogen projects, alongside | | | cluster was identified as a ‘reserve’ Track 1 | Equinor, including Keadby Hydrogen | | | cluster and remains in line to progress to | Power Station and Aldbrough Hydrogen | | | deployment as a Track 2 cluster by the | Storage and sees significant further growth | | | end of the decade. The UK Government’s | opportunities in this space, in line with the | | | commitment to supporting four clusters by | UK’s target to deliver 10GW of low-carbon | | 104 SSE plc Annual Report 2022 ## Gas Storage ### Gas Storage key performance indicators March March 2022 2021 Gas Storage Gas Storage adjusted operating (loss)/profit – £m 30.7 (5.7) Gas Storage reported operating profit/(loss) – £m 125.4 2.8 Gas storage adjusted investment and capital expenditure – £m 2.1 1.9 ### Gas Storage overview are likely to make a substantial contribution SSE Thermal holds around 40% of the UK’s to the Group in the next financial year. conventional underground gas storage capacity. These assets can play an For financial performance commentary important role in the transition to net zero, please refer to the Group Financial Review. supporting stability and security of gas ### supply in the short term as well as potential Growth opportunities conversion to hydrogen storage for a net SSE Thermal remains committed to working zero future. with UK Government departments and Ofgem to ensure the critical role of UK | Operational delivery | storage in relation to security of supply and | | --- | --- | | In 2021/22 SSE’s Gas Storage business has | stability of gas price is properly valued. It is | | navigated highly volatile gas markets and | also looking to play a future role as a source | | optimised assets to help ensure security of | of low-carbon hydrogen storage which will | | gas supply for the UK and provide important | be needed to balance supply and demand | | liquidity to the market. The assets also offer | in a hydrogen economy. | a significant risk management value to the | portfolio by offering spot, short-notice | Plans to develop a potentially world-leading | | --- | --- | | flexibility. This helps defend the portfolio | hydrogen storage project at Aldbrough, | | from exposures emanating from wind | announced in July 2021 with Equinor, are | | speed or consumer demand variability. | progressing. Since this announcement, the | | Given the increasing focus around gas | UK Government has committed to develop | | supply response across Europe, and the | business models for hydrogen storage as | | need for additional reserve to protect | part of the British Energy Security Strategy | | markets against significant geopolitical | and SSE is particularly close to this policy | | exposures, SSE anticipates this trend will | discussion. | continue. On that basis Gas Storage assets ## CO 2 105SSE plc Annual Report 2022 STRATEGIC REPORT ### Operating review continued ## SSE Business Energy ### SSE Business Energy key performance indicators March March 2022 2021 SSE Business Energy Business Energy adjusted operating (loss)/profit – £m (21.5) (24.0) Business Energy reported operating profit/(loss) – £m (21.5) (3.9) Electricity Sold – GWh 12,645 13,070 ### Gas Sold – mtherms 218 245 “We recognise that market Aged Debt (60 days past due) – £m 79.3 73.8 ### volatility has created Bad debt expense – £m 18.5 37.8 ### Exceptional bad debt (credit)/expense – £m – (20.1) challenges for many people. Energy customers’ accounts – m 0.47 0.48 ### Our customer businesses ### have worked with energy ### SSE Business Energy overview Smart meters are a key factor in supporting Business Energy GB retains a solid book and customers on their net zero journey and ### users across GB and Ireland customer base and amongst non-domestic 2021/22 saw strong performance for the ### to provide support through suppliers is ranked for power 4th by meters rollout of smart meter installations. Business (market share 11.6%) and 4th by volume Energy continues to work towards its first ### a variety of payment options (market share 7%); and for gas is ranked 7th year of challenging smart regulatory ### and additional support | by meters (market share 6.5%) and 9th by | installation targets in calendar year 2022. | | | --- | --- | --- | | volume (market share 2.3%). The business | | mechanisms.” | | markets its products under the SSE Energy | For detailed financial performance | | | Solutions brand alongside SSE Distributed | commentary please refer to the Group | | Nikki Flanders Energy, selling power to over 469,000 Financial Review. Managing Director, non-domestic customers across GB. Energy Customer Solutions ### Growth opportunities | Operational delivery | The platform SSE Business Energy growth | | --- | --- | | During 2021, Business Energy increased its | is via the SSE Energy Solutions business-to- | | green customer propositions including the | business brand, launched in July 2021 in | | launch of a new and simplified Corporate | partnership with SSE Distributed Energy. | | Power Purchase Agreement product, to | The platform provides a single shopfront | | make them increasingly accessible to a | for a range of SSE customer product | | wider range of businesses. This was | offerings to support all business segments | | followed in July by a commitment to | on their net zero journey; from renewable | | businesses on fixed power contracts that | power and flexible Corporate Power | | they will receive their electricity from | Purchase Agreement offerings, to customer | | renewable sources. Green credentials | workplace EV charging solutions and larger | | associated with this electricity supply are | scale distributed energy systems. As SSE’s | | independently verified by EcoAct, an Atos | electricity generation businesses continue | | company, and customers are provided with | to expand and deliver new technologies, so | | Renewable Energy Guarantees of Origin | will SSE Energy Solutions as an important | | (REGOs) certification. Business Energy’s | route to market for the Group. | ‘Green Gas plus’ tariff, a renewable gas tariff which is also independently certified by EcoAct, performed well through the year since its launch. 106 SSE plc Annual Report 2022 ## SSE Airtricity ### SSE Airtricity key performance indicators March March 2022 2021 SSE Airtricity Airtricity adjusted operating profit – £m 60.4 44.0 Airtricity reported operating profit – £m 60.4 50.0 Aged Debt (60 days past due) – £m 7.3 7.9 Bad debt expense – £m 4.6 6.9 Exceptional bad debt (credit)/expense – £m – (6.0) Airtricity Electricity Sold – GWh 5,219 7,595 Airtricity Gas Sold – mtherms 177 219 All Ireland energy market customers (Ire) – m 0.70 0.68 ### SSE Airtricity overview For financial performance commentary SSE Airtricity provides a valuable route please refer to the Group Financial Review. to market for SSE’s low-carbon energy | solutions and green products to customers | Growth opportunities | | --- | --- | | across the island of Ireland. Airtricity retains | A positive public policy environment aimed | | a strong market position as Ireland’s largest | at improving the thermal efficiency of 0.5m | | supplier of 100% green energy, supplying | buildings provides the backdrop for the | | approximately 701,000 customers and | Generation Green Home Upgrade product. | | holding 21.2% market share by load. | This is enabling the rapid rollout of a first of | its kind one-stop-shop business model, in | Operational delivery | partnership with An Post, in the Republic of | | --- | --- | | As a responsible business, SSE Airtricity | Ireland market. The growth of this business | | has recognised that current market | segment remains a key priority for 2022. | volatility has created challenges for | many households and has taken various | Further areas of strategic focus include | | --- | --- | | measures to support financially vulnerable | building on the success of partnerships | | customers. An all-island customer support | with brands such as Volkswagen and | | fund (€1m) has been established, €1m was | ePower delivering electric vehicle charging | | donated to a trusted all-island charity | infrastructure and green end-to-end | | partner, and a home energy efficiency | solutions for customers; and continued | | upgrade programme has been rolled our | innovation and delivery of extended | | for up to 600 homes in fuel poverty. In | customer offerings to help support | | addition Airtricity’s financially vulnerable | decarbonisation. | domestic customers in the Republic of Ireland will be insulated from any further price rises for the remainder of the 2022 calendar year. 107SSE plc Annual Report 2022 STRATEGIC REPORT ### Operating review continued ## SSE Distributed Energy ### SSE Distributed Energy key performance indicators March March 2022 2021 SSE Distributed Energy SSE Distributed Energy adjusted operating (loss)/profit – £m (10.9) (27.0) SSE Distributed Energy reported operating profit/(loss) – £m (29.2) (76.1) SSE Heat Network Customer Accounts 11,291 10,482 ### Biomass, heat network and other capacity – MW 33 34 “This is an exciting time for the Biomass, heat network and other output – GWh 104 108 ### business. We’ve got ambitions ### to deliver solar and battery ### SSE Distributed Energy overview Growth opportunities ### SSE’s reporting of its Enterprise segment A key focus will be on battery storage and storage technology at GW has been updated following the sale of its solar technology. Existing grid connections ### scale, we have a 2GW Contracting and Rail businesses. The primary at legacy coal-fired sites, such as Ferrybridge ### retained activity of the former SSE Enterprise and Fiddlers Ferry, also puts SSE in a strong distributed energy businesses is now distributed energy. The position to deploy battery storage at scale ### development pipeline, business provides solar and battery storage and pace. ### asset development and operation and and we are developing focuses on distributed generation, EV SSE’s Distributed Energy team is helping ### strategic grid-connected infrastructure, heat and cooling networks, people and places reach their net zero ### and smart buildings and places. targets by adopting a ‘whole system’ local energy systems to approach to connect localised and flexible ### industrial regeneration The financial results from the Group’s energy assets. These include energy ### out of areas networks business and Neos optimisation, heat and cooling networks, areas across the UK.” Networks Limited (formerly SSE Telecoms) electrical networks, smart buildings, and joint venture are now reported within SSEN EV charging. Distributed Energy therefore Neil Kirkby Distribution and Corporate Unallocated seeks to help provide the platform for a Managing Director, respectively. Comparative information has data-driven and sustainable world. SSE Enterprise been re-stated to reflect these changes. Distributed Energy has ambitions to build a | Operational delivery | network of EV charging hubs across the UK | | --- | --- | | Over the past 12 months SSE has | – with the first of potentially 300 hubs being | | announced significant milestones in its | built in summer 2022 in Glasgow. Innovation | | nascent solar and battery storage business | also remains a key tool to unlocking net | | including a secured 380MW solar and | zero; its heat sector division for example, | | battery pipeline, with over 1GW more of | has an exciting partnership under way with | | other sites currently under assessment. | National Grid to utilise heat from electricity | | The secured pipeline includes a 50MW | transformers that would otherwise go | | battery storage asset on a consented site in | to waste. | Wiltshire, where construction gets under way this summer, with full energisation expected in summer 2023. SSE has also acquired a 30MW solar farm at Littleton Pastures in Worcestershire and, once complete in late 2023, this 77-acre site will be capable of powering some 9,400 homes. 108 SSE plc Annual Report 2022 ## Energy Portfolio Management (EPM) ### EPM key performance indicators March March 2022 2021 EPM EPM adjusted operating profit/(loss) – £m (16.8) 18.4 EPM reported operating profit/(loss) – £m 2,083.6 608.5 ### “EPM has had a critical role to | EPM overview | Operational delivery | | | --- | --- | --- | | Energy Portfolio Management (EPM) is the | In 2021/22 EPM navigated unprecedented | play in helping SSE navigate | | energy markets heart of the SSE Group, | energy market volatility, ensuring the SSE | | ### market volatility in 2021/22. securing value and managing volatility portfolio was hedged in accordance with ### through risk-managed trading of energy- the Group’s approach to hedging and We have strengthened our related commodities for SSE’s market- optimised through prompt periods. The ### offering as a market adviser | based Business Units. | value EPM secures for SSE’s asset portfolio | | | --- | --- | --- | | | continues to be reported against individual | and asset optimiser for the | | SSE trades the principal commodities to | Business Units. 2021/22 also saw successful | | ### Group thanks to investment in which its asset portfolios are exposed, as delivery of the first year of operation under ### well as the spreads between two or more the UK Emissions Trading Scheme. new forecasting technologies commodity prices (e.g. spark spreads): ### and the capability of our risk, power (baseload and other products); For detailed financial performance ### gas; and carbon (emissions allowances). commentary please refer to the Group analytics and trading teams.” Each commodity has different liquidity Financial Review. characteristics, which impacts the quantum Gordon Bell ### of hedging possible. See also SSE’s Hedging Growth opportunities Interim Managing Director, Position. Transformation of the EPM Business Unit Energy Portfolio Management continues with key external recruits into risk, prompt trading and analytics. Trading has started in France, Belgium and the Netherlands as the business looks to expand into Europe. ## Investment in SGN ## (Scotia Gas Networks – discontinued operation) ### SGN key performance indicators March March 2022 2021 SGN (Discontinued Operation) SSE’s 33.3% share – Disposed on 22 March 2022 SGN adjusted operating profit/(loss) – £m 21.0 173.0 SGN reported operating profit/(loss) – £m 495.4 88.6 | SGN overview | Whilst the business had been a good | The adjusted operating profit for the | | --- | --- | --- | | As part of its strategic refocusing of | long-term financial investment for SSE | business of £21.0m is retained by the | | the Group, SSE’s entire 33.3% financial | since 2005, SSE’s focus is now on low- | Group for the period to 11 June 2021 | | investment stake in gas distribution | carbon electricity businesses and the | when the investment was designated | | operator SGN (Scotia Gas Networks | role they have in transition to net zero. | as ‘held for sale’ and equity accounting | | Limited) was sold to a consortium | This disposal marked the completion of | ceased. On disposal, the Group recorded | | comprising existing SGN shareholder | SSE’s £2bn plus disposals programme | an exceptional gain on disposal of £576.5m. | | Ontario Teachers’ Pension Plan Board | announced in June 2020, with a headline | | | and Brookfield Super-Core Infrastructure | consideration amounting to over £2.8bn | | | Partners on 22 March 2022. | exceeding that original target. | | 109SSE plc Annual Report 2022 STRATEGIC REPORT ### Section 172 and non-financial information statements ### More on the longer-term context More on decision making ## Section 172 Statement • Pages 2 to 3  Our purpose and our • Pages 34 to 39  Engagement in action. SSE has an unwritten social contract with strategy. SSE’s purpose, vision, strategy, Actions taken in response to the views of its stakeholders that both informs decision values and 2030 goals as agreed by the individual stakeholder groups, of which making by the Board and aligns closely with Board. the Board has received full oversight. the spirit of Section 172 of the Companies • Pages 126 to 131  Strategic review and • Pages 126 to 131 (strategy), 150 Act 2006 (Section 172). Under this contract, Board focus in 2021/22. The Board’s (inclusion and diversity ambitions) and SSE relies on society for public services strategy work including the process 169 (Remuneration Policy)  Board- and infrastructure, human capital, and the which approved the Net Zero level principal decisions. Decisions implicit right to earn a profit and remunerate Acceleration Programme. taken during the year including details shareholders. In return it safely and reliably • Pages 68 to 81  Risk-informed of stakeholder considerations. provides energy, invests in critical national decision making. The approach to infrastructure needed for net zero, creates identifying, understanding and jobs and contributes to GDP through fair ### Environmental impact mitigating the Group’s Principal Risks. payment of tax. SSE recognises the serious threat that This Statement summarises how, over the ### Purpose-led engagement climate change poses to the natural world, course of 2021/22, the Board has upheld and therefore to people and the economy. this contract by promoting the long-term Constructive two-way dialogue with The climate emergency has continued to success of the Company for the benefit of SSE’s key stakeholders maintains feature across the Board agenda and SSE SSE’s six key stakeholder groups (see pages understanding of the issues material to commits to open and transparent disclosure 32 to 39 ). This has been undertaken with each group. Supporting conversations have to allow proper assessment of its regard to the matters set out in Section been conducted within a well-established environmental performance. 172(1)(a) to (f), being: framework that encourages both Group and (a) The likely consequences of any decision ### complementary Board-level engagement. More on environmental in the long term. This is reflective of SSE’s operating model ### (b) The interests of the Company’s performance based on autonomous Business Units employees. • Page 130  Overseeing strategic in which decision-making takes place (c) The need to foster the Company’s delivery. Board approval of SSE’s every day. The Board creates the correct business relationships with suppliers, Net Zero Transition Plan. conditions for this approach by setting SSE’s customers and others. • Page 132  Sustainability and climate long-term direction and the overarching (d) The impact of the Company’s operations impacts. Board considerations and decision-making framework and culture. on the community and the environment. outcomes in 2021/22. This is in line with the Board’s own (e) The desirability of the Company • Pages 164 to 167  SSHEAC Report. understanding of stakeholder needs. maintaining a reputation for high Provides Board assurance of safety, standards of business conduct. health, environmental and sustainability ### More on engagement matters. (f) The need to act fairly between members • Page 134  Considered decision- • Pages 42 to 57  Protecting the of the Company. making. The context set by the Board environment. Actions agreed to in which decision-making takes place. drive climate action, SSE’s carbon SSE’s approach to the above social contract • Pages 32 to 39 and 135 to 139  performance and resource use. is exemplified throughout this Annual Working for and with stakeholders. Report, with specific disclosures of decisions Information on: the role of stakeholder and actions which are supportive of this ### engagement; SSE’s key stakeholder Culture and conduct Section 172 Statement detailed as follows. groups including, employees, shareholders, suppliers, customers SSE’s definition of a healthy corporate ### Long-term direction and communities; the engagement culture, as approved by the Board, mechanisms which have been used underpins the way in which SSE operates. SSE’s strategy is to create value for at Board and below-Board level; the The Board leads on, and monitors culture, shareholders and society in a sustainable material issues raised; and examples by setting the tone and framework within way by developing, building, operating and of stakeholder value creation. which agreed values and accepted investing in the electricity infrastructure and behaviours can be embraced by employees. businesses needed in the transition to net This includes an inclusive working ### Stakeholder-focused decisions environment. Most recently, SSE’s Just zero. Four 2030 Goals support this strategy, and provide important interim milestones to Transition Strategy evidences the approach Conversations with key stakeholder groups to responsible business conduct, by setting net zero in 2050. This longer-term view set can result in actions which are specific to out intended actions to address the social by the Board frames its strategy work and an individual group and also see integration implications of delivering net zero. the agreement of objectives, which extends into decisions with multi-stakeholder to: capex plans; budgets; dividend plans impact. This Strategic Report and the ### and future resourcing requirements. SSE’s More on culture and conduct Directors’ Report have been prepared with Risk Management Framework, including the • Pages 140 to 141  Focusing on culture. this in mind and illustrative examples of Groups’ Principal Risks, the identification How the Board promotes high standards decision-making are provided throughout. | of emerging risks and the Group’s Risk | | of conduct and monitors culture. | | --- | --- | --- | | Appetite statement, further underpins the | • Pages 58 to 68  SSE’s social | | | Board’s long-term approach. | | contribution. Delivery of wider benefit | through responsible business practices. 110 SSE plc Annual Report 2022 ## Non-Financial Information Statement SSE has reported extensively on its non-financial impacts within its Annual Report for a number of years and welcomes continued increasing focus from regulators, shareholders and other stakeholders. This table outlines how SSE meets the Non-Financial Reporting requirements contained within the Companies Act 2006. Further disclosure can also be found in SSE’s Sustainability Report 2022 . | Reporting requirement and | Relevant Group Principal | Relevant Group Policies | Policy embedding, due diligence, | | --- | --- | --- | --- | | SSE’s material areas of impact | Risks, pages 71 to 81 | on sse.com | outcomes and key performance indicators | | Environmental matters | Climate Change | Group Climate Change Policy | Our business goals for 2030, | | • Delivering net zero | | | pages 18 to 19  | | | Safety and the Environment | Group Environment Policy | | • Managing climate-related Our strategy in action, issues pages 22 to 28  • Carbon performance, metrics and targets Protecting the environment, • Responsible resource use pages 42 to 57  – water and energy use, Safety, Sustainability, Health air emissions and Environment Advisory Committee Report, pages 164 to 167  | Employees | People and Culture | Group Employment Policy | Our business goals for 2030, | | --- | --- | --- | --- | | • Health and safety | | | pages 18 to 19  | | | Safety and the Environment | Group Safety and | | • Training and learning Health Policy SSE’s social contribution, • Culture and ethics pages 58 to 57  • Reward and benefits • Employee voice Focusing on culture, • Inclusion and diversity pages 62 and 140 to 141  • Support during the Supporting and listening coronavirus crisis to the employee voice, pages 61 and 137 to 139  Safety, Sustainability, Health and Environment Advisory Committee Report, pages 164 to 167  | Social matters | People and Culture | Group Sustainability Policy | Our business goals for 2030, | | --- | --- | --- | --- | | • A just transition to net zero | | | pages 18 to 19  | | | Speed of Change | Group Taxation Policy | | • Contributing to the SSE’s social contribution, economy and supporting Energy Affordability Group Procurement Policy pages 58 to 57  local supply chains • Sustainable procurement • Responsible approach to tax • Supporting vulnerable customers • Energy affordability • Sharing value with communities • Support during the coronavirus crisis | Human rights, | People and Culture | Group Human Rights Policy | SSE’s social contribution, | | --- | --- | --- | --- | | anti-corruption | | | pages 58 to 59  | | | Large Capital Projects Quality | Group Corruption and | | and anti-bribery Financial Crime Prevention Focusing on culture, • Reinforcing an ethical Policy 62 and 140 to 141  business culture • Speaking up against Group Whistleblowing Policy wrongdoing • Prevention of bribery and corruption • Approach to human rights and modern slavery 111SSE plc Annual Report 2022 # Directors' Report | Bank of the Nation | 114 | | --- | --- | | Government of Greece | 116 | | Board of Directors | 118 | | Group Executive Committee | 121 | | Board leadership and company purpose | 124 | | Election of responsibilities | 142 | | Composition, succession and evaluation | 143 | | Nomination Committee Report | 145 | | Audit, risk and internal control | 152 | | Audit Committee Report | 152 | | Energy Market's Risk Committee Report | 152 | | Safety, Sustainability, Health and Environment Advisory Committee Report | 164 | | Remuneration | 168 | | Remuneration Committee/Chair's statement | 168 | | Directors' Remuneration Policy | 172 | | Remuneration at a glance | 182 | | Annual report on remuneration | 184 | | Other statutory information | 200 | | Statement of Directors' responsibilities at respect of the annual report and the financial statements | 203 | 112 151 plc Annual Report 2022 ## Reporting against ## the UK Corporate ## Governance Code Board leadership and company purpose pages 124 to 141  Division of responsibilities page 142  Composition, succession and evaluation pages 143 to 151  Audit, risk and internal control pages 152 to 167  Remuneration pages 168 to 199  113SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Chair’s introduction ## Leading ## with ## purpose ### The Board’s work this year has been defined by dramatic ### changes in the operating context which informs our ### deliberations. As set out in my earlier reflections, this ### has included the evolution of a global pandemic which ### has touched us all; a sharpened focus on the climate ### emergency and the net zero transition; and volatility ### and affordability concerns in energy markets impacted ### by geopolitical events. | The purpose of this Directors’ Report is to | around funding, growth, and dividend | Committee support has been strong | | --- | --- | --- | | explain how we as a Board have assessed | policy. Across pages 126 to 129 , | and provided in multiple ways. The | | SSE’s situation, and taken informed decisions | we provide insight into the strategic | Remuneration Committee has overseen | | to secure a sustainable and leading position | process followed in the year, alongside | proposed updates to Remuneration Policy | | on behalf of our key stakeholders; all | the governance which drove challenge | to align with our growth ambitions. The | | underpinned by a long-standing and deeply | and debate across each stage. | Nomination Committee has championed | | embedded commitment to high standards | | talent and capability across our most | | of corporate governance. The strength of | In support of strategic progress, we | important asset, people. The Audit | | the Board’s leadership is assessed through | have continued to monitor and review | Committee has monitored the development | | the clarity of the actions we take and | current large capital programmes, and | of our risk and opportunity reporting under | | transparency surrounding the standards, | have strengthened development pipelines | the Taskforce on Climate-related Financial | | processes and culture we ultimately set. | which represent the foundation of our | Disclosures framework. As indicated last | | | accelerated investment plans. To ensure | year, the Safety, Sustainability, Health and | | Focused on the future | the Company has the platform it needs | Environment Advisory Committee has | | In November 2021, SSE announced its Net | to succeed in the delivery of revised and | progressed its environmental, social and | | Zero Acceleration Programme, representing | accelerated ambitions, we have also spent | governance (ESG) role, deepening its focus | | the optimum growth pathway identified by | time assessing SSE’s capacity and resources | on performance across ESG indices, and | | the Board to capitalise on the opportunities | for future growth. | reviewing climate resilience and adaptation | | across the value chain in which SSE | | plans. The Energy Markets Risk Committee | | participates. In all our deliberations, we are | To this end, we have refreshed the | has been active in its review of SSE’s | | focused on long-term success, financial | framework represented by our 2030 Goals, | exposures in an increasingly volatile energy | | resilience and shareholder value, and | and (as supported by shareholders at our | market. Further information can be found in | | ensure thorough debate based on robust | 2021 AGM) published a Net Zero Transition | each of the respective Committee Reports | | inputs which capture all of the available | Plan, which together set the parameters | on pages 145 to 199 . | | information. We have carefully assimilated | within which we intend to deliver our | | ° the views and long-term priorities of those ambition. This includes enhanced 1.5 C who invest in SSE, and have provided clarity aligned science-based targets. 114 SSE plc Annual Report 2022 ### “ The strength of the Board’s leadership is assessed ### through the clarity of the actions we take and ### transparency surrounding the standards, processes ### and culture we ultimately set.” | Engaging and reconnecting | The Board agenda further includes a | always more work to do. Notably, within | | --- | --- | --- | | One year on from my last report, a | stakeholder assessment of our strategy, | the senior leadership population progress | | welcome change has been the ability | an annual update on supply chains, | has been slower, and we have therefore | | to reconnect in person. Throughout the | confirmation of sustainability priorities and | continued to probe the barriers to | | pandemic virtual channels worked well, | an annual report of key stakeholder work. | accelerating change. We seek to address | | and continue to be used in the Company, | Specifically, in 2021/22, we considered the | sector specific challenges through a new | | as we responded to employee feedback | development of SSEN Distribution’s ED2 | set of ambitions and accompanying | | on the benefits of our ‘Flexible First’ | business plan, the impact of storms across | workstreams for senior leadership, and | | approach to work enabled by technology. | communities, and the wider issue of energy | within SSE’s Just Transition Strategy. Fuller | | Nonetheless, having joined at a time when | affordability, to name just a few examples. | detail of the above, and wider people | | face-to-face meetings were not possible, | | matters, is set out in the Nomination | | I have thoroughly enjoyed travelling | Composition and performance | Committee Report on pages 145 to 151 . | | across SSE and engaging with people and | In what has been my first full year as | | | operations; a sentiment which is echoed by | Chair, we’ve welcomed two new non- | This year, in line with the three-yearly | | my fellow Board members. | Executive Directors to the Board in Dame | cycle, our annual Board evaluation | | | Elish Angiolini and Debbie Crosbie, who | process was externally-facilitated; providing | | Site visits deliver an enriched view of the | bring added depth and capability to our | objective findings and areas for continued | | reports we receive on employee sentiment, | perspectives and skillset. This has been | development and future focus. Both the | | with candid discussion providing a truer | followed by the appointment of John | appointment of Lintstock as evaluator, | | understanding of how to support our | Bason from 1 June 2022, as the intended | and the methodology used to assess | | people. This two-way dialogue is further | successor to the role of Audit Committee | performance were carefully planned | | enhanced through our Non-Executive | Chair. John’s financial expertise and wealth | to ensure meaningful outcomes. We | | Director for Employee Engagement, Dame | of international experience is a strong fit, | were pleased with the conclusion that | | Sue Bruce, who reports back to the Board | and I look forward to welcoming him to | we continue to operate effectively | | and management after each engagement | the Board. | and welcome the suggested areas for | | she undertakes. I am pleased to provide | | improvement, which we will take forward | | information on pages 137 to 139  of how | To ensure an orderly transition within the | as actions within our plan of work as set | | we have listened and acted upon the areas | positions of Remuneration Committee | out on pages 143 to 144 . | | of importance to employees, which takes | Chair and Non-Executive Director for | | | place within the maturing framework in | Employee Engagement, we have further | I hope the following report of Board | | which we discuss, monitor and review | agreed a six month extension to Dame Sue | activity is a clear and engaging account | | company culture. | Bruce’s tenure ending 31 March 2023. At | of the year, and look forward to reporting | | | this time, Melanie Smith will take on the | further progress in 2022/23, when we | | We have resumed physical meetings for | position of Remuneration Committee Chair | will welcome continued engagement | | the Board in 2021/22, as well as for many | and Dame Elish Angiolini Non-Executive | surrounding our views and actions to | | of our shareholder engagements. The 2022 | Director for Employee Engagement. | secure long-term success. | AGM is set to take place in a hybrid format, | and I look forward to meeting with those of | As discussed on pages 146 to 149 , | | --- | --- | | you who are able to attend in person and | these changes stem from the detailed | | answering questions from those of you | assessment by the Nomination Committee | | who join us virtually. | of the Board’s needs, and our composition | will continue to evolve in light of the | The Board takes very seriously the views | fast-moving operating environment and | | | --- | --- | --- | | of employees, shareholders and wider | our future-oriented focus. | Sir John Manzoni | | stakeholders to ensure we are pursuing | | Chair, SSE plc | | actions that are acceptable to those we work | A balanced Board comprises representation | 24 May 2022 | | with, and for. And as is evidenced across this | across a suite of diverse characteristics, | | | Annual Report, the network in which we | which is the focus of our standalone Board | | | gather relevant insights is extensive. At | Diversity Policy. We took time to consider | | | Board-level, we enhance our understanding | the policy in the year and approved updates | | | of views through work which complements | to align with our ultimate aim of enduring | | | the daily contact our businesses have, with | inclusivity and equality. Whilst good | | | the most significant external engagement in | progress has been made within the Board | | | the year, in which the Directors participated, | – with gender parity across our current | | | being COP26 in Glasgow. | membership – we recognise there is | | 115SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Governance at a glance ## Highlights from 2021/22 UK Corporate ## Governance ### Resetting strategic ambition Reconnecting with our people ## Code Developing and approving SSE’s Net Zero Reintroducing physical meetings to enhance Acceleration Programme for all stakeholders. virtual engagement approach. The Board continues see pages 126 to 129  see pages 137 to 139  to be guided in its approach to corporate governance through Agreed capital investment Board-employee engagements application of the FRC’s UK Corporate Governance ## £12.5bn 43 Code 2018 (the Code), a copy of which can be found at www.frc.org.uk. ### Ensuring strong succession Progressing inclusion and diversity To allow shareholders Enhancing Board composition through new Approving a new Board Inclusion and Diversity to evaluate how the non-Executive Director appointments. Policy and maintaining focus on ambitions. Code’s Principles have see pages 146 to 147  see pages 150 to 151  been applied, the Directors’ Report has been structured around Average non-Executive Director tenure Board female representation the Code’s respective sections, with cross ## 3.8 years 50% references used where supporting information is located in other parts of the Annual Report. ### Assessing Board performance Realigning remuneration policy For the year ended Conducting an external evaluation to drive Engaging with shareholders and investor bodies 31 March 2022, the continuous improvement. on the correct remuneration approach. Board reports compliance see pages 143 to 144  see pages 136 and 168 to 171  against the Code Provisions for the duration of the period and upholds External evaluation spanning Related meetings to date the spirit of the Code throughout its work and ## 3 months 11 that of its Committees. ## Board composition dashboard as at 31 March 2022 Board gender balance Rolling three-year female representation Board ethnicity (%) 6 (50%) 6 (50%) Target | 2022 | | | | to 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | | 7 (64%) | | 4 (36%) | | | 37. 1 | | 2021 | | | | 2022 | | | | | 7 (70%) | 3 | (30%) | | 29.9 | | | 2020 | | | | 2021 | | | 28.5 2020 Male Female White British: 11 Māori: 1 33.0 31 March 31 March 31 March 31 March 116 SSE plc Annual Report 2022 31 March 31 March ## Skills matrix ### Non-Executive Director experience The below matrix captures the skills required to drive SSE’s long-term success and support its vision of being a leading energy company in a net zero world. An essential element in addition to skills, is the innate difference in approach and thinking styles, which results from the varied backgrounds and experiences of the non-Executive Directors. This is covered more fully in the individual biographies across pages 118 to 122 . The below matrix therefore only represents one element of Board contribution, and is based on the depth of practical expertise which the non-Executive Directors have assimilated outside of their SSE Board role. | Sir | Dame | Dame | | | | | | Dame | | Number of | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | John | Elish | Sue | Tony | Debbie | Peter | Helen | Melanie | Angela | non-Executives | | | | Manzoni | Angiolini | Bruce | Cocker | Crosbie | Lynas | Mahy | Smith | Strank | | | (/9) | Tenure (years) 1 <1 8 4 <1 7 6 3 2 Experience of operating context and disruptive trends Energy sector, energy regulation and energy markets     4 Government and public policy      5 Clean energy technologies (including renewables) and climate science     4 International business       6 Digital and data       6 Stakeholders and social impact          9 Skills to challenge and set a sustainable strategy Large capital project management        7 Financing, economics and capital markets      5 Partnering, M&A and transactions        7 Risk management          9 Consumer insight        7 Responsible leadership of a large organisation Corporate governance and leadership          9 Culture, safe working and people development          9 Chair and non-Executive Director tenureBoard independence Sir John Manzoni Dame Elish Angiolini Dame Sue Bruce Debbie Crosbie Tony Cocker Peter Lynas Helen Mahy Melanie Smith Dame Angela Strank 0 2 3 5 7 91 4 6 8 Executive Directors: 3 Independent non-Executive Directors: 8 Non-Executive Director tenure Non-Executive Chair: 1 Chair tenure 117SSE plc Annual Report 2022 10 Years DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Board of Directors CHAIR EXECUTIVE DIRECTORS | Sir John Manzoni | | | | Alistair Phillips-Davies | Gregor Alexander | Martin Pibworth | | Tony Cocker | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Chair | | | | Chief Executive | Finance Director | Chief Commercial Officer | | Senior Independent Director | | | | | NC | ER | SHE | RC | | ER ER | | SHE | NC | AC | ER | SHE | | Date of appointment | | | | Date of appointment | Date of appointment | Date of appointment | | Date of appointment | | | | | Non-Executive Director since September 2020 | | | | Executive Director since January 2002 and | Executive Director and Finance Director | Executive Director since September 2017 | | Non-Executive Director since May 2018 and Senior | | | | | and Chair from April 2021 | | | | Chief Executive from July 2013 | since October 2002 | and Chief Commercial Officer from | | Independent Director from October 2020 | | | | November 2020 | Board tenure | Board tenure | Board tenure | Board tenure | Board tenure | | --- | --- | --- | --- | --- | | 1 year | 20 years | 19 years | 4 years | 4 years | | Career and experience | Career and experience | Career and experience | Career and experience | Career and experience | | Sir John has wide-ranging experience across the | Alistair joined SSE in 1997 and possesses extensive | Gregor joined SSE in 1990 and has been Finance | Martin joined SSE in 1998 as an energy trader, | Tony possesses highly detailed knowledge of | | energy industry and both the private and public | knowledge of the Group having held senior roles | Director on the Board since 2002. Prior to Finance | which was followed by a series of commercial | the energy sector through a 20-year career with | | sectors. Through an executive career at BP which | across multiple business areas. Prior to joining the | Director, Gregor worked in senior finance roles and | roles before becoming Managing Director, | E.ON SE and Powergen plc, with at different | | spanned 24 years, he held a number of senior roles | Board in 2002 as Energy Supply Director, Alistair | led specialist teams including as Group Treasurer | Energy Portfolio Management, and a member | times, responsibility for: thermal generation; | | including Chief Executive, Refining and Marketing | was Director of Corporate Finance and Business | and Tax Manager. Gregor is Chair of the Scottish | of SSE’s then Management Board in 2012. | onshore and offshore wind (including Scroby | | in which he was a Main Board member. This was | Development. In 2010, he became Generation | and Southern Energy Power Distribution Board. | In 2014, he was appointed Managing Director, | Sands and the London Array, which was the | | followed by President and Chief Executive Officer | and Supply Director, before Deputy Chief | He is a Chartered Accountant and member | Wholesale, and a member of SSE’s Group | world’s largest offshore wind farm when built); | | at Talisman Energy Inc before a move to UK | Executive in 2012, then Chief Executive in 2013. | of the Accounting for Sustainability (A4S) CFO | Executive Committee. In 2017 he joined the | commodity trading and risk management; and | | Government where he spent six years as Chief | Alistair is a fellow of the Energy Institute and a | Leadership Network. | Board as Group Energy Director, a role which | retail. Latterly, he held the position of CEO and | | Executive of the Civil Service and Permanent | former Vice President of Eurelectric. He is a | | was expanded to Group Energy and Commercial | Chair of E.ON UK plc, comprising the Company’s | | Secretary of the Cabinet Office. He has previously | Chartered Accountant. | | Director in November 2020. This role was | main businesses in the UK. Previous roles include | | been a non-Executive Director of SABMiller plc | | | subsequently re-titled Chief Commercial Officer | CEO of E.ON Energy Trading SE, which managed | | and Chair of Leyshon Energy Limited. | | | in March 2022, with no change in underlying | E.ON SE’s commodity portfolio across Europe, | | | | | responsibilty or remit. | and Managing Director of E.ON UK Energy | Wholesale, which comprised E.ON UK’s renewable, generation, and trading businesses. He has served on the Board of Energy UK. | Skills and attributes which support strategy | | Skills and attributes which support strategy | | Skills and attributes which support strategy | | Skills and attributes which support strategy | | Skills and attributes which support strategy | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | and long-term success | | and long-term success | | and long-term success | | and long-term success | | and long-term success | | | • Dynamic and engaging leadership style | | • Sound executive leadership and a considered | | • Extensive knowledge of financial markets | | • Literacy in complex energy markets which | | • Wide-ranging insight regarding technical | | | | with diverse perspectives gained across | | approach to strategy which is evidenced | | as leader of SSE’s financial strategy, including | | is supported by technical and operational | | and operational matters, including energy | | | multiple sectors, organisational settings | | through continued delivery under the Group | | the approach to sustainable financing and | | expertise. | | infrastructure and assets, commodity markets, | | | and geographies, which complement the | | operating model, SSE’s growth ambitions and | | emerging practice in this area. | • End-to-end experience in large capital | | | energy trading and risk. | | | responsibilities of SSE Chair. | | progression of SSE’s sustainability plans and | • Experienced in directing significant corporate | | | projects including joint venture engagement | • Experience delivering major renewable energy | | | • Experienced in the governance of large scale | | | associated targets. | | projects and major transactions, including | | and governance, which has been applied | | projects. | | | business operations, leading reform and the | • Broad knowledge of the energy markets in | | | SSE’s approach to investments, divestments | | in the development of SSE’s diverse and | • Combined energy industry and non-Executive | | | | management of complex projects to drive | | Great Britain and Ireland and across Europe, | | and partnering. | | flexible generation portfolio, including the | | experience enhances Board understanding of | | | commercial performance, skills key to the | | which informs views of long-term direction. | • Oversees appropriate governance in the | | | renewables pipeline. | | trends relevant to SSE’s operations and of | | | fulfilment of SSE’s vision and purpose. | • Detailed understanding of the external | | | management of the Group risk environment | • Commercially minded in seeking future | | | utilities regulation. | | • Strong communicator with insight into the | | | context including the climate transition, | | including those emerging from the evolving | | growth within SSE’s market-based businesses, | • A balanced sounding board with additive | | | | management and development of stakeholder | | politics and regulation enabling constructive | | energy sector and the transition to net zero. | | and has overseen key capital recycling | | experience in strategic consultancy and | | | relations aligned with SSE’s approach to | | engagement in these areas. | • Deep appreciation of shareholder views and | | | opportunities and transactions to refine | | energy and utility stakeholder management. | | | decision-making. | • Proactive approach to understanding | | | related ESG matters including the continued | | SSE’s business mix and secure optimum | | | | • Working knowledge of energy regulation, | | | stakeholder priorities including the impact | | commitment to lead on fair tax and fair work | | value from investments. | | | | | government and policy considerations which | | of the coronavirus pandemic and SSE’s | | as part of SSE’s 2030 Goals. | • Understanding of change management and | | | | | | underpin the success of a net zero transition. | | societal response to the net zero transition. | • Practical regulatory insight and Board | | | sources of commercial risk having led on SSE’s | | | | | | • Focused on people development, culture | | | oversight of SSE’s networks businesses. | | Brexit transition arrangements, and the impact | | | | | | | and digital enablement in order to develop | | | | of coronavirus on energy markets. | | | capabilities for future growth. | Key external appointments and changes | | Key external appointments and changes | | Key external appointments and changes | | Key external appointments and changes | Key external appointments and changes | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | • Non-Executive Director of Diageo. | | • Member of the Scottish Energy | | • Non-Executive Director of Stagecoach | | • Member of Energy UK Board. | • Chair of Infinis Energy Management Limited. | | | • Chair of the Atomic Weapons Establishment. | | | Advisory Board. | | Group plc. | | • Visiting Professor at Aston University from | | | • Non-Executive Director of KBR Inc from | | • Member of the UK Government’s Hydrogen | | • Stepped down as a Director of Scotia Gas | | | | January 2022. | | | May 2022. | | Advisory Council. | | Networks Limited in March 2022. | | • Stepped down as Deputy Chair and Governor | | | | | • Member of the COP26 Business Leaders | | | | | | of Warwick Independent Schools Foundation | | | | | group. | | | | | in September 2021. | 118 SSE plc Annual Report 2022 INDEPENDENT NON-EXECUTIVE DIRECTORS Key Committee membership NC Nomination Committee AC Audit Committee ER Energy Markets Risk Committee SHE Safety, Sustainability, Health and Environment Advisory Committee RC Remuneration Committee Committee Chair ### Sir John Manzoni Alistair Phillips-Davies Gregor Alexander Martin Pibworth Tony Cocker Chair Chief Executive Finance Director Chief Commercial Officer Senior Independent Director ### NC ER SHE RC ER ER SHE NC AC ER SHE External appointments The Board considered and approved Date of appointment Date of appointment Date of appointment Date of appointment Date of appointment the additional external commitments Non-Executive Director since September 2020 Executive Director since January 2002 and Executive Director and Finance Director Executive Director since September 2017 Non-Executive Director since May 2018 and Senior taken on by Sir John Manzoni, Tony and Chair from April 2021 Chief Executive from July 2013 since October 2002 and Chief Commercial Officer from Independent Director from October 2020 Cocker, Peter Lynas and Helen Mahy November 2020 during the period. In each case, it was Board tenure Board tenure Board tenure Board tenure Board tenure agreed that there would be no impact 1 year 20 years 19 years 4 years 4 years on the time commitment required as Chair and non-Executive Director, nor Career and experience Career and experience Career and experience Career and experience Career and experience on the independence and objectivity Sir John has wide-ranging experience across the Alistair joined SSE in 1997 and possesses extensive Gregor joined SSE in 1990 and has been Finance Martin joined SSE in 1998 as an energy trader, Tony possesses highly detailed knowledge of required to discharge the agreed energy industry and both the private and public knowledge of the Group having held senior roles Director on the Board since 2002. Prior to Finance which was followed by a series of commercial the energy sector through a 20-year career with | sectors. Through an executive career at BP which | across multiple business areas. Prior to joining the | Director, Gregor worked in senior finance roles and | roles before becoming Managing Director, | E.ON SE and Powergen plc, with at different | responsibilities of each role. The | | --- | --- | --- | --- | --- | --- | | spanned 24 years, he held a number of senior roles | Board in 2002 as Energy Supply Director, Alistair | led specialist teams including as Group Treasurer | Energy Portfolio Management, and a member | times, responsibility for: thermal generation; | resultant position is believed to be | | including Chief Executive, Refining and Marketing | was Director of Corporate Finance and Business | and Tax Manager. Gregor is Chair of the Scottish | of SSE’s then Management Board in 2012. | onshore and offshore wind (including Scroby | consistent with recognised proxy | | in which he was a Main Board member. This was | Development. In 2010, he became Generation | and Southern Energy Power Distribution Board. | In 2014, he was appointed Managing Director, | Sands and the London Array, which was the | | advisor guidelines. | followed by President and Chief Executive Officer | and Supply Director, before Deputy Chief | He is a Chartered Accountant and member | Wholesale, and a member of SSE’s Group | world’s largest offshore wind farm when built); | | --- | --- | --- | --- | --- | | at Talisman Energy Inc before a move to UK | Executive in 2012, then Chief Executive in 2013. | of the Accounting for Sustainability (A4S) CFO | Executive Committee. In 2017 he joined the | commodity trading and risk management; and | | Government where he spent six years as Chief | Alistair is a fellow of the Energy Institute and a | Leadership Network. | Board as Group Energy Director, a role which | retail. Latterly, he held the position of CEO and | | Executive of the Civil Service and Permanent | former Vice President of Eurelectric. He is a | | was expanded to Group Energy and Commercial | Chair of E.ON UK plc, comprising the Company’s | | Secretary of the Cabinet Office. He has previously | Chartered Accountant. | | Director in November 2020. This role was | main businesses in the UK. Previous roles include | | been a non-Executive Director of SABMiller plc | | | subsequently re-titled Chief Commercial Officer | CEO of E.ON Energy Trading SE, which managed | | and Chair of Leyshon Energy Limited. | | | in March 2022, with no change in underlying | E.ON SE’s commodity portfolio across Europe, | | | | | responsibilty or remit. | and Managing Director of E.ON UK Energy | Wholesale, which comprised E.ON UK’s renewable, generation, and trading businesses. He has served on the Board of Energy UK. | Skills and attributes which support strategy | | Skills and attributes which support strategy | | Skills and attributes which support strategy | | Skills and attributes which support strategy | | Skills and attributes which support strategy | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | and long-term success | | and long-term success | | and long-term success | | and long-term success | | and long-term success | | | • Dynamic and engaging leadership style | | • Sound executive leadership and a considered | | • Extensive knowledge of financial markets | | • Literacy in complex energy markets which | | • Wide-ranging insight regarding technical | | | | with diverse perspectives gained across | | approach to strategy which is evidenced | | as leader of SSE’s financial strategy, including | | is supported by technical and operational | | and operational matters, including energy | | | multiple sectors, organisational settings | | through continued delivery under the Group | | the approach to sustainable financing and | | expertise. | | infrastructure and assets, commodity markets, | | | and geographies, which complement the | | operating model, SSE’s growth ambitions and | | emerging practice in this area. | • End-to-end experience in large capital | | | energy trading and risk. | | | responsibilities of SSE Chair. | | progression of SSE’s sustainability plans and | • Experienced in directing significant corporate | | | projects including joint venture engagement | • Experience delivering major renewable energy | | | • Experienced in the governance of large scale | | | associated targets. | | projects and major transactions, including | | and governance, which has been applied | | projects. | | | business operations, leading reform and the | • Broad knowledge of the energy markets in | | | SSE’s approach to investments, divestments | | in the development of SSE’s diverse and | • Combined energy industry and non-Executive | | | | management of complex projects to drive | | Great Britain and Ireland and across Europe, | | and partnering. | | flexible generation portfolio, including the | | experience enhances Board understanding of | | | commercial performance, skills key to the | | which informs views of long-term direction. | • Oversees appropriate governance in the | | | renewables pipeline. | | trends relevant to SSE’s operations and of | | | fulfilment of SSE’s vision and purpose. | • Detailed understanding of the external | | | management of the Group risk environment | • Commercially minded in seeking future | | | utilities regulation. | | • Strong communicator with insight into the | | | context including the climate transition, | | including those emerging from the evolving | | growth within SSE’s market-based businesses, | • A balanced sounding board with additive | | | | management and development of stakeholder | | politics and regulation enabling constructive | | energy sector and the transition to net zero. | | and has overseen key capital recycling | | experience in strategic consultancy and | | | relations aligned with SSE’s approach to | | engagement in these areas. | • Deep appreciation of shareholder views and | | | opportunities and transactions to refine | | energy and utility stakeholder management. | | | decision-making. | • Proactive approach to understanding | | | related ESG matters including the continued | | SSE’s business mix and secure optimum | | | | • Working knowledge of energy regulation, | | | stakeholder priorities including the impact | | commitment to lead on fair tax and fair work | | value from investments. | | | | | government and policy considerations which | | of the coronavirus pandemic and SSE’s | | as part of SSE’s 2030 Goals. | • Understanding of change management and | | | | | | underpin the success of a net zero transition. | | societal response to the net zero transition. | • Practical regulatory insight and Board | | | sources of commercial risk having led on SSE’s | | | | | | • Focused on people development, culture | | | oversight of SSE’s networks businesses. | | Brexit transition arrangements, and the impact | | | | | | | and digital enablement in order to develop | | | | of coronavirus on energy markets. | | | capabilities for future growth. | Key external appointments and changes | | Key external appointments and changes | | Key external appointments and changes | | Key external appointments and changes | Key external appointments and changes | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | • Non-Executive Director of Diageo. | | • Member of the Scottish Energy | | • Non-Executive Director of Stagecoach | | • Member of Energy UK Board. | • Chair of Infinis Energy Management Limited. | | | • Chair of the Atomic Weapons Establishment. | | | Advisory Board. | | Group plc. | | • Visiting Professor at Aston University from | | | • Non-Executive Director of KBR Inc from | | • Member of the UK Government’s Hydrogen | | • Stepped down as a Director of Scotia Gas | | | | January 2022. | | | May 2022. | | Advisory Council. | | Networks Limited in March 2022. | | • Stepped down as Deputy Chair and Governor | | | | | • Member of the COP26 Business Leaders | | | | | | of Warwick Independent Schools Foundation | | | | | group. | | | | | in September 2021. | 119SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Board of Directors continued INDEPENDENT NON-EXECUTIVE DIRECTORS ### Dame Elish Angiolini QC Dame Sue Bruce DBE Debbie Crosbie Peter Lynas Helen Mahy CBE Melanie Smith CBE Non-Executive Director Non-Executive Director of the Board and for Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Employee Engagement NC SHE RC NC RC NC AC ER NC AC RC NC AC SHE NC ER RC | Date of appointment | Date of appointment | Date of appointment | Date of appointment | Date of appointment | Date of appointment | | --- | --- | --- | --- | --- | --- | | Non-Executive Director since September 2021 | Non-Executive Director since September 2013 | Non-Executive Director since September 2021 | Non-Executive Director since July 2014 | Non-Executive Director since March 2016 | Non-Executive Director since January 2019 | | Board tenure | Board tenure | Board tenure | Board tenure | Board tenure | Board tenure | | Under 1 year | 8 years | Under 1 year | 7 years | 6 years | 3 years | | Career and experience | Career and experience | Career and experience | Career and experience | Career and experience | Career and experience | | Dame Elish has an extensive public sector legal | Dame Sue has extensive public sector experience | Debbie brings over 25 years of experience in | Peter has over 30 years of business experience | Helen is a former Company Secretary and General | Melanie has over 20 years of in-depth strategy | | career, serving as Lord Advocate of Scotland | from a career which spanned almost 40 years, | financial services leadership, having recently | spanning all areas of finance. He retired from the | Counsel of National Grid plc and an experienced | experience and is currently CEO of Ocado Retail, | | from 2006 to 2011, across two government | holding a variety of roles in local government. | been appointed as the first female Chief Executive | role of Group Finance Director of BAE Systems plc | non-Executive Director. Previous non-Executive | the world’s largest pureplay online grocer and | | administrations, having previously been Solicitor | These included the positions of Chief Executive at | of Nationwide Building Society. Prior to this | in March 2020, prior to which he was Director, | roles include directorships at Bonheur ASA, Aga | the UK’s fastest growing grocer. Prior to this she | | General for Scotland. Since then, she has carried | East Dunbartonshire Council and the first female | appointment, Debbie served as CEO of TSB from | Financial Control, Reporting and Treasury. His early | Rangemaster plc, Stagecoach Group plc, SVG | was Strategy Director for Marks & Spencer with | | out a number of independent public inquiries and | Chief Executive of both Aberdeen City Council and | May 2019 and was previously an Executive Director | career involved roles within GEC Marconi, where | Capital plc, Chair of MedicX Fund Limited and | responsibility for group strategy, M&S Bank and | | reviews for both the UK and Scottish Governments | the City of Edinburgh Council. Sue has also held a | and Chief Operating Office of Clydesdale Bank, | he was appointed Finance Director of Marconi | Deputy Chair and Senior Independent Director of | M&S Services. Earlier roles include Global Strategy | | and held positions in academia having served as | number of Board and Board Committee positions | where she led preparations for its successful | Electronic Systems before the completion of | Primary Health Properties PLC. Helen is currently | and Marketing Director at Bupa, Chief Operating | | Principal of St Hugh’s College Oxford since 2012. | in organisations across the arts, education and | demerger and subsequent IPO. Debbie worked at | the British Aerospace/Marconi merger. He is | Chair of The Renewables Infrastructure Group | Officer at TalkTalk and a Partner in McKinsey’s | | She is also currently a Pro-Vice Chancellor of | charitable sectors. | National Australia Bank Group Europe for 22 years. | a Fellow of the Chartered Association of | Limited, a member of the Parker Review steering | Consumer practice. | | Oxford University and previous Chancellor of | | Debbie is a fellow of the Chartered Institute of | Certified Accountants. | committee into the Ethnic Diversity of UK Boards, | | | the University of West of Scotland. Dame Elish | | Bankers and a member of the Glasgow Economic | | a patron of the charity Social Mobility Business | | | is Chair of the Discipline Board of the Institute | | Leadership Board and the Strathclyde University | | Partnership, Co-chair of the Employers Social | | | of Chartered Accountants of Scotland (ICAS), | | Business School Advisory Board. | | Mobility Alliance and an Equality and Human | | | Chair of the Board of trustees for the legal action | | | | Rights Commissioner. | | non-governmental group Reprieve and a patron of several charities. Skills and attributes which support strategy and Skills and attributes which support strategy and Skills and attributes which support strategy and Skills and attributes which support strategy and Skills and attributes which support strategy and Skills and attributes which support strategy and long-term success long-term success long-term success long-term success long-term success long-term success • Possesses significant understanding of • Strategic and operational experience of • Extensive experience of the implementation • Brings recent and relevant financial • Long-standing energy, regulatory and • Highly qualified to appraise strategy Scottish governance and has practical leading organisations covering large numbers of strategy including significant corporate experience to the Board and strong direction renewables experience, underpinned by a development and execution, having advised experience of working with the UK and of employees, significant assets, economic transaction work and execution of to the Audit Committee, as Chair of which, comprehensive understanding of the listed and led both growth and performance Scottish governments through involvement development, construction projects and far-reaching transformation projects, he drives focus on the risk and control company context including the applicable transformation in the consumer and retail in independent public reviews, whilst engaging with communities, which provides including the changing role of digital environment including Group resilience legal, compliance, governance and risk sectors worldwide. maintaining no political affiliation. insight into SSE’s approach to its social and data in the context of a large and the ethics and compliance culture. frameworks in which SSE’s businesses • Deep commercial and digital experience • Strong ambassadorial skills developed through contract. consumer-facing organisation. • International business perspective and operate. across multiple goods and services categories, an international network of colleagues and • Distinguished in stakeholder engagement • Understanding of capital allocation and an applied understanding of long-term • Insight into a broad range of investor and including insurance, telco and energy that contacts in judicial, governmental, diplomatic, with a highly personable style as is evident investment appraisal frameworks central project management and delivery, including stakeholder perspectives and trends from furthers Board understanding of the customer. and academic fields. in the roles of Remuneration Committee to the next phase of SSE’s growth. investment appraisal, contracting and supply cross-sectoral, international and external • Has a people centric style as an executive and • Exercises a strong sense of social purpose Chair and Non-Executive Director for • Knowledge of operating in a heavily regulated chain experience. Board interests that enable wider discussion organisational leader, and brings knowledge and adds depth of perspective to Board Employee Engagement. sector requiring a compliance-driven approach • Up-to-date investor relations experience and debate. of operational efficiency and change considerations, reinforcing SSE’s approach • Expert knowledge of Scottish government and proficiency in risk management and through his executive career at BAE and • A decade of experience overseeing management. to wider value creation. and understanding of political affairs. internal controls. pensions insight having been Chair of the renewables infrastructure investment. trustee Board of a major UK scheme. • An advocate of SSE’s safety culture, inclusion and diversity, and employee wellbeing; with extensive knowledge of people matters and a focus on sustainability. | Key external appointments and changes | | Key external appointments and changes | | Key external appointments and changes | | Key external appointments and changes | | Key external appointments and changes | | Key external appointments and changes | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | • Pro-Vice Chancellor of the University | | • Convenor of Court of the University of | | • Chief Executive of Nationwide Building | | • Senior Independent Director of First Group | | • Chair of The Renewables Infrastructure | | • CEO, Ocado Retail Limited. | | | of Oxford. | | Strathclyde. | | Society (to commence in 2022). | | plc from June 2021. | | Group Limited. | • Advisory Board member of Manaia. | | • Principal of St Hugh’s College Oxford. | | • Chair of the Royal Scottish National Orchestra. | | • Member of the Glasgow Economic Leadership | | | | • Commissioner for The Equality and Human | | • Trustee of Sadlers Wells. | | • Chair of the Discipline Board of ICAS. | | • Electoral Commissioner, the Electoral | | | Board. | | | | Rights Commission. | | | • Chair of the Sarah Everard Inquiry. | | | Commission. | • Member of the Business School Advisory | | | | • Non-Executive Director of Gowling WLG (UK) | | | | • Chair of Board of Trustees of Reprieve. | | • Independent Chair of Nominations | | | Board of Strathclyde University. | | | | LLP from September 2021. | | Committee, the National Trust for Scotland. • Chair of Trustees of the Prince’s Foundation. 120 SSE plc Annual Report 2022 ### Dame Elish Angiolini QC Dame Sue Bruce DBE Debbie Crosbie Peter Lynas Helen Mahy CBE Melanie Smith CBE Non-Executive Director Non-Executive Director of the Board and for Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Employee Engagement NC SHE RC NC RC NC AC ER NC AC RC NC AC SHE NC ER RC | Date of appointment | Date of appointment | Date of appointment | Date of appointment | Date of appointment | Date of appointment | | --- | --- | --- | --- | --- | --- | | Non-Executive Director since September 2021 | Non-Executive Director since September 2013 | Non-Executive Director since September 2021 | Non-Executive Director since July 2014 | Non-Executive Director since March 2016 | Non-Executive Director since January 2019 | | Board tenure | Board tenure | Board tenure | Board tenure | Board tenure | Board tenure | | Under 1 year | 8 years | Under 1 year | 7 years | 6 years | 3 years | | Career and experience | Career and experience | Career and experience | Career and experience | Career and experience | Career and experience | | Dame Elish has an extensive public sector legal | Dame Sue has extensive public sector experience | Debbie brings over 25 years of experience in | Peter has over 30 years of business experience | Helen is a former Company Secretary and General | Melanie has over 20 years of in-depth strategy | | career, serving as Lord Advocate of Scotland | from a career which spanned almost 40 years, | financial services leadership, having recently | spanning all areas of finance. He retired from the | Counsel of National Grid plc and an experienced | experience and is currently CEO of Ocado Retail, | | from 2006 to 2011, across two government | holding a variety of roles in local government. | been appointed as the first female Chief Executive | role of Group Finance Director of BAE Systems plc | non-Executive Director. Previous non-Executive | the world’s largest pureplay online grocer and | | administrations, having previously been Solicitor | These included the positions of Chief Executive at | of Nationwide Building Society. Prior to this | in March 2020, prior to which he was Director, | roles include directorships at Bonheur ASA, Aga | the UK’s fastest growing grocer. Prior to this she | | General for Scotland. Since then, she has carried | East Dunbartonshire Council and the first female | appointment, Debbie served as CEO of TSB from | Financial Control, Reporting and Treasury. His early | Rangemaster plc, Stagecoach Group plc, SVG | was Strategy Director for Marks & Spencer with | | out a number of independent public inquiries and | Chief Executive of both Aberdeen City Council and | May 2019 and was previously an Executive Director | career involved roles within GEC Marconi, where | Capital plc, Chair of MedicX Fund Limited and | responsibility for group strategy, M&S Bank and | | reviews for both the UK and Scottish Governments | the City of Edinburgh Council. Sue has also held a | and Chief Operating Office of Clydesdale Bank, | he was appointed Finance Director of Marconi | Deputy Chair and Senior Independent Director of | M&S Services. Earlier roles include Global Strategy | | and held positions in academia having served as | number of Board and Board Committee positions | where she led preparations for its successful | Electronic Systems before the completion of | Primary Health Properties PLC. Helen is currently | and Marketing Director at Bupa, Chief Operating | | Principal of St Hugh’s College Oxford since 2012. | in organisations across the arts, education and | demerger and subsequent IPO. Debbie worked at | the British Aerospace/Marconi merger. He is | Chair of The Renewables Infrastructure Group | Officer at TalkTalk and a Partner in McKinsey’s | | She is also currently a Pro-Vice Chancellor of | charitable sectors. | National Australia Bank Group Europe for 22 years. | a Fellow of the Chartered Association of | Limited, a member of the Parker Review steering | Consumer practice. | | Oxford University and previous Chancellor of | | Debbie is a fellow of the Chartered Institute of | Certified Accountants. | committee into the Ethnic Diversity of UK Boards, | | | the University of West of Scotland. Dame Elish | | Bankers and a member of the Glasgow Economic | | a patron of the charity Social Mobility Business | | | is Chair of the Discipline Board of the Institute | | Leadership Board and the Strathclyde University | | Partnership, Co-chair of the Employers Social | | | of Chartered Accountants of Scotland (ICAS), | | Business School Advisory Board. | | Mobility Alliance and an Equality and Human | | | Chair of the Board of trustees for the legal action | | | | Rights Commissioner. | | non-governmental group Reprieve and a patron of several charities. Skills and attributes which support strategy and Skills and attributes which support strategy and Skills and attributes which support strategy and Skills and attributes which support strategy and Skills and attributes which support strategy and Skills and attributes which support strategy and long-term success long-term success long-term success long-term success long-term success long-term success • Possesses significant understanding of • Strategic and operational experience of • Extensive experience of the implementation • Brings recent and relevant financial • Long-standing energy, regulatory and • Highly qualified to appraise strategy Scottish governance and has practical leading organisations covering large numbers of strategy including significant corporate experience to the Board and strong direction renewables experience, underpinned by a development and execution, having advised experience of working with the UK and of employees, significant assets, economic transaction work and execution of to the Audit Committee, as Chair of which, comprehensive understanding of the listed and led both growth and performance Scottish governments through involvement development, construction projects and far-reaching transformation projects, he drives focus on the risk and control company context including the applicable transformation in the consumer and retail in independent public reviews, whilst engaging with communities, which provides including the changing role of digital environment including Group resilience legal, compliance, governance and risk sectors worldwide. maintaining no political affiliation. insight into SSE’s approach to its social and data in the context of a large and the ethics and compliance culture. frameworks in which SSE’s businesses • Deep commercial and digital experience • Strong ambassadorial skills developed through contract. consumer-facing organisation. • International business perspective and operate. across multiple goods and services categories, an international network of colleagues and • Distinguished in stakeholder engagement • Understanding of capital allocation and an applied understanding of long-term • Insight into a broad range of investor and including insurance, telco and energy that contacts in judicial, governmental, diplomatic, with a highly personable style as is evident investment appraisal frameworks central project management and delivery, including stakeholder perspectives and trends from furthers Board understanding of the customer. and academic fields. in the roles of Remuneration Committee to the next phase of SSE’s growth. investment appraisal, contracting and supply cross-sectoral, international and external • Has a people centric style as an executive and • Exercises a strong sense of social purpose Chair and Non-Executive Director for • Knowledge of operating in a heavily regulated chain experience. Board interests that enable wider discussion organisational leader, and brings knowledge and adds depth of perspective to Board Employee Engagement. sector requiring a compliance-driven approach • Up-to-date investor relations experience and debate. of operational efficiency and change considerations, reinforcing SSE’s approach • Expert knowledge of Scottish government and proficiency in risk management and through his executive career at BAE and • A decade of experience overseeing management. to wider value creation. and understanding of political affairs. internal controls. pensions insight having been Chair of the renewables infrastructure investment. trustee Board of a major UK scheme. • An advocate of SSE’s safety culture, inclusion and diversity, and employee wellbeing; with extensive knowledge of people matters and a focus on sustainability. | Key external appointments and changes | | Key external appointments and changes | | Key external appointments and changes | | Key external appointments and changes | | Key external appointments and changes | | Key external appointments and changes | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | • Pro-Vice Chancellor of the University | | • Convenor of Court of the University of | | • Chief Executive of Nationwide Building | | • Senior Independent Director of First Group | | • Chair of The Renewables Infrastructure | | • CEO, Ocado Retail Limited. | | | of Oxford. | | Strathclyde. | | Society (to commence in 2022). | | plc from June 2021. | | Group Limited. | • Advisory Board member of Manaia. | | • Principal of St Hugh’s College Oxford. | | • Chair of the Royal Scottish National Orchestra. | | • Member of the Glasgow Economic Leadership | | | | • Commissioner for The Equality and Human | | • Trustee of Sadlers Wells. | | • Chair of the Discipline Board of ICAS. | | • Electoral Commissioner, the Electoral | | | Board. | | | | Rights Commission. | | | • Chair of the Sarah Everard Inquiry. | | | Commission. | • Member of the Business School Advisory | | | | • Non-Executive Director of Gowling WLG (UK) | | | | • Chair of Board of Trustees of Reprieve. | | • Independent Chair of Nominations | | | Board of Strathclyde University. | | | | LLP from September 2021. | | Committee, the National Trust for Scotland. • Chair of Trustees of the Prince’s Foundation. 121SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Board of Directors continued | INDEPENDENT | INDEPENDENT NON- | COMPANY | | --- | --- | --- | | NON-EXECUTIVE | EXECUTIVE DIRECTOR | SECRETARY | | DIRECTORS | JOINING 1 JUNE 2022 | | ### Dame Angela Strank DBE John Bason Sally Fairbairn Non-Executive Director Non-Executive Director from 1 June 2022 Company Secretary and Director of Investor Relations Will join the Nomination Committee and Audit NC SHE RC Committee on appointment. Date of appointment Date of appointment Date of appointment Non-Executive Director since May 2020 Joining 1 June 2022 Company Secretary and Director of Investor Relations since December 2014 Board tenure 2 years Career and experience Career and experience Career and experience Dame Angela brings depth of executive experience John brings significant listed company, financial Sally joined SSE in 1997 as a chartered accountant from a long-standing international career in the and international experience through a career in working in the Corporate Finance team. Through energy sector, which included 38 years’ service at global businesses. He has been Finance Director this role, which included responsibility for BP. Prior to retirement in December 2020, she was of Associated British Foods plc (ABF) since joining long-term financial modelling of the SSE Group, | a member of BP’s Executive Management team as | the diverse food, ingredients and retail group in | she developed knowledge of the SSE’s diverse | | --- | --- | --- | | BP Group Chief Scientist and Head of Downstream | 1999. ABF employs 128,000 people and operates | operations and the UK energy industry. In 2007, | | Technology. This followed international business | in 53 countries across Europe, Asia, the Americas, | Sally became Director of Investor Relations and | | and technical leadership positions spanning | Australia and Africa. Prior to this, John was Finance | Analysis allowing her to develop extensive | | technology and digital, innovation, engineering | Director of the international distribution and | experience of the shareholder and financial | | and renewable energy. Angela is a Fellow of the | services group Bunzl plc. His non-Executive | analyst community, and through associated | | Royal Society, the Royal Academy of Engineers, | experience includes Senior Independent Director | engagement, has detailed understanding of | | and the UK Energy Institute. She was awarded a | and Audit Committee Chair of Compass Group | investor views. Sally was appointed to the | | DBE for long-standing services to the energy | PLC. He is currently Chair of the charitable | joint role of Company Secretary and Director | | industry and pioneering STEM careers, especially | organisation FareShare and non-Executive | of Investor Relations in December 2014. | | for women. | Director of Bloomsbury Publishing Plc. John is a | | Chartered Accountant. Skills and attributes which support strategy and Skills and attributes which support strategy and long-term success long-term success • Expert understanding of the current and • Extensive leadership experience and future role of technology and science within international perspective, gained from global the broader energy industry, including the companies and complex operations, which impact of disruptive trends and resultant will be invaluable to SSE’s growth and entry transformation. into new markets. • Knowledge of leading and collaborating • A proven track record in developing financial on a large scale and with international and commercial strategy, including M&A, outlook, having worked in culturally diverse corporate transactions and large capital environments in the Middle East, Europe, projects, which complements SSE’s Net Zero the Far East, Africa and America. Acceleration Programme, and supports • Corporate social responsibility and succession planning for the role of Audit sustainability experience through active Committee Chair. involvement in climate science research, • Understanding of the listed company context embracing the energy transition, reputation with practical experience of investor relations and safety management, pioneering women and ESG strategy, placing upmost importance in STEM careers, and as a champion of on the role of sustainability. inclusion and diversity; chairing the Corporate Sustainability Committee, and Safety, Ethics and Sustainability Committee in two FTSE 100 companies. | Key external appointments and changes | | Key external appointments and changes | | | --- | --- | --- | --- | | • Non-Executive Director of Rolls Royce plc. | | • Finance Director of Associated British Foods plc. | | | • Non-Executive Director of Mondi plc. | | • Chair of FareShare. | | | • Stepped down as Non-Executive Director of | | • Non-Executive Director of Bloomsbury | | | | Severn Trent plc in March 2022. | | Publishing Plc. | 122 SSE plc Annual Report 2022 ### Group Executive Committee ### Alistair Phillips-Davies Gregor Alexander Martin Pibworth Chief Executive Finance Director Chief Commercial Officer | Chris Burchell | Rob McDonald | Sam Peacock | | --- | --- | --- | | MD, SSEN Distribution | MD, SSEN Transmission | Director of Corporate Affairs and Strategy | | Chris has been MD, SSEN Distribution since | Rob has been MD, SSEN Transmission since | Sam has been Director of Corporate Affairs | | November 2020, having joined SSE from | April 2019, having joined SSE in 1997 and holding | and Strategy since April 2020 and leads SSE’s | | Arriva where he was MD, UK Trains since 2014. | a number of senior roles within the Group | teams overseeing government relations, | | He began his career at Railtrack in 1996 and | Regulation function. Prior to his current position, | policy development, employee communications, | | following a period as an official in the Foreign | he was MD, Corporate and Business Services | external affairs, corporate brand and project | | and Commonwealth Office, joined the Go-Ahead | covering Legal, Regulation, Compliance, Safety | communications. Prior to joining SSE in 2011, Sam | | Group, where he was Director of Operations, | and Large Capital Projects Services across SSE. | directed government affairs at Ofgem and worked | | Thames Trains and Managing Director for the | | at leading communications agency Edelman, | | Southern rail franchise. | | as well as in Parliament and in Government. | | John Stewart | Liz Tanner | Stephen Wheeler | | --- | --- | --- | | Director of HR | General Counsel | MD, SSE Renewables | | John has been Director of HR since joining SSE | Liz is a barrister and has been Group General | Stephen has been MD, SSE Renewables since | | in July 2009. Prior to this he worked in a broad | Counsel since March 2019, having joined SSE in | January 2022 having previously held the roles | | range of senior management roles in the energy | 2002 as part of the acquisition of Neos Networks. | of MD, SSE Thermal and MD, SSE Ireland. Prior to | | and water sectors and has experience of working | Since joining SSE, Liz has held a variety of legal | SSE, he was part of the management team that | | in both the UK and in the US. He oversees all areas | and commercial roles within a number of different | grew the Airtricity renewable energy platform | | in relation to SSE’s people including talent and | SSE Group companies and currently oversees | before SSE acquired it in 2008. Before joining | | capability, training and development, employee | the corporate functions of Legal, Regulation, | Airtricity, he spent over 10 years working with | | engagement and inclusion and diversity. | Compliance, Data Protection and Large Capital | ABB and Siemens internationally. | Project Services. Biographical details of the Executive Directors and Company Secretary and Director of Investor Relations. More on pages 118, 119 and 122  ### Sally Fairbairn Company Secretary and Director of Investor Relations, Committee Secretary 123SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Board leadership and company purpose ## Corporate ## governance in SSE ## SSE’s Governance Framework Board oversight Board of Directors Nomination Audit Energy Markets Safety, Sustainability, Remuneration Committee Committee Risk Committee Health, Environment Committee (EMRC) and Advisory Committee (SSHEAC) See pages 145 to 151  See pages 152 to 161  See pages 162 to 163  See pages 164 to 167  See pages 168 to 199  SSEPD Board Group Executive Committee Business Unit Group Executive Committees Committees Management accountability Group Safety, Group Large SSEN SSEN SSEN SSEN SSE SSE Group Health and Capital Transmission Transmission Distribution Distribution Renewables Thermal Investment Environment Projects Group SSE SSE Energy Energy Group Group Energy Distributed Customer Portfolio Risk Disclosure Markets Energy Solutions Management Exposure Risk The SSEPD Board oversees SSE’s economically regulated networks businesses in compliance with applicable regulatory licence conditions. SSE Energy Customer Solutions comprises SSE Airtricity and SSE Business Energy. | The role of the Board | pages 126 to 129 . Confirmation of how | Corporate governance in SSE | | --- | --- | --- | | The primary role of the Board is to lead SSE | SSE’s businesses and its associated business | Corporate governance in SSE can be | | in a way that ensures its long-term success, | model provide the best possible balance | explained as the minimum expectations | | whilst generating value for shareholders and | to deliver long-term value, is set out on | set by the Board surrounding standards, | | wider stakeholders. This is a broad-ranging | pages 10 to 17 . | responsible conduct and controls. SSE’s | | duty and is directed by the cornerstones of | | Governance Framework supports this | | SSE’s purpose and vision. The last material | Once set by the Board, the implementation | approach by mapping where accountability | | re-definition of these guiding statements | of strategy is the responsibility of the Group | resides in line with delegated authorities, | | was in 2019/20, when the Board agreed | Executive Committee and management | and in this way, forms part of SSE’s | | closer alignment of SSE’s purpose and vision | across SSE’s Business Units. Oversight | System of Internal Control as set out | | with its strategic transformation around a | of performance is achieved through | on page 161 . | | core of clean electricity infrastructure and | structured operational and financial | | | its societal role in the net zero transition. | reporting from the Executive Directors | Areas of importance to the Board and | | | at each Board meeting, in addition to | SSE’s operations influence the features | | In support of SSE’s purpose and vision, | presentations from each Business Unit | of the Governance Framework, which | | the Board sets and monitors SSE’s strategy | across the year. These presentations | is illustrated, in part, by the Committees | | through a continuing programme of | comprise strategic updates and approvals | which provide dedicated focus to areas | | work. In 2021/22, this saw the approval | in line with SSE’s Governance Framework. | on behalf of the Board and the Group | | and announcement of SSE’s Net Zero | | Executive Committee. Clarity surrounding | | Acceleration Programme. The process | Operational and financial performance for | the responsibilities of each Committee | | which identified this phase of strategic | 2021/22 is covered across the Strategic | is ensured through approved Terms of | | growth as the optimum pathway for | Report on pages 1 to 111 . | Reference, as determined by a Committee’s | | all of SSE’s stakeholders is covered on | | reporting line. | 124 SSE plc Annual Report 2022 | Monitoring of delegated matters is supported | | People and culture | | Board operations | | --- | --- | --- | --- | --- | | by formal reporting channels. For Board | | • Approach to people, succession, | | The Board, led by the Chair, seeks to | | Committees, this is a personal account | | | and inclusion and diversity. | nurture a culture in which informed and | | from the non-Executive Director who chairs | | • Agreement and monitoring of a healthy | | transparent decision-making takes place. | | the Committee following each Committee | | | corporate culture including SSE’s values | This is supported by clearly defined Board | | meeting. As set out above, on executive | | | and framework of cultural controls. | roles and constructive dialogue within | | matters, the Chief Executive, Finance | | | | and outside of meetings. The division | | Director and Chief Commercial Officer are | | Governance | | of responsibilities across the Board is | | responsible for providing full updates at each | | • Changes to Board and Board Committee | | explained on page 142 . | | Board meeting. These mechanisms are in | | | structure, size and composition. | | | addition to sub-Committee minutes, written | | • Approval of shareholder | | With one of the key responsibilities of | | reports and agreed KPIs to monitor financial | | | communications. | the non-Executive Directors being to | | and non-financial performance. | | • Confirmation of stakeholder approach. | | challenge and provide counsel, it is | | | | • Approval of Board-level corporate | | deemed appropriate that relationships | | Board reserved matters | | | governance matters. | can be built across different levels of SSE. | | In order to safeguard the areas material to | | | | The Board therefore has unfettered | | the delivery of SSE’s purpose, vision and | | Regulation | | access to senior leadership, their teams | | strategy, the Board retains a schedule of | | • Approval of the electricity distribution | | and specialist functions. For details of | | matters reserved for its decision. This ensures | | | and transmission price control reviews | employee engagement and knowledge | | the necessary framework and resources are | | | proposed by Ofgem. | development in 2021/22 see pages 137 | | in place for the Company to meet its stated | | | | to 139 and 148 . | | objectives and covers the below areas. | | The Schedule of Reserved Matters is one | | | | | | of a collection of documents which make | | Structured meeting agendas are developed | | Strategy and performance | | up SSE’s Board Charter. The contents | | by the Chair, Chief Executive and Company | | • Approval and review of commercial | | of the Board Charter govern the Board’s | | Secretary, around an agreed annual plan of | | | strategy, business development and | operations and pertinent Group-wide | | Board business and the current status of | | | long-term strategic options. | matters and is subject to annual Board | | projects, strategic workstreams and the | | • Oversight of performance in light | | review and approval. | | overarching operating context. Adequate | | | of approved strategy and objectives. | | | time is allocated to support effective and | | • Review and approval of priorities | | The Board Charter contains: | | constructive discussion, and guidance is | | | surrounding SSE’s principal sustainability | • SSE plc’s Articles of Association.* | | available to authors and presenters of | | | impacts, including climate change. | • Board’s Schedule of Reserved Matters.* | | Board materials. An electronic meeting | | • Major transactions and any material | | • SSE’s guide to good business ethics.* | | portal allows efficient navigation of papers, | | | extension or closure of operations. | • SSE’s Guide to Governance. | | information and requests. | • Board Committee Terms of Reference.* Financial management • Non-Audit Services Policy.* Prior to every Board meeting, the non- • Approval of annual operating and • Procedure for Taking Independent Advice. Executive Directors meet without the capital expenditure budgets. • Non-Executive Directors’ Shareholding Executive Directors present. This allows any • Approval of dividend policy and Policy. issues surrounding meeting business to be key financial communications. • Board Inclusion and Diversity Policy.* raised in advance of full Board discussion. • Changes to the Group’s capital structure. • Responsibilities of key Board roles.* Further time is set aside at the end of every meeting to capture any emerging areas for Risk and control * Documents available in full on non-Executive focus. • Ensuring sound systems of internal sse.com . control and risk management. Nomination Audit Remuneration Board Committee Committee EMRC SSHEAC Committee ### Board meetings in 2021/22 Number of meetings held 6 6 4 5 4 5 In the period to 31 March 2022, there were Sir John Manzoni 6/6 6/6 5/5 4/4 5/5 six scheduled meetings of the Board with update calls in alternate months to maintain Alistair Phillips-Davies 6/6 coverage of key business developments, Gregor Alexander 6/6 5/5 emerging issues and opportunities. 1 Martin Pibworth 6/6 5/5 1/1 Arrangements remain in place should a | Board decision or approval be required | Tony Cocker 6/6 6/6 4/4 5/5 4/4 | | | | --- | --- | --- | --- | | outside these times. | | 2 | | | | Dame Elish Angiolini | | 4/4 4/4 3/3 3/3 | 3 Dame Sue Bruce 5/6 6/6 5/5 Across the year, Board meetings were 4 conducted in line with applicable Debbie Crosbie 4/4 4/4 1/1 1/1 government guidance, with the physical Peter Lynas 6/6 6/6 4/4 5/5 element returning when it was safe Helen Mahy 6/6 6/6 4/4 4/4 to do so. Details of Board meeting activity in 2021/22 can be found on Melanie Smith 6/6 6/6 5/5 4/5 pages 126 to 133 . Dame Angela Strank 6/6 6/6 4/4 5/5 1 Martin Pibworth joined the SSHEAC on 1 January 2022. 2 Dame Elish Angiolini joined the Board and Nomination Committee on 1 September 2021, the SSHEAC on 26 October 2021 and Remuneration Committee on 15 November 2021. 3 Dame Sue Bruce was unable to join the 2021 July Board meeting and Melanie Smith was unable to attend the 2021 July Remuneration Committee meeting – both were due to unavoidable personal matters. Full comments on meeting packs were provided in advance to the Company Secretary and Chair. 4 Debbie Crosbie joined the Board and Nomination Committee on 1 September 2021 and the EMRC and Audit Committee on 23 February 2022. 125SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Board leadership and company purpose continued ## Strategic review and ## Board focus in 2021/22 ## The following pages provide an overview of the breadth of Board work across meetings ## in 2021/22. This profiles both the review and reset of SSE’s long-term strategic ## ambition and the Board’s continued oversight of strategic delivery which, together, ## represent the suite of strategy-related principal decisions taken in the year. ## Resetting strategic ambition | On 17 November 2021, SSE announced | available across this mix; alongside the | all stakeholders. Further details of the | | --- | --- | --- | | a strategic update through its Net Zero | full range of strategic and structural | principal decisions and considerations | | Acceleration Programme (the Programme). | alternatives. This included options for | in 2020/21 which formed the backdrop | | The Programme was the result of a robust | disaggregation or ‘break-up’ of some | to work in 2021/22, can be found on | | review process conducted by the Board, | elements of the SSE Group. Each phase | pages 106 to 109  of SSE’s Annual Report | | which considered: SSE’s integrated business | of the review was governed in line with | 2021 . | | model of market-based and economically- | the Board’s responsibility for setting SSE’s | | | regulated; the growth opportunities | strategy and promoting long-term value for | | ### Previously agreed strategic objectives Five-year £7.5bn >£2bn non-core disposal Five-year dividend capex plan to 2025 programme to Autumn 2021 plan to March 2023 ## Review of Assessment Incorporating Governing ## strategic of strategic external views strategic ## situation options and challenge execution APR MAY JUN JUL AUG SEP MAY JUN JUL AUG SEP AUG SEP OCT NOV NOV DEC JAN FEB MAR | Inputs: | | Inputs: | | Inputs: | | Inputs: | | | --- | --- | --- | --- | --- | --- | --- | --- | | • Five-year financial | | • Annual Group | | • Shareholder | | • Board review | | | | outlook | | Strategy sessions | | Engagement | | of progress | | • 2021/22 budget | | • Business Unit | | | sub-Committee | • Re-alignment of | | | • Annual strategy | | | presentations | | insights | | supporting governance | | | review preview | • Externally-facilitated | | • External advisor | | | and frameworks | | • Biannual broker session | | | sector analysis | | analysis and findings | • Continued stakeholder | | | • Group Principal | | • Board deep dives | | | | | and shareholder | | | Risk work | | | | | | engagement | ### Net Zero Acceleration Programme More on pages 4 to 5  AUG SEP OCT NOV ### Fully-funded Business Unit Robust funding Growth 2031 targets ### capital allocation structure enabling including ## £12.5bn dividend plan Renewables | | | ~4.5x | | 1.5°C | | --- | --- | --- | --- | --- | | capex plan | Networks | | to 2026 | | | | Thermal/other | net debt to | | | | to 2026 | | | | science-based | EBITDA ratio targets 126 SSE plc Annual Report 2022 APR MAY ## Review of strategic situation | In May 2021, the Board confirmed within | decision was supported by the agreed | With the existing dividend plan set to March | | --- | --- | --- | | SSE’s preliminary results statement, that | capital investment being largely contracted; | 2023, the Board had further indicated it | | it intended to assess significant and | the strength of execution across the £2bn | would provide an update on the approach | | emerging potential capital and investment | non-core disposal programme; and | to shareholder remuneration beyond the | | opportunities, across the coming months, | preliminary analysis of SSE’s short, medium | current dividend plan by May 2022. | | which were not reflected in the previously | and long-term strategic situation as part of | | | agreed £7.5bn capital investment plan. This | the Board’s ongoing strategy review work. | | MAY JUN JUL ## Assessment of strategic options | Through dedicated sessions across May | | the power sector, covering: technology, | • Funding and financial strategy | | | --- | --- | --- | --- | --- | | to July 2021, the Board confirmed SSE’s | | security of supply and energy markets; | | Modelling and analysis assessed | | strategic progress, and based on this position, | | the current policy and regulatory | | the sources of funding available to | | engaged in targeted debate to agree further | | framework to support the sector | | pursue strategic options, retain financial | | strategic opportunities for analysis and | | transition; the competitive landscape; | | stability and support strong investment | | refinement. The robust quality of the | | and Business Unit-specific roles and | | grade credit and credit capacity. It | | information to support this phase of Board | | trends. Further details of the key trends | | also considered funding for each | | discussion was assured through a broad | | within SSE’s external operating context | | growth opportunity, across a range | | range of inputs. These included external | | can be found on pages 28 to 31 . | | of valuation scenarios and time- | | energy sector analyses and dedicated work | • Capital allocation, long term growth | | | horizons. This further evaluated the | | from specialist internal teams including | | opportunities and strategic choices | | ability to retain optionality and seize | | Corporate Finance, Energy Economics, | | Substantive discussion covered net | | future opportunities whilst delivering | | Business Unit Leadership and Group Strategy. | | zero-linked growth options to 2050 and | | sustained long-term shareholder value. | the view of risk-adjusted returns across | An overview of the topics which shaped | | SSE’s current markets, pipeline and | On an ongoing basis, strategic work is | | --- | --- | --- | --- | | Board debate across May to July 2021 is | | technologies. This further tested the | supported through Board participation | | set out below. | | synergies and optimum balance across | in deep dives which cover sector specific | | • Purpose and long-term shape of | | the business mix to confirm where | issues and matters of potential strategic | | | the Group | maximum value could be created; | significance. These sessions are facilitated | | | The Board considered and reaffirmed | the overall fit of available long-term | by internal and external subject matter | | | the continued role of SSE’s purpose | strategic trajectories; SSE’s capability and | experts. Further details of sessions held | | | and strategy focused on a core of | competencies; and the strength of the | in 2021/22 are covered on page 148 . | | | low-carbon electricity infrastructure | existing platform for overall long-term | | | | against the growing external importance | growth across geographies, including | | | | of a net zero transition by 2050. This | internationally. | | considered views on decarbonisation of AUG SEP OCT NOV ## Incorporating external views and challenge | Wider stakeholder views | External analysis of SSE’s appraisal | The scope of the external analysis across | | | --- | --- | --- | --- | | Stakeholder views are gathered through an | In addition to internal debate, the Board | this period covered: | | | extensive network of strategic engagement | engaged external legal and financial advice | • Total Shareholder Returns of different | | | across SSE as explained on pages 32 to | to test the key elements of the identified | | strategic alternatives. | | 39 , and within the framework set by the | strategic options. To preserve objectivity, | • Growth optionality and potential across | | | Board described on page 134 . | two independent workstreams were | | Business Units. | | | created. One led by financial advisors | • SSE’s investment case and business | | | Across the strategic review process, the | from SSE’s brokers and the other led | | model valuation. | | position of SSE’s six key stakeholder groups | by an independent financial advisor. | • Financing, credit profile and the ability | | | was incorporated across each of the | The findings of each workstream were | | to fund growth. | | long-term pathways, with an explanation | presented separately to the Board. The | • Dis-synergies and separation costs | | | of how the Programme embodies the | work was concluded over a phased three | | which were verified by an independent | | optimal outcome for all set out overleaf. | month period to allow the Board to fully | | external advisor. | | | appraise the respective evaluations and | • Disruption to execution of investments | | | | reflect on the priorities gathered by an | | critical to net zero. | | | agreed Shareholder Engagement sub- | • Wider impacts on stakeholders. | | Committee (see page 128 ). 127SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Board leadership and company purpose continued ### Strategic review and Board focus in 2021/22 continued ENGAGEMENT IN ACTION SHAREHOLDERS AND DEBT PROVIDERS ## ENGAGING WITH SHAREHOLDERS ## ON LONG-TERM PRIORITIES | The Board regularly monitors | shareholders’ priorities relating to | Committee, reviewing both the | | | | --- | --- | --- | --- | --- | | shareholder views, market sentiment | the long-term shape of SSE, and to | internal information position and | | | | and share price performance through | deliver an increased speed of feedback | external commentary across media | | | | monthly updates from the Executive | to the Board. The sub-Committee | and analyst notes across the period to | | | | Directors, the Company Secretary and | met weekly outside of agreed Board | November 2021. | | | | Director of Investor Relations, and via | meetings, was led by the Chair of the | | | | | feedback from shareholder meetings | Board, and comprised at least 50% | To date, the sub-Committee has | | | | which may have also been attended | independent membership. | remained in place, and intends to | | | | by any member of the Board. This is | | meet as required to support an | | | | supported by the formal and separate | Engagement methods which the | enhanced frequency and co-ordination | | | | collation of market and investor data | sub-Committee oversaw in this period | of shareholder soundings on strategic | | | | from SSE’s brokers which is presented | included the offer of meetings to SSE’s | matters following announcement of the | | | | to the Board at least twice a year. | largest shareholders – representing | Programme. The role and requirement | | | | | around 40% of SSE’s issued share capital | for the sub-Committee will remain | | | | Full details of the standing programme | – and proactive monitoring of the | under review throughout the initial | | | | of shareholder engagement is set out on | normal communication channels which | phase of execution in 2022/23. | | | | pages 135 to 136 , with shareholder | remained open to all shareholders. | | | | | views providing a crucial backdrop to | Some of the key insights which were | | | | | the full range of Board deliberations. | directly addressed in the Board’s | | Identified shareholder priorities | | | | considerations are set out opposite. | | • Long-term value creation | | | To enhance monitoring of stakeholder | | | • Balance and stability of growth | | | feedback and public commentary, the | In addition to its engagement role, | | | options | | Chair initiated a dedicated Shareholder | the sub-Committee monitored SSE’s | | • Transparency over funding and | | | Engagement sub-Committee. The role | share register and assessed ongoing | | | capital allocation | | of this sub-Committee was to ensure | disclosure obligations, with support | | • Clear investment proposition | | | equitable understanding of | from SSE’s Group Disclosure | | | | NOV ## Net Zero Acceleration Programme | In November 2021, the Board was satisfied | | • Shareholder value and ESG | | | the significant growth opportunities to | | --- | --- | --- | --- | --- | --- | | with its strategic assessment, including the | | | SSE’s business mix continues to | | SSE’s networks businesses, as investment | | level of scrutiny and challenge which had | | | support a clear ESG investor story, | | in national critical infrastructure remains | | been applied to confirm the opportunities | | | with total long-term shareholder | | central to the net zero transition. | | and risks across the available options. In | | | returns maximised from earnings and | • People, skills, capability and culture | | | concluding the Programme was the correct | | | asset value growth across net zero- | | SSE’s greatest asset is the experience | | pathway in the next phase of growth for | | | orientated opportunities. Recognising | | and expertise of its employees, and the | | SSE, the Board assessed the following | | | the importance of shareholder | | Programme continues to champion | | outcomes for long-term success and | | | remuneration through dividends, a | | SSE’s principles for providing and creating | | each of SSE’s six key stakeholder groups. | | | rebased dividend at an absolute level | | good, green jobs (see also page 60 ). | | • Sustainable long-term growth | | | with attractive growth was deemed as | | The assessment of break-up scenarios | | | Delivering on growth opportunities | | the correct balance to meet the needs | | concluded substantial dis-synergies, | | | across SSE’s core electricity infrastructure | | of those who invest for sustained annual | | a loss of the shared services and | | | businesses is the fundamental long-term | | returns, whilst promoting continued | | capabilities that SSE’s electricity-focused | | | driver of value. This would be best | | long-term success. The Programme | | business mix provides, and an impact | | | achieved through balance sheet strength | | also highlights that a minority networks | | on culture. Significant disruption would | | | and funding options, derived from a | | stake sale will rebalance the expected | | see cost and uncertainty to the business, | | | re-balancing of the mix of market-based | | allocation of capex across SSE’s | | its people, partners and counterparties, | | | and economically-regulated businesses | | businesses over the longer-term, | | leading to project delays. | | | through a minority networks stake sale. | | and retains SSE’s ability to harness | | | 128 SSE plc Annual Report 2022 | • Energy affordability and customers | | • Projects society requires for net zero | | opportunity to accelerate SSE’s growth | | --- | --- | --- | --- | --- | | | The Programme addresses the material | | Other scenarios, including ‘break-up’ | plans and capture further opportunities | | | issue of energy customer affordability | | or separation of some elements of | at home and abroad. By extending the | | | through investment in indigenous, | | the Group, such as SSE’s renewables | approach to SSE’s network businesses | | | low-carbon power sources and flexible | | business, would see loss of scale, | through minority stake sales, the Group | | | solutions that will help reduce reliance | | reduced capital structure and a weaker | optimises the investment in, and growth | | | on the imports which are driving the | | credit position; negatively impacting the | from, market-based and economically | | | current gas crisis. SSE’s customer | | ability to fund larger scale projects and | regulated businesses whilst fully funding | | | businesses, meanwhile, remain an | | denying growth options across the value | the investment and expecting an | | | important route to market for, and | | chain, in areas such as carbon capture | investment grade credit rating to be | | | supplier of, low-carbon energy. | | and storage, hydrogen and distributed | maintained. Meanwhile, the development | | • Accelerating the net zero transition | | | energy solutions, amongst other | pipeline will continue to present | | | The Programme would enable the | | emerging technologies. These projects | opportunities for local and national | | | delivery of Government policy objectives | | are critical for society to transition to net | suppliers, support competitive domestic | | | aligned to net zero, including: around | | zero through enhanced renewables | supply chains and support continued | | | 20% of the UK’s 50GW offshore wind | | deployment and system balancing. | engagement on cutting scope 3 activity. | | | target by 2030; 20% of upcoming UK | • Suppliers, contractors and partners | | | | | electricity networks investment; and | | Well-chosen equity partnering is a key | | | | critical options for the 20GW low- | | element of SSE’s strategy, with a proven | | | | carbon flexibility to ensure security of | | ability to spread project risk and financial | | | | supply by 2030, all of which are central | | exposures, manage net debt, secure | | | | to decarbonisation of the power sector | | developer premiums and benefit from | | | | by 2035. | | third party experience. This provides the | | NOV DEC JAN FEB MAR ## Governing strategic execution | The Programme sets out quantifiable | To support execution of the Programme, | | • Board oversight of SSE’s Just Transition | | | --- | --- | --- | --- | --- | | deliverables to 2026 and is further | a number of governance-based decisions | | | Strategy (see page 132 ). | | supported by a set of ambitious targets | have been taken, and workstreams initiated, | | • Nomination Committee review | | | to 2031. Together these represent | which are covered in detail across respective | | | of leadership, talent, succession, | | strategic outcomes underpinned by core | sections of the Annual Report. These | | | inclusion and diversity, and culture | | sustainability objectives, including the | include: | | | (see pages 145 to 151 ). | | renewal of SSE’s greenhouse gas emission | • Board approval of revised 2030 Goals | | • Remuneration Committee review of | | | targets to align with a 1.5°C pathway as | | (see page 130 ). | | SSE’s Remuneration Policy including | | approved by the Science Based Target | • Board approval of SSE’s Net Zero | | | performance-related metrics and | | initiative. The result is a comprehensive | | Transition Plan (see page 130 ). | | targets (see pages 136 and 168 to 171 ). | | framework against which the Board can | • Board support for SSE’s sustainable | | | | | monitor and incentivise progress with clear | | investment criteria and Large | | | | criteria for Business Unit decision-making. | | Capital Project Framework | | | | In line with this, reporting to the Board has | | (see page 133 ). | | | | been re-aligned with the agreed ambitions | • Board approval of a revised | | | | | and timelines. | | Employee Guide to SSE’s Strategy | | | (see page 138 ). 129SSE plc Annual Report 2022 Board leadership and company purpose Strategic review and Board focus in 2021/22 ## Overseeing strategic delivery ![img-10.jpeg](img-10.jpeg) | | What did the Board consider? | What did the Board discuss and approve? | | --- | --- | --- | | Seizing renewables growth | | | | Powering communities to net zero | | | | Supporting a successful energy transition | | | | Redefining 2030 Goals | | | | A Net Zero Transition Plan | | | 130 SSE plc Annual Report 2022 ## 2030 Goals ![img-11.jpeg](img-11.jpeg) ### What were the material stakeholder considerations? SSE's six key stakeholder groups More on pages 32 to 39 Strategic proposition. Creating lasting value. Risk and portfolio diversification. Synergistic partnering. Stakeholder approach. Delivering for net zero. Addressing customer needs. Strong strategic fit. A deliberate energy mix. Full stakeholder benefit. Clear tracking of progress. Embedded in culture. Alignment and expectations. Societal backdrop and context. SSE plc Annual Report 2022 131 Board leadership and company purpose # Governing SSE for long-term success Strategy and performance Safety, health and environment (SHE) Sustainability pages 130 to 131 SSE's Business Units to 125 pages 124 SSE's key stakeholders More on page 134 Financial management Financial performance Operating context Capital investment Financial planning and funding 132 SSE plc Annual Report 2022 ## Risk and internal control Coronavirus resilience Risks, viability and internal controls pages 68 to 81 pages 70 and 156 page 161 Large capital projects ## Governance Shareholder communications Board and Board Committees page 166 pages 150 to 151 pages 143 to 144 External developments ## People and culture Wider workforce remuneration Ways of working Doing the right thing Employee views and engagement More on pages 137 to 139 Focusing on culture More on pages 140 to 141 Climate on the Board's agenda pages 126 to 133 SSE plc Annual Report 2022 133 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Board leadership and company purpose continued ## Considered ## decision-making ## Decision-making context The Board has an ultimate duty to lead Framework represents the backdrop for purpose, vision, strategy and culture and by example and set the correct tone to this, with the Board confirming ambitions, the approach to reflecting stakeholder ensure decisions within SSE are taken in a key parameters and expectations to drive views within long-term plans and day-to- responsible and fair way. SSE’s Governance long-term success. These include SSE’s day operations. ### Our purpose Our vision Our strategy To provide energy needed today, To be a leading energy company To create value for shareholders while building a better world of in a net zero world. and society in a sustainable way energy for tomorrow. by developing, building, operating and investing in the electricity infrastructure and businesses needed in the transition to net zero. ### Our culture See pages 140 to 141 . Employees Shareholders Energy Government NGOs, communities Suppliers, and debt providers customers and regulators and civil society contractors and partners ### Stakeholder views | Engaging with stakeholders | activity. This allows the timely recognition | Looking ahead, the delivery of SSE’s Net | | | --- | --- | --- | --- | | The Board sets the framework within which | of emerging stakeholder issues, with | Zero Acceleration Programme will provide | | | stakeholder relations are developed and | Board engagement complementing the | a focal point for stakeholder engagement | | | maintained, establishing why SSE interacts | expectation that senior leadership and | across 2022/23, and will be supplemented | | | with its stakeholders and how views should | SSE’s Business Units take demonstrable | by the following Board-identified priorities. | | | be considered at both a Business Unit and | account of stakeholder opinion in their | • Advocacy on energy system design to | | | Group level. The identification of SSE’s key | decisions and longer-term objectives. | | future proof a net zero transition that | | stakeholder groups and the purpose of | | | supports customers’ needs. | | stakeholder engagement are therefore | Addressing stakeholder priorities | • Two-way dialogue with employees | | | Board-approved principles, which are | Reflective of SSE’s approach, the response | | on their role within SSE and net zero, | | explained on pages 32 to 33 . | to stakeholder priorities across business | | and support for SSE’s IN, ON and UP | | | plans and within Board work is represented | | inclusion and diversity strategy. | | To ensure meaningful reflection of | across the Annual Report. In the context | • Active engagement with all stakeholders | | | stakeholder views across SSE’s operations | of the Board-level principal decisions | | on SSE’s view of a fair and just transition. | | and actions, breadth and depth of | on pages 126 to 131, 150 and 169 , | • Diversity of opinion and challenge on | | | stakeholder engagement is required. | insight is provided surrounding the | | SSE’s long-term strategic direction and | | The Board is supported in the scale of | material stakeholder factors which shaped | | approach to environmental, social and | | this activity by a network of mature | deliberations. Totemic issues with multi- | | governance matters, through external | | executive and business-led stakeholder | stakeholder impact, such as the climate | | soundings. | | contacts, with oversight and understanding | emergency, coronavirus pandemic, energy | | | | of views achieved through both direct | affordability and security of supply remain a | Working for stakeholders | | | engagement and reporting of below-Board | backdrop to all Board work. | | | More on pages 32 to 39  134 SSE plc Annual Report 2022 ### Institutional investors Secretariat, with support from SSE’s ## Shareholder and Collectively, in 2021/22, the Board Registrar, engage directly with retail ## debt providers shareholders in response to private engaged directly with institutional investors | Gathering views | representing over 40% of issued share | shareholding queries. | | --- | --- | --- | | The Board engages with equity and | capital. The programme of engagement – | | | debt investors to help inform strategic | which encompassed 153 one-to-one | Annual General Meeting (AGM) | | decision making, communicate SSE’s | sessions with investors – was mainly | The Board encourages shareholders | | sustainable business plans, and report on | focused across three periods: the Full-year | to participate in the AGM, and through | | environmental, social and governance (ESG) | Results Roadshow; the period ahead of the | shareholder approval, has introduced | | and financial performance. Engagement | Net Zero Acceleration Programme; and the | the necessary measures to hold a hybrid | | by the executive team is led by the Chief | Half-year Results and Strategy Roadshow | meeting in 2022. These arrangements | | Executive and Finance Director with | thereafter. In addition to dedicated | allow full remote participation, with details | | participation from the Chief Commercial | engagement surrounding long-term | of the business of the meeting and how | | Officer and other members of the Group | strategic direction (see page 128 ), | to attend both in person and virtually | | Executive Committee, and focuses on | specific feedback was sought on the | set out in the separately issued Notice of | | financial and business performance in | proposed Remuneration Policy, and | AGM 2022. With all Directors available to | | executing SSE’s strategy. Engagement by | following appointment as Chair, Sir John | respond to enquiries, questions are invited | | the Chair leads on corporate governance, | Manzoni proactively engaged with many | to be submitted both on the day and in | | strategy development and people, with | of SSE’s largest shareholders to establish | advance. Answers to questions and the | | support from the non-Executive Directors. | a first-hand understanding of priorities | results of the meeting are published on | | | and views on corporate governance. | sse.com  as soon as practicable after | | Open and regular dialogue remains | | the event. In 2021, all resolutions were | | the foundation to the Board’s approach, | Supplementing one-to-one engagement, | passed with in excess of 94.87% votes | | with managed communication channels | the Executive Directors attended 15 industry | cast in favour. | | in place for all to use (see page 355 ). In | conferences, mainly virtual, and held 23 | | | addition, the Board, executive management | group meetings which were attended | | ### Debt investors and the Investor Relations team proactively by a number of shareholders and Engagement with solicited credit ratings engage with investors through an annual prospective investors. agencies, being Standard & Poors’ and programme of activity, and ongoing Moody’s, takes place throughout the communication with analysts, proxy ### Retail shareholders course of the year, with increased dialogue advisors, ESG ratings agencies and financial To allow management of an individual’s ahead of the annual ratings review process ratings agencies helps improve disclosure shareholding, SSE’s investor website and in line with Company related news and allow stakeholders to better assess provides a source of equivalent flows. Regular dialogue is also maintained SSE’s performance. information, housing all regulatory news between key relationship banks, debt announcements and published financial investors and SSE’s Treasury team and and non-financial reports. The Investor the Finance Director. Relations team and the Company CYCLE OF SHAREHOLDER ACTIVITY 2021/22 Full-year Results Engagement Half-year Results and Remuneration Roadshow on long-term Strategy Roadshow Policy strategy engagement 35 30 26 23 15 14 12 10 6 4 1 APR ‘21 MAY JUN JUL AUG SEP OCT NOV DEC JAN ‘22 FEB MAR Number of shareholder meetings Main focus of meetings 135SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Board leadership and company purpose continued ### Considered decision-making continued | Sharing and interpreting feedback | The feedback provided by shareholders | The Board, through the SSHEAC, receives | | --- | --- | --- | | The Board receives monthly updates on | during and after Half and Full-year Results | a full annual review of SSE’s performance | | investor and financial market sentiment, | Roadshows is communicated directly to | in investor-led ESG reviews and ratings. | | providing insight into recent share price | the full Board in a biannual shareholder | Key matters raised by shareholders during | | movements; a briefing on recent sell-side | feedback paper including updates from | the period, considered across Board | | analyst commentary; and key monthly | SSE’s brokers. | deliberations are set out on page 35 . | movements in the share register. This is covered through written reports and verbal feedback from meetings which have taken place. ENGAGEMENT IN ACTION SHAREHOLDERS AND DEBT PROVIDERS ## SHAPING REMUNERATION POLICY | SSE’s Remuneration Policy is subject | where views on the policy proposals | Plan – with more being financial than | | --- | --- | --- | | to a three-yearly binding vote from | were shared and discussed. | originally proposed; and a focus on | | shareholders, with it last approved | | the importance of stretching targets, | | at the 2019 AGM. | Shareholder responses were considered | with a suitable mix of quantitative and | | | at the Remuneration Committee | qualitative measures. | | In February 2022, the Chair of the | meeting at the end of March, and with | | | Remuneration Committee wrote | agreement of the Committee, a further | Furthermore, the engagement | | to SSE’s top 30 shareholders on | letter was sent to shareholders at the | allowed the Remuneration Committee | | the Register, as well as several | end of April. This reported the feedback | Chair to reassure shareholders that the | | advisory agencies. This set out that | which had been received to date and | proposed change to Policy wording | | the Remuneration Committee was | provided a summary of its response | does not represent a change in the | | seeking to use the upcoming review | to the common themes raised. | current approach to pay, but provides | | cycle to further strengthen and align | | greater flexibility for the future, with | | its approach to executive pay with | Following approval at the | Executive Directors’ salaries increasing | | SSE’s purpose and long-term strategy, | Remuneration Committee meeting | by 3% with effect from 1 April 2022 in | | as directly supported by the Net Zero | in May, this engagement with | line with the negotiated pay increase for | | Acceleration Programme. The letter | shareholders contributed to: a change | all employees. | | resulted in a number of written | to the proposed split of performance | | | responses as well as virtual meetings | measures for the Performance Share | | 136 SSE plc Annual Report 2022 ## Supporting and listening ## to the employee voice | How the Board engages | These tools complemented the established | The adoption of a diverse range of listening | | --- | --- | --- | | The two-way dialogue between the | annual all-employee survey and the Board’s | channels has been based on the principle | | Board and employees is facilitated by a | review of findings, and remain in place. | that everyone in SSE should have a voice, | | combination of engagement methods, | | and is consistent with employee feedback | | including face-to-face discussions at | Across 2021/22, as coronavirus restrictions | surrounding the benefit of multiple | | meetings, during site visits and through | began to lift and when it was deemed safe | platforms through which to raise areas of | | attendance at employee events. During the | to do so, the Board took the opportunity | interest or concern. In turn, it supports the | | coronavirus pandemic, where in-person | to reconnect in person, continuing to build | Board in gathering a fair and representative | | meetings were not possible, engagement | on what had been achieved during periods | view of the issues which are important to | | was enabled through virtual platforms | of lockdown in maintaining engagement | employees, and builds an appreciation of | | to ensure continued contact with the | with employees. | how these may differ by business area, role | | employee voice. | | and geography. | ## Board listening approach | Engagement settings | Engagement methods | | | | --- | --- | --- | --- | | All-employee setting | Director-employee sessions | Site visits by non-Executive Directors | | | Offers a Board perspective which can | Provides employees with Board | Allows non-Executive Directors to | | | otherwise be missed from business- | accessibility and direct two-way | travel across parts of SSE and feel the | | | led communications, and provides | interaction, supporting detailed | operational environment, enhancing | | | the Board with insight of employee | discussion of specific topics. | understanding of employees’ experience | | | opinion on life at SSE. | | of their working environment. Site visits | | | | Focus groups | can be followed by informal roundtables | | | People leaders | Allows interaction with diverse | to allow deeper two-way dialogue on | | | Provides the opportunity to replay | geographies and cross-sections of | matters of importance. | | | key messages which have been | employees, and being smaller in size, | | | | heard through listening channels, | provides the opportunity to seek out | Blogs and written communications | | | and supports and challenges | added context surrounding employee | Reinforces matters of importance and | | | management actions and response. | sentiment through true conversation. | embeds the tone through the Board’s | | | | The impact can be fast and influence | written reflections. | | | Senior leadership | decisions which may affect employees. | | | | Creates a platform for two-way | | Non-Executive Director for | | | interaction between senior leaders | All-employee surveys | Employee Engagement | | | and the Board through which the | Exists as a long-standing tool with a | | | | Board can offer views and personal | mature strategy that attracts a strong | | More on page 139  | | external perspectives. | response rate. The results are viewed | | | as representative of the majority of employee voices, and the question set and findings shape the cultural agenda, ensuring that employee sentiment is considered in all key decision making. ## Engagement highlights | Board-led virtual | Total employee | Largest audience | Non-Executive | Sites visited | All-employee | | --- | --- | --- | --- | --- | --- | | engagement | attendance at | size | Director for | | survey | | sessions | Board calls | | Employee | 21 | engagement | | | | 4,369 | Engagement | | score 2020/21 | | 12 | 22,068 | | sessions | | | ## 82% ## 10 137SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Board leadership and company purpose continued ### Supporting and listening to the employee voice continued ### Board response in 2021/22 SSE has continued to use technology together with in person meetings to allow large scale conversations to continue across Great Britain and Ireland. Discussions have been broad ranging and responsive to the changing status of the pandemic throughout the year, with focus on the specific topics outlined below. ### Key themes 2021/22 Active Board engagement ### Strategy, net zero and • All-employee Climate Academy virtual calls, were hosted by the Chief Executive and the Chief Commercial Director. These were a key component of supporting COP26 activity and ### climate change a direct result of employees’ desire to understand SSE’s net zero strategy in broader terms. Why the Board engaged • The Chief Executive hosted employee engagement sessions with external experts including The Board acts in response to Chris Stark, Chief Executive of the Climate Change Committee and John Sauven, Executive all-employee survey and call Director of Greenpeace. feedback, which cited a want to • In line with SSE’s Net Zero Acceleration Programme, the Board approved an updated engage further with senior leaders Employee Guide to Strategy, which was supported by the Chief Executive and Finance on SSE’s strategy and the drive to Director hosting a virtual people leaders session on SSE’s growth ambitions. net zero. • The Non-Executive Director for Employee Engagement attended a COP26 employee event hosted by SSE Distributed Energy, meeting with employees and many of SSE’s Climate Pledge Team Captains who were advocating all-employee net zero commitments. • The Chair of the SSHEAC judged SSE’s graduate sustainability awards. • The Non-Executive Director for Employee Engagement attended SSE Thermal Town Halls where employees discussed all-employee survey findings alongside the important role of the business in supporting SSE achieve its net zero ambitions. ### Inclusion and diversity • The Executive Directors and Melanie Smith hosted an all-employee call discussing inclusion and diversity and how SSE is taking actions to support progress. Why the Board engaged • The Non-Executive Director for Employee Engagement met virtually with the heads of the The Board champions SSE’s ‘Belonging in SSE’ employee-led groups, which provide representation to, and champion inclusion and diversity approach, discussion of: Menopause; Health and Wellbeing; Disability; Neurodiversity and Chronic and seeks broad insight Health; Black and Ethnic Minority; and Armed Forces. Priority areas which topped both the surrounding the effectiveness of agenda and discussion were mental health and ‘making the uncomfortable comfortable’. plans and initiatives in order to • The Chair of the SSHEAC visited the Tealing Transmission Substation Upgrade to discuss continually further progress. inclusion and diversity and opportunities across technical roles, meeting with female engineers and gathering reflections of working for SSE and in a construction environment. • The Chair and the Senior Independent Director met with Transmission and Distribution colleagues following a site visit and took time to understand their views on inclusion and diversity across SSE. ### Great place to work • The Non-Executive Director for Employee Engagement presented virtually on the outcomes of the all-employee survey to people leaders, identifying clear accountabilities ### and ways of working specific to that group. Why the Board engaged • The Non-Executive Director of Employee Engagement met with colleagues in Airtricity, The Board seeks views of Ireland, to discuss the outcomes and action plans in response to the all-employee survey employee needs in order to drive and understand sentiment around ways of working and returning to the office. culture and meet expectations • An additional targeted survey was issued to all employees during the year to gather surrounding working practices; feedback and cultural trends on ways of working, which informed the Board’s view areas which were in sharp focus of the flexible practices required to support employees and ensure inclusivity. across the coronavirus pandemic. ### Frontline operations • During the coronavirus pandemic a number of staff continued to maintain frontline operations due to the nature of their roles. In December 2021, the Chair and Chief Why the Board engaged Executive visited those working in the Perth Control Room, whilst they were dealing The Board wants to ensure with the impact of Storm Arwen. operational roles feel connected • Non-Executive Director site visits took place at the Alyth Transmission construction site, with SSE’s engagement approach the Tealing Transmission Substation upgrade and the New Forest Depot with key takeaways by listening directly to employees being the care taken by frontline staff to preserve the local environment and wildlife whilst in the field. carrying out operations. 138 SSE plc Annual Report 2022 ### Non-Executive Director for recognised that as Remuneration Each year, the programme of work for Committee Chair, relevant employee the Non-Executive Director for Employee ### Employee Engagement perspectives could be understood in Engagement is structured and supported The Nomination Committee oversees the context of wider remuneration policy in collaboration with SSE’s Group HR the recommended appointment of the and the approach to reward. Employee Engagement Manager. The Non-Executive Director for Employee success of the role is measured in action, Engagement, a role which Dame Sue Bruce The creation of the role remains a natural whereby the employee voice is consistently has held since its inception in 2018. In the and progressive step in the evolution of represented in meetings attended by the Nomination Committee’s considerations, SSE’s employee voice strategy, providing Non-Executive Director for Employee recognition was given to Dame Sue’s depth an enhanced and more interactive Engagement, allowing the views and of experience, active listening skills and understanding of employee sentiment. opinions of colleagues to feature and empathetic approach. It was further contribute to discussions and decisions being made. ENGAGEMENT IN ACTION EMPLOYEES ## NON-EXECUTIVE DIRECTOR ## FOR EMPLOYEE ENGAGEMENT | I have been hugely grateful of the | From my constructive engagements, | | business-led action can be channelled | | --- | --- | --- | --- | | opportunity to re-connect with | notable priorities which have been | | directly to senior leaders and informs | | colleagues in person after the unique | identified to support future work, | | the overall engagement approach. | | challenges which coronavirus presented | and which have been reported to | | | | across 2020/21. Recognising that virtual | the Board, are: | | I would like to reiterate the Board’s | | platforms provided an inclusive means | • A continued pledge to support | | pride in the continued achievements | | of ‘travelling’ to different locations, | | colleague wellbeing, with a particular | of our employees, and the strength | | we have retained a hybrid approach to | | focus on mental health for frontline | of culture which is evident across | | engagement, delivering a more rounded | | workers. | our engagements. | | and flexible means of keeping in touch | • Confidence in levels of employee | | | | with employee sentiment. | | support as society continues to | Dame Sue Bruce | | | | adapt to the evolving coronavirus | Non-Executive Director for | | Work across the year has continued to | | pandemic. | Employee Engagement | | support constructive engagement on | • Focus on the value of SSE’s ‘Flexible | | | | employee survey results and business- | | First’ working approach as a core | | | led action plans – which saw a session | | enabler of employee engagement. | | | with Airtricity colleagues in Ireland and | • A retained central focus on safety. | | | a virtual employee-wide call; alongside new thought provoking sessions with Meetings with trade union FTOs and the leads of Belonging in SSE Groups, JNCC colleagues, at least twice each which will be a biannual occurrence year, have also continued, building on going forward. The essence of engaging, the foundations of a well-established listening and sharing lived experiences relationship and supporting the formal cannot be captured through measured industrial relations activities led by the survey responses alone, and direct executive team. This relationship is insights from colleagues is an invaluable underpinned by openness, inclusivity way of deepening Board understanding and transparency whilst respecting our of how our people feel. respective roles, allowing diverse views to be heard by the Board, in a pro-active Our dialogue remains two way and and timely way. The collaborative role questions are always invited on of Group HR ensures that responsive Board-led developments. With SSE’s strategy dependant on the collective ### “ During our call Sue was inspirational and courageous, skills of its diverse workforce I was able ### to share Board views in the lead up speaking very openly about the challenges she has faced. to COP26, meeting with Distributed ### At SSE we encourage personal stories in striving to make Energy team members in Perth and ### attending virtual Thermal Town Hall the uncomfortable comfortable. Board engagement on sessions. A consistent observation is ### this supports an inclusive workplace where diversity is the personal commitment to SSE’s ### purpose, and colleagues should valued and everyone can thrive.” continue to recognise the contribution they make to SSE’s net zero ambitions. Vikki Mohammed Neurodiversity and Chronic Health, Belonging in SSE Lead 139SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Board leadership and company purpose continued ## Focusing on culture ### Aligning with purpose, behaviours within SSE’s Group Policies and observed behaviours and trends. These can an employee guide ‘Doing the Right Thing; be described as a combination of the below ### vision and strategy SSE’s guide to good business ethics’, all of reported metrics, standing reports and Company culture has internal and external which are supported by mandatory training listening channels. influence; guiding interactions within SSE for everyone in SSE. • Feedback from Board-employee and directing decisions with stakeholder engagement. impact. This context is reflected within the Leading by example is through the • Non-Executive Director for Employee Board-approved definition of a healthy Board’s own conduct and communication Engagement insights. corporate culture, which supports purpose, to employees of key Board activity. • Employee survey results. vision, strategy and long-term success, by Senior leaders across SSE have the same • Twice yearly Cultural Dashboard review. setting a baseline against which cultural responsibility to lead, embed and oversee • Monthly people updates from the Chief guidance can be developed and cultural cultural standards. Executive covering key developments indicators tested. and employee sentiment. | | | Culture is embedded at Board-level by: | | • Monthly compliance reporting from the | | | --- | --- | --- | --- | --- | --- | | | A healthy corporate culture is one | • SSE’s Governance Framework and | | | Finance Director. | | | in which SSE has a purpose, values | | practices (see pages 124 to 125 ). | • Monthly safety and employee wellbeing | | | | and strategy that are respected by | • Board decision-making (see pages 126 | | | data. | | | its stakeholders, and an operating | | to 133 ). | • Whistleblowing performance reports. | | | | environment that is inclusive, | • People matters, appointments and | | • SSE’s Principal Risk ‘People and Culture’. | | | | diverse and engaging; that | | succession planning (see Nomination | | | | | encourages employees to make a | | Committee Report ). | The Cultural Dashboard remains a health | | | | positive difference for stakeholders; | • SSE’s risk, controls and compliance | | check, comprising data from Group HR | | | | in which values guide decisions and | | approach (see Audit Committee and | and Group Compliance. A key section, | | | | actions; and in which attitudes and | | EMRC Reports and page 68 ). | which is illustrated opposite, aligns | | | | behaviours are consistent with high | • Focus on safety, sustainability, health | | measured employee survey feedback with | | | | standards of conduct and doing the | | and the environment (see SSHEAC | people metrics and KPIs under cultural | | | | right thing. | | Report ). | strands. This allows the Board to consider | | | | | • Attitudes towards reward and | | where there are deviations between what is | | | | | | remuneration (see Remuneration | being heard and underlying behaviours. | | | Setting the tone | | | Committee Report ). | There were no areas of concern raised in | | | A healthy corporate culture is a shared | | | | 2021/22, with the Board retaining oversight | | | deliverable, which starts with the Board | | Monitoring and measuring | | of ongoing culture-related workstreams | | | setting the correct tone. This is supported | | The Board uses multiple sources to assess | | through its wider agenda. | | | through approval of SSE’s values, and their | | the strength of culture and understand how | | | | | translation into accepted attitudes and | | it manifests across employee sentiment, | | | | Employees such as these in SSE’s Glasgow office are guided by the Company’s values and an ethos of “doing the right thing”. 140 SSE plc Annual Report 2022 ## Measuring cultural strands through our Cultural Dashboard ### Our culture is determined by the way we… ### Attract and Work Look after See Make Manage Lead from ### retain people together each other ourselves decisions performance the top ### Reflected in the core themes of employee feedback... | Employee | Inclusion | Safety | Our | Doing the | My | Senior | | --- | --- | --- | --- | --- | --- | --- | | engagement | index | index | strategy | right thing | manager | leaders | | index | | | index | index | index | index | | 82% ▲ | 87% ▲ | 82% ▲ | 85% ▲ | 90% ▲ | 80% ▲ | 66% ▲ | Wellbeing index ## 79% ▲ ▲ Above internal 2019 trend benchmark ### Supported by key people metrics and KPIs… | Employee | 83% of | 254 Safe Days | 5 Climate | 90% Certification | Sustaining | 40 Board-led | | --- | --- | --- | --- | --- | --- | --- | | turnover | employees able | | Academy | across mandatory | Key Skills | employee | | 9.5% | to work flexibly | 6.3 Sick days | sessions attended | eLearning | interventions | engagements, | | | | per head | by 4,000+ | courses | attended by | including | | 3,195 | 7 “Belonging | | colleagues | | 10,036 delegates | 10 Non-Executive | | vacancies | in SSE” groups | | | 47 employee | | Director for | | filled | supporting over | | >90% improved | contacts on | | Employee | | | 6,000 colleagues | | understanding | Speak Up | | Engagement | | | | | of climate | platforms | | sessions | ### Continually improved by cultural action plans and Board support in 2021/22… | Provided | In response | Site visits on | Approval of | Approved an | Agreed that | Board’s approach | | --- | --- | --- | --- | --- | --- | --- | | increased and | to employee | safety and | the Net Zero | enhanced and | the revised | to leading | | direct support | opinion, | wellbeing | Acceleration | more accessible | Leadership | by example | | to talent | approved a | continue to | Programme and | version of ‘Doing | Blueprint should | (see opposite). | | development | ‘Flexible First’ | be conducted | Refreshed 2030 | the Right Thing’ | remain cognisant | | | and SSE’s IN, | hybrid working | by the SSHEAC | Goals (see page | (see page 133 ). | of SSE’s culture | Board presence | | ON, UP approach | approach. | (see page 167 ). | 130 ). | | and inclusive to | across SSE’s full | | (see pages 149 | | | | Continued focus | all future leaders | engagement | | to 150 ). | Engaged directly | Reviewed safety, | Directly | on front line | (see page 149 ). | approach | | | on the topic of | health and | supported | communications | | (see pages 137 to | | Oversight of top | inclusion and | wellbeing | employee | (see page 138 ). | Continues | 139 ). | | leaver reasons; | diversity with | performance at | communications | | to oversee a | | | SSE’s employer | employees | the start of every | on strategy | Reviewed SSE’s | leadership review | | | brand; and | (see page 138 ). | Board meeting. | (see page 138 ). | whistleblowing | which confirmed | | | activity which | | | | performance | a strong, | | | communicates | | | | (see page 133 ). | collaborative | | | SSE’s proposition | | | | | organisational | | | to external | | | | | environment in | | | candidates. | | | | | which there is | | trust and a want to support one another. See also culture on the Board agenda, page 133  Promoting, monitoring and maintaining a healthy business culture, page 62  141SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Division of responsibilities ## Division of ## responsibilities ### Defining Board responsibilities Through the Board Charter, the Board approves the clear division of responsibilities between the Chair and Chief Executive, in addition to defined role profiles for the Senior Independent Director, Non-Executive Director for Employee Engagement and non-Executive Directors. This is reflected in the below overview of key executive and non-Executive accountabilities, which support the integrity of the Board’s operations. ## Non-ExecutiveExecutive Chief Executive Chair • Proposing and directing the delivery of strategy as agreed by the Board • Leading the effective operation and governance of the Board. through leadership of the Group Executive Committee. • Ensuring SSE’s decisions are sustainable in the long-term, and the • Ensuring SSE’s decisions and actions are sustainable in the long-term, Group’s approach to sustainability, including climate change, is through appropriate management, implementation and progress of addressed through strategic, operational and risk considerations. sustainability interventions which support SSE’s strategy and address • Setting agendas which support balanced decision-making. material impacts including climate change. • Demonstrating objective judgement and applying sufficient challenge • Communicating and providing feedback on the implementation of to projects and proposals. Board-agreed policies, and their impact on behaviours and culture, • Ensuring effective Board relationships and a culture that supports ensuring SSE operates in a way that is consistent with its values. constructive debate. • Responsibility for the overall Group of businesses and leading the • Communicating with major shareholders and key stakeholders to ensure functions of: HR; Corporate Affairs and Strategy; and Sustainability. the Board understands and considers their views. • Engaging with SSE’s six key stakeholder groups and leading on related • Overseeing the annual Board evaluation and identifying any actions required. activity at EU, International and UK level. • Leading initiatives to assess SSE’s culture and ensuring the Board sets the correct tone. Finance Director 1 • Deputising for the Chief Executive. Senior Independent Director • Proposing policy and actions to support sound financial management • Providing a sounding board for the Chair. and leading on M&A transactions. • Leading the Chair’s performance evaluation. • Leading the functions of: Finance; Procurement and Logistics; Group • Serving as an intermediary to other Directors when necessary. Risk and Audit; IT and Cyber Security; Investor Relations and Company • Being available to all stakeholders if they have any concerns requiring Secretarial; and the General Counsel areas of responsibility. resolution. • Overseeing and reporting on SSE’s networks businesses. • Overseeing SSE’s relationships with the investment community. Independent non-Executive Directors • Engaging with SSE’s six key stakeholder groups and leading on related • Scrutinising, measuring and reviewing the performance of management. activity in Scotland. • Constructively challenging and assisting in the development of strategy. • Providing independent insight and support based on relevant experience. Chief Commercial Officer • Reviewing Group financial information and ensuring the System of Internal • Supporting the work of the Chief Executive and Finance Director. Control and Risk Management Framework are appropriate and effective. • Leading SSE Renewables, SSE Thermal, Energy Portfolio Management, • Reviewing succession plans for the Board and key members of senior SSE Energy Customer Solutions and SSE Distributed Energy at Board management. level. • Monitoring actions to support inclusion and diversity. • Driving growth and commercial market risk activities for all of SSE’s • Engaging with key stakeholders and feeding back insights as to their non-networks businesses at Group level. views, including employees in relation to culture. • Leads executive relations with trade unions. • Setting executive remuneration policy. • Engaging with SSE’s six key stakeholder groups and leading on related • Serving on or chairing various Committees of the Board. activity in Ireland and Northern Ireland. 1 Non-Executive Director for Employee Engagement • Developing, implementing and feeding-back on employee engagement ## Company Secretary initiatives; providing an employee voice in the Boardroom. • Representing the Board in discussions with employees and communicating Board decisions on specific matters. • Compliance with Board procedures and supporting the Chair. • Engaging with officers of trade unions and internal trade unions • Ensuring the Board has high quality information, adequate time and the representatives on key strategic issues affecting the workforce. appropriate resources. • Advising and keeping the Board updated on corporate governance developments. • Considering Board effectiveness in conjunction with the Chair. • Facilitating the Directors’ induction programmes and assisting with professional development. • Providing advice, services and support to all Directors when required. 1 The responsibilities of Senior Independent Director and Non-Executive Director for Employee Engagement apply in addition to those of non-Executive Director. 142 SSE plc Annual Report 2022 ### Composition, succession and evaluation ## Assessing Board ## performance ## 2021/22 Independent Board performance review process The Board monitors and improves performance by reflecting on the continuing effectiveness of its activities, the quality of its decisions and by considering the individual and collective contribution made by each Board member. In line with recognised best practice, the 2021/22 Board and Board Committee performance reviews were externally facilitated by Lintstock Ltd (Lintstock). Besides the provision of the Board and Board Committee reviews, there was no other contractual connection between SSE or the individual directors and Lintstock. The contents of this section of the Directors’ Report was reviewed by Lintstock in advance of publication, who agreed with its accuracy. | Stage 1. | Stage 2. | Stage 3. | Stage 4. | | --- | --- | --- | --- | | Selection of | Design of the | Review | Review report, | | independent | performance | process | discussions | | provider | review | | and actions | | • Several providers of Board | | • Considering the outcomes | | • A questionnaire was issued | | • Based on the information | | | --- | --- | --- | --- | --- | --- | --- | --- | | | performance review services | | and effectiveness of the | | to members of the Board, | | and views garnered from the | | | were invited to provide an | | two previous internal Board | | its Committees, and the | | review process, Lintstock | | | initial proposal as to how | | performance reviews, | | respective secretaries in | | produced the Board | | | they would approach the | | it was decided that a | | December 2021. To achieve | | and Board Committee | | | performance review on | | comprehensive review of the | | a comprehensive review, | | performance review reports | | | behalf of SSE. | | Board and its Committees | | questions were structured | | for review in March 2022. | | | | | would be achieved using a | | around agreed topics, | | | | • Virtual interviews were | | | | | | • The Chair, Chief Executive | | | | | | detailed questionnaire – to | | comprising: Board dynamics; | | | | | arranged with a shortlist of | | | | | | and Company Secretary and | | | | | be completed by the Board, | | Board composition; Board | | | | | respondents which explored | | | | | | Director of Investor Relations | | | | | Committee members and | | support; management | | | | | the detail of the proposal | | | | | | met with the Principal | | | | | secretaries – complemented | | and focus of meetings; | | | | | including proposed | | | | | | Reviewer to discuss the | | | | | by individual interviews with | | stakeholder oversight; | | | | | approach, costing and | | | | | | findings contained within | | | | | each member of the Board. | | strategic oversight; risk | | | | | previous experience in the | | | | | | the Board report in advance | management and internal offering of their services. • Throughout the process of sharing with the full control; and succession the Company Secretary complement of members. • After reviewing the proposal, planning and people. and Director of Investor An equivalent offer was and seeking the opinion of Relations assisted Lintstock • Across January 2022, made to Board Committee the Board, the Chair with in ensuring appropriate individual interviews were Chairs and secretaries, where the assistance from the access to Board members carried out with Board they could meet with the Company Secretary and and the materials required members and the Company Principal Reviewer if desired. Director of Investor Relations, to facilitate the review. Secretary and Director of appointed Lintstock. This was • The finalised report of Investor Relations to gain with assurance, that when it findings was presented to the deeper understanding became possible to become Board in person by Lintstock of the responses from the a signatory to the Code of at its March 2022 meeting. questionnaires. The interviews Practice for Independent were structured to allow Board Reviewers, they would. candid conversation as well as substantive discussion, across the range of identified topics. These interviews included specific consideration of Board dynamics, affording the reviewer the opportunity to make a robust assessment of how the Board works together without observing a Board meeting. 143SSE plc Annual Report 2022 Composition, succession and evaluation Assessing Board performance 2021/22 Independent Board performance review findings ![img-12.jpeg](img-12.jpeg) Board Committees pages 145 to 199 Individual Director performance page 117 page 148 Progress against 2020/21 actions Chair performance Continued Board engagement on strategy pages 126 to 131 Restart site visits and in-person employee engagement pages 137 to 139 Maintain topical deep dives and teach-ins page 148 144 SSE plc Annual Report 2022 ## Nomination ## Committee Report Dear Shareholder, SSE’s Net Zero Acceleration Programme The Nomination Committee champions provides a clear backdrop against which to SSE’s long-term success through its assess the competencies SSE will need in dedicated focus on people matters. Across the long term. We have reviewed the Board the Board and management, this centres skills matrix, which can be found on page on effective and inclusive leadership, with 117 , in this context, and spent time on confirmation that SSE has the breadth senior leadership development through of capability and perspectives to drive enhanced updates from Group HR. This measured decision-making and company has included oversight of an externally-led culture. The Committee focuses on leadership development review and succession planning for the Board itself, meeting with potential future leaders. We and the Group Executive Committee and will continue to review Board and executive senior management, as well as reviewing skills and capacity in light of future plans. supporting talent pipelines. Our focus ### Role of the Committee group-wide, is on attracting, retaining and A diverse and inclusive workplace remains The Nomination Committee provides developing the diverse talent needed for a priority for the Board and Nomination dedicated focus to the following SSE to deliver on its long-term plans. Committee, and underpins discussion at people-led matters. every level. As at 31 March 2022, the Board I am pleased to confirm the successful • Board leadership. Identifies the is 50% female and the Board Inclusion and appointment of three new non-Executive skills, knowledge and experience Diversity Policy has been updated to reflect Directors to the Board, with Dame Elish required for the effective leadership this as an enduring aim. As this position Angiolini and Debbie Crosbie joining us and long-term success of SSE, remains sensitive to both changes in the in September 2021, and John Bason due managing the balance of Board composition and size of the Board, we will to join us in June 2022. As explained on competencies through succession continue to assess the impact of proposals pages 146 to 147 , these changes result planning, knowledge development in relation to membership and succession. from two separate search processes, and targeted recruitment. When John Bason joins the Board in June and defined candidate specifications, • Board Committees. Monitors the 2022, female representation will be 46%. that align with SSE’s strategic ambitions. size, structure and composition of The Committee, and Board, believe the To assist our future work, we note the the Board’s Committees to ensure unique and diverse experiences brought by recommendation from the FTSE Women the necessary support now, and Dame Elish, Debbie and John will provide Leaders Review centred on increasing going forward, in line with additional rigour and challenge, thereby female representation within key Board succession plans. enhancing our discussions going forward. roles, and although we are currently in line • Talent pipeline. Monitors the with the Parker Review recommendation senior leadership pipeline and Board Committee membership was on ethnic diversity, we continue to consider initiatives to develop internal reviewed in September 2021 when opportunities for further progress. capability, engaging in leadership Dame Elish and Debbie joined, and we programmes and updates on have confirmed that John will join the At senior leadership level, whilst diversity external recruitment. Nomination Committee and the Audit has improved, there is a desire to accelerate • Inclusion and diversity. Under Committee, for which he is the intended the pace of change. We have therefore set the Board’s Policy, considers the Chair designate, upon appointment. Details revised ambitions, and actions, which we perspectives and attributes across of Committee membership refreshment will track the initial effectiveness of across the Board and senior leadership, are on page 149 . 2022/23. Details of these ambitions and our confirming ambitions and work to inclusion and diversity work is set out on drive progress, reviewing overall Dame Sue Bruce will achieve 9 years of pages 150 to 151 . support for Group-wide inclusion Board tenure in September 2022, and the and diversity strategy. Board has agreed our recommendation I am pleased to present this report and that her term be extended until 31 March welcome engagement on our people-led The Committee’s Terms of Reference 2023. This is to provide continuity as SSE agenda. are available on sse.com . seeks to introduce a new Remuneration Policy which will be voted on at the Annual General Meeting in July, and across the new pay policy which we have agreed with our trade unions. To ensure a smooth | handover in key Board roles, the Board has | Sir John Manzoni | | --- | --- | | further agreed that effective 1 April 2023 | Nomination Committee Chair | | Melanie Smith will take over as Chair of the | 24 May 2022 | Remuneration Committee, and Dame Elish Angiolini as the Non-Executive Director for Employee Engagement. 145SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Composition, succession and evaluation continued ### Nomination Committee Report continued ### Key activities in 2021/22 ## Committee evaluation • Reviewed Board composition and succession. The annual review of Committee performance was considered through the formal external Board evaluation conducted by Lintstock • Recommended new non-Executive (see pages 143 to 144 ). The output of the evaluation was considered Director appointments. at the Board in March, with follow-up actions agreed by the Committee for • Supported a revised Board progression across 2022/23. The Board confirmed the effective operation Inclusion and Diversity Policy. of the Committee in discharging its responsibilities. • Reset diversity ambitions for senior leadership. Evaluation • The quality of information to support the Committee in confirmed discharging its responsibilities was rated positively. • Non-Executive Director succession planning is supported by proactive process and clear oversight of Board capability. ### Membership and attendance • Inclusion and diversity is positioned high on the agenda and The membership of the Committee remains a clear priority in conjunction with the Board and comprises the non-Executive Directors and Group HR. the Chair of the Board, who is also Chair | of the Committee. The Company Secretary | Actions for | • Board composition. In line with the refreshed view of Board | | | --- | --- | --- | --- | | is Secretary, and where appropriate, the | 2022/23 | | skills, continue to review succession plans and the evolution | | Executive Directors are invited to attend | | | of the Board to support SSE’s long-term strategic ambitions. | | meetings. Biographical details of the | | • Executive succession and talent pipeline. Continue focus | | | Committee members can be found on | | | on talent and capability across senior leadership, reviewing | | pages 118 to 122 . The Committee | | | Group HR reports on high-potential candidates and internal | | met six times in 2021/22 with meeting | | | and external talent pools. | | attendance on page 125 . | | • Inclusion and diversity. Drive further progress surrounding | | inclusion and diversity across senior leadership roles, reviewing initiatives, plans and ambitions. ### Board leadership ### Composition and succession The composition of the Board is informed by the Committee’s plans for orderly succession | across key Board and Committee roles. This | concluded with the appointment of Dame | could impair the ability to meet the above, | | --- | --- | --- | | is supported by regular assessment of the | Elish Angiolini and Debbie Crosbie with | can only be accepted following approval of | | skills, experience and diversity the Board | effect from 1 September 2021, both of | the Board. The acceptance of an external | | needs in line with agreed strategy and | whom joined the Nomination Committee | appointment by an Executive Director is | | changes in SSE’s operating context. The | from the same date. In May 2022, following | further subject to Board consent. Approved | | backdrop to these discussions comprises | a process supported by Korn Ferry, it was | changes across 2021/22 are set out on | | the spectrum of Board work set out across | announced that John Bason would join | page 119 . | | the Directors’ Report, and the counterparts | the Board with effect from 1 June 2022. | | | of the Board composition dashboard and | As the intended Audit Committee Chair | Director re-appointment | | skills matrix on pages 116 to 117 . | designate, he will join the Audit Committee | All non-Executive Directors undertake a | | | and become a member of the Nomination | fixed term of three years subject to annual | | Following agreement through the prior | Committee from this time. Details of the | re-election by shareholders. The fixed term | | year’s evaluation, in September 2021, | supporting process for each is set out on | can be extended and consistent with best | | the Committee engaged in a refreshed | page 147 . | practice, does not exceed nine years unless | | assessment of Board skills. This was aligned | | defined circumstances are deemed to exist. | | to SSE’s strategic situation and coupled with | An updated title for the Group Energy | | | a view of non-Executive Director tenure, | and Commercial Director was further | Extensions recommended in the period | | including analysis of where collective and | recommended to the Board in March 2022, | were: a further three-year extension to the | | individual capabilities reside. As an evolution | with Martin Pibworth becoming Chief | tenure of Melanie Smith and Helen Mahy | | of existing process, it was used to test the | Commercial Officer from 1 April 2022. This | representing a second and third term in | | scope of in-flight workstreams, and confirm | saw no change in underlying executive | each case; and a time-limited extension | | both optionality and coverage for Board | responsibility and brings clearer alignment | to Dame Sue Bruce’s tenure to 31 March | | roles across the short, medium and | between Martin’s title and directorate role. | 2023. This is to provide continuity as SSE | | longer-term. Identified priorities were | | seeks to introduce a new Remuneration | | fed into the continuum of work on Board | | Policy, and to allow an orderly transition in | ### Time commitment composition, which saw the Committee the key roles of Remuneration Committee The expected time commitment of the support three non-Executive Director Chair and Non-Executive Director for Chair and non-Executive Directors is appointments in the period to 24 May 2022. Employee Engagement (see page 149 ). agreed and set out in writing in a Letter of Appointment. This is issued following In the 2021 Annual Report, it was In each case, the decision was supported confirmation of an individual’s capacity to confirmed that Spencer Stuart had been by the continuing independence, take on the role, based on an assessment engaged to support a prospective non- experience and contribution that each of existing external commitments and Executive Director search process following Director brings to both Board and demands on time. Any changes, such as the departure of Crawford Gillies. This Committee work (see pages 144 and additional external appointments which 148 ). 146 SSE plc Annual Report 2022 ## Non-Executive Director recruitment process The Committee agreed the appointment of a search firm who would be best placed to deliver ## Stage 1. a comprehensive candidate list through access to diverse search pools. Objective criteria were ### Objective criteria set to inform the development of a detailed role specification. | Search 1 | Search 2 | | --- | --- | | Rationale for appointment. Preserve Board diversity | Rationale for appointment. Support an orderly transition in | | and breadth of capability with a focus on the Scottish | the role of Audit Committee Chair and expand international | | operating context. | experience. | | Criteria to inform role specification | Criteria to inform role specification | | • Experience of Scottish politics and business environments. | • Recent and relevant financial experience. | | • Depth of understanding across national and local government. | • Exposure to business scale and operational complexity. | | • Commercial insight. | • International perspective. | Culture, inclusion and diversity (applicable to both Search 1 and Search 2) Complementing technical ability, role specifications reflected attributes to support SSE’s culture and were assured for the use of 1 inclusive language. Both firms engaged – Spencer Stuart and Korn Ferry – were, and continue to be, signatories to the enhanced voluntary code of conduct for executive search firms. Candidate pools further comprised corporate and non-corporate backgrounds with a key requirement being longlists that encompassed diversity of gender, ethnicity, lived experience and skills, where it was possible to identify relevant characteristics. 1 Spencer Stuart has no further connection with SSE. Korn Ferry provided its executive search service independent of other leadership development and reward consultancy support for which it is engaged by SSE. Candidate longlists were compiled by the search firm and reviewed by a sub-group of the Committee. ## Stage 2. Considering the role specification, individuals were identified for contact surrounding scope and ### Longlist review interest in the Board position. ### Longlist diversity (Search 1) Longlist diversity (Search 2) Female: 30% Male: 70% No ethnic minorities identified Female: 35% Male: 65% 3 ethnic minorities represented Following confirmation of interested individuals, a shortlist was agreed to meet face-to-face or virtually ## Stage 3. with Committee members. Based on feedback from these meetings, and strength of fit with the agreed ### Shortlist meetings role specification, preferred candidates were invited to meet the full complement of Board members. ### Shortlist diversity (Search 1) Shortlist diversity (Search 2) Female: 40% Male: 60% No ethnic minorities identified Female: 56% Male: 44% 1 ethnic minority represented Appointment recommendations, which remain subject to shareholder approval, were made to the ## Stage 4. Board based on the below assessments. This included confirmation that each individual would be ### Candidate selection deemed independent on appointment and had capacity to take on the role. ### Search 1 Search 2 Recommendation. The Committee agreed that Dame Elish Recommendation. John Bason was identified as a sound fit, Angiolini and Debbie Crosbie would bring strong and diverse with a recognised executive and non-executive career in global capabilities from their respective distinguished careers; Dame complex businesses – in the roles of Finance Director and Elish a legal professional and expert in policy and Debbie a Audit Committee Chair – overseeing successful growth and business leader skilled in operations, technology and IT. Each international joint venture structures. This was complemented possessed detailed understanding of SSE’s stakeholder context by a clear understanding of the listed company context. within Scotland, a proven ability to professionally challenge, and working styles which would complement SSE’s Board and Link to strategy. Contributes to experience of international people culture. operations and growth under SSE’s Net Zero Acceleration Programme, with strong awareness of finance and risk matters. Link to strategy. Bolsters support, and challenge, for SSE’s domestic growth plans and stakeholder-centric investment strategy. Full biographical details can be found on pages 118 to 122 . The skills and diversity of current Board members is set out on pages 116 to 117 . 147SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Composition, succession and evaluation continued ### Nomination Committee Report continued ### Conflicts of interest Additional safeguards to support Director • A teach-in on international growth independence are: markets in the USA and Europe. ### and independence • Meetings between the Chair and the • A session on electrification of vehicles Each Director has a duty to disclose non-Executive Directors, individually with Distributed Energy. any actual or potential conflict of and collectively, without the Executive • A teach-in on SSE’s cyber context from interest situations, as defined by law, for Directors present (see page 125 ). the Chief Information Office. consideration and approval if appropriate by • Separate and clearly defined roles for the Board. This requirement is supported by the Chair, as head of the Board, and the Through SSE’s mandatory training an annual conflicts authorisation process, Chief Executive, as head of executive programme, all Directors are requested where the Committee reviews SSE’s management (see page 142 ). This to refresh their understanding of current Conflicts of Interest Register and seeks division of responsibility is supported by obligations and recent developments in confirmation from each Director of any a degree of contact outside of Board areas pertinent to their role. These modules changes or updates to their position. meetings to ensure an effective ongoing address, among other matters: Directors’ dialogue and channel for the timely duties; competition law; anti-money This process informs the simultaneous escalation of external or internal laundering and financial sanctions; GDPR; assessment of a non-Executive Director’s developments. and inclusion and diversity. independence, as following the absence of any conflict, the Committee reflects upon ### Knowledge and training To remain abreast of, and connected to, the outcome of each individual Director’s Any Director can request further information broader societal trends, expectations and performance evaluation (see page 144 ) to support their individual duties or collective issues, the Directors are encouraged to and the circumstances set out in the Board role. The arrangements are overseen participate in seminars and events hosted Code which could compromise an by the Company Secretary and can be by external organisations. Discussion individual’s position. internally or externally facilitated, with with peers, other sectors and individuals sessions typically originating from technical in different professional and personal Following review in 2021/22, and to the Board discussions, an identified training situations develops broader perspectives exclusion of the interested Director in each opportunity or area of general interest and insights, which can translate into case, the Committee recommended and relating to SSE. 2021/22 sessions included: different thinking styles and new debate Board confirmed: updates to the Conflicts • The role of CCS. within Board discussions. of Interest Register; the continuing independence and objective judgement • An externally delivered session on of each non-Executive Director; and the energy markets dynamics and overall independence of the Board in line commodity pricing. with the recommendations of the Code. ### Director induction ## Dame Elish Angiolini and Debbie Crosbie Following appointment, all Directors ## receive a comprehensive and tailored induction programme induction programme. This is designed through discussion with the Chair and Areas covered Sessions provided by the Company Secretary and considers existing expertise and any prospective SSE’s purpose, strategic priorities Chief Executive Board or Board Committee roles. and balanced business operations. Group Strategy MD of each Business Unit The agreed plan for Dame Elish Angiolini Financial position, performance, Finance Director and Debbie Crosbie comprised over 20 investment and funding, including Senior Finance leaders interactive sessions with both internal credit ratings and external External Auditor functions and external advisors over an assurance. initial period of six months. This was structured to ensure that information Energy sector and trends, energy Chief Commercial Officer material to the non-Executive Director markets, net zero, sustainability Chief Sustainability Officer role was delivered in the early stages of and stakeholder engagement. Group Corporate Affairs the programme. These formal briefings, Corporate governance, Board Company Secretary and which provide an initial opportunity to operations and shareholder Director of Investor Relations meet senior leadership, are supported and investment community SSE’s brokers by operational site visits to provide perspectives. on-the-ground understanding of SSE’s Legal and regulatory views of General Counsel diverse business areas and working the operating context and SSE’s SSE’s Legal Advisors environments. Site visits are discussed risk profile. Director of Regulation further on pages 137 to 139 . Group Chief Information Officer An appropriate induction programme for Safety, health and the Director of HR John Bason will be agreed upon joining environment, people and culture. Group Safety, Health and the Board. Environment Manager 148 SSE plc Annual Report 2022 | | In line with the recommended extension | On talent and capability, updates are | | --- | --- | --- | | COP26: a significant | in Dame Sue Bruce’s tenure, in May 2022, | provided on: critical skills investment; | | | the Committee put forward the succession | people development; and performance | ### Board opportunity plan for the positions of Remuneration improvement, which are centred on an As a Scottish headquartered Committee Chair and the Non-Executive agreed set of leadership capabilities and company, the hosting of COP26 in Director for Employee Engagement, which competencies required for SSE’s long-term Glasgow provided a once-in-a-lifetime saw the Board approve the respective growth. In the context of SSE’s Net Zero experience for both the Board and appointments of Melanie Smith and Dame Acceleration Programme, emphasis has employees of SSE. Maximising the Elish Angiolini to these positions from been placed on commercial expertise, development and learning opportunity 1 April 2023. project delivery, digital, data, and the provided by the large number of international context, with these endorsed varied events and diverse stakeholders, Supporting these recommendations, as key areas for benchmarking and was an explicit objective of SSE’s was the Committee’s view that Melanie’s developing through SSE’s structured Principal Partner status. To ensure depth of strategy experience, approach training interventions. SSE’s Directors (non-Executive and to proactive engagement and focus Executive), alongside employees, on people development, are qualities Members of the Committee engage in core would experience the process of complementary to the position of talent programmes providing exposure multilateral climate negotiations; the Remuneration Committee Chair; bringing a to the talent pool and allowing reciprocal important role of non-state actors measured approach to setting relevant and sharing of experiences, with diversity across within that process; and hear first- stretching targets, with fair outcomes that training cohorts monitored in the approach hand, the direct experiences of climate are acceptable to all stakeholders. Melanie to encouraging and progressing difference. vulnerable nations and indigenous has further served on the Remuneration peoples, members of the Board in Committee since January 2020. Additional engagement with future leaders attendance in both the Blue and is facilitated through presentations at Green Zones of the climate conference For the Non-Executive Director for Board meetings, business-led sessions participated in over 100 different Employee Engagement, Dame Elish and conferences which the Directors events. These covered topics ranging brings rich experience in assimilating and are invited to attend. The open two-way from power systems innovation, the interpreting views across a multitude of dialogue between the Board and all levels electrification of heat to human rights settings, and is skilled in concluding and of the organisation is seen as a key tool and a just transition. communicating any required course of for observing and informally coaching action. This speaks to the core purpose of emerging talent. having a dedicated employee-Board link | Board Committees | and a desire to operate in an empathetic | As agreed in 2020/21, to support increased | | --- | --- | --- | | Board Committee composition is designed | and thoughtful way. | constructive discussion and measurement | | around the following principles: | | of SSE’s position, a stepped plan of work | | • to ensure alignment between skillset and | | comprising a refresh of SSE’s Leadership | ### Talent capability and development specific Committee responsibilities; Blueprint; agreement of an enterprise Succession for senior leadership roles and • to prevent undue reliance on the leadership profile; and an externally-led strategy to support talent development capacity of any Director; and leadership development review, have by building capability for the future, is • to comply with recognised guidance been subject to Committee oversight and overseen by the Committee with support including the Code. reflection. The outputs remain an area of from Group HR. focus to agree strengths and shape future Changes are recommended following talent work. On succession, at least annually, the directorate appointments and succession, Committee reviews the existing internal or in response to formal review. In 2021/22, pipeline of candidates for immediate and the Board approved recommendations medium to longer term movement into resulting in the below changes. key leadership and functional roles. This • Dame Elish Angiolini joined the SSHEAC is subject to routine challenge to ensure on 26 October 2021 and Remuneration understanding of the breadth of internal Committee on 15 November 2021. potential and experience represented by • Debbie Crosbie joined the Audit external talent pools. In 2021/22, enhanced Committee and EMRC on 23 February detail was provided on the Business Unit 2022. approach to strengthening leadership • Martin Pibworth replaced Jim Smith, teams, and the Committee and Board outgoing MD, SSE Renewables, on the remained updated on the processes SSHEAC on 1 January 2022. resulting in the appointment of Stephen Wheeler as MD, SSE Renewables from 1 January 2022 and Catherine Raw as MD, SSE Thermal from 21 April 2022. 149SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Composition, succession and evaluation continued ### Nomination Committee Report continued | Inclusion and diversity | agreed principles and targets which | a Board-level principal decision in the | | --- | --- | --- | | SSE’s Group-wide inclusion and | reflect the measures the Board will take | period and is discussed further below. | | diversity strategy is explained across | when considering its own membership | | | pages 64 to 65 , with the role of | and approach. | | ### Supporting wider initiatives the Committee being to confirm the Comprehensive updates have continued acceptability of plans, targets and progress, Through review in 2021/22, the Committee to cover the evolution of SSE’s Group-wide and to consider insights and findings from recommended a number of updates to the inclusion and diversity approach, and the the initiatives which are in place. Policy which are reflected opposite. factors influencing the choice of targeted initiatives alongside the extent to which they | The Board’s Policy | Senior leadership ambitions | have been embedded across SSE. Diversity | | --- | --- | --- | | The Board operates under a standalone | The Committee is focussed on increasing | scorecards detail the split of diversity criteria | | inclusion and diversity policy which is | the diversity of SSE’s senior leadership | including gender, ethnicity and disability | | available to view in full on sse.com . | population and pipelines, as championed | within recruitment processes for apprentices | | Its objective is to set a Board-led culture | by external initiatives such as the FTSE | through to senior leaders, and also across | | which is inclusive to all views, perspectives | Women Leaders Review and Parker Review. | the overall employee, new entrant and | | and experiences, and which embraces | To identify the levers for progress, close | leaver populations. Full details of the | | and encourages diversity as a norm. | work has taken place with the Executive | underlying strategic approach and progress, | | Across Board membership, the Policy | Directors and Group HR to develop | are set out on pages 64 to 65 , and within | | drives balance and alignment with SSE’s | targeted action, including revised and | SSE’s standalone Inclusion and Diversity | | purpose, strategy and values, through | stretching ambitions. This represented | Report 2022 which can be found on | sse.com . BOARD-LEVEL PRINCIPAL DECISION SUPPORTING STRETCHING AND SELF-LED AMBITIONS ### What did the Nomination Committee consider? Priorities to create the environment, which will support SSE as a diverse and inclusive organisation, and realise progress across the senior leadership and talent population. ### What did the Nomination Committee discuss? • Gender diversity progress across senior leadership and management populations in 2021/22, which had been subject to quarterly Group Executive Committee review. • The impact of attrition rates and internal vacancies to create opportunities for internal moves and hiring for difference. • Business Unit reporting of progress including agreed diversity priorities, and short and long-list diversity requirements. • Training to support success by going beyond policies and process, and through coaching people and challenging mindset. • Improvements in disclosure and data across the senior pool, to better understand SSE’s position and monitor change. ### What did the Nomination Committee approve? New ambitions to monitor and report progress. • Increase the proportion of women within the Group Executive Committee and its direct reports to 40% by 2025. • Increase female representation in SSE’s wider Leadership Group, which covers around 900 employees, to 40% by 2030. • Increase overall female representation across SSE to 33% by 2030. ### What were the material stakeholder considerations? • Employee perspectives. The Board considered external feedback from candidates, external partners and directly from the employee voice on the inclusivity of SSE’s approach and employer proposition (see page 138 ) in order to understand material issues and assess if they were being addressed. • Societal expectations. As a large organisation that directly employs around 11,000 people and that serves communities and customers, reflecting wider societal expectations across the internal inclusion and diversity agenda supports sustainable and respectful business operations. • Driving real change. Impacted by a historically low baseline, diversity progress across the energy sector has been slower than other industries but change is taking place. Credible ambitions, clear focus and transparent actions, are key to creating the balance which is required and to change sector bias surrounding the accessibility of roles. Link to 2030 Business Goal Champion a fair and just energy transition 150 SSE plc Annual Report 2022 ## The Board's Inclusion and Diversity Policy Linkage to strategy Policy principles Implementation and progress See pages 146 to 147 See pages 146 to 147 See pages 140 to 141 See page 144 See page 150 Policy targets (from 1 April 2022) Implementation and progress SSE plc Annual Report 2022 151 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Audit, risk and internal control ## Audit Committee ## Report strengthen the internal control framework ### and its effectiveness. As part of this Role of the Committee project, we undertook a benchmarking Financial reporting exercise against current controls with • Review the integrity of the interim support from an external adviser. The and annual Financial Statements. output of this exercise was used to • Review the appropriateness of develop a comprehensive roadmap and accounting policies and practices. implementation plan which the Committee • Review the significant financial regularly oversees. The Committee will judgements and estimates continue to review preparations for considered in relation to the anticipated reform during the year ahead. Financial Statements, including how each was addressed. Cyber security remains a major focus area • Review the content of the Annual for the Committee. The Director of IT and Report and Accounts and advise Dear Shareholder, the Chief Information Security Officer are the Board on whether taken as regularly invited to meetings to give an a whole, it is fair, balanced and On behalf of the Board, I am pleased to assessment of cyber risk and update on understandable. present the Audit Committee Report. This progress made in protecting the Group report is intended to provide shareholders against evolving threats. External audit with an understanding of the work we have • Review and monitor the objectivity done to provide assurance on the integrity As part of the Committee’s work to support and independence of the External of the Annual Report and Financial the refinement of an integrated assurance Auditor, and oversee the policy on Statements for the year ended 31 March model across the Group, the Committee the provision of Non-Audit Services. 2022. Much of the work of the Committee reviewed a draft of an Audit and Assurance • Review and monitor the is necessarily targeted around the key Policy which is in the process of being effectiveness of the external areas of financial reporting, external audit, developed for internal and external audit process and the ongoing internal audit, internal control and risk publication. relationship with the External management, all of which is underpinned Auditor. by a robust governance framework. The year ahead will no doubt continue to • Review and make recommendations bring challenges and opportunities, but the to the Board on the tendering of During the year, the Committee discussed Net Zero Acceleration Programme gives us the external audit contract, and the the proposed disclosures and assurance a clear sense of direction and the work of appointment, remuneration and programme to enable the Group to report the Committee will remain fully aligned terms of engagement of the against the Taskforce for Climate-related with the strategic direction of SSE. External Auditor. Financial Disclosures recommendations as described on pages 42 to 55 . Given I hope that you find this report informative Internal audit the increased focus and scrutiny on climate and take assurance from the work • Review and approve the Internal from investors, we reviewed climate undertaken by the Committee during Audit Plan and monitor its risk considerations to ensure they were the year. implementation. reported on throughout the Annual Report • Review and monitor the and Financial Statements on a consistent effectiveness of the Internal Audit basis. For the first time this year, a climate function, including the adequacy of consideration section is included with the the overall Internal Audit resource. Auditors’ Opinion on page 339 . Peter Lynas Internal control and risk management During the year, the Committee considered Chair of the Audit Committee • Review and monitor the the BEIS consultation on ‘Restoring Trust 24 May 2022 effectiveness of the management in Audit and Corporate Governance’ and of risk and overall System of Internal assisted the Board in formulating a position Control. on the key issues for inclusion in SSE’s • Review the framework and analysis consultation response. to support both the Going Concern and the long-term Viability At each meeting, we received an update on Statement. the audit and governance reform agenda, in addition to the project to further The Committee’s Terms of Reference are available on sse.com . 152 SSE plc Annual Report 2022 ### Key activities in 2021/22 ## Committee evaluation The Committee has a structured forward looking planner to reflect the The actions identified from the evaluation of the Audit Committee in 2020/21 as Group’s annual financial reporting reported on last year were monitored through to completion. The evaluation of cycle. The planner informs the the Audit Committee during 2021/22 was externally facilitated by Lintstock and business considered at each meeting was based around a bespoke questionnaire and interviews with members of the and is regularly reviewed and updated Committee. The output of the evaluation was considered at the Board in March to reflect areas identified for and follow-up actions were agreed at the Committee meeting in May 2022. The additional focus. The practice of Board confirmed the effective operation of the Audit Committee in discharging effective governance and quality its responsibilities. reporting underpin all aspects of the work of the Committee. The key areas Evaluation • Meetings are chaired effectively, dedicating sufficient time of focus in the year included: confirmed to key issues, and giving all members the opportunity to contribute. | • Assessing the impact of | | | • The quality of information to support the Committee in | | | --- | --- | --- | --- | --- | | | climate change on accounting | | | discharging its responsibilities was rated positively. | | | assumptions and disclosure, | | • The oversight of new developments such as TCFD and | | | | including the reporting of TCFD | | | internal control over financial reporting received strong | | | recommendations. | | | coverage. | | • Overseeing a project to enhance | | Actions to | • Ensuring a smooth transition of Audit Committee Chair. | | | | the internal control framework for | progress | • Supporting developments to enhance the approach to | | | | financial reporting influenced by | during | | risk management. | | | the audit and governance reform. | 2022/23 | | | • Developing the approach to integrated assurance across the Group. • Assessing the Company’s readiness ### Meetings and future areas of focus required ## The Committee met on four occasions Fair, balanced and to address areas of anticipated during the year and has met once since ## audit and corporate governance understandable the end of the financial year. Before each change. meeting, the Committee Chair meets with ## assurance framework the Finance Director and External Auditor The assurance framework used in to ensure there is a shared understanding the preparation of the 2022 Annual of the key issues to be discussed. ### Committee membership Report and Accounts to assist the Committee meetings are held in advance The composition of the Committee is Directors in the discharge of their of Board meetings to facilitate an effective compliant with the Code and currently requirement to state that, taken and timely reporting process. The comprises four independent non-Executive as a whole, it is fair, balanced and Committee Chair provides a report Directors as Committee members. Debbie understandable and provides the to the Board following each meeting. Crosbie became a member of the Audit information necessary for shareholders Committee on 23 February 2022 and to assess the Company’s performance, Meetings are routinely attended by: the brings broad financial and commercial business model and strategy is as Chair of the Board; the Finance Director; the experience to the Committee. Peter Lynas follows: Director of Group Risk and Audit; Partners has chaired the Committee since 2014 and • a verification process dealing with from the External Auditor; and the Deputy is considered by the Board to have recent the factual content; Company Secretary (who is Secretary to the and relevant financial experience. He was • comprehensive reviews undertaken Committee). Senior finance and business Group Finance Director of BAE Systems plc independently by senior managers are invited to attend certain until 31 March 2020 and is a Fellow of management to consider meetings to enable the Committee to gain the Chartered Association of Certified messaging and balance; a deeper level of insight on particular items Accountants. The Board considers • comprehensive reviews undertaken of business. The Committee meets with the Audit Committee as a whole has by the Company’s Brokers to the External Auditor privately at least twice competence relevant to the sector, with ensure consistency and balance; each year in line with the financial reporting two members having had significant • reporting by the External Auditor of calendar and also with the Director of executive roles in the energy sector, and any material inconsistencies; and Group Risk and Audit. These engagements all members possessing an appropriate • comprehensive review by the provide an additional opportunity for level of experience in corporate financial Directors and the senior open dialogue and feedback without matters. Biographical details of the Audit management team. management being present. Committee members can be found on pages 118 to 122  and details of meeting The Committee and Board received In addition to the scheduled meetings, attendance are set out on page 125 . confirmation from management that the Committee Chair meets separately the assurance framework had been with the Finance Director, Director of adhered to for the preparation of the Group Risk and Audit, External Auditor 2022 Annual Report. and Committee Secretary to ensure the work of the Committee is focused on key and emerging issues. 153SSE plc Annual Report 2022 # Audit, risk and internal control Audit Committee Report # Key activities during the financial reporting cycle SEPTEMBER MEETING NOVEMBER MEETING Key focus: External audit planning Key focus: Half-year Results review ![img-13.jpeg](img-13.jpeg) ![img-14.jpeg](img-14.jpeg) SEPTEMBER 2022 OCTOBER NOVEMBER DECEMBER Others focus areas Internal control and risk management Others focus areas External audit Internal audit Internal control and risk management Governance Internal audit Governance 154 SSE plc Annual Report 2022 FEBRUARY MEETING MAY MEETING Key focus: External Audit control testing and Internal Audit Key focus: Full-year Results review planning The Committee considered the findings from the External The Committee reviewed and challenged the Auditor’s controls report and reviewed progress on delivery appropriateness of the accounting in relation to the of the audit strategy. The Committee approved the Internal significant financial judgements, estimates and exceptional Audit Plan for 2022/23. items in 2021/22. The Committee received a report from the External Auditor covering the accounting, financial control and audit issues identified during the full-year audit. The Committee reviewed the Preliminary Results, 2022 Annual Report, letter of representation issued to the External Auditor and made a recommendation to the Board to approve. FEBRUARY 2022 MARCH APRIL MAY Full-year Full-year Results 31 March 2022 25 May 2022 Others focus areas Others focus areas ### External audit Financial reporting • Reviewed the independence and objectivity of the External • Reviewed the TCFD disclosures. Auditor, including the level of non-audit fees. • Reviewed a report on the Group’s tax position covering adjusted underlying tax rate, areas of potential tax exposure and ### Internal audit provisioning and Fair Tax Mark accreditation. • Received an update on the work undertaken by Internal Audit, ### including progress with the 2021/22 Internal Audit Plan, External audit significant findings and audit actions. • Reviewed the effectiveness of the External Auditor and audit process. ### Internal control and risk management • Reviewed the independence and objectivity of the External • Received an update on the work undertaken by Group Auditor, including the level of non-audit fees. Compliance, including resource and progress with the ### compliance review programme and resulting actions. Internal audit • Received an update on Group-level fraud risks, corruption • Received an update on delivery of the 2021/22 Internal and anti-financial crime governance. Audit Plan, progress with the 2022/23 Internal Audit Plan • Considered scenarios aligned to the Group’s Principal Risks and approved the three-year Internal Audit Plan. to stress test the viability assessment. • Reviewed and confirmed the effectiveness of the Internal • Received an update on progress with the project to further Audit function. strengthen the financial control framework. ### • Reviewed the proposed disclosure plan and assurance for TCFD. Internal control and risk management • Reviewed Treasury operations, including the funding plan, • Reviewed the effectiveness of the System of Internal Control. liquidity and approved a range of treasury related transactions. • Reviewed Treasury operations, including the funding plan, liquidity, going concern, hedging and credit ratings and ### Governance approved a range of treasury related transactions. • Received an update on governance covering the Committee’s • Reviewed the analysis to support the Viability Statement. Terms of Reference and Non-Audit Services Policy; the • Received an update on progress with the project to further approach to the evaluation of the External Auditor, audit process strengthen the financial control framework. and Internal Audit; and the reporting themes for the 2022 Audit • Received an update on Cyber Risk and Information Security Committee Report. across the Group including Operational Technology. • Received a report on the qualifying companies in the Group ### required to publish reports on their payment practices, policies Governance and payments, and sought assurances, where necessary, that • Approved the narrative of the 2021/22 Audit Committee Report further improvement plans were in place. and Principal Risk related disclosures. • Received a report on the disclosure of information to the External Auditor. 155SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Audit, risk and internal control continued ### Audit Committee Report continued | Financial reporting | Significant financial judgements | Going Concern and | | --- | --- | --- | | The Annual Report and Accounts seek | and estimates | Viability Statement | | to provide the information necessary to | In the process of applying the Group’s | The Committee reviewed the information | | enable an assessment of SSE’s position and | accounting policies, management | to support the assessment and disclosure | | performance, business model and strategy. | necessarily makes judgements and estimates | of the Going Concern Statement prior to | | In preparing the Financial Statements for | that have a significant effect on the amounts | Board approval (see A6.3 Accompanying | | 2022 there are several areas requiring the | recognised in the Financial Statements. In | Information to the Financial Statements). | | exercise of judgement or a high degree | consultation with the External Auditor, the | Given the cash surplus of £1.0bn at 31 March | | of estimation. | Committee reviewed the significant financial | 2022; the undrawn committed borrowing | | | judgement areas and identified five specific | facilities of £1.5bn maintained by the Group; | | Throughout the year, the Finance team | areas for 2021/22, an increase of one | the current commercial paper market | | worked closely with the External Auditor to | significant financial judgement areas from | conditions, with £507m outstanding at | | ensure SSE provides the required level of | the prior year. Accounting for the SSE | 31 March 2022; and the assumption the | | disclosure, including the appropriateness | disposal programme, an area of accounting | Group will be able to refinance maturing | | of alternative performance measures | judgement and estimation uncertainty | debt, the Directors have concluded that both | | (APMs) and their consistency with IFRS | reported on last year, was no longer | the Group and SSE plc as Parent Company | | financial information. This section outlines | considered by the Committee to be a | have sufficient headroom to continue as a | | the significant areas of judgement that have | significant financial judgement at the | going concern. In coming to this conclusion, | | been considered by the Committee – | year-end. Due to recent market volatility, | the Directors have considered sensitivities on | | through discussion and detailed reporting | management has recognised a provision | future cashflow projections resulting from | | by both management and the External | for expected credit loss in relation to the | the Group’s credit rating; the success of the | | Auditor – to ensure appropriate rigour | recoverability of £100m loan note due from | Group’s disposal programme through | | has been applied. Other key accounting | Ovo Energy Limited following the disposal | 2020/21 and 2021/22; and the successful | | judgements and areas of estimation | of SSE Energy Services on 15 January 2020. | issuance of £2.5bn of medium to long-term | | uncertainty applied in the preparation | The assessment of the value of the loan in | debt and hybrid equity during the financial | | of the Financial Statements for 2022 are | now considered by the Committee to be a | year 2020/21, along with £1.2bn of long- | | provided in notes 4.2 and 4.3. | significant financial judgement. In addition, | term debt and hybrid equity since the March | | | the impact of climate change and the | 2022 financial year end. In the very unlikely | | The Independent Auditor’s Report on | transition to net zero has been included as | event of not being able to access the | | pages 336 to 346  sets out the audit | a significant financial judgement this year. | revolving credit facility or otherwise | | approach and highlights the other key audit | | refinance as may be required, the Group’s | | matters that EY drew to the attention of the | The Group’s most significant financial | options include deferring uncommitted | | Audit Committee. These areas of audit focus | judgement areas, some of which are | capex and implementing further cost | | include: going concern; decommissioning | also areas of estimation uncertainty, are | reductions. The Financial Statements are | | provisions; provisions and claims; customer | explained below. For each of these areas | therefore prepared on a going concern basis. | | debtor recoverability; Supplier of Last | the Committee considered the key facts | | | Resort; carrying value of tangible and | and judgements outlined by management, | The Committee agreed the parameters | | intangible assets; taxation judgements; | and requested the External Auditor to | and reviewed the supporting report for the | | exceptional items and APMs; recoverability | provide a professional view on whether the | Board’s assessment of the prospects of the | | of £100m Ovo loan note; ROCs recycle | judgements are appropriate. The Committee | Company which is covered in the Viability | | price; contingent consideration; and | specifically discussed with the External | Statement on page 70 . In doing so, | | segmental reporting. | Auditor how management’s judgement | the Committee considered the Net Zero | | | and assertions were challenged and how | Acceleration Programme which includes a | | | professional scepticism was demonstrated | fully funded capital investment programme | | | during their audit of these areas. This also | to 2026 and as such, the viability period has | | | included the adequacy of the disclosures | been extended to four years. | within the Financial Statements. Significant financial judgements and estimates for the year ended 31 March 2022 How those were addressed by the Audit Committee Retirement benefit obligations (Estimation Uncertainty) The assumptions in relation to the cost of providing post-retirement The assets and liabilities of the Group’s defined benefit retirement schemes benefits during the period are based on the Group’s best estimates and are are regularly reviewed. Advice is taken from independent actuaries on the set after consultation with qualified actuaries. While these assumptions are IAS 19R valuation of the schemes. The Committee was updated on the believed to be appropriate, a change in these assumptions would impact schemes’ valuation and considered the findings of the External Auditor the level of the retirement benefit obligation recorded and the cost to the in relation to the scheme’s key assumptions relative to market practice. Group of administering the schemes. Following this review, the Committee supported the judgements made. Further detail of the calculation basis and key assumptions used, the resulting movements in obligations and the sensitivity of key assumptions to the obligation is disclosed at note 23. 156 SSE plc Annual Report 2022 Significant financial judgements and estimates for the year ended 31 March 2022 How those were addressed by the Audit Committee Impairment testing and valuation of certain non-current assets (Financial judgement and estimation uncertainty) Revenue recognition – customers unbilled supply of energy (Estimation uncertainty) Impact of climate change and transition to net zero (Financial judgement and estimation uncertainty) Page 49 pages 42 to 55 Disposal programme and valuation of other receivables (Financial judgement and estimation uncertainty) SSE plc Annual Report 2022 157 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Audit, risk and internal control continued ### Audit Committee Report continued ### External audit management. EY shared an independent • insight around the key accounting and perspective on certain aspects of the audit judgements and the competence ### External Auditor Group’s financial control and IT systems with which the External Auditor has Following a competitive tender process, arising from its work, and reported findings applied constructive challenge and EY were appointed by shareholders as to the Committee in February 2022. professional scepticism in dealing SSE’s External Auditor for the financial with management; and year commencing 1 April 2019. EY were During the course of the year, EY shared • the outcome of the review of re-appointed by shareholders at the 2021 insights and feedback with management, effectiveness of the External Auditor AGM and have continued to serve as SSE’s and held debriefs to refine the planned and audit process discussed below. External Auditor. Hywel Ball is the Senior audit approach for the financial year ended Advisory Partner and Annie Graham is the ### 31 March 2022. Independence and objectivity Lead Audit Partner with responsibility for signing the SSE plc Audit Opinion on behalf In addition to the annual review of ### of EY. Annie Graham leads the engagement External Auditor and audit effectiveness, the Committee considered team and has been in post since EY were the independence and objectivity of the ### process effectiveness appointed and will be required to rotate External Auditor through: a combination of An important part of the Committee’s after five years. assurances provided by the External Auditor work consists of overseeing the Group’s on the safeguards in place to maintain relationship with the External Auditor to EY presented the strategy and scope of independence; oversight of the Non-Audit ensure the independence, quality, rigour the audit for the forthcoming financial year Services Policy and fees paid; and oversight and challenge of the external audit process at the meeting of the Committee held in of SSE’s policy on employing former is maintained. The Committee reviews the September 2021, highlighting key areas of auditors. The External Auditor confirmed effectiveness of the audit throughout the audit focus (included within the Auditor’s that all its partners and staff complied with year taking into account: Report on page 336 ). EY reported against their ethics and independence policies • the detailed audit strategy for the year their audit scope at subsequent Committee and procedures including that none of its and coverage of the highlighted risks, meetings, providing an opportunity for the employees working on the audit hold any scope, and level of fees for the audit; Committee to monitor progress and raise shares in SSE plc. • the quality, knowledge and expertise of questions, and challenge both EY and the engagement team; ## Effectiveness of External Audit Feedback to inform the review of the effectiveness of External Audit External Audit Management External Auditor Audit Committee Assurance from EY Assess output from survey Assess delivery of the audit Assess output from annual covering independence of those subject to the strategy and Independent Audit Committee evaluation. (relationships, services external audit process. Auditors’ Report. Assess output from survey and related threats and Assurance on the disclosure Assess output from survey of Audit Committee safeguards) and the matters process for the provision of of Audit Partners on the members, regular attendees raised in the FRC’s Annual information to the auditors external audit process. and Group Finance. Quality Review inspection has been adhered to. Assurance on the operation reports and remedial of audit quality process at actions (if any) taken audit firm. by the audit firm. Outcome Following consideration of all elements of the audit effectiveness review process, in addition to taking account of the engagement and communication between the Audit Committee, management and External Auditor, the Committee confirmed it was satisfied that the external audit process provided by EY had been delivered effectively. The Committee concluded that EY had demonstrated a depth of knowledge, as well as an appreciation of complex issues, whilst providing constructive, independent and objective challenge to management. The Committee requested that debrief sessions be held between the External Auditor and finance management team to consider any areas to enhance the audit process control environment going forward. 158 SSE plc Annual Report 2022 | Non-Audit Services Policy | | | involved is closely related to the work | the absence of any apparent threat | | --- | --- | --- | --- | --- | | The Committee oversees the Non-Audit | | | performed in the audit and the threats | to auditor independence, approval for | | Services Policy which governs the | | | to auditor independence are ‘clearly | the provision of any Non-Audit Service | | process for approving certain Non-Audit | | | insignificant’. Such engagements are | must be obtained from the Audit | | Services provided by the External Auditor. | | | routinely pre-approved by the Audit | Committee. The Audit Committee has | | The Policy was reviewed by the | | | Committee as part of their approval | pre-approved the use of the External | | Committee during the year to ensure that | | | of the total annual audit fee. Before | Auditor for whitelist Non-Audit | | it remained fit for purpose and aligned to | | | engaging in any work of this type, | Services subject to the following limits: | | the FRC’s whitelist of Permitted Audit- | | | approval is required from the | The Finance Director up to £50,000 | | Related and Non-Audit Services. In | | | Finance Director. | and Audit Committee Chair up to | | addition, SSE is required to cap the level | | • Non-Audit Services. These are | | £100,000. | | of non-audit fees paid to its External | | | services other than ‘Audit-Related | | | Auditor at 70% of the average audit fees | | | Services’ for which the External Auditor | | | paid in the previous three consecutive | | | is an appropriate provider. The threats | | | financial years. Services provided by | | | to independence arising from such | | | the External Auditor are split into two | | | services are not necessarily ‘clearly | | | categories for the purposes of approval: | | | insignificant’ and the Committee and | | | • Audit-Related Services. These services | | | External Auditor must consider the | | | | are largely carried out by members of | | threats to independence and whether | | | | the audit engagement team. The work | | any safeguards should be applied. In | | ### External Auditor fees EXTERNAL AUDITOR FEES The Committee considered the audit fee proposal for the year to 31 March 2022 at its meetings in September 2021 and £1.9m £0.28m £2.18m agreed the fee at its meeting in November 2021. The factors driving the increase in the level of fees over the last three years were discussed with the External Auditor. £2.5m £0.2m £2.7m The impact of increasing regulatory requirements, changes in the business and composition of the Group and the level of complexity requiring an increased £3.8m £0.1m £3.9m proportion of specialist resource were amongst some of the factors taken into consideration by the Committee when agreeing fair commercial arrangements Audit and Audit-Related Services with the External Auditor. The Committee Non-Audit Services keeps under review the services provided by the External Auditor by reviewing a fee report at each meeting. ### Non-Audit Services amounted to £0.1m Re-appointment of The Committee concluded that it is satisfied and principally related to regulatory with the objectivity and independence of the ### the External Auditor accounts and returns required by Ofgem External Auditor, and that the effectiveness The external audit contract will be put out and comfort letters in connection with of the external audit process delivered by EY to tender at least every 10 years and will funding and debt issuance. The Committee was robust. The Committee proposed to the be conducted by no later than 2029 in line was satisfied that the work was best Board that it seek shareholder approval for with prevailing best practice. The Committee handled by the External Auditor because the re-appointment of EY for the financial confirms ongoing compliance with the of its knowledge of the Group and the year ending 31 March 2023. Statutory Audit Services for Large Companies services provided did not give rise to threats Market Investigation (Mandatory Use of to independence. All Non-Audit Services Competitive Tender Processes and Audit were approved in accordance with the Committee Responsibilities) Order 2014. Non-Audit Services Policy and adhere to the FRC Ethical Standard. Fees paid to EY during the year are made in note 6 to the Financial Statements. 2019/20 2020/21 159SSE plc Annual Report 2022 2021/22 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Audit, risk and internal control continued ### Audit Committee Report continued ### Internal audit Internal Audit Plan the Director of Group Risk and Audit who The Internal Audit Plan is structured joined SSE in early 2020. The Committee ### Role of Internal Audit to align with SSE’s operating model, risk received an update with an overview of the Internal Audit plays an important role in profile, control environment and assurance strategic objectives for the function and helping the organisation deliver its vision arrangements. The Internal Audit Plan supported the objective to strengthen the and objectives by providing independent is split between a one-year plan and a skills and experience of the team. and objective assurance to management, the Committee and Board on the three-year strategy setting out the broader ### effectiveness of SSE’s risk management areas of Internal Audit focus, together with Internal control and risk activities, internal controls and corporate the vision and resource for the function. ### management governance framework. Internal Audit, led External providers may be engaged to ### Internal control by the Director of Group Risk and Audit, support delivery of the Internal Audit plan The Board has delegated to the reports to the Committee and functionally where specific skills and expertise require Committee responsibility for reviewing to the Finance Director. The purpose, to be co-sourced. An integrated assurance the effectiveness of SSE’s System of scope and authority of Internal Audit is mapping and planning process is Internal Control. This covers all material defined within its charter which is approved undertaken to ensure that Internal Audit controls including financial and compliance annually by the Committee. work is appropriately aligned to, and controls, in addition to the financial coordinated with, the activities of other reporting process. Internal control and risk In fulfilling its role, Internal Audit seeks relevant assurance providers across the management in relation to SSE’s energy to add value by encouraging continual Group. The Plan includes audits of key market related exposures are overseen improvement in the effectiveness of transformational programmes, financial by the Energy Markets Risk Committee business planning, operations and control and areas relating to responsible and further information can be found on systems, promoting wherever possible behaviour and non-financial risk. pages 162 to 163 . enhancements to internal control ### processes, and seeking to embed ‘best Internal Audit effectiveness During the year, the Committee received practice’ throughout the SSE Group. The Committee keeps under review an update at each meeting from the project and assesses the independence and team established to assess and strengthen At each Committee meeting, an update effectiveness of Internal Audit by adopting the financial reporting control environment in on Internal Audit is provided covering the process outlined below. anticipation of a SOX style framework being an overview of the work undertaken introduced in the UK. The timing of the in the period, actions arising from audits The assessment considered Internal Audit’s implementation legislation remains unclear, conducted, the tracking of remedial actions, positioning within the organisation and however, management has continued to and progress against the Internal Audit the quality of its planning and operational monitor regulatory developments and Plan. The Committee routinely meets procedures. The assessment incorporated provide regular updates to the Committee. independently with the Director of Group a survey of Internal Audit’s stakeholders Risk and Audit to discuss the results of the across the Group, along with a review of To assist the Committee’s review of the audits performed and any additional insights outputs from a number of recent internal System of Internal Control, the different obtained on the risk management and audits. During the year, a review of the elements are evaluated by relevant control environment across the organisation. Internal Audit function was carried out by key stakeholders. ## Effectiveness of Internal Audit Feedback to inform the review of the effectiveness of Internal Audit Internal Audit Management External Audit Committee Assess delivery of the Assess output from survey Assess feedback provided Views from members of the Internal Audit Plan. of Group Executive from the External Auditor. Audit Committee. Committee and other Assess audit resource Assess progress against the key members of senior and expertise. actions identified during the management. previous evaluation. Outcome Following consideration of all elements of the review, the Committee recognised the progress made during the year and confirmed it was satisfied with the overall performance of the Internal Audit function. The key areas of focus for 2022/23 include: recalibrating the Internal Audit function to adopt leading practices through digital, technology and data analytics; implementation of a people based strategy that can support talent, career development and succession; and an enhanced approach to identification, management and mitigation of risk. 160 SSE plc Annual Report 2022 ### These evaluations are assessed by the Risk management Internal control and risk Finance Director and a letter is provided The Group’s Risk Management Framework ### management effectiveness to the Committee summarising the work is designed to manage rather than eliminate Following the Committee’s review and conducted in the year to improve the control the risk of failure to achieve business recommendation, the Board agreed that environment and making a recommendation objectives. It can only therefore provide SSE’s System of Internal Control (including on the overall effectiveness of the System reasonable and not absolute assurance risk management) continues to be of Internal Control. In addition, when against material misstatement or loss. effective. This was in accordance with the undertaking the review of the effectiveness In addition to the ongoing review of requirements of the FRC Guidance on Risk of the System of Internal Control, the emerging risks, the Board carried out a Management, Internal Control and related Committee considers the assurance robust assessment of the Principal Risks Financial and Business Reporting. Taking evaluations undertaken annually by the facing the Group, being those that have the into account continuous improvement Managing Directors of each of SSE’s seven potential to threaten its business model, actions, the Board also confirms that no Business Units. These assurance evaluations future performance, solvency or liquidity. significant failings or weaknesses have consider each framework of the system Further details of the Group Principal Risks been identified during the financial year. of internal control form a Business Unit are set out on pages 71 to 81 . Processes are in place to ensure that perspective and include any planned necessary action is taken and progress is improvements to enhance controls. These monitored where areas for improvement improvements are tracked, with updates have been identified. reported to the executive-level Group Risk Committee on a regular basis. ## System of Internal Control | The elements that make up the System of | | For further details please see pages 2 | | | day operations of the Business | | --- | --- | --- | --- | --- | --- | | Internal Control are: | | | to 5  of the Strategic Report. | | Units and corporate functions. It is | | • Governance Framework. Designed to | | • Risk Management Framework. This | | | made up of Internal Audit, Group | | | ensure focus on the key components of | | framework supports each Business Unit | | Compliance, Large Capital Projects | | | high quality and effective decision making | | in managing its risks and helps to ensure | | Services and Group Safety, Health | | | – clarity, accountability, transparency and | | that the Board can meet its obligations. | | and Environment. | | | efficiency. For further details please see | | The framework is underpinned by the | • Standards and Quality Framework. | | | | page 124  of the Directors’ Report. | | fundamental principle that everyone at | | Sets out the expected standards | | • Strategic Framework. This includes | | | SSE is responsible for the management | | and guidelines to be followed in the | | | Group’s strategic objectives, financial | | of risk. | | delivery of the Group’s core purpose. | | | objective and sustainability goals and | • Assurance Framework. An integrated | | | | | | forms the basis for all activity within | | programme of audit and assurance | | | | | the Risk Management Framework. | | activity that is independent of the day to | | | Governance Strategic Risk Management Assurance Standards and Framework Framework Framework Framework Quality Framework Group Risk Management and Internal Control Policy Board and External Audit Review of the Group Policies Board Committees Internal Audit Effectiveness of the System of Internal Control Strategic Objectives Principal Risk Group Compliance Self-Assessment Group Executive Financial Group Safety, Health Committee and Objective Risk Appetite Statement Governance and Environment Executive Manuals sub-Committees Viability Assessment Large Capital Key Risk Indicators Projects Services Sustainability Goals Business Unit Business Unit Principal Executive Risk Self-Assessment Business Unit, Policies, Business Committees and Procedures, Processes Assurance Evaluation Assurance Corporate Support and Systems Functions Risk Blueprint 161SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Audit, risk and internal control continued ## Energy Markets Risk ## Committee Report Dear Shareholder, SSE’s Half and Full-year Results statements. For further details of SSE’s latest hedging This report aims to give insight into approach and hedging position see pages how the Energy Markets Risk Committee 88 to 89 . (EMRC) operates, provide an outline of our | activities, and to summarise the role we | To enhance the internal control and risk | | --- | --- | | have played in overseeing SSE’s energy | management approach in relation to | | markets risk exposures and ensuring the | energy markets, a Group Energy Markets | | effectiveness of related risk management, | Exposure Risk Committee was established | | controls and processes, for the year ending | in 2021/22, to provide a forum for SSE’s | | 31 March 2022. | senior management to discuss and | consider energy market risks and exposures Our main responsibility is to oversee monthly. This forum reports to the Group governance arrangements, which provide Executive Committee and minutes of ### Role of the Committee transparency surrounding SSE’s approach meetings are provided to the EMRC for The Committee oversees SSE’s energy to managing commodity price exposures. review and comment. markets risk exposures by: Reports of these exposures are reviewed • monitoring and supervising SSE’s and discussed at each EMRC meeting. Across the period, we continued to monitor hedging approach; When required, actions are recommended the coronavirus pandemic receiving regular • assessing any potential emerging to the Board for approval, including any updates on its economic consequences energy market issues and risks; and changes to SSE’s hedging approach. and energy market related impacts. This • reviewing SSE’s internal control and included reports and minutes from the risk management in this area. Recently, we have overseen SSE Group-level Demand Management Renewables’ continued assessment of Committee, which was set up to monitor In doing so, it assists the Board its approach to hedging, including: the impact of the coronavirus pandemic on in the effective discharge of its • Further refinement, where appropriate, SSE Business Energy’s and SSE Airtricity’s responsibilities in relation to risk of the use of equivalent gas and carbon customer demand profile. management and internal control trades as a replacement for power trades in this area. along the forward curve. This aims to For the year ahead, the main priority for the both optimise the hedge prices achieved EMRC is to continue its oversight role in The Committee’s Terms of Reference and reduce the exposure of SSE’s wind relation to SSE’s energy markets risks and are available on sse.com . assets to volatile spot power market exposures. Given the ever-changing external outcomes, while still providing a hedge environment, we will provide particular for most of the anticipated energy and focus to the impact, management, and carbon commodity price exposure. mitigation of relevant macroeconomic and • Ongoing assessment of market conditions geopolitical events. This will include the to optimise hedging outcomes. This has impact of a prolonged or an escalated SSE approach to hedging included an increase in SSE Renewables’ conflict between Ukraine and Russia SSE has an established approach to position against its target hedge volume and its influence on energy market prices hedging through which it generally for financial year 2024/25, in response to and volatility. seeks to reduce its broad exposure to continued high prices and observed commodity price variation in relation volatility in energy markets. I hope you find this report informative and to electricity generation and supply reflective of the activities undertaken by the at least 12 months in advance of I would like to highlight that during the EMRC during 2021/22. delivery. As market conditions year, despite the historically high and change, SSE may be required to vary volatile prices seen on energy markets, its hedging approach to take account SSE was served well by its measured of any resultant new or additional hedging approach and successfully Tony Cocker exposures. SSE will continue to managed any increasing credit and Chair of the EMRC provide a summary of its current collateral requirements. As a committee, 24 May 2022 hedging approach, including details we will continue to monitor and oversee of any changes in the period, these exposures, and should circumstances within its Half and Full-year Results lead to any change in approach being Statements. Detail’s of SSE’s latest required, these will be fully discussed, hedging approach and hedging challenged and appropriately reported in position are set out on pages 88 to 89 . 162 SSE plc Annual Report 2022 and expertise across the EMRC’s ### Key activities in 2021/22 membership, ensuring it is able to effectively ## Committee evaluation discharge its duties. Upon joining, Debbie | • Continued to monitor the impact | | Crosbie was provided with a committee | The annual review of Committee | | --- | --- | --- | --- | | | of the coronavirus pandemic; | induction by senior managers which covered | performance for 2021/22 was | | | developments in international | the key focus areas of the EMRC. | considered through the formal | | | commodity markets; and the | | external Board evaluation conducted | | | impact of the geopolitical | The composition of the EMRC allows for the | by Lintstock (see pages 143 to 144 ). | | | tension and then Russia’s invasion | utilisation of the relevant experience held by | The evaluation rated the performance | | | of Ukraine. | the non-Executive Directors. As EMRC Chair, | of the EMRC and the Chair highly. | | | | Tony Cocker brings extensive knowledge | It also indicated that the EMRC is | • Reviewed and received updates on from his career in the energy industry, operating effectively, and continues energy markets which experienced Debbie Crosbie, Melanie Smith and Sir John to provide appropriate challenge and historically high and volatile prices. Manzoni, provide invaluable insights and a oversight of the areas within its remit. wealth of knowledge from various senior The evaluation also identified that roles in the private and public sectors. to continue to adapt to the focus of ### Membership and attendance the demands of the business and Biographical information of the EMRC The EMRC comprises three non-Executive environment in which the EMRC members’ backgrounds and experience Directors, the Chair of the Board and operates, the agenda and business is contained on pages 118 to 122 . two Executive Directors. Full details of planner should continue to be kept membership and meeting attendance are under review to ensure material ### Meetings and focus set out on page 125 . The Chief Executive issues and developments were being ### areas in 2021/22 and the Managing Director, Energy discussed at each EMRC meeting. The EMRC held four scheduled meetings Portfolio Management also routinely attend in 2021/22, and one additional meeting meetings, with an Assistant Company to receive a report on the market volatility Secretary acting as Secretary to the EMRC. seen in Winter 2021. After each meeting, The EMRC continues to develop and To assist the EMRC in carrying out its the Committee Chair reports to the Board regularly review its forward plan of business, responsibilities, relevant senior managers on its work. Meeting agendas are informed to capture any emerging issues and risks to can be invited to attend to present certain by a forward plan of business, which is SSE arising from energy markets. items of business and provide additional designed to ensure the EMRC carries out levels of insight. its responsibilities in line with its Terms of Details of the key focus areas and action Reference. In addition, and outside of the taken in the year are set out below. The EMRC membership is approved by cycle of scheduled meetings, the EMRC the Board following recommendation of Chair meets with the Chief Commercial the Nomination Committee. In line with Officer, Managing Director, Energy new appointments to the SSE Board, the Portfolio Management, and the Committee EMRC membership was reviewed during Secretary to ensure that key and emerging the year with Debbie Crosbie becoming a issues are brought to the EMRC’s attention member from the February 2022 meeting. in a timely manner. This change continues to enhance the skills Key EMRC focus areas in 2021/22 Overseeing SSE’s • As part of a quarterly report on Energy Markets Risk, monitored: hedging approach − hedging arrangements; − risk control metrics; − Energy Portfolio Management’s counterparty credit risk exposures; and − the liquidity of energy markets. • Reviewed and endorsed the hedging approach and position on 31 March 2022 included in the Full-Year Preliminary Results Statement and Annual Report 2022. Energy • Received reports on emerging energy market issues and risks (for example in relation to volatile gas markets Markets Risks due to the tension, and then ongoing conflict, between Russia and Ukraine) and recommended relevant changes to risk management arrangements, in line with SSE’s hedging approach, to the Board. • Considered a report on key energy market risks, risk appetites and risk management controls and governance. • Received reports on reviews of GB and ROI energy markets. • Received and reviewed a report on the long term price forecasts for gas, carbon and power. Internal Control • Considered a report on the key risks and controls arising from operations within Energy Portfolio Management. and Risk • Reviewed the Energy Portfolio Management MD Letter of Assurance. Management • Received an in-depth review of risk control metrics provided internally. relating to Energy • Received quarterly reports from Internal Audit and details of resulting action plans related to the Energy Market Exposures Portfolio Management business. • Reviewed minutes from the Group-level Demand Management Committee, which provided updates on activities as a result of alterations to customer demand profile due to the coronavirus pandemic. • Reviewed minutes from the Group Energy Markets Exposure Risk Committee which provides executive-level oversight of SSE’s energy market exposures and their associated management. Governance and other • Considered the output of the EMRC performance evaluation. • Approved the narrative of the EMRC Report 2022. • Regularly reviewed the forward business planner. 163SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Audit, risk and internal control continued ## Safety, Sustainability, Health ## and Environment Advisory ## Committee Report Dear Shareholder, SSE was proud to be a Principal Partner of COP26 in Glasgow and the event was | | | I am pleased to present the Safety, | powered by 100% renewable energy | | --- | --- | --- | --- | | | | Sustainability, Health and Environment | generated by SSE’s Griffin Wind Farm | | | | Advisory Committee (SSHEAC) Report for | in Perthshire. SSE also became the first | | | | the year ended 31 March 2022; a period | company to publish a Just Transition | | | | in which we expanded our responsibilities | Strategy in November 2020, this will help to | | | | to assist the Board in its oversight of | guide our decision-making and influence | | | | sustainability governance and assurance | greater fairness for those impacted by the | | | | on a range of environmental, social and | decline of high-carbon economic activity | | | | governance (ESG) topics. The purpose of | and increase the opportunities of climate | | | | this Report is to explain the work of the | action. This was followed in September 2021 | | | | SSHEAC during the year, alongside the | by a report focused on moving from just | | | | progress that has been made in relation to | transition principles to action. In November | | Role of the Committee | | safety, sustainability, health and wellbeing, | 2021, SSE announced an ambitious £12.5bn | | • Supports and advises the Board | | and the environment. A more in-depth | capital investment plan which will accelerate | | | on matters relating to safety, | review of these areas, together with a | progress towards net zero over the five years | | | sustainability, health and the | range of other ESG reporting can be | to 2026, the majority of which will go to | | | environment. | found on pages 40 to 67  and in SSE’s | low-carbon infrastructure. | | • Provides a leadership forum for | | Sustainability Report 2022 which is | | | | non-Executive Directors to work | available on sse.com . | To support ongoing engagement with | | | with senior management and shape | | shareholders on climate-related issues, | | | policy, targets and strategy to | Our Safety Family licence, ‘If it’s not safe, | the Board has proposed a resolution, within | | | improve safety, sustainability, health | we don’t do it’ and genuine drive to take | the business of the Annual General Meeting | | | and environmental performance. | care of ourselves and each other has | 2022, that will allow shareholders to vote | | • Reviews the implementation of | | helped many navigate their way through | on SSE’s first Net Zero Transition Report. | | | SSE’s Group Policies relating to: | the coronavirus pandemic. Now, as we | The Report is based on our Net Zero | | | safety and health; the environment; | move into a ‘new normal’, we have spent | Transition Plan which was published in | | | climate change; and sustainability. | time reviewing our SHE strategy for the | March 2022. The aim of the Plan is to | | • Reviews the effectiveness of SSE’s | | next five years. There was evidence that | provide SSE’s stakeholders with clarity | | | strategy, initiatives, training and | SSE’s SHE engagement programmes | around the actions SSE intends to take | | | targets in relation to safety, | continue to drive improved SHE | towards achieving its net zero ambitions | | | occupational health and wellbeing | performance, and ‘We all get home safe’ | in both 2040 and 2050. The Net Zero | | | of employees and contractors, | provides a measurable goal to aim for. | Transition Plan is available on sse.com . | | | sustainability and the environment. | Moving forward, the engagement and | | | • Monitors the level of resource, | | activity across the organisation will | On behalf of the SSHEAC, I would like to | | | competence and commitment | therefore build on the progress made with | thank all employees and those that work | | | applied to the management of | added focus around the SHE strategy aim | with SSE for their sustained effort, hard | | | safety, health, the environment, | of ‘making it easier to do the right thing’. | work and commitment. I would also like to | | | and sustainability issues to ensure | | welcome Dame Elish Angiolini and Martin | | | a culture of continuous | We’re proud to provide our people with the | Pibworth who were appointed as new | | | improvement across SSE. | tools and flexibility they need to balance | members of the Committee in the year. | | • Maintains access to a range | | work and life. As coronavirus restrictions | | | | of both internal and external | have eased, we have seen our colleagues | I hope you find the following report a | | | stakeholder perspectives to better | returning to offices and we have also been | useful explanation of our work and of SHE | | | achieve the creation of shared | able to resume the programme of physical | performance during the year. | | | value for society. | site visits. Across this transition, we have | | | • Supports SSE’s commitment to | | been exploring technology to establish | | | | being a sustainable company that | how we can better support our employees. | | | | makes a positive contribution to the | Apart from investing significantly in the | | | | communities in which it operates. | platforms for agile working, extensive digital | | resources have been developed to support Helen Mahy CBE The Committee’s Terms of Reference the wellbeing of our colleagues. The Chair of the SSHEAC are available on sse.com . Company has reviewed mental health and 24 May 2022 wellbeing programmes, trained some of our colleagues as Mental Health First Aiders and supported the ‘Time to Change’ initiative – a commitment to change how we think and act about mental health at SSE. 164 SSE plc Annual Report 2022 ### Key activities in 2021/22 ## Committee evaluation • Resumed physical site visits. The actions identified from the evaluation of the SSHEAC in 2020/21 as reported • Reviewed wellbeing support. on last year were monitored through to completion. A detailed review of the • Reformed the Committee. SSHEAC’s remit was completed and its Terms of Reference updated accordingly. • Reviewed SHE strategy. More information about the process can be found in this Report under Reform of the SSHEAC. The annual review of Committee performance for 2021/22 was considered through ### Membership and attendance the formal external Board evaluation conducted by Lintstock (see pages 143 to 144 ). The membership of the SSHEAC comprises The output of the evaluation was considered at the Board in March, with follow-up four non-Executive Directors; the Chair of actions agreed by the Committee for progression across 2022/23. The Board the Board; the Chief Commercial Officer; confirmed the effective operation of the Committee in discharging its responsibilities. the Chief Sustainability Officer; the Managing Director, SSEN Distribution; the Managing Director, SSE Distributed Energy; Evaluation • Good coverage of the key aspects of safety and environmental issues. and the Director of Group Safety, Health themes The revised scope of the Committee enhanced oversight of ESG and Environment. An Assistant Company matters with a range of sustainability topics now being reviewed. Secretary is Secretary to the Committee • The SSE safety language was described as outstanding, and the and the Chief Executive routinely attends Safety Conference in November 2021 demonstrated how well safety meetings. The Committee invites messages have been embedded. operational managers and specialists to • The SSHEAC’s contribution have supported and encouraged the attend certain meetings to gain a deeper ambition and direction of travel on safety, health and environmental level of insight on particular items of matters. business. Biographical details of the non-Executive members can be found on Actions for • Site visits. The continuation of site visits is a top priority. pages 118 to 122  and details of non- 2022/23 • Agenda. Develop an overall framework for the Committee’s agenda, Executive meeting attendance are set out to promote a more holistic oversight of safety, health and wellbeing, on page 125 . During the year, a number the environment and sustainability. of changes to the Board and executive • Deep dives. Consider focused sessions on The Construction (Design membership of the Committee were and Management) Regulation, Task Force on Climate-Related considered by the Nomination Committee Financial Disclosures, carbon reductions plans and biodiversity. and subsequently agreed by the Board. The detail of these changes are set out on page 149 . | Meetings and focus areas | To discharge its new responsibilities the | | To ensure people across SSE continue | | --- | --- | --- | --- | | in 2021/22 | SSHEAC also considered: | | to work safely, the Committee monitored | | The SSHEAC met four times in 2021/22. | • A climate adaptation and resilience | | the approach taken by the Company | | Working closely with the Group Safety, | | review developed collaboratively by | to pro-actively manage the evolving | | Health and Environment Committee | | Group Sustainability, SSE’s Weather and | coronavirus position, and a range of | | (which reports to the Group Executive | | Thermal Environment teams, that looked | processes, procedures and guidance were | | Committee), the SSHEAC has an annual | | at the effects of climate change on SSE’s | followed and widely communicated. At an | | work plan to: review SHE performance at | | businesses and outlined the actions | early stage, SSE introduced coronavirus | | Group-level and in each of SSE’s seven | | taken so far to support the consistency | testing when needed for its critical workers | | business areas; consider in-depth reviews | | of climate adaptation reporting for the | and has worked closely with trade union | | of certain key topics such as contractor, | | SSE Group. | partners throughout to extend flexible | | asset and process safety; and review a | • An ESG performance review that | | working practices, particularly for those | | range of SHE governance and assurance | | summarised SSE’s 2020/21 environmental, | with caring responsibilities. The priority | | requirements. Other matters which the | | social and governance performance, as | remains continuing to take care of, and | | SSHEAC has focused on during the year | | assessed by external ratings agencies and | supporting employees. | | include: SHE strategy; SHE targets; SHE | | investor-led initiatives. | | | engagement; the environment, including | • Prior to sign-off, the plan for SSE’s | | In 2021/22, SSE launched its Flexible First | | natural environment; occupational health | | Sustainability Report 2022 that reports | employee guidelines which have been | | and wellbeing; a review of the SHE Risk | | on SSE’s economic, social and | shaped by employee feedback. The | | Matrix; fatigue management; and legislative | | environmental impacts. | guidelines are designed to harness the | | and regulatory developments. | | | benefits of flexibility, balanced with the need | | | Response to coronavirus | | to connect and work together in the most | | | SSE’s over-riding priority through the | | effective way. The SSHEAC acknowledges | | | coronavirus pandemic has been to provide | | the well documented link between the | | | the safe and reliable supply of electricity, | | pandemic and the impact on mental health, | | | at local, regional and national level, on | | and the importance of making the return to | | | which the people and organisations | | work a pragmatic and positive journey. | whose work is critical to the coronavirus response depends. 165SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Audit, risk and internal control continued ### Safety, Sustainability, Health and Environment Advisory Committee Report continued | Reform of the SSHEAC | thing; and (c.) drive progress with the 8 | A range of resources are available to | | --- | --- | --- | | The output from the 2020/21 performance | Enduring Goals. The five Golden Safety | employees to help them take care of | | evaluation of the Board and its Committees | Rules have also been integrated into the | themselves and others, including Employee | | identified a need to evolve the scope and | SHE strategy. | Assistance and Back to Health programmes | | coverage of the SSHEAC, to assist the | | supported by Nuffield Health. A wellbeing | | Board in its oversight of sustainability | SHE performance | app provides home workout videos and | | governance and assurance on a range of | | tailored programmes and the ’Mental | ### Safety ESG topics. In support of this, the Board Health Toolkit’, that is being developed, is SSE uses the concept of ‘Safe Days’ as a way agreed a series of recommendations at its designed to support managers by providing to monitor and track its safety progress and meeting in May 2021 to enhance the role of information on various concerns all related performance. On a ‘Safe Day’, there are no the renamed Safety, Sustainability, Health to mental health. SSE’s priority for 2022/23 minor, serious or major, SSE or contractor, and Environment Advisory Committee. The will be to continue to support employees to safety or environmental incidents or any key recommendations that were approved adapt to new working conditions and look incident with high potential for harm to by the Board and which have impacted the after their mental and physical health. people or the environment. During 2021/22, work of Committee are summarised below. 254 Safe Days were achieved, compared to ### • Responsibilities. The responsibilities of Environment 271 in the previous year. In addition to Safe the Committee were expanded to cover: To achieve its core purpose to provide Days, SSE continues to measure safety (a.) a review of SSE’s comparative ESG energy today while building a better world performance using the rolling Total ratings performance; (b.) approval of of energy for tomorrow, SSE’s strategy seeks Recordable Injury Rate (TRIR) for employees the Sustainability Report; (c.) a review to simultaneously create value for both and contractors. This measure is used for of the physical risks of climate change shareholders and society. The framework it benchmarking and trend analysis, and in on SSE’s activities with a focus on uses to achieve this objective is the United 2021/22 it increased to 0.17 per 100,000 climate adaptation and resilience; and Nations Sustainable Development Goals. hours worked, compared to 0.15 in the (d.) increased oversight of SSE’s policy, SSE’s Environment strategy sits firmly within previous year. This increase reflects a practice and performance surrounding the sustainability hierarchy within the UN significant surge in construction associated environmental impacts, including waste, Global Goal framework. Operationally, with SSE’s record capex and increased air emissions, biodiversity and water SSE focuses on three priority pillars: activity following the recovery from consumption. (a.) environmental management and coronavirus. • Committee name. The SHEAC was governance; (b.) responsible resource use; renamed the Safety, Sustainability, and (c.) natural environment. Focus on ensuring everyone gets home Health and Environment Advisory safe remains central to SSE and the Committee (SSHEAC) to reflect its In 2021/22, the number of environmental work of the SSHEAC. In March 2022, the enhanced role. incidents as a result of SSE’s activities totalled Committee therefore set a TRIR target of • Meetings. A review of the length, 60, compared to 44 in the previous year. Of 0.15 for 2022/23 and re-iterated the need frequency and timing of Committee these, there were no major environmental to keep focus on having no life changing meetings was carried out. incidents. SSE’s environmental permit injuries or major SHE incidents. This will continue to be monitored, alongside a breaches increased to 7 in 2021/22 from measure of environmental permit breaches 4 the previous year. The majority of ### SHE Strategy against key Business Units’ milestones to environmental incidents were minor and During the year, the SSHEAC reviewed SSE’s provide a framework in which to assess most permit breaches were self-reported SHE strategy for the next 5 years. A ‘hybrid’ SHE performance in a rounder way. At the to the relevant environmental agencies. SHE Conference to engage key local end of April 2022, the longer-term trend on All incidents were dealt with quickly when influencers and a wider community on SSE’s TRIR had tracked back to the 0.15 level. identified. During the year, SSE’s carbon SHE strategy took place on 30 November footprint benefited by having reduced travel, 2021. An employee survey showed that with most colleagues using the Flexible First ### colleagues feel committed to the goals of Health and wellbeing approach to work combining office and the previous 50by20 SHE Strategy which had Health and wellbeing is at the core of home working, and utilising technology. | been successful in delivering improvements | SSE’s Safety Family. It reinforces very | | | --- | --- | --- | | in SHE performance. The SHE Goals, Safety | directly how we can take care of ourselves | | | Family and Enduring Goals were key features | and each other. | Sustainability | | of the 50by20 Strategy and understood and | | Significant progress was made across the | | recognised across the organisation. These | To strengthen the occupational support | most material areas of sustainability in | | features have therefore been maintained as | SSE offers; it recruited a new Head of | 2021/22, with the SSHEAC reviewing SSE’s | | part of the updated SHE strategy. | Health and Wellbeing during the year. A | performance in each environmental and | | | supporting review of occupational benefits | social category identified by ESG-focussed | | As part of the SHE Strategy development | concluded that there is a very good range | investors and ratings agencies, approving | | activity, feedback from engaging with | of support with the ability for some services | areas for development and improvement | | colleagues, peer benchmarking and a | to be used more and/or expanded upon. | in the next financial year. In terms of | | review of the learning outcomes from | Building on the good foundation that is | SSE’s approach to the disclosure of its | | past incidents, further led to exploring the | already in place and using all-employee | sustainability impacts, the aim is to bring | | concept of ‘how to make it easy for people | survey findings, SSE is looking to integrate | about continuous improvement in both the | | to do the right thing’. In this context, the | the following into the health and wellbeing | quality of information disclosed and across | | following focus areas were set out: (a.) | support model: (a.) making it easy to do the | stakeholder engagement. SSE’s Sustainability | | strengthening of controls and assurance; | right thing; (b.) making the uncomfortable, | Report aims to demonstrate the way SSE | | (b.) enablers to help people do the right | comfortable; and (c.) service and support. | creates value for shareholders and society | 166 SSE plc Annual Report 2022 in a sustainable way and provides detailed information on the policies, practices, performance and governance of a range of economic, social and environmental matters. The SSHEAC has responsibility for approving the Sustainability Report which is available at sse.com/sustainability . Complementary information can also be found on pages 40 to 67 . ### Site visits Easing of coronavirus restrictions allowed for the programme of SSHEAC site visits to resume in 2021/22. Instead of all members participating in the same site visit, it was agreed to broaden the coverage through two members of the SSHEAC teaming up ## and focusing on a particular area during Site visit to Keadby 1 – our Safety Language in action September 2021. Site visits included: Slough Heat and Power; Keadby 1 and 2; The below represents feedback provided by the members of the SSHEAC on Walton Park; Solent Park; and the Viking a visit to Keadby 1 in September 2021. Windfarm construction site on Shetland, followed by a visit to the Transmission ### If it’s not safe, we don’t do it • Weeds in the HV compound had HVDC convertor station site and to Lerwick • The site is currently operating been identified by the on-site Power Station. A large part of the meeting under a number of operational team and work to address had held in October 2021, which had been access restrictions which is being been planned. organised outside of the schedule of Committee meetings, was dedicated to monitored closely. The leadership ### receiving feedback and agreeing next steps team provided a clear account Plan, scan and adapt in the process of continuous improvement. of how operational teams were • The Gated process for outages Overall, it was agreed that the safety site engaged on the approach, to was presented, and judged as visits were powerful in providing members ensure effective management being very effective in ensuring of the SSHEAC with a breadth and depth of of this risk. that the work being done was knowledge across a range of projects and well planned and appropriate. ### operational activity. We take pride in our work • Work coordination between Keadby 1 and Keadby 2 was in ### and our environment A structured approach to site visits ensures place, with weekly integration • A good level of housekeeping and that feedback is collected and acted upon. meetings and an embedded appropriate coronavirus signage This is facilitated by a dedicated feedback Keadby 1 team member in the was observed. template which is completed by members Keadby 2 team. • A remote induction in addition to a of the Committee following completion of local site orientation was provided. ### an engagement. The SSHEAC has agreed What would make it easy • The approach taken during the site visit programme for 2022 which will ### outages – external tents for (or easier) for people to do be reported on next year. ### coordinating meetings – was seen the right thing? as best practice. • The on-site team were comfortable with the steps being taken to | We take care of ourselves | | | address coronavirus. | | --- | --- | --- | --- | | and each other | | • Supervision was highlighted as an | | | • The local SHE community group | | | important area. The benefit of the | | | operates effectively with the | | empowering supervisor training | | | 45 people on site engaged. This | | was noted, alongside ensuring | | | includes representatives from | | adequate time was allocated for | | | Engineering, Operations and | | supervisory activities. | Maintenance teams. | We see it, sort it and report it | | Overall impression | | --- | --- | --- | | • The contractor workshop was a | | Keadby 1 is moving towards the | | | well set up area and work being | end of its operations and the site | | | done was highly organised. | are managing the transition well, | | • Coronavirus restrictions in the | | in addition to preparatory work for | | | permit office were well managed. | the operation of Keadby 2. | 167SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Remuneration Committee Chair’s statement ## Performance and ## delivery in a year ## of volatility ### Dear Shareholder, 2021/22 AIP outcomes The Annual Incentive Plan (AIP) is | Role of the Committee | | This Directors’ Remuneration Report sets | determined against a broad range of | | --- | --- | --- | --- | | The Remuneration Committee is | | out simply and transparently how SSE pays | financial, operational, strategic, and | | responsible for the following: | | its Directors (both Executive and non- | personal performance targets collectively | | • The Remuneration of SSE’s most | | Executive); the decisions made on their pay | designed to reflect business performance | | | senior Executives and also Chair | in 2021/22; and how much they received | each year. The measures used for 2021/22 | | | of the Board. The Committee also | in relation to the financial year ended | were chosen to support our strategic | | | reviews but does not decide the | 31 March 2022. | delivery and longer-term goals. | remuneration of SSE’s employees. | | This ensures that the decisions on | Delivering on strategy | Performance in the year has been strong | | --- | --- | --- | --- | | | executive pay take full account of | In November 2021 SSE set out its strategic | across a range of metrics which resulted | | | pay across the Company. | Net Zero Acceleration Programme for | in an assessment of the 2021/22 award | | • The Directors’ Remuneration Report | | sustainable, long-term growth aligned to a | being up to 83% of the maximum. The | | | and for ensuring that, at least every | 1.5°C global warming pathway. As detailed | Committee considered the results in the | | | three years, shareholders are asked | earlier in this Annual Report, good progress | context of other performance indicators | | | to approve a new Directors’ | against the programme – with its £12.5bn | and the wider stakeholder experience and | | | Remuneration Policy at the Annual | capital expenditure plan to 2026 and new | determined that the result was fair and | | | General Meeting. The Terms of | medium-term business goals to 2031 – | reasonable so did not apply any discretion. | | | Reference of the Committee which | has been made in the intervening months. | As a reminder, the Committee has used | | | are reviewed annually and are | SSE has been investing around £7m a | downward discretion three times in the | | | available on sse.com . | day in low-carbon infrastructure at home | previous five years. A detailed AIP scorecard | | | | and has started to export its developer | can be seen on pages 186 to 189 . | | The Committee bases its activities | | expertise abroad, creating tangible value | | | with four principles and objectives | | for stakeholders. | | ### 2021/22 PSP outcomes in mind. 1.) the Company’s culture The Performance Share Plan (PSP) awards and values; 2.) the link between the In addition, throughout 2021/22, SSE has granted in 2019 are due to vest following remuneration framework with the delivered solid operational performance. the 2021/22 financial year, subject to Company‘s purpose and strategy 3). Highlights include strong earnings financial, operational, and value-creation ensuring the remuneration framework performance despite unfavourable weather performance measures over the three-year is designed to promote the long-term for renewable generation, the conclusion period. These have been objectively success of the Company and 4.) of the disposals and re-structuring assessed, resulting in an outturn of 66% of ensuring the performance-related programme with £2.8bn of proceeds, maximum. The Committee confirmed that elements of pay are transparent, improvements in employee engagement the formulaic outcome for these awards is stretching and consistently applied despite the pandemic, a positive reaction appropriate and no discretion was applied. as well as linked to the successful to our involvement with COP26 where More details on the performance measures delivery of strategy. SSE was a Principal Partner and strong used, the targets set, and the performance | | Total Shareholder Returns. Our employees | outturn is set out on pages 189 to 190 . | | --- | --- | --- | | An Assistant Company Secretary is | have once again contributed amazingly | | | secretary to the Committee and the | throughout the year and a special payment | | | Chief Executive and the Company | has been made of £500 or €600 to | | | Secretary and Director of Investor | employees in recognition of their | | | Relations are invited to attend all | excellent contribution. | | meetings. The Committee ensures, however, that no individual is ever present when their own remuneration is under discussion or decisions are made. The Committee also takes independent external advice on remuneration and corporate governance and appoints its own professional advisers for this purpose. 168 SSE plc Annual Report 2022 | Linking policy to purpose | | | “in-year” focus on progress by including | As Chair of the Remuneration Committee, | | --- | --- | --- | --- | --- | | Our current Directors’ Remuneration Policy | | | a smaller element within the Annual | I consulted extensively with our largest | | was approved by shareholders at the 2019 | | | Incentive Plan (AIP). This increases | shareholders and other interested parties. | | AGM, with over 99% support. The policy is | | | the emphasis on sustainability overall, | The engagement process began in | | built on our core reward principles which | | | as well as focusing it more to the longer | February to allow as much time as possible | | endure. They are: | | | term. We also plan to introduce | to listen to the views of our shareholders. | | 1. Sustainability, reinforcing SSE’s | | | operational measures into the AIP | I am extremely grateful to everyone who | | | commitment to being a responsible | | and strategic measures into the PSP. | was generous with their time and shared | | | employer | • Our total remuneration arrangements | | their views on the proposals. Most | | 2. Simplicity, maximising transparency | | | currently place insufficient emphasis on | shareholders were supportive of the | | | and avoiding unnecessary complexity | | long-term performance-related pay and | changes. All the feedback we received | | 3. Stewardship, encouraging good | | | a market correction is required. This | from investors was considered by the | | | decision-making for the long term | | applies to both the level of awards under | Remuneration Committee. As a result, we | | 4. Stakeholders, reflecting SSE’s strategic | | | the Performance Share Plan and SSE’s | have adapted the proposals in a number of | | | goal of creating value for shareholders | | share ownership requirements which are | ways. We changed the proposal to reduce | | | and society. | | both below market. The performance | the weighting of financial and share-based | | | | | share awards are key to ensuring that | measures under the PSP in light of the | | The policy expires at the AGM and the | | | we are paying fairly and competitively in | feedback. EPS and relative TSR still account | | Remuneration Committee is seeking to use | | | exchange for delivery and higher levels | for 70% of the award. Dividend Per Share | | the three-yearly review cycle to strengthen | | | of performance. We are not proposing | remains a crucial KPI but we shall reward | | and align the approach to pay with SSE’s | | | to make increases to basic salaries above | instead achievement against specific | | purpose and long-term strategy as set out | | | the norm for all SSE employees. | strategic and sustainability goals. Some | | by the Net Zero Acceleration Programme. | | • SSE’s overall approach to executive | | shareholders asked us to link incentives to | | The changes to the Policy will play a key | | | remuneration is in line with SSE’s historic | return on capital or return on equity. The | | role in the successful execution of SSE’s | | | policy positioning because of long | Committee debated this at length and, at | | strategy, including the stated investment | | | standing pensions arrangements in place | this stage, take the view that stretching | | and growth plans to create the conditions | | | for incumbent executives. The Board is | targets could not readily be set for ROCE | | for SSE to succeed, the Remuneration | | | keen to structure the policy to ensure that | given the range of returns across SSE’s | | Committee took the view that changes to | | | it can attract world-class talent for whom | businesses. The key inputs of ROCE are, | | pay were necessary at this time for four | | | existing historic pension arrangements | however, linked to incentives. The new | | main reasons. | | | will not exist. This is particularly important | strategic and operational measures are also | | | | | as SSE becomes more international and | more robust. The Remuneration Committee | | • Sustainability is central to SSE’s purpose | | | recruits from new geographies. | expects of course that it will be required | | | and strategy. Operational excellence will | • Our Executive Directors are key to the | | to use its judgement, as it currently does, | | | be key to successful delivery of the Net | | success of the Net Zero Acceleration | when assessing the extent to which targets | | | Zero Acceleration Programme. Hence, | | Programme, and we shall be asking | have been met. | | | we propose to include sustainability | | more of them than ever before as we | | | | measures in the Performance Share Plan | | move into a new phase of accelerated | Details of the Policy changes can be found | | | (PSP), to reflect the long-term nature of | | growth for SSE. | in full on page 172 , but in summary the | | | these targets, whilst also retaining an | | | key changes are set out overleaf. | 169SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Remuneration Committee Chair’s statement continued Element of pay Change in approach Rationale Fixed pay The current policy limits SSE to paying total remuneration The overall policy objective is to set a competitive, but levels below the median. No material changes are not excessive, total remuneration position against our proposed to base salaries, benefits nor pensions for chosen benchmarks. There is no plan to make any incumbent Executive Directors (other than pension market adjustments to the basic salaries of the current allowance for the Chief Commercial Officer which Executive Directors. The change is intended to ‘future will now reduce to the employee-aligned level of 15% proof’ our Policy. of salary at the end of 2022 rather than April 2023). Annual No changes to levels. The Policy will provide greater flexibility to reward Incentive Plan operational excellence which will be central to the success The award will continue to be delivered as 67% in cash of SSE’s Net Zero Acceleration Programme and hence and 33% in deferred shares, but the last award of career we plan to place a heavy weighting on it (see below). shares will be made in 2022 on the basis that a more conventional post-cessation shareholding will be introduced (see below). Performance Increase headroom and the 2022 awards by 50% of The increase in the level of awards is proposed to put Share Plan salary to 250% of salary for the Chief Executive and more emphasis on long-term pay and performance awards 225% of salary for the Finance Director and Chief and to reflect the increase in the standard of achievement Commercial Officer. required to reach ‘stretch’ levels of performance and reward (see below). The increases also improve SSE’s Changes to the measures and raising the standards market competitiveness now and for the future albeit of performance targets. that award levels remain at or below median of the peer group. We debated whether to delay the increase in the award levels and after careful consideration decided not to. The reasons for this are: 1.) the successful delivery of SSE’s Net Zero Acceleration Programme is more important than ever to alleviate continuing energy pricing pressures on consumers 2.) the performance targets set in line with the Net Zero Acceleration Programme are tougher than hitherto (see below) and 3.) our proposed new Policy is expressly designed to place greater emphasis on longer- term goals and reward long-term performance. The Chief Executive’s maximum total pay will be 93% of the market median if shareholders approve the change. Share The shareholding requirement will increase to 250% This change aligns the in service and post-employment ownership of salary for the Chief Executive and 225% of salary service holdings to the new annual PSP award levels for other Executive Directors. All will be required to and with current market practice. Career shares already continue to hold shares for two years after cessation awarded and future awards under the new PSP awards of employment. from 2022 will count towards the post-employment share ownership requirement. Malus and Updated to include: The additional triggers reflect developments in market clawback • Corporate failure practice since the last policy review. The same triggers • Material risk failure will apply in the case of both malus and clawback. • Material detriment to stakeholders or to the Company’s market reputation • Unreasonable failure to protect stakeholders’ interests 170 SSE plc Annual Report 2022 | Policy implementation | The PSP award levels, subject to | Looking ahead, we will continue to apply | | --- | --- | --- | | The Committee reviewed Executive | shareholder approval, will be 250% for the | our core principles in terms of transparency | | Directors’ base salaries and concluded that | Chief Executive and 225% for the Finance | in both decision-making and reporting and | | in light of continued strong performance | Director and Chief Commercial Officer. | do so in a way that is fully cognisant of the | | and leadership throughout the year, an | Reflecting the higher award levels, the | perspectives of SSE’s stakeholder groups. | | increase of 3% was appropriate. This is | Committee has set tougher target ranges. | In line with that, I welcome any feedback | | in line with the negotiated increase for | | or comments on this Report or on | | collectively-bargained employees and the | The proposed measures and weightings | remuneration matters more generally | | broader pot for all other employees with | are: | and can be reached via Sally Fairbairn | | effect from 1 April 2022. | • Relative TSR – 50% | at sally.fairbairn@sse.com . | • EPS growth – 20% The structure and quantum of the AIP • Strategic measures – 15% remains unchanged. However, as noted • Sustainability – 15% above, we have considered the importance of operational excellence as central to The Remuneration Committee will also the success of the Net Zero Acceleration adjust any total pay outcomes downwards Dame Sue Bruce DBE Programme and have therefore reweighted (to zero if necessary), for example, if they Chair of the Remuneration Committee the AIP measures to support this objective. are deemed by the Committee to be 24 May 2022 disproportionate or out of line when we | For 2022/23 the proposed measures and | | take into account the interests of our | | --- | --- | --- | | weightings are: | | stakeholders or where there has been | | • EPS growth –30% | | a mismatch between financial and | | • Cash flow (defined as net debt to | | non-financial performance over the | | | EBITDA) – 20% | relevant period. | • Operational measures – 30% • Sustainability – 10% More details of the performance measures, • Individual/strategic objectives – 10% weightings and targets are set out on pages 196 to 198 . Measures will be both quantitative and | qualitative. The operational measures | Summary | | --- | --- | | include seven core areas which are | The Committee believes that the changes | | Renewables, Distribution, Transmission, | to policy, and the performance measures | | Thermal, Customer, People, and Other | and targets for 2022/23 incentives, will | | Growth and Transactions. The sustainability | sharpen our focus on delivering the Net | | measures, which will also appear in the | Zero Acceleration Programme and support | | longer-term plan, will be linked to SSE’s | the retention and recruitment of the high | | relative sustainability as assessed against | calibre talent in a very competitive market. | four external ESG ratings agencies using their own benchmarks. Individual strategic measures will include progress being made towards inclusion and diversity targets. 171SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Directors’ Remuneration Policy ### Introduction SSE’s Directors’ Remuneration Policy (the “Policy”) is set out as follows. The Policy is subject to a binding shareholder vote at SSE’s AGM on 21 July 2022 and, if approved, will apply from this date. It is intended that the Policy will apply for a period of up to three years and will need to be re-approved at the 2025 AGM at the latest. The Policy was reviewed and approved by the Remuneration Committee. As part of the process, the views of our larger shareholders and other shareholder advisory bodies were sought. In addition, the thoughts of other Board members, management and external advisers were considered. The members of the Committee then made decisions independently without inappropriate influence. No person participates in decisions relating to their personal remuneration. ### Principles The Committee believes it is essential that our overall remuneration policy is strongly aligned to SSE’s purpose and strategy. It aims to ensure this by focusing on our core principles which are: Sustainable, Simple, Stewardship, Stakeholder-focused. In addition, we have reviewed our policy in line with the UK Corporate Governance Code which encourages a description of how the policy addresses the following: Clarity Simplicity • Our directors’ remuneration policy is designed to be sustainable • Our pay arrangements include a market standard annual and simple and to support and reward diligent and effective incentive and long-term share plan, each of which is explained stewardship that is vital to the delivery of SSE’s core purpose in detail in our Policy. of providing energy needed today while building a better world • No complex or artificial structures are required to operate of energy for tomorrow, and our strategy of creating value for the plans. shareholders and all stakeholders. • We explain our approach to pay clearly and simply. • The Policy updates the previous Policy, with minimal structural changes so is already embedded into the business and is well understood by participants and shareholders alike. • The Policy clearly sets out the terms under which it can be operated including appropriate limits in terms of quantum, the measures which can be used and discretions which could be applied if appropriate. • Transparency in approach has been a cornerstone of our Policy. Detailed disclosure of the relevant performance assessments and outcomes is provided for shareholders to consider. Risk Predictability • Appropriate limits are stipulated in the Policy and within the • The possible reward outcomes can be easily quantified, respective plan rules. and these are reviewed by the Committee. • The Committee also has appropriate discretions to override • The graphical illustrations provided in the Policy, clearly show formulaic outturns under the assessment of the variable the potential scenarios of performance and pay outcomes incentive plans. which would result. • The Committee undertakes an annual risk review of the • Performance is reviewed regularly so there are no surprises Policy and its operation. Identified risks are considered with when performance is assessed at the end of the period. appropriate mitigation strategies or tolerance levels agreed. • Regular interaction with the Audit Committee and the SSHEA Committee ensures relevant risk factors are considered when setting or assessing performance targets. • Clawback and malus provisions are in place across all incentive plans and the ‘triggers’ have been reviewed and strengthened. Proportionality Alignment to culture • Variable incentive pay outcomes are clearly dependent on • At the heart of the Policy is a focus on the long-term delivering the strategy. sustainability of the business. • Performance is assessed on a broad basis, including a • This reflects the whole business culture which is aligned to combination of financial, operational and sustainability which effective stewardship which creates value for all stakeholders. ensures there is no undue focus on a single metric which may • Our incentive plans and, in particular the approach to be at the detriment of other stakeholders. measuring performance reflect our values which means • The Committee also has the discretion – which it has used – to doing the right thing, promoting fairness at work and paying override formulaic outcomes if they are deemed inappropriate our fair share. in light of the wider performance of the Company and considering the experience of stakeholders. 172 SSE plc Annual Report 2022 ### Changes from current policy The key changes between this Policy and the policy which was approved by shareholders at SSE’s 2019 AGM are as follows: • Base pay – change is proposed to the market posture against the comparators and reference points used when setting salaries. • Pension – updated to reflect the acceleration of the pension alignment for the Chief Commercial Officer and includes a maximum limit for any new Executive Director which is aligned to the wider workforce. • Annual Incentive Plan – replacement of the career shares facility by a more market-standard post-shareholding requirement and scope to use operational performance measures as well as financial and strategic measures. • Performance Share Plan – provides for additional headroom for annual awards of up to 250% of salary for the Chief Executive and 225% of salary for other Executive Directors in return for tougher performance targets. • Share ownership – an increase in the shareholding expectation to 250% of salary for the Chief Executive and 225% for other Executive Directors which will apply during employment and for two years post cessation of employment. • Malus and clawback –the list of triggers has been extended and strengthened and the same triggers apply to both. Any other changes in wording or presentation are considered to be immaterial to the operation of the Policy. ### Policy Table Base Salary Purpose and link to strategy The base salary supports the retention and recruitment of Executive Directors of the calibre required to develop the Company’s strategy, deliver efficient operations and investments, and engage effectively with the Company’s key stakeholders. It is intended to reflect the role and its responsibilities, business and individual performance measured against SSE’s strategy and core purpose of providing the energy people need in a reliable and sustainable way, and to have an awareness of competitive market pressures. Operation The Committee sets base salary taking into account: • the individual’s skills, experience and performance; • salary levels at other UK listed companies of a similar size and complexity and other energy businesses; • remuneration of different groups of employees and wider internal pay arrangements; and • the overall policy objective is to set a competitive, but not excessive, total remuneration position against our chosen benchmarks. Base salary is normally reviewed annually with changes effective from 1 April. It may be reviewed more frequently or at different times of the year if the Committee determines this is appropriate. Maximum opportunity Salary increases will normally be capped at the typical level of increases awarded to other employees in the Company. However, increases may be above this level in certain circumstances, including but not limited to: • where a new Executive Director has been appointed to the Board at an initially lower base salary with the intention that larger salary increases would be awarded for an initial period of time as the Executive Director gains experience; • where there has been a significant increase in the scope and responsibility of an Executive Director’s role or where they have been promoted; and • where a larger increase is considered necessary to reflect significant changes in market practice. Performance measures When setting and reviewing salaries annually, the Remuneration Committee considers Executive Directors’ performance to ensure that SSE fulfils its core purpose of providing energy needed today and striving for a better world of energy for tomorrow. They should also assess delivery on SSE’s strategic focus of creating value for shareholders and society from developing, operating and owning energy and related infrastructure and services in a sustainable way. 173SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Directors’ Remuneration Policy continued Pension Purpose and link to strategy Pension planning is an important part of SSE’s remuneration strategy because it is consistent with the long-term goals of the business. The approach to pension supports the Company’s ability to retain experienced Executive Directors and develop talent internally. Operation The current Chief Executive and Finance Director participate in either the Southern Electric Pension Scheme or the Scottish Hydro-Electric Pension Scheme, the same schemes which any employee recruited at that time participates in. These schemes are funded final salary (subject to the cap on future increases in pensionable pay described below) pension schemes. Where an Executive Director is subject to the scheme-specific salary cap (which mirrors the provisions of the previous HMRC cap arrangements) the Company provides top-up unfunded arrangements (“UURBS”) up to the maximum benefit outlined below. The current Chief Commercial Officer receives a cash allowance in lieu of accruing future pension benefits. This allowance predates his appointment as an Executive Director and is in line with other former defined benefit scheme members who have opted out. The Committee will operate alternative pension provisions for new appointments to the Board, in line with arrangements for SSE employees. The pension allowance is in the process of being aligned with those for other employees with a similar service profile. From 1 April 2022, his pension allowance will be 20% of salary, reducing to 15% on 1 January 2023. Maximum opportunity For existing Executive Directors, the pension arrangements provide for a maximum pension of two- thirds of final salary, normally at age 60. From 1 April 2017, future pensionable pay increases will be capped at RPI + 1% (regardless of the level of any actual increases in salaries). For new appointments, employer’s pension contributions are capped in line with arrangements for all new SSE employees (which is currently 12% of base salary). Performance measures Not applicable. Benefits Purpose and link to strategy To provide a market-competitive level of benefits for Executive Directors. Operation The objective is to provide the appropriate level of benefits taking into account market practice at similarly sized companies and the level of benefits provided for other employees in the Company. Core benefits currently include car allowance, private medical insurance and health screening. Executive Directors are eligible to participate in the Company’s all-employee share plans on the same terms as UK colleagues. The Company currently operates the Share Incentive Plan and the Sharesave Scheme. In the event that an Executive Director was required to relocate to undertake their role, the Committee may provide additional reasonable benefits to reflect the relevant circumstances. The Committee may introduce or remove particular benefits if it is considered appropriate to do so. Travel and business-related expenses incurred which may be treated as taxable benefits will be reimbursed in accordance with the Company’s expenses policy. Maximum opportunity When determining the level of benefits the Committee will consider the factors outlined in the “Operation” section. The cost will depend on the cost to the Company of providing individual items and the individual’s circumstances and there is no maximum benefit level. Performance measures Not applicable. 174 SSE plc Annual Report 2022 Annual Incentive Plan (AIP) Purpose and link to strategy In line with the need to achieve a suitable balance of fixed and variable remuneration, the purpose of the AIP is to reward Executive Directors’ performance during the year, based upon achievement of performance targets. The performance targets are linked to SSE’s strategy and core purpose. Compulsory deferral into SSE shares provides alignment between Executive Directors’ interests and the long-term interests of shareholders. Operation The Committee determines the level of incentive at its absolute discretion taking into account performance in each of the measures, the underlying performance of the business and Executive Directors’ management of, and performance in, all of the business issues that arise during the year. Performance is typically assessed over a financial year. Below threshold performance, no payment is made. Where performance reaches or exceeds the maximum, 100% of bonus for this element is payable. The award will normally be delivered: • 67% in cash; and • 33% in deferred shares. The Committee may determine that a different balance of cash and deferred shares may be awarded. Deferred shares will normally vest three years from the award date (unless the Committee determines an alternative vesting period is appropriate) subject to continued employment with accrual of dividends over that period. Until vesting, the awards may accrue additional dividend shares. Dividend equivalents may be determined by the Committee on a cumulative basis and may assume reinvestment of dividends in the Company’s shares. In certain circumstances as set out in the plan rules the Committee may at its discretion apply malus to outstanding awards under the AIP or unvested deferred share awards prior to the relevant vesting or payment date, and/or claw back the cash or share portion of awards under the AIP for up to three years after the cash payment date of the relevant award. Maximum opportunity Maximum annual incentive opportunity is equal to 150% of base salary for the Chief Executive and 130% of base salary for the Finance Director and Chief Commercial Officer. Performance measures The annual incentive is normally based on a mix of financial, operational, strategic and stakeholder measures reflecting the key values and priorities of the business. A minimum of 50% of the annual incentive will be based on financial performance metrics. The Committee determines the exact metrics each year depending on the key strategic objectives for the forthcoming year and ensures that they are appropriately stretching in the context of the business plan. The measures for the current year are set out on page 197 . The Committee may review the detailed targets and weightings of measures year on year, as well as the appropriate threshold levels of vesting and performance. Around 50% of the incentive is paid if target levels of performance are delivered with the full incentive being paid for delivering stretching levels of performance. The part of the AIP that is deferred in the form of deferred shares or a career share award is not subject to any further performance conditions. 175SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Directors’ Remuneration Policy continued Performance Share Plan (PSP) Purpose and link to strategy The purpose of the PSP is to reward Executive Directors, over a three-year performance period and a further two-year holding period, for their part in delivering the sustained success of SSE and to ensure that their interests are aligned with those of the shareholders who invest in the Company. Operation Shares are awarded which normally vest based on performance over a period of three years. Awards granted to Executive Directors will be subject to an additional two-year post-vesting holding period during which time the Executive must retain the post-tax number of shares vesting under the award. No vestings is possible for below threshold performance. The percentage of shares that vest at threshold takes account of the toughness of the target and varies accordingly. All the shares vest if the maximum performance standard is reached or exceeded. The Committee shall determine the extent to which the performance conditions have been met. No shares shall vest unless the Committee is satisfied with the underlying financial performance of the Company. Awards do not vest until after the end of the performance period. Until vesting, PSP awards may accrue additional dividend shares. Dividend equivalents may be determined by the Committee on a cumulative basis and may assume reinvestment of dividends in the Company’s shares. In certain circumstances set out in the PSP rules the Committee may at its discretion apply malus to outstanding awards prior to vesting and/or claw back vested awards for up to three years after the vesting date of the relevant award. The Committee may adjust and amend awards in accordance with the PSP rules. Maximum opportunity The maximum annual value of award that can be granted under the PSP is up to 250% of base salary for the Chief Executive and up to 225% of base salary for other Executive Directors. See also the share ownership policy requirement. Performance measures The Committee determines targets each year to ensure that they are stretching and represent value creation for shareholders while remaining realistically achievable for management. Awards vest based on a range of measures which may include total shareholder return, financial, operational, strategic or stakeholder-based measures. A minimum of 70% of the award will be based on financial and total shareholder return measures. The Committee will review the most appropriate measures, detailed targets and weightings of measures year on year, as well as the appropriate threshold levels of vesting and performance. Share Ownership Policy Purpose and link to strategy A key element of SSE’s remuneration policy is to align the interests of Executive Directors with those of shareholders who invest in the Company. Operation Shareholding is normally built up via shares vesting through the PSP, deferred shares from the AIP and all employee share schemes and Executive Directors may also choose to buy shares. The requirement to retain shares continues after employment, and Executive Directors are required to hold their in-employment shareholding for a further two years following cessation of employment. Maximum opportunity Executive Directors are expected to maintain a shareholding. This is linked to the level of the annual award under the PSP. The requirement will be met through career shares unless awards under the PSP exceed 200% of salary. Where PSP levels exceed 200% of salary the holding requirement will be 250% of base salary in the case of the Chief Executive and 225% in the case of other Executive Directors built up within a reasonable timescale. Performance measures Not applicable. 176 SSE plc Annual Report 2022 Chair and Non-Executive Directors’ Fees Purpose and link to strategy Fees are set at a level which provides reward for undertaking the role and are sufficient to attract and retain individuals with the calibre and experience to contribute effectively at Board level. Operation The Committee is responsible for determining fees for the Chair. The Board is responsible for determining fees for other non-Executive Directors. Fees are reviewed at appropriate intervals against companies of a similar size and complexity. Fees are set in a way that is consistent with the wider remuneration policy. The fee structure may be made up of: • a basic Board fee or Chair fee; • an additional fee for any committee chairship or membership; and • an additional fee for further responsibilities e.g. Senior Independent Director, non-Executive Director for Employee Engagement or periods of increased activity. Non-Executive Directors do not participate in the Annual Incentive Plan, Deferred Bonus Scheme or any of the share schemes, or contribute to any group pension scheme. Non-Executive Directors do not currently receive any benefits. Benefits may, however, be provided in the future for non-Executive Directors if in the view of the Board this was considered appropriate and they may also be provided in the future for the Chair if in the view of the Committee this was considered appropriate. Reasonable travelling and other expenses for costs incurred in the course of the non-Executive Directors undertaking their duties are reimbursed (including any tax due on the expenses). It is also expected that all non-Executive Directors should build up a minimum of 2,000 shares in the Company. Maximum opportunity The aggregate level of non-Executive Director fees shall not exceed the maximum limit set out in the Articles of Association. Performance measures There are no direct performance measures relating to Chair and non-Executive Director fees, although the performance of the Board is subject to annual evaluation, including an evaluation of individual members. ### Performance measures and targets The Committee sets a range of performance measures linked to Executive Directors’ remuneration that are simple, transparent and balanced. They all have a clear link to strategic objectives and support value creation for shareholders. Performance targets will be stretching and maximum performance will only be attained for true out-performance. The longer-term financial targets set for the awards under the Performance Share Plan will be reviewed and set in the light of the relevant business plan. Where possible, targets will be disclosed prospectively unless commercial sensitivity precludes this, in which case they may be disclosed at an appropriate time retrospectively. ### Committee discretion All incentive awards are subject to the terms of the relevant plan rules under which awards are made. The Committee may adjust or amend awards in accordance with the provisions of the relevant plan rules. This includes, but is not limited to, the following discretions: • In the event of a variation of the Company’s share capital or reserves, or a demerger, special dividend, rights issue or other event, the number of shares subject to an Award and/or any performance condition attached to Awards, may be adjusted. • The Committee may adjust PSP performance conditions for subsisting awards as it considers appropriate to take account of any factors which are relevant in the opinion of the Committee, for example to reflect modifications of accounting standards. • In the event of a voluntary winding-up of the Company, the Committee may allow some or all of the outstanding PSP awards to vest (and be deemed exercised) on the date the resolution for the winding-up is passed. The Committee may make minor changes to this Policy (for example for regulatory, exchange control, tax or administrative purposes or to take account of a change in legislation or corporate governance requirements or guidance) without seeking shareholder approval for that amendment. 177SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Directors’ Remuneration Policy continued ### Legacy commitments The Committee reserves the right to make any remuneration payments and payments for loss of office (including exercising any discretion available to it in connection with such payments) notwithstanding that they are not in line with the Policy set out in this report where the terms of the payment were agreed: (i) before 17 July 2014 (the date the Company’s first shareholder approved Directors’ Remuneration Policy came into effect), (ii) before this Policy came into effect provided that the terms of the payment were consistent with the shareholder-approved Directors’ Remuneration Policy in force at the time they were agreed or, (iii) at a time when the relevant individual was not a Director of the Company and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a Director of the Company. As well as remuneration payments and payments for loss of office under the Directors’ Remuneration Policy which was approved by shareholders on 17 July 2014, this includes commitments relating to the defined benefit pension arrangements which were made before 27 June 2012. “Payments” includes the Committee sanctioning awards of variable remuneration and an award over shares is “agreed” at the time the award is granted. Any payments made outside of the Directors’ Remuneration Policy pursuant to legacy commitments will be disclosed in full in the relevant year’s Annual Report. ### Directors’ service contracts and non-Executive Directors’ letters of appointment Current Executive Directors have service contracts terminable by the Company immediately without notice upon breach by the individual or by the Company giving to the individual 12 months’ notice or, at its discretion, payment in lieu of salary only during that notice. The payment in lieu of notice may be made in staged payments and may either reduce or cease completely where the departing Executive Director gains new employment. The Executive Director may terminate the contract by giving the Company 12 months’ notice. Contracts for new Executive Directors will be limited to 12 months’ notice by both parties (or payment in lieu of notice in respect of the Company). The service contracts are available to view at the Company’s registered office. The non-Executive Directors have letters of appointment, and are appointed for fixed terms of three years, subject to retirement and re-appointment at AGMs. Non-Executive Directors on termination are not entitled to any payment in lieu of notice or any compensation for loss of office. The letters of appointment are available for shareholders to view on www.sse.com . ### Loss of office policy The Committee takes a number of factors into account when determining leaving arrangements for Executive Directors: • The Committee must satisfy any contractual obligations provided they are consistent with the Policy or have been entered into on a date on or before 27 June 2012 in accordance with relevant legislation. • The treatment of outstanding share awards is governed by the relevant share plan rules, as set out below. • The Committee may determine that the Executive Director should receive reasonable outplacement support and legal advice at the expense of the Company and any payments required by statute. • The Company may at its discretion terminate any Executive Director’s contract by providing notice or payment in lieu of notice (as set out above). ### AIP The Executive Director may, at the discretion of the Committee, remain eligible to receive an AIP award for the financial year in which they ceased employment if the Committee has decided that good leaver terms should apply. Any such AIP award will be determined by the Committee taking into account time in employment and performance. If an AIP award is received in such cases it may not be subject to deferral into deferred shares provided the post-employment share ownership policy has already been fulfilled or will be by other means. ### Deferred and career shares If an Executive Director’s employment terminates in circumstances such as death, injury, disability, ill-health (as agreed by the Committee) or other circumstances that the Committee deems appropriate, unvested deferred and career shares shall vest in full at the time of termination of employment. If an Executive Director leaves the business in other circumstances their deferred shares and unvested career shares shall lapse. Vested career shares shall not lapse. Vested awards in the form of career shares awarded under previous Directors’ Remuneration Policies shall, except in the case of death or change of control, be released two years after the date of cessation of employment, irrespective of the reason for such cessation. 178 SSE plc Annual Report 2022 ### Performance share plan If an Executive Director’s employment terminates in circumstances such as death, injury, disability, ill-health (as agreed by the Committee) or other circumstances that the Committee deems appropriate, PSP shares may continue to vest. The PSP shares will normally be reduced to reflect the time elapsed in the three-year performance period when the Executive Director’s employment ends and will normally remain subject to performance at the end of the performance period. The Committee may determine, in exceptional circumstances, that PSP shares may be released at the time of cessation of employment. In this circumstance, it will determine the level of vesting taking into account the extent to which the performance conditions have been met at the time (subject to modification if the Committee considers that the performance condition would be met to a greater or lesser extent at the end of the original performance period) and the period the Executive Director has been in employment. The Committee has the discretion to disapply time pro-rating or alter the time pro-rating fraction if it considers that the Executive Director’s contribution to the business of the Company would not otherwise be properly recognised. In this circumstance, the vesting of PSP shares would remain subject to performance until the end of the performance period. If the Executive Director’s employment ends for any other reason, unvested PSP share awards will lapse. Vested PSP shares which are subject to a mandatory holding period will not lapse as a result of cessation of employment for any reason. ### Pension When an Executive (including Executive Directors) who participate in the defined benefit pension scheme retire through ill-health they are entitled to an unreduced pension based on service to expected retirement. In the event of any reorganisation or redundancy, Executives who are aged 50 or more with at least five years of service will be provided with an unreduced accrued pension. If an Executive has not reached age 50 at the time of this event their pension will be paid from age 50. From age 55 Executives are entitled to leave the Company and receive a pension, reduced for early payment, unless the Company gives consent and funds the pension being paid on an unreduced basis. Dependent upon the circumstances surrounding the departure of the Executive Director and the financial health of the Company at the time, the Committee’s policy is to give consideration to a cash commutation of the UURB pension at the time of leaving. Any cash commutation would limit SSE’s liability, taking into account valuations provided by independent actuarial advisors, and would be undertaken on what was judged by the Committee to be on a cost neutral basis to SSE. The following is information relating to the pension of Gregor Alexander as a participant in the HMRC-approved Scottish Hydro- Electric Pension Scheme the terms of which also apply to the UURBS arrangement. (i) Dependants’ pensions on death are half of the member’s pension entitlements, together with a capital sum equal to four times pensionable pay. On death in retirement, the Executive Director’s spouse will receive a pension equal to half of that payable to the Director. In addition, on death within the first five years of retirement, a lump sum is payable equal to the balance outstanding of the first five years’ pension payments (ii) Post retirement increases are expected to be in line with RPI. The following is information relating to the pension of Alistair Phillips-Davies, as a participant in the HMRC approved Southern Electric Group of the Electricity Supply Pension Scheme, the terms of which also apply to the UURBS arrangement. (i) Dependants’ pensions on death are four-ninths of the member’s pensionable pay, together with a capital sum equal to four times pensionable pay. If death occurs after attaining the age of 55 an additional lump sum between three to five times notional pension is payable dependent upon age and length of service. (ii) On death in retirement, the Director’s spouse will receive a pension equal to two-thirds of that payable to the Director. In addition, on death within the first five years of retirement, a lump sum is payable equal to the balance outstanding of the first five years’ pension payments. (iii) Post retirement increases are expected to be in line with RPI (guaranteed up to the level of 5% per annum and discretionary above that level). ### Other arrangements If buyout awards are made on recruitment, the treatment on leaving would be determined at the time of the award. For all-employee share plans, such as the Sharesave Scheme and the Share Incentive Plan, leavers will be treated in accordance with the HMRC approved plan rules. ### Change of control On a change of control, Executive Directors’ awards will be treated in accordance with the rules of the applicable plan(s). In summary, in the event of a change of control of the Company, performance in the PSP will be measured to that date subject to modification if the Committee considers that the performance conditions would be met to a greater or lesser extent at the end of the original performance period. Awards will normally be scaled down to reflect the period up to the change of control, but the Committee has discretion to dis- apply or alter the pro-rating fraction if it considers that participants’ contribution to the creation of shareholder value during the performance period would not otherwise be properly recognised. 179SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Directors’ Remuneration Policy continued Any outstanding unvested deferred or career shares from the AIP will vest automatically, and any vested shares subject to a holding period will be released. ### Recovery provisions The Committee believes that it is right that it should have the ability to recover pay in circumstances where that pay is later proved to have been unfairly earned. The PSP and AIP have recovery provisions under malus and clawback. Malus is the ability to reduce or cancel unvested deferred AIP and PSP share awards. Clawback is the ability to take back value delivered through the cash element of AIP or vested AIP awards at any point: up to three years post-payment of cash under the AIP; and up to three years post- vesting of PSP shares. They would apply under the following circumstances at any point between the grant date and vesting date: • Material misstatement or restatement of accounts • Misconduct which results in a materially adverse financial effect • Serious reputational damage including material environmental or safety issue, or material operational or business failing • Factual error in calculating payment/vesting • Serious misconduct • Corporate failure • Material risk failure • Material detriment to stakeholders or to company’s market reputation • Unreasonable failure to protect stakeholders’ interests ### Recruitment policy The Committee will seek to align the remuneration package offered with its Directors’ Remuneration Policy outlined on page 172 . The overriding objective in determining a total remuneration package for a new recruit would be to make decisions which are in the best interests of the Company, its shareholders and other stakeholders. Base salary would be set taking into account the individual’s skills and experience and performance, salary levels at other similar sized UK companies and other energy businesses, remuneration of different groups of employees, and the wider internal pay arrangements. The Committee will determine appropriate pension provision for any new Executive Director. When determining pension arrangements for new external appointments the Committee will limit contributions to those in line with employees generally, currently 12% of salary. Variable incentive levels will be in line with those set out in the policy table, with the maximum being no more than the current Chief Executive (AIP 150% of salary, PSP 250% of salary). Whilst it would generally be intended to set consistent performance measures across the executive team, depending on the timing and circumstances of a new appointment, it may be necessary to set alternative measures for the initial awards. PSP awards may be granted shortly following an appointment, subject to the Company not being in a closed period. The Committee may make awards on appointing an Executive Director to “buy out” remuneration arrangements forfeited on leaving a previous employer. In doing so the Committee will take account of relevant factors including any performance conditions attached to these awards, the form in which they were granted (e.g. cash or shares) and the time over which they would have vested. Generally buy-out awards will be made on a comparable basis to those forfeited. To facilitate these awards, the Committee may make awards under Company incentive plans and other available structures. The Committee may make awards under SSE’s incentive plans and under the Listing Rules exemption in LR9.4.2 which allows Companies to make grants to a Director to facilitate, in unusual circumstances, the recruitment or retention of that Director. The use of the latter shall be limited to the granting of buy-out awards or share awards within the limits described above. ### Shareholders’ views The Committee Chair, on behalf of the Committee, consulted with SSE’s largest shareholders in developing the new Policy, as well as representatives from The Investment Association. This included a number of meetings which allowed a discussion of the proposals in the context of SSE’s business strategy and the environment in which it operates. The feedback received was extremely helpful in informing the Committee’s decisions. The Committee adopted its proposals following input from shareholders. The weighting of financial and non-financial measures in the PSP is one example. The balance of quantative and qualitative measures and targets is another. More generally, the Committee Chair, on behalf of the Committee, periodically undertakes consultation with a number of institutional shareholders regarding a broad range of remuneration issues. The Committee finds such consultation meetings a valuable opportunity to receive feedback on the work of the Committee and the key issues that it is considering. The feedback received is extremely helpful in informing the Committee’s decisions. In addition, the Committee also monitors the views of other stakeholders and broader developments in executive remuneration generally. 180 SSE plc Annual Report 2022 ### Remuneration engagement across the Company The Committee appreciates the importance of an appropriate relationship between the remuneration levels of the Executive Directors, senior executives, managers and other employees within the Company although comparison metrics are not used to determine pay policy. Remuneration at all levels in SSE is designed to support its remuneration principles, long-term business strategy and core purpose of providing the energy people need in a reliable and sustainable way. It is also designed to be consistent with and support the Company’s core values of Safety, Service, Efficiency, Sustainability, Excellence and Teamwork. The structure of reward necessarily differs based on scope and responsibility of role, level of seniority and location. The table in the At a Glance Section (page 182 ) illustrates how the core elements of executive pay align with the wider workforce. In summary, • The senior management population also participate in annual and long-term incentive arrangements. In line with Executive Directors’ arrangements, incentives for senior management have an emphasis on share awards and the performance metrics support those used at Board level. • All employees have the opportunity to be share owners through the Share Incentive Plan and the Sharesave Plan and those participating are able to express their views in the same way as other shareholders. • Pension planning is an important part of SSE’s reward strategy for all employees because it is consistent with the long-term goals and horizons of the business, an approach it has been practising for a number of years. The terms of the funded final salary pension schemes apply equally to all members. • As part of its Employee Engagement Survey SSE invites all employees to provide a view on the benefits and pay that it provides. The Remuneration Committee is responsible for the remuneration of SSE’s most senior Executives and the Chair of the Board and reviews the remuneration arrangements for all employees across the Group. The Chair of the Remuneration Committee meets at least annually with SSE’s recognised Trade Unions to discuss SSE’s position on executive remuneration. They met in May and discussed aspects of policy explained in this report. Feedback from this meeting was shared with the Remuneration Committee. ### Illustration of the Directors’ Remuneration Policy for 2022/23 The charts below indicate a forward-looking potential single figure of remuneration value for 2022/23 at below threshold, target and maximum for each of the Executive Directors. With the increase in base salaries in 2022 and the proposed increase to PSP quantum the scenarios below have increased from the previous year. Single total figure of remuneration – an illustration of the application of our policy Chief Executive Finance Director Chief Commercial Officer 0 22% 0 0 46% 36% 21% 0 22% | £000s | | | | | 45% 35% | | | --- | --- | --- | --- | --- | --- | --- | | | 0 | 36% | | | | | | 7,00 | | | | | | 47% 36% | | | | | 27% | 22% | | | 35% 0 6,00 22% 26% 20% 37% 27% 21% 20% 100% 42% 27% 21% 0 21% 5,00 100% 45% 29% 23% 100% 42% 26% 21% 4,00 Below Target MaxMax + 50% Below Target MaxMax + 50% Below Target MaxMax + 50% threshold share price threshold share price threshold share price 3,00 Total fixed AIP LTIP Share price growth 2,00 1,00 181SSE plc Annual Report 2022 %12 %12 %12 %12 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Remuneration at a glance ### Directors’ Remuneration Policy in 2022/23 The illustration below shows how SSE intends to operate its Directors’ Remuneration Policy in 2022/23. Element Max 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 Fixed pay Salary Set with Salary paid reference to pay increases for the wider employee base Benefits Market Benefits paid competitive | | Pension Final salary and | | Pension | | | | --- | --- | --- | --- | --- | --- | | | | top up/pension | accrual/ | | | | | | allowance | allowance paid | | | | Variable | Annual | CEO 150% | Performance | AIP cash paid | | | pay – | Incentive Plan | of salary. | period | | | | | | | | AIP deferred | Vesting period Awards vest | | at risk | (AIP) | FD and CCO | | | | share awards 130% of salary granted 67% cash/33% deferred shares Performance CEO 250% PSP awards Performance/vesting PSP awards Holding period Holding Share Plan (PSP) of salary. granted period vests period ends FD and CCO 225% of salary 2-year holding period | Additional | Share | 250% of salary | Share ownership requirement | | --- | --- | --- | --- | | governance | ownership | for CEO and | | | | requirement | 225% of salary | | for FD and CCO Recovery and All incentives Malus and clawback: Material misstatement or restatement of accounts; Misconduct which results in a withholding materially adverse financial effect; Serious reputational damage including material environmental or safety issue, or material operational or business failing; Factual error in calculating payment/vesting; Serious misconduct; Corporate failure; Material risk failure; Material detriment to stakeholders or to company’s market reputation; Unreasonable failure to protect stakeholders’ interests Post- Career shares Holding requirement for career shares until two years after cessation of employment employment ### Strategic performance Executive Directors’ remuneration is strongly linked to strategic performance. Some of SSE’s strategic performance measures are detailed below, with an indication of how they link to remuneration. SSE has delivered against its dividend target and performed well against a range of financial and non-financial measures. Full details can be seen on pages 186 to 189 . | ADJUSTED EARNINGS PER SHARE | TOTAL SHAREHOLDER RETURN | EMPLOYEE ENGAGEMENT | CARBON INTENSITY OF | | | --- | --- | --- | --- | --- | | | (FTSE 100) | | ELECTRICITY GENERATED | | | 95.4p | Rank 13 | 82% | 258gCO | e/ | ### 2 | AIP and PSP | of 95 PSP | Engagement index score | | | * | | --- | --- | --- | --- | --- | --- | | | | AIP (Stakeholders) | kWh | | | | | (66.6%) | | gCO | e per kWh. AIP (Sustainable | | 2 Development Goals) DIVIDENDS PER SHARE TOTAL SHAREHOLDER RETURN TOTAL RECORDABLE TOTAL RENEWABLE GENERATION (MSCI) INJURY RATE OUTPUT* ### ** | 85.7p | Rank 6 | 0.17 | 9.5TWh | | --- | --- | --- | --- | | AIP and PSP | of 23 PSP | per 100,000 hours worked | GWh. AIP (Sustainable | | | | AIP (Stakeholders) | Development Goals) | ## (66.6%) * The 2030 Goal for 2021/22 measured progress based on electricity generation GHG emissions only. SSE’s new science-based target for GHG emissions intensity, set in November 2021, is based on all scope 1 GHG emissions. Progress on page 54  is provided against this updated target, therefore figures differ slightly. ** Includes pumped storage, biomass and constrained off wind in GB. 182 SSE plc Annual Report 2022 ### Incentive Plan Performance in 2021/22 ANNUAL INCENTIVE PLAN PERFORMANCE SHARE PLAN 100% 100% 83% 66% 30% 25% 20% 20%20%20%20%20% 19% 20% 20% 17% 15% 14% 15% 12% 10%10%10% 7% 5% 0% | Adjusted | Cashflow DPS Personal Total | Stakeholders | Sustainable | | | TSR v | TSR v | EPS | DPS | Customer | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | EPS | | | development | | (% of | FTSE100 | MSCI | growth | growth | | (% of | | | | | | goals | maximum) | | Europe | | | | maximum) | Maximum Actual ### How Pay Links to Wider SSE Workforce Base Salary Benefits Pension Short-Term Incentive Long-Term Incentive | Executive Directors | Base salary is | A range of voluntary | All employees are | Annual Incentive | The Performance | | --- | --- | --- | --- | --- | --- | | | typically set with | benefits in line with | a member of the | Plan linked directly | Share Plan is a | | | reference | the wider workforce | SHEPS or SEPS | to business | share award with | | | to the market and | plus contractual car | defined benefit | performance – | performance | | | wider workforce | and private medical | pension scheme, | 50% financial, | linked to strategic | | | considerations. | benefits. | or the Pension+ | 50% non-financial. | performance | | | | | defined contribution | 33% of the total | measures. | | | Annual increases are | | scheme unless | award is deferred | | | | typically in line with | | they have opted | into shares for | | | | or less than the wider | | or cashed out. | three years. | | | | employee population. | | The arrangements | | | | Group Executive | | | | Annual Incentive | The Leadership | are diverse and Committee Plan considering Share Plan is also the employer cost performance of the linked to strategic Senior Management typically ranges from Group (directly linked performance 3% to 38% of salary to the above), the measures over the when both defined business area and longer-term and contribution and the individual. 25% those with direct defined benefits of the total award is impact on strategic schemes are taken deferred as shares output are eligible. into account. for three years. | Wider Workforce | Base salary levels | A range of voluntary | Depending on | All employees may | | --- | --- | --- | --- | --- | | | are subject to | benefits are available | role, a proportion | participate in the | | | negotiation with | to all employees, such | of employees will | Share Incentive | | | recognised trade | as a cycle to work | participate in the | Plan (SSE matches | | | unions and/or are set | scheme, a holiday | Annual Incentive | three shares for | | | in line with market | purchase scheme, | Plan (as above). | every three bought) | | | requirements. | health benefits, and | 100% of the award | and the Sharesave | | | | enhanced maternity, | is paid in cash. | (SAYE) plan. | | | Annual increases | paternity and | | | | | are subject to | adoption leave. | | | negotiation. 183SSE plc Annual Report 2022 ## Annual report on remuneration ### 1. Single total figure of remuneration (audited) | | 2021/22 £000s | 2021/22 £000s | 2021/22 £000s | 2021/22 £000s | | --- | --- | --- | --- | --- | | **Fixed Pay** | 924 | 714 | 636 | 2,274 | | | 26 | 23 | 18 | 67 | | | 413 | 303 | 159 | 875 | | Total Fixed Pay | 1,363 | 1,040 | 813 | 3,216 | | **Variable Pay** | 1,150 | 771 | 678 | 2,599 | | | 1,972 | 1,334 | 998 | 4,304 | | Total Variable Pay | 3,122 | 2,105 | 1,676 | 6,903 | | | 4,485 | 3,145 | 2,489 | 10,119 | Rationale for 2021/22 single total figure of remuneration Base salary Benefits Pension 184 SSE plc Annual Report 2022 The Chief Executive and Finance Director, in common with all other employees who joined at the same time (25 and 31 years ago respectively), have the following pension provisions relating to leaving the Company: • for retirement through ill-health an unreduced pension based on service to expected retirement is paid; • in the event of any reorganisation or redundancy an unreduced accrued pension is paid to a member who is aged 50 or above, with at least five years’ service or, for a member who has not yet reached that age, it will be payable with effect from 50; • and from the age of 55, a scheme member is entitled to leave the Company and receive a pension, reduced for early payment, unless the Company gives consent and funds this pension on an unreduced basis. Dependent on the circumstances surrounding the departure of the Executive Director and financial health of the Company at the time, the Committee’s policy is to give consideration to a cash commutation of the unfunded unapproved retirement benefit (UURB) pension at the time of leaving. Any cash commutation will limit SSE’s liability, taking into account valuations provided by independent actuarial advisors, and will be calculated on what was judged to be a cost neutral basis to SSE. The Chief Commercial Officer, who has been with SSE since 1998, was already in receipt of a pension allowance of 30% of salary prior to his appointment as an Executive Director. While the arrangement was consistent with the approach used for all other members who have elected to receive a cash allowance in lieu of accruing future pension benefits, the Committee agreed that his future pension arrangements would be aligned with the level of contributions available to the wider workforce at 15% of salary on a phased basis over five years. Following confirmation of his expanded role from 1 November 2020, it was agreed that the phased reduction would be accelerated by two years. As part of the revised directors’ remuneration policy, this change has again been accelerated. This means that his pension allowance will be in line with the employer contribution for the majority of SSE’s employees taking into account length of service of 15% of salary from 1 January 2023. The table below details pension accrued for each of the Executive Directors as at 31 March 2022 and 2021. | | Accrued | | Accrued | | --- | --- | --- | --- | | pension as at | | pension as at | | | 31 March 2022 | | 31 March 2021 | | | | £000s | | £000s | Alistair Phillips-Davies 513 489 Gregor Alexander 461 443 1 Martin Pibworth 0 0 1 Martin Pibworth received an allowance in lieu of a pension contribution of 25% of salary. 185SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Annual report on remuneration continued ### Annual Incentive Plan and Performance Share Plan In setting targets and assessing performance, the following process is used for both the AIP and PSP: | 1. Set performance | | 2. Set stretching | | 3. Assess | | 4. Take account | | 5. Apply discretion | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | measures aligned | | performance | | performance | | of wider | | if required | | | with strategy | | targets | | | | environment and | | | stakeholders 2021/22 Annual Incentive Plan 1. Set performance measures aligned with strategy AIP requires broad performance across a number of financial metrics (Adjusted EPS, DPS Growth and Cashflow) and strategic metrics (Personal, Stakeholders and Sustainable Development Goals). The performance measures and their weightings are shown below. Financial Personal Stakeholders Sustainable Development Goals (50%) (15%) (15%) (20%) Elective | Adjusted | | | Individual | | | | | | Carbon | Renewable | | | | Fair Tax & | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Cashflow | DPS | | Customers | | Employees | | Suppliers | | | | | Vehicle | | | EPS | | | Objectives | | | | | | Intensity | | Output | | | Living Wage | | | (10%) | (10%) | | | (5%) | | (5%) | (5%) | | | | Infrastructure | | | | (30%) | | | (15%) | | | | | | (5%) | | (5%) | | | (5%) | (5%) 2. Set stretching performance targets The financial performance targets were set at the start of the financial year taking into account internal financial plans, external consensus where it exists and the expected impact of identified opportunities and threats to the business in the context of wider economic conditions. The performance target range is set on a realistic basis but requires true outperformance for Executive Directors to achieve the maximum. The Remuneration Committee has a history of setting challenging targets, evidenced by the average AIP payout of 54% since 2012 as shown on page 193 . 3. Assess performance The table below shows how performance measures are linked to strategy and how performance was ultimately delivered. Performance measure Sustainable | AIP Adjusted EPS Cashflow DPS Personal Stakeholders | | | | | | development goals Total | | --- | --- | --- | --- | --- | --- | --- | | Link to strategy Simple | | Simple | Simple | Simple | Simple | Simple | | | Stewardship | Sustainable | Sustainable | Sustainable | Sustainable | Sustainable | | | Stakeholders | Stakeholders | Stakeholders | Stewardship | Stewardship | Stewardship | | | | | | Stakeholders | Stakeholders | Stakeholders | | Rationale Underlying | | Net debt/ | Return on | To reflect those | Customers, | Contribution | | | measure of | EBITDA | investment | activities which | employees and | to the four UN | | | financial | | through | go beyond the | suppliers | SDGs for 2030 | | | performance | | payment of | responsibilities | | | | | | | dividends | of the role | | | Weighting 30% 10% 10% 15% 15% 20% Threshold 85.8p 5.0 85.7p Max 99.4p 4.5 93.8p Outcome 95.4p 4.3 85.7p See next section Performance 82% 100% 50% 92% 78% 86% Outturn 25% 10% 5% 14% 12% 17% 83% (% of max incentive) The Committee generally sets non-financial measures and targets that are specific, measurable, attainable, relevant and timely (‘SMART’ objectives) but also recognises that important measures and targets in support of the Company’s vision, purpose and strategy may require some subjective assessment, and this is done by the Committee following the input from the wider Board and other Board Committees as appropriate. The Committee is committed to providing as much retrospective detail of the measures as possible, setting out clearly the decision-making process and the levels of attainment achieved, but mindful that any information which could be considered commercially sensitive cannot be disclosed. 186 SSE plc Annual Report 2022 The tables below and on the following pages provide detail on each of the non-financial measures and the assessment of performance against each one. | High-level | Detailed | | | | Outcome | | --- | --- | --- | --- | --- | --- | | measure | measure Factors to be assessed Summary performance Assessment | | | | (% of max) | | Personal | Chief | Culture and the SSESET, | Strong year for the Executive Directors Positive activity | 3 3 3 | 91% | | 15% | Executive | Financial, People | around net zero strategy, COP26 and on the Net Zero | | | | | | Development, Succession, | Acceleration Plan, continued strong progress made on | | | | | Finance | | | | 90% | | | | Stakeholder Management, | disposals and good underlying business performance | | | Director | | Strategy and Growth | during the ongoing pandemic despite a difficult year | | | --- | --- | --- | --- | | Chief | | with the weather. International acquisitions made during | 89% | | Commercial | | the year and more in the pipeline. | | Officer | x= Below expectation | | | 3= Met expectation 33= Exceeded expectation 333= Far exceeded expectation | | | | | --- | --- | --- | --- | --- | --- | --- | | High-level | | | | | | Outcome | | measure Detailed measure Factors to be assessed Summary performance Assessment | | | | | | (% of max) | | Stakeholders | Customers | Business Energy – A range of | | Currently sitting at 6th out of 17 suppliers | 3 3 3 | 60% | | 15% | 2.5% | measures including customer | | in Citizen’s Advice Non-Domestic | | | | | | complaints and satisfaction. Gateway | | League Table. | | | for threshold performance at median performance of Citizens Advice league table. | 2.5% Electricity Networks – A range | | Margin between performance in the | x | 40% | | --- | --- | --- | --- | --- | | | of measures including customer | North v South. Improvement plan in | | | | | interruptions and customer | place for the South. In overall DNO | | | | | minutes lost. | Customer Performance league table | | | SHEPD sat 8/14 and SEPD at 14/14. Dealt with unprecedented level of storms handling a typical year’s worth of calls in 5 months. | Employees | Safety – Total Recordable Injury | Similar strong results to last year at | 3 3 3 | 90% | | --- | --- | --- | --- | --- | | 2.5% | Rate (TRIR) and Accident Frequency | this year-to-date with TRIR up slightly | | | | | Rate (AFR) for direct employees. | (0.09 v 0.08) and AFR the same at 0.04. | | | | | TRIR target of <0.15. | Overall TRIR slightly up at year end | | | with significant increase in hours worked. | 2.5% Engagement – A range of measures | | Very strong set of results for 2021 | 3 3 3 | 95% | | --- | --- | --- | --- | --- | | | including employee engagement | with key Sustainable Engagement Index | | | | | survey score, employee uptake | indicator ahead of sector norm and at | | | | | of share plans and retention rate. | 82%, 8% up from 2019. Connection to | | | | | Board and leadership engagement | Strategy up 18% at 85%. Strong employee | | | | | with employees. | survey and verbatim feedback around | | | flexible working and company’s COVID response. | 2.5% Inclusion and diversity – progress | | Return on Inclusion champion status | 3 3 3 | 85% | | --- | --- | --- | --- | --- | | | made closing SSE’s median UK | retained with improved index score from | | | | | gender pay gap and progress made | 75.5 to 83.3. Inclusive hiring measures up | | | | | against SSE’s Inclusion Strategy | in all categories (open advertising, flexible | | | | | including progress on Return | working, diverse panels and gender | | | | | on Inclusion. | diverse shortlist. Increased female | | | representation in talent programmes averaging at 40%. Positive increases in diversity questions in GPTW survey. Increase in number of female leavers year-on-year currently being looked into, GPG median down slightly and more women receiving performance bonus. Suppliers Safety – Total Recordable Injury Rate TRIR the same as last year at 0.32 and 3 3 3 95% 2.5% (TRIR) and Accident Frequency Rate AFR (0.14 v 0.19) improved significantly. (AFR) for contractors. x= Below expectation 3= Met expectation 33= Exceeded expectation 333= Far exceeded expectation 187SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Annual report on remuneration continued | High-level | | | | | | Outcome | | --- | --- | --- | --- | --- | --- | --- | | measure Detailed measure Factors to be assessed Summary performance Assessment | | | | | | (% of max) | | Contribution | Climate action | Reduce the carbon intensity | | The carbon intensity of electricity | 3 3 | 90% | | to the UN | (5%): | of electricity generated by | | generated increased by 1.2% in 2021/22. | | | | Sustainable | Take urgent action | 60% by 2030, compared to | | Planned and unplanned outages in | | | | Development | to combat climate | 2017/18 levels, to around | | Thermal Generation and extremely | | | | Goals | change and its | 120gCO | e/kWh. | low wind and rain in North of Scotland | | | 2 | 20% | impacts | led to a reduction in overall output. | | --- | --- | --- | | (see the | | Correspondingly GHG emissions from | | Sustainability | | electricity generation fell by 19%. Keadby | | Report ) | | 2, expected to be the most efficient | CCGT station in Europe, on track to be online by end 2021. Keadby 3 progressing well through planning. SSE set updated science-based carbon targets in November 2021, aligned to a 1.5°C pathway. As a result, this goal has been increased to a reduction of 80% (from 60%) from 2022/23 onwards. | Affordable and | Develop and build by 2030 | Renewable generation output (inc. | 3 3 3 | 90% | | --- | --- | --- | --- | --- | | clean energy (5%): | more renewable energy to | biomass, pumped storage and | | | | Affordable, reliable | contribute renewable output | constrained off wind in GB) fell in the | | | | and sustainable | of 30TWh a year. | year due to unfavourable weather | | | | energy for all | | conditions. However, excellent progress | | | was made on key offshore projects, including reaching financial close on Dogger Bank C and construction progressing well at Seagreen and Dogger Bank A and B. SSE Renewables, along with partners, also won rights to develop what will become one of the world’s largest floating offshore wind farms in the January ScotWind leasing round. | Industry, | Build electricity network | SSEN Distribution published its RIIO-ED2 | 3 3 3 | 85% | | --- | --- | --- | --- | --- | | innovation and | flexibility and infrastructure that | business plan with key goal to facilitate | | | | infrastructure (5%): | helps accommodate 10 million | connection of 1.3m EVs by 2028. It has | | | | Build resilient | electric vehicles in GB by 2030. | progressed a number of key projects | | | | infrastructure, | | to support low-carbon technology | | | | promote inclusive | | solutions, including several ongoing | | | | and sustainable | | strategic initiatives and partnerships in | | | | industrialisation and | | this area. 30% of SSE’s car fleet now fully | | | | foster innovation | | electric with emissions down by 21%. | | | Employee EV salary sacrifice car scheme launched so that every employee will have access to a fully electric car. | Decent work and | Be the leading company in the | SSE maintained its Fair Tax Mark | 3 3 3 | 80% | | --- | --- | --- | --- | --- | | economic growth | UK and Ireland championing | accreditation for the eighth consecutive | | | | (5%): Promote | Fair Tax and a real Living Wage. | year and published its Talking Tax 2021 | | | | sustained, inclusive | | report. Living wage increased in line | | | | and sustainable | | with real Living Wage rate increase | | | | economic growth, | | and from April now has Living Hours | | | | full and productive | | accreditation. Work has begun to roll the | | | | employment and | | new accreditation out in its supply chain. | | | | decent work for all | | Goal in this area has been reviewed in | | | 21/22, broadening it to encompass a just transition. x= Below expectation 3= Met expectation 33= Exceeded expectation 333= Far exceeded expectation 188 SSE plc Annual Report 2022 4. Take account of wider environment The Remuneration Committee believes that the range of measures used in the AIP ensures that performance is assessed using a balanced approach, without undue focus on a single metric which could be achieved at the expense of wider initiatives. AIP outturns for the wider employee population were also taken into account by the Committee. AIP earned for each of the Executive Directors is shown in the table below. The total award is made up of 67% cash and 33% which is deferred into shares and vests after three years. 5. Apply discretion if required The Committee considers the outcomes in the light of SSE’s performance in the round and pay principles. While mindful of current cost of living pressures the Committee felt that the reward was reflective of performance and decided that no further discretion was required. Maximum 1 (% of salary) AIP earned AIP cash AIP deferred Alistair Phillips-Davies 150% 1,150,285 770,691 379,594 Gregor Alexander 130% 770,532 516,256 254,276 Martin Pibworth  130% 678,296 454,458 223,838 1 Both the cash and deferred element are subject to clawback provisions. 2019 – 2022 Performance Share Plan 1. Set performance measures aligned with strategy PSP performance measures are designed to encourage sustainable value creation, consistent with effective stewardship, encouraging good decision-making for the long term. The measures and their weightings are shown below: Value Creation Financial Operational (40%) (40%) (20%) Customer: | Total Shareholder Return | | Total Shareholder Return | | | | | | Customer: | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | Adjusted EPS growth | | DPS growth | | | Business | | relative to FTSE 100 | | relative to MSCI Europe Index | | | | | | Distribution | | | | | | | | (20%) | | (20%) | | Energy | | | (20%) | | (20%) | | | | | (10%) | | (10%) 2. Set stretching performance targets The performance target ranges for PSP are set each year to ensure they are stretching and represent value creation for shareholders. 3. Assess performance The vesting of shares under the PSP is subject to the performance measures and targets shown in the table below which also details the actual outturn for the 2019 PSP award vesting this year. Performance measure | | | | | | Customer | Customer | | --- | --- | --- | --- | --- | --- | --- | | PSP TSR v FTSE 100 TSR v MSCI Europe EPS growth DPS growth | | | | | (Distribution) | (Business Energy) Total | | Link to | Simple | Simple | Simple | Simple | Simple | Simple | | strategy | Stewardship | Stewardship | Stewardship | Sustainable | Stewardship | Stewardship | | | Stakeholders | Stakeholders | Stakeholders | Stakeholders | Stakeholders | Stakeholders | | Rationale Relative | | Relative | Underlying | Return on | Meeting | Meeting | | | measure of | measure of | measure of | investment | customers needs | customers needs | | | performance | performance | financial | through payment | is at core of our | is at core of our | | | | | performance | of dividends | business | business | Weighting 20% 20% 20% 20% 10% 10% Threshold 50th percentile 50th percentile RPI RPI Median ranking Median ranking Max 75th percentile 75th percentile RPI +10% RPI +5% Rank 1 Rank 1 | Outcome Rank 13 of 95 | | Rank 6 of 23 | RPI + 8.1% Below RPI Below median Average 4 of 16 | | --- | --- | --- | --- | | | (above 75th | (above 75th | | | | percentile) | percentile) | | Performance 100% 100% 93% 0 0% 73% Outturn 20% 20% 19% 0 0% 7% 66% (% of max) 189SSE plc Annual Report 2022 ## Annual report on remuneration 4. Take account of wider environment 5. Apply discretion if required page 184 ### Other remuneration disclosures | | 2021/22 | | | --- | --- | --- | | | 101 | | | | 105 | | | | 0 | | | | 0 | | | | 91 | | | | 87 | | | | 400 | | | | 73 | | | | 73 | | | | 42 | | | | 42 | | | Total | 1,014 | 996 | 190 SSE plc Annual Report 2022 Share interests and share awards (audited) Directors’ share interests The table below shows the share interests of the Executive and non-Executive Directors at 31 March 2022. Number of shares Number of options | | | | | | | Interests in | | | Interests in | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | shares, awarded | | | shares, awarded | | Interests in share | | | Interests in share | | | | | | | | | | | | | without | | subject to | | | options, | | | options, | | | | | | | | | | performance | | | performance | awarded without | | | awarded subject | | | | | | | | *Shareholding | Shares owned | | | conditions at | | | conditions at | | performance | | to performance | | | Shares owned | | | | requirement as a % of | | | outright at | 31 March 2022 | | | 31 March 2022 | | | conditions at | | | conditions at | | | outright at | | Director | salary (Actual/% met) | | 31 March 2022 | | | (DBS Awards) | | | (PSP Awards) | | 31 March 2022 | | | 31 March 2022 | | 31 March 2021 | | Gregor Alexander 608% (200% – met) 248,434 26,326 275,349 1,967 – 220,782 Elish Angiolini 2,000 Sue Bruce 2,484 – – – – 2,484 Tony Cocker 5,000 – – – – 5,000 Debbie Crosbie 2,000 Peter Lynas 5,000 – – – – 5,000 Helen Mahy 3,310 – – – – 2,027 John Manzoni 2,437 2,311 Alistair Phillips-Davies 556% (200% – met) 293,747 39,302 407,138 1,997 – 253,462 Martin Pibworth 268% (200% – met) 97,525 20,524 217,855 2,662 – 78,557 Melanie Smith 2,100 – – – – 2,000 Angela Strank 1,669 – – – – 388 * Shareholding requirement: Executive Directors – 200% of salary. Non-Executive Directors – minimum 2,000 shares. Price used to calculate shareholding requirement as % of salary as at 31/03/22 £17.4850. Directors’ Long-term Incentive Plan interests Deferred Bonus awards granted in 2021 and PSP awards granted in 2021 The tables below shows the deferred bonus awards and PSP awards granted to Executive Directors in 2021. Deferred bonus awards granted 2021 Market Value on Recipient Date of Grant Shares Granted date of award Face Value Gregor Alexander 06/07/2021 13,832 £15.2400 £210,799.68 Alistair Phillips-Davies 06/07/2021 20,650 £15.2400 £314,706.00 Martin Pibworth 06/07/2021 11,174 £15.2400 £170,291.76 £695,797.44 PSP awards granted 2020 Market Value on Recipient Date of Grant Shares Granted date of award Face Value Gregor Alexander 06/07/2021 82,597 £15.2400 £1,258,778.28 £1,258,778.28 Alistair Phillips-Davies 06/07/2021 122,131 £15.2400 £1,861,276.44 £1,861,276.44 Martin Pibworth 06/07/2021 73,597 £15.2400 £1,121,618.28 £1,121,618.28 191SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Annual report on remuneration continued Directors’ Long-term Incentive Plan interests The table below details the Executive Directors’ Long-term Incentive Plan interests. Additional | | | | | | | | | | | | shares | No. of shares | | No.of shares | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | Normal | | No. of | | | awarded | lapsed during | | realised during | | | | | | | | | Exercise Period | | | shares under | | Option | during the year | | the year incl. | | the year incl. | | | No. of shares | | | | | | | (or Vesting | | award as at | | Exercise | incl. dividend | | | dividend | | dividend | | under award at | | | Share plan Date of Award | | | | | Date) | 1 April 2021 | | Price | | shares | | shares | | shares | | 31 March 2022 | | | | 2 | | | | | | | | | | | | | | 4 | | | Gregor | DBP 2016 | | 28/06/2018 28/06/2021 16,640 16,640 | | | | | | | | | | | | | | | 2 Alexander DBP 2016 28/06/2019 28/06/2022 0 0 2 | DBP 2016 | | | 26/06/2020 26/06/2023 12,494 12,494 | | | | | --- | --- | --- | --- | --- | --- | --- | | | | 2 | | 3 | | | | DBP 2016 | | | 06/07/2021 06/07/2024 13,832 | | | 13,832 | | | | 1 | | | 4 | | | | PSP | | 28/06/2018 28/06/2021 89,466 79,913 31,076 | | | | 1 PSP 28/06/2019 28/06/2022 103,991 103,991 1 | PSP | | 26/06/2020 26/06/2023 88,761 88,761 | | | | --- | --- | --- | --- | --- | | | 1 | | 3 | | | PSP | | 06/07/2021 06/07/2024 82,597 | | 82,597 | 01/10/22 Sharesave 12/07/2019 - 31/03/23 1,837 901p 1,837 01/10/23 | | Sharesave 21/07/2020 | | | - 31/03/24 130 1,107p 130 | | | --- | --- | --- | --- | --- | --- | | | | 2 | | | 4 | | Alistair | DBP 2016 | | 28/06/2018 28/06/2021 24,841 24,841 | | | | Phillips-Davies | | 2 | | | | | | DBP 2016 | | 28/06/2019 28/06/2022 0 0 | | | 2 | DBP 2016 | | | 26/06/2020 26/06/2023 18,652 18,652 | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 2 | | 3 | | | | | | DBP 2016 | | | 06/07/2021 06/07/2024 20,650 | | | | | 20,650 | | | | 1 | | | 2 | | 4 | | | | PSP | | 28/06/2018 28/06/2021 132,287 118,16 | | | 45,951 | | | 1 PSP 28/06/2019 28/06/2022 153,763 153,763 1 | PSP | | 26/06/2020 26/06/2023 131,244 131,244 | | | | --- | --- | --- | --- | --- | | | 1 | | 3 | | | PSP | | 06/07/2021 06/07/2022 122,131 | | 122,131 | 01/10/22 | | Sharesave 12/07/2019 | | | - 31/03/23 1,997 901p 1,997 | | | --- | --- | --- | --- | --- | --- | | | | 2 | | | 4 | | Martin | DBP 2006 | | 28/06/2018 28/06/2021 10,398 10,398 | | | | Pibworth | | 2 | | | | | | DBP 2016 | | 28/06/2019 28/06/2022 0 0 | | | 2 | DBP 2016 | | | 26/06/2020 26/06/2023 9,350 9,350 | | | | | --- | --- | --- | --- | --- | --- | --- | | | | 2 | | 3 | | | | DBP 2016 | | | 06/07/2021 06/07/2024 11,174 | | | 11,174 | | | | 1 | | | 4 | | | | PSP | | 28/06/2018 28/06/2021 66,957 59,807 23,258 | | | | 1 PSP 28/06/2019 28/06/2022 7 7,828 77,828 1 | PSP | | 26/06/2020 26/06/2023 66,430 66,430 | | | | --- | --- | --- | --- | --- | | | 1 | | 3 | | | PSP | | 06/07/2021 06/07/2024 73,597 | | 73,597 | 01/10/22 Sharesave 12/07/2019 - 31/03/23 998 901p 998 01/10/24 Sharesave 12/07/2019 - 31/03/25 1,664 901p 1,664 Shares which are released under the DBP 2016 and PSP Awards attract additional shares in respect of the notional reinvestment of dividends. In addition to the shares released under these schemes, as indicated in the table above, the following shares were realised arising from such notional reinvestment of dividends: Gregor Alexander received 10,027 shares, Alistair Phillips-Davies received 14,885 shares and Martin Pibworth received 7,006 shares. 1 The performance conditions applicable to awards under the PSP are described on page 189 . The 2018 awards under the PSP vested at 28%. 2 25% of annual bonus payable to Executive Directors and Senior Managers is satisfied as a conditional award of shares under the DBP 2016. Vesting of shares under the DBP 2016 is dependent on continued service over a three-year period. In view of the linkage to annual bonus. 3 The market value of a share on the date on which these awards were made was 1,513p. 4 The market value of a share on the date on which these awards were realised was 1,5222599p. The closing market price of shares at 31 March 2022 was 1,74850p and the range for the year was 1,455p to 1,749p. Awards granted during the year were granted under the PSP. The aggregate amount of gains made by the Directors on the exercise of share options and realisation of awards during the year was £2,506,172 (2021 - £2,392,187). 192 SSE plc Annual Report 2022 ### 2. Historical remuneration disclosures ### Change in Chief Executive total remuneration The graph below shows SSE TSR performance over the last ten years relative to FTSE 100 performance. SSE FTSE 100 The table below shows the Chief Executive’s annual remuneration over the same period. | | | Single total | | | | | Long-term | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | figure of | | Annual variable | | incentive | | | | | | | 1 | | 2 | | 3 | | | remuneration | | | | element award | | vesting | (% of | | Directors | | | (£’000) | | (% of maximum) | | maximum) Application of discretion | | 2021/22 (Alistair Phillips-Davies) 4,485 83 66 2020/21 (Alistair Phillips-Davies) 3,045 69 28 Downward discretion applied to AIP 2019/20 (Alistair Phillips-Davies) 2,418 59 27 2018/19 (Alistair Phillips-Davies) 1,639 0 26 Downward discretion applied to AIP 2017/18 (Alistair Phillips-Davies) 2,693 78 30 2016/17 (Alistair Phillips-Davies) 2,917 72 46 Downward discretion applied to AIP 2015/16 (Alistair Phillips-Davies) 1,696 54 0 2014/15 (Alistair Phillips-Davies) 2,311 64 0 4 2013/14 (Alistair Phillips-Davies and Ian Marchant) 2,546 63 22 2012/13 (Ian Marchant) 2,241 0 53 Chief Executive waived AIP 1 The single total figure of remuneration is calculated on the same basis as the ‘single total figure of remuneration’ table on page 184 . 2 The annual variable element award (AIP) is the figure shown on page 186  and reflected in the ‘single total figure of remuneration table’ on page 184 . 3 The long-term incentive (PSP) vesting is the figure shown on page 189 , and reflected in the ‘single total figure of remuneration table’ on page 184 . 4 For 2013/14, an aggregate number has been applied by combining pro-rata values for each CEO based upon their time in role. ### Alignment of Directors’ Remuneration Policy with pay across the wider employee population In setting Executive Directors’ pay, a number of factors are taken into account including importantly, relativity to the wider workforce. For a number of years, a Chief Executive pay ratio has been disclosed voluntarily. In 2018/19, the methodology was revised to meet the new reporting requirements. The methodology used is a hybrid approach combining Gender Pay Gap data (as disclosed in the Sustainability Report ) with additional elements of pay which are important components of SSE employees’ pay such as overtime, employer’s contribution to pension and excluding salary sacrifice arrangements. This is believed to allow the most appropriate and consistent comparison. As shown in the table below, the pay ratio has increased from 71:1 at median in 2020/21 to 102:1 in 2021/22. While the median remuneration for all employees has increased by 3.5%, the Chief Executive’s remuneration has increased by 47%. This is due mainly to increased variable pay for the Chief Executive following a strong performance year and a 27% increase in the share price during the year and an increase in SSE’s TSR over the three-year period of over 66%. SSE’s is committed to being a responsible employer, and the remuneration policy is designed with fairness in mind – fairness to Executive Directors in recognition of the extent of their responsibilities and, fairness relative to the rest of the SSE team. More information on SSE’s responsible employer ethos can be found within the Sustainability Report  which includes information on the commitment to being a 280 real Living Wage employer, and other initiatives which help to ensure value is created and retained for employees and the organisation. 260 240 220 200 180 160 140 TSR (rebased to 100) 120 100 193SSE plc Annual Report 2022 80 March March March March March March March March March March March 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 ## Annual report on remuneration ### Annual percentage change in remuneration of the Directors page 184 ### Relative importance of the spend on pay page 184 | | 2021/22 £m | | --- | --- | | | 10.1 | | | 862.3 | | | 2,073.7 | | | 335.3 | | | 688.7 | page 184 194 SSE plc Annual Report 2022 ### 3. Governance ### External appointments Executive Directors are able to accept a non-Executive appointment outside the Company with the consent of the Board, as such appointments can enhance their experience and value to the Company. Any fees received are retained by the Director. Gregor Alexander was a non-Executive Director of Stagecoach Group plc during 2021 and received £53,000 in fees. ### Payments for loss of office and payments to past Directors There were no payments for loss of office or to former Directors during the year. ### Advice to the Remuneration Committee The Chief Executive, the Director of Human Resources and Head of Reward advised the Committee on certain remuneration matters for the Executive Directors and senior executives although they were not present for any discussions related to their own remuneration. The Director of Human Resources and Head of Reward advised on HR strategy and the application of HR policies across the wider organisation. FIT Remuneration Consultants LLP (FIT) provided a range of information to the Committee which included market data drawn from published surveys, governance developments and their application to the Company, advice on remuneration disclosures and regulations and comparator group pay. FIT received fees of £96,569 in relation to their work for the Committee, calculated on a time and materials basis. FIT are founding members of, and adhere to, the Remuneration Consultants’ Group Code of Conduct. The Code defines the roles of consultants, including the requirement to have due regard to the organisation’s strategy, financial situation, pay philosophy, the Board’s statutory duties and the views of investors and other stakeholders. The Committee reviews the advisers’ performance annually to determine that it is satisfied with the quality, relevance, objectivity and independence of advice being provided. FIT provides no other services and has no other connection to the Company or individual Directors. Freshfields LLP also provided advice on legal matters, such as share plan rules, during the year. ### Evaluation Through the internal Board evaluation process which was carried out during the year, it was confirmed that the Remuneration Committee continued to operate effectively. Details of the wider annual evaluation process are set out on pages 143 to 144 . ### Risk assessment The Remuneration Committee carries out a remuneration risk assessment on an annual basis to identify and evaluate the risks inherent in our Directors’ Remuneration Policy. Important risk mitigators identified included the broad balance of clear financial and non-financial performance measures, targets which are set in line with SSE’s business plans and an overall approach to pay design which rewards the delivery of strong, yet sustainable, performance. The review of the Directors’ Remuneration Policy during the year has also involved the systematic assessment of a variety of risks including strategic, operational, behavioural, talent and governance. ### Shareholder voting in 2021 On 22 July 2021, shareholders approved the Annual report on remuneration for the year ended 31 March 2021 and the result is shown below. Also shown below is the result of shareholder voting on the current Directors’ Remuneration Policy which was approved at the AGM on 18 July 2019. | ANNUAL REPORT ON REMUNERATION – SHAREHOLDING VOTING IN 2021 | | DIRECTORS’ REMUNERATION POLICY – SHAREHOLDER VOTING IN 2019 | | | --- | --- | --- | --- | | | For – 97.09% | | For – 99.13% | | | Against – 2.91% | | Against – 0.87% | | | Total votes cast: 653,714,954 | | Total votes cast: 680,814,523 | | | Votes withheld: 4,066,190 | | Votes withheld: 8,425,369 | 195SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Annual report on remuneration continued ### Remuneration Committee The Terms of Reference for the Committee were reviewed during 2021/22 and are available on the Company’s website (sse.com ). In summary, the Committee determines and agrees with the Board, the Company’s framework and policy for executive remuneration including setting remuneration for all Executive Directors, the Company Chair, the Group Executive Committee and Company Secretary. During the year, a minor amendment was made relating to the approval of incentive design across the wider Company. The members of the Committee and the meetings attended are set out on page 125 . The following agenda items were considered: Meeting date  Agenda items May 2021 Market and governance update, Executive Directors’ pensions, base salary and fee review, AIP and PSP year-end performance, all employee remuneration, 2021 Directors’ Remuneration Report, review of executive share plan leavers, 2021-23 Remuneration Committee Plan. August 2021 Leadership Share Plan target update, Directors’ Remuneration Policy planning. November 2021 Market and governance update, AIP and PSP mid-year performance update, Directors’ Remuneration Policy discussion, 2021-23 Remuneration Committee plan. December 2021 Remuneration Policy – follow-up discussion March 2022 Shareholder consultation feedback, incentive measures design, market and governance update, AIP and PSP performance update, Executive Directors’ salaries and the Chair’s fee, below-Board remuneration, 2021 Directors’ Remuneration Report, Remuneration Committee terms of reference review, 2021-23 Remuneration Committee plan, Remuneration Committee evaluation. ### 4. Implementation of the Directors’ Remuneration Policy for 2022/23 The table below sets out how the Remuneration Committee intends to operate the remuneration policy for the year ending 31 March2023: Element of pay Implementation for 2022/23 Comment Base salary Salaries will be increased by 3% The increase is in line with the negotiated settlement for collectively with effect from 1 April 2022. bargained employees and the general pay pot for all other employees. Although the new Policy gives SSE some flexibility in respect of market positioning there are no plans to make any market adjustments to the base salaries of the current executive directors. Benefits No changes proposed. Pension No changes proposed. The phased alignment of the Chief Commercial Officer’s cash allowance in lieu of pension will be accelerated and reduced to 15% of salary at the end of 2022. Annual Incentive Plan The performance measures and The weighting and the definition of cash flow have been (no change to quantum) weightings (in brackets) are as follows: changed to increase the focus on cash flow. The operational Adjusted EPS (30%) and sustainability measures are new. Measures will be assessed Cash flow as measured by Net Debt/ on both a quantitative and qualitative basis. A portion (33%) of any EBITDA (20%) Operational (30%) bonus earned will continue to be deferred into shares which vest Personal/team (10%) after three years. From 2022, the new post-employment share Sustainability (10%) ownership supersedes the requirement to retain all deferred shares from the AIP for two years after employment. The targets for the 2022/23 Annual Incentive Plan will be disclosed in next year’s Directors’ Remuneration Report provided they are not, for any reason, commercially sensitive. Full details of the measures are shown below. The operational metric combines a mix of qualitative and quantitative goals. The sustainability goals measure SSE’s relative performance. | Performance Share Plan | The face value of the awards | In response to the feedback from investors, the weighting of | | --- | --- | --- | | (increase in maximum | Chief Executive: 250% of salary | financial/share-based measures and non-financial measures | | of 50% of salary to align | Finance Director and Chief Commercial | moves to 70% and 30% respectively. The weighting of relative | | with tougher targets) | Officer: 225% of salary | TSR has also been increased from 40% to 50% of the total | | | The performance measures and | award and the weighting of adjusted EPS growth is 20%. | | | weightings (in brackets) are as follows: | Performance standards have been increased in response | | | Relative TSR (50%) | to the higher quantum potential. Any vested shares from the | | | Adjusted EPS (20%) | Performance Share Awards made in 2022 and beyond are subject | | | Sustainability (15% | to the new post-employment share ownership policy. Full details | | | Strategic (15%) | of the performance measures are shown below. The strategic and | sustainability measures are qualitative. 196 SSE plc Annual Report 2022 ### AIP – the measures for 2022/23 Adjusted Earnings Per Share and cash flow remain key measures for the AIP. The definition of cash flow has been updated and the weighting has been increased in the light of the Net Zero Acceleration Programme (NZAP). Targets will be set annually in light of NZAP and disclosed in next year’s Directors’ Remuneration Report. Performance measure Adjusted EPS Cash flow Personal/Individual* Operational** Sustainability Weighting 30% 20% 10% 30% 10% Description Underlying Net debt divided Rewards actions Measures and SSE’s performance measure by EBITDA. which go beyond targets are set will be rated by of financial the normal in priority areas four external performance responsibilities including ratings agencies – and a strategic of the role. May people (safety MSCI, V.E, KPI. be individual or and inclusion Sustainalytics team based. and diversity), and S&P Global. renewables, Performance at distribution, the median will transmission, be deemed the thermal, threshold and customers and performance at other growth and the upper quintile transactions. or above, the maximum. * Examples of the personal goals include the active engagement in and cascading of SSE’s Inclusion & Diversity development programmes and the implementation of SSE’s cultural action plan as measured by the Great Place To Work (GPTW) assessment using WTW’s methodology and other agreed engagement scorecard metrics. ** Examples of the operational goals include: People: Health & Safety performance as measured by Total Recordable Incident Rate (TRIR); recruitment plans and inclusion and diversity as measured by time to hire, filling of vacancies and the percentage increase in gender diversity across SSE. Renewables: cost per MW hour, plant availability, progress on renewables pipeline. Distribution: progress against ED2 business plan; incentive income against agreed target. Transmission: contract awards achieved against agreed plan; delivery of outputs and approval of projects that maintain a trajectory of RAV greater than £6bn by 2026. Thermal: plant availability; balancing market performance. Customer: finish above median in the Citizen’s Advice non-domestic supplier league table. Other Growth & Transactions: progress building pipeline across business areas including solar, storage, hydrogen, and other priority business development areas; progress made on financial sell down of T & D businesses. The personal and operational goals will be assessed using a scoring framework as follows: Score Illustrative performance assessment Illustrative outturn as % of maximum 1 Below threshold Zero 2 Threshold performance 20% 3 Majority of goals at target 40% 4 Substantial majority of goals at or above target 70% 5 All goals at or above target 100% The Remuneration Committee can decide to award an outturn between levels if warranted. 197SSE plc Annual Report 2022 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Annual report on remuneration continued ### The measures for awards under the Performance Share Plan for 2022 Relative Total Shareholder Return (TSR) and EPS account for 50% and 20% respectively of the total and the new sustainability and strategic measures 30% of the total award as follows: Total Shareholder | | Total Shareholder | Return relative to | | | --- | --- | --- | --- | | | Return relative to | the MSCI European | Adjusted Earnings | | Performance measure | the FTSE 100 | Utilities | per Share Strategic Sustainability | Weighting 20% 30% 20% 15% 15% Threshold performance 50th percentile 50th percentile Compound See below See below (20% outturn) (20% outturn) annual growth of 4% (20% outturn) Maximum performance 80th percentile 80th percentile Compound See below See below (100% outturn) (100% outturn) annual growth of 11% (100% outturn) The TSR performance targets have been strengthened with 20% of that element vesting for median performance (previously 25%) and full vesting of that element only achieved at 80th percentile ranking (increased from 75th percentile). The growth targets for EPS have been set based on SSE’s current plan for the next three years. The top end of range exceeds the Board’s expectations, is stretching and will result in EPS of 130.5p. The Committee will assess the growth targets for future awards under the PSP to ensure that they remain challenging and linked to the business plan. ### Strategic measures and targets for the 2022 PSP award The measures and targets for this element are linked to the Remuneration Committee’s assessment of SSE’s performance over the three years to 31 March 2025 in the three main areas of the implementation of the NZAP strategy. Strategic area in NZAP Measures and targets Renewables >10GW pipeline of net installed capacity potential by FY26. 2GW to be built by FY26. Networks growth Transmission and Distribution to exceed NZAP RAV growth targets. Energy businesses Low carbon thermal installed capacity to meet 0.9GW by FY26. DE installed capacity to reach 0.6GW by FY26. ### Sustainability measures and targets for the 2022 PSP award SSE’s UN SDG 2030 Goal Measure and Targets SDG 13 Climate Action: Reduce scope 1 carbon intensity by 80% by 2030, compared to Scope 1 carbon intensity reduction to 61gCO2e/kWh 2017/18 levels, to 61g CO2e/kWh. SDG 7 Affordable and Clean Energy: Build a renewable energy portfolio that generates at least Renewables output TWh tracked to 2025/26. 50TWh of renewable electricity a year by 2030. Renewables output TWh by 2030/31. SDG 9 Industry, Innovation and Infrastructure: Enable at least 20GW of renewable generation and facilitate GW renewable generation capacity connected to SSEN’s electricity around 2 million EVs and 1 million heat pumps on SSEN’s transmission network by 2026. electricity networks by 2030. Low-carbon technologies connected to SSEN’s local electricity distribution networks by 2028. SDG 8 Decent Work and Economic Growth: Be a global leader for the just transition to net zero, with Achieve performance in the top 10% of rankings on average for a guarantee of fair work and commitment to paying fair tax progress on Just Transition, including in the World Benchmarking and sharing economic value. Alliance (WBA) and others as they emerge. Performance against the strategic and sustainability measures and targets will be assessed using the same scoring framework shown above in respect of the personal and operational measures and targets for the AIP. 198 SSE plc Annual Report 2022 Chair's and non-Executive Directors' fees Dame Sue Bruce DBE Chair of the Remuneration Committee SSE plc Annual Report 2022 199 DIRECTORS’ REPORT – CORPORATE GOVERNANCE ### Other statutory information The Directors submit their Annual Report and Accounts for SSE plc, together with the consolidated Financial Statements of the SSE Group of companies, for the year ended 31 March 2022. The Strategic Report is set out on pages 1 to 111  and the Directors’ Report is set out on pages 112 to 203 . The Strategic Report and the Directors’ Report together constitute the management report as required under Rule 4.1.8R of the Disclosure Guidance and Transparency Rules. As permitted by section 414C (11) of Companies Act 2006 the below matters have been disclosed in the Strategic Report: Page reference | An indication of likely future developments in the business of the Company | | | pages 1 to 111  | | | --- | --- | --- | --- | --- | | Particulars of important events affecting the Company since the financial year end | | | | page 289  | | Greenhouse gas emissions | | | | page 54  | | Energy consumption | | | | page 57  | | Energy efficiency action | | | | page 57  | | Employee engagement and involvement | | page 34 and 60 to 63  | | | | Engagement with suppliers, customers and others in a business relationship with the Company | pages 36,39 and 58 to 67  | | | | | A summary of the principal risks facing the Company | | | pages 71 to 81  | | Information required to be disclosed under Listing Rule 9.8.4R is contained on the pages detailed below. Page reference Statement of amount of interest capitalised by the Group during the financial year pages 247 to 248  Details of any long-term incentive schemes pages 168 to 199  ### Results and dividends The Group’s results and performance highlights for the year are set out on pages 20 to 21 and 82 to 94 . An interim dividend of 25.5 pence per Ordinary Share was paid on 10 March 2022. The Directors propose a final dividend of 60.2p per Ordinary Share. Subject to approval at the AGM 2022, the final dividend will be paid on 22 September 2022 to shareholders on the Register of Members at close of business on 29 July 2022. ### Board of Directors ### Director appointment and retirement The Company’s Directors who served during the financial year ending 31 March 2022 are provided on pages 118 to 122 . The rules governing the appointment and retirement of Directors are set out in the Company’s Articles of Association, the UK Corporate Governance Code, the Companies Act 2006 and other related legislation. ### Indemnification of Directors and insurance The Directors have the benefit of an indemnity provision contained in the Company’s Articles of Association. In addition, the Directors have been granted a qualifying third-party indemnity provision which was in force throughout the financial year and remains in force. Also, throughout the financial year, the Company purchased and maintained Directors’ and Officers’ liability insurance in respect of itself and for its Directors and Officers. ### Political donations and expenditure SSE operates on a politically neutral basis and does not make any donations to political parties, political organisations, or independent election candidates. During the year, no political expenditure was incurred, and no political donations were made by the Group. ### Accounting policies, financial instruments, and risk Details of the Group’s accounting policies, together with details of financial instruments and risk, are provided in note 24 to the Financial Statements and Notes A6 to A8 of the Accompanying Information. ### Research and development SSE is involved in a range of innovative projects and programmes which are designed to progressively transform the energy system. A number of these projects and programmes are referred to in the Strategic Report in pages 1 to 111 . 200 SSE plc Annual Report 2022 ## Employment of disabled people pages 60 to 65 **Shares** Share capital Transfer of Ordinary Shares Substantial shareholdings Authority to purchase shares Voting SSE plc Annual Report 2022 201 ## Other statutory information Annual General Meeting (AGM) sse.com Articles of Association changes Change of control Disclosure of information to the auditor Related party transactions pages 112 to 203 Sally Fairbairn Company Secretary 202 SSE plc Annual Report 2022 ### Statement of Directors’ responsibilities ### in respect of the annual report and the financial statements The Directors are responsible for preparing the Annual Report and the Group and parent Company financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with UK-adopted international accounting standards (“IFRS”), and have elected to prepare the parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law) including Financial Reporting Standard 101, “Reduced Disclosure Framework”. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of the Group and parent Company financial statements, the Directors are required to: • select suitable accounting policies in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently; • make judgements and accounting estimates that are reasonable, relevant and reliable; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; • provide additional disclosures when compliance with the specific requirements in IFRSs (and in respect of the parent Company financial statements, FRS 101) is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group and Company financial position and financial performance; • in respect of the Group financial statements, state whether UK-adopted international accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; • in respect of the parent Company financial statements, state whether applicable UK Accounting Standards, including FRS 101, have been followed, subject to any material departures disclosed and explained in the financial statements; and • assess the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and • use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease • operations, or have no realistic alternative but to do so. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. ### Responsibility statement of the Directors in respect of the annual financial report We confirm that to the best of our knowledge: • the financial statements, prepared in accordance with UK-adopted international accounting standards give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and • the annual report, including the strategic report, includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy. Alistair Phillips-Davies Gregor Alexander Chief Executive Finance Director 24 May 2022 203SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Alternative Performance Measures When assessing, discussing and measuring the Group’s financial performance, management refer to measures used for internal performance management. These measures are not defined or specified under International Financial Reporting Standards (IFRS) and as such are considered to be Alternative Performance Measures (“APMs”). By their nature, APMs are not uniformly applied by all preparers including other participants in the Group’s industry. Accordingly, APMs used by the Group may not be comparable to other companies within the Group’s industry. ### Purpose APMs are used by management to aid comparison and assess historical performance against internal performance benchmarks and across reporting periods. These measures provide an ongoing and consistent basis to assess performance by excluding items that are materially non-recurring, uncontrollable or exceptional. These measures can be classified in terms of their key financial characteristics: • Profit measures allow management to assess and benchmark underlying business performance during the year. They are primarily used by operational management to measure operating profit contribution and are also used by the Board to assess performance against business plan. The Group has six profit measures, of which adjusted operating profit and adjusted profit before tax are the main focus of management through the financial year and adjusted earnings per share is the main focus of management on an annual basis. In order to derive adjusted earnings per share, the Group has defined adjusted operating profit, adjusted net finance costs, and adjusted current tax charge as components of the adjusted earnings per share calculation. Adjusted EBITDA is used by management as a proxy for cash derived from ordinary operations of the Group. • Capital measures allow management to track and assess the progress of the Group’s significant ongoing investment in capital assets and projects against their investment cases, including the expected timing of their operational deployment and also to provide a measure of progress against the Group’s strategic Net Zero Acceleration Programme objectives. • Debt measures allow management to record and monitor both operating cash generation and the Group’s ongoing financing and liquidity position. ### Changes to APMs in the year The Group has defined a new capital APM in the year of ‘Adjusted investment, capital and acquisition expenditure’. The APM is comprised of the existing ‘Adjusted investment and capital expenditure’ metric, but also includes cash consideration paid for business combination acquisitions. During the year the Group completed the acquisition of a controlling 80% stake in its Japanese offshore renewable development platform, SSE Pacifico (see note 12) and announced the expected acquisition, in financial year ended 31 March 2023, of a European onshore renewable energy development platform from Siemens Gamesa Renewable Energy (“SGRE”). As the Group expands internationally it is expected that there will be further acquisitions to enhance the Group’s development portfolio. These acquisition costs are included in this new APM to better represent the Group’s overall investments associated with its Net Zero Acceleration Programme. As referred above, during the year the Group acquired a controlling 80% stake in SSE Pacifico (see note 12). As a result, the Group has now updated its APMs to clarify how non-controlling interests will be presented in future periods where there are expected to be material non-controlling interests. The Group believes that removing the non-controlling interest share from all of its profit, capital and debt measures on a consistent basis is the most simple, understandable and reflective presentation of the Group’s interest in these businesses. There is no significant impact on adjusted metrics in the year ending 31 March 2022. On 14 October 2021, the Group disposed of its Gas Production business (see note 12.2), but retained 60% of the decommissioning provision of the business. The Group has amended its adjusted profit measures to remove the effect of prospective revaluation adjustments to the decommissioning provision as it is not considered to be part of the Group’s core continuing operations. The following section explains the key APMs applied by the Group and referred to in these statements: ### Profit measures Closest equivalent Group APM Purpose IFRS measure Adjustments to reconcile to primary financial statements Adjusted EBITDA Profit Operating profit • Movement on operating and joint venture financing derivatives (earnings before measure (‘certainre-measurements’) interest, tax, • Exceptional items depreciation • Adjustments to retained Gas Production decommissioning provision and amortisation) • Share of joint ventures and associates’ interest and tax • Depreciation and amortisation before exceptional charges (including depreciation and amortisation expense on fair value uplifts) • Share of joint venture and associates’ depreciation and amortisation • Non-controlling share of operating profit • Non-controlling share of depreciation and amortisation • Release of deferred income Adjusted Profit Operating profit • Movement on operating and joint venture financing derivatives operating profit measure (‘certainre-measurements’) • Exceptional items • Adjustments to retained Gas Production decommissioning provision • Depreciation and amortisation expense on fair value uplifts • Share of joint ventures and associates’ interest and tax • Non-controlling share of operating profit 204 SSE plc Annual Report 2022 Closest equivalent Group APM Purpose IFRS measure Adjustments to reconcile to primary financial statements Adjusted Profit Profit Profit before tax • Movement on operating and financing derivatives (‘certain re-measurements’) Before Tax measure • Exceptional items • Adjustments to retained Gas Production decommissioning provision • Non-controlling share of profit before tax • Depreciation and amortisation expense on fair value uplifts • Interest on net pension assets/liabilities (IAS 19) • Share of non-recurring joint venture refinancing costs • Share of joint ventures and associates’ tax Adjusted Net Profit Net finance costs • Exceptional items Finance Costs measure • Movement on financing derivatives • Share of joint ventures and associates’ interest • Share of non-recurring joint venture refinancing costs • Non-controlling share of financing costs • Interest on net pension assets/liabilities (IAS 19) Adjusted Current Profit Tax charge • Share of joint ventures and associates’ tax Tax Charge measure • Non-controlling share of current tax • Deferred tax including share of joint ventures, associates and non- controlling interests • Tax on exceptional items and certain re-measurements • Reclassification of tax liabilities Adjusted Earnings Profit Earnings per share • Exceptional items Per Share measure • Adjustments to retained Gas Production decommissioning provision • Movements on operating and financing derivatives (‘certain re-measurements’) • Depreciation and amortisation expense on fair value uplifts • Interest on net pension assets/liabilities (IAS 19) • Share of non-recurring joint venture refinancing costs • Deferred tax including share of joint ventures, associates and non- controlling interests ### Rationale for adjustments to profit measure 1 Movement on operating and financing derivatives (‘certain re-measurements’) This adjustment can be designated between operating and financing derivatives. Operating derivatives are contracts where the Group’s Energy Portfolio Management (‘EPM’) function enters into forward commitments or options to buy or sell electricity, gas and other commodities to meet the future demand requirements of the Group’s Business Energy and Airtricity operating units, or to optimise the value of the production from SSE Renewables and Thermal generation assets. Certain of these contracts (predominately purchase contracts) are determined to be derivative financial instruments under IFRS 9 and as such are required to be recorded at their fair value. Changes in the fair value of those commodity contracts designated as IFRS 9 financial instruments are reflected in the income statement (as part of ‘certain re-measurements’). The Group shows the change in the fair value of these forward contracts separately as this mark-to-market movement is not relevant to the underlying performance of its operating segments due to the volatility that can arise on revaluation. The Group will recognise the underlying value of these contracts as the relevant commodity is delivered, which will predominantly be within the subsequent 12 to 24 months. Conversely, commodity contracts that are not recorded as financial instruments under IFRS 9 (predominately sales contracts) are accounted for as ‘own use’ contracts and are consequently not recorded until the commodity is delivered and the contract is settled. In addition, gas inventory purchased by the Group’s Gas Storage business for secondary trading opportunities is also held at fair value with gains and losses on re-measurement recognised as part of ‘certain re-measurements’. Financing derivatives include all fair value and cash flow interest rate hedges, non-hedge accounted (mark-to-market) interest rate derivatives, cash flow foreign exchange hedges and non-hedge accounted foreign exchange contracts entered into by the Group to manage its banking and liquidity requirements as well as risk management relating to interest rate and foreign exchange exposures. Changes in the fair value of those financing derivatives are reflected in the income statement (as part of ‘certain re-measurements’). The Group shows the change in the fair value of these forward contracts separately as this mark-to-market movement is not relevant to the underlying performance of its operating segments. The re-measurements arising from operating and financing derivatives, and the tax effects thereof, are disclosed separately to aid understanding of the underlying performance of the Group. 205SSE plc Annual Report 2022 ## Alternative Performance Measures ### Rationale for adjustments to profit measure #### 2 Exceptional Items 3 Adjustments to retained Gas Production decommissioning provision 4 Share of joint ventures and associates' interest and tax 5 Share of joint ventures and associates' depreciation and amortisation page 90 6 Depreciation and amortisation expense on fair value uplifts 7 Release of deferred income 8 Non-recurring joint venture refinancing costs 9 Interest on net pension assets/liabilities (IAS 19 "Employee Benefits") 10 Deferred tax 206 SSE plc Annual Report 2022 # 11 Results attributable to non-controlling interest holders March 2022 | | Reported £m | Movement on derivatives £m | Exceptional items £m | Adjustments to Gas Production decommissioning provision £m | Depreciation on FV uplifts £m | Joint venture interest and tax £m | Interest on net pension asset £m | Deferred tax £m | Adjusted £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 3,755.4 | (2,097.8) | (301.8) | 13.1 | 20.6 | 147.3 | – | – | 1,536.8 | | | (273.2) | (21.0) | (3.2) | – | – | (67.8) | (7.6) | – | (372.8) | | | 3,482.2 | (2,118.8) | (305.0) | 13.1 | 20.6 | 79.5 | (7.6) | – | 1,164.0 | | | (882.8) | 408.0 | 323.7 | – | – | (79.5) | – | 123.5 | (107.1) | | | 2,599.4 | (1,710.8) | 18.7 | 13.1 | 20.6 | – | (7.6) | 123.5 | 1,056.9 | | | (50.7) | – | – | – | – | – | – | – | (50.7) | | | 2,548.7 | (1,710.8) | 18.7 | 13.1 | 20.6 | – | (7.6) | 123.5 | 1,006.2 | | | 1,055.0 | | | | | | | | 1,055.0 | | | 241.6 | | | | | | | | 95.4 | | | Adjusted operating profit from continuing operations £m | Share of joint venture and associates' depreciation and amortisation £m | Release of deferred income £m | Depreciation on FV uplifts £m | Depreciation, impairment and amortisation before exceptional charges £m | Adjusted EBITDA £m | | --- | --- | --- | --- | --- | --- | --- | | | 1,536.8 | 146.6 | (17.6) | (20.6) | 612.0 | 2,257.2 | SSE plc Annual Report 2022 207 ## Alternative Performance Measures Rationale for adjustments to profit measure March 2021 (restated*) 208 SSE plc Annual Report 2022 March 2020 (restated*) Debt measure | Adjusted Net Debt and Hybrid Capital | Debt measure | Unadjusted net debt | | --- | --- | --- | Rationale for adjustments to debt measure 12 Hybrid equity 13 Outstanding liquid funds SSE plc Annual Report 2022 209 FINANCIAL STATEMENTS ### Alternative Performance Measures continued ### Rationale for adjustments to debt measure continued 14 Lease obligations SSE’s reported loans and borrowings include lease liabilities on contracts under the scope of IFRS 16, which are not directly related to the Treasury managed external debt financing of the Group. The Group excludes these liabilities from its adjusted net debt and hybrid capital measure to better reflect the Group’s underlying funding position with its primary sources of capital. 15 Debt and cash attributable to non-controlling holders The Group’s structure includes non-wholly owned but controlled subsidiaries which are consolidated within the financial statements of the Group under IFRS. There is no impact to current or prior years but in future the Group will remove the share of debt and cash in these subsidiaries proportionately attributable to the non-controlling interest holders from its adjusted net debt and hybrid capital metric to present net debt attributable to ordinary equity holders of the Group. March 2022 March 2021 March 2020 £m £m £m Unadjusted net debt (8,015.4) (7,810.4) (10,007.8) Outstanding liquid funds 74.7 (37.1) 256.4 Lease obligations 393.5 421.0 455.2 Adjusted Net Debt (7,547.2) (7,426.5) (9,296.2) Hybrid equity (1,051.0) (1,472.4) (1,169.7) Adjusted Net Debt and Hybrid Capital (8,598.2) (8,898.9) (10,465.9) ### Capital measures Closest equivalent Group APM Purpose IFRS measure Adjustments to reconcile to primary financial statements Adjusted Investment and Capital Capital additions • Customer funded additions Capital Expenditure measure to intangible • Allowances and certificates assets and • Additions acquired through business combinations property, plant • Disposed or impaired additions and equipment • Joint ventures and associate additions funding • Non-controlling share of capital expenditure • Refinancing proceeds/refunds Adjusted Investment, Capital Capital additions • Customer funded additions Capital and Acquisition measure to intangible • Allowances and certificates Expenditure assets and • Additions acquired through business combinations property, plant • Disposed or impaired additions and equipment • Joint ventures and associates’ additions funding • Non-controlling share of capital expenditure • Refinancing proceeds/refunds • Acquisition cash consideration ### Adjustments to capital measure 16 Customer funded additions Customer funded additions represents additions to electricity and other networks funded by customer contributions. Given these are directly funded by customers, these have been excluded to better reflect the Group’s underlying investment position. 17 Allowances and certificates Allowances and certificates consist of purchased carbon emissions allowances and generated or purchased renewable obligations certificates (ROCs) and are not included in the Group’s ‘capital expenditure and investment’ APM to better reflect the Group’s investment in enduring operational assets. 18 Additions acquired through business combinations Where the Group acquires an early stage development company, which is classified as the acquisition of an asset, or group of assets and not a business, the acquisition is treated as an addition to intangible assets or property, plant and equipment and is included within ‘adjusted investment and capital expenditure’. Where the Group acquires an established business requiring a fair value assessment in line with the principles of IFRS 3 ‘Business Combinations’, the fair value of consolidated tangible or intangible assets are excluded from the Group’s ‘adjusted investment and capital expenditure’, as they are not direct capital expenditure by the Group. However, these are included in the Group’s new ‘adjusted investment, capital and acquisition expenditure’ metric, see 24 below. 210 SSE plc Annual Report 2022 19 Additions subsequently disposed/impaired 20 Joint ventures and associates' additions funding 21 Non-controlling share of capital expenditure 22 Refinancing proceeds/refunds 23 Lease additions 24 Acquisition cash consideration in relation to business combinations | | March 2022 £m | | --- | --- | | | 921.0 | | | 1,398.8 | | Capital additions to intangible assets and property, plant & equipment | 2,319.8 | | | (91.3) | | | (544.5) | | | (197.8) | | | (13.9) | | | 682.5 | | | (136.7) | | | (85.7) | | Adjusted Investment and Capital expenditure | 1,932.4 | | | 141.3 | | Adjusted Investment, Capital and Acquisition Expenditure | 2,073.7 | SSE plc Annual Report 2022 211 FINANCIAL STATEMENTS ### Alternative Performance Measures continued ### Impact of discontinued operations on the Group’s APMs The following metrics have been adjusted in all periods presented to exclude the contribution of the Group’s investment in Scotia Gas Networks Limited (“SGN”) which was disposed on 22 March 2022 (see note 12) and Group’s Gas Production operations which were disposed on 14 October 2021: • Adjusted EBITDA; • Adjusted operating profit; • Adjusted net finance costs; • Adjusted profit before tax; • Adjusted current tax charge; and • Adjusted earnings per share. ‘Adjusted net debt and hybrid capital’; ‘adjusted investment and capital expenditure’; and ‘adjusted investment, capital and acquisition expenditure’ have not been adjusted as the Group continues to fund the discontinued operations until the date of disposal. The following table summarises the impact of excluding discontinued operations from the APMs of the continuing activities of the Group in current and prior years: | | | March 2021 | | March 2020 | | | --- | --- | --- | --- | --- | --- | | March 2022 | | (restated*) | | (restated*) | | | | £m | | £m | | £m | Adjusted EBITDA of SSE Group (including discontinued operations) 2,390.7 2,262.9 2,281.0 Less: SSE Energy Services profit – – (32.7) Less: Gas Production profit (101.4) (33.0) (56.9) Less: SGN profit (32.1) (234.6) (259.1) Adjusted EBITDA of continuing operations APM 2,257.2 1,995.3 1,932.3 Adjusted operating profit of SSE Group (including discontinued operations) 1,659.2 1,539.5 1,546.9 Less: SSE Energy Services profit – – (32.7) Less: Gas Production profit (101.4) (33.0) (25.8) Less: SGN profit (21.0) (173.0) (202.3) Adjusted operating profit of continuing operations APM 1,536.8 1,333.5 1,286.1 Adjusted net finance costs of SSE Group (including discontinued operations) 377.6 443.9 471.6 Less: Gas Production (0.1) (2.3) (6.6) Less: SGN (4.7) (57.0) (67. 2) Adjusted net finance costs of continuing operations APM 372.8 384.6 397.8 Adjusted profit before tax of SSE Group (including discontinued operations) 1,281.6 1,095.6 1,075.3 Less: SSE Energy Services – – (32.7) Less: Gas Production (101.3) (30.7) (19.2) Less: SGN (16.3) (116.0) (135.1) Adjusted profit before tax of continuing operations APM 1,164.0 948.9 888.3 Adjusted current tax of SSE Group (including discontinued operations) 109.4 107.8 110.3 Less: SSE Energy Services current tax credit – – 3.9 Less: SGN current tax charge (2.3) (21.9) (25.9) Adjusted current tax of continuing operations APM 107. 1 85.9 88.3 Adjusted earnings per share of SSE Group (including discontinued operations) 106.2 90.5 89.0 Less: SSE Energy Services earnings per share – – (3.6) Less: Gas Production earnings per share (9.6) (3.0) (1.8) Less: SGN earnings per share (1.2) (9.1) (10.6) Adjusted earnings per share of continuing operations APM 95.4 78.4 73.0 * The comparative Alternative Performance Measures have been restated. See note 1.2. The remaining APMs presented by the Group are unchanged in all periods presented by the discontinued operations. 212 SSE plc Annual Report 2022 ### Financial statements | Primary statements | Accompanying information | | --- | --- | | Consolidated income statement 214 | A1. Basis of consolidation and significant accounting policies 290 | | Consolidated statement of comprehensive income 215 | A2. Taxation 301 | | Consolidated balance sheet 216 | A3. Related undertakings 303 | | Consolidated statement of changes in equity 217 | A4. Joint ventures and associates 308 | | Consolidated cash flow statement 218 | A5. Related party transactions 311 | A6. Financial risk management 311 ### Notes to the consolidated financial statements A7. Fair value of financial instruments 321 1. General information and basis of preparation 219 A8. Hedge accounting 323 2. New accounting policies and reporting changes 220 | 3. Adjusted accounting measures 220 | Company financial statements | | --- | --- | | 4. Accounting judgements and estimation uncertainty 222 | Balance sheet 324 | | 5. Segmental information 224 | Statement of changes in equity 325 | 6. Other operating income and cost 238 7. Exceptional items and certain re-measurements 239 ### Notes to the Company financial statements 8. Directors and employees 245 1. Principal accounting policies 326 9. Finance income and costs 247 2. Supplementary financial information 327 10. Taxation 248 3. Investments in associates and joint ventures 327 11. Dividends and earnings per share 251 4. Subsidiary undertakings 327 12. Acquisitions, disposals and held-for-sale assets 252 5. Trade and other receivables 327 13. Intangible assets 258 6. Trade and other payables 327 14. Property, plant and equipment 260 7. Taxation 328 15. Impairment testing 261 8. Loans and borrowings 328 16. Investments 268 9. Equity 330 17. Inventories 271 10. Retirement benefit obligations 331 18. Trade and other receivables 271 11. Financial instruments 334 19. Trade and other payables 272 12. Commitments and contingencies 334 20. Provisions 272 13. Provisions 335 21. Sources of finance 274 22. Equity 280 23. Retirement benefit obligations 282 24. Financial instruments 288 25. Commitments and contingencies 289 26. Post balance sheet events 289 213SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Consolidated income statement ### For the year ended 31 March 2022 2022 2021 | | | | | | | | | | | | | Before | | | Exceptional | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | | | exceptional | | | | items and | | | | | | | | | Before | | | Exceptional | | | | | items and | | | | | certain | | | | | | | exceptional | | | | items and | | | | | | certain | | | | | re- | | | | | | items and | | | | certain re- | | | | | | | re- | measurements | | | | | | | | | certain re- | | | measurements | | | | | measurements | | | | | | (note 7) | | | Total | | | measurements | | | | | | (note 7) | | Total | | (restated*) | | | | (restated*) | | | (restated*) | | | Note | | | | £m | | | | £m | £m | | | | £m | | | | £m | | £m | Continuing operations Revenue 5 8,6 08 . 2 – 8,608 . 2 6,8 26 .4 – 6 ,8 26. 4 Cost of sales 6 (6, 310.8) 2 ,0 97. 8 (4, 213 .0) (4 , 73 2 .7) 598 .6 (4,13 4.1) Gross profit 2 , 2 9 7. 4 2 ,0 9 7. 8 4,39 5. 2 2,093.7 598 .6 2 ,692. 3 Operating costs 6 (1,118.5) 2 97. 5 (821 .0) (1,198.4) (1 2 7. 1) (1, 32 5. 5) Other operating income 6 6 7. 1 4. 3 71 .4 268.7 976 . 0 1 , 24 4 . 7 Operating profit before joint ventures and associates 1 , 24 6 .0 2 , 39 9.6 3,6 45 .6 1,1 64. 0 1 ,4 4 7. 5 2 ,61 1 . 5 Joint ventures and associates: Share of operating profit 2 5 7. 1 – 2 5 7. 1 149.0 – 14 9.0 Share of interest (6 7. 8) – (6 7. 8) (82. 4) – (82.4) Share of movement on derivatives – – – – (0.8) (0.8) Share of tax (46 . 3) (33 . 2) (7 9. 5) (22.4) – (22.4) Share of profit on joint ventures and associates 16 143 .0 (33 . 2) 10 9.8 4 4. 2 (0. 8) 43. 4 Operating profit from continuing operations 5 1 , 3 89. 0 2 ,366.4 3,755 .4 1 , 208 . 2 1,4 46 .7 2, 65 4 .9 Finance income 9 79.0 24 . 2 1 03. 2 78. 2 57 .0 1 35. 2 Finance costs 9 (3 76 . 4) – (376 . 4) (37 2.1) – (372.1) Profit before taxation 1 ,091 .6 2 , 390 .6 3, 48 2.2 914 . 3 1 , 503 . 7 2 ,41 8 . 0 Taxation 10 (1 51 . 1) (7 31 .7) (882 . 8) (101 . 5) (122. 8) (22 4.3) Profit for the year from continuing operations 940. 5 1 ,658 . 9 2, 599.4 81 2. 8 1 , 38 0 .9 2,19 3.7 Discontinued operations Profit from discontinued operation, net of tax 12 1 16. 3 366.4 482 .7 1 27. 5 1.6 1 29. 1 Profit for the year 1 ,056 . 8 2,02 5. 3 3,08 2 . 1 9 40. 3 1 , 382. 5 2, 322.8 Attributable to: Ordinary shareholders of the parent 11 1 ,0 06 . 1 2 ,025 . 3 3 ,031 . 4 8 93 . 7 1 , 382. 5 2 , 2 76 . 2 Other equity holders 50.7 – 50.7 46 .6 – 4 6.6 Earnings/(loss) per share Basic (pence) 11 2 8 7. 3 2 18.7 Diluted (pence) 11 286 .8 2 18. 3 Earnings per share – continuing operations Basic (pence) 11 241 .6 206 . 3 Diluted (pence) 11 241 . 1 206 .0 * The comparative Consolidated Income Statement has been restated. See note 1.2. The accompanying notes are an integral part of these financial statements. 214 SSE plc Annual Report 2022 # **Consolidated statement of comprehensive income** **For the year ended 31 March 2022** | | 2022 £m | | --- | --- | | Profit for the year | 2,599.4 | | | 482.7 | | Other comprehensive income: | 3,082.1 | | Items that will be reclassified subsequently to profit or loss: | | | | 22.9 | | | 11.2 | | | (4.4) | | | 29.7 | | | 181.4 | | | (3.2) | | | 9.4 | | Items that will not be reclassified to profit or loss: | 217.3 | | | 124.7 | | | (1.7) | | | - | | | 123.0 | | Other comprehensive gain/(loss), net of taxation | 340.3 | | Total comprehensive income for the year | 3,422.4 | | Continuing operations | 2,912.8 | | Discontinued operations | | | Items that will be reclassified subsequently to profit or loss: | 28.6 | | Items that will not be reclassified to the profit or loss: | (1.7) | | | 26.9 | | | 482.7 | | | 509.6 | | Total comprehensive income for the year | 3,422.4 | | Attributable to: | | | | 3,371.7 | | | 50.7 | | | 3,422.4 | SSE plc Annual Report 2022 215 # **Consolidated balance sheet** **As at 31 March 2022** | | Note | 2022 £m | | --- | --- | --- | | **Assets** | | | | | 14,618.7 | | | | 1,127.8 | | | | 1,239.5 | | | | 736.9 | | | | 8.7 | | | | 136.4 | | | | 371.7 | | | | 584.9 | | | **Non-current assets** | | **18,824.6** | | | 459.3 | | | | 266.6 | | | | 2,211.0 | | | | 8.8 | | | | 1,049.3 | | | | 2,941.8 | | | | – | | | **Current assets** | | **6,936.8** | | **Total assets** | | **25,761.4** | | **Liabilities** | | | | | 1,190.8 | | | | 2,672.6 | | | | – | | | | 93.3 | | | | 701.5 | | | | – | | | **Current liabilities** | | **4,658.2** | | | 7,873.9 | | | | 1,645.6 | | | | 842.4 | | | | 1,017.9 | | | | – | | | | 549.6 | | | **Non-current liabilities** | | **11,929.4** | | **Total liabilities** | | **16,587.6** | | **Net assets** | | **9,173.8** | | **Equity:** | | | | | 536.5 | | | | 835.1 | | | | 49.2 | | | | 77.5 | | | | 6.6 | | | | 6,577.3 | | | | 8,082.2 | | | | 1,051.0 | | | | 40.6 | | | **Total equity** | | **9,173.8** | Gregor Alexander, Finance Director Sir John Manzoni, Chairman 216 SSE plc Annual Report 2022 ## Consolidated statement of changes in equity For the year ended 31 March 2022 | | Share capital £m | Share premium £m | Capital redemption reserve £m | Hedge reserve £m | Translation reserve £m | Retained earnings £m | Total attributable to ordinary shareholders £m | Hybrid equity £m | Total equity before non-controlling interest £m | Non-controlling interest £m | Total equity £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 524.5 | 847.1 | 49.2 | (133.6) | 0.4 | 3,921.1 | 5,208.7 | 1,472.4 | 6,681.1 | – | 6,681.1 | | | – | – | – | – | – | 3,031.4 | 3,031.4 | 50.7 | 3,082.1 | – | 3,082.1 | | | – | – | – | 211.1 | 6.2 | 123.0 | 340.3 | – | 340.3 | – | 340.3 | | | – | – | – | 211.1 | 6.2 | 3,154.4 | 3,371.7 | 50.7 | 3,422.4 | – | 3,422.4 | | | – | – | – | – | – | (862.3) | (862.3) | – | (862.3) | – | (862.3) | | | 12.0 | (12.0) | – | – | – | 355.7 | 355.7 | – | 355.7 | – | 355.7 | | | – | – | – | – | – | 6.3 | 6.3 | – | 6.3 | – | 6.3 | | | – | – | – | – | – | – | – | (50.7) | (50.7) | – | (50.7) | | | – | – | – | – | – | (4.6) | (4.6) | (421.4) | (426.0) | – | (426.0) | | | – | – | – | – | – | 20.8 | 20.8 | – | 20.8 | – | 20.8 | | | – | – | – | – | – | (14.1) | (14.1) | – | (14.1) | – | (14.1) | | | – | – | – | – | – | – | – | – | – | 40.6 | 40.6 | | At 31 March 2022 | 536.5 | 835.1 | 49.2 | 77.5 | 6.6 | 6,577.3 | 8,082.2 | 1,051.0 | 9,133.2 | 40.6 | 9,173.8 | At 31 March 2021 SSE plc Annual Report 2022 217 # **Consolidated cash flow statement** **For the year ended 31 March 2022** | | 2022 Note £m | | --- | --- | | | 3,755.4 | | | (100.5) | | Operating profit – total operations | 3,654.9 | | | (28.7) | | | 3,626.2 | | | (23.0) | | | (2,100.4) | | | 303.2 | | | 106.9 | | | 20.8 | | | (48.2) | | | (1.6) | | | (17.6) | | Cash generated from operations before working capital movements | 1,866.3 | | | (24.4) | | | (625.6) | | | 538.3 | | | 61.3 | | Cash generated from operations | 1,815.9 | | | 177.0 | | | (273.5) | | | (91.5) | | Net cash from operating activities | 1,627.9 | | | (1,273.6) | | | (182.2) | | | 12.3 | | | 1,366.9 | | | – | | | (145.3) | | | 136.7 | | | (676.0) | | | 10.9 | | | 5.4 | | Net cash from investing activities | (744.9) | | | 6.3 | | | (506.6) | | | (50.7) | | | (14.1) | | | – | | | (426.0) | | | 506.1 | | | – | | | (960.1) | | | 11.2 | | Net cash from financing activities | (1,433.9) | | Net (decrease)/increase in cash and cash equivalents | (550.9) | | | 1,600.2 | | | (550.9) | | Cash and cash equivalents at the end of year | 1,049.3 | 218 SSE plc Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 March 2022 1. General information and basis of preparation 1.1. General information pages 324 to 335 1.2. Basis of preparation Statement of compliance Going concern page 312 Basis of measurement page 290 Use of estimates and judgements pages 222 to 224 Changes to presentation – prior year adjustments Discontinued operations Segments Changes to estimates SSE plc Annual Report 2022 219 # Notes to the consolidated financial statements For the year ended 31 March 2022 # 2. New accounting policies and reporting changes pages 290 to 300 2.1 New standards, amendments and interpretations effective or adopted by the Group 2.2 New standards, amendments and interpretations issued, but not yet adopted by the Group # 3. Adjusted accounting measures page 204 3.1 Adjusted measures page 90 220 SSE plc Annual Report 2022 The Group’s key performance measure is adjusted earnings per share (EPS), which is based on basic earnings per share before exceptional items and certain re-measurements (see note 3.2 below), depreciation on fair value uplifts, adjustments to the retained Gas Production decommissioning provision, non-recurring financing costs in joint ventures, the net interest costs associated with defined benefit schemes and after the removal of deferred taxation and other taxation items. Deferred taxation is excluded from the Group’s adjusted EPS because of the Group’s significant ongoing capital investment programme, which means that the deferred tax is unlikely to reverse. Adjusted profit after tax is presented on a basis consistent with adjusted EPS except for the non-inclusion of payments to holders of hybrid equity. The financial statements also include an ‘adjusted net debt and hybrid equity’ measure. This presents financing information on the basis used for internal liquidity risk management. This measure excludes obligations due under lease arrangements and the share of net debt attributable to non-controlling interests, and includes cash held as collateral on commodity trading exchanges, cash presented as held for sale and other short term loans. The measure represents the capital owed to investors, lenders and equity holders other than the ordinary shareholders. As with ‘adjusted earnings per share’, this measure is considered to be of relevance to the ordinary shareholders of the Group as well as other stakeholders and interested parties. Finally, the financial statements include an ’adjusted investment and capital expenditure’ and an ‘adjusted investment, capital and acquisition expenditure’ measure. These metrics represent the capital invested by the Group in projects that are anticipated to provide a return on investment over future years or which otherwise support Group operations and is consistent with internally applied metrics. They therefore include capital additions to property, plant and equipment and intangible assets and also the Group’s direct funding of joint venture and associates capital projects. The Group has considered it appropriate to report these values both internally and externally in this manner due to its use of equity-accounted investment vehicles to grow the Group’s asset base, where the Group is providing a source of funding to the vehicle through either loans or equity. The Group does not include project funded capital additions in these metrics, nor does it include other capital invested in joint ventures and associates. Where initial capital funding of an equity accounted joint venture is refunded, these refunds are deducted from the metrics in the year the refund is received. In addition, the Group excludes from this metric additions to its property, plant and equipment funded by Customer Contributions and additions to intangible assets associated with Allowances and Certificates. The Group also excludes the share of investment and capital expenditure attributable to non-controlling interests. The ‘adjusted investment, capital and acquisition expenditure’ measure also includes cash consideration paid by the Group in business combinations which contribute to growth of the Group’s capital asset base and is considered to be relevant metric in context of the Group’s Net Zero Acceleration Programme. As with ‘adjusted earnings per share’, these measures are considered to be of relevance to the ordinary shareholders of the Group as well as other stakeholders and interested parties. Reconciliations from reported measures to adjusted measures along with further description of the rationale for those adjustments are included in the “Adjusted Performance Measures” section at pages 204 to 212 . APM Where the Group have referred to an adjusted performance measure in the financial statements the following sign is presented to denote this. ### 3.2 Exceptional items and certain re-measurements Exceptional items are those charges or credits that are considered unusual by nature and/or scale and of such significance that separate disclosure is required for the financial statements to be properly understood. The trigger points for recognition of items as exceptional items will tend to be non-recurring although exceptional charges (or credits) may impact the same asset class or segment over time. Market conditions that have deteriorated or improved significantly over time will only be captured to the extent observable at the balance sheet date. Examples of items that may be considered exceptional include material asset or business impairment charges, reversals of historic impairments, business restructuring costs and reorganisation costs, significant realised gains or losses on disposal, unrealised fair value adjustments on part disposal of a subsidiary and provisions in relation to contractual settlements associated with or material significant disputes and claims. The Group operates a policy framework for estimating whether items are considered to be exceptional. This framework, which is reviewed annually, estimates the materiality of each broad set of potentially exceptional circumstances, after consideration of strategic impact and likelihood of recurrence, by reference to the Group’s key performance measure of adjusted earnings per share. This framework estimates that any relevant item greater than £30.0m will be considered exceptional, with lower thresholds applied to circumstances that are considered to have a greater strategic impact and are less likely to recur. The only exception to this threshold is for gains or losses on disposal or divestment of early stage international or offshore wind farm development projects which are considered non-exceptional in line with the Group’s strategy to generate recurring gains from developer divestments. Certain re-measurements are re-measurements arising on certain commodity, interest rate and currency contracts which are accounted for as held for trading or as fair value hedges in accordance with the Group’s policy for such financial instruments, or remeasurements on stocks of commodities held at the balance sheet date. The amount shown in the before exceptional items and certain re-measurements results for these contracts is the amount settled in the year as disclosed in note 24.1. This excludes commodity contracts not treated as financial instruments under IFRS 9 where held for the Group’s own use requirements which are not recorded until the underlying commodity is delivered. The impact of changes in Corporation Tax rates on deferred tax balances are also included within certain remeasurements. 221SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Notes to the consolidated financial statements continued ### For the year ended 31 March 2022 ### 3. Adjusted accounting measures continued ### 3.3 Other additional disclosures As permitted by IAS 1 ‘Presentation of financial statements’, the Group’s income statement discloses additional information in respect of joint ventures and associates, exceptional items and certain re-measurements to aid understanding of the Group’s financial performance and to present results clearly and consistently. ### 4. Accounting judgements and estimation uncertainty In the process of applying the Group’s accounting policies, management are required to make judgements and estimates that have a significant effect on the amounts recognised in the financial statements. Changes in the assumptions underlying the estimates could result in a significant impact to the financial statements. The Group’s key accounting judgement and estimation areas are noted below, with the most significant financial judgement areas as specifically considered by the Audit Committee being highlighted separately. ### 4.1 Significant financial judgements and estimation uncertainties The preparation of these financial statements has specifically considered the following significant financial judgements, some of which are also areas of estimation uncertainty as noted below. (i) Impairment testing and valuation of certain non-current assets – financial judgement and estimation uncertainty The Group reviews the carrying amounts of its goodwill, other intangible assets, specific property, plant and equipment and investment assets to determine whether any impairment of the carrying value of those assets requires to be recorded. Where an indicator of impairment or impairment reversal exists, the recoverable amount of those assets is determined by reference to value in use calculations or fair value less cost to sell assessments, if more appropriate. The specific assets under review in the year ended 31 March 2022 are intangible development assets and specific property, plant and equipment assets related to gas storage and thermal power generation. In addition, the Group performed an impairment review over the carrying value of its investment in Neos Networks Limited. In conducting its reviews, the Group makes judgements and estimates in considering both the level of cash generating unit (CGU) at which common assets such as goodwill are assessed against, as well as the estimates and assumptions behind the calculation of recoverable amount of the respective assets or CGUs. Changes to the estimates and assumptions on factors such as regulation and legislation changes (including climate change related regulation), power, gas, carbon and other commodity prices, volatility of gas prices, plant running regimes and load factors, discount rates and other inputs could impact the assessed recoverable value of assets and CGUs and consequently impact the Group’s income statement and balance sheet. Further detail of the calculation basis and key assumptions used in the impairment review, the resulting impairment reversals and the sensitivity of this assessment to key assumptions is disclosed at note 15. Detail on the accounting policies applied is included in the Accompanying Information section A1. (ii) Retirement benefit obligations – estimation uncertainty The assumptions in relation to the cost of providing post-retirement benefits during the year are based on the Group’s best estimates and are set after consultation with qualified actuaries. While these assumptions are believed to be appropriate, a change in these assumptions would impact the level of the retirement benefit obligation recorded and the cost to the Group of administering the schemes. Further detail of the calculation basis and key assumptions used, the resulting movements in obligations, and the sensitivity of key assumptions to the obligation is disclosed at note 23. (iii) Revenue recognition – Customers unbilled supply of energy– estimation uncertainty Revenue from energy supply activities undertaken by the Business Energy and Airtricity businesses includes an estimate of the value of electricity or gas supplied to customers between the date of the last meter reading and the year end. This estimation comprises both billed revenue and unbilled revenue and is calculated based on applying the tariffs and contract rates applicable to customers against estimated customer consumption, taking account of various factors including usage patterns, weather trends and externally notified aggregated volumes supplied to customers from national settlements bodies. A change in the assumptions underpinning the calculation would have an impact on the amount of revenue recognised in any given period. The sensitivity associated with this judgement factor is disclosed at note 18. This estimation is subject to an internal corroboration process which compares of calculated unbilled volumes to a theoretical ‘perfect billing’ benchmark measure of unbilled volumes (in GWh and millions of therms) derived from historical weather-adjusted consumption patterns and aggregated metering data used in industry reconciliation processes. Furthermore, actual meter readings and billings continue to be compared to unbilled estimates between the balance sheet date and the finalisation of the financial statements. Given the non-routine process, the number and the extent of differing inputs and the requirement of management to apply judgement noted above, the estimated revenue is considered a significant estimate made by management in preparing the financial statements. 222 SSE plc Annual Report 2022 (iv) Valuation of other receivables – financial judgement and estimation uncertainty (v) Impact of climate change and the transition to net zero – financial judgement and estimation uncertainty pages 4 to 5 Valuation of property, plant and equipment, and impairment assessment of goodwill Valuations of decommissioning provisions SSE plc Annual Report 2022 223 ## Notes to the consolidated financial statements For the year ended 31 March 2022 ### 4. Accounting judgements and estimation uncertainty #### 4.2 Other accounting judgements – changes from prior year (i) Accounting for the impacts of coronavirus – accounting judgement and estimation uncertainty #### 4.3 Other areas of estimation uncertainty (i) Tax provisioning (ii) Decommissioning costs ### 5. Segmental information Continuing operations 224 SSE plc Annual Report 2022 Business area Reported segments Description Continuing operations Renewables SSE The generation of electricity from renewable sources, such as onshore and offshore windfarms Renewables and run of river and pumped storage hydro assets in the UK and Ireland. Revenue from physical generation of electricity sold to SSE EPM is recognised as generated, based on the contracted or spot price at the time of delivery. Revenue from national support schemes (such as Renewable Obligation Certificates or the Capacity Market) may either be recognised in line with electricity being physically generated or over the contractual period, depending on the underlying performance obligation. Thermal SSE The generation of electricity from thermal plant and the Group’s interests in multifuel assets in Thermal the UK and Ireland. Revenue from physical generation of electricity sold to SSE EPM is recognised as generated, based on the contract or spot price at the time of delivery. Revenue from national support schemes (such as the Capacity Market) and ancillary generation services may either be recognised in line with electricity being physically generated or over the contractual period, depending on the underlying performance obligation. Gas The operation of gas storage facilities in the UK, utilising capacity to optimise trading opportunity Storage associated with the assets. Contribution arising from trading activities is recognised as realised based on the executed trades or withdrawal of gas from caverns. Energy Business The supply of electricity gas to business customers in Great Britain. Revenue earned from the supply Customer Energy of energy is recognised in line with the volume delivered to the customer, based on actual and Solutions estimated volumes, and reflecting the applicable customer tariff after deductions or discounts. Airtricity The supply of electricity, gas and energy related services to residential and business customers in the Republic of Ireland and Northern Ireland. Revenue earned from the supply of energy is recognised in line with the volume delivered to the customer, based on actual and estimated volumes, and reflecting the applicable customer tariff after deductions or discounts. Revenue earned from energy related services may either be recognised over the expected contractual period or following performance of the service, depending on the underlying performance obligation. Distributed Distributed The provision of services to enable customers to optimise and manage low carbon energy use; Energy Energy development and management of battery storage and solar assets; distributed generation, independent distribution, heat and cooling networks, smart buildings and EV charging activities. The results of the Group’s Contracting and Rail business was included within this segment until it was disposed on 30 June 2021. EPM & I Energy The provision of a route to market for the Group’s Renewable, Thermal and commodity Portfolio procurement for the Group’s energy supply businesses in line with the Group’s stated hedging Management policies. Revenue from physical sales of electricity, gas and other commodities produced by SSE is (EPM) recognised as supplied to either the national settlements body or the customer, based on either the spot price at the time of delivery or trade price where that trade is eligible for “own use” designation. The sale of commodity optimisation trades is presented net in cost of sales alongside purchase commodity optimisation trades. Discontinued operations EPM & I Gas The production and processing of gas and oil from North Sea fields. Revenue is recognised based Production on the production that has been delivered to the customer at the specified delivery point, at the applicable contractual market price. Gas SGN SSE’s share of Scotia Gas Networks, which operates two economically regulated gas distribution Distribution networks in Scotland and the South of England. The revenue earned from transportation of natural gas to customers is recognised based on the volume of gas distributed to those customers and the set customer tariff. As referred to in note 3, the internal measure of profit used by the Board is ‘adjusted profit before interest and tax’ or ‘adjusted operating profit’ which is arrived at before exceptional items, the impact of financial instruments measured under IFRS 9, the net interest costs associated with defined benefit pension schemes, adjustments to the retained Gas Production decommissioning and after the removal of taxation and interest on profits from joint ventures and associates. Analysis of revenue, operating profit, assets and earnings before interest, taxation, depreciation and amortisation (‘EBITDA’) by segment is provided on the following pages. All revenue and profit before taxation arise from operations within the UK and Ireland. 225SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Notes to the consolidated financial statements continued ### For the year ended 31 March 2022 ### 5. Segmental information continued ### 5.1 Segmental information disclosure (i) Revenue by segment | | | | | | | | Reported | | | | | Segment | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Reported | | Inter-segment | | | Segment | | revenue | | Inter-segment | | | revenue | | | revenue | | | revenue (i) | | revenue | | (restated*) | | | revenue (i) | | (restated*) | | | | 2022 | | | 2022 | | 2022 | | 2021 | | | 2021 | | 2021 | | | £m | | | £m | | £m | | £m | | | £m | | £m | Continuing operations SSEN Transmission 589.7 – 589.7 404.9 – 404.9 SSEN Distribution 954.6 78.6 1,033.2 834.5 69.1 903.6 SSE Renewables 357.4 418.8 776.2 281.9 544.2 826.1 SSE Thermal 844.2 285.0 1,129.2 504.0 699.0 1,203.0 Gas storage 8.7 2,471.1 2,479.8 7.1 766.0 773.1 Energy Customer Solutions Business Energy 2,289.0 34.5 2,323.5 1,934.5 30.5 1,965.0 SSE Airtricity 1,177.3 451.3 1,628.6 1,072.7 61.5 1,134.2 Distributed Energy 176.9 25.4 202.3 334.5 33.6 368.1 EPM: Gross trading 12,808.3 7,160.2 19,968.5 8,811.9 2,699.3 11,511.2 Optimisation trades (10,667.6) (2,914.0) (13,581.6) (7,449.2) (155.8) (7,605.0) EPM 2,140.7 4,246.2 6,386.9 1,362.7 2,543.5 3,906.2 Corporate unallocated 69.7 147.7 217.4 89.6 189.4 279.0 Total continuing operations 8,608.2 8,158.6 16,766.8 6,826.4 4,936.8 11,763.2 Discontinued operations Gas Production 8.1 133.9 142.0 14.2 90.8 105.0 Total discontinued operations 8.1 133.9 142.0 14.2 90.8 105.0 Total SSE Group 8,616.3 8,292.5 16,908.8 6,840.6 5,027.6 11,868.2 (i) Significant inter-segment revenue is derived from the sale of power and stored gas from SSE Renewables, SSE Thermal, Gas Storage and Distributed Energy to EPM; use of system income received by SSEN Distribution from Business Energy; Business Energy provides internal heat and light power supplies to other Group companies; EPM provides power, gas and other commodities to Business Energy and SSE Airtricity; Gas Production (discontinued) sells gas from producing upstream fields to EPM; and Corporate unallocated provides corporate and infrastructure services to all segments as well as third parties. All are provided at arm’s length. Revenue from the Group’s joint venture investment in Scotia Gas Networks Limited, SSE’s share being £60.4m for the period to 11 June 2021 (2021: £411.8m), is not recorded in the revenue line in the income statement. * The comparative segment revenue has been restated. See note 1.2. 226 SSE plc Annual Report 2022 Disaggregation of revenue Revenue from contracts with customers can be disaggregated by reported segment, by major service lines and by timing of revenue recognition as follows: Revenue from contracts with customers Goods or services transferred over time Goods or services transferred at a point in time Total revenue | | | | Supply of | | | | | | | | | | | | | | | from | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Use of | | energy and | | Construction | | | | Other | | | | | | | | contracts | | | Other | | | electricity | | | ancillary | | | related | | contracted | | | Physical | | | Gas | Other | | | with | contract | | | | networks | | | services | | | services | | | services | | energy | | storage | | revenue | | customers | | revenue | | Total | | | 2022 | | | 2022 | | | 2022 | | 2022 | | | 2022 | | 2022 | 2022 | | | 2022 | | 2022 | 2022 | | | | £m | | £m | | | £m | | | £m | | £m | | £m | | £m | | £m | | £m | £m | Continuing operations SSEN Transmission 570.8 – – 16.5 – – 2.4 589.7 – 589.7 SSEN Distribution 903.3 – – 10.5 – – 22.8 936.6 18.0 954.6 SSE Renewables – 79.7 – 75.0 202.7 – – 357.4 – 357.4 SSE Thermal – 840.1 – – – – 4.1 844.2 – 844.2 Gas Storage – – – – – 8.7 – 8.7 – 8.7 Energy Customer Solutions Business Energy – 2,289.0 – – – – – 2,289.0 – 2,289.0 SSE Airtricity – 1,158.1 – 19.2 – – – 1 ,177.3 – 1,177.3 Distributed Energy 11.9 15.8 77.7 3.9 2.9 – 59.3 171.5 5.4 176.9 EPM – – – – 1,920.9 – 219.8 2,140.7 – 2,140.7 Corporate unallocated – – – – – – 69.7 69.7 – 69.7 Total continuing operations 1,486.0 4,382.7 77.7 125.1 2,126.5 8.7 378.1 8,584.8 23.4 8,608.2 Discontinued operations Gas Production – – – – – – 8.1 8.1 – 8.1 Total discontinued operations – – – – – – 8.1 8.1 – 8.1 Total SSE Group 1,486.0 4,382.7 77.7 125.1 2,126.5 8.7 386.2 8,592.9 23.4 8,616.3 227SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Notes to the consolidated financial statements continued ### For the year ended 31 March 2022 ### 5. Segmental information continued ### 5.1 Segmental information disclosure continued (Restated*) Revenue from contracts with customers Goods or services transferred at a Total Goods or services transferred over time point in time revenue | | | | Supply of | | | | | | | | | | | | | from | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Use of | | energy and | | Construction | | | | Other | | | | | | contracts | | Other | | | | electricity | | | ancillary | | | related | | contracted | | Physical | | | Gas | Other | | with | contract | | | | networks | | | services | | | services | | | services | energy | | storage | | revenue | customers | | revenue | | Total | | | | 2021 | | 2021 | | | 2021 | | 2021 | | 2021 | | 2021 | 2021 | | 2021 | 2021 | | 2021 | | | | £m | | £m | | | £m | | £m | | £m | | £m | £m | | £m | | £m | £m | Continuing operations SSEN Transmission 373.8 – – 26.4 – – 4.7 404.9 – 404.9 SSEN Distribution 787.1 – – 9.1 – – 16.2 812.4 22.1 834.5 SSE Renewables (i) – 117.7 – 42.2 122.0 – – 281.9 – 281.9 SSE Thermal – 484.3 – – – – 19.7 504.0 – 504.0 Gas Storage – – – – – 7.1 – 7.1 – 7.1 Energy Customer Solutions Business Energy – 1,934.5 – – – – – 1,934.5 – 1,934.5 SSE Airtricity – 1,055.2 – 17.5 – – – 1,072.7 – 1,072.7 Distributed Energy 12.8 15.4 265.4 33.3 1.2 – 0.5 328.6 5.9 334.5 EPM – – – – 988.9 – 373.8 1,362.7 – 1,362.7 Corporate unallocated – – – – – – 89.6 89.6 – 89.6 Total continuing operations 1,173.7 3,607.1 265.4 128.5 1,112.1 7.1 504.5 6,798.4 28.0 6,826.4 Discontinued operations Gas Production – – – – – – 14.2 14.2 – 14.2 Total discontinued operations – – – – – – 14.2 14.2 – 14.2 Total SSE Group 1,173.7 3,607.1 265.4 128.5 1,112.1 7.1 518.7 6,812.6 28.0 6,840.6 * The comparative disaggregated segment revenue has been restated. See note 1.2. (i) For the SSE Renewables £42.2m of revenue for the year ended 31 March 2021 has been reallocated from Supply of energy and ancillary services to Other contracted services. Included within trade and other receivables (note 18) is £492.7m (2021: £325.0m) of unbilled energy income and £nil (2021: £12.8m) of contract related assets. Included within trade and other payables (note 19) is £242.5m (2021: £240.6m) of contract related liabilities. Contract related assets reflect the Group’s right to consideration in exchange for goods or services that have transferred to the customer, and contract related liabilities reflect the Group’s obligation to transfer future goods or services for which the Group has already received consideration. Contract related assets and liabilities principally arose in the Distributed Energy reporting segment with changes during the periods reflecting ongoing contract progress, offset by cash receipts or customer invoicing. The Group has not disclosed information related to the transaction price allocated to remaining performance obligations on the basis that the Group’s contracts either have an original expected duration of less than one year, or permit the Group to recognise revenue as invoiced. Revenue by geographical location on continuing operations is as follows: 2022 2021 £m £m UK 7,292 .1 5,834.4 Ireland 1,316.1 992.0 8,608.2 6,826.4 228 SSE plc Annual Report 2022 # (iii) Operating profit/(loss) by segment | | 2022 | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | Adjusted operating profit reported to the Board Em | Depreciation on fair value uplifts Em | 2V/Associate share of interest and tax Em | Adjustments to Gas Production decommissioning provision Em | Before exceptional items and certain re- measurements Em | Exceptional items and certain re- measurements Em | Total Em | | Continuing operations | 380.5 | – | – | – | 380.5 | – | 380.5 | | | 351.8 | – | – | – | 351.8 | – | 351.8 | | | 568.1 | (18.8) | (92.9) | – | 456.4 | (28.6) | 427.8 | | | 306.3 | – | (9.5) | – | 296.8 | 333.3 | 630.1 | | | 30.7 | – | – | – | 30.7 | 94.7 | 125.4 | | | (21.5) | – | – | – | (21.5) | – | (21.5) | | | 60.4 | – | – | – | 60.4 | – | 60.4 | | | (10.9) | – | – | – | (10.9) | (18.3) | (29.2) | | | (16.8) | – | – | – | (16.8) | 2,100.4 | 2,083.6 | | | (95.7) | – | (4.7) | (13.1) | (113.5) | – | (113.5) | | | (16.1) | (1.8) | (7.0) | – | (24.9) | (115.1) | (140.0) | | Total continuing operations | 1,536.8 | (20.6) | (114.1) | (13.1) | 1,389.0 | 2,366.4 | 3,755.4 | | Discontinued operations | 101.4 | – | – | – | 101.4 | (120.8) | (19.4) | | | 21.0 | – | (12.8) | – | 8.2 | 487.2 | 495.4 | | Total discontinued operations | 122.4 | – | (12.8) | – | 109.6 | 366.4 | 476.0 | | Total SSE Group | 1,659.2 | (20.6) | (126.9) | (13.1) | 1,498.6 | 2,732.8 | 4,231.4 | SSE plc Annual Report 2022 229 ## Notes to the consolidated financial statements For the year ended 31 March 2022 ### 5. Segmental information #### 5.1 Segmental information disclosure (ii) Operating profit/(loss) by segment Continuing operations Total continuing operations Discontinued operations Total discontinued operations Total SSE Group 230 SSE plc Annual Report 2022 (iii) Capital expenditure by segment | | | | | | | Capital | | | | | | Capital additions | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Capital | | | additions to | | | Capital additions | | | | | to property, | | | | additions to | | | property, plant | | | | | to intangible | | | | plant and | | | intangible assets | | | | and equipment | | | | | | assets | | | equipment | | | | | | 2022 | | | | 2022 | | | 2021 | | | | 2021 | | | | | £m | | | | £m | | | | £m | | | £m | Continuing operations SSEN Transmission 5.8 608.6 6.3 429.9 SSEN Distribution 15.6 440.5 12.5 400.1 SSE Renewables 265.2 193.2 112.7 111.2 SSE Thermal 9.5 65.1 3.4 76.7 Gas Storage – 2.1 – 1.9 Energy Customer Solutions Business Energy 4.6 30.6 – 25.6 SSE Airtricity – 4.6 – 5.6 Distributed Energy 8.7 17.9 2.6 21.9 EPM 545.3 1.6 509.0 2.1 Corporate unallocated 65.8 21.2 53.9 1.6 Total continuing operations 920.5 1,385.4 700.4 1,076.6 Discontinued operations Gas Production – 13.9 0.9 25.9 Total discontinued operations – 13.9 0.9 25.9 Total SSE Group 920.5 1,399.3 701.3 1,102.5 (Decrease)/increase in prepayments related to capital expenditure – (2.0) – 0.5 Decrease/(increase) in trade payables related to capital expenditure – 53.3 – (10.8) IFRS 15 adjustment – (91.3) – (61.8) Lease asset additions – (85.7) – (45.4) Less non-cash items Allowance and certificates (193.7) – (201.6) – Assets acquired through acquisitions (197.8) – – – Net cash outflow 529.0 1,273.6 499.7 985.0 Capital additions do not include assets acquired in acquisitions or assets acquired under leases. Capital additions to intangible assets includes the cash purchase of emissions allowances and certificates (2022: £350.8m; 2021: £307.4m). Other non-cash additions comprise self-generated renewable obligation certificates. No segmental analysis of assets requires to be disclosed as this information is not presented to the Board. 231SSE plc Annual Report 2022 # **Notes to the consolidated financial statements** **For the year ended 31 March 2022** # **5. Segmental information** # **5.1 Segmental information disclosure** (iii) Capital expenditure by segment | At 31 March 2022 | Capital additions to intangible assets 2022 £m | Capital additions to property, plant and equipment 2022 £m | Adjusted Investment and Capital Expenditure 2022 £m | | --- | --- | --- | --- | | **Continuing operations** | | | | | | 5.8 | 608.6 | 614.4 | | | 15.6 | 440.5 | 364.8 | | | 265.2 | 193.2 | 674.3 | | | 9.5 | 65.1 | 129.3 | | | – | 2.1 | 2.1 | | | 4.6 | 30.6 | 35.2 | | | – | 4.6 | 4.6 | | | 8.7 | 17.9 | 26.6 | | | 545.3 | 1.6 | 2.4 | | | 65.8 | 21.2 | 78.7 | | **Total continuing operations** | **920.5** | **1,385.4** | **1,932.4** | | **Discontinued operations** | **0.5** | **13.4** | **–** | | **Total discontinued operations** | **0.5** | **13.4** | **–** | | **Total SSE Group** | **921.0** | **1,398.8** | **1,932.4** | 232 SSE plc Annual Report 2022 Continuing operations Total continuing operations Discontinued operations Total discontinued operations Total SSE Group SSE plc Annual Report 2022 233 FINANCIAL STATEMENTS ### Notes to the consolidated financial statements continued ### For the year ended 31 March 2022 ### 5. Segmental information continued ### 5.1 Segmental information disclosure continued (iv) Items included in operating profit/(loss) by segment | Depreciation/impairment on property, | | | | | | | | | Amortisation/impairment | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | plant and equipment | | | | | | | | of intangible assets | | | | | | | Before | | Impairment | | | | | Before | | | Impairment | | | | | exceptional | | | | charges/ | | | exceptional | | | | | charges/ | | | | | charges | | | (credits) | | Total | | charges | | | | (credits) | | Total | | | 2022 | | | | 2022 | 2022 | | | 2022 | | | | 2022 | 2022 | | | | £m | | | £m | £m | | | £m | | | | £m | £m | Continuing operations SSEN Transmission 99.6 – 99.6 3.6 – 3.6 SSEN Distribution 165.8 20.7 186.5 9.4 – 9.4 SSE Renewables 160.1 – 160.1 0.8 – 0.8 SSE Thermal 69.8 (331.6) (261.8) 0.4 – 0.4 Gas Storage 0.8 (97.3) (96.5) – – – Energy Customer Solutions Business Energy 5.1 – 5.1 6.2 – 6.2 SSE Airtricity 0.2 – 0.2 1.5 – 1.5 Distributed Energy 5.6 (1.6) 4.0 2.3 0.5 2.8 EPM – – – 4.5 – 4.5 Corporate unallocated 38.4 – 38.4 16.7 1.0 17.7 Total continuing operations 545.4 (409.8) 135.6 45.4 1.5 46.9 Discontinued operations Gas Production – 120.8 120.8 – – – Total discontinued operations – 120.8 120.8 – – – Total SSE Group 545.4 (289.0) 256.4 45.4 1.5 46.9 234 SSE plc Annual Report 2022 (restated*) | | Depreciation/impairment on property, | | | | | | | | | Amortisation/impairment | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | plant and equipment | | | | | | | | of intangible assets | | | | | | | Before | | | | | | | | Before | | | | | | | | exceptional | | | | Impairment | | | | exceptional | | | | Impairment | | | | | | charges | | | | charges | | Total | | charges | | | | charges | | Total | | | | 2021 | | | | 2021 | 2021 | | 2021 | | | | | 2021 | 2021 | | | | £m | | | | £m | £m | | | £m | | | | £m | £m | Continuing operations SSEN Transmission 85.1 – 85.1 2.0 – 2.0 SSEN Distribution 159.9 – 159.9 8.9 – 8.9 SSE Renewables 157.7 0.5 158.2 0.5 4.7 5.2 SSE Thermal 54.3 58.1 112.4 – – – Gas Storage 0.8 – 0.8 – – – Energy Customer Solutions Business Energy 4.6 – 4.6 0.5 – 0.5 SSE Airtricity 6.0 – 6.0 1.5 – 1.5 Distributed Energy 6.6 (1.9) 4.7 2.1 – 2.1 EPM 0.3 – 0.3 3.9 – 3.9 Corporate unallocated 48.0 15.1 63.1 13.5 5.2 18.7 Total continuing operations 523.3 71.8 595.1 32.9 9.9 42.8 Discontinued operations Gas Production – – – – – – Total discontinued operations – – – – – – Total SSE Group 523.3 71.8 595.1 32.9 9.9 42.8 * The comparatives have been restated. See note 1.2. The Group’s share of SGN depreciation (2022: £10.4m; 2021: £57.4m) and amortisation (2022: £0.7m; 2021: £4.2m) is not included within operating costs. 235SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Notes to the consolidated financial statements continued ### For the year ended 31 March 2022 ### 5. Segmental information continued ### 5.1 Segmental information disclosure continued (v) Earnings before interest, taxation, depreciation and amortisation (‘EBITDA’) Depreciation/ Adjusted Impairment/ JV/Associate operating profit amortisation share of reported to | | | | | | | before | | depreciation | | Release of | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | the Board | | | | | | | | | | | | Adjusted | | | | | Depreciation | | | exceptional | | | | and | deferred | | | | | (note 5.1(ii)) | | | | | | | | | | | | EBITDA | | | | | | on fair | | | charges | | amortisation | | income | | | | | | APM | | | | | | | | | | | | APM | | | | value uplifts | | | (note 5.1(iv)) | | | (note 16.4) | | (note 6) | | | | | | 2022 | | 2022 | | | 2022 | | | 2022 | | 2022 | | 2022 | | | £m | | | £m | | | £m | | £m | | £m | | £m | Continuing operations SSEN Transmission 380.5 – 103.2 – (3.8) 479.9 SSEN Distribution 351.8 – 195.9 – (11.6) 536.1 SSE Renewables 568.1 (18.8) 160.9 85.4 – 795.6 SSE Thermal 306.3 – 70.2 19.0 – 395.5 Gas Storage 30.7 – 0.8 – – 31.5 Energy Customer Solutions Business Energy (21.5) – 11.3 – – (10.2) SSE Airtricity 60.4 – 1.7 – – 62.1 Distributed Energy (10.9) – 7.4 – (1.3) (4.8) EPM (16.8) – 4.5 – – (12.3) Corporate Corporate unallocated (95.7) – 56.1 – (0.9) (40.5) Neos (16.1) (1.8) – 42.2 – 24.3 Total continuing operations 1,536.8 (20.6) 612.0 146.6 (17.6) 2,257.2 Discontinued operations Gas Production 101.4 – – – – 101.4 SGN 21.0 – – 11.1 – 32.1 Total discontinued operations 122.4 – – 11.1 – 133.5 Total SSE Group 1,659.2 (20.6) 612.0 157.7 (17.6) 2,390.7 Note that the Group’s ‘Net Debt to EBITDA’ metric is derived after removing the proportionate EBITDA from the following debt-financed JVs: Beatrice and Cloosh. This adjustment is £125.4m (2021: £110.5m) (restated) resulting in EBITDA on continuing operations for inclusion in the Debt to EBITDA metric of £2,131.2m (2021: £1,884.8m restated). The £612.0m combined depreciation, impairment and amortisation charges included non-exceptional impairments totalling £21.2m. 236 SSE plc Annual Report 2022 (restated*) Depreciation/ Adjusted impairment/ JV/Associate operating profit amortisation share of reported to | | | | | | | before | | depreciation | | Release of | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | the Board | | | | | | | | | | | | Adjusted | | | | | Depreciation | | | exceptional | | | | and | deferred | | | | | (note 5.1 (ii)) | | | | | | | | | | | | EBITDA | | | | | | on fair | | | charges | | amortisation | | income | | | | | | APM | | | | | | | | | | | | APM | | | | value uplifts | | | (note 5.1 (iv)) | | | (note 16.4) | | (note 6) | | | | | | 2021 | | 2021 | | | | 2021 | | 2021 | | 2021 | | 2021 | | | £m | | | £m | | | £m | | £m | | £m | | £m | Continuing operations SSEN Transmission 220.9 – 87.1 – (2.6) 305.4 SSEN Distribution 275.8 – 168.8 – (11.3) 433.3 SSE Renewables 731.8 (18.8) 158.0 90.1 – 961.1 SSE Thermal 160.5 – 54.3 15.8 (1.0) 229.6 Gas Storage (5.7) – 0.8 – – (4.9) Energy Customer Solutions Business Energy (24.0) – 4.6 – – (19.4) SSE Airtricity 44.0 – 7.5 – – 51.5 Distributed Energy (27.0) – 8.2 – (1.7) (20.5) EPM 18.4 – 5.3 – – 23.7 Corporate Corporate unallocated (58.4) (1.8) 61.6 2.7 (1.1) 3.0 Neos (2.8) – – 35.3 – 32.5 Total continuing operations 1,333.5 (20.6) 556.2 143.9 (17.7 ) 1,995.3 Discontinued operations Gas Production 33.0 – – – – 33.0 SGN 173.0 – – 61.6 – 234.6 Total discontinued operations 206.0 – – 61.6 – 267.6 Total SSE Group 1,539.5 (20.6) 556.2 205.5 (17.7) 2,262.9 * The comparative operating profit by segment information has been restated. See note 2.1. 237SSE plc Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 March 2022 # 6. Other operating income and cost | | 2022 £m | | --- | --- | | 544.8 | | | (4.3) | | | (297.5) | | | 12.0 | | | 11.0 | | | (17.6) | | | (67.1) | | | 1.5 | | # Auditor's remuneration | | 2022 £m | | --- | --- | | 0.4 | | | 3.1 | | | 0.3 | | | 0.1 | | | 3.5 | | | 3.9 | | pages 152 to 161 238 SSE plc Annual Report 2022 ## 7. Exceptional items and certain re-measurements | | 2022 £m | | --- | --- | | Continuing operations | | | Exceptional items (note 7.1) | 322.6 | | | – | | | 322.6 | | | (17.6) | | Total exceptional items | 305.0 | | Certain re-measurements | | | | 2,100.4 | | | (2.6) | | | 21.0 | | | – | | Total certain re-measurements | 2,118.8 | | Exceptional items and certain re-measurements on continuing operations before taxation | 2,423.8 | | Taxation | | | | (79.0) | | | (408.0) | | | (244.7) | | | (33.2) | | Taxation | (764.9) | | Total exceptional items and certain re-measurements on continuing operations after taxation | 1,658.9 | | Discontinued operations | | | Exceptional items | | | | (120.8) | | | 576.5 | | | (3.8) | | | (85.5) | | Total exceptional items and certain re-measurements on discontinued operations after taxation | 366.4 | SSE plc Annual Report 2022 239 # Notes to the consolidated financial statements For the year ended 31 March 2022 # 7. Exceptional items and certain re-measurements | | 2022 £m | | --- | --- | | Continuing operations | | | Cost of sales: | 2,100.4 (2.6) | | Operating costs: | 2,097.8 322.6 – (25.1) | | Operating income: | 297.5 4.3 | | Joint ventures and associates: | 4.3 – (33.2) | | Operating profit | (33.2) 2,366.4 | | Finance income | 21.0 3.2 | | Profit before tax on continuing operations | 24.2 2,390.6 | | Discontinued operations | | | Joint ventures and associates: | (120.8) 576.5 (3.8) | | Profit before tax on discontinued operations | 451.9 | # 7.1 Exceptional items Exceptional items in the year ended 31 March 2022 240 SSE plc Annual Report 2022 The net exceptional charges/(credits) recognised can be summarised as follows: Property, plant | and equipment | | | Held | Provisions and | | | Investment | | | Other | | Total charges/ | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | (note 14) | | for sale | other charges | | in joint ventures | | | receivables | | | | (credits) | | | | | £m | £m | | £m | | | £m | | | £m | | | £m | Thermal Electricity Generation (i) (331.6) – – – – (331.6) Gas storage (ii) (97.3) – – – – (97.3) SSE Contracting (iii) – – 18.9 – – 18.9 Neos Networks (iv) – – 6.2 106.9 – 113.1 Other credits (v) (0.6) – – – (7.5) (8.1) Total exceptional items continuing operations (429.5) – 25.1 106.9 (7.5) (305.0) SGN disposal gain (vi) – – – – (576.5) (576.5) Gas Production (vii) – 120.8 – – – 120.8 Total exceptional items discontinued operations – 120.8 – – (576.5) (455.7) Total exceptional items (429.5) 120.8 25.1 106.9 (584.0) (760.7) (i) Thermal Electricity Generation – impairment reversals At 31 March 2022, the Group has carried out a formal impairment review in order to assess the carrying value of its GB combined cycle gas turbine (‘CCGT’) power stations and the Group’s Great Island CCGT plant in Ireland (see note 15.2). As a result of the assessment, the Group has recognised an exceptional impairment reversal of £331.6m to the carrying value of the assets. (ii) Gas Storage – impairment reversal At 31 March 2022, the Group has carried out a formal impairment review in order to assess the carrying value of its Gas Storage operations at Atwick and Aldbrough (see note 15.2). As a result of the assessment, the Group has recognised an exceptional impairment reversal of £97.3m to the carrying value of the assets. (iii) SSE Contracting – loss on disposal On 30 June 2021, the Group completed the sale of its Contracting and Rail business to the Aurelius Group for headline consideration of £22.5m and £5m of contingent consideration, based on earning targets within the business. Due to working capital adjustments, cash consideration received was £0.2m. The Group recorded a further exceptional loss on disposal of £18.9m on completion, in addition to the exceptional impairment loss of £51.2m recognised during the year ended 31 March 2021. (iv) Neos Networks – investment impairment and adjustments to consideration At 31 March 2022, the Group has assessed that the value of its investment in Neos Networks has been impaired by £106.9m. See note 15 for detail of this assessment. In the year ended 31 March 2019, the Group disposed of 50% of its stake in Neos Networks Limited (formerly SSE Telecommunications Limited) to Infracapital Partners III, ‘Infracap’, for initial consideration of £215.0m and the potential for a further £165m of contingent consideration dependent on achievement of certain targets. In the year ended 31 March 2022, the Group reassessed its position relating to the retained contingent elements and its contractual position with Infracap, with the net impact being the recognition of an exceptional charge of £6.2m. (v) Other credits At 31 March 2022, the Group recognised further exceptional credits of £8.1m relating to reversal of previously recognised exceptional charges or judgements. These included i) reassessment of impairments associated with Heat Networks assets (credit of £0.6m), ii) credit of £3.2m (2021: £1.4m) in relation the unwind of discounting on deferred consideration recognised on the part disposal of SSE Slough Multifuel Limited in the year ending 31 March 2021, iii) credit of £4.3m in relation to a gain on disposal of historically impaired land at Seabank. Exceptional items within discontinued operations in the year ended 31 March 2022 (vi) SGN disposal gain On 2 August 2021, the Group announced it had agreed to sell its 33.3% investment in SGN to a consortium comprising existing SGN shareholders Ontario Teachers’ Pension Plan Board and Brookfield Super-Core Infrastructure Partners for cash consideration of £1,225m. The transaction completed on 22 March 2022, with the Group recognising an exceptional gain on disposal of £576.5m. See note 12.2 for further information. 241SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Notes to the consolidated financial statements continued ### For the year ended 31 March 2022 ### 7. Exceptional items and certain re-measurements continued ### 7.1 Exceptional items continued (vii) Gas Production – loss on disposal The Group recorded an exceptional disposal loss of £120.8m related to sale of its Gas Production assets and liabilities to Viaro Energy through its subsidiary RockRose Energy Limited which completed on 14 October 2021. At 30 September 2021 an impairment charge of £93.9m was recognised in relation to the loss on sale incurred to 30 September 2021 under the transaction’s lock box mechanism. The further £26.9m recognised in the second half of the financial year represents the profit of the business due to the buyer between 1 October 2021 and the disposal date on 14 October 2021. See note 12.2 for further information. Exceptional items in the year ended 31 March 2021 In the year to 31 March 2021, the Group recognised a net exceptional credit of £850.3m in its continuing operations. The net exceptional credit was primarily due to gains on disposal of the Group’s stakes in Ferrybridge Multifuel (£669.9m), Walney offshore windfarm (£188.7m) and Maple SmartMeterCo (£70.4m). In addition, the Group reversed £26.1m of prior year exceptional provisions for bad debt arising from coronavirus and recorded exceptional gains following the fair value uplift of its retained stakes in SSE Slough Multifuel Limited (£21.3m) and Seagreen Holdco 1 Limited (£25.7m). These exceptional credits were offset by an impairment to the Group’s Great Island Thermal CCGT plant of £58.1m and a write down to fair value less costs to sell SSE Contracting, which was held for sale at 31 March 2021, of £51.2m. Finally, the Group incurred £24.2m of further charges related to the disposal of SSE Energy Services which was completed in 2020 and reduced the overall gain on disposal, completed in the year ended 31 March 2019, of SSE Telecommunications Limited by £21.8m. The net exceptional charges/(credits) recognised can be summarised as follows: Property, plant | and equipment | | | Intangible assets | | | Provisions and | | | Trade | | Other | Total charges/ | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | (note 14) | | | (note 13) | | other charges | | receivables | | receivables | | | (credits) | | | | | £m | | | £m | | £m | | £m | | £m | | | £m | Thermal Electricity Generation (i) 58.1 – – – – 58.1 Customer bad debt provisioning (ii) – – – (26.1) – (26.1) SSE Contracting (iii) – – 51.2 – – 51.2 SSE Energy Services disposal costs (iv) 15.1 5.2 3.9 – – 24.2 Neos Networks (v) – – 20.2 – 1.6 21.8 Other charges (vi) (1.9) – – – (1.6) (3.5) Disposal gains (vii) – – – – (976.0) (976.0) Total exceptional items 71.3 5.2 75.3 (26.1) (976.0) (850.3) (i) Thermal Electricity Generation – impairment charges At 31 March 2021, the Group carried out a formal impairment review in order to assess the carrying value of its CCGT plant at Great Island. As a result of the assessment, the Group recognised an exceptional impairment of £58.1m to the carrying value of the asset, which arose following reductions in forward price curves and forecast electricity demand in Ireland. (ii) Customer bad debt provisioning In the year ending 31 March 2020, the Group recognised an exceptional provision for exposure to bad debts of £33.7m specifically related to the coronavirus pandemic within its Business Energy (£27.7m) and Airtricity (£6.0m) businesses. The initial outbreak of the pandemic happened late in 2019 and the UK remained in lockdown at the date of approval of the Annual Report on 16 June 2020, which meant that there was significant uncertainty surrounded the judgement at that date. The provision reflected the Group’s best estimate at that date and was treated as an adjusting post balance sheet event. During the year to 31 March 2021, the Group achieved higher cash collections in recovery of its debt than was expected, largely due to government support schemes and other factors. As a result, an exceptional reversal of the provision of £20.1m in its Business Energy and £6.0m in its Airtricity businesses was recognised. (iii) SSE Contracting – impairment charges On 1 April 2021, subsequent to the balance sheet date, the Group announced the sale of its Contracting & Rail business to Aurelius Group. The transaction was for initial consideration of £17.5m, plus a loan note receivable of £5m, and a further £5m of contingent consideration based upon future financial performance of the business. At 31 March 2021, the Group classified its interest in the business as held for sale and impaired the carrying amount of the held for sale asset to its net realisable value, resulting in an impairment of £51.2m. The transaction completed on 30 June 2021. (iv) SSE Energy Services disposal costs In 2020, the Group disposed of its SSE Energy Services business to Ovo Energy Limited, incurring an exceptional loss of £237.7m. The calculation of the loss included estimates for costs of disposal and separation which were subsequently re-estimated in the year to 31 March 2021. These additional costs of disposal, which total £24.2m, included increased estimates of the cost of IT separation and decommissioning and the impairment of SSE properties which were wholly (or substantially) leased to the disposal group. 242 SSE plc Annual Report 2022 (v) Neos Networks adjustment to consideration (vi) Other charges (vii) Disposal gains Exceptional items in the year ended 31 March 2020 SSE plc Annual Report 2022 243 # Notes to the consolidated financial statements For the year ended 31 March 2022 # 7. Exceptional items and certain re-measurements # 7.1 Exceptional items # 7.2 Certain re-measurements # 7.3 Change in UK corporation tax rates Taxation 244 SSE plc Annual Report 2022 ## 8. Directors and employees ### 8.1 Staff costs | | 2022 £m | | --- | --- | | Continuing operations | | | | 517.6 | | | 60.1 | | | 17.6 | | | 93.4 | | | 688.7 | | | (157.4) | | | 531.3 | ### 8.2 Employee numbers | | 2022 Number | | --- | --- | | | 10,754 | | | – | | | 10,754 | | | 2022 Number | | --- | --- | | Continuing operations | | | | 814 | | | 3,984 | | | 1,286 | | | 432 | | | 84 | | | 817 | | | 766 | | | 735 | | | 238 | | | 1,598 | | Total from continuing operations | 10,754 | | Discontinued operations | – | | Total from discontinued operations | – | | Total SSE Group | 10,754 | SSE plc Annual Report 2022 245 # Notes to the consolidated financial statements For the year ended 31 March 2022 # **8. Directors and employees** # **8.3 Remuneration of key management personnel** | | 2022 | | | | --- | --- | --- | --- | | | Executive committee members £m | Executive directors £m | Total £m | | | 2.2 | 4.9 | 7.1 | | | 0.4 | 0.9 | 1.3 | | | 0.3 | 0.9 | 1.2 | | | 1.2 | 4.3 | 5.5 | | | 4.1 | 11.0 | 15.1 | 246 SSE plc Annual Report 2022 ### 9. Finance income and costs ### Recognised in income statement 2021 | | | | | | 2022 | | | | | | | | (restated*) | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Before | | | | | | | | | Before | | | | | | | | exceptional | | | | Exceptional | | | | | exceptional | | | | Exceptional | | | | | items and | | | | items and | | | | | items and | | | | items and | | | | | | certain | | | | certain | | | | | certain | | | certain | | | | | | | re- | | | | re- | | | | | re- | | | re- | | | measurements | | | | measurements | | | | Total | measurements | | | | measurements | | | Total | | | | | £m | | | | £m | £m | | | | £m | | | £m | £m | Finance income: Interest income from short term deposits 0.8 – 0.8 1.9 – 1.9 Interest on pension scheme assets (i) 7.6 – 7.6 8.3 – 8.3 Foreign exchange translation of monetary assets and liabilities – – – 1.3 – 1.3 Other interest receivable: Joint ventures and associates 46.8 – 46.8 43.9 – 43.9 Other receivable 23.8 3.2 27.0 22.8 1.4 24.2 70.6 3.2 73.8 66.7 1.4 68.1 Total finance income 79.0 3.2 82.2 78.2 1.4 79.6 Finance costs: Bank loans and overdrafts (16.2) – (16.2) (24.0) – (24.0) Other loans and charges (340.2) – (340.2) (323.2) – (323.2) Foreign exchange translation of monetary assets and liabilities (14.6) – (14.6) – – – Notional interest arising on discounted provisions (5.7) – (5.7) (3.8) – (3.8) Lease charges (30.4) – (30.4) (35.3) – (35.3) Less: interest capitalised (ii) 30.7 – 30.7 14.2 – 14.2 Total finance costs (376.4) – (376.4) (372.1) – (372.1) Changes in fair value of financing derivative assets or liabilities at fair value through profit or loss – 21.0 21.0 – 55.6 55.6 Net finance costs (297.4) 24.2 (273.2) (293.9) 57.0 (236.9) Presented as: Finance income 79.0 24.2 103.2 78.2 57.0 135.2 Finance costs (376.4) – (376.4) (372.1) – (372.1) Net finance costs (297.4) 24.2 (273.2) (293.9) 57.0 (236.9) * The comparatives have been restated. See note 1.2. (i) The interest income on net pension assets for the year ended 31 March 2022 of £7.6m (2021: £8.3m) represents the interest earned under IAS 19. (ii) The capitalisation rate applied in determining the amount of borrowing costs to capitalise in the period was 3.86% (2021: 3.61%). 247SSE plc Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 March 2022 # 9. Finance income and costs | | 2022 £m | | --- | --- | | | (273.2) | | | (67.8) | | | (7.6) | | | (21.0) | | | (3.2) | | Adjusted net finance costs | (372.8) | | | 5.7 | | | 30.4 | | | (50.7) | | Adjusted net finance costs for interest cover calculations | (387.4) | # Recognised in other comprehensive income | | 2022 £m | | --- | --- | | | 22.9 | | | 224.0 | | Total recognised in other comprehensive income | 246.9 | # 10. Taxation # 10.1 Analysis of charge recognised in the income statement | | 2022 | | | | --- | --- | --- | --- | | | Before exceptional items and certain re-measurements £m | Exceptional items and certain re-measurements £m | Total £m | | Current tax | 82.5 (5.9) | 8.8 – | 91.3 (5.9) | | Total current tax | 76.6 | 8.8 | 85.4 | | Deferred tax | 76.7 – (2.2) | 478.2 244.7 – | 554.9 244.7 (2.2) | | Total deferred tax | 74.5 | 722.9 | 797.4 | | Total taxation charge | 151.1 | 731.7 | 882.8 | A2 248 SSE plc Annual Report 2022 The majority of the Group’s profits are earned in the UK, with the standard rate of UK corporation tax being 19% for the year to 31 March 2022 (2021: 19%). The Group’s Gas Production business, which is included within discontinued operations for the year ended 31 March 2022 (and 31 March 2021), is taxed at a UK corporation tax rate of 30% plus a supplementary charge of 10% (combined 40%). Profits earned by the Group in the Republic of Ireland are taxable at either 12.5% or 25%, depending upon the nature of the income. The majority of the Group’s profits are earned in the UK, with the standard rate of UK corporation tax being 19% for the year to 31 March 2021 (2020: 19%). The Group’s Gas Production business, which is included within discontinued operations for the year ended 31 March 2022 (and 31 March 2021), is taxed at a UK corporation tax rate of 30% plus a supplementary charge of 10% (combined 40%). Profits earned by the Group in the Republic of Ireland are taxable at either 12.5% or 25%, depending upon the nature of the income. The ‘adjusted current tax charge’ and the ‘adjusted effective rate of tax’, which are presented in order to best represent underlying performance by making similar adjustments to the ‘adjusted profit before tax’ measure, are arrived at after the following adjustments: | | | | | | 2021 | | 2021 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 2022 | 2022 | | | £m | | | % | | Continuing operations | £m | | % | (restated*) | | (restated*) | | | Group tax charge and effective rate 882.8 25.4 224.3 9.3 Less: reported deferred tax charge and effective rate (797.4) (22.9) (145.4) (6.1) Reported current tax charge and effective rate 85.4 2.5 78.9 3.2 Effect of adjusting items 4.8 5.1 Reported current tax charge and effective rate on adjusted basis 85.4 7.3 78.9 8.3 add: Share of current tax from joint ventures and associates 30.6 2.6 13.2 1.4 less: Current tax credit on exceptional items (8.9) (0.7) (6.2) (0.6) Adjusted current tax charge and effective rate APM 107. 1 9.2 85.9 9.1 * The comparatives have been restated. See note 1.2. ### Tax charge/(credit) recognised in other comprehensive income/(loss): 2022 2021 £m £m Relating to: Pension scheme actuarial movements 72.6 (3.1) Cash flow and net investment hedge movements 4.4 (9.9) Other (1.9) (1.7) 75.1 (14.7) All tax recognised through other comprehensive income is deferred tax. See further Taxation disclosures at A2 . ### 10.2 Current tax liabilities 2022 2021 £m £m Corporation tax (asset)/liability (8.8) 0.1 Uncertain tax positions The Group invests heavily in infrastructure, on which significant amounts of capital allowances are potentially available. The extent to which capital allowances are available on any single asset is, however, very much dependent upon the fact pattern for the asset involved, and there will often be an element of uncertainty as to how capital allowances legislation applies in those circumstances. Reaching agreement with tax authorities as to the amount of capital allowances available can take a number of years and sometimes can only be resolved through a formal legal process. The calculation of the Group’s total tax charge therefore necessarily involves a degree of estimation and judgement in relation to certain items for which the tax treatment cannot be finally determined until resolution has been reached with the tax authorities or, if required, through a formal legal process. At 31 March 2022, the Group has recognised provisions totalling £27.9m in respect of uncertain tax positions, primarily in relation to the availability of capital allowances (2021: £37.6m). The Group estimates that a reasonably possible range of settlement outcomes for the uncertain tax positions could be in the range from nil to the full value of the provision, due to the binary nature of the decision as to whether capital allowances are available or not. 249SSE plc Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 March 2022 # 10. Taxation # 10.2 Current tax liabilities # 10.3 Deferred taxation | (Credit)/charge to income statement on continuing operations | 407.6 | 399.4 | 5.8 | (15.4) | 797.4 | | --- | --- | --- | --- | --- | --- | | (Credit)/charge to equity | – | 4.4 | 72.6 | (1.9) | 75.1 | | Exchange adjustment | 0.2 | – | – | (1.4) | (1.2) | | At 31 March 2022 | 1,141.6 | 378.5 | 146.2 | (20.7) | 1,645.6 | | | 2022 £m | | --- | --- | | | 1,716.0 | | | (70.4) | | | 1,645.6 | 250 SSE plc Annual Report 2022 ### 11. Dividends and earnings per share ### 11.1 Ordinary dividends 2022 Total Settled via scrip Pence per 2021 Total Settled via scrip Pence per £m £m ordinary share £m £m ordinary share Interim – year ended 31 March 2022 271.8 28.2 25.5 – – – Final – year ended 31 March 2021 590.5 327.5 56.6 – – – Interim – year ended 31 March 2021 – – – 254.3 13.5 24.4 Final – year ended 31 March 2020 – – – 582.1 25.5 56.0 862.3 355.7 836.4 39.0 The final dividend of 56.6p per ordinary share declared in respect of the financial year ended 31 March 2021 (2020: 56.0p) was approved at the Annual General Meeting on 22 July 2021 and was paid to shareholders on 23 September 2021. Shareholders were able to elect to receive ordinary shares credited as fully paid instead of the cash dividend under the terms of the Company’s scrip dividend scheme. For dividends paid in relation to the financial year ended 31 March 2022 and in relation to the subsequent years to 31 March 2026, the Group will repurchase shares to reduce the scrip’s dilutive effects, if the scrip take-up exceeds 25% of the full year dividend in any given year. An interim dividend of 25.5p per ordinary share (2021: 24.4p) was declared and paid on 10 March 2022 to those shareholders on the SSE plc share register on 14 January 2022. Shareholders were able to elect to receive ordinary shares credited as fully paid instead of the interim cash dividend under the terms of the Company’s scrip dividend scheme. The proposed final dividend of 60.2p per ordinary share based on the number of issued ordinary shares at 31 March 2022 is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. Based on shares in issue at 31 March 2022, this would equate to a final dividend of £646.0m. ### 11.2 Basic and adjusted earnings per share The calculation of basic earnings per ordinary share at 31 March 2022 is based on the net profit attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding during the year ended 31 March 2022. Adjusted earnings per share has been calculated by excluding the charge for deferred tax, interest on net pension liabilities under IAS 19, retained Gas Production decommissioning costs, the depreciation charged on fair value uplifts and the impact of exceptional items and certain re-measurements (note 7). 2021 | | | | | 2022 | | 2021 | Earnings per | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 2022 | Earnings per | | Earnings | | | share | | | Earnings | | | share | | £m | | pence | | Continuing operations | | £m | | pence | (restated*) | | (restated*) | | Earnings attributable to ordinary shareholders 3,031.4 287.3 2,276.2 218.7 Less: earnings attributable to discontinued operations (482.7) (45.7) (129.1) (12.4) Basic earnings on continuing operations used to calculate adjusted EPS 2,548.7 241.6 2,147.1 206.3 Exceptional items and certain re-measurements (note 7) (1,658.9) (157. 3) (1,380.9) (132.8) Basic excluding exceptional items and certain re-measurements 889.8 84.3 766.2 73.5 Adjusted for: Decommissioning Gas Production 13.1 1.2 – – Depreciation charge on fair value uplifts 20.6 2.0 20.6 2.0 Interest on net pension scheme assets/(liabilities) (note 9) (7.6) (0.7) (8.3) (0.8) Deferred tax 74.5 7.1 28.8 2.8 Deferred tax from share of joint ventures and associates 15.8 1.5 9.1 0.9 Adjusted APM 1,006.2 95.4 816.4 78.4 Basic 2,548.7 241.6 2,147.1 206.3 Dilutive effect of outstanding share options – (0.5) – (0.3) Diluted 2,548.7 241.1 2,147.1 206.0 251SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Notes to the consolidated financial statements continued ### For the year ended 31 March 2022 ### 11. Dividends and earnings per share continued ### 11.2 Basic and adjusted earnings per share continued Reported earnings per share 2021 | | | | 2022 | | 2021 | Earnings per | | | --- | --- | --- | --- | --- | --- | --- | --- | | | 2022 | Earnings per | | Earnings | | | share | | Earnings | | | share | | £m | | pence | | | £m | | pence | (restated*) | | (restated*) | | Basic Earnings per share on continuing operations 2,548.7 241.6 2,147.1 206.3 Earnings per share on discontinued operations 482.7 45.7 129.1 12.4 Earnings per share attributable to ordinary shareholders 3,031.4 287. 3 2,276.2 218.7 Diluted earnings per share on continuing operations 2,548.7 241.1 2,147.1 206.0 Diluted earnings per share on discontinued operations 482.7 45.7 129.1 12.3 Diluted earnings per share attributable to ordinary shareholders 3,031.4 286.8 2,276.2 218.3 The weighted average number of shares used in each calculation is as follows: | 31 March 2022 | | | 31 March 2021 | | | | --- | --- | --- | --- | --- | --- | | | Number of | | | Number of | | | | | shares | | | shares | | | (millions) | | | (millions) | | For basic and adjusted earnings per share 1,055.0 1,040.9 Effect of exercise of share options 2.0 1.6 For diluted earnings per share 1,057.0 1,042.5 ### 11.3 Dividend cover The Group’s adjusted dividend cover metric is calculated by comparing adjusted earnings per share on continuing operations to the projected dividend per share payable to ordinary shareholders. | | | | | 2022 | | | | 2021 | | | | | 2021 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 2022 | Dividend per | | | | 2022 | Earnings per | | | 2021 | Dividend cover | | | | Earnings per | | | | share | Dividend cover | | share (pence) | | Dividend per | | | | (times) | | share (pence) | | | (pence) | | | (times) | (restated*) | | share (pence) | | | (restated*) | | Reported earnings per share (continuingoperations) 241.6 85.7 2.82 206.3 81.0 2.55 Adjusted earnings per share (continuing operations) APM 95.4 85.7 1.11 78.4 81.0 0.97 * The comparatives have been restated. See note 1.2. ### 12. Acquisitions, disposals and held-for-sale assets ### 12.1 Acquisitions Acquisition of 80% equity interest in Japanese offshore wind development platform On 29 October 2021 the Group, through its wholly owned subsidiary SSE Renewables International Holdings Limited, completed the acquisition of an 80% equity interest in an offshore wind development platform from Pacifico Energy and its affiliates for $193m USD upfront cash consideration and a further $30m USD deferred consideration subject to a number of conditions. This acquisition is aligned to the Group’s published strategy to pursue overseas renewable opportunities. An 80% equity stake was acquired in the following entities and vehicles: SSE Pacifico K.K., Aichi Offshore Wind Power No.1 G.K., Aichi Offshore Wind Power No.2 G.K., Enshunada Offshore Wind Power No.1 G.K., Goto-Fukue Offshore Wind Power G.K., Izu Islands Offshore Wind Power G.K., Minami-Izu Offshore Wind Power No.1 G.K., Niigata Offshore Wind Power No.1 G.K., Oki Islands Offshore Wind Power G.K., Wakayama-West Offshore Wind Power No.1 G.K. and Wakayama-West Offshore Wind Power No.2 G.K. Acquisition costs of £7.2m were expensed to operating costs in the year. The subsidiaries acquired had nil revenue and contributed a loss of £0.1m to the consolidated result of the Group for the year. The assets and liabilities acquired largely comprise tangible and intangible assets, being windfarm site development costs and goodwill as set out in the table below. The goodwill recognised represents early stage intangible development costs that do not qualify for separate recognition. The non-controlling interest acquired was measured at fair value, where fair value represented the non-controlling interest’s proportionate share of the assets and liabilities acquired through the transaction. 252 SSE plc Annual Report 2022 Assets acquired 12.2 Disposals (i) Significant disposals Current year disposals Sale of investment in SSE Contracting: Sale of stake in Dogger Bank C: Other disposals: Sale of discontinued operations Sale of investment in SGN: Sale of investment in Gas Production: Prior year disposals Sale of investment in Ferrybridge Multifuel: SSE plc Annual Report 2022 253 # Notes to the consolidated financial statements For the year ended 31 March 2022 12. Acquisitions, disposals and held-for-sale assets 12.2 Disposals Sale of investment in Walney Windfarm: Sale of investment in Maple Smart Meter Assets: Sale of stake in Doggerbank A&B Windfarms: Sale of stake in Seagreen 1 Windfarm: Sale of stake in Slough Multifuel: 254 SSE plc Annual Report 2022 # (ii) Disposal reconciliation | | 2022 £m | | --- | --- | | Net assets disposed: | | | | 105.1 | | | 28.4 | | | 662.5 | | | 2.0 | | | 14.8 | | | 6.9 | | | 28.5 | | | – | | | (33.2) | | | – | | | – | | | (159.8) | | | (0.8) | | Net assets | 654.4 | | Proceeds of disposal: | | | | 1,372.1 | | | – | | | – | | | (35.0) | | | (29.8) | | Net proceeds | 1,307.3 | | Recycle of amounts recognised in hedge reserve | (28.2) | | Gain on disposal | 624.7 | | Presentation: | | | Continuing operations | | | Income statement exceptional (loss)/gain | (18.9) | | Income statement non-exceptional credit | 67.1 | | | 48.2 | | Discontinuing operations | | | Income statement exceptional credit | 576.5 | | SSE Group | 624.7 | | | 2022 £m | | Net proceeds of disposal | 1,279.1 | | | – | | | 28.2 | | | 35.0 | | | – | | | 29.8 | | | (5.2) | | Total cash proceeds | 1,366.9 | | | – | | Net cash proceeds | 1,366.9 | SSE plc Annual Report 2022 255 FINANCIAL STATEMENTS ### Notes to the consolidated financial statements continued ### For the year ended 31 March 2022 ### 12. Acquisitions, disposals and held-for-sale assets continued ### 12.3 Held-for-sale assets and liabilities There were no assets and liabilities classified as held for disposal at 31 March 2022. The assets held for disposal at 31 March 2021 the Group’s Gas Production assets and liabilities, which were sold to Viaro Energy through its subsidiary RockRose Energy Limited on 14 October 2021 and the assets and liabilities of the Group’s Enterprise Contracting and Rail Business, which was sold to Aurelius Group on 30 June 2021. | | Gas | | SSE | | | --- | --- | --- | --- | --- | | Production | | Contracting | | 2021 | | | £m | | £m | £m | Property, plant and equipment 167.5 – 167.5 Goodwill and other intangible assets 49.6 – 49.6 Deferred tax asset 14.7 0.2 14.9 Inventories 2.6 2.1 4.7 Trade and other receivables 7.7 94.7 102.4 Total assets 242.1 97.0 339.1 Trade and other payables (9.1) (46.3) (55.4) Current tax liabilities – (0.1) (0.1) Provisions (149.3) (46.5) (195.8) Loans and other borrowings – (2.2) (2.2) Total liabilities (158.4) (95.1) (253.5) Net assets/(liabilities) held for sale 83.7 1.9 85.6 256 SSE plc Annual Report 2022 ## 12.4 Discontinued operations | | 2022 | | | | --- | --- | --- | --- | | | Before exceptional items and certain re-measurements £m | Exceptional items and certain re-measurements £m | Total £m | | Revenue | 142.0 (38.9) | – | 142.0 (38.9) | | Gross profit | 103.1 (1.7) | – (120.8) | 103.1 (122.5) | | Operating profit/(loss) before joint ventures | 101.4 | (120.8) | (19.4) | | | 21.0 (11.1) – (1.7) | – – (4.6) (84.7) | 21.0 (11.1) (4.6) (86.4) | | Share of profit/(loss) on joint ventures | 8.2 | (89.3) | (81.1) | | Operating profit/(loss) | 109.6 6.8 (0.1) | (210.1) – – | (100.5) 6.8 (0.1) | | Profit/(loss) for the year | 116.3 | (210.1) | (93.8) | | | – | 576.5 | 576.5 | | Profit/(loss) from discontinued operations, net of tax | 116.3 | 366.4 | 482.7 | ### Other comprehensive income from discontinued operations | | 2022 £m | | --- | --- | | Items that will be reclassified subsequently to profit or loss: | 0.5 | | Items that will not be reclassified to profit or loss: | (1.7) | | Other comprehensive loss from discontinued operations | (1.2) | ### Cashflows from discontinued operations | | 2022 £m | | --- | --- | | Net (decrease)/increase in cash and cash equivalents in discontinued operations | 11.6 (11.6) | | | – | SSE plc Annual Report 2022 257 # Notes to the consolidated financial statements For the year ended 31 March 2022 # 13. Intangible assets Cost | Additions | – | 544.5 | 80.5 | – | 97.7 | 722.7 | | --- | --- | --- | --- | --- | --- | --- | | Acquired through business combinations | 176.7 | – | 21.1 | – | – | 197.8 | | Transfer (to)/from property plant and equipment (note 14) | – | – | (40.4) | – | – | (40.4) | | Disposals/utilised | – | (459.8) | (9.8) | – | (29.8) | (499.4) | | Exchange adjustments | 6.1 | (0.3) | (0.5) | – | – | 5.3 | | At 31 March 2022 | 704.9 | 686.8 | 354.4 | 115.9 | 912.2 | 2,774.2 | Aggregate amortisation and impairment: | Charge for the year | – | – | – | (1.5) | (43.9) | (45.4) | | --- | --- | --- | --- | --- | --- | --- | | Non-exceptional impairment charge (i) | – | – | 5.1 | – | 26.7 | 31.8 | | Exchange adjustments | – | – | – | – | (1.5) | (1.5) | | At 31 March 2022 | (192.9) | (227.5) | (153.3) | 114.6 | (498.8) | (1,187.1) | | Carrying amount: | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | At 31 March 2022 | 512.0 | 459.3 | 201.1 | 1.3 | 413.4 | 1,587.1 | 258 SSE plc Annual Report 2022 | | 2022 £m | | --- | --- | | | 459.3 | | | 1,127.8 | | | 1,587.1 | # (i) Goodwill | | 2022 £m | | --- | --- | | | 71.3 | | | 214.9 | | | 185.2 | | | 32.4 | | | 8.2 | | | 512.0 | # (ii) Allowances and certificates # (iii) Development assets # (iv) Other intangible assets # (v) Software assets SSE plc Annual Report 2022 259 # Notes to the consolidated financial statements For the year ended 31 March 2022 # 14. Property, plant and equipment Cost: | Additions | – | – | 76.3 | 3.6 | 41.1 | 1,220.2 | 44.2 | 1,385.4 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Adjustment to decommissioning asset | 58.7 | 88.5 | – | – | – | – | – | 147.2 | | Transfer from intangible assets (note 13); (iii) | – | – | – | – | – | 40.4 | – | 40.4 | | Transfer from Assets Under Construction | 21.8 | 75.8 | 347.6 | 550.5 | (0.9) | (1,058.6) | 63.8 | – | | Disposals (ii) | (17.8) | (18.5) | – | – | (13.8) | (7.8) | (87.9) | (145.8) | | Exchange rate adjustments | (3.6) | (8.1) | – | – | (0.2) | (0.2) | (0.6) | (12.7) | | At 31 March 2022 | 2,817.4 | 5,859.7 | 9,499.6 | 5,110.5 | 554.1 | 859.5 | 1,294.3 | 25,995.1 | | Charge for the year | (65.3) | (158.3) | (156.4) | (90.5) | (17.2) | – | (57.7) | (545.4) | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Impairment reversals (note 7); (iv) | 331.6 | – | – | – | – | – | 97.9 | 429.5 | | Non-exceptional impairment charges | – | – | (20.7) | – | – | 1.0 | – | (19.7) | | Disposals (ii) | – | 18.7 | – | – | 1.9 | 6.5 | 49.6 | 76.7 | | Exchange rate adjustments | (0.2) | 0.2 | – | – | – | – | 8.8 | 8.8 | | At 31 March 2022 | (1,992.4) | (2,927.6) | (4,376.8) | (771.8) | (224.0) | (10.8) | (1,073.0) | (11,376.4) | | At 31 March 2022 | 825.0 | 2,932.1 | 5,122.8 | 4,338.7 | 330.1 | 848.7 | 221.3 | 14,618.7 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | 260 SSE plc Annual Report 2022 Cost: | Additions | – | 40.6 | – | 45.1 | 85.7 | | --- | --- | --- | --- | --- | --- | | Disposals | – | (8.7) | – | (67.8) | (76.5) | | At 31 March 2022 | 369.6 | 203.1 | 12.2 | 95.7 | 680.6 | Depreciation At 31 March 2021 | Charge for the year | (15.1) | (10.6) | (2.2) | (18.9) | (46.8) | | --- | --- | --- | --- | --- | --- | | Disposals | – | 1.1 | – | 31.7 | 32.8 | | Impairment reversal | 54.0 | – | – | – | 54.0 | | At 31 March 2022 | (233.6) | (31.1) | (4.8) | (36.3) | (305.8) | Net book value | At 31 March 2022 | 136.0 | 172.0 | 7.4 | 59.4 | 374.8 | | --- | --- | --- | --- | --- | --- | ## 15. Impairment testing sections A1.2 SSE plc Annual Report 2022 261 FINANCIAL STATEMENTS ### Notes to the consolidated financial statements continued ### For the year ended 31 March 2022 ### 15. Impairment testing continued ### 15.1 Goodwill impairment reviews – CGUs testing The recoverable amounts of the Onshore Windfarm, the Offshore Windfarm and Enterprise Energy Solutions CGUs are determined by reference to value-in-use (‘VIU’) calculations. The VIU calculations use, as a starting point, pre-tax cash flow projections based on the Group’s five year Corporate Model as approved by the Board. The Group’s Corporate Model is based both on past experience and reflects the Group’s forward view of markets, prices, risks and its strategic objectives. Commodity prices used are based on observable market data and, where this is not available, on internal estimates. Cash flow period | Assets/CGUs | assumption Operating and other valuation assumptions Commentary and impairment conclusions | | | | --- | --- | --- | --- | | Onshore | Period to end | Onshore | Impairment conclusion – Onshore | | Windfarm | of life of portfolio | The VIU assessment is used to test the carrying | The recoverable amount of the Onshore | | | assets | value of £71.3m of goodwill related to the | windfarm CGU continues to significantly exceed | | | | Group’s onshore windfarms for impairment. The | the carrying value of the CGU based on the | | | | assessment is based on the discounted pre-tax | impairment test, therefore no impairment has | | | | cash flows expected to be generated by the | been recognised. | specific wind farm assets included in the CGU | across the remaining useful lives of those assets. | Sensitivity analysis – Onshore | | --- | --- | | This includes over 50 operating assets in both | The principal assumptions impacting the | | the UK and Republic of Ireland. | valuation model of the onshore windfarm | CGU are discount rate, generation volume Cash inflows for the CGUs are based on the and electricity price. expected average annual generation GWh output | based on technical assessment and past | While cash flow projections are subject to | | --- | --- | | experience and are valued based on forward | inherent uncertainty, a 10% power price decrease | | power prices. These factors are subject to | was modelled, which indicated significant | | management review on an annual basis. The | headroom on the carrying value of the assets. A | | prices applied to projected outputs are based | 0.5% increase in the pre-tax real discount rate to | | either on observable market information during | between 5.6% - 6.5% also indicated significant | | that period, which is deemed to be 3 years, or | headroom on the carrying value of the assets. | on internal estimations beyond the observable market period (a Level 3 basis as defined by IFRS TCFD related sensitivity analysis – Onshore 13 Fair Value Measurement). The projections are A significant increase in renewable generation also dependent on the UK and Irish government’s capacity in the Group’s core markets could continuing support for existing qualifying wind potentially result in an oversupply of renewable assets through ROCs or REFIT. Cash outflows are electricity at a point in the future, which would based on planned and expected maintenance lead to a consequential decrease in the power profiles and other capital or replacement costs. price achievable for the Group’s onshore wind generation assets. A downside power price | The Onshore Windfarm CGU includes cashflows | sensitivity, which may arise in a market with | | --- | --- | | for operational assets only, being over 50 | significant new build was modelled. This | | individual windfarms across UK and Republic of | scenario indicated that, despite a modelled | | Ireland, given the risk and uncertainty associated | 10% reduction in power price, there remained | | with projects in the development stage. | significant headroom on the carrying value in | the Group’s onshore wind generation assets. The cash flow projections are based on UK | power prices between £64 - £116 per MWh over | Changes to weather patterns resulting from | | --- | --- | | the next three years and have been discounted | global warming could result in calmer weather | | applying a pre-tax real discount rate between | patterns, which would reduce volumes | | 5.1% and 6.0% (2021: between 5.1% and 5.6%) | achievable for the Group’s onshore wind | | based on technology and market risks. | generation assets (although noting that this | would likely lead to capacity constraints and hence higher prices). Despite a 15% reduction in modelled achievable volume, there remained significant headroom on the carrying value in the Group’s onshore wind generation assets. 262 SSE plc Annual Report 2022 Cash flow period | Assets/CGUs | assumption Operating and other valuation assumptions Commentary and impairment conclusions | | | | --- | --- | --- | --- | | Offshore | Period to end | Offshore | Impairment conclusion – Offshore | | Windfarms | of life of portfolio | The VIU assessment is used to test the carrying | The recoverable amount of the Onshore | | | assets | value of £214.9m of goodwill related to the | windfarm CGU significantly exceeds the carrying | | | | Group’s offshore windfarms for impairment. The | value of the CGU based on the impairment test, | | | | assessment is based on the discounted pre-tax | therefore no impairment has been recognised. | cash flows expected to be generated by the specific wind farm assets included in the CGU Sensitivity analysis – Offshore across the remaining useful lives of those assets. The principal assumptions impacting the valuation model of the onshore windfarm The Offshore Windfarm CGU includes cashflows CGU are discount rate, generation volume for operational assets only, being Beatrice and and electricity price. Greater Gabbard wind farms, given the risk and | uncertainty associated with projects in the | While cash flow projections are subject | | --- | --- | | development stage. Seagreen and Doggerbank | to inherent uncertainty, a 10% power price | | are currently under construction and have been | decrease was modelled, which indicated | | excluded from the analysis. | significant headroom on the carrying value of | the assets. A 0.5% increase in the pre-tax real Cash inflows for the CGUs are based on the discount rate to 6.5% also indicated significant expected average annual generation GWh headroom on the carrying value of the assets. output based on technical assessment and past | experience and are valued based on forward | TCFD related sensitivity analysis – Offshore | | --- | --- | | power prices. These factors are subject to | A significant increase in renewable generation | | management review on an annual basis. The | capacity in the Group’s core markets could | | prices applied to projected outputs are based | potentially result in an oversupply of renewable | | either on observable market information during | electricity at a point in the future, which would | | that period, which is deemed to be 3 years, or on | lead to a consequential decrease in the power | | internal estimations beyond the observable market | price achievable for the Group’s offshore wind | | period (a Level 3 basis as defined by IFRS 13 Fair | generation assets. A downside power price | | Value Measurement). The projections are also | sensitivity, which may arise in a market with | | dependent on the UK government’s continuing | significant new build was modelled. This | | support for existing qualifying wind assets through | scenario indicated that, despite a modelled | | CFD subsidies. Cash outflows are based on | 10% reduction in power price, there remained | | planned and expected maintenance profiles | significant headroom on the carrying value in | | and other capital or replacement costs. | the Group’s offshore wind generation assets. | | The cash flow projections are based on UK power | Changes to weather patterns resulting from | | prices between £65 - £117 per MWh over the next | global warming could result in calmer weather | | three years and have been discounted applying | patterns, which would reduce volumes | | a pre-tax real discount rate of 6.0% (2021: 5.6%) | achievable for the Group’s offshore wind | | based on technology and market risks. | generation assets (although noting that this | would likely lead to capacity constraints and hence higher prices). Despite a 15% reduction in modelled achievable volume, there remained significant headroom on the carrying value in the Group’s offshore wind generation assets. | Enterprise Energy | 5 years The Group has capitalised goodwill of £31.7m in | | Conclusion | | --- | --- | --- | --- | | Solutions | | relation to the acquisition of the Energy Solutions | At 31 March 2022, the impairment review | | | | Group in 2016. The business designs, installs and | indicates headroom on the carrying value. | | | | optimises building management technologies | A decrease in forecast cashflows of 20% | | | | which deliver efficient operating environments | would result in a £6.0m impairment. An increase | | | | for its customers. | in the discount rate of 4% would result in an | impairment of £12.4m. The VIU of the business CGU has been based on a 5.6% (2021: 5.6%) pre-tax real discount rate, which is consistent with the prior year. During the year SSE completed the acquisition of SSE Pacifico, which has resulted in the recognition on acquisition of £176.7m of goodwill in the year. Management utilised the cash flow models produced at the time of the acquisition, to test for impairment at the year end and identified no impairment. 263SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Notes to the consolidated financial statements continued ### For the year ended 31 March 2022 ### 15. Impairment testing continued ### 15.2 PP&E, other intangibles and investment impairment reviews – asset testing Where an indicator of impairment exists, the recoverable amounts of the Group’s PP&E, other intangible assets and interests in joint ventures and associates are determined by reference to VIU or, where appropriate, fair value less costs to sell calculations. The calculations use, as their starting point, pre-tax cash flow projections based on the Group’s five year Corporate Model as approved by the Board. The Group’s Corporate Model is based on past experience and reflects the Group’s forward view of markets, prices, risks and its strategic objectives. Commodity prices used are based on observable market data and, where this is not available, on internal estimates. Fair value less costs to sell valuations are derived from market analysis for similar transactions, adjusted to specific circumstances of the Group’s investment to reflect the amount the Group believes will be recoverable in a sale transaction. Changes from prior year The assets identified for impairment reviews in the prior year (being GB CCGTs, the Great Island CCGTs and the Group’s discontinued Gas Production assets) remained subject to impairment testing at 31 March 2022, with the exception of the now disposed Gas Production assets. In addition to these assets, the Group’s Gas Storage assets displayed indicators of impairment reversal following improved financial performance during the year. This improved financial performance was mainly due to global gas price volatility during the year, with the asset providing opportunities for the Group to trade within this volatility. Finally, the Group’s 50% joint venture investment in Neos Networks Limited displayed indicators of impairment following the loss of a major contract, subsequent to increases in the Group’s investment during the year. 264 SSE plc Annual Report 2022 Cash flow period | Assets | assumption Operating and other valuation assumptions Commentary and impairment conclusions | | | | --- | --- | --- | --- | | GB CCGTs | Period to | Modelling methodology and assumptions | Conclusion | | (Keadby, | end of life | The VIU of the Group’s GB combined cycle gas | At 31 March 2022 an impairment reversal of | | Medway, | | turbine (‘CCGT’) power stations were based on | £293.8m, has been recognised across the GB | | Peterhead and | | pre-tax discounted cash flows expected to be | CCGT assets. | | Marchwood (PPA | | generated by each plant, based on management’s | | | Right of use | | view of operating prospects and operational | The impairment assessment returned individually | | lease asset) | | flexibility within the GB wholesale market, | exceptional impairment reversals to Peterhead | | power stations | | including capacity market clearing prices. Cash | (£91.4m), Marchwood (£54.0m), Keadby (£65.3m) | | | | flows are subject to a pre-tax real discount rate | and Medway (£83.1m). Following this assessment, | | | | between 9.2% and 21.2% (2021: between 8.9% | all historic impairments on these assets have now | | | | and 19.9%). | been reversed. | | | | Changes from prior year | The closing carrying values, subsequent to the | | | | Certain assets within the Group’s GB CCGT fleet | impairment reversals, are: Peterhead (£133.1m); | | | | are nearing the end of their operational life and | Marchwood (£142.4m); Keadby (£72.0m); and | | | | are therefore more sensitive to fluctuations in | Medway (£97.7m). | market assumptions. The Group has assessed that the recoverable | During the year, increases in gas and carbon | values of these assets are: Peterhead (£246.5m); | | --- | --- | | prices, exacerbated by Russia’s invasion of | Marchwood (£437.8m); Keadby (£250.5m); and | | Ukraine in February 2022, have resulted in an | Medway (£226.3m). | increase in UK power prices. The UK market has also experienced periods where available As a result of securing additional supply contracts, generation capacity above demand has been the useful economic life of Keadby CCGT has reduced, which has also resulted in increased been extended by 4 years to 2028 and Medway by power prices. As a result the observable spark 1 year to 2026. Both of these life extensions have margins assumed for the GB CCGT assets has been considered within the impairment testing increased and there has been strong operational process. Based on the reinstated asset values, performance of the assets. These factors were this will result in a £32.2m decrease to FY22/23 considered an indicator of impairment reversal depreciation charge. at 31 March 2022. Sensitivity analysis | The Group recorded exceptional impairment | A 20% decrease in gross margin would still result in | | --- | --- | | reversals totalling £175.8m at 30 September | full impairment reversal for each asset. A sensitivity on | | 2021 (Peterhead (£25.4m); Keadby (£46.7m); | non-contracted capacity mechanism prices has not | | Medway (£49.7m) and Marchwood (£54.0m)) | been performed as the assets subject to impairment | | on its GB CCGT fleet based on observable | testing are contracted into future periods. | power prices at that date. In the second half | of the financial year, observable power prices | TCFD related sensitivity analysis – GB CCGTs | | --- | --- | | have increased further, resulting in further | The future introduction of legislation restricting | | impairment reversals in the second half of | power generation from unabated gas fired power | | the year. The conclusion presented opposite | stations beyond 2030 has been identified as a | | represents the total impairment reversals | potential risk the Group could be exposed to as the | | recognised for the year. | UK transitions to a net zero economy. However, this | has not been treated as an indicator of impairment at 31 March 2022, as legislation has not been introduced or enacted by the balance sheet date. Most of the Group’s GB CCGTs are nearing the end of their economic life and are projected to cease operations before 2030. Of the Group’s GB CCGTs, only Keadby 2 is projected to operate beyond this date. Keadby 2 is not displaying indicators of impairment and so has not been included in the impairment review above. If legislation was introduced requiring the closure of Keadby 2 by 2030, it would result in no impairment at 31 March 2022. 265SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Notes to the consolidated financial statements continued ### For the year ended 31 March 2022 ### 15. Impairment testing continued ### 15.2 PP&E, other intangibles and investment impairment reviews – asset testing continued Cash flow period | Assets | assumption Operating and other valuation assumptions Commentary and impairment conclusions | | | | --- | --- | --- | --- | | Great Island | Period to | The VIU of the Group’s Great Island CCGT | Conclusion | | CCGT | end oflife | Power station was based on pre-tax discounted | The VIU assessment performed on the asset | | | | cash flows expected to be generated by the | indicated an exceptional impairment reversal | | | | plant based on management’s view of the | of £37.5m, which has been recognised at 31 March | | | | plant’s operating prospects. Cash flows are | 2022. | subject to a pre-tax real discount rate of 11.0% | (2021: 10.8%) reflecting the specific risks in the | The carrying value of the asset following the | | --- | --- | | Irish market. | impairment reversal is £259.8m. | | The Group recorded an exceptional impairment | Sensitivity analysis | | reversal of £5.8m at 30 September 2021 on its | A 0.5% increase in the discount rate would decrease | | Great Island CCGT based on observable power | the impairment reversal to £30.7m and a 0.5% | | prices at that date. In the second half of the | decrease in the discount rate would increase the | | financial year, observable power prices have | impairment reversal to £44.9m. | increased further, resulting in a further impairment reversal in the second half of the A 20% decrease in gross margin would result in an year. The conclusion presented opposite impairment of £53.0m, and a 20% increase in gross represents the total impairment reversal margin would result in an impairment reversal of recognised for the year. £54.2m, which would represent a full reversal of historic impairments. A €10/KW decrease in non-contracted capacity market price would decrease the impairment reversal to £20.2m and a €10/KW increase would increase the impairment reversal to £54.2m, which would represent a full reversal of historic impairments. TCFD related sensitivity analysis – GB CCGTs The future introduction of legislation restricting power generation from unabated gas fired power stations beyond 2030 has been identified as a potential risk the Group could be exposed to as Ireland transitions to a net zero economy. However, this has not been treated as an indicator of impairment at 31 March 2022, as legislation has not been introduced or enacted by the balance sheet date. Great Island is projected to operate beyond this date, and so while legislation has not been introduced requiring the shortening of the economic life to this date, the Group has performed a sensitivity analysis to the impairment test noted above. If legislation was introduced requiring the closure of Great Island by 2030, it would result in an impairment of £41.5m at 31 March 2022. 266 SSE plc Annual Report 2022 Cash flow period | Assets | assumption Operating and other valuation assumptions Commentary and impairment conclusions | | | | --- | --- | --- | --- | | Gas Storage | Period to | The VIU of the Group’s Gas Storage assets | Conclusion | | assets (Atwick | end of life | at Aldbrough and Atwick were based on | The VIU assessment performed on the assets | | and Aldbrough) | | pre-tax discounted cash flows expected to | indicated an exceptional impairment reversal of | | | | be generated by the storage assets based on | £97.3m in total, which has been recognised at | | | | management’s view of the assets’ operating | 31 March 2022. | prospects. Cash flows are subject to a pre-tax real discount rate of 15.3% reflecting risks The impairment assessment returned exceptional specific to the assets. impairment reversals to Atwick (£70.2m) and Aldbrough (£27.1m). While an impairment reversal The key assumptions applied in the valuation of below £30m would not normally be treated as the assets are gas price volatility and the mean exceptional, it constitutes the reversal of an reversion rate (‘MRR’). The gas price volatility impairment that was previously treated as assumption reflects management’s view of price exceptional. The Group’s policy therefore is to also fluctuations between periods where the Group treat the reversal of the impairment as exceptional. can purchase gas at a low price, store it and sell during periods of peak prices. The assumption is Following the impairment reversals the carrying based off of market observed volatility in the last value of Atwick is £70.2m and the carrying value 3 years and management’s view on projected of Aldbrough is £49.1m. Both of these carrying volatility in future periods. MRR represents the values represent the net book value of the storage time taken for the market to return to average assets and exclude the carrying value of cushion after a period of increase or decline. The MRR gas volumes. combined with the volatility rate derives management’s fair value of the assets. Sensitivity analysis A sensitivity performed with a high volatility assumption would result in an impairment reversal of £72.9m to Atwick and £59.5m to Aldbrough. The Atwick reversal would represent a full reversal of historic impairments. A low volatility assumption would result in an impairment reversal of £52.0m in Atwick and £0.6m in Aldbrough. A high sensitivity of the MRR assumption (represents an increase in the rate by 1.0) would result in an impairment reversal of £72.9m to Atwick and £58.6m to Aldbrough. The Atwick reversal would represent a full reversal of historic impairments. A low sensitivity of the MRR assumption (represents a decrease in the rate by 1.0) would result in an impairment reversal of £60.7m in Atwick and £9.3m in Aldbrough. 267SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Notes to the consolidated financial statements continued ### For the year ended 31 March 2022 ### 15. Impairment testing continued ### 15.2 PP&E, other intangibles and investment impairment reviews – asset testing continued Cash flow period | Assets | assumption Operating and other valuation assumptions Commentary and impairment conclusions | | | | --- | --- | --- | --- | | Investment in | n/a The Group has valued its 50% joint venture | | Conclusion | | Neos Networks | | investment in Neos Networks Limited (‘NNL’) | The valuation exercise resulted in a wide range | | Limited | | based on projected valuations that could be | of reasonably probable valuations for the business | | | | achieved in a market transaction, using earnings | from an impairment of £154.4m to headroom | | | | multiples observable from recent similar | of £37.0m. | transactions. Due to the nature of the valuation | technique, which was performed to approximate | The Group has assessed that within this range | | --- | --- | | an achievable fair value less costs to sell, a wide | of valuations, a point valuation resulting in an | | range of valuations were derived from this | impairment of £106.9m best represents the | | exercise. The Group has used a point estimate | recoverable value of the investment. | valuation within the range of possible valuations based on earnings targets and earning multiples Following the impairment, the Group’s carrying that the Group believes are achievable. The value of equity investment, shareholder loans and Group has assessed that this is a level 3 valuation receivables due from NNL is £195.3m. in the fair value hierarchy, with the key inputs being EBITDA and the transaction multiple. Sensitivity analysis Sensitivity analysis was performed in relation to the EBITDA and the multiple applied in deriving the valuation. A 10% increase in the EBITDA assumption would result in an impairment of £87.4m, whereas a 10% decrease in the EBITDA assumption would result in an impairment of £126.4m. A 5% decrease to the multiple assumption would result in an impairment of £116.7m, whereas a 5% increase to the multiple assumption would result in an impairment of £97.2m. ### 16. Investments ### 16.1 Joint Ventures and associates 2022 2021 (restated*) Equity Loans Total Equity Loans Total Share of net assets/cost £m £m £m £m £m £m At 1 April 1,643.5 554.3 2,197.8 1,849.4 847.5 2,696.9 Additions 243.5 449.0 692.5 9.0 179.9 188.9 Recognition of investment on loss of control (i) – – – 88.5 10.0 98.5 Repayment of shareholder loans – (147.6) (147.6) – (236.7) (236.7) Dividends received (177.0) – (177.0) (191.1) – (191.1) Share of profit/(loss) after tax (ii) – continuing operations 110.7 – 110.7 45.5 – 45.5 Share of profit/(loss) after tax (ii) – discontinued operations (81.1) – (81.1) 88.6 – 88.6 Share of other reserves adjustments 152.8 – 152.8 1.5 – 1.5 Disposals (545.7) (118.8) (664.5) (226.1) (264.6) (490.7) Transfer – Loans to Equity – – – (18.4) 18.4 – Transfers – Other Investments – – – (2.0) – (2.0) Impairments (106.9) – (106.9) (0.1) – (0.1) Exchange rate adjustments (0.3) – (0.3) (1.3) (0.2) (1.5) At 31 March 1,239.5 736.9 1,976.4 1,643.5 554.3 2,197.8 * The comparatives have been restated. See note 1.2. (i) In the prior year the Group assessed that the equity stakes retained following the disposals of its wholly owned subsidiaries, Seagreen Holdco 1 Ltd and SSE Slough Multifuel Ltd were accounted for as equity accounted joint ventures. In the table above an equity investment of £88.5m (including a fair value uplift of £47.0m on acquisition of the joint venture (see note 12.2) and loans of £10.0m were recognised on deconsolidation. (ii) Of the £110.7m (2021: £45.5m) share of profits from continuing operations, only £109.8m (2021: £43.4m) is recognised through the income statement. The £0.9m (2021: £2.1m) difference relates to profits earned from SSE Group companies where the costs have been capitalised. This profit has been eliminated on consolidation. 268 SSE plc Annual Report 2022 ## 16.2 Additions and disposals of equity in the current year Additions in the year arising on loss on control Disposals of equity in the year Sale of stake in Dogger Bank C: Sale of investment in SGN: ## 16.3 Acquisitions and disposals of equity in the previous year Additions in the previous year arising on loss on control Sale of Slough Multifuel subsidiary and acquisition of joint venture investment: Sale of Seagreen 1 subsidiary and acquisition of investment: Disposals of equity in the previous year Sale of investment in Ferrybridge Multifuel: Sale of investment in Walney Windfarm: Sale of investment in Maple Smart Meter Assets: Sale of stake in Doggerbank A&B Windfarms: SSE plc Annual Report 2022 269 FINANCIAL STATEMENTS ### Notes to the consolidated financial statements continued ### For the year ended 31 March 2022 ### 16. Investments continued ### 16.4 Principal joint ventures and associates Under IFRS 12 Disclosure of Interests in Other Entities, the Group has evaluated the key joint ventures and associates it holds with the purpose of disclosing any which are materially significant in order to identify the impact on the Group’s financial position, performance and cash flows, whilst identifying the nature of the risks associated with these interests. A full listing of the Group’s incorporated joint ventures, joint operations, associates and investments are included in the Accompanying Information (A3 ). Share of results of joint ventures and associates | | | | | 2022 | | | | | 2021 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 2022 | | Thermal | | | 2022 | 2022 | | Total | | Windfarms | | Generation | | | Other (i) | | Total | (restated*) | | | | £m | | | £m | | £m | £m | | £m | Revenue 292.9 179.3 83.2 555.4 389.9 Other Income 112.5 – – 112.5 102.5 Depreciation and amortisation (85.4) (19.0) (42.2) (146.6) (143.9) Other operating costs (80.1) (128.4) (54.8) (263.3) (197.4) Operating profit 239.9 31.9 (13.8) 258.0 151.1 Interest expense (52.4) (3.4) (12.0) (67.8) (82.4) Changes in fair value of derivatives – – – – (0.9) Corporation tax (68.8) (8.7) (2.0) (79.5) (22.3) Share of post taxation results 118.7 19.8 (27.8) 110.7 45.5 Recognised in other comprehensive income Cashflow hedges (ii) 184.9 3.6 – 188.5 24.8 Taxation (ii) (35.0) (0.7) – (35.7) (4.5) Total comprehensive income 268.6 22.7 (27.8) 263.5 65.8 * The comparatives have been restated. See note 1.2. (i) Other comprises the investments the Group holds in Neos Networks Limited and Marron Activ8 Energies Limited. (ii) Other comprehensive income from net cashflow hedges of £181.4m includes £28.6m in relation to the disposal of SGN, which is disclosed as a discontinued operation. Share of joint ventures and associates’ assets and liabilities 2022 | | 2022 | | Thermal | | | 2022 | 2022 | 2021 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Windfarms | | Generation | | | Other (i) | | Total | Total | | | £m | | | £m | | £m | £m | £m | Non-current assets 4,009.8 238.7 227.0 4,475.5 5,695.2 Current assets 131.8 51.2 40.5 223.5 431.7 Cash & cash equivalents 192.4 27.7 10.5 230.6 244.2 Current liabilities (243.2) (24.9) (73.1) (341.2) (565.3) Non-current liabilities (3,618.0) (156.1) (139.1) (3,913.2) (4,708.0) 472.8 136.6 65.8 675.2 1,097.8 Other adjustments 589.2 45.6 (70.5) 564.3 545.7 Share of net assets of joint ventures and associates 1,062.0 182.2 (4.7) 1,239.5 1,643.5 Shareholder loans 546.0 101.6 89.3 736.9 554.3 Interest in joint venture and associate 1,608.0 283.8 84.6 1,976.4 2,197.8 Information on Group’s investments in joint ventures and associates is provided at A3, A4 and A5 . ### 16.5 Joint operations Listed are the incorporated joint operations that have a material impact on the financial position and financial results of the Group. Country of Class of Proportion of Group Principal activity incorporation shares held shares held (%) Interest (%) Year end Greater Gabbard Offshore Winds Limited Offshore Windfarm UK Ordinary 50 50 31 March North Falls Offshore Wind Farm Limited England and Wales UK Ordinary 50 50 31 March The Group’s interest in Greater Gabbard Offshore Winds Limited is that of a joint operation designed to provide output to the parties sharing control. The liabilities of the arrangement are principally met by the parties through the contracts for the output of the windfarm. North Falls Offshore Windfarm Limited is the Greater Gabbard extension and thus also a joint operation. The Group also has an unincorporated arrangement with Equinor under which it accounts for its 66.7% share of the Aldbrough gas storage facility owned by SSE Hornsea Limited. The Group also had a similar arrangement for its North Sea Gas Production assets at Greater Laggan, Sean, ECA and Bacton, all of which are owned by SSE E&P UK Limited and were disposed on 14 October 2021. 270 SSE plc Annual Report 2022 ## 16.6 Other investments held at fair value through other comprehensive income | At 31 March 2021 | 3.6 | | --- | --- | | Additions in year | 5.4 | | Disposals in the year | (0.4) | | Transfers – Joint Ventures and associates | – | | Fair value adjustment through other comprehensive income | 0.1 | | At 31 March 2022 | 8.7 | ## 17. Inventories | | 2022 £m | | --- | --- | | | 127.9 | | | 171.3 | | | 1.0 | | | (33.6) | | | 266.6 | ## 18. Trade and other receivables | | 2022 £m | | --- | --- | | Non-current assets | | | | 136.4 | | Current assets | | | | 1,433.9 | | | 492.7 | | | – | | | 109.8 | | | 83.8 | | | 90.8 | | | 2,211.0 | | Total trade and other receivables | 2,347.4 | SSE plc Annual Report 2022 271 FINANCIAL STATEMENTS ### Notes to the consolidated financial statements continued ### For the year ended 31 March 2022 ### 19. Trade and other payables 2022 2021 £m £m Current liabilities Trade payables 919.7 433.3 Contract related liabilities (i) 46.3 38.8 Other creditors 330.2 269.7 Other accruals (ii) 1,376.4 1,245.5 2,672.6 1,987.3 Non-current liabilities Contract related liabilities (i) 196.2 201.8 Other accruals (ii) 646.2 520.7 842.4 722.5 Total trade and other payables 3,515.0 2,709.8 (i) Current contract related liabilities includes customer contributions of £15.0m (2021: £15.4m) and non-current contract related liabilities includes customer contributions of £196.2m (2021: £201.8m). (ii) Current other accruals includes government grants of £nil (2021: £0.1m) and non-current other accruals includes government grants of £1.8m (2021: £1.9m). ### 20. Provisions | | | | | Legal & | | Employee | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Decommissioning | | | restructuring | | | | related | | | Other | | | | | | 1 | | | 1 | | | 1 | | | 1 | | | | (restated | ) | | (restated | ) | (restated | | ) | (restated | | ) | Total | | | | £m | | | £m | | | £m | | | £m | £m | At 1 April 2020 569.7 33.0 38.8 20.0 661.5 Charged in the year 9.0 89.1 5.8 15.8 119.7 Decrease in decommissioning provision (11.1) – – – (11.1) Unwind of discount 3.8 – – – 3.8 Released during the year (1.2) (2.9) – – (4.1) Utilised during the year (24.8) (18.8) (8.0) (16.5) (68.1) Transfer (to)/from held for sale 224.0 (51.7) – – 172.3 Exchange rate adjustments (1.4) – – – (1.4) At 31 March 2021 768.0 48.7 36.6 19.3 872.6 Charged in the year – 74.1 3.0 20.6 97.7 Increase in decommissioning provision 178.7 – – – 178.7 Unwind of discount 5.7 – – – 5.7 Released during the year – (1.6) – – (1.6) Utilised during the year (11.1) (27.2) (0.1) (2.3) (40.7) Exchange rate adjustments (1.2) – – – (1.2) At 31 March 2022 940.1 94.0 39.5 37.6 1,111.2 At 31 March 2022 Non-current 912.2 57.4 39.5 8.8 1,017.9 Current 27.9 36.6 – 28.8 93.3 940.1 94.0 39.5 37.6 1,111.2 At 31 March 2021 Non-current 746.6 5.0 36.6 5.1 793.3 Current 21.4 43.7 – 14.2 79.3 768.0 48.7 36.6 19.3 872.6 1 The Group has changed the presentation of the categories of its provisions following the disposal of its Contracting and Rail business on 30 June 2021. The Contracting and Rail business had its own category of provision due to the materiality of provisions in that business. The Group has reassessed its categories of provision within the continuing operations of the Group and restated comparatives to present on a consistent basis. 272 SSE plc Annual Report 2022 ## Decommissioning provisions Total 940.1 ## Impact of climate change on the Group's decommissioning provisions ### Sensitivity analysis | | 2022 £m | | --- | --- | | | 1,027.8 | | | 1,051.2 | | | 992.1 | | | 931.7 ^{1} | SSE plc Annual Report 2022 273 # Notes to the consolidated financial statements For the year ended 31 March 2022 20. Provisions Legal and restructuring provisions Employee related provisions Other provisions 21. Sources of finance 21.1 Capital management page 210 274 SSE plc Annual Report 2022 | | 2022 £m | | --- | --- | | | 8,671.2 | | | (1,049.3) | | | 7,621.9 | | | 1,051.0 | | | (74.7) | | | 8,598.2 | | | 8,082.2 | | | 16,680.4 | Interest Cover Ratio: "Operating Profit" "Net Interest Payable" ## 21.2 Loans and other borrowings | | 2022 £m | | --- | --- | | Current | 1,118.7 | | | 72.1 | | | 1,190.8 | | Non-current | 7,552.5 | | | 321.4 | | | 7,873.9 | | Total loans and borrowings | 9,064.7 | | | (1,049.3) | | Unadjusted net debt | 8,015.4 | | Add/(less): | 1,051.0 | | | (393.5) | | | (74.7) | | Adjusted net debt and hybrid capital | 8,598.2 | SSE plc Annual Report 2022 275 FINANCIAL STATEMENTS ### Notes to the consolidated financial statements continued ### For the year ended 31 March 2022 ### 21. Sources of finance continued ### 21.3 Borrowing facilities The Group has an established €1.5bn Euro commercial paper programme (paper can be issued in a range of currencies and swapped into sterling) and as at 31 March 2022 there was £507m commercial paper outstanding (2021: £nil). The Group also has £1.5bn of revolving credit facilities (see note 21.1). These facilities continue to provide back-up to the commercial paper programme and, as at 31 March 2022 these facilities were undrawn (2021: undrawn). During the year to 31 March 2022, the Group through its Scottish Hydro Electric Transmission entity priced and committed to a £350m dual tranche private placement being a £175m 10 year tranche @ 3.13% and £175m 15 year tranche @ 3.24% giving an all in average rate of 3.19%. The pricing was committed to in March 2022 and the proceeds will be received on 30 June 2022. In April 2022 SSE plc issued a €1bn NC6 equity accounted Hybrid bond @ 4% to re-finance the dual tranche debt accounted Hybrid bonds whose first call date occurs on 16 September 2022 although SSE will take advantage of the 3 month par call option on these Hybrid bonds meaning the bonds will be repaid on 16 June 2022. The €1bn equity accounted Hybrid bond was left in Euros with the proceeds used to cover the portion of the maturing Hybrid that was swapped to Euros and a portion of the costs associated with the acquisition of the European onshore renewables development platform from Siemens Gamesa Renewables Energy. 276 SSE plc Annual Report 2022 Analysis of borrowings | | 2022 | | | | | | | | 2021 | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Weighted | | | | | | | 2022 | Weighted | | | | | | | 2021 | | average | | | 2022 | | 2022 | Carrying | | average | | | 2021 | | 2021 | Carrying | | | interest | | Face value | | Fair value | | amount | | interest | | Face value | | Fair value | | amount | | | rate (iv) | | | £m | | £m | | £m | rate (iii) | | | £m | | £m | | £m | Current Bank Loans – non-amortising (i) 3.0% 150.0 151.1 150.0 0.8% 150.0 150.6 150.0 Other Short term loans – non-amortising (ii) 0.8% 507.1 507.5 506.1 – – – – US Private Placement 16 April 2022 4.3% 162.7 197.8 162.7 – – – – 5.875% Eurobond Repayable 22 September 2022 5.9% 300.0 306.1 299.9 – – – – 4.25% Eurobond repayable 14 September 2021 – – – – 4.3% 300.0 305.0 299.8 2.375% €500m Eurobond repayable 10 February 2022 (v) – – – – 2.4% 415.0 424.6 414.9 Total current borrowings 1,119.8 1,162.5 1,118.7 865.0 880.2 864.7 Non-Current Bank loans – non-amortising (i) 2.2% 350.0 344.3 349.9 2.9% 200.0 209.0 200.0 US Private Placement 16 April 2022 – – – – 4.3% 162.7 193.5 162.6 5.875% Eurobond repayable 22 September 2022 – – – – 5.9% 300.0 323.5 299.6 US Private Placement 28 April 2023 2.8% 35.0 35.4 34.9 2.8% 35.0 36.3 34.7 US Private Placement 6 September 2023 2.9% 120.0 120.1 119.4 2.9% 120.0 124.0 119.2 1.75% €700m Eurobond repayable 8 September 2023 (vi) 1.8% 514.6 524.0 514.3 1.8% 514.6 538.5 514.1 US Private Placement 16 April 2024 4.4% 204.1 250.6 204.0 4.4% 204.1 253.8 203.9 1.250% Eurobond Repayable 16 April 2025 (ix) 1.3% 531.4 533.4 531.4 1.3% 531.4 557.1 531.4 0.875% €600m Eurobond Repayable 8 September 2025 0.9% 510.9 504.3 504.2 0.9% 510.9 527.0 508.4 US Private Placement 8 June 2026 3.1% 64.0 63.8 63.3 – – – – US Private Placement 6 September 2026 3.2% 247.1 258.7 244.3 – – – – Between two and five years 2,577.1 2,634.6 2,565.7 2,578.7 2,762.7 2,573.9 Bank loans – non-amortising (i) 0.8% 200.0 200.7 200.0 1.6% 500.0 513.4 499.8 US Private Placement 8 June 2026 – – – – 3.1% 64.0 67.7 62.9 US Private Placement 6 September 2026 – – – – 3.2% 247.1 265.8 243.7 US Private Placement 6 September 2027 3.2% 35.0 34.8 34.6 3.2% 35.0 37.2 34.5 1.375% €650m Eurobond repayable 4 September 2027 (vii) 1.4% 591.4 588.7 590.2 1.4% 591.4 631.8 590.0 1.50% Eurobond Repayable 24 March 2028 1.5% 250.0 232.9 249.0 1.5% 250.0 248.0 248.8 8.375% Eurobond repayable on 20 November 2028 8.4% 500.0 659.0 497.2 8.4% 500.0 732.1 496.8 1.750% Eurobond Repayable 16 April 2030 (x) 1.8% 442.9 439.6 442.9 1.8% 442.9 485.3 442.9 5.50% Eurobond repayable on 7 June 2032 5.5% 350.0 428.6 350.1 5.5% 350.0 476.5 350.1 2.25% Eurobond repayable 27 September 2035 2.3% 350.0 314.1 347. 2 2.3% 350.0 350.1 347.0 2.125% Eurobond Repayable 24 March 2036 2.1% 250.0 220.7 248.3 2.1% 250.0 246.1 248.2 4.625% Eurobond repayable on 20 February 2037 4.6% 325.0 375.4 324.1 4.6% 325.0 425.3 324.2 6.25% Eurobond repayable on 27 August 2038 6.3% 350.0 473.3 347.5 6.3% 350.0 539.5 347.3 4.454% Index linked loan repayable on 27 February 2044 4.5% 148.5 250.8 145.1 4.5% 135.9 241.7 135.4 1.429% Index linked bond repayable on 20 October 2056 2.0% 153.9 251.2 154.2 2.0% 147.6 252.1 147.6 4.75% $900m NC5.5 Hybrid debt maturing 16 September 2077 (viii) 4.8% 725.4 727.6 725.0 4.8% 730.0 752.2 729.0 3.625% NC5.5 Hybrid maturing 16 September 2077 (viii) 3.6% 300.0 301.6 299.8 3.6% 300.0 307.3 299.6 Over five years 4,972.1 5,499.0 4,955.2 5,568.9 6,572.1 5,547.8 Fair value adjustment (iii) 31.6 3.2 Total non-current borrowings 7,549. 2 8,133.6 7,552.5 8,147.6 9,334.8 8,124.9 Total borrowings 8,669.0 9,296.1 8,671.2 9,012.6 10,215.0 8,989.6 Note: The Sterling-equivalent fair value reflects the fair value of non-Sterling denominated borrowings, post the impact of the hedges noted below. (i) Balances include term loans and EIB debt and is a mixture of fixed and floating rate debt. (ii) Balances include Commercial Paper and facility advances (£507.1m of Commercial Paper outstanding at 31 March 2022). (iii) The fair value adjustment relates to the change in the carrying amount of the borrowings as a result of fair value hedges that are in place. The movement in the fair value adjustment is recognised in the income statement with a corresponding movement on the hedging instrument also being recognised in the income statement. 277SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Notes to the consolidated financial statements continued ### For the year ended 31 March 2022 ### 21. Sources of finance continued ### 21.3 Borrowing facilities continued (iv) The weighted average interest rates (including the effect of interest rate swaps) for the year ended 31 March 2022 was 3.12% (2021 – 3.12%). (v) The 2.375% €500m Eurobond maturing 10 February 2022 has been swapped to Sterling giving an effective interest rate of 3.53%. (vi) The 1.75% €700m Eurobond maturing 8 September 2023 has been swapped to Sterling giving an effective interest rate of 3.16%. (vii) The 1.375% €650m Eurobond maturing 4 September 2027 has been swapped to Sterling giving an effective interest rate of 2.56%. (viii) The 4.75% $900m NC5.5 Hybrid maturing 16 September 2077 has been swapped to Euros ($605m) and Sterling ($295m) giving an effective interest rate of 2.25% and 3.29% respectively. This and the 3.625% NC5.5 Hybrid maturing 16 September 2077 are the Group’s debt-accounted Hybrids, see (ii) below. (ix) The 1.250% €600m eurobond maturing 16 April 2025 has been swapped to Sterling giving an effective interest rate of 2.43%. (x) The 1.750% €500m eurobond maturing 16 April 2030 has been swapped to Sterling giving an effective interest rate of 2.89%. (i) Lease liabilities Amounts charged under lease arrangements are detailed within note 6, and right of use assets recognised under lease arrangements are detailed within note 14. £m At 1 April 2020 455.2 Additions during the year 43.6 Disposals during the year (7.9) Unwind of discount 33.1 Repayment in the year (100.8) Transfer to liabilities held for sale (2.2) At 31 March 2021 421.0 Additions during the year 82.7 Disposals during the year (46.8) Unwind of discount 31.7 Repayment in the year (95.1) At 31 March 2022 393.5 The weighted average incremental borrowing rate applied to lease liabilities during the year was 4.92% (2021: 4.84%). Incremental borrowing rates applied to individual lease additions in the year ranged between 4.81% to 5.06% (2021: 4.01% to 5.06%). The Group has additional committed payments under short term and low value leases at 31 March 2022 of £11.3m (2021: £35.0m). The maturity of future lease liabilities are as follows: 2022 2021 £m £m Within one year 88.7 92.7 Between one and five years 223.7 262.1 After five years 268.9 267.2 581.3 622.0 Less: future finance charge (187.8) (201.0) Present value of lease obligations 393.5 421.0 (ii) Hybrid debt On 16 March 2017, the Group issued £1.0bn of hybrid debt securities. The securities have an issuer first call date on 16 September 2022 and are able to be redeemed at the Group’s discretion. This dual tranche issue comprises £300m with a coupon of 3.625% and $900m with a coupon of 4.75%. The $900m tranche was swapped back to both Euros and Sterling, bringing the all-in rate down to 2.72% and resulting in an all-in funding cost for both tranches to SSE of 3.02% per annum. Due to these hybrid instruments having a fixed redemption date, they are accounted for as a debt item and are included within Loans and Other Borrowings in note 21.2. This is in contrast to the Hybrid instruments issued in 2015 and 2020 which have no fixed redemption date and are accounted for as Equity, see note 22.5. 278 SSE plc Annual Report 2022 ### 21.4 Reconciliation of net increase in cash and cash equivalents to movement in adjusted net debt ### and hybrid equity 2022 2021 £m £m (Decrease)/increase in cash and cash equivalents (550.9) 1,435.6 Add/(less): New borrowing proceeds (506.1) (1,912.9) New hybrid equity proceeds – (1,051.0) Repayment of borrowings 865.0 1,895.9 Disposal of borrowings – 438.6 Repayment of hybrid equity (i) 421.4 748.3 Non-cash movement on borrowings (40.5) 306.0 Increase/(decrease) in cash held as collateral and other short term loans 111.8 (293.5) Decrease/(increase) in adjusted net debt and hybrids APM 300.7 1,567.0 Cash held as collateral refers to amounts deposited on commodity trading exchanges and loans provided with a less than three month maturity which are reported within trade and other receivables on the face of the balance sheet. (i) On redemption of the hybrid equity £4.6m of costs were recognised within retained earnings. ### 21.5 Reconciliation of movements in financing liabilities Financing cash flows Non-cash movements | | | At | | | | | Repayment | | Repayment | | | | | | Foreign | | | | | | | | | | | At | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 31 March | | | | New | Disposal of | | | of | | of lease | | Fair value | | | exchange | | | Lease | | | Re- | | | 31 March | | | | | 2021 | | borrowings | | borrowings | | borrowings | | | creditor | | movements | | movements | | | liabilities | | | classification | | Other | | | 2022 | | | | | £m | | £m | | £m | | £m | | | £m | | £m | | | £m | | | £m | | £m | | £m | | | £m | Financing liabilities Bank loans 699.7 – – – – – – – (150.0) 0.1 549.8 US private placement 915.9 – – – – 29.8 – – (162.7) 1.5 784.5 Fixed rate Eurobonds 5,278.1 – – – – (30.7) (4.8) – (299.9) 2.3 4,945.0 Index linked loans 283.0 – – – – – – – – 16.3 299.3 Hybrid debt 950.8 – – – – 26.7 (4.7) – – 1.1 973.9 Total long term borrowings 8,127.5 – – – – 25.8 (9.5) – (612.6) 21.3 7,552.5 Bank loans 150.0 – – (150.0) – – – – 150.0 – 150.0 Fixed rate Eurobonds 712.1 – – (715.0) – 2.6 – – 299.9 0.3 299.9 Other short term loans – non- amortising – 506.1 – – – – – – – – 506.1 US private placement – – – – – – – – 162.7 – 162.7 Total short term borrowings 862.1 506.1 – (865.0) – 2.6 – – 612.6 0.3 1,118.7 8,989.6 506.1 – (865.0) – 28.4 (9.5) – – 21.6 8,671.2 Lease liabilities 421.0 – – – (95.1) – – 67.6 – – 393.5 Total loans and borrowings 9,410.6 506.1 – (865.0) (95.1) 28.4 (9.5) 67.6 – 21.6 9,064.7 Assets held to hedge long term borrowings (315.4) – – – – 73.3 – – – – (242.1) 9,095.2 506.1 – (865.0) (95.1) 101.7 (9.5) 67.6 – 21.6 8,822.6 279SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Notes to the consolidated financial statements continued ### For the year ended 31 March 2022 ### 21. Sources of finance continued ### 21.5 Reconciliation of movements in financing liabilities continued Financing cash flows Non-cash movements | | | At | | | | | Repayment | | Repayment | | | | | | | Foreign | | | | | | | | At | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 31 March | | | | New | Disposal of | | | of | | of lease | | | Fair value | | | exchange | | | Lease | | Re- | | 31 March | | | | 2020 | | borrowings | | borrowings | | borrowings | | | creditor | | movements | | | movements | | | liabilities | | classification | | Other | | 2021 | | | | £m | | £m | | £m | | £m | | | £m | | | £m | | | £m | | £m | | £m | £m | | £m | Financing liabilities Bank loans 849.7 438.6 (438.6) – – – – – (150.0) – 699.7 US private placement 1,040.4 – – – – (126.0) – – – 1.5 915.9 Fixed rate Eurobonds 4,625.2 1,474.3 – – – (86.3) (20.1) – (714.2) (0.8) 5,278.1 Index linked loans 280.4 – – – – – – – – 2.6 283.0 Hybrid debt 1,023.5 – – – – (54.5) (19.2) – – 1.0 950.8 Total long term borrowings 7,819. 2 1,912.9 (438.6) – – (266.8) (39.3) – (864.2) 4.3 8,127.5 Bank loans 576.7 – – (574.8) – (1.9) – – 150.0 150.0 Fixed rate Eurobonds 548.9 – – (548.7) – (5.0) 1.9 – 714.2 0.8 712.1 Other short term loans – non- amortising 772.4 – – (772.4) – – – – – – – US private placement – – – – – – – – – – – Total short term borrowings 1,898.0 – – (1,895.9) – (6.9) 1.9 – 864.2 0.8 862.1 9,717. 2 1,912.9 (438.6) (1,895.9) – (273.7) (37.4) – – 5.1 8,989.6 Lease liabilities 455.2 – – – (100.8) – – 66.6 – – 421.0 Total loans and borrowings 10,172.4 1,912.9 (438.6) (1,895.9) (100.8) (273.7) (37.4) 66.6 – 5.1 9,410.6 Assets held to hedge long term borrowings (84.8) 1.6 – – – (232.2) – – – – (315.4) 10,087.6 1,914.5 (438.6) (1,895.9) (100.8) (505.9) (37.4) 66.6 – 5.1 9,095.2 ### 22. Equity ### 22.1 Share capital Number (millions) £m Allotted, called up and fully paid: At 1 April 2020 1,046.3 523.1 Issue of shares (i) 2.8 1.4 At 31 March 2021 1,049.1 524.5 Issue of shares (i) 24.0 12.0 At 31 March 2022 1,073.1 536.5 The Company has one class of ordinary share which carries no right to fixed income. The holders of ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at meetings of the Company. (i) Shareholders were able to elect to receive ordinary shares in place of the final dividend of 56.6p per ordinary share (in relation to year ended 31 March 2021) and the interim dividend of 25.5p (in relation to the current year) under the terms of the Company’s scrip dividend scheme. This resulted in the issue of 22,201,443 and 1,782,473 new fully paid ordinary shares respectively (2021: 1,918,977 and 883,408). In addition, the Company issued 0.6m (2021: 0.9m) shares during the year under the savings-related share option schemes (all of which were settled by shares held in Treasury) for a consideration of £6.3m (2021: £10.4m). 280 SSE plc Annual Report 2022 ## 22.2 Capital redemption reserve ## 22.3 Hedge reserve ## 22.4 Translation reserve ## 22.5 Hybrid equity | | 2022 £m | | --- | --- | | | 598.0 | | | 453.0 | | | 1,051.0 | (i) 10 March 2015 €600m Hybrid Capital Bonds (ii) 2 July 2020 £600m and €500m Hybrid Capital Bonds (iii) Coupon payments ## 22.6 Equity attributable to non-controlling interests SSE plc Annual Report 2022 281 FINANCIAL STATEMENTS ### Notes to the consolidated financial statements continued ### For the year ended 31 March 2022 ### 23. Retirement benefit obligations ### Defined benefit schemes The Group has two funded final salary pension schemes which provide defined benefits based on final pensionable pay. The schemes are subject to independent valuations at least every three years. The future benefit obligations are valued by actuarial methods on the basis of an appropriate assessment of the relevant parameters. The Group also has an Employer Financed Retirement Benefit scheme and a defined contribution scheme, SSE Pensions+ under a master trust with Aviva. The Group matches employee contributions up to a specified limit, in most circumstances this is set at 6%. The Group may also provide additional contributions of 3% after five years and a further 3% after ten year’s continuous Group service. The Group presents its pension scheme valuations under two different measurement bases, an actuarial valuation and an IAS 19 valuation as required by accounting standards. The IAS 19 valuation is used to determine the assets and obligations recognised in the Group’s consolidated balance sheet and is calculated annually by scheme actuaries, whereas the formal actuarial valuation is used to determine the contributions the Group make to the scheme. The actuarial valuation is recalculated for each scheme every three years. ### Actuarial valuations The individual pension scheme details based on the latest formal actuarial valuations are as follows: Scottish Hydro Electric Southern Electric Latest formal actuarial valuation 31 March 2021 31 March 2019 Valuation carried out by Hymans Robertson Aon Hewitt Value of assets based on valuation £2,050.5m £2,257.8m Value of liabilities based on valuation £1,782.2m £2,544.4m Valuation method adopted Projected Unit Projected Unit Average salary increase RPI+0.5% RPI+0.5% Average pension increase RPI RPI Value of fund assets/accrued benefits 115.1% 88.7% ### Future contributions Scottish Hydro Electric Scheme The last actuarial valuation of the scheme was carried out at 31 March 2021 and showed a surplus of £268.3m on a projected unit basis. Following this valuation, the Group agreed to a new schedule of contributions to the scheme which continues to cease contributions to the scheme during the year ended 31 March 2021 for a period until the surplus on gilts funding basis is negative for two successive quarterly valuations. Consequently, the Group is not expected to make contributions to the scheme in the year ending 31 March 2023. The next triennial funding valuation will be carried out as at 31 March 2024. Southern Electric Pension Scheme The last actuarial valuation of the Scheme was finalised in the year ended 31 March 2019 and showed a deficit of £286.6m as at 31 March 2019 on a projected unit basis. The Group continues to pay deficit contributions which, along with investment returns from return- seeking assets, is expected to make good this shortfall by 31 March 2027. The next funding valuation will be carried out as at 31 March 2022. This process began during the year and is expected to be finalised by 31 December 2022. As part of that process the Trustee and Company will agree future contributions to the scheme based on the valuation. The Company also pays contributions in respect of current accrual, with some active members also paying contributions. Total contributions of approximately £56.7m are expected to be paid by the Company during the year ending on 31 March 2023, including deficit repair contributions of £38.9m. Pension summary as measured under IAS 19: Net actuarial gain/(loss) recognised in respect of the pension asset in the | | statement of comprehensive income | | | Net pension asset/(liability) | | | | --- | --- | --- | --- | --- | --- | --- | | Scheme type | | 2022 | 2021 | | 2022 | 2021 | | | | £m | £m | | £m | £m | Scottish Hydro Electric Defined benefit (24.6) 8.6 517.5 543.1 Southern Electric Defined benefit 221.9 (24.4) 67.4 (186.1) Net actuarial gain/(loss) 197.3 (15.8) 584.9 357.0 282 SSE plc Annual Report 2022 IFRC 14 surplus restrictions ### 23.1 Pension scheme assumptions | | At 31 March 2022 | | --- | --- | | | 4.2% | | | 3.7% | | | 2.7% | | | 3.7% | #### Scottish Hydro Electric | | At 31 March 2022 | | | --- | --- | --- | | | Male | Female | | | 22 | 24 | | | 24 | 27 | #### Southern Electric | | At 31 March 2022 | | | --- | --- | --- | | | Male | Female | | | 23 | 25 | | | 24 | 26 | SSE plc Annual Report 2022 283 FINANCIAL STATEMENTS ### Notes to the consolidated financial statements continued ### For the year ended 31 March 2022 ### 23. Retirement benefit obligations continued ### 23.2 Sensitivity analysis The impact on the schemes’ liabilities of changing certain of the major assumptions is as follows: Scottish Hydro Electric At 31 March 2022 At 31 March 2021 Increase/ Effect on Increase/ Effect on decrease in scheme’s decrease in scheme’s assumption liabilities assumption liabilities Rate of increase in pensionable salaries 0.1% 0.1% 0.1% +/- 0.1% Rate of increase in pension payments 0.1% 0.9% 0.1% +/- 1.0% Discount rate 0.1% 1.0% 0.1% +/- 0.9% Longevity 1 year 2.0% 1 year +/- 1.8% Southern Electric At 31 March 2022 At 31 March 2021 Increase/ Effect on Increase/ Effect on decrease in scheme’s decrease in scheme’s assumption liabilities assumption liabilities Rate of increase in pensionable salaries 0.1% 0.2% 0.1% +/- 0.2% Rate of increase in pension payments 0.1% 1.5% 0.1% +/- 1.5% Discount rate 0.1% 1.5% 0.1% +/- 1.6% Longevity 1 year 5.8% 1 year +/- 6.0% ### 23.3 Valuation of combined Pension Schemes | | | | | | Value at | | | | | | | Value at | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Quoted | | Unquoted | | 31 March 2022 | | | Quoted | | Unquoted | | 31 March 2021 | | | | | £m | | £m | | | £m | | £m | | £m | | | £m | Equities 511.5 – 511.5 626.8 – 626.8 Government bonds 1,332.7 – 1,332.7 1,139.9 – 1,139.9 Corporate bonds 167.6 – 167.6 176.7 – 176.7 Insurance contracts (i) – 713.5 713.5 – 780.3 780.3 Other investments 1,585.9 – 1,585.9 1,588.4 – 1,588.4 Total fair value of plan assets 4,311.2 4,312.1 Present value of defined benefit obligation (3,726.3) (3,955.1) Surplus in the schemes 584.9 357.0 Deferred tax thereon (ii) (146.2) (67.8) Net pension asset 438.7 289.2 (i) See details of valuations of insurance contracts in note 23.6 (ii). (ii) Deferred tax rate of 25% applied to net pension surplus position (2021: 19%). 284 SSE plc Annual Report 2022 ### 23.4 Movements in the combined defined benefit asset obligations and assets during the year | | 2022 | | | | --- | --- | --- | --- | | | Assets £m | Obligations (i) £m | Total | | Included in Income Statement | 4,312.1 | (3,955.1) | 357.0 | | | – | (31.0) | (31.0) | | | – | (5.1) | (5.1) | | | (2.5) | 2.6 | 0.1 | | | 85.2 | (77.6) | 7.6 | | | 82.7 | (111.1) | (28.4) | | Included in Other Comprehensive Income | – | 16.8 | 16.8 | | | – | 195.6 | 195.6 | | | – | (41.5) | (41.5) | | | 26.4 | – | 26.4 | | | 26.4 | 170.9 | 197.3 | | Other | 59.0 | – | 59.0 | | | 0.1 | (0.1) | – | | | (169.1) | 169.1 | – | | | (110.0) | 169.0 | 59.0 | | Balance at 31 March | 4,311.2 | (3,726.3) | 584.9 | #### Pension scheme contributions and costs Charges/(credits) recognised: | | 2022 £m | | --- | --- | | | 36.1 | | | (0.1) | | | 36.0 | | | (85.2) | | | 77.6 | | | (7.6) | | | 2022 £m | | --- | --- | | | 111.6 | SSE plc Annual Report 2022 285 ## Notes to the consolidated financial statements For the year ended 31 March 2022 ### 23. Retirement benefit obligations #### 23.4 Movements in the combined defined benefit asset obligations and assets during the year Defined contribution scheme Employer financed retirement benefit (EFRB) pension costs Staff costs analysis | | 2022 £m | | --- | --- | | | 36.1 | | | 57.3 | | | 93.4 | #### 23.5 Pension scheme risk assessment and mitigation Risks to which the Pension Schemes exposes the Group (i) Asset volatility (ii) Changes in bond yields (iii) Inflation risk (iv) Life expectancy (v) Liability versus asset risk #### 23.6 Risk mitigation (i) De-risking (ii) Asset buy-in 286 SSE plc Annual Report 2022 (iii) Asset-liability matching strategies used by the Scheme The Company and trustees of the schemes have agreed a long term investment strategy that seeks to reduce investment risk as and when appropriate. The asset-liability matching strategy is part of this approach which aims to reduce the volatility of the funding level of the pension schemes by investing in assets which perform in line with the liabilities of the schemes so as to protect against inflation being higher than expected. This has been adopted for a proportion of the schemes’ assets, which is designed to provide partial protection against adverse movements in interest rates and inflation. The trustees of the respective schemes review the schemes’ asset allocation on an ongoing basis in light of changes in the funding position and market opportunities. ### 23.7 Risk assessment (i) Maturity profile of the defined benefit obligations The weighted average duration of the defined benefit obligation is 17 years (2021: 18 years) for the Scottish Hydro Electric Pension Scheme and 16 years (2021: 17 years) for the Southern Electric Pension Scheme. (ii) Information about the defined benefit obligations Status of members is weighted by the liabilities of each scheme. Scottish Hydro Southern Electric Electric Scheme % % Active members 23 28 Deferred members 14 9 Pensioners 63 63 100 100 ### 23.8 Pension scheme policies (i) Recognition of gains and losses The Group recognises actuarial gains and losses in the Statement of Other Comprehensive Income following the re-measurement of the net defined benefit liabilities of the schemes. (ii) Methods and assumptions used in preparing the sensitivity analyses The sensitivities disclosed are calculated using approximate methods taking into account the duration of the schemes’ liabilities. While these have been calculated consistently with the previous financial year, the method applied may change over time with financial conditions and assumptions. (iii) Asset recognition The Group has recognised net pension assets in relation to the Scottish Hydro Electric pension scheme due to a surplus existing under IAS 19 accounting. The Group will only recognise a surplus should it have rights to that surplus under the rules of the pension scheme. The company no longer applies the ‘asset ceiling’ restriction mandated by IFRIC 14. Details on this key accounting consideration are provided above. (iv) Fair value assessment of scheme assets The Group seeks to assess whether there is a quotable market value (referenced as “quotable” above) in relation to pension scheme assets held. This assessment is based on regular reviews conducted in conjunction with the trustees of the schemes. For assets where no quotable market value exists, these assets will be valued based on a set methodology agreed by trustees and scheme advisors and then regularly assessed. Currently only one unquotable value exists within the two pension schemes of the Group, this being insurance contracts (or ‘buy-in’) held by the Scottish Hydro Electric Scheme. These assets are currently valued consistently with the scheme’s liabilities with the expected return on these assets being set equal to the discount rate. 287SSE plc Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 March 2022 # 24. Financial instruments # 24.1 Financial instruments – income statement | | 2022 £m | | --- | --- | | Operating derivatives | 3,527.2 (1,426.8) | | | 2,100.4 | | Financing derivatives (and hedged items) | (43.3) 64.3 | | | 21.0 | | | 2,121.4 | # 24.2 Financial instruments – balance sheet | | 2022 £m | | --- | --- | | Derivative financial assets | 371.7 2,941.8 | | Total derivative assets | 3,313.5 | | Derivative liabilities | (549.6) (701.5) | | Total derivative liabilities | (1,251.1) | | Net liability | 2,062.4 | A6 and A7 288 SSE plc Annual Report 2022 ## 25. Commitments and contingencies ### 25.1 Capital commitments 2022 £m 985.9 ### 25.2 Contingent assets and liabilities ## 26. Post balance sheet events ### 26.1 Acquisition – European onshore renewables development platform ### 26.2 Issuance of hybrid equity bond ### 26.3 Issuance of private placement debt ### 26.4 Fiddlers Ferry site disposal SSE plc Annual Report 2022 289 FINANCIAL STATEMENTS ### Accompanying information ### A1. Basis of consolidation and significant accounting policies ### A1.1 Basis of consolidation The financial statements consolidate the results of the Company and its subsidiaries together with the Group’s share of the results and net assets of its interests in joint arrangements and associates. Where necessary to ensure consistency, the accounting policies of the subsidiaries, joint arrangements or associates have been adjusted to align to the accounting policies of the Group. Intra-Group balances and any unrealised gains and losses or income and expenses arising from Intra-Group transactions are eliminated in preparing the consolidated financial statements. Unrealised gains and losses arising from transactions with joint arrangements and associates are eliminated to the extent of the Group’s interest in the entity. Non-controlling interests represent the equity in subsidiaries that is not attributable, either directly or indirectly, to SSE plc shareholders. Subsidiaries (Accompanying Information A3) Subsidiaries are those entities controlled by the Group or the Company. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity in order to obtain variable returns from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The financial statements of subsidiaries acquired are consolidated in the financial statements of the Group from the date that control commences until the date control ceases. Transactions with non-controlling interests that relate to their ownership interests and do not result in a loss of control are accounted for as equity transactions. Interests in joint arrangements and associates (note 16 and Accompanying Information A3) Joint arrangements, as defined by IFRS 11 “Joint Arrangements”, are those arrangements that convey to two or more parties ‘joint control’. Joint control exists when decisions about the ‘relevant activities’, being the financial, operational or strategic policies of the arrangement, are made with the unanimous consent of the parties sharing control. Whilst this assessment is principally focused on any ‘Reserved Matters’, being the material activities that typically require all significant shareholders to approve, other contractual agreements such as Power Purchase Agreements and Management Services Agreements are also considered. The Group’s investments in joint arrangements are classified as either joint operations or joint ventures depending on the investee’s legal form and the investor’s contractual rights and obligations over the assets and liabilities of the investee. Associates are those investments over which the Group has significant influence but neither control nor joint control. The Group’s interests in its joint operations are accounted for by recognising its share of the assets, liabilities, revenue and expenses of the operation. In these arrangements, the Group’s share of the revenue will be eliminated as it relates to its purchased share of the output from the arrangement. The Group’s joint ventures and associates are accounted for using the equity method of accounting where the joint venture and associate net investments (comprising both equity and long term loans) are carried at historical cost plus the Group’s share of post-acquisition results, less any impairment in value. For those investments that were formerly subsidiaries of the Group, this will also include any fair value uplift arising from loss of control. The Group recognises its share of the results of these equity-accounted operations after tax and interest in the income statement. Foreign currencies The consolidated financial statements are presented in pounds sterling, which is the functional currency of the parent. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured accordingly. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Any gain or loss arising on the restatement of such items is taken to the income statement as a Finance Cost, with the exception of exchange gains or losses on foreign currency borrowings that provide a hedge against a net investment in a foreign entity or exchange gains or losses incurred as part of a qualifying cash flow hedge. These exchange gains or losses are transferred to the translation reserve to the extent the hedge is effective. Non-monetary assets that are measured in terms of historical cost in a foreign currency are translated at the historic rate at the date oftransaction. For the purpose of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into pounds sterling at the balance sheet closing rate. The results of these operations are translated at the average rate in the relevant period. Exchange differences on retranslation of the opening net assets and the results of foreign operations are transferred to the translation reserve and are reported in the consolidated statement of comprehensive income. The average and spot rates for the principal functional currencies that the Group’s foreign operations are denominated in are shown in the table below. 2022 2021 Change EUR v GBP Year end spot rate 1.1856 1.1745 0.9% Average spot rate 1.1750 1.1249 4.5% 290 SSE plc Annual Report 2022 ### A1.2 Significant accounting policies Revenue (notes 2 and 5) Revenue from contracts with customers is recognised to the extent that it reflects the expected consideration for goods or services provided to the customer under contract, over the performance obligations they are being provided. For each separable performance obligation identified, the Group determines whether it is satisfied at a “point in time” or “over time” based upon an evaluation of the receipt and consumption of benefits, control of assets and enforceable payment rights associated with that obligation. If the criteria required for “over time” recognition are not met, the performance obligation is deemed to be satisfied at a “point in time”. Revenue principally arises as a result of the Group’s activities in energy production, storage, transmission, distribution, supply and related services in the energy markets in Great Britain and Ireland. The key policies applied by each Business Area are as follows: Transmission Use of electricity transmission networks Revenue from use of electricity transmission networks is derived from the allowed revenue as defined by the parameters in the relevant electricity transmission licence, which informs the tariffs we set. Electricity transmission revenue is determined in accordance with the regulatory licence, based on an Ofgem approved revenue model and is recognised “over time” as charged to National Grid. Where this revenue differs from the allowed revenue, there may be an over- or under- recovery of revenue which will be reflected in future financial year’s allowed revenue as set out in the regulatory licence. No accounting adjustments are therefore made for over- or under-recoveries in the year that they arise. Transmission network contracted services Where the Group has an ongoing obligation to provide contracted services (transmission network connections), revenues are recognised “over time” consistent with the customer receiving and consuming the benefits of that service across the expected contractual service period. Any assets constructed in order to deliver the service are capitalised and depreciated over their useful life. Payments from customers are typically received from customers in advance of providing the contracted service and are deferred on balance sheet. No extended warranty periods are offered. Distribution Use of electricity distribution networks Revenue from use of electricity distribution networks is derived from the allowed revenue as defined by the parameters in the relevant electricity distribution licence, which informs the tariffs we set. Electricity distribution revenue recognised is based on the volume of electricity distributed “over time”, as use of distribution service is determined by the customer, and the set customer tariff. As with electricity transmission revenue, any over- or under-recovery of revenue is reflected in future financial year’s allowed revenue as set out in the regulatory licence. No accounting adjustments are therefore made for over- or under-recoveries in the year that they arise. The Distribution business is responsible for recovering industry charges for supplier failures from customers under Ofgem’s Supplier of Last Resort scheme. The Group’s policy is to recognise revenue for recovered amounts when the Group is entitled to invoice customers through its regulated use of system tariff. The Group recognises its obligation to pay amounts recovered to eligible suppliers when the Group is entitled to invoice customers through its regulated use of system tariff. Distribution network contracted services Where the Group has an ongoing obligation to provide contracted services (such as for distribution network connections), revenues are recognised “over time” consistent with the customer receiving and consuming the benefits of that service across the expected contractual service period. Any assets constructed in order to deliver the service are capitalised and depreciated over their useful life. Payments from customers are typically received from customers in advance of providing the contracted service and are deferred on balance sheet. No extended warranty periods are offered. Renewables Electricity generation Revenue from the physical generation of electricity is recognised “point in time” as generated and supplied to the national settlements body. Revenue is measured at either the spot price at the time of delivery, or trade price where that trade is eligible for “own use” designation. Renewables contracted services Revenue from national support schemes, such as Renewable Obligation Certificates, is recognised at the point the performance obligation has been met. This is typically considered to be either at the point electricity has been physically generated or over the contractual period, depending on the underlying performance obligation. Revenue is measured either at the market rate at the point of generation, or at the fixed contractual consideration, depending on the individual scheme mechanic. Revenue from other ancillary generation services is recognised “over time” consistent with the customer receiving and consuming the benefits of those services across the expected contractual service period, and at the contracted consideration. 291SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Accompanying information continued ### A1. Basis of consolidation and significant accounting policies continued ### A1.2 Significant accounting policies continued Thermal Electricity generation Revenue from the physical generation of electricity is recognised “point in time” as generated and supplied to the national settlements body. Revenue is measured at either the spot price at the time of delivery, or trade price where that trade is eligible for “own use” designation. Gas storage Revenue from gas storage trading activities is recognised “point in time” as injected back into the network. Revenue is measured at either the spot price at the time of delivery, or trade price where that trade is eligible for “own use” designation. Thermal Generation contracted services Revenue from national support schemes, such as the Capacity Market, is recognised at the point the performance obligation has been met. This is typically considered to be either at the point electricity has been physically generated or over the contractual period, depending on the underlying performance obligation. Revenue is measured either at the market rate at the point of generation, or at the fixed contractual consideration, depending on the individual scheme mechanic. Revenue from other ancillary generation services is recognised “over time” consistent with the customer receiving and consuming the benefits of those services across the expected contractual service period, and at the contracted consideration. Customers Supply of energy Revenue on the supply of energy comprises sales to domestic and business end-user customers based on actual energy consumption including an estimate of the value of electricity and gas supplied to customers between the date of the last meter reading and the year end. Revenue is recognised “over time” consistent with the delivery of energy to the customer as we consider the receipt and consumption of the benefits of the energy to be simultaneous. Revenue is measured based on the applicable customer tariff rate and after deduction of any applicable contractual discounts. Details of the estimation process for the value of electricity and gas supplied to customers is given within note 4.1(iii). Payments from customers may be received in advance of providing the contracted service and are deferred on balance sheet. Amounts received from customers in relation to energy management services provided by Third Party Intermediaries (’TPIs’) are offset against payments to those TPIs, reflecting the responsibility for providing the energy management service. Energy related services Where the Group has an ongoing obligation to provide contracted energy related services, revenues are recognised “over time” consistent with the customer receiving and consuming the benefits of that service across the expected contractual service period at the fixed contracted rate. Where the Group has an obligation to perform a specific service, revenues are recognised “point in time”, following performance of the service at the fixed contracted consideration. No extended warranty periods are offered. Distributed Energy Construction related services Construction related service revenue primarily relates to the Contracting and Rail business, which was disposed on 30 June 2021. For construction related services, revenue is recognised for each identified performance obligation “over time” by applying an input method to determine the proportion of total contract revenue (being fixed price consideration plus the latest estimate of variable consideration) that should be recognised. The input method applied is calculated by reference to the costs incurred to date on that performance obligation, relative to the total expected costs to satisfy that performance obligation, provided the contract outcome can be assessed with reasonable certainty. Revenue from non-contracted agreements or variations to contracted work is only recognised to the extent there is additional supporting evidence to their recoverability and may be subject to constraints on recognition. Revenue on contracts in customer dispute is recognised only to the extent it is considered to be highly probable that the revenue will be recovered. Commissions in relation to acquisition of construction related contracts are expensed as incurred. No extended warranty periods are offered. Payments from customers are based on agreed billing schedules, with payment milestones typically aligned with delivery of performance obligations. EPM & I Commodity optimisation and other services Income from sales commodity optimisation trading occurring in any business unit is presented net in cost of sales alongside purchase commodity optimisation trades. Revenue arising on commodities purchased in excess of the Group’s requirements and recorded as inventory assets, such as Renewables Obligation Certificates, is recognised “point in time” on disposal of these inventory assets to third parties. Revenue from other ancillary services is recognised “over time” consistent with the customer receiving and consuming the benefits of those services across the expected contractual service period, and at the contracted consideration. 292 SSE plc Annual Report 2022 Physical energy production Revenue from the physical production of natural gas, crude oil and condensates arises from the Group’s interest in various joint ventures and associates and is based on the entitlement method; whereby the Group’s share of interest and production sharing terms are used to determine the allocation of production to each party in the arrangement. Revenue is recognised “point in time” based on the production that has been delivered to the customer at the specified delivery point and measured based on the applicable market price as specified in the customer contracts. On the 14 October 2021 the Gas Production business was disposed. Aside from where specifically noted above, consideration is due when the performance obligation has been satisfied. As the period between satisfaction of the performance obligation and receipt of consideration from the customer is expected to be less than a year, the Group has applied the practical expedient not to adjust revenue for the effect of any financing components. Revenue from sources other than the Group’s contracts with customers principally comprise meter rental income within the Enterprise business, and Contract for Difference income within certain Joint Venture arrangements. Income on meter rental agreements, which are classified as operating leases, are presented as revenue where they relate to the core operating activities of that business. Lease payments are recognised as income on a straight-line basis over the lease term. Contract for Differences are agreements between a low carbon electricity generator and the Low Carbon Contracts Company (‘LCCC’), a UK Government owned entity responsible for delivering support mechanisms for low-carbon electricity generation. These agreements are not considered to be contracts with a customer, as the LCCC does not receive any goods or services from the generator. These arrangements are instead considered to be Government Grants, with income arising from these grants recognised in the income statement in the period in which generation takes place. This income is presented as revenue where they relate to the core operating activities of that business. Cost of sales (note 6) Cost of sales includes fuel and energy purchases, direct employee benefits, and depreciation of property, plant and equipment. The net result from sales and purchases of commodity optimisation trades – comprising both realised and unrealised gains and losses arising from optimisation trading activities – is also presented within cost of sales, reflecting the underlying economic purpose of this trading activity. Finance income and costs (note 9) Interest income and costs are recognised in the income statement as they accrue, on an effective interest method. The issue costs and interest payable on bonds and all other interest payable and receivable is reflected in the income statement on the same basis. Interest on the funding attributable to major capital projects is capitalised during the period of construction and depreciated as part of the total cost over the useful life of the asset. The accounting policy for foreign exchange translation of monetary assets and liabilities is described on page 290  and for lease liability charges on page 297 . Taxation (note 10) Taxation on the profit for the year comprises current and deferred tax. Taxation is recognised in the income statement unless it relates to items recognised directly in equity, in which case it is recognised in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is calculated using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities other than in business combinations that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are offset where there is a legally enforceable right of offset within the same tax authority and where the Group intends to either settle them on a net basis, or to realise the asset and settle the liability simultaneously. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. 293SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Accompanying information continued ### A1. Basis of consolidation and significant accounting policies continued ### A1.2 Significant accounting policies continued Business Combinations (note 12) The acquisition of subsidiaries, and joint operations that meet the definition of a business, is accounted for under the acquisition method as defined by IFRS 3 “Business Combinations”. The cost of acquisition is measured as being the aggregate fair value of consideration to be transferred at the date control is obtained. Goodwill is measured at the acquisition date as the fair value of consideration transferred, plus non-controlling interests, less the net recognised amount (which is generally fair value) of the identifiable assets and liabilities assumed. Goodwill is subject to an annual review for impairment (or more frequently if necessary) in accordance with the Group’s impairment accounting policy. Contingent consideration is classified as a liability and subsequently re-measured through the income statement. Acquisition costs are expensed as incurred. Changes in ownership that do not result in a change of control are accounted for as equity transactions. Held for disposal assets and liabilities and discontinued operations (note 12) Non-current assets are classified as held for disposal if their recoverable value is likely to be recovered via a sale or distribution as opposed to continued use by the Group. In order to be classified as assets held for disposal, assets must meet all of the following conditions; the disposal is highly probable, it is available for immediate disposal, it is being actively marketed and the disposal is likely to occur within one year. Assets that qualify as held for disposal and related liabilities are disclosed separately from other assets and liabilities in the balance sheet prospectively from the date of classification. Non-current assets determined as held for disposal are measured at the lower of carrying value and fair value less costs to sell, no depreciation is charged in respect of these assets after classification as held for disposal. Assets or groups of assets and related liabilities that qualify as held for disposal are classified as discontinued operations when they represent a separate major line of business or geographical area, are part of a single plan to dispose of a separate major line of business or geographical area or are acquired exclusively with a view to resale. Income and expenses relating to these discontinued operations are disclosed in a single net amount after taxes in the income statement, with comparative amounts re-presented accordingly. Intra-Group balances and any unrealised gains and losses or income and expenses arising from trading between continuing and discontinued operations continue to be eliminated in preparing the consolidated financial statements. Intangible assets (note 13) Goodwill and impairment testing Goodwill arising on a business combination represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of a subsidiary, associate or joint venture at the date of acquisition. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment at least on an annual basis. For the purpose of impairment testing, goodwill is allocated on initial recognition to those cash-generating units (CGUs) expected to benefit from the combination’s synergies. The cash-generating units used for goodwill impairment testing purposes will represent how goodwill was attributed but may not represent reportable business segments. Goodwill may also arise upon investments in joint arrangements and associates. Goodwill arising on a joint operation is recorded as a separate asset and any impairment loss is recognised in the income statement. Goodwill arising on a joint venture or associate is recorded within the carrying amount of the Group’s investment and any impairment loss is included within the share of result from joint ventures and associates. On disposal or closure of a previously acquired investment or business, any attributed goodwill will be included in determining the profit or loss on disposal. Allowances and certificates Allowances and certificates consist of purchased carbon emissions allowances and generated or purchased obligations certificates. These allowances and certificates will be utilised in settlement of environmental obligations incurred by the Group’s Generation and Business and Domestic Energy Supply businesses. The EU Emissions Trading Scheme (EU ETS) has been in operation since 1 January 2005, with the Group operating under the established EU ETS carbon pricing system since that date. Since 1 January 2021, following Brexit, the UK Government has established a UK Emissions Trading Scheme (UK ETS) to replace the EU ETS with the Group’s UK generation assets now operating under the UK ETS carbon pricing system. Carbon allowances purchased are recorded at cost within intangible assets. Forward carbon contracts are measured at fair value with gains or losses arising on re-measurement being recognised in the income statement. A liability is recognised based on the level of emissions recorded. Up to the level of allowances held, including forward carbon contracts, the liability is measured at the cost of purchase. When the carbon emission liability exceeds the carbon allowances held, the difference is measured at market value selling price. Subsequent movements in market value are prospectively recognised in operating profit. The carbon allowance intangible asset is surrendered at the end of the compliance period to the extent requested reflecting the consumption of the economic benefit and is recorded as being utilised. As a result, no amortisation is booked but an impairment charge may be recognised should the carrying value of allowances exceed market or fair value. 294 SSE plc Annual Report 2022 Under the Renewable Obligations Certificates (ROCs) scheme, certificates obtained from own generation are awarded by a third party, Ofgem. ROCs can be traded with third parties and are ultimately used by suppliers to demonstrate to Ofgem that they have met their obligation to source a set proportion of the electricity they supply from renewable sources. The value of a ROC to a supplier comprises two elements: the “buy-out” price which is set annually in advance of the compliance period by Ofgem; and the “recycle” price which is determined after the compliance period by Ofgem. The recycle price element is estimated at the balance sheet date based on assumptions at that point in time around likely levels of renewable generation and supply over the remaining compliance period, and is therefore subject to possible future variation. Where ROCs are self-generated or purchased to fulfil the Group’s liability under the renewables obligation, they are recorded at market value at the point of generation or purchased within intangible assets. Following disposal of the Group’s Energy Services business in January 2020, the Group now holds ROCs in excess of the Group’s renewables obligation. Due to limited evidence of liquidity or net settlement for ROC trades, we have determined that any purchased ROCs in excess of the Group’s renewables obligation are recorded at the lower of cost or net realisable value within inventories. Similarly, the fair value of any forward contracts entered into at the balance sheet date for the purchase or sale of ROCs in future periods are not recognised, as there is insufficient liquidity for net settlement. The Group’s liability under the renewables obligation is recognised based on electricity supplied to customers, the obligation level set by Ofgem and the prevailing market price. The intangible assets are surrendered at the end of the compliance period reflecting the consumption of economic benefit and release of the associated liability. As a result, no amortisation is recorded during the period. Research and development Expenditure on research activities is charged to the income statement as incurred. Expenditure on development activities is capitalised as intangible assets if the project or process is considered to be technically and commercially feasible and the Group intends to complete the project or process for use or for sale. Development projects include wind farm developments, thermal generation and gas storage projects, prospective gas production assets and other developments relating to proven technologies. Costs incurred in bringing these projects to the consent stage include options over land rights, planning application costs and environmental impact studies and may be costs incurred directly or part of the fair value exercise on acquisition of an interest in a project. At the point that the project reaches the consent stage and is approved by the Board, the carrying value of the project is transferred to property, plant and equipment as assets under construction. Once in operation, depreciation will be charged over the expected useful life of the asset. The asset is derecognised on disposal, or when no future economic benefits are expected toarise. Other intangible assets Other intangible assets that have been acquired separately by the Group are stated at cost less accumulated amortisation and impairment losses. Expenditure on internally generated brands or customer lists are expensed as incurred. Expenditure on internally developed software assets and application software licences includes contractors’ fees and directly attributable labour and overheads. Amortisation is charged to the income statement on a straight-line basis over the estimated useful life of these assets. The amortisation periods utilised are as follows: Years Brands 10 Customer lists Contract term Developed software assets and application software licences 3-15 The useful lives of all the intangible assets are reviewed annually and amended, as required, on a prospective basis. Intangible assets are derecognised on disposal, or when no future economic benefits are expected from their use. Property, plant and equipment (note 14) Owned assets Items of property, plant and equipment are stated at cost less accumulated depreciation and impairments. The cost of self-constructed assets includes the cost of materials, direct labour and other directly attributable costs. Where the asset is a qualifying asset, for which a considerable period of time is required to prepare the asset for use or sale, borrowing costs will be capitalised as part of the asset’s cost. Where an item of property, plant and equipment comprises major components having different useful lives, the components are accounted for as separate items of property, plant and equipment, and depreciated accordingly. An item of property, plant and equipment is derecognised on disposal or when no future economic benefits are expected to arise from the continued use of the asset. 295SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Accompanying information continued ### A1. Basis of consolidation and significant accounting policies continued ### A1.2 Significant accounting policies continued Right of use assets Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Where a modification to a lease agreement decreases the scope of the lease, the carrying amount of the right of use asset is adjusted and a gain or loss is recognised in proportion to the decrease in scope of the lease. All other modifications to lease agreements are accounted for as a reassessment of the lease liability with a corresponding adjustment to the right of use asset. Hydro civil assets The Group is obliged under the Reservoirs Act 1975 to maintain its hydro infrastructure network, including its dams, tunnels and other hydro civil engineering structures (hydro civil assets). All items of property, plant and equipment within hydro civil assets, with the exception of land, are subject to depreciation. In accordance with the transition provisions of IFRS 1 “First-time Adoption of IFRS”, the Group identified the carrying value of these assets at privatisation and has treated this value as deemed cost. Following this assessment, the assets, and all subsequent enhancement and replacement expenditure, has been subject to depreciation over a useful economic life of 75 years. All subsequent maintenance expenditure is chargeable directly to the income statement. Depreciation Depreciation is charged to the income statement to write off cost, less residual values, on a straight line basis over their estimated useful lives. Heritable and freehold land is not depreciated. Depreciation policy, useful lives and residual values are reviewed at least annually, for all asset classes to ensure that the current method is the most appropriate. Depreciation commences following the asset commissioning period and when the asset is available for commercial operation. The estimated useful lives for assets depreciated on a straight line basis are as follows: Years Wholesale specific assets Hydro civil assets (classified within Renewable power generation assets) 75 to 100 Thermal and hydro power stations including electrical and mechanical assets (classified within Thermal power generation assets) 20 to 60 Onshore wind farms (classified within Renewable power generation assets) 20 to 25 Offshore wind farms (classified within Renewable power generation assets) 20 to 25 Gas storage facilities (classified within other assets) 25 to 50 Overhead lines, underground cables and other network assets (classified within Distribution or Transmission network assets) 5 to 80 Office buildings (classified within land & buildings) 30 to 40 Fixtures, IT assets, vehicles and mobile plant (classified within other assets) 3 to 15 Assets held under leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease agreement. Subsequent expenditure It is the Group policy to capitalise qualifying replacement expenditure and depreciate it over the expected useful life of the replaced asset. Replaced assets are derecognised at this point and the costs recorded as costs of disposal. Where an item of property, plant and equipment is replaced and it is not practicable to determine the carrying amount of the replaced part, the cost of the replacement adjusted for inflation will be used as an approximation of the cost of the replaced part at the time it was acquired or constructed. Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately is capitalised. Other subsequent expenditure is capitalised only when it increases the future economic benefits of the item of property, plant and equipment to which it relates. Maintenance and repair costs are expensed as incurred. Derecognition An item of property, plant or equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Gains and losses on disposals are determined by comparing the proceeds received with the carrying amount of the asset and are included in the income statement. Any gain or loss on derecognition of the asset is included in the income statement in the period of derecognition. 296 SSE plc Annual Report 2022 Lease arrangements (note 21) Lease arrangements are separately distinguished from service contracts on the basis of whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If the Group is deemed to control the use of an identified asset, a right of use asset and a corresponding lease liability are recognised on the balance sheet. Right of use assets are capitalised and held as part of property, plant and equipment. The accounting policy for such arrangements is described on page 296 . Lease liabilities are initially measured at the present value of the future lease payments discounted using the rate implicit in the lease if that can be readily determined. If the interest rate implicit in the lease cannot be readily determined the incremental borrowing rate is used. Where the interest rate implicit in the lease is not readily determinable, the Group has applied the intercompany borrowing rate which is based on the Group’s external medium-term borrowing rates with premia adjustments for any subsidiary specific risk factors. In determining whether any break and/or extension clauses should be included within the lease term, the Group has considered that where an internal decision has been made to break or extend the lease agreement, that decision shall be applied in determining the appropriate lease term. Where an internal decision has not been made, and where the non-cancellable element of the lease term has longer than five years remaining, it is considered that any clauses will not be triggered as any decision beyond that date is not reasonably certain. For all leases with less than five years remaining, an assessment is made at each reporting period on a lease-by-lease basis on whether the clause is reasonably certain to be triggered. Reassessment of break and/or extension judgements made in prior periods could result in recalculation of the lease liability and adjustments to associated balances. The lease liability is subsequently adjusted for unwind of discounting, repayments and other modifications to the underlying agreement. Lease modifications are accounted for as a separate lease where the scope of the lease increases through the right to use one or more underlying assets and where the consideration of the lease increases by an amount that is equivalent to the standalone price of the increase in scope. Where a modification decreases the scope of the lease, the carrying amount of the right of use asset is adjusted and a gain or loss is recognised in proportion to the decrease in scope of the lease. All other modifications are accounted for as a reassessment of the lease liability with a corresponding adjustment to the right of use asset. Leases with a duration of 12 months or less and leases for assets which are deemed “low value” are expensed to the income statement on a straight-line basis over the lease term. Impairment review (note 15) The carrying amounts of the Group’s PP&E and other intangible assets and the Group’s investments in joint ventures and associates, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, or where there are indications that a previously recognised impairment loss has reduced. For PP&E assets that have previously been identified as exhibiting indications of impairment, the review of impairment will be performed annually until there is sufficient evidence to confirm that any potential impairment loss has been appropriately recognised, or until previously recognised impairment losses have been fully written back. For goodwill and other intangible assets with an indefinite life or which are not yet ready for use, the test for impairment is carried out annually. In addition, financial assets measured at amortised cost are also reviewed for impairment annually. For assets subject to impairment testing, the asset’s carrying value is compared to the asset’s (or cash-generating unit (CGU)’s, in the case of goodwill), recoverable amount. The recoverable amount is determined to be the higher of the fair value less costs to sell (FVLCS) and the value-in-use (VIU) of the asset or CGU. For financial assets measured at amortised cost the impairment is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. If the carrying amount of the asset or CGU exceeds its recoverable amount, an impairment charge will be recognised immediately in the income statement. Reversals of previous impairment charges are recognised if the recoverable amount of the asset or CGU significantly exceeds the carrying amount. Previous impairments of goodwill are not reversed. Value in use (VIU) calculations require the estimation of future cash flows to be derived from the respective assets (or CGUs) and the selection of an appropriate discount rate in order to calculate their present value. The VIU methodology is consistent with the approach taken by management to evaluate economic value and is deemed to be the most appropriate for reviews of PP&E asset and the Group’s identified goodwill-related CGUs. The methodology is based on the pre-tax cash flows arising from the specific assets, underlying assets or CGUs, and discounted using a pre-tax discount rate based on the Group’s cost of funding and adjusted for any specific risks. The estimation of the timing and value of underlying projected cash flows and the selection of appropriate discount rates involves management judgement. Subsequent changes to these estimates or judgements may impact the carrying value of the assets. The fair value less costs to sell methodology also uses a present value technique, unless there is a quoted price in an active market for that asset. The methodology is based on the post-tax cash flows arising from the specific assets, underlying assets or CGUs, and discounted using a post-tax discount rate determined in the same manner as the rates used in the VIU calculations, adjusted for the relevant taxation rate. Any impairment charge identified will initially be adjusted against the goodwill allocated to the cash-generating unit. Any excess charge will be allocated against the remaining assets of the cash-generating unit. Reversals of previous impairment charges are allocated against the carrying value of assets previously subject to an impairment charge. 297SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Accompanying information continued ### A1. Basis of consolidation and significant accounting policies continued ### A1.2 Significant accounting policies continued Inventories (note 17) Inventories – aside from inventory purchased by the Gas Storage business for secondary trading opportunities – are valued at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Gas inventory purchased by the Gas Storage business for secondary trading opportunities is held at fair value with reference to the forward month market price. Gains and losses on remeasurement at fair value are recognised within the Income Statement, as a “certain remeasurement” item. Provisions (note 20) A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, it can be measured reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Decommissioning The Group engages independent experts to estimate the cost of decommissioning its Renewable, Thermal and Gas Storage assets every three years. In the intervening years, management updates the external valuation based on factors arising since the last formal valuation date. Provision is made for the net present value of the estimated cost of decommissioning gas storage facilities, wind farms and power stations at the end of the useful life of the facilities. This includes development assets, where if a present obligation exists, provision is recognised during construction and prior to commencement of operations from the site. The estimates are based on technology and prices at the balance sheet date and excludes any salvage value related to those assets. A corresponding decommissioning asset is recognised and is included within property, plant and equipment when it gives access to future economic benefits, and is depreciated on a straight-line basis over the expected useful life of the asset. Changes in these provisions are recognised prospectively. The unwinding of the discount on the provision is included in finance costs. The Group retained a decommissioning obligation following the disposal of its Gas Production business. The decommissioning cost estimates are updated periodically by field operators based on current technology and prices. Field operators also provide estimated end of field life dates for each field, which can change based on market commodity prices. Retirement benefit obligations (note 23) Defined benefit pension schemes The Group operates two defined benefit pension schemes, one of which is operated by the Company. Pension scheme assets are measured using bid market values. Pension scheme liabilities are measured using the projected unit credit actuarial method and are discounted at the current rate of return on a high quality corporate bond of equivalent term and currency to the liability. Any increase in the present value of liabilities within the Group’s defined benefit pension schemes expected to arise from employee service in the year is charged as service costs to operating profit. Net interest costs are based on net schemes’ liabilities adjusted for minimum funding requirement and pension surplus restrictions under IFRIC 14 ‘IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’. Actuarial gains and losses are recognised in full in the consolidated statement of comprehensive income. Pension scheme surpluses, to the extent that they are considered recoverable, or deficits are recognised in full and presented on the face of the balance sheet. 298 SSE plc Annual Report 2022 Defined contribution pension schemes The Group also operates a number of defined contribution pension schemes. The assets of the schemes are held separately from those of the Group in independently administered funds. The amounts charged represent the contributions payable to the schemes in the year and are charged directly to the income statement. Equity and equity-related compensation benefits The Group operates a number of employee share schemes as described in the Remuneration Report. These schemes enable Group employees to acquire shares of the Company. The exercise prices of the sharesave scheme are set at a discount to market price at the date of the grant. The fair value of the sharesave scheme option granted is measured at the grant date by use of a Black-Scholes model. The fair value of the options granted is recognised as an expense on a straight-line basis over the period that the scheme vests. Estimates are updated for non-market conditions at each balance sheet date with any adjustment in respect of the current and prior years being recognised in the income statement. The costs associated with the other main employee schemes are recognised over the period to which they relate. The charge related to the equity shares in the Company awarded under the share schemes is treated as an increase in the cost of investment held by the Company in the subsidiary companies of the Group. The disclosures on equity and equity-related compensation benefits have been removed on the grounds of materiality in relation to the Group. Financial instruments (note 24) The Group uses a range of financial instruments to hedge exposures to financial risks, such as interest rate, foreign exchange and energy price fluctuations in its normal course of business and in accordance with the Group’s risk management policies. The Group’s risk management policies are further explained in A6 . As previously noted in the 31 March 2018 Annual Report, the Group’s review of the IFRS 9 hedge accounting model concluded that whilst adoption would not change the treatment of existing hedging arrangements, the changes made would not result in any additional hedge designations either. As such, the existing hedge accounting model under IAS 39 appropriately reflects our risk management activities in the financial statements. Therefore, as permitted by IFRS 9, the Group has elected to continue to apply the hedge accounting requirements of IAS 39. This policy choice will be periodically reviewed to consider any changes in our risk management activities. Interest rate and foreign exchange derivatives Financial derivative instruments are used by the Group to hedge interest rate and currency exposures. All such derivatives are recognised at fair value and are re-measured to fair value each reporting period. Certain derivative financial instruments are designated as being held for hedging purposes. The designation of the hedge relationship is established at the inception of the hedge and procedures are applied to ensure the derivative is highly effective in achieving its objective and that the effectiveness of the hedge can be reliably measured. The treatment of gains and losses on re-measurement is dependent on the classification of the hedge and whether the hedge relationship is designated as either a ‘fair value’ or ‘cash flow’ hedge. Derivatives that are not designated as hedges are treated as if held for trading, with all fair value movements being recorded through the income statement. A derivative classified as a ‘fair value’ hedge recognises gains and losses from re-measurement immediately in the income statement. Loans and borrowings are measured at cost except where they form the underlying transaction in an effective fair value hedge relationship. In such cases, the carrying value of the loan or borrowing is adjusted to reflect fair value movements with the gain or loss being reported in the income statement. A derivative classified as a ‘cash flow’ hedge recognises the portion of gains or losses on the derivative which are deemed to be effective directly in equity in the hedge reserve. Any ineffective portion of the gains or losses is recognised in the consolidated income statement. When hedged cash flows result in the recognition of a non-financial asset or liability, the associated gains or losses previously recognised in equity are included in the initial measurement of the asset or liability. For all other cash flow hedges, the gains or losses that are recognised in equity are transferred to the income statement in the same period in which the hedged cash flows affect the incomestatement. 299SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Accompanying information continued ### A1. Basis of consolidation and significant accounting policies continued ### A1.2 Significant accounting policies continued Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At the point of discontinuation, any cumulative gain or loss on the hedging instrument recognised in equity remains in equity until the forecast transaction affects profit or loss. On settlement, the cumulative gain or loss recognised in equity is recognised in the income statement. Commodity derivatives Within its regular course of business, the Group routinely enters into sale and purchase derivative contracts for commodities such as electricity, gas, coal, carbon allowances and oil. Where the contract was entered into and continues to be held for the purpose of receipt or delivery in accordance with the Group’s expected sale, purchase or usage requirements, the contracts are designated as ‘own use’ contracts and are measured at cost. These contracts are not within the scope of IFRS 9. Derivative commodity contracts which are not designated as own use contracts are accounted for as trading derivatives and are recognised in the balance sheet at fair value. Where a hedge accounting relationship is designated and is proven to be effective, the changes in fair value will be recognised in accordance with the rules noted above. There are currently no designated hedge relationships in relation to commodity contracts. Other commodity contracts, where own use is not established and a hedge accounting relationship is not designated, are measured at fair value with gains and losses on re-measurement being recognised in the income statement in cost of sales. Embedded derivatives Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives where the characteristics of the derivatives are not closely related to those of the host contracts. Net investment hedges Hedges of net investments in foreign operations are accounted in a manner similar to effective cash flow hedges. Any gain or loss on the effective portion of the hedge is recognised in equity, in the translation reserve, and any gain or loss on the ineffective portion of the hedge is recognised in the income statement. On disposal of the foreign operation, the cumulative value of any gains or losses recognised directly in equity is transferred to the income statement. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Trade receivables Trade receivables do not carry any interest and are measured at cost less an appropriate allowance for lifetime expected credit losses. Interest-bearing loans and borrowings All such loans and borrowings are initially recognised at fair value including transaction costs and are subsequently measured at amortised cost, except where the loan or borrowing is the hedged item in an effective fair value hedge relationship. Share capital Ordinary shares are accounted for as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction from the proceeds received. Own equity instruments that are reacquired are deducted from equity. No gain or loss is recognised in the Group Income Statement on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Hybrid equity Hybrid equity comprises issued bonds that qualify for recognition as equity. Accordingly, any coupon payments are accounted for as dividends and are recognised directly in equity at the time the payment obligation arises. This is because the coupon payments are discretionary and relate to equity. Coupon payments consequently do not have any impact on the income statement. Coupon payments are recognised in the cash flow statement in the same way as dividends to ordinary shareholders. Tax credits in relation to the coupon payments are linked to the past transactions or events that support the coupon payments and consequently the tax credits are reported in the income statement. Hybrid debt Hybrid debt comprises issued bonds that have a fixed redemption date and are accounted within Loans and Borrowings. Coupon payments are recognised within the income statement as a finance cost. 300 SSE plc Annual Report 2022 ## A2. Taxation ### Reconciliation of tax charge to adjusted underlying current tax | | 2022 £m | 2022 % | | --- | --- | --- | | | 3,482.2 | | | | (109.8) | | | Profit before tax | 3,372.4 | | | | 640.8 | 19.0 | | | (121.6) | (3.6) | | | 1.1 | – | | | (14.8) | (0.4) | | | (393.8) | (11.7) | | | (5.8) | (0.2) | | | (22.7) | (0.7) | | | (9.7) | (0.3) | | | 35.3 | 1.0 | | | (6.2) | (0.2) | | | 0.4 | – | | | (6.2) | (0.2) | | | (6.0) | (0.2) | | | (5.9) | (0.2) | | Reported current tax charge and effective rate | 85.4 | 2.5 | | | 129.4 | 3.8 | | | (1.1) | – | | | 393.3 | 11.7 | | | 5.8 | 0.2 | | | 22.7 | 0.7 | | | – | – | | | 0.1 | – | | | (2.2) | (0.1) | | | 244.7 | 7.3 | | | 6.0 | 0.2 | | | (1.3) | – | | Reported deferred tax credit and effective rate | 797.4 | 23.6 | | Group tax charge and effective rate | 882.8 | 26.2 | | | 2022 £m | | --- | --- | | | 3,482.2 | | | (2,390.6) | | | 46.3 | | | 20.6 | | | 13.1 | | | (7.6) | | Adjusted profit before tax | 1,164.0 | SSE plc Annual Report 2022 301 ## Accompanying information ### A2. Taxation #### Reconciliation of tax charge to adjusted underlying current tax | | 2022 £m | 2022 % | | --- | --- | --- | | Adjusted profit before tax | 1,164.0 | | | | 221.2 | 19.0 | | Tax effect of: | | | | | (80.3) | (6.9) | | | (9.5) | (0.8) | | | 12.0 | 1.0 | | | 1.7 | 0.1 | | | 1.1 | 0.1 | | | (5.8) | (0.5) | | | (9.9) | (0.9) | | | (9.7) | (0.8) | | | 4.2 | 0.4 | | | (6.1) | (0.5) | | | (0.8) | (0.1) | | | (6.7) | (0.6) | | | (5.7) | (0.5) | | | 1.4 | 0.2 | | Adjusted current tax charge and effective rate | 107.1 | 9.2 | A1 and A6 A1 302 SSE plc Annual Report 2022 ### A3. Related undertakings ### A3.1.1. Subsidiary undertakings Details of the Group’s subsidiary undertakings at 31 March are as follows: | | | | | 2022 | | | 2021 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Registered | Holding | | | Holding | | | | Company Country of incorporation | | address (key) | | | % | | | % Principal activity | | Abernedd Power Company Limited England and Wales B | | | 100.0 | | | 100.0 Holding Company | | | | Aichi Offshore Wind Power No. 1 G.K. Japan AJ | | | | 80.0 | | | | – Renewable Development | | Aichi Offshore Wind Power No. 2 G.K. Japan AJ | | | | 80.0 | | | | – Renewable Development | | Airtricity Windfarm Finance Limited Ireland C | | | 100.0 | | | 100.0 Holding Company | | | | Arklow Offshore Phase II Company Limited Ireland C | | | 100.0 | | | 100.0 Dormant | | | | Beithe (HK) Limited Hong Kong AF | | | 100.0 | | | 100.0 Holding Company | | | | Beithe AG Switzerland Z | | | 100.0 | | | 100.0 Holding Company | | | | Berwick Bank A Limited (formerly Berwick | England and Wales B | | 100.0 | | | 100.0 Power Generation | | | Bank Wind Limited) Berwick Bank Holdings A Limited (formerly England and Wales B 100.0 100.0 Holding Company Berwick Bank Wind Holdings Limited) | Berwick Bank B Limited England and Wales B | | 100.0 | | – Renewable Development | | --- | --- | --- | --- | --- | | Berwick Bank Holdings B Limited England and Wales B | | 100.0 | | – Holding Company | | Berwick Bank C Limited | England and Wales B | 100.0 | 100.0 Power Generation | | (formerly Marr Bank Wind Limited) Berwick Bank Holdings C Limited (formerly England and Wales B 100.0 100.0 Holding Company Marr Bank Wind Holdings Limited) | Berwick Bank Wind Farm Limited England and Wales B | | 100.0 | | – Renewable Development | | --- | --- | --- | --- | --- | | Bhlaraidh Wind Farm Limited Scotland A | | 100.0 | 100.0 Power Generation | | | Bindoo Windfarm (ROI) Limited Ireland C | | 100.0 | 100.0 Power Generation | | | Brickmount Limited Ireland C | | 100.0 | 100.0 Power Generation | | | Building Automation Solutions Limited England and Wales D | | 100.0 | 100.0 Dormant | | | Coire Glas Hydro Pumped Storage Limited Scotland A | | 100.0 | 100.0 Power Generation | | | Comhlacht Gaoithe Teoranta Ireland C | | 100.0 | 100.0 Power Generation | | | Coomacheo Wind Farm Limited Ireland C | | 100.0 | 100.0 Power Generation | | | Coomatallin Windfarm (ROI) Limited Ireland C | | 100.0 | 100.0 Power Generation | | | Curragh Mountain Windfarm Limited Ireland C | | 100.0 | 100.0 Power Generation | | | Dedondo Limited Ireland C | | 100.0 | 100.0 Power Generation | | | Dromada Windfarm (ROI) Limited Ireland C | | 100.0 | 100.0 Power Generation | | | Drumnahough Wind Farm Designated | Ireland C | 100.0 | 100.0 Power Generation | | Activity Company | Enshunada Offshore Wind Power No. 1 G.K. Japan AJ | | 80.0 | | – Renewable Development | | --- | --- | --- | --- | --- | | Fibre Fuel Limited England and Wales B | | 100.0 | 100.0 Dormant | | | Fibre Power (Slough) Limited England and Wales B | | 100.0 | 100.0 Power Generation | | | Fusion Heating Limited Northern Ireland W | | 100.0 | 100.0 Energy Related Services | | | Galway Wind Park Phase 3 Designated | Ireland C | 100.0 | 100.0 Renewable Development | | Activity Company | Ganderoy Limited Ireland C | 100.0 | 100.0 Power Generation | | | --- | --- | --- | --- | | Gartnaneane Limited Ireland C | 100.0* | 100.0* Power Generation | | | Glenora Wind Farm Designated Activity Company Ireland C | 100.0 | | – Renewable Development | | Goto-Fukue Offshore Wind Power G.K. Japan AJ | 80.0 | | – Renewable Development | | Green Wind Energy (Wexford) Limited Ireland C | 100.0* | 100.0* Renewable Development | | | Griffin Wind Farm Limited Scotland A | 100.0 | 100.0 Power Generation | | | Hadyard Hill Wind Farm Limited Scotland A | 100.0 | 100.0 Power Generation | | | Hydro Electric Pension Scheme Trustees Limited Scotland A | 100.0 | 100.0 Dormant | | | Izu Islands Offshore Wind Power No. 1 G.K. Japan AJ | 80.0 | | – Renewable Development | | Keadby Developments Limited England and Wales B | 100.0 | 100.0 Dormant | | | Keadby Generation Limited England and Wales E | 100.0 | 100.0 Power Generation | | | Keadby Wind Farm Limited England and Wales B | 100.0 | 100.0 Power Generation | | | Leanamore Wind Farm Limited Ireland C | 100.0 | 100.0 Power Generation | | | Lenalea Wind Farm Designated Activity Company Ireland C | 100.0 | 100.0 Renewable Development | | | Limerick West Windfarm Limited Ireland C | 100.0 | 100.0 Power Generation | | | Littleton Pastures Solar Limited England and Wales B | 100.0 | | – Power Generation | | March Winds Limited Ireland C | 100.0 | 100.0 Power Generation | | | Medway Power Limited England and Wales B | 100.0 | 100.0 Power Generation | | | Meentycat Limited Ireland C | 100.0 | 100.0 Power Generation | | | Milane Holdings Limited Ireland C | 100.0 | 100.0 Dormant | | | Minami-Izu Offshore Wind Power No. 1 G.K. Japan AJ | 80.0 | | – Renewable Development | | Mullananalt Wind Farm (ROI) Limited Ireland C | 100.0 | 100.0 Power Generation | | 303SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Accompanying information continued ### A3. Related undertakings continued ### A3.1.1. Subsidiary undertakings continued | | | | | 2022 | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Registered | Holding | | | Holding | | | | | Company Country of incorporation | | address (key) | | | % | | | % Principal activity | | | Niigata Offshore Wind Power No.1 G.K. Japan AJ | | | | 80.0 | | | | – Renewable Development | | | Oki Islands Offshore Wind Power G.K. Japan AJ | | | | 80.0 | | | | – Renewable Development | | | Optimal Power Networks Limited (formerly | England and Wales B | | 100.0 | | | 100.0 Construction | | | | | Forbury Assets Limited) | | | | | | | | | of utility projects | | Platin Power Limited Ireland C | | | 100.0 | | | 100.0 Dormant | | | | | Power from Waste Limited England and Wales B | | | 100.0 | | | 100.0 Dormant | | | | | Richfield Windfarm (ROI) Limited Ireland C | | | 100.0 | | | 100.0 Power Generation | | | | | Scottish and Southern Energy Power | Scotland A | | 100.0 | | | 100.0 Holding Company | | | | Distribution Limited | Scottish Hydro Electric Power Distribution plc Scotland A | | 100.0 | 100.0 Power Distribution | | | --- | --- | --- | --- | --- | | Scottish Hydro Electric Transmission plc Scotland A | | 100.0 | 100.0 Power Transmission | | | Sheskin South Renewables Power Designated | Ireland C | 100.0 | | – Renewable Development | Activity Company | Slough Domestic Electricity Limited England and Wales B | | 100.0 | | 100.0 Dormant | | | --- | --- | --- | --- | --- | --- | | Slough Electricity Contracts Limited England and Wales B | | 100.0 | | 100.0 Electricity Contracting | | | Slough Energy Supplies Limited England and Wales B | | 100.0 | | 100.0 Dormant | | | Slough Heat & Power Limited England and Wales B | | 100.0 | | 100.0 Power Generation | | | Slough Utility Services Limited England and Wales B | | 100.0 | | 100.0 Distribution of Electricity | | | Southern Electric Power Distribution plc England and Wales B | | 100.0 | | 100.0 Power Distribution | | | SSE Airtricity Limited Ireland C | | 100.0 | | 100.0 Energy Supply | | | SSE Airtricity Distributed Energy Limited Ireland C | | 100.0 | | 100.0 Power Distribution | | | SSE Airtricity Energy Services (NI) Limited Northern Ireland F | | | – | 100.0 Energy Supply | | | SSE Airtricity Energy Services Limited Ireland C | | 100.0 | | 100.0 Energy Supply | | | SSE Airtricity Energy Supply (NI) Limited Northern Ireland F | | 100.0 | | 100.0 Energy Supply | | | SSE Airtricity Gas Limited Ireland C | | 100.0 | | 100.0 Energy Supply | | | SSE Airtricity Gas Supply (NI) Limited Northern Ireland F | | 100.0 | | 100.0 Energy Supply | | | SSE Airtricity Utility Solutions Limited Ireland C | | | – | 100.0 Utility Contracting | | | SSE Battery Salisbury Limited England and Wales B | | 100.0 | | | – Power Generation | | SSE Beatrice Offshore Windfarm Holdings Limited Scotland A | | 100.0 | | 100.0 Holding Company | | | SSE Contracting Group Limited England and Wales B | | 100.0 | | 100.0 Holding Company | | | SSE Contracting Limited England and Wales B | | | – | 100.0 Contracting | | | SSE Cumarsáid Teoranta Ireland C | | 100.0 | | 100.0 Telecommunications | | | SSE DE Battery Holdco Limited England and Wales B | | 100.0 | | | – Holding company | | SSE E&P UK Limited Scotland A | | | – | 100.0 Gas Production | | | SSE Energy Supply Limited England and Wales B | | 100.0 | | 100.0 Energy Supply | | | SSE Enterprise Limited England and Wales B | | 100.0 | | 100.0 Corporate Services | | | SSE EPM Limited England and Wales B | | 100.0 | | 100.0 Energy Trading | | | SSE Galloper Offshore Windfarm | England and Wales B | 100.0 | | 100.0 Holding Company | | Holdings Limited | SSE Generation Ireland Limited Ireland C | 100.0 | 100.0 Power Generation | | | --- | --- | --- | --- | | SSE Generation Limited England and Wales B | 100.0 | 100.0 Power Generation | | | SSE Group Limited Scotland A | 100.0 | 100.0 Dormant | | | SSE Heat Networks (Battersea) Limited England and Wales B | 100.0 | 100.0 Dormant | | | SSE Heat Networks Limited Scotland A | 100.0 | 100.0 Utility Services | | | SSE Hornsea Limited England and Wales B | 100.0 | 100.0 Gas Storage | | | SSE Insurance Limited Isle of Man G | 100.0 | 100.0 Insurance | | | SSE Maple Limited England and Wales B | 100.0 | 100.0 Investment Holding | | | SSE Medway Operations Limited England and Wales B | 100.0 | 100.0 Holding Company | | | SSE Micro Renewables Limited Scotland A | 100.0 | 100.0 Energy Related Services | | | SSE Multifuel Generation Holdings Limited England and Wales B | 100.0 | 100.0 Holding Company | | | SSE OWS Glasgow Limited Scotland A | 100.0 | 100.0 Property Holding | | | SSE Pacifico K.K. Japan AJ | 80.0 | | – Renewable Development | | SSE Production Services Limited England and Wales B | 100.0 | 100.0 Maintenance Services | | | SSE Renewables (Ireland) Limited Ireland C | 100.0 | 100.0 Holding Company | | | SSE Renewables Developments (Germany) GmbH Germany AA | 100.0 | 100.0 Renewable Development | | | SSE Renewables Generation Ireland Limited Ireland C | 100.0 | 100.0 Power Generation | | | SSE Renewables Holdings (Europe) Limited Ireland C | 100.0 | 100.0 Holding Company | | | SSE Renewables Holdings (UK) Limited Northern Ireland F | 100.0 | 100.0 Holding Company | | | SSE Renewables Holdings Germany GmbH Germany H | 100.0 | 100.0 Dormant | | | SSE Renewables Holdings Limited Ireland C | 100.0 | 100.0 Holding Company | | | SSE Renewables International Holdings Scotland A | 100.0 | 100.0 Holding Company | | 304 SSE plc Annual Report 2022 | | | | | 2022 | | | 2021 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Registered | Holding | | | Holding | | | | Company Country of incorporation | | address (key) | | | % | | | % Principal activity | | SSE Renewables Limited Scotland A | | | 100.0 | | | 100.0 Holding Company | | | | SSE Renewables (Netherlands) Holdings B.V. Netherlands AL | | | 100.0 | | | | | – Holding Company | | SSE Renewables North America Inc. United States AH | | | 100.0 | | | | | – Renewable Development | | SSE Renewables North America Offshore | United States AH | | 100.0 | | | | | – Renewable Development | Wind LLC. SSE Renewables Off Shore Limited Ireland C 100.0 100.0 Holding Company SSE Renewables Offshore Windfarm Scotland A 100.0 100.0 Holding Company Holdings Limited SSE Renewables Onshore Windfarm Northern Ireland F 100.0 100.0 Holding Company Holdings Limited SSE Renewables Poland Holdings Limited Scotland A 100.0 – Holding Company SSE Renewables Poland sp z.o.o. (formerly Poland AI 100.0 – Renewable Development Virtomille Investments sp z.o.o.) | SSE Renewables Services (UK) Limited Northern Ireland F | 100.0 | 100.0 Renewable Development | | | --- | --- | --- | --- | | SSE Renewables UK Limited Northern Ireland F | 100.0 | 100.0 Power Generation | | | SSE Renewables Wind (Ireland) Holdings Limited Ireland C | 100.0 | 100.0 Holding Company | | | SSE Renewables Wind Farms (Ireland) Limited Ireland C | 100.0 | 100.0 Power Generation | | | SSE Renewables Wind Farms (UK) Limited Scotland A | 100.0 | 100.0 Power Generation | | | SSE Retail Limited Scotland A | 100.0 | 100.0 Energy Related Services | | | SSE Seabank Investments Limited England and Wales B | 100.0 | 100.0 Dormant | | | SSE Seabank Land Investments Limited England and Wales B | 100.0 | 100.0 Dormant | | | SSE Services plc England and Wales B | 100.0 | 100.0 Corporate Services | | | SSE Southern Group Trustee Limited England and Wales B | 100.0 | 100.0 Dormant | | | SSE Stock Limited Scotland A | 100.0 | 100.0 Stock Holding | | | SSE Sunflower Offshore Wind Holdco B.V. Netherlands AL | 100.0 | | – Renewable Development | | SSE Thermal Energy Holdings Limited England and Wales B | 100.0 | 100.0 Holding Company | | | SSE Thermal Energy Operations Limited England and Wales B | 100.0 | 100.0 Power Generation | | | SSE Thermal Generation (Scotland) Limited Scotland A | 100.0 | 100.0 Power Generation | | | SSE Thermal Generation Holdings Limited England and Wales B | 100.0 | 100.0 Holding Company | | | SSE Toddleburn Limited Scotland A | 100.0 | 100.0 Power Generation | | | SSE Trading Limited England and Wales B | 100.0 | 100.0 Energy Trading | | | SSE Tulip Offshore Wind Holdco B.V. Netherlands AL | 100.0 | | – Renewable Development | | SSE Trustees Limited England and Wales B | 100.0 | 100.0 Dormant | | | SSE Utility Services Limited England and Wales B | 100.0 | 100.0 Dormant | | | SSE Utility Solutions Limited England and Wales B | 100.0 | 100.0 Utility Services | | | SSE Venture Capital Limited Scotland A | 100.0 | 100.0 Investment Holding | | | SSE Viking Limited England and Wales B | 100.0 | 100.0 Renewable Development | | | SSE(SE) Quest Trustee Limited England and Wales B | 100.0 | 100.0 Dormant | | | SSEPG (Operations) Limited England and Wales B | 100.0 | 100.0 Power Generation | | | Strathy Wind Farm Limited Scotland A | 100.0 | 100.0 Power Generation | | | Sure Partners Limited Ireland C | 100.0 | 100.0 Renewable Development | | | Tealing Solar Park Limited England and Wales B | 100.0 | 100.0 Power Generation | | | TESGL Limited England and Wales D | 100.0 | 100.0 Building Energy | | Management | The Energy Solutions Group Bidco Limited England and Wales D | 100.0 | 100.0 Dormant | | | --- | --- | --- | --- | | The Energy Solutions Group Midco Limited England and Wales D | 100.0 | 100.0 Dormant | | | The Energy Solutions Group Topco Limited England and Wales D | 100.0 | 100.0 Dormant | | | Tournafulla Windfarm (ROI) Limited Ireland C | 100.0 | 100.0 Power Generation | | | Viking Energy (Scottish Partnership) Scotland I | 100.0 | 100.0 Renewable Development | | | Viking Energy Wind Farm LLP Scotland AK | 100.0 | 100.0 Renewable Development | | | Wakayama-West Offshore Wind Power No. 1 G.K. Japan AJ | 80.0 | | – Renewable Development | | Wakayama-West Offshore Wind Power No.2 G.K. Japan AJ | 80.0 | | – Renewable Development | All shares in subsidiary companies are ordinary share capital, unless otherwise stated. * 100% of voting rights held. 305SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Accompanying information continued ### A3. Related undertakings continued ### A3.1.1. Subsidiary undertakings continued ### Statutory audit exemptions SSE plc parent company has provided guarantees under section 479C of the Companies Act 2006 over the liabilities of the following companies, which are therefore exempt from audit under the requirements of s479A-479C of the Companies Act 2006. Company Registered number Fibre Power (Slough) Limited 02902170 SSE Bhlaraidh Wind Farm Limited SC663027 SSE Enterprise Limited 10060563 SSE Retail Limited 10060563 SSE Maple Limited 10604848 SSE Medway Operations Limited 02647585 SSE Micro Renewables Limited SC386017 SSE Production Services Limited 02499702 SSE Renewables Wind Farms (UK) Limited SC654502 SSE Seabank Investments Limited 02631512 Tealing Solar Park Limited 08783684 Slough Utility Services Limited 03486590 ### A3.1.2. Partnerships | | | | 2022 | | | 2021 | | | --- | --- | --- | --- | --- | --- | --- | --- | | | Registered | Holding | | | Holding | | | | Company Country of incorporation | address (key) | | | % | | | % Principal activity | | The Glasa LLP Scotland A | | | | – | | 90.0 Renewable Development | | ### A3.1.3 Joint arrangements (incorporated) | | | | | 2022 | | | 2021 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Registered | Holding | | | Holding | | | | Company Country of incorporation | | address (key) | | | % | | | % Principal activity | | AtlasConnect Limited Scotland A | | | | 50.0 | | | 50.0 Dormant | | | Baglan Pipeline Limited England and Wales L | | | | 50.0 | | | 50.0 Dormant | | | Beatrice Offshore Windfarm Holdco Limited Scotland A | | | | 40.0 | | | 40.0 Holding Company | | | Beatrice Offshore Windfarm Limited Scotland A | | | | 40.0 | | | 40.0 Power Generation | | | Brims Tidal Array Limited Scotland M | | | | | – | | 50.0 Renewable Development | | | Cloosh Valley Wind Farm Designated | Ireland N | | | 25.0 | | | 25.0 Power Generation | | Activity Company Cloosh Valley Wind Farm Holdings Designated Ireland N 25.0 25.0 Holding Company Activity Company Clyde Windfarm (Scotland) Limited** Scotland A 50.1 50.1 Power Generation DB Operational Base Limited England and Wales K 40.0 40.0 Warehousing and storage facilities Digital Reach Partners Limited Scotland A 50.0 – Other Communication Projects Doggerbank Offshore Wind Farm Project 1 England and Wales B 40.0 40.0 Holding Company Holdco Limited Doggerbank Offshore Wind Farm Project 1 England and Wales B 40.0 40.0 Renewable Development Projco Limited Doggerbank Offshore Wind Farm Project 2 England and Wales B 40.0 40.0 Holding Company Holdco Limited Doggerbank Offshore Wind Farm Project 2 England and Wales B 40.0 40.0 Renewable Development Projco Limited Doggerbank Offshore Wind Farm Project 3 England and Wales B 40.0 50.0 Holding Company Holdco Limited Doggerbank Offshore Wind Farm Project 3 England and Wales B 40.0 50.0 Renewable Development Projco Limited | Dunmaglass Wind Farm Limited Scotland A | 50.1 | 50.1 Power Generation | | | --- | --- | --- | --- | | Everwind Limited Ireland Y | 49.0 | 49.0 Power Generation | | | Gatroben Offshore Developments 1 Limited England and Wales B | 40.0 | | – Renewable Development | | Gatroben Offshore Developments 2 Limited England and Wales B | 40.0 | | – Renewable Development | | Gatroben Offshore Developments 3 Limited England and Wales B | 40.0 | | – Renewable Development | | Greater Gabbard Offshore Winds Limited England and Wales B | 50.0 | 50.0 Power Generation | | | Green Energy Company Limited Ireland O | 47.5 | 47.5 Dormant | | | Green Way Energy Limited Ireland O | 50.0 | 50.0 Holding Company | | 306 SSE plc Annual Report 2022 | | | | 2022 | | | 2021 | | | --- | --- | --- | --- | --- | --- | --- | --- | | | Registered | Holding | | | Holding | | | | Company Country of incorporation | address (key) | | | % | | | % Principal activity | | Kerry Power Limited Ireland O | | | 49.0 | | | 49.0 Power Generation | | | Marchwood Power Limited England and Wales P | | | 50.0 | | | 50.0 Power Generation | | | Marron Activ8 Energies Limited Ireland X | | | 45.0 | | | 45.0 Energy Related Services | | | Midas Energy Limited Ireland O | | | 49.0 | | | 49.0 Power Generation | | | Neos Networks Limited Scotland A | | | 50.0 | | | 50.0 Telecommunications | | | NNXYZ Limited England and Wales B | | | 50.0 | | | 50.0 Telecommunications | | | North Falls Offshore Wind Farm Holdco Limited England and Wales B | | | 50.0 | | | 50.0 Holding company | | | North Falls Offshore Wind Farm Limited England and Wales B | | | 50.0 | | | 50.0 Renewable Development | | | PriDE (Serp) Ltd England and Wales Q | | | | – | | 50.0 Estate Maintenance | | and Improvement | Scohoco 1 Limited Scotland A | 40.0 | | | – Holding company | | --- | --- | --- | --- | --- | | Scoprojco 1 Limited Scotland A | 40.0 | | | – Renewable Development | | Scotia Gas Networks Limited England and Wales R | | – | 33.3 Gas Distribution | | | Scotland Gas Networks plc Scotland AC | | – | 33.3 Gas Distribution | | | Seabank Power Limited England and Wales S | 50.0 | | 50.0 Power Generation | | | Seagreen 1A (Holdco) Limited England and Wales B | 49.0 | | 49.0 Holding company | | | Seagreen 1A Limited England and Wales B | 49.0 | | 49.0 Renewable Development | | | Seagreen Alpha Wind Energy Limited England and Wales B | 49.0 | | 49.0 Renewable Development | | | Seagreen Bravo Wind Energy Limited England and Wales B | 49.0 | | 49.0 Renewable Development | | | Seagreen Holdco 1 Limited England and Wales B | 49.0 | | 49.0 Holding company | | | Seagreen Wind Energy Limited England and Wales B | 49.0 | | 49.0 Renewable Development | | | SGN Belvedere Limited England and Wales R | | – | 33.3 Property | | | SGN Brighton Limited England and Wales R | | – | 33.3 Property | | | SGN Commercial Services Limited England and Wales R | | – | 33.3 Energy Related Services | | | SGN Connections Limited England and Wales R | | – | 33.3 Gas Distribution | | | SGN Contracting Limited England and Wales R | | – | 33.3 Energy Related Services | | | SGN Epsom Limited England and Wales R | | – | 33.3 Property | | | SGN Greenwich Limited England and Wales R | | – | 33.3 Property | | | SGN Kennington Limited England and Wales R | | – | 33.3 Property | | | SGN Lessona Limited England and Wales R | | – | 33.3 Holding company | | | SGN MidCo Limited England and Wales R | | – | 33.3 Holding company | | | SGN Motspur Park Limited England and Wales R | | – | 33.3 Property | | | SGN Natural Gas Limited England and Wales R | | – | 33.3 Gas Distribution | | | SGN Old Kent Road Limited England and Wales R | | – | 33.3 Property | | | SGN Place Limited England and Wales R | | – | 33.3 Holding company | | | SGN PledgeCo Limited England and Wales R | | – | 33.3 Holding company | | | SGN Property Holdings Limited England and Wales R | | – | 33.3 Property | | | SGN Property Services Limited England and Wales R | | – | 33.3 Property | | | SGN Rotherhithe Limited England and Wales R | | – | 33.3 Property | | | SGN Smart Limited England and Wales R | | – | 33.3 Gas Distribution | | | SGN Southampton Limited England and Wales R | | – | 33.3 Property | | | Southern Gas Networks plc England and Wales R | | – | 33.3 Gas Distribution | | | SSE Slough Multifuel Holdco Limited England and Wales B | 50.0 | | 100.0 Holding company | | | SSE Slough Multifuel Limited England and Wales B | 50.0 | | 50.0 Power Generation | | | Stronelairg Wind Farm Limited Scotland A | 50.1 | | 50.1 Power Generation | | ** 50.1% of voting rights held. ### A3.1.4 Associates | | Registered | | 2022 | | | 2021 | | | --- | --- | --- | --- | --- | --- | --- | --- | | | address | Holding | | | Holding | | | | Company Country of incorporation | (key (i)) | | | % | | | % Principal activity | Murphy Asset Services Limited England and Wales AD – 16.6 Holding Company Shetland Land Lease Limited England and Wales T – 20.0 Development Company St Clements Services Limited England and Wales U 25.0 25.0 Utilities Software 307SSE plc Annual Report 2022 ## Accompanying information ### A3. Related undertakings A3.1.5 Registered address key ### A4. Joint ventures and associates 308 SSE plc Annual Report 2022 Summary information for material joint ventures and associates from unaudited financial statements is as follows: | | | | | | | SSE | | Clyde | Seagreen | | Beatrice | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Seabank | | Marchwood | | | Slough | | Windfarm | | Offshore | | Offshore | | Dunmaglass | | | Stronelairg | | | | Neos | | | Total | | | SGN | | | Power | | Power | | Multifuel | | (Scotland) | | Windfarm | | Windfarm | | Wind Farm | | | Wind Farm | | | Networks | | | continuing | | discontinued | | | | Limited | | | Limited | | Limited | | | Limited | Limited | | Limited | | | Limited | | | Limited | | Limited | | Other | operations | | | operation | | | | 2022 | | 2022 | | | 2022 | | 2022 | | 2022 | | 2022 | | | 2022 | | | 2022 | | 2022 | 2022 | | 2022 | | | 2022 | | | £m | | | £m | | £m | | £m | | £m | | £m | | | £m | | | £m | | £m | £m | | £m | | | £m | Revenue 260.9 97.6 – 270.9 – 111.6 59.6 142.0 156.8 42.7 1,142.1 181.3 Other income – – – – – 281.3 – – – – 281.3 – Depreciation and amortisation (5.7) (32.2) – (29.8) – (90.6) (8.0) (14.1) (84.0) (30.5) (294.9) (3 3.3) Other operating costs (235.6) (21.2) – (48.9) – (84.3) (10.8) (25.3) (102.6) (16.5) (545.2) (85.0) Operating profit 19.6 44.2 – 192.2 – 218.0 40.8 102.6 (29.8) (4.3) 583.3 63.0 Interest expense (0.1) (6.6) – (18.3) – (69.0) (6.2) (12.5) (24.0) (13.5) (150.2) (46.9) Profit before tax 19.5 37.6 – 173.9 – 149.0 34.6 90.1 (53.8) (17.8) 433.1 16.1 Corporation tax (9.8) (7.6) – (54.2) – (55.8) (13.8) (25.4) (4.0) – (170.6) (259.3) Profit after tax 9.7 30.0 – 119.7 – 93.2 20.8 64.7 (57.8) (17.8) 262.5 (243.2) Recognised in other comprehensive income Actuarial gain on retirement benefit schemes – – – – – – – – – – – 6.3 Taxation – – – – – – – – – – – (7.1) Cash flow hedges – – 7.2 – – 131.9 – – – 267.1 406.2 (1.9) Taxation – – (1.4) – – (25.1) – – – (50.4) (76.9) 4.8 – – 5.8 – – 106.8 – – – 216.7 329.3 2.1 Total comprehensive income/(loss) 9.7 30.0 5.8 119.7 – 200.0 20.8 64.7 (57.8) 198.9 591.8 (241.1) SSE share of profit (based on % equity) 4.8 15.0 – 60.0 – 37.3 10.4 32.5 (29.0) (20.3) 110.7 (81.0) Dividends paid to shareholders – 29.2 – 105.9 – 183.2 21.7 47.5 4.4 – 391.9 – Non-current assets 105.8 194.2 177.3 599.5 2,253.8 2,018.7 186.3 350.1 445.5 3,716.5 10,047.7 – Current assets 58.0 39.7 4.6 110.8 6.1 44.0 23.7 52.6 79.4 41.4 460.3 – Cash and cash equivalents 29.0 21.5 4.9 69.9 73.7 130.7 13.8 47.5 20.0 93.7 504.7 – Current liabilities (4.4) (38.2) (7. 2) (16.9) (151.1) (167. 3) (4.2) (18.1) (145.0) (200.9) (753.3) – Non-current liabilities (64.8) (100.4) (146.9) (429.2) (2,129.3) (1,892.8) (135.5) (253.5) (278.4) (3,402.9) (8,833.7) – Net assets 123.6 116.8 32.7 334.1 53.2 133.3 84.1 178.6 121.5 247.8 1,425.7 – Group equity interest 50% 50% 50% 50.1% 49% 40% 50.1% 50.1% 50% – – – Net assets 123.6 116.8 32.7 334.1 53.2 133.3 84.1 178.6 121.5 247.8 1,425.7 – Group’s share of ownership interest 61.8 58.4 16.4 167.4 26.1 53.4 42.1 89.5 60.7 99.4 675.2 – Other adjustments (11.7) 0.8 56.5 25.2 220.2 (53.4) 69.2 224.4 (5.4) 38.5 564.3 – Carrying value of group’s equity interest 50.1 59.2 72.9 192.6 246.3 – 111.3 313.9 55.3 137.9 1,239.5 – 309SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Accompanying information continued ### A4. Joint ventures and associates continued Walney | | | | | | | | | Clyde | | (UK) | Beatrice | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Seabank | | Marchwood | | | Multifuel | | Windfarm | | Offshore | | Offshore | | Dunmaglass | | | Stronelairg | | | | Neos | | | Total | | | SGN | | | Power | | Power | | | Energy | (Scotland) | | Windfarms | | Windfarm | | Wind Farm | | | Wind Farm | | | Networks | | | continuing | | discontinued | | | | Limited | | | Limited | | Limited | | | Limited | Limited | | Limited | | | Limited | | | Limited | | | Limited | Other | operations | | | operation | | | | 2021 | | 2021 | | | 2021 | | 2021 | | 2021 | | 2021 | | | 2021 | | | 2021 | | 2021 | 2021 | | 2021 | | | 2021 | | | £m | | | £m | | £m | | £m | | £m | | £m | | | £m | | | £m | | £m | £m | | £m | | | £m | Revenue 144.6 88.0 53.7 135.7 57.8 87.5 26.7 51.0 133.2 65.5 843.7 1,235.4 Other income – – – – – 256.2 – – – – 256.2 – Depreciation and amortisation (11.6) (2.2) (17.9) (29.4) (22.9) (89.0) (7.8) (13.9) (70.6) (38.7) (304.0) (184.7) Other operating costs (115.9) (47.6) (9.0) (37.5) (27.5) (74.6) (6.4) (18.6) (71.8) (16.6) (425.5) (531.7) Operating profit 17.1 38.2 26.8 68.8 7.4 180.1 12.5 18.5 (9.2) 10.2 370.4 519.0 Interest expense (0.2) (7.7) (18.9) (17.9) (1.1) (75.2) (6.1) (12.3) (22.6) (24.1) 186.1 (189.3) Profit before tax 16.9 30.5 7.9 50.9 6.3 104.9 6.4 6.2 (31.8) (13.9) 184.3 329.7 Corporation tax (3.9) (6.8) (1.6) (11.5) (1.2) (23.2) (1.6) (1.8) – (1.3) (52.9) (63.9) Profit after tax 13.0 23.7 6.3 39.4 5.1 81.7 4.8 4.4 (31.8) (15.2) 131.4 265.8 Recognised in other comprehensive income Actuarial gain on retirement benefit schemes – – – – – – – – – – – (68.1) Taxation – – – – – – – – – – – 13.3 Cash flow hedges – – – – – 75.1 – – – (13.7) 61.4 17.4 Taxation – – – – – (14.3) – – – 1.7 (12.6) (3.3) – – – – – 60.8 – – – (12.0) 48.8 (40.7) Total comprehensive income/(loss) 13.0 23.7 6.3 39.4 5.1 142.5 4.8 4.4 (31.8) (27.2) 180.2 225.1 SSE share of profit (based on % equity) 6.5 11.9 3.2 19.7 1.3 32.7 2.4 2.2 (15.9) (18.5) 45.5 88.6 Dividends paid to shareholders 17.0 16.6 – 66.1 – 56.4 15.8 28.9 4.4 – 205.2 38.3 Non-current assets 107.5 228.5 – 612.0 – 1,994.1 191.4 353.9 535.1 2,885.8 6,908.3 7,901.3 Current assets 39.7 36.6 – 53.6 – 478.7 9.8 20.7 67.9 111.6 818.6 215.5 Cash and cash equivalents 25.7 3.9 – 35.5 – 95.2 5.1 22.7 18.5 123.8 330.4 283.6 Current liabilities (5.7) (26.5) – (7.7) – (495.3) (1.7) (14.9) (145.8) (246.5) (944.1) (441.8) Non-current liabilities (37.3) (128.7) – (410.8) – (2,111.0) (132.0) (244.9) (216.0) (2,869.6) (6,150.3) (6,114.9) Net assets 129.9 113.8 – 282.6 – (38.3) 72.6 137.5 259.7 5.1 962.9 1,843.7 Group equity interest 50% 50% – 50.1% – 40% 50.1% 50.1% 50% – – 33.3% Net assets 129.9 113.8 – 282.6 – (38.3) 72.6 137.5 259.7 5.1 962.9 1,843.7 Group’s share of ownership interest 65.0 56.9 – 141.6 – (15.3) 36.3 68.9 129.9 – 483.3 614.5 Other adjustments (19.7) 1.9 – 49.0 – (6.3) 80.1 250.4 61.3 118.0 534.7 11.0 Carrying value of group’s equity interest 45.3 58.8 – 190.6 – (21.6) 116.4 319.3 191.2 118.0 1,018.0 625.5 310 SSE plc Annual Report 2022 In addition to the above at 31 March 2022, the Group was owed the following loans from its principal joint ventures: Marchwood Power Limited £39.1m (2021: £47.1m); Clyde Windfarm (Scotland) Ltd £127.1m (2021: £127.1m); Dunmaglass Wind Farm Limited £46.5m (2021: £46.5m); Stronelairg Wind Farm Limited £88.2m (2021: £88.2m) Neos Networks Limited £90.2m (2021: £60.9m); Seagreen Offshore Windfarm Ltd £271.7m (2021: £4.1m) and Slough Multifuel Limited £62.5m (2021: £nil). This represents 99% (2021: 86.2%) of the loans provided to equity-accounted joint ventures and associates. Doggerbank A, B & C joint ventures are predominately project financed in the earlier phases of construction. The carrying value of the equity and debt investment in these joint ventures is £97.5m at 31 March 2022. ### A5. Related party transactions The immediate parent and ultimate controlling party of the Group is SSE plc (incorporated in Scotland). Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below. ### Trading transactions The following transactions took place during the year between the Group and entities which are related to the Group, but which are not members of the Group. Related parties are defined as those in which the Group has control, joint control or significant influence over. | | 2022 | | | 2022 | | | | | | | 2021 | | | 2021 | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Sale of | Purchase of | | | | 2022 | | 2022 | | Sale of | | Purchase of | | | | 2021 | | 2021 | | goods and | | goods and | | | Amounts | | Amounts | | goods and | | | goods and | | | Amounts | | Amounts | | | services | | | services | | owed from | | owed to | | | services | | | services | | owed from | | owed to | | | | £m | | | £m | | £m | | £m | | | £m | | | £m | | £m | | £m | Joint ventures: Seabank Power Ltd 51.9 (49.1) – – 75.2 (86.7) 0.1 (16.8) Marchwood Power Ltd 104.3 (229.3) – (7.6) 45.3 (142.3) 0.6 (11.2) Scotia Gas Networks Ltd 42.9 (10.1) – – 29.9 (13.1) 17.3 (1.1) Clyde Windfarm (Scotland) Ltd 4.6 (259.3) 0.1 (74.2) 4.3 (116.1) 0.1 (38.2) Beatrice Offshore Windfarm Ltd 5.0 (163.7) 0.9 (20.6) 5.3 (43.7) 1.1 (5.3) Stronelairg Windfarm Ltd 2.1 (138.5) – (36.7) 1.9 (44.7) – (17.1) Dunmaglass Windfarm Ltd 1.0 (57.9) – (13.7) 0.9 (22.2) – (6.6) Neos Networks Ltd 31.2 (27.1) 52.2 (13.8) 38.0 (26.3) 41.4 (1.4) Other Joint Ventures 54.3 (196.3) 15.8 (23.8) 22.5 (193.8) 54.8 (1.9) Associates – – – – – (16.2) – – The transactions with Seabank Power Limited and Marchwood Power Limited relate to the contracts for the provision of energy or the tolling of energy under power purchase arrangements. Scotia Gas Networks Limited (‘SGN’) operates the gas distribution networks in Scotland and the South of England. The Group’s gas supply activity incurs gas distribution charges while the Group also provides services to SGN in the form of a management services agreement for corporate and shared services. On 2 August 2021, the Group announced it had agreed to sell its 33.3% stake in SGN. The Group assessed that the investment met the criteria to be classified as held for sale on 11 June 2021 when an Exclusivity Agreement was signed by the acquiring consortium. Accordingly, from 11 June 2021 the Group ceased to equity account for SGN. On 22 March 2022 the Group completed its disposal its interest in SGN. The amounts outstanding are trading balances, are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have been made for doubtful debts in respect of the amounts owed by related parties. Aggregate capital loans to joint ventures and associates are shown in note 16. ### A6. Financial risk management This note presents information about the fair value of the Group’s financial instruments, the Group’s exposure to the risks associated with those instruments, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Further qualitative disclosures are included throughout these consolidated financial statements. The Group has exposure to the following risks from its use of financial instruments: • Credit risk • Liquidity risk • Commodity risk • Currency risk • Interest rate risk The Board has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s policies for risk management are established to identify the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Exposure to commodity, currency and interest rate risks arise in the normal course of the Group’s business and derivative financial instruments are entered into to hedge exposure to these risks. 311SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Accompanying information continued ### A6. Financial risk management continued SSE has a Group wide risk committee reporting to the Group Executive Committee, which is responsible for reviewing the strategic, market, credit, operational and liquidity risks and exposures that arise from the Group’s operating activities. In addition, the Group has two dedicated Energy Market risk committees reporting to the Group Executive Committee and Board respectively, with the Group Executive Sub-committee chaired by the Group Finance Director and the Board Sub-committee chaired by Non-Executive Director Tony Cocker. These Committees oversee the Group’s management of its energy market exposures, including its approach to hedging. During the year ended 31 March 2022, the Group was exposed to exceptional volatility in energy markets impacting the primary commodities to which it is exposed (Gas, Carbon and Power). The Group’s approach to hedging, and the diversity of its energy portfolios (across Wind, Hydro, Thermal and Customers) has provided significant mitigation of these exposures. Exceptional rises and volatility in commodity prices have created a particular challenge in managing counter-party credit and collateral exposures and requirements, to ensure continued access to energy markets to enable hedging and prompt optimisation of SSE’s energy portfolios. This market access has been successfully maintained. Exposure to the commodity, currency and interest rate risks noted arise in the normal course of the Group’s business and derivative financial instruments are entered into to hedge exposure to these risks. The objectives and policies for holding or issuing financial instruments and similar contracts, and the strategies for achieving those objectives that have been followed during the year are explained below. ### A6.1 Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty fails to meet its contractual obligations. Credit risk arising from the Group’s normal commercial operations is controlled by individual business units operating in accordance with Group policies and procedures. Generally, for significant contracts, individual business units enter into contracts or agreements with counterparties having investment grade credit ratings only, or where suitable collateral or other security has been provided. Counterparty credit validation is undertaken prior to contractual commitment. Credit risk management for the Group’s SSEN Transmission and SSEN Distribution businesses is performed in accordance with industry standards as set out by the Regulator and is financially controlled by the individual business units. The Group’s greatest credit risks lie with the operations of the Customers business, the wholesale procurement activities conducted by Energy Portfolio Management (‘EPM’) under a trust arrangement and the activities carried out by the Group’s Treasury function. In all cases, specific credit risk controls that match the risk profile of those activities are applied. Exposure to credit risk in the retail supply of electricity and gas to end user customers arises from the potential of a customer defaulting on their invoiced payables. The Group exposure to retail supply customers is limited to customers of the Group’s Airtricity business. The creditworthiness of these customers is reviewed from a variety of internal and external information. The financial strength and creditworthiness of business customers is assessed prior to commencing, and for the duration of, their contract of supply. Exposure to credit risk in the procurement of wholesale energy and fuel is managed by reference to agreed transaction credit limits which are determined by whether the counterparty: • holds an investment grade credit rating; or • can be assessed as adequately creditworthy in accordance with internal credit rules using information from other external credit agencies; or • can provide a guarantee from an investment grade rated entity or post suitable collateral or provide other acceptable assurances in accordance with group procedures where they have failed to meet the above conditions; or • can be allocated a non-standard credit limit approved by the relevant Risk or Treasury Committee within its authorised limits as delegated by the Group Board. Credit support clauses and Master Netting Agreements are typically included or entered into in order to mitigate the impact to the Group against counterparty failure or non-delivery. As part of its normal activities, EPM transacts significant volumes of commodity derivative products through cleared exchanges to mitigate credit risk. Such exchanges are subject to strict regulation by the UK Financial Conduct Authority (FCA) and participants in these exchanges are obliged to meet rigorous capital adequacy requirements. Individual counterparty credit exposures are monitored regularly and are subject to approved limits. At 31 March 2022, EPM had pledged £545.9m (2021: £201.8m) of cash collateral and letters of credit and had received £95.8m (2021: £80.1m) of cash collateral and letters of credit principally to reduce exposures on credit risk. Bank credit exposures, which are monitored and reported on daily, are calculated on a mark-to-market basis and adjusted for future volatility and probability of default. Any issues relating to these credit exposures are presented for discussion and review by the Tax and Treasury Committee. Cash and cash equivalents comprise cash in hand and deposits which are readily convertible to cash. These are subject to insignificant risk of change in value or credit risk. Derivative financial instruments are entered into to cover the Group’s market risks – commodity risk, interest rate risk, currency risk – and are consequently covered elsewhere in this note. Trade receivables represent the most significant exposure to credit risk and are stated after an allowance for impairment. 312 SSE plc Annual Report 2022 ## A6.2 Concentrations of risk | | 2022 £m | | --- | --- | | Continuing operations | 7.9 | | | 122.3 | | | 84.1 | | | 21.2 | | | 1.4 | | | 231.3 | | | 231.6 | | | 38.4 | | | 679.3 | | | 16.4 | | Total continuing operations | 1,433.9 | | Held for sale assets and discontinued operations | – | | | – | | Total discontinued operations | – | | Total SSE Group | 1,433.9 | | | 2022 £m | | --- | --- | | | 1,167.7 | | | 185.3 | | | 60.8 | | | 98.3 | | | 1,512.1 | | | (78.2) | | | 1,433.9 | SSE plc Annual Report 2022 313 ## Accompanying information ### A6. Financial risk management #### A6.2 Concentrations of risk | | 2022 £m | | --- | --- | | | 77.1 | | | (16.8) | | | 17.9 | | | – | | | 78.2 | #### A6.3 Liquidity risk and Going Concern 314 SSE plc Annual Report 2022 Treasury also manage the Group’s interaction with its relationship banks (defined as those banks that support the Group’s financing activities through their ongoing participation in the committed lending facilities that are maintained by the Group). These are each allocated financial limits, subject to the maintenance of a minimum credit rating of investment grade or better allocated by a recognised major ratings group. In respect of short-term cash management, counterparties are subject to review and approval according to defined criteria. As at 31 March 2022, the value of outstanding cash collateral posted in respect of mark-to-market related margin calls on exchange traded positions was (£74.7m) (2021: £37.1m). The contractual cash flows shown in the following tables are the contractual undiscounted cashflows under the relevant financial instruments. Where the contractual cashflows are variable based on a price, foreign exchange rate or index in the future, the contractual cashflows in the following tables have been determined with reference to the relevant price, foreign exchange rate, interest rate or index as at the balance sheet date. In determining the interest element of contractual cashflows in cases where the Group has a choice as to the length of interest calculation periods and the interest rate that applies varies with the period selected, the contractual cashflows have been calculated assuming the Group selects the shortest available interest calculation periods. Where the holder of an instrument has a choice of when to redeem, the amounts in the following tables are on the assumption the holder redeems at the earliest opportunity. The following are the undiscounted contractual maturities of financial liabilities, including interest and excluding the impact of nettingagreements: | | | 2022 | | 2022 | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Carrying | | Contractual | | | 2022 | | 2022 | | 2022 | | 2022 | | | | value | cash flows | | 0-12 months | | 1-2 years | | 2-5 years | | > 5 years | | | Liquidity Risk | | £m | | £m | | £m | | £m | | £m | | £m | Financial Liabilities Loans and Borrowings Commercial paper and cash advances 506.1 (507.1) (507.1) – – – Loans – floating 200.0 (209.7) (1.6) (1.6) (4.9) (201.6) Loans – fixed 1,508.1 (1,913.7) (358.9) (240.5) (905.4) (408.9) Unsecured bonds – fixed 6,425.4 (8,392.3) (1,529.7) (681.1) (1,985.5) (4,196.0) Fair value adjustment 31.6 – – – – – 8,671.2 (11,022.8) (2 ,397.3) (923.2) (2,895.8) (4,806.5) Lease liabilities 393.5 (581.2) (88.7) (61.7) (162.0) (268.8) 9,064.7 (11,604.0) (2,486.0) (984.9) (3,057.8) (5,075.3) Derivative Financial Liabilities Operating derivatives designated at fair value 828.7 (3,079.0) (2,790.0) (178.0) (111.0) – Interest rate swaps used for hedging 129.2 (129.0) (55.3) (19.0) 43.3 (98.0) Interest rate swaps designated at fair value 246.2 (246.2) (16.1) (15.6) (46.0) (168.5) Forward exchange contracts held for hedging 43.4 (521.8) (347.9) (137.2) (36.7) – Forward exchange contracts designated at fair value 3.6 (208.2) (194.4) (13.8) – – 1,251.1 (4,184.2) (3,403.7) (363.6) (150.4) (266.5) Other financial liabilities Trade payables 919.7 (919.7) (919.7) – – – 919.7 (919.7) (919.7) – – – Total 11,235.5 (16,707.9) (6,809.4) (1,348.5) (3,208.2) (5,341.8) Derivative Financial Assets Financing derivatives (182.9) 441.3 382.4 41.6 15.6 1.7 Operating derivatives designated at fair value (3,130.5) 3,057.3 2,597.6 311.1 148.6 – (3,313.4) 3,498.6 2,980.0 352.7 164.2 1.7 Net total (i) 7,922. 1 (13,209.3) (3,829.4) (995.8) (3,044.0) (5,340.1) 315SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Accompanying information continued ### A6. Financial risk management continued ### A6.3 Liquidity risk and Going Concern continued | | | 2021 | | 2021 | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Carrying | | Contractual | | | 2021 | | 2021 | | 2021 | | 2021 | | | | value | cash flows | | 0-12 months | | 1-2 years | | 2-5 years | | > 5 years | | | Liquidity Risk | | £m | | £m | | £m | | £m | | £m | | £m | Financial Liabilities Loans and Borrowings Loans – floating 350.0 (362.0) (152.2) (1.6) (4.9) (203.3) Loans – fixed 1,496.8 (1,937.3) (47.9) (359.0) (519.2) (1,011.2) Unsecured bonds – fixed 7,139.6 (9,344.5) (956.3) (1,534.4) (1,935.6) (4,918.2) Fair value adjustment 3.2 – – – – – 8,989.6 (11,643.8) (1,156.4) (1,895.0) (2,459.7) (6,132.7) Lease liabilities 421.0 (622.0) (92.7) (86.2) (175.9) (267.2) 9,410.6 (12,265.8) (1,249.1) (1,981.2) (2,635.6) (6,399.9) Derivative Financial Liabilities Operating derivatives designated at fair value 138.1 (1,590.1) (1,475.5) (81.3) (33.3) – Interest rate swaps used for hedging 164.6 (165.3) (63.3) (38.1) (42.9) (21.0) Interest rate swaps designated at fair value 325.1 (328.1) (20.0) (20.0) (57.1) (231.0) Forward exchange contracts held for hedging 52.0 (890.1) (292.7) (430.7) (166.7) – Forward exchange contracts designated at fair value 11.0 (274.7) (262.8) (11.4) (0.5) – 690.8 (3,248.3) (2,114.3) (581.5) (300.5) (252.0) Other financial liabilities Trade payables 433.3 (433.3) (433.3) – – – 433.3 (433.3) (433.3) – – – Total 10,534.7 (15,947.4) (3,796.7) (2,562.7) (2,936.1) (6,651.9) Derivative Financial Assets Financing derivatives (240.9) 697.7 581.0 85.8 30.7 0.2 Operating derivatives designated at fair value (344.7) 2,250.6 1,932.8 213.5 104.3 – (585.6) 2,948.3 2,513.8 299.3 135.0 0.2 Net total (i) 9,949.1 (12,999.1) (1,282.9) (2,263.4) (2,801.1) (6,651.7) (i) The Group believes the liquidity risk associated with out-of-the-money operating derivative contracts needs to be considered in conjunction with the profile of payments or receipts arising from derivative financial assets. It should be noted that cash flows associated with future energy sales and commodity contracts which are not IFRS 9 financial instruments are not included in this analysis, which is prepared in accordance with IFRS 7 “Financial Instruments: Disclosures”. ### A6.4 Commodity risk The Group’s Energy Portfolio Management (‘EPM’) business implements the hedging policy through trading in the commodity markets and manages the requirement for the delivery of the Group’s physical commodity needs as part of its normal course of business. The risk management activity carried out by EPM arises from the Group’s requirement to source gas, electricity or other commodities such as renewable obligation certificates for Business Energy and SSE Airticity, and to procure fuel and other commodities and provide a route-to- market for SSE Renewables, SSE Thermal, Gas Storage and the discontinued Gas Production business. 316 SSE plc Annual Report 2022 Current hedging approach The Group has traded in three principal commodities during the year, as well as the spreads between two or more commodity prices: power (baseload and other products); gas; and carbon (emissions allowances). Each commodity has different liquidity characteristics, which impacts on the degree of hedging possible. Similarly, each of the Group’s assets carries different exposures to the commodity market and thus requires a different approach to hedging. As such, the Group’s current hedging approach varies by each class of asset asfollows: Asset class Minimum hedge target Principal commodity exposures GB Wind Target to hedge of less than 100% of anticipated wind energy output for the Power, Gas, Carbon coming 12 months. From May 2021, this has been at least 90%. Hydro 85% of forecast generation 12 months in advance of delivery. Power, Gas, Carbon GB Thermal 100% of expected output 6 months in advance of delivery, progressively Power, Gas, Carbon established over the preceding 24 months. Gas Storage The annual auction to offer gas storage capacity contracts from Atwick for Gas the 2020/21 (and 21/22) financial year resulted in no third party contracts being secured. The assets were commercially operated throughout the year and the business managed its exposure to changes in the spread between summer and winter prices, market volatility and plant availability. Business Energy Sales to contract customers are 100% hedged: at point of sale for fixed, upon Power, Gas, Carbon instruction for flexi and on a rolling basis for tariff customers. However, there are three principal areas where significant variations in earnings cannot be fully mitigated through hedging: • The impact of the weather on the volume of electricity produced from renewable sources; • The impact of operational matters such as unplanned outages; and • The ability of flexible thermal power stations to earn extrinsic income by providing services to the electricity system and by responding to shorter-term electricity market conditions. Hedging is carried out by each asset class trading internally with EPM to affect these hedges and EPM trading onwards with external counterparties. EPM is only able to accept internal trades when there is sufficient liquidity to offset them in the external market or they can be offset with internal trades from other asset classes. In this way, the commodity risks to which EPM is individually exposed, areminimised. The volumetric extent to which assets are hedged are reported monthly, and to the EMRC on at least a quarterly basis. Variations to thehedging approach above will be required as markets and other factors (such as asset disposals) change. The EMRC also receives reporting on credit risk, other risk measures, and market liquidity in assessing whether any variations to the hedging approach arerequired. The Group measures and manages the Commodity Risk associated with the financial and non-financial commodity contracts it is exposed to. However, only certain commodity contracts within the Group constitute financial instruments under IFRS 9. As a result, it is only the fair value of IFRS 9 financial instruments which represents the exposure of the Group’s commodity price risk under IFRS 7. This is a consequence of the Group’s accounting policy which stipulates that commodity contracts which are designated as financial instruments under IFRS 9 should be accounted for on a fair value basis with changes in fair value reflected in profit or equity. Conversely, commodity contracts that are not designated as financial instruments under IFRS 9 will be accounted for as ‘own use’ contracts. As fair value changes in own use contracts are not reflected through profit or equity, these do not represent the IFRS 7 commodity price risk. Furthermore, other physical contracts can be treated as the hedging instrument in documented cash flow hedging relationships where the hedged item is the forecast future purchase requirement to meet production or customer demand. The accounting policies associated with financial instruments are explained in the Accompanying Information section A1 . Sensitivity analysis The Group’s exposure to commodity price risk according to IFRS 7 is measured by reference to the Group’s IFRS 9 commodity contracts. IFRS 7 requires disclosure of a sensitivity analysis for market risks that is intended to illustrate the sensitivity of the Group’s financial position and performance to changes in market variables impacting upon the fair value or cash flows associated with the Group’s financial instruments. Therefore, the sensitivity analysis provided discloses the effect on profit or loss and equity at the balance sheet date assuming that a reasonably possible change in the relevant commodity price had occurred and been applied to the risk exposures in existence at that date. The reasonably possible changes in commodity prices used in the sensitivity analysis were determined based on calculated or implied volatilities where available, or historical data. 317SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Accompanying information continued ### A6. Financial risk management continued ### A6.4 Commodity risk continued The sensitivity analysis has been calculated on the basis that the proportion of commodity contracts that are IFRS 9 financial instruments remains consistent with those at that point. Excluded from this analysis are all commodity contracts that are not financial instruments under IFRS 9. 2022 2021 Reasonably Reasonably possible possible increase/ increase/ decrease in decrease in Base Price (i) variable Base Price (i) variable Commodity prices UK gas (p/therm) 313 +/-190 44 +/-20 UK power (£/MWh) 250 +/-119 53 +/-24 UK carbon (£/tonne) 76 +/-73 72 +/-11 EU emissions (€/tonne) 79 +/-76 43 +/-11 UK oil (US$/bbl) 260 +/-145 59 +/-11 IRL power (€/MWh) 310 +/-120 53 +/-24 (i) The base price represents the average forward market price over the duration of the active market curve used to calculate the sensitivity analysis. The volatility assumptions used to determine the reasonably possible increase/decrease in market prices have been determined based on a calculation by SSE EPM and models simulations and calibrates the volatility assumption using a look-back on market prices over the previous five year period. The impacts of reasonably possible changes in commodity prices on profit after taxation based on the rationale described are as follows: | | | | 2022 | | | 2021 | | --- | --- | --- | --- | --- | --- | --- | | | Impact on profit | | | Impact on profit | | | | | | and equity | | | and equity | | | Incremental profit/(loss) | | | (£m) | | | (£m) | Commodity prices combined – increase 2,349.8 428.5 Commodity prices combined – decrease (2,349.8) (428.5) The sensitivity analysis provided is hypothetical and is based on the exposure to energy-related commodities, and their corresponding valuation under IFRS 9, that the Group has at each period end. This analysis should be used with caution as the impacts disclosed are not necessarily indicative of the actual impacts that would be experienced given it does not consider all interrelationships, consequences and effects of such a change in those prices. ### A6.5 Currency risk The Group publishes its consolidated financial statements in Sterling but also conducts business in foreign currencies. As a result, it is subject to foreign currency exchange risk arising from exchange rate movements which will be reflected in the Group’s transaction costs or in the underlying foreign currency assets of its foreign operations. The Group’s policy is to use forward contracts, swaps and options to manage its exposures to foreign exchange risk. All such exposures are transactional in nature, and relate primarily to procurement contracts, commodity purchasing and related freight requirements, commodity hedging, long term plant servicing and maintenance agreements, and the purchase and sale of carbon emission certificates. The policy is to seek to hedge 100% of its currency requirements arising under all committed contracts excepting commodity hedge transactions, the requirements for which are significantly less predictable. The policy for these latter transactions is to assess the Group’s requirements on a rolling basis and to enter into cover contracts as appropriate. The Group has foreign subsidiary operations with significant Euro-denominated net assets. The Group’s policy is to hedge its net investment in its foreign operations by ensuring the net assets whose functional currency cash flows are denominated in Euros are matched by borrowings in Euros. For the acquired net assets whose functional cash flows are in Sterling, the Group will ensure Sterling denominated borrowings are in place to minimise currency risk. Significant exposures are reported to, and discussed by, the Tax and Treasury Committee on an ongoing basis and additionally form part of the bi-annual Treasury report to the Audit Committee. At the balance sheet date, the total nominal value of outstanding forward foreign exchange contracts that the Group has committed to is: 2022 2021 £m £m Forward foreign exchange contracts 4,176.4 4,395.5 318 SSE plc Annual Report 2022 The Group’s exposure to foreign currency risk was as follows: 2022 2021 SEK € $ CHF SEK € $ (million) (million) (million) (million) (million) (million) (million) Loans and borrowings – 1,719.0 3,625.0 – – 4,125.0 1,719.0 Purchase and commodity contract commitments 1,694.8 17.8 713.3 58.3 2,383.4 518.1 27.9 Gross exposure 1,694.8 1,736.8 4,338.3 58.3 2,383.4 4,643.1 1,746.9 Forward exchange/ swap contracts 1,694.8 1,736.8 3,163.8 58.3 2,383.4 3,443.0 1,746.9 Net exposure (in currency) – – 1,174.5 – – 1,200.1 – Net exposure (in £m) – – 990.7 – – 1,021.8 – This represents the net exposure to foreign currencies, reported in pounds Sterling, and arising from all Group activities. All sensitivity analysis has been prepared on the basis of the relative proportions of instruments in foreign currencies being consistent as at the balance sheet date. This includes only monetary assets and liabilities denominated in a currency other than Sterling and excludes the translation of the net assets of foreign operations but not the corresponding impact of the net investment hedge. The sensitivity analysis is indicative only and it should be noted that the Group’s exposure to such market rate changes is continually changing. The calculations are based on linear extrapolations of rate changes which may not reflect the actual result which would impact upon the Group. A 10% change in foreign currency exchange rates would have had the following impact on profit after taxation, based on the assumptions presented above: Equity Income Statement | At 31 March | | At 31 March | | At 31 March | | At 31 March | | | --- | --- | --- | --- | --- | --- | --- | --- | | | 2022 | | 2021 | | 2022 | | 2021 | | | £m | | £m | | £m | | £m | US Dollars – – – – Euro 89.2 90.0 – 1.9 SEK – – – – CHF – – – – 89.2 90.0 – 1.9 The impact of a decrease in rates would be an identical reduction in the annual charge. ### A6.6 Interest rate risk Interest rate risk derives from the Group’s exposure to changes in the value of an asset or liability or future cash flows through changes in interest rates. The Group’s policy is to manage this risk by stipulating that a minimum of 50% of Group borrowings be subject to fixed rates of interest, either directly through the debt instruments themselves or through the use of derivative financial instruments. The floating rate borrowings are provided by banks including the European Investment Bank (EIB). Such instruments include interest rate swaps and options, forward rate agreements and, in the case of debt raised in currencies other than Sterling, cross currency swaps. These practices serve to reduce the volatility of the Group’s financial performance. Although interest rate derivatives are primarily used to hedge risk relating to current borrowings, under certain circumstances they may also be used to hedge future borrowings. Any such pre-hedging is unwound at the time of pricing the underlying debt, either through cash settlement on a net present value basis or by transacting offsetting trades. The floating rate borrowings mainly comprise cash advances from the European Investment Bank (EIB), however the Group is currently carrying a surplus cash position of £1.0bn. The impact of a change in interest rates is dependent on the specific details of the financial asset or liability in question. Changes in fixed rate financial assets and liabilities, which account for the majority of cash, loans and borrowings, are not measured at fair value through the income statement. In addition to this, changes to fixed-to-floating hedging instruments which are recorded under cash flow hedge accounting also do not impact the income statement. Changes in variable rate instruments and hedging instruments and hedged items recorded under fair value hedge accounting are recorded through the income statement. The exposure measured is therefore based on variable rate debt and instruments. 319SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Accompanying information continued ### A6. Financial risk management continued ### A6.6 Interest rate risk continued The net exposure to interest rates at the balance sheet date can be summarised thus: | | 2022 | | 2021 | | --- | --- | --- | --- | | Carrying | | Carrying | | | amount | | amount | | | | £m | | £m | Interest bearing/earning assets and liabilities: – fixed (8,543.6) (9,804.2) – floating 328.9 1,721.7 (8,214.7) (8,082.5) Represented by: Cash and cash equivalents 1,049.3 1,600.2 Derivative financial liabilities (199.3) (272.1) Loans and borrowings (8,671.2) (8,989.6) Lease liabilities (393.5) (421.0) (8,214.7) (8,082.5) Following from this, the table below represents the expected impact of a change of 100 basis points in short term interest rates at the reporting date in relation to equity and income statement. The analysis assumes that all other variables, in particular foreign currency rates, remain constant. An increase in exchange rates would be a change to either the income statement or equity. The assessment is based on a revision of the fair value assumptions included in the calculated exposures in the previous table. All sensitivity analysis has been prepared on the basis of the proportion of fixed to floating instruments being consistent as at the balance sheet date and is stated after the effect of taxation. The sensitivity analysis is indicative only and it should be noted that the Group’s exposure to such market rate changes is continually changing. The calculations are based on linear extrapolations of rate changes which may not reflect the actual result which would impact upon the Group. 2022 2021 £m £m Income statement 2.5 (0.9) The impact of a decrease in rates would be an equal reduction in the annual charge. There is no impact on equity as the analysis relates to the Group’s net exposure at the balance sheet date. Contracts qualifying for hedge accounting are, by definition, part of the Group’s covered position. 320 SSE plc Annual Report 2022 ### A7. Fair value of financial instruments ### A7.1 Fair value of financial instruments within the group The fair values of the primary financial assets and liabilities of the Group together with their carrying values are as follows: | | | | | | 2022 | | | | | | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 2022 | | 2022 | | Total | | | | 2021 | | 2021 | | Total | | | | Amortised | | | FVTPL/ | carrying | | | 2022 | Amortised | | | FVTPL/ | carrying | | | 2021 | | | cost (i) | FVTOCI (ii) | | | value | Fair value | | | cost (i) | FVTOCI (ii) | | | value | Fair value | | | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | Financial assets Current Trade receivables 1,433.9 – 1,433.9 1,433.9 832.2 – 832.2 832.2 Other receivables 4.9 – 4.9 4.9 3.8 – 3.8 3.8 Cash collateral and other short term loans 83.8 – 83.8 83.8 2.7 – 2.7 2.7 Cash and cash equivalents 1,049.3 – 1,049.3 1,049.3 1,600.2 – 1,600.2 1,600.2 Derivative financial assets – 2,941.8 2,941.8 2,941.8 – 470.9 470.9 470.9 2,571.9 2,941.8 5,513.7 5,513.7 2,438.9 470.9 2,909.8 2,909.8 Non-current Unquoted equity investments – 8.7 8.7 8.7 – 3.6 3.6 3.6 Loan note receivable 136.4 – 136.4 136.4 115.9 – 115.9 115.9 Loans to associates and jointly controlled entities 736.9 – 736.9 736.9 554.3 – 554.3 554.3 Derivative financial assets – 371.7 371.7 371.7 – 114.7 114.7 114.7 873.3 380.4 1,253.7 1,253.7 670.2 118.3 788.5 788.5 3,445.2 3,322.2 6,767.4 6,767.4 3,109.1 589.2 3,698.3 3,698.3 Financial liabilities Current Trade payables (919.7) – (919.7) (919.7) (433.3) – (433.3) (433.3) Outstanding liquid funds (9.1) – (9.1) (9.1) (39.8) – (39.8) (39.8) Loans and borrowings (1,118.7) – (1,118.7) (1,162.4) (864.7) – (864.7) (880.2) Lease liabilities (72.1) – (72.1) (72.1) (72.9) – (72.9) (72.9) Derivative financial liabilities – (701.5) (701.5) (701.5) – (238.7) (238.7) (238.7) (2,119.6) (701.5) (2,821.1) (2,864.8) (1,410.7) (238.7) (1,649.4) (1,664.9) Non-current Loans and borrowings (7,520.9) (31.6) (7,552.5) (8,133.7) (8,121.7) (3.2) (8,124.9) (9,373.1) Lease liabilities (321.4) – (321.4) (321.4) (348.1) – (348.1) (348.1) Derivative financial liabilities – (549.6) (549.6) (549.6) – (452.1) (452.1) (452.1) (7,842.3) (581.2) (8,423.5) (9,004.7) (8,469.8) (455.3) (8,925.1) (10,173.3) (9,961.9) (1,282.7) (11,244.6) (11,869.5) (9,880.5) (694.0) (10,574.5) (11,838.2) Net financial liabilities (6,516.7) 2,039.5 (4,477.2) (5,102.1) (6,771.4) (104.8) (6,876.2) (8,139.9) (i) Financial assets and liabilities that are measured at amortised cost. (ii) Financial assets and liabilities that are measured at either Fair Value through Profit and Loss (Derivative Financial Assets and Liabilities) or Fair Value through Other Comprehensive Income (Unquoted Equity Investments) 321SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Accompanying information continued ### A7. Fair value of financial instruments continued ### A7.1 Fair value of financial instruments within the group continued A7.1.1 Basis of determining fair value Certain assets and liabilities have been classified and carried at amortised cost on inception in line with IFRS 9 criteria. The carrying value of these assets are approximately equivalent to fair value due to short term maturity aside from loans and borrowings which are subject to longer maturity dates. All other financial assets and liabilities are measured at either Fair Value through Profit and Loss (‘FVTPL’) or Fair Value through Other Comprehensive Income (‘FVTOCI’). Fair values for energy derivatives are based on unadjusted quoted market prices, where actively traded. For energy derivatives that are not actively traded, interest rate instruments, foreign currency hedge contracts and cross currency swap contracts associated with foreign currency denominated long-term fixed rate debt, the fair values are determined by reference to closing rate market prices for similar instruments. Fair values for unquoted equity instruments are derived from venture capital or growth equity firm valuation statements. The fair values are stated at a specific date and may be different from the amounts which will actually be paid or received on settlement of the instruments. The fair value of items such as property, plant and equipment, internally generated brands or the Group’s customer base are not included as these are not considered financial instruments. ### A7.2 Fair value hierarchy The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. • Level 1 fair value measurements are those derived from unadjusted quoted market prices for identical assets or liabilities. • Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). • Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data. | 2022 | 2022 | 2022 | 2022 | | --- | --- | --- | --- | | Level 1 | Level 2 | Level 3 | Total | | £m | £m | £m | £m | Financial assets Energy derivatives 884.1 2,246.4 – 3,130.5 Interest rate derivatives – 176.8 – 176.8 Foreign exchange derivatives – 6.1 – 6.1 Loan note receivable – – 136.4 136.4 Unquoted equity investments – – 8.7 8.7 884.1 2,429.3 145.1 3,458.5 Financial liabilities Energy derivatives – (828.7) – (828.7) Interest rate derivatives – (376.1) – (376.1) Foreign exchange derivatives – (46.3) – (46.3) Loans and borrowings – (31.6) – (31.6) – (1,282.7) – (1,282.7) There were no significant transfers out of level 1 into level 2 and out of level 2 into level 1 during the year ended 31 March 2022. | 2021 | 2021 | 2021 | 2021 | | --- | --- | --- | --- | | Level 1 | Level 2 | Level 3 | Total | | £m | £m | £m | £m | Financial assets Energy derivatives 68.8 275.9 – 344.7 Interest rate derivatives – 217.6 – 217.6 Foreign exchange derivatives – 23.3 – 23.3 Loan note receivable – – 115.9 115.9 Unquoted equity investments – – 3.6 3.6 68.8 516.8 119.5 705.1 Financial liabilities Energy derivatives – (138.1) – (138.1) Interest rate derivatives – (489.7) – (489.7) Foreign exchange derivatives – (63.0) – (63.0) Loans and borrowings – (3.2) – (3.2) – (694.0) – (694.0) There were no significant transfers out of level 1 into level 2 and out of level 2 into level 1 during the year ended 31 March 2021. 322 SSE plc Annual Report 2022 ### A8. Hedge accounting ### A8.1 Cash flow hedges The Group designates contracts which qualify as hedges for accounting purposes either as cash flow hedges or fair value hedges. Cash flow hedges are contracts entered into to hedge a forecast transaction or cash flow risk generally arising from a change in interest rates or foreign currency exchange rates and which meet the effectiveness criteria prescribed by IFRS 9. The Group’s accounting policy on cash flow hedges is explained in the Accompanying Information section A1. The following table indicates the contractual maturities of the expected transactions and the qualifying cash flow hedges associated. Non-Sterling denominated contractual cash flows have been converted at the forward foreign exchange rate. | | | | | 2022 | | | | | | | | | | | 2021 | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 2022 | Expected | | 2022 | | | | | | | | 2021 | Expected | | 2021 | | | | | | | | | Carrying | | | cash | 0-12 | | 2022 | | 2022 | | 2022 | Carrying | | | cash | 0-12 | | 2021 | | 2021 | | 2021 | | Cash flow hedges | amount | | | flows | months | 1-2 years | | 2-5 years | | > 5 years | | amount | | | flows | months | 1-2 years | | 2-5 years | | > 5 years | | Interest rate swaps: Assets 5.7 6.1 – 2.3 3.4 0.4 0.1 0.2 – (0.1) – 0.3 Liabilities – – – – – – (8.4) (8.5) – (1.9) (5.5) (1.1) 5.7 6.1 – 2.3 3.4 0.4 (8.3) (8.3) – (2.0) (5.5) (0.8) Cross currency swaps: Assets 160.5 169.9 27.8 96.5 45.6 – 137.1 142.3 4.5 17.0 123.0 (2.2) Liabilities (132.7) (127.9) (54.2) (19.0) (47.7) (7.0) (157.0) (151.1) (7.6) (98.6) (49.1) 4.2 27.8 42.0 (26.4) 77.5 (2.1) (7.0) (19.9) (8.8) (3.1) (81.6) 73.9 2.0 Forward exchange contracts: Assets 0.6 9.6 9.6 – – – 11.7 169.6 169.6 – – – Liabilities (43.4) 521.8 348.0 137.1 36.7 – (52.6) (890.1) (292.7) (430.7) (166.7) – (42.8) 531.4 357.6 137.1 36.7 – (40.9) (720.5) (123.1) (430.7) (166.7) – ### A8.2 Net investment hedge The Group’s net investment hedge consists of debt issued in the same currency (€) as the net investment in foreign subsidiaries with € denominated functional currencies being the Airtricity Supply business and the thermal plants and wind farms in Ireland. The hedge compares the element of the net assets whose functional cash flows are denominated in € to the matching portion of the € borrowings held by the Group. This therefore provides protection against movements in foreign exchange rates. Gains and losses in the hedge are recognised in equity and will be transferred to the income statement on disposal of the foreign operation (2022: £9.4m gain, 2021: £37.3m gain). Gains and losses on the ineffective portion of the hedge are recognised immediately in the income statement (2022: £nil, 2021: £nil). 323SSE plc Annual Report 2022 ## Company balance sheet As at 31 March 2022 | | 2022 Note | £m | | --- | --- | --- | | Assets | 12.7 | | | | 129.2 | | | | 1,883.6 | | | | 9,365.5 | | | | 64.6 | | | | 517.5 | | | Non-current assets | 11,973.1 | | | | 720.1 | | | | 3.8 | | | | 1,006.7 | | | | 112.0 | | | Current assets | 1,842.6 | | | Total assets | 13,815.7 | | | Liabilities | 968.7 | | | | 2,035.3 | | | | 84.0 | | | | 70.6 | | | Current liabilities | 3,158.6 | | | | 5,284.7 | | | | 65.0 | | | | 242.9 | | | | 301.1 | | | Non-current liabilities | 5,893.7 | | | Total liabilities | 9,052.3 | | | Net assets | 4,763.4 | | | Equity: | 536.5 | | | | 835.1 | | | | 49.2 | | | | 13.3 | | | | 2,278.3 | | | Equity attributable to ordinary shareholders of the parent | 3,712.4 | | | | 1,051.0 | | | Total equity | 4,763.4 | | Result for the year Gregor Alexander, Finance Director Sir John Manzoni, Chairman 324 SSE plc Annual Report 2022 # Company statement of changes in equity For the year ended 31 March 2022 # Statement of changes in equity | At 31 March 2022 | 536.5 | 835.1 | 49.2 | 13.3 | 2,278.3 | 3,712.4 | 1,051.0 | 4,763.4 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | SSE plc Annual Report 2022 325 # Notes to the Company financial statements For the year ended 31 March 2022 1. Principal accounting policies 1.1 General information 1.2 Basis of preparation Going concern Basis of measurement Critical accounting judgements and estimation uncertainty Significant accounting policies Investments Interests in joint arrangements and associates Applicable Group accounting policies | | A1.2 | A1.2 | | --- | --- | --- | | A1.2 | | | | | A1 and A6 | | 326 SSE plc Annual Report 2022 ## 2. Supplementary financial information ### 2.1 Auditor remuneration ### 2.2 Employee numbers ### 2.3 Directors' remuneration and interests pages 168 to 199 ## 3. Investments in associates and joint ventures | | 2022 | | | | --- | --- | --- | --- | | | Equity £m | Loans £m | Total £m | | Share of net assets/cost | 139.2 | 226.8 | 366.0 | | | – | 29.3 | 29.3 | | | (126.5) | (118.8) | (245.3) | | | – | (8.1) | (8.1) | | | – | – | – | | At 31 March | 12.7 | 129.2 | 141.9 | ## 4. Subsidiary undertakings A3 ### Investment in subsidiaries | | 2022 £m | | --- | --- | | | 2,004.5 | | | (120.9) | | At 31 March | 1,883.6 | ## 5. Trade and other receivables ## 6. Trade and other payables SSE plc Annual Report 2022 327 ## Notes to the Company financial statements For the year ended 31 March 2022 ### 7. Taxation Current tax asset | | 2022 £m | | --- | --- | | | 3.8 | Deferred taxation | Charge/(credit) to income statement | (10.2) | (0.2) | (0.2) | (10.6) | | --- | --- | --- | --- | --- | | Charge/(credit) to equity | 5.2 | 26.4 | (5.1) | 26.5 | | At 31 March 2022 | (56.7) | 129.4 | (7.7) | 65.0 | | | 2022 £m | | --- | --- | | | 129.4 | | | (64.4) | | Net deferred tax (asset)/liability | 65.0 | ### 8. Loans and borrowings | | 2022 £m | | --- | --- | | Current | 968.7 | | | 968.7 | | Non-current | 5,284.7 | | | 5,284.7 | | Total loans and borrowings | 6,253.4 | | | (1,006.7) | | Unadjusted Net Debt | 5,246.7 | | | 1,051.0 | | Adjusted Net Debt and Hybrids | 6,297.7 | 328 SSE plc Annual Report 2022 ### 8.1 Borrowing facilities The Company has an established €1.5bn Euro commercial paper programme (paper can be issued in a range of currencies and swapped into sterling) and as at 31 March 2022 there was £506.1m commercial paper outstanding (2021: £nil). The Company also has £1.5bn of revolving credit facilities (see note 21.1). These facilities continue to provide back-up to the commercial paper programme and, as at 31 March 2022 these facilities were undrawn. Analysis of borrowings | | 2022 | | | | | | 2021 | 2021 | 2021 | | 2021 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Weighted | | 2022 | 2022 | | 2022 | Weighted | | Face | Fair | Carrying | | | average | | Face | Fair | Carrying | | average | | value | value | amount | | | interest rate | | value | value | amount | | interest rate | | £m | £m | | £m | Current Other short term loans – non-amortising (ii) 0.8% 507.1 507.5 506.1 – – – – US Private Placement 16 April 2022 4.3% 162.7 197.8 162.7 – – – – 5.875% Eurobond Repayable 22 September 2022 5.9% 300.0 306.1 299.9 – – – – 4.25% Eurobond repayable 14 September 2021 – – – – 4.3% 300.0 305.0 299.8 2.375% €500m Eurobond repayable 10 February 2022 (iv) – – – – 2.4% 415.0 424.6 414.9 Total current borrowings 969.8 1,011.4 968.7 715.0 729.6 714.7 Non-Current US Private Placement 16 April 2022 – – – – 4.3% 162.7 193.5 162.6 US Private Placement 28 April 2023 2.8% 35.0 35.4 34.9 2.8% 35.0 36.3 34.7 US Private Placement 6 September 2023 2.9% 120.0 120.1 119.4 2.9% 120.0 124.0 119.2 US Private Placement 16 April 2024 4.4% 204.1 250.6 204.0 4.4% 204.1 253.8 203.9 5.875% Eurobond repayable 22 September 2022 – – – – 5.9% 300.0 323.5 299.6 1.75% €700m Eurobond repayable 8 September 2023 (v) 1.8% 514.6 524.0 514.3 1.8% 514.6 538.5 514.1 1.25% Eurobond Repayable 16 April 2025 (vi) 1.3% 531.4 533.4 531.4 1.3% 531.4 557.1 531.4 0.875% €600m Eurobond Repayable 8 September 2025 0.9% 510.9 504.3 504.2 0.9% 510.9 527.0 508.4 US Private Placement 8 June 2026 3.1% 64.0 63.8 63.3 – – – – US Private Placement 8 June 2026 3.2% 247.1 258.7 244.3 – – – – Between two and five years 2,227.1 2,290.3 2,215.8 2,378.7 2,553.7 2,373.9 Bank Loans – non-amortising (i) 0.8% 100.0 100.4 100.0 0.8% 100.0 100.4 100.0 US Private Placement 8 June 2026 – – – – 3.1% 64.0 67.7 62.9 US Private Placement 6 September 2026 – – – – 3.2% 247.1 265.8 243.7 US Private Placement 6 September 2027 3.2% 35.0 34.8 34.6 3.2% 35.0 37. 2 34.5 1.375% €650m Eurobond repayable 4 September 2027 (viii) 1.4% 591.4 588.7 590.2 1.4% 591.4 631.8 590.0 8.375% Eurobond repayable on 20 November 2028 8.4% 500.0 659.0 497.2 8.4% 500.0 732.1 496.8 1.750% Eurobond Repayable 16 April 2030 (ix) 1.8% 442.9 439.6 442.9 1.8% 442.9 485.3 442.9 6.25% Eurobond repayable on 27 August 2038 6.3% 350.0 473.3 347.4 6.3% 350.0 539.5 347.3 4.75% $900m NC5.5 Hybrid maturing 16 September 2077 (vii) 4.8% 725.4 727.6 725.1 4.8% 730.0 752.2 729.0 3.625% NC5.5 Hybrid maturing 16 September 2077 3.6% 300.0 301.6 299.9 3.6% 300.0 307.3 299.6 Over five years 3,044.7 3,325.0 3,037. 3 3,360.4 3,919.3 3,346.7 Fair value adjustment (iii) – – 31.6 – – 3.2 Total non-current borrowings 5,271.8 5,615.3 5,284.7 5,739.1 6,473.0 5,723.8 Total borrowings 6,241.6 6,626.7 6,253.4 6,454.1 7,202.6 6,438.5 (i) Balances include term loans and EIB debt and is a mixture of fixed and floating rate debt. (ii) Balances include Commercial Paper and facility advances (£506.1m of Commercial Paper outstanding at 31 March 2022). 329SSE plc Annual Report 2022 # Notes to the Company financial statements For the year ended 31 March 2022 8. Loans and borrowings 8.1 Borrowing facilities 9. Equity Share capital At 31 March 2021 At 31 March 2022 1,073.1 536.5 Capital redemption reserve Hedge reserve Hybrid equity | | 2022 £m | | --- | --- | | | 598.0 | | | 453.0 | | | 1,051.0 | 330 SSE plc Annual Report 2022 ### 10. Retirement benefit obligations ### Defined benefit scheme The Company has a funded final salary pension scheme (‘Scottish Hydro Electric Pension Scheme’) which provides defined benefits based on final pensionable pay. The scheme is subject to an independent valuation at least every three years. The future benefit obligations are valued by actuarial methods on the basis of an appropriate assessment of the relevant parameters. ### Pension summary: Net actuarial gain/(loss) recognised in respect of the pension asset in the | Scheme type | statement of comprehensive income | | | Net pension asset | | | | --- | --- | --- | --- | --- | --- | --- | | | | 2022 | 2021 | 2022 | | 2021 | | | | £m | £m | | £m | £m | Scottish Hydro Electric Defined benefit (24.6) 8.6 517.5 543.1 Net actuarial (loss)/gain (24.6) 8.6 517. 5 543.1 ### IFRIC 14 surplus restrictions The value of Scottish Hydro Electric Pension Scheme assets recognised was previously impacted by the asset ceiling test which restricts the surplus that can be recognised to assets that can be recovered through future refunds or reductions in future contributions to the schemes, and may increase the value of scheme liabilities where there are minimum funding liabilities in relation to agreed contributions. In 2016/17 the Group agreed with the trustees to the Scottish Hydro Electric pensions scheme an amendment to the scheme rules to clarify that the Company has a clear right to any surplus upon final winding up of the scheme. This amendment removes the previous restriction on recognition of any surplus. The net pension asset of the Scottish Hydro Electric Scheme at 31 March 2022 was equal to £517.5m (2021: £543.1m). The individual pension scheme details based on the latest formal actuarial valuations are as follows: Scottish Hydro Electric Latest formal actuarial valuation 31 March 2021 Valuation carried out by Hymans Robertson Value of assets based on valuation £2,050.5m Value of liabilities based on valuation £1,782.2m Valuation method adopted Projected Unit Average salary increase RPI +0.5% Average pension increase RPI Value of fund assets/accrued benefits 115.1% ### 10.1 Pension scheme assumptions The scheme has been updated to 31 March 2022 by qualified independent actuaries. The valuations have been prepared for the purposes of meeting the requirements of IAS 19. The major assumptions used by the actuaries in the scheme were: | | | At | | | At | | --- | --- | --- | --- | --- | --- | | 31 March | | | 31 March | | | | | 2022 | | | 2021 | | Rate of increase in pensionable salaries 4.2% 3.7% Rate of increase in pension payments 3.7% 3.2% Discount rate 2.7% 2.0% Inflation rate 3.7% 3.2% The assumptions relating to longevity underlying the pension liabilities at 31 March 2022 are based on standard actuarial mortality tables, and include an allowance for future improvements in longevity. The assumptions, equivalent to future longevity for members in normal health at age 65, are as follows: | | | At | | | At | | | At | | | At | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 31 March | | | 31 March | | | 31 March | | | 31 March | | | | | 2022 | | | 2022 | | | 2021 | | | 2021 | | | | Male | | Female | | | | Male | | Female | | | Currently aged 65 22 24 23 24 Currently aged 45 24 27 25 27 331SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Notes to the Company financial statements continued ### For the year ended 31 March 2022 ### 10. Retirement benefit obligations continued ### 10.1 Pension scheme assumptions continued The impact on the scheme’s liabilities of changing certain of the major assumptions is as follows: At 31 March 2022 At 31 March 2021 Increase/ Effect on Increase/ Effect on decrease in scheme decrease in scheme assumption liabilities assumption liabilities Rate of increase in pensionable salaries 0.1% +/-0.1% 0.1% +/-0.1% Rate of increase in pension payments 0.1% +/-0.9% 0.1% +/-1.0% Discount rate 0.1% +/-1.0% 0.1% +/-0.9% Longevity 1 year +/-2.0% 1 year +/-1.8% These assumptions are considered to have the most significant impact on the scheme valuations. The reduction in sensitivity is due to the conversion of the longevity swap to buy-in in during the year. Asset buy-in On 1 October 2019, the Scottish Hydro Electric Pension Scheme entered into an asset buy-in, transferring the risk of volatility in the assumptions used to calculate the obligation for 1,800 pensioners and 567 dependents (covering c£800m of the scheme’s liabilities) to a third party. The asset buy-in is valued under the accounting principles of IFRS 13 and is considered a Level 3 instrument in the fair value hierarchy. This is in addition to a previous buy-in completed during the year ended 31 March 2018 when c£250m of the scheme’s assets and liabilities related to 617 pensioners and 190 dependents were transferred to a third party. The Company has now insured against volatility in obligations related to all pensioners to third parties (insurer PIC) and is now only exposed to valuation fluctuations related to active and deferred members. ### 10.2 Valuation of pension scheme | | | | | Value at | | | | | | Value at | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 31 March | | | | | | 31 March | | | Quoted | | Unquoted | | | 2022 | Quoted | | Unquoted | | | 2021 | | | £m | | £m | | £m | | £m | | £m | | £m | Equities 39.5 – 39.5 50.3 – 50.3 Government bonds 719.1 – 719.1 660.9 – 660.9 Insurance contracts – 713.5 713.5 – 780.3 780.3 Other investments 448.9 – 448.9 482.6 – 482.6 Total fair value of plan assets 1,921.0 1,974.1 Present value of defined benefit obligation (1,403.5) (1,431.0) Surplus in the scheme 517.5 543.1 Deferred tax thereon (i) (129.4) (103.2) Net pension asset 388.1 439.9 (i) Deferred tax is recognised at 25% (2021: 19%) on the surplus. 332 SSE plc Annual Report 2022 ### 10.3 Movements in the defined benefit asset obligations and assets during the year: | | 2022 | | | | --- | --- | --- | --- | | | Assets £m | Obligations £m | Total £m | | Included in income statement | 1,974.1 | (1,431.0) | 543.1 | | | – | (12.9) | (12.9) | | | – | – | – | | | – | – | – | | | 38.8 | (27.9) | 10.9 | | | 38.8 | (40.8) | (2.0) | | Included in other comprehensive income | – | 13.1 | 13.1 | | | – | 72.5 | 72.5 | | | – | (90.6) | (90.6) | | | (19.6) | – | (19.6) | | | (19.6) | (5.0) | (24.6) | | Other | 1.0 | – | 1.0 | | | (73.3) | 73.3 | – | | | (72.3) | 73.3 | 1.0 | | | 1,921.0 | (1,403.5) | 517.5 | ### 10.4 Pension scheme contributions and costs Charges/(credits) recognised: | | 2022 £m | | --- | --- | | | 12.9 | | | – | | | 12.9 | | | (38.8) | | | 27.9 | | | (10.9) | | | 2022 £m | | | 19.2 | Employer financed retirement benefit (EFRB) pension costs SSE plc Annual Report 2022 333 # Notes to the Company financial statements For the year ended 31 March 2022 # 11. Financial instruments | | 2022 £m | | --- | --- | | | 64.6 | | | 112.0 | | | 176.6 | | | (301.1) | | | (70.6) | | | (371.7) | | Net liability | (195.1) | A6 and A7 # 12. Commitments and contingencies Guarantees, indemnities and other contingent liabilities | | 2022 | | | | | --- | --- | --- | --- | --- | | | SSE on behalf of subsidiary £m | SSE on behalf of joint operations and ventures £m | SSE on behalf of 3^{rd} parties £m | Total £m | | | 604.6 | – | – | 604.6 | | | 3,542.1 | 976.7 | 121.9 | 4,640.7 | | | 2022 £m | | --- | --- | | | 1,286.5 | 334 SSE plc Annual Report 2022 ### 13. Provisions | Charged in the year | 251.3 | 57.2 | 308.5 | | --- | --- | --- | --- | | Utilised during the year | (1.9) | – | (1.9) | | At 31 March 2022 | 249.4 | 77.5 | 326.9 | | At 31 March 2022 | | | | | Non-current | 241.8 | 51.0 | 242.9 | | Current | 7.6 | 26.5 | 84.0 | | | 249.4 | 77.5 | 326.9 | Decommissioning provision Legal & restructuring provisions SSE plc Annual Report 2022 335 Independent auditor's report to the members of SSE plc Opinion Basis for opinion Independence Conclusions relating to going concern 336 SSE plc Annual Report 2022 • Read the borrowing facilities agreements to assess their continued availability to the group and to ensure completeness of covenants identified by management; • Reviewed market data for indicators of potential contradictory evidence to challenge the company’s going concern assessment including review of profit warnings within the sector and review of industry analyst reports. We held discussions with the Audit Committee to confirm the going concern position prepared by management; and • We considered whether management’s disclosures in the financial statements sufficiently and appropriately reflect the going concern assessment and outcomes. The audit procedures performed in evaluating the director’s assessment were performed by the Group audit team, and specialist colleagues from our capital debt advisory team. We also considered the financial and non-financial information communicated to us from our component teams for sources of potential contrary indicators which may cast doubt over the going concern assessment. ### Our key observations The group is forecast to continue to be profitable and generate positive cashflows during the going concern period. The group is forecast to raise new debt to maintain adequate liquidity and headroom within its covenants. The strength of the ability of the group to raise new funds is evidenced by the successful issue of a £350m private placement in March 22 and a €1bn Hybrid bond in April 22 and continued strong credit rating agency positions. Our reverse stress test scenario indicated that the group would need to be exposed to severe downside events impacting profitability and cash flows in order to breach liquidity or covenants. The severe downside scenario assumed full repayment of debt maturing over the going concern period, no new refinancing over the going concern period, no uncommitted disposal proceeds, a central contingency against budget performance, offset by mitigating actions within managements control. Management consider such a scenario to be highly unlikely, however, in such unlikely event management consider that the impact can be mitigated by further cash and cost saving measures which are within their control, or through external fund raising, or a combination of both during the going concern period. The group’s principal source of funding (the revolving credit facility) extends beyond the going concern period (to 2025/2026). Having considered the severe downside and reverse stress test scenarios, we have not identified a plausible scenario where the Group would be unable to maintain cash flow liquidity and covenant headroom during the going concern period. We found the capital commitments in the cash flow forecasts to be aligned with the accelerated climate commitments made in November 2021. ### Going concern conclusion Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group and parent company’s ability to continue as a going concern for a period to 31 December 2023. In relation to the group and parent company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s ability to continue as a going concern. ### Overview of our audit approach Audit scope • We performed an audit of the complete financial information of 19 components, audit procedures on specific balances for a further 16 components and specified procedures for 3 components. • The components where we performed full or specific audit procedures accounted for 98% of adjusted profit before tax, 96% of Revenue and 93% of Total assets. Key audit matters • Impairment and reversal of impairment of certain power stations and gas storage assets; • Group and parent pension obligations; • Accounting for estimated revenue recognised; • Accounting for the SSE disposal programme. Materiality • Overall Group materiality of £57.9m which represents 5% of adjusted profit before tax. ### An overview of the scope of the parent company and group audits ### Tailoring the scope Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each company within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account size, risk profile, the organisation of the group and effectiveness of group-wide controls, changes in the business environment and other factors such as recent Internal Audit results when assessing the level of work to be performed at each entity. 337SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Independent auditor’s report to the members of SSE plc continued In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage of significant accounts in the financial statements, of the 149 (2021: 131) reporting components of the Group, we selected 35 (2021: 37) components (including the parent entity) covering entities within the UK and Ireland, which represent the principal business units within the Group. Separate procedures were performed in relation to the acquisition accounting in Japan by the Primary team. Of the 35 components selected, we performed an audit of the complete financial information of 19 (2021: 20) components (“full scope components”) which were selected based on their size or risk characteristics. For the remaining 16 (2021: 17) components (“specific scope components”), we performed audit procedures on specific accounts within that component that we considered had the potential for the greatest impact on the significant accounts in the financial statements either because of the size of these accounts or their risk profile. The reporting components where we performed audit procedures accounted for 98% (2021: 95%) of the Group’s adjusted profit before tax, 96% (2021: 94%) of the Group’s Revenue and 93% (2021: 93%) of the Group’s Total assets. For the current year, the full scope components contributed 78% (2021: 56%) of the Group’s adjusted profit before tax, 94% (2021: 92%) of the Group’s Revenue and 77% (2021: 83%) of the Group’s Total assets. The specific scope component contributed 20% (2021: 39%) of the Group’s adjusted profit before tax, 2% (2021: 2%) of the Group’s Revenue and 16% (2021: 10%) of the Group’s Total assets. The audit scope of these components may not have included testing of all significant accounts of the component but will have contributed to the coverage of significant accounts tested for the Group. We also instructed 3 locations to perform specified procedures over certain aspects of Cash & Bank, Goodwill and Equity Investments in associates and JCE, due to significant balances held within each location. Of the remaining 114 (2021: 97) components that together represent 2% (2021: 5%) of the Group’s adjusted profit before tax, none are individually greater than 1% (2021: 1%) of the Group’s adjusted profit before tax. For these components, we performed other procedures, including analytical review, intercompany eliminations and obtaining audit evidence to respond to any potential risks of material misstatement to the group financial statements. The charts below illustrate the coverage obtained from the work performed by our audit teams. PROFIT BEFORE TAX REVENUE TOTAL ASSETS (OR ADJUSTED PBT MEASURE USED) | 78% Full scope components | 94% Full scope components | 77% Full scope components | | --- | --- | --- | | 20% Specific scope components | 2% Specific scope components | 16% Specific scope components | | 2% Other procedures | 4% Other procedures | 7% Other procedures | ### Changes from the prior year There have been minimal changes in scoping from the prior year. Both SGN and E&P have been removed reflecting the disposals of each entity. There have been some modifications to specific scope entities to reflect higher levels of trading within certain entities compared to the prior period to maintain appropriate coverage. ### Involvement with component teams In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the components by us, as the primary audit engagement team, or by component auditors from other EY global network firms operating under our instruction. Of the 19 full scope components, audit procedures were performed on 2 of these directly by the primary audit team. For the 17 full scope and 16 specific scope components, where the work was performed by component auditors, we determined the appropriate level of involvement to enable us to determine that sufficient audit evidence had been obtained as a basis for our opinion on the Group as a whole. The majority of full and specific scope components were led by the lead audit engagement partner, Annie Graham. For the remaining entities there were regular calls held between the lead audit engagement partner and component partners, with either file reviews performed by the primary team over audit documentation that has not been retained within the group audit file, or retention of key audit documentation on the group audit file. This has been the first audit conducted by EY that was not fully remote due to COVID-19 restrictions. Other than the Irish Airtricity entities in scope, all other entities in scope were based within Scotland (Perth and Glasgow), where lead audit partner Annie Graham visited UK divisions throughout the year-end audit. The majority of management meetings continued to be held remotely across both the UK and Ireland. 338 SSE plc Annual Report 2022 Climate change page 54 pages 68 to 81 pages 42 to 55 to 55 pages 42 Key audit matters SSE plc Annual Report 2022 339 FINANCIAL STATEMENTS ### Independent auditor’s report to the members of SSE plc continued Key observations communicated | Risk Our response to the risk | | to the Audit Committee | | --- | --- | --- | | Impairment or reversal of impairment | Scoping: | We confirmed that the | | of certain power stations & gas | Testing was performed over this risk area, covering both full | impairment reversal of | | storage assets (Impairment reversal | and specific scope components (covering six components), | £331.4m recognised by | | 2022: £428.9m, Impairment charge | which represented 100% of the risk amount. | management for all Power | | 2021: £58.1m) | | Plants listed except Tarbert | All audit work in relation to this key audit matter was Refer to the Audit Committee Report and £97.3m for Gas Storage undertaken by the component audit teams, with oversight (page 157 ); Accounting policies assets was appropriate and from the group audit team. | (page 222 ); and note 15.2 of the | | was driven predominately | | --- | --- | --- | | Consolidated Financial Statements | We obtained management’s assessment of potential | by increased market driven | | (page 264 ) | impairment indicators in accordance with IAS 36 for | demand and price | | | powerplants and for gas storage assets. | assumptions and was correctly | Forecast based estimate: recorded in the current period. | Certain power stations and gas storage | Audit procedures included: | | | --- | --- | --- | | assets are at risk of impairment or | We have understood management’s process and | We communicated that | | impairment reversal. This is due to a | methodology for assessing assets for indicators of | the pricing assumptions | | number of global and national factors | impairment, including indicators of reversal and, where | applied were appropriate. | | reducing or increasing their value | applicable, we have understood management’s modelling | We concluded that the 3 year | | in use or fair value less cost of sale, | of value in use cash flows including the source of the key | extension in useful economic | | triggering an impairment assessment. | input assumptions. | life on Keadby plant and 1 year | | Our risk focussed on the following | | extension on Medway plant | We checked the historical accuracy of management’s power stations: Peterhead, Keadby, was supportable and that forecasting and verified that the assumptions are consistent Medway Marchwood, Great Island, the appropriate costs of with those used in other areas. Tarbet power plants and Aldborough which were reflected in the We considered prior period impairments for indication of and Atwick gas storage assets. impairment models. The other reversal. This involved considering indicators of reversal, assumptions were in line with The key assumptions include future focussed on demand and gas prices, review of historic EY assessment of expected power prices, price volatility, forecast impairment charges now requiring reversal in full and future price movements and power demand, carbon prices, consideration of future assumptions impacting reversal we highlighted the significant discounting, useful economic life considerations. headroom on the power and operating expenditure. We involved three EY specialists in our assessment: a plant assets. The estimated recoverable amount specialist with energy industry experience; a discount We also noted that we are is subjective due to the inherent rate specialist and a specialist with experience of assessing satisfied with the adequacy uncertainty involved in forecasting forward energy prices. Using our sector experience and our of disclosure within the group and discounting future cash flows specialists, we assessed any unusual or unexpected trends financial statements including as a result of the above factors. identified within the cashflows year on year and assessed climate related disclosures. In the current year the risk has moved the impact on the overall forecasted position. from impairment to impairment We understood the basis for refinements to useful reversals. economic life assessment. We considered incremental repairs and capital expenditure required for the extensions and obtained management’s assessment of the technical feasibility of the extensions and reviewed the extension to the revised contracted power period. We embedded modelling expertise within the audit team to assess the appropriateness of the model parameters and clerical accuracy of the models used. We applied sensitivities to management’s models to evaluate headroom, including sensitivities relating to climate change reflecting useful life assessment versus climate commitments and price and margin sensitivities. Key assumptions: Using our sector experience and our specialists we benchmarked to industry sources, where appropriate, the directors’ judgement on the key assumptions including, power prices, forecast power demand, carbon prices and, discount rates. We verified that the assumptions are consistent with those used in other areas. Disclosures: We assessed the accuracy and adequacy of the disclosures in line with IAS 36, ensuring key assumptions are included and that the disclosures adequately reflect the risks inherent in the valuation of non-current assets and the impact of changes in assumptions on the reversal of impairment booked or headroom remaining. 340 SSE plc Annual Report 2022 Key observations communicated | Risk Our response to the risk | | to the Audit Committee | | --- | --- | --- | | Group and parent pension obligation | Scoping: | We conclude that | | (2022: £584.9m, 2021: £357.0m) | We performed audit procedures over this risk area centrally | management’s actuarial | | Refer to the Audit Committee Report | by the group team, which covered 100% of the risk amount. | assumptions are appropriate | | (page 156 ); Accounting policies | | and sit in the centre of our | | (page 222 ); and note 23 of | Our procedures included: | independently determined | | the group financial statements | Assessing management process: | range. We are satisfied with | | (page 282 ) | We have understood management’s process and | the adequacy of disclosure | | | methodology for calculating the pension liability for | within the financial | Subjective valuation: each scheme, including discussions with management’s statements. Small changes in the assumptions and external actuaries, walkthrough of the processes, estimates used to value the group and understanding the key inputs and the design and parent company pension obligations implementation of key controls. We performed a (before deducting scheme assets) fully substantive audit approach rather than testing would have a significant effect the operating effectiveness of key controls. on the carrying value of those pension obligations. For the SHEPS scheme we checked the member data | The effect of these matters is that, | used in the triennial valuation for consistency with that | | --- | --- | | as part of our risk assessment, we | of the IAS 19 valuation and understood the difference in | | determined that the group’s and parent | basis for key assumptions which we found to be in line | | company’s pension obligation has a | with our expectations. | high degree of estimation uncertainty, with a potential range of reasonable Assessing management experts: outcomes greater than our materiality We have assessed the independence, objectivity and for the financial statements as a whole. competence of the group’s external actuaries, which included understanding of the scope of services being Additional focus in FY22 has been provided and considering the appropriateness of the given to the results of the SHEPS qualifications of the external actuary. pension triennial valuation completed in 2021. Assessing source data: The financial statements (note 4.1(ii)) We tested a sample of the membership data used by the disclose the estimation uncertainty actuaries to the group’s records. We performed an additional identified by the group and company. sample for source data used for the SHEPS triennial There has been no change in this risk valuation to ensure consistency of source data used. from the prior year, however additional procedures have been performed to Benchmarking assumptions: consider the results of the triennial With the support of our pension actuarial specialists, we valuation for SHEPS. assessed the appropriateness of the assumptions adopted by the directors by comparing them to the expectations of our pension actuarial specialists which they derived from broader market data. Disclosure: We considered the adequacy of IAS 19 disclosures, including presentation of commitments associated with deficit recovery plans and in respect of sensitivity of the defined benefit obligation to changes in the key assumptions. 341SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Independent auditor’s report to the members of SSE plc continued Key observations communicated | Risk Our response to the risk | | to the Audit Committee | | --- | --- | --- | | Accounting for estimated revenue | Scope: | We have performed our | | recognition (2022: £492.7m, 2021: | This balance relates to one component, Business Energy. | procedures over revenue | | £325.0m) | Testing was performed covering 100% of the balance in | within the Business Energy | | Refer to the Audit Committee | Business Energy which accounts for 68% of the unbilled | business and we are satisfied | | Report (page 157 )); Accounting | balance at 31 March 2022. | that the accrued revenue | | policies (page 222 )); and note 18 | | recognised by management | | of the group financial statements | All audit work in relation to this key audit matter was | in relation to unbilled revenue | | (page 271 )) | undertaken by the component audit teams with oversight | is appropriately recognised. | from the group audit team. Subjective estimate: | 68% of the unbilled revenue is | Audit methodology: | | --- | --- | | recognised within the Business Energy | Our response to the assessed risk included understanding | | division and is based on estimates of | the process for estimating unbilled revenue, testing selected | | values and volumes of electricity and | IT general and application key controls, substantive audit | | gas supplied between last meter date | procedures and revenue data analytics. | and year end date. Tests of detail: The method of estimating such We agreed the opening unbilled accrued income to the revenues is complex, judgemental and closing 31 March 2021 balance sheet. significant for UK business customers and requires estimates and assumptions We agreed the volume data for customer usage of energy in relation to: in the year used in the calculation to external settlement 1. the volumes of electricity and gas systems and agreed the volume data in relation to customer supplied to the customers between billings for the year to SSE’s internal billing systems to assess the meter reading and year-end; for consistency and to understand remaining estimation risk. 2. the value attributed to those volumes in the range of tariffs; and We have tested the unbilled unit pricing by agreeing 3. embedded impairment risk over the historical pricing to sample bills, sensitising the pricing to unbilled revenue. understand the impact of different pricing assumptions, tested a sample of billing dates from the listing to confirm As a result of the estimation uncertainty billing frequency and agreeing to post year end billing prices. this has been identified as a significant risk. We have understood and tested the historical accuracy of management’s forecasting of unbilled revenue by There has been no change in this risk comparing estimates to final billed and settlement amounts. from the prior year. We considered contra indicators to management’s assumptions by assessing the impact of macro economic conditions on demand and consumption volatility and benchmarked assumptions in the underlying unbilled calculations to external publications from the industry. Analytical review: We set expectations as to the likely level of total unbilled revenue, and compared this with actual unbilled revenue, obtaining explanation for significant variances. We compared the unbilled revenue estimation to benchmark expectation. Benchmark expectation was derived from the external settlements data combined with billing frequency at an MPAN (Meter Point Administration Number) level, usage and price movement from last billing date to year end. We have analysed and assessed explanations for variances arising from the benchmark expectation. We also tested the appropriateness of manual adjustments made by management. Disclosure: We assessed the adequacy of the group’s disclosures about the degree of estimation and judgement involved in arriving at the estimated revenue. 342 SSE plc Annual Report 2022 Key observations communicated | Risk Our response to the risk | | to the Audit Committee | | --- | --- | --- | | Accounting for the SSE disposal | Scope: | We conclude that the | | programme (2022 continuing | Testing was performed across the primary and component | accounting for the current | | exceptional loss £17.6m, | teams for 77% of the disposal programme. The SGN | year disposals is appropriate. | | discontinuing exceptional gain | divestment, and any held for sale considerations were | | We are satisfied that the £576.5m):, 2021 exceptional gain: audited by the group audit team. contingent consideration £976.0m) recognised is appropriate. | Refer to the Audit Committee | Where audit work in relation to this key audit matter | | | --- | --- | --- | | Report (page 157 ); Accounting | was undertaken by the component audit teams, this was | We are satisfied that the | | policies (page 294 ); and note 12 | supported with oversight from the group audit team. | group financial statements | | of the group financial statements | | appropriately disclose these | | (page 252 ) | Audit procedure performed: | transactions. | Disposals in the current period | Subjective estimate: | We obtained and read the signed Share Purchase | | --- | --- | | SSE announced a £2bn disposal | Agreements (SPA) and any subsequent amendments | | programme in FY21, which has | in relation to each of the disposals. | continued into FY22. We identified key matters within these agreements that There is a significant risk in relation to could have a potential impact on the calculation of the the appropriate accounting for the disposal proceeds and the resulting gain/loss on disposal, disposals as a result of the complexity including transitional services arrangements. We ensured in the final negotiated deal, specifically key matters were agreed to supporting evidence and considering any risk regarding complex appropriately reflected in the gain/loss calculation. terms per the SPA or non-cash consideration elements, warranty We agreed the cash consideration received to the SPA and provisions and any transitional services traced cash receipts to bank accounts. arrangements arising. Where disposed of in the current year, we verified that the The risk is focussed on the following initial held for sale date was appropriate and appropriate key areas: accounting commenced upon this date. Disposals in the current period: | • E&P (divestment of 100% | | We verified that the balances that related to the entity were | | --- | --- | --- | | | ownership) | deconsolidated from the group financial statements at the | | • SGN (divestment of remaining 33% | | date of disposal. | ownership) | • Contracting (divestment of 100% | | This included verifying that the assets and liabilities | | --- | --- | --- | | | ownership) | disposed of were adjusted accordingly to reflect closing | | • Doggerbank C (divestment of 10% | | adjustments in line with the SPA. | of ownership) Where a change in control was identified we have assessed Disposals in the prior period with this under IFRS 10 and IFRS 11 to ensure that appropriate ongoing material contingent or classification and accounting treatment has been applied. deferred consideration: • Seagreen (divestment of 51% We have assessed non-cash consideration terms within the ownership) deals and assessed the appropriateness of the accounting • Slough Multifuel (divestment of 50% for contingent consideration recognised at 31 March 2022. ownership) We have checked that the completion obligations and This risk has been amended in the warranties and any disposal costs have been correctly current year to reflect ongoing accounted for within the gain/loss on sale calculations. disposals and significant contingent or deferred consideration assessments. Past disposals: We have re-assessed management’s assumptions and received an update on key matters which could change the original assessment of contingent consideration for past disposals. There are no significant changes from the KAMs disclosed in the prior year audit report, other than modification of the disposal programme to focus on the current year disposals and the consideration of a wider scope with regards to impairment and to include impairment reversals. 343SSE plc Annual Report 2022 Independent auditor's report to the members of SSE plc Our application of materiality Materiality ![img-15.jpeg](img-15.jpeg) Performance materiality Reporting threshold Other information pages 1 to 111 and 112 to 203 1 to 203 344 SSE plc Annual Report 2022 Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. ### Opinions on other matters prescribed by the Companies Act 2006 In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: • the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. ### Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. ### Corporate Governance Statement We have reviewed the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the group and company’s compliance with the provisions of the UK Corporate Governance Code specified for our review by the Listing Rules. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit: • Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on page 92 ; • Directors’ explanation as to its assessment of the company’s prospects, the period this assessment covers and why the period is appropriate set out on page 86 ; • Director’s statement on whether it has a reasonable expectation that the group will be able to continue in operation and meets its liabilities set out on page 203 ; • Directors’ statement on fair, balanced and understandable set out on page 153 ; • Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 68 and 161 ; • The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 161 ; and • The section describing the work of the audit committee set out on page 152 . ### Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 203 , the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. ### Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. 345SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Independent auditor’s report to the members of SSE plc continued ### Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the company and management. • We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and determined that the most significant are IFRS, FRS101, the Companies Act 2006 and UK Corporate Governance Code and relevant tax compliance regulations in the jurisdictions in which the group operates. We also considered non-compliance of regulatory requirements, including the Office of Gas and Electricity Markets (Ofgem) and regulations levied by the UK Financial Conduct Authority and Prudential Regulatory Authority. We have spoken with the SSE head of regulation to confirm our understanding. • We understood how SSE plc is complying with those frameworks by making enquiries of management, internal audit, those responsible for legal and compliance procedures and the company Secretary. We verified our enquiries through our review of board minutes and papers provided to the Audit Committee. • We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might occur by meeting with management from various parts of the business to understand where it considered there was susceptibility to fraud. We also considered performance targets and their propensity to influence on efforts made by management to manage earnings. We considered the programmes and controls that the group has established to address risks identified, or that otherwise prevent, deter and detect fraud; and how senior management monitors those programmes and controls. Where the risk was considered to be higher, we performed audit procedures to address each identified fraud risk. • Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures involved: journal entry testing, with a focus on manual consolidation journals and journals indicating large or unusual transactions based on our understanding of the business; enquiries of legal counsel, group management, internal audit, business area management at all full and specific scope management; and focused testing. In addition, we completed procedures to conclude on the compliance of the disclosures in the annual report and accounts with all applicable requirements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. ### Other matters we are required to address • Following the recommendation from the audit committee we were appointed by the company on 18 July 2019 to audit the financial statements for the year ending 31 March 2020 and subsequent financial periods. • The period of total uninterrupted engagement including previous renewals and reappointments is 3 years, covering the years ending 31 March 2020 to 31 March 2022. • The audit opinion is consistent with the additional report to the audit committee. ### Use of our report This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Annie Graham (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor Glasgow 24 May 2022 346 SSE plc Annual Report 2022 ### Consolidated segmental statement ### For the year ended 31 March 2022 ### SSE consolidated segmental statement for the year ended 31 March 2022 | | Electricity Generation | | Electricity supply Gas supply | | | | --- | --- | --- | --- | --- | --- | | | | Aggregate | | Aggregate | | | | | Generation | | | Supply | | Year ended 31 March 2022 Unit Thermal Renewable Non-domestic Non-domestic | | business | | business | | Total revenue £m 1,050.3 1,071.4 2,121.7 2,086.2 237.3 2,323.5 Sales of electricity & gas £m 541.8 864.5 1,406.3 2,086.2 237.3 2,323.5 Other revenue £m 508.5 206.9 715.4 – – – Total operating costs £m 763.1 414.4 1,177.5 2,121.9 218.6 2,340.5 Direct fuel costs £m 148.5 – 148.5 1,080.1 157.1 1,237.0 Transportation costs £m 93.4 115.6 209.0 474.6 38.4 513.0 Environmental & social obligation costs £m 165.4 – 165.4 464.7 1.4 466.1 Other direct costs £m 261.5 47.5 309.0 9.0 1.8 10.8 Indirect costs £m 94.3 251.3 345.6 93.6 20.0 113.6 EBITDA £m 287. 2 657.0 944.2 (35.7) 18.7 (17.0) Depreciation and Amortisation £m 71.7 183.5 255.2 3.8 0.7 4.5 EBIT £m 215.5 473.5 689.0 (39.5) 18.0 (21.5) Volume TWh/ 10.7 9.0 19.7 12.6 218.0 mTherms WACOF/E/G £/MWh/p/th 13.9 – 85.4 72.0 Customer numbers ‘000s 403.0 67.9 470.9 ### Basis of preparation and disclosure notes The Group’s operating segments are those used internally by the board to run the business and make strategic decisions. The types of products and services from which each reportable segment derives its revenues are: Business area Reported segments Description Continuing operations Transmission SSEN The economically regulated high voltage transmission of electricity from generating plant to the Transmission distribution network in the North of Scotland. Revenue earned from constructing, maintaining and renovating our transmission network is determined in accordance with the regulatory licence, based on an Ofgem approved revenue model and is recognised as charged to National Grid. The revenue earned from other transmission services such as generator plant connections is recognised in line with delivery of that service over the expected contractual period and at the contracted rate. Distribution SSEN The economically regulated lower voltage distribution of electricity to customer premises in the North Distribution of Scotland and the South of England. This now includes the result from the Group’s out of area networks business. Revenue earned from delivery of electricity supply to customers is recognised based on the volume of electricity distributed to those customers and the set customer tariff. The revenue earned from other distribution services such as domestic customer connections is recognised in line with delivery of that service over the expected contractual period and at the contracted rate. Renewables SSE Renewables The generation of electricity from renewable sources, such as onshore and offshore windfarms and (covered by CSS) run of river and pumped storage hydro assets in the UK and Ireland. Revenue from physical generation of electricity sold to SSE EPM is recognised as generated, based on the contracted or spot price at the time of delivery. Revenue from national support schemes (such as Renewable Obligation Certificates or the Capacity Market) may either be recognised in line with electricity being physically generated or over the contractual period, depending on the underlying performance obligation. Thermal SSE Thermal The generation of electricity from thermal plant and the Group’s interests in multifuel assets in the UK (covered by CSS) and Ireland. Revenue from physical generation of electricity sold to SSE EPM is recognised as generated, based on the contract or spot price at the time of delivery. Revenue from national support schemes (such as the Capacity Market) and ancillary generation services may either be recognised in line with electricity being physically generated or over the contractual period, depending on the underlying performance obligation. Gas Storage The operation of gas storage facilities in the UK, utilising capacity to optimise trading opportunity associated with the assets. Contribution arising from trading activities is recognised as realised based on the executed trades or withdrawal of gas from caverns. 347SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Consolidated segmental statement continued ### For the year ended 31 March 2022 Business area Reported segments Description Energy Business Energy The supply of electricity gas to business customers in Great Britain. Revenue earned from the supply Customer (covered by CSS) of energy is recognised in line with the volume delivered to the customer, based on actual and Solutions estimated volumes, and reflecting the applicable customer tariff after deductions or discounts. Airtricity The supply of electricity, gas and energy related services to residential and business customers in the Republic of Ireland and Northern Ireland. Revenue earned from the supply of energy is recognised in line with the volume delivered to the customer, based on actual and estimated volumes, and reflecting the applicable customer tariff after deductions or discounts. Revenue earned from energy related services may either be recognised over the expected contractual period or following performance of the service, depending on the underlying performance obligation. Distributed Distributed The provision of services to enable customers to optimise and manage low carbon energy use; Energy Energy development and management of battery storage and solar assets; distributed generation, independent distribution, heat and cooling networks, smart buildings and EV charging activities. The results of the Group’s Contracting and Rail business was included within this segment until it was disposed on 30 June 2021. EPM & I Energy Portfolio The provision of a route to market for the Group’s Renewable, Thermal and commodity procurement Management for the Group’s energy supply businesses in line with the Group’s stated hedging policies. Revenue from and Investments physical sales of electricity, gas and other commodities produced by SSE is recognised as supplied to (EPM&I) either the national settlements body or the customer, based on either the spot price at the time of delivery or trade price where that trade is eligible for “own use” designation. The sale of commodity optimisation trades is presented net in cost of sales alongside purchase commodity optimisation trades. Discontinued operations EPM & I Gas Production The production and processing of gas and oil from North Sea fields. Revenue is recognised based on the production that has been delivered to the customer at the specified delivery point, at the applicable contractual market price. Gas SGN SSE’s share of Scotia Gas Networks, which operates two economically regulated gas distribution Distribution networks in Scotland and the South of England. The revenue earned from transportation of natural gas to customers is recognised based on the volume of gas distributed to those customers and the set customer tariff. The Group’s reportable operating segments for ‘Renewables’, ‘Thermal Generation’ and ‘Business Energy’ are substantially aligned to the business segments reported in the Consolidated Segmental Statement (CSS). However, it should be recognised that there are differences between the two disclosures, primarily driven by the Licence requirements – these are described in the notes below and shown in the table reconciling the CSS to the financial statements. ### How the accounts are presented The financial information presented in the CSS is based on operating activities of the Group’s electricity generation businesses (“Renewables” and “Thermal Generation” segments described above) and the non-domestic electricity and gas supply business (“Business Energy” segment described above) in Great Britain. The paragraphs that follow describe how SSE’s Renewable and Thermal Generation and Business Energy (non-domestic supply) businesses interact with Energy Portfolio Management (EPM), which is the Group’s energy markets business. The basis of preparation defines the revenues, costs and profits of each business and describe in more detail the transfer pricing arrangements in place for the financial year ended 31 March 2022. The CSS has been prepared on a going concern basis as set out in note A6.3  of SSE plc’s Annual Report. 348 SSE plc Annual Report 2022 ### Summary The Group’s ‘Renewables’ business sells electricity and Renewable Obligation Certificates (ROCs) from onshore and offshore windfarms and qualifying hydro to the Group’s EPM business. ‘Thermal Generation’ sells electricity in respect of gas generation to EPM. It also receives external income in respect of ancillary services, balancing market participation and other contractual arrangements with third parties including government. It purchases its requirement for gas, oil and carbon from EPM. ‘Business Energy’ sells electricity and gas to circa 0.5m business customer accounts in Great Britain and procures electricity, gas REGOS, RGGOs and ROCs from EPM. EPM acts as a route to market for Renewables and Thermal Generation and as counterparty with the external market for the procurement of electricity and gas for SSE Energy Services and Business Energy. EPM does not form part of the CSS as it is not within the scope defined by Ofgem. The policies governing the forward hedging activity undertaken by EPM are overseen by Energy Markets Risk Committee, whose responsibilities and roles are described on page 162  of SSE Annual Report for the year ended 31 March 2022. ### Renewable Electricity Generation The Renewables profit and loss account above is based on the Group’s electricity generation activity derived from natural sources of energy to produce electricity which includes wind, hydro and pump storage powered generation. Renewables as presented in the CSS includes revenue and operating profit for wholly owned renewable generation assets and also 1 a proportion of turnover and operating profit in respect of joint ventures, joint operations and associate generation companies . The principal Joint Ventures, Joint Operations and Associates included are Beatrice Offshore Windfarm Limited, Clyde Windfarm (Scotland) Limited, Stronelairg Windfarm Limited, Dunmaglass Windfarm Limited and Greater Gabbard Offshore Winds Ltd. A full list can be found in note A3 of SSE’s audited financial statements. The Renewables profitability statement bears the risks and rewards for plant performance and renewable generation output, changes in the power price achieved for renewable generation and the impact of weather. Individual line items in the Renewables profit and loss account above are comprised of: Revenue From Sales of Electricity – revenue is recognised as generated and supplied to the national settlements body. Revenue is sold to the wholesale market through EPM at either the spot price at the time of delivery, or trade price where that trade is eligible for ‘own use’ designation. Revenue includes the sale of ROCs generated from qualifying plant to EPM. Generation volumes are the volume of power actually sold to the wholesale market. Other Revenue – includes ancillary services, capacity income, balancing market participation and other miscellaneous income. Transportation Costs – include Use of System charges and market participation costs. Other Direct Costs – include power purchase agreement (‘PPA’) costs, site costs and management charges from EPM. Indirect Costs – include salaries and other people costs, asset maintenance, rates, corporate costs and IT charges. Depreciation and Amortisation – the depreciation shown in the CSS is the underlying charge based on the useful remaining life of the assets. 1 The PPA’s that SSE has with its joint venture companies Clyde Windfarm (Scotland) Limited, Stronelairg Windfarm Limited and Dunmaglass Windfarm Limited provide SSE with contractual entitlement to 100% of the output of the windfarms. Accordingly, SSE has reported its rights to those volumes within its Renewables statistics and has also, as mandated by Ofgem, included 50% of the JV revenue in the CSS. ### Thermal Electricity Generation The Thermal profit and loss account above is based on the Group’s conventional (thermal) electricity generation activity. Conventional generation is considered to be any generation where fuel is consumed to produce electricity and includes gas and oil fuelled generation. Thermal Generation as presented in the CSS includes revenue and operating profit for wholly owned thermal generation assets and also 2 a proportion of turnover and operating profit in respect of joint ventures . The principal joint ventures included are Seabank Power Ltd and Marchwood Power Ltd. A full list can be found in note A3  of SSE’s audited financial statements. The Thermal Generation profitability statement bears the risks and rewards for plant performance, changes in market ‘spark’ (the marginal profit for generating electricity by gas), changes in government and EU policy particularly surrounding emissions. Individual line items in the Thermal profit and loss account above are comprised of: Revenue From Sales of Electricity – revenue is recognised as generated and supplied to the national settlements body. Revenue is sold to the wholesale market through EPM at either the spot price at the time of delivery, or trade price where that trade is eligible for ‘own use’ designation. Generation volumes are the volume of power sold to the wholesale market. 349SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Consolidated segmental statement continued ### For the year ended 31 March 2022 Other Revenue – includes ancillary services, capacity income, balancing market participation and other miscellaneous income. Direct Fuel Costs – Thermal Generation procures fuel and carbon from EPM at wholesale market prices. The cost of fuel also includes the long term external purchase contracts and the impact of financial hedges. The WACOF (weighted average cost of fuel) calculation includes the costs of carbon emissions (reported in the environmental and social obligations cost line in the CSS). Transportation Costs – include Use of System charges and market participation costs. Environmental and Social Costs – include carbon costs. Other Direct Costs – include power purchase agreement (‘PPA’) costs, site costs and management charges from EPM. Indirect Costs – include salaries and other people costs, asset maintenance, rates, corporate costs and IT charges. Depreciation and Amortisation – the depreciation shown in the CSS is the underlying charge based on the useful remaining life of the assets and excludes exceptional asset impairments. 2 The tolling arrangements that SSE has with its joint venture companies Seabank Power Ltd (ended 30 September 2021) and Marchwood Power Ltd provide SSE with contractual entitlement to 100% of the output of the power stations. Accordingly, SSE has reported its rights to those volumes within its Thermal Generation statistics and has also, as mandated by Ofgem, included 50% of the JV revenue in the CSS. ### Business Energy (Non-domestic) Revenue from Sales of Electricity and Gas – revenues are the value of electricity and gas supplied to business customers in Great Britain during the year and includes an estimate of the value of units supplied between the date of the last bill and the year end. Non-domestic volumes are expressed at customer meter point. RCRC has been allocated to direct fuel costs in the year ended 31 March 2022. In the year ended 31 March 2021 this was allocated to Revenue. Direct Fuel Costs – Business Energy does not engage in the trading of electricity and gas and procures all of its electricity and gas from EPM. The method by which EPM procures energy is at an arm’s length arrangement on behalf of Business Energy is governed by Business Energy’s forward hedging policy. The forward trades between Business Energy and EPM are priced at wholesale market prices at the time of execution and any differences in volume and reconciliation at the time of delivery is marked to the spot price on the day. WACOG (weighted average cost of gas) also includes all Allocation reconciliations and Unidentified Gas. The WACOE and WACOG also consist of trades marked to wholesale prices when committed at the point of sale for fixed price customer contracts or when a customer instructs SSE to purchase energy in respect of flexi-priced contracts. This transfer pricing methodology reflects how Business Energy actually acquired its energy. There have been no material changes in the transfer pricing policy in respect of Business Energy since the CSS for the financial year ending 31 March 2022. Transportation Costs – these include transportation, transmission and distribution use of system costs and BSUOS. Environmental and Social Obligation Costs – relate to policies designed to modernise and decarbonise the energy system in Great Britain and include ROCs, Feed in Tariff, charges under the Capacity Mechanism and CfD schemes and charges in relation to ‘assistance for areas with high electricity distribution costs’ (AAHEDC). REGO, RGGOs and GOO costs related to these schemes are also included in this section of the CSS. Industry Mutualisation costs have also been allocated to this element of the statement. Other Direct Costs – include: industry settlement costs, management and market access charges from EPM and other miscellaneous costs. Indirect Costs – include: sales and marketing, customer service, bad debts and collections, metering costs, commercial costs, central costs – including information technology, property, corporate, telecoms costs and costs incurred to meet Smart Metering rollout obligations for the year. Where costs cannot be directly allocated to a fuel (electricity/gas), they have been allocated using costing models based on activity, customer revenue or customer numbers – whichever is the most appropriate. Business Energy’s profit and loss account bears the risk and rewards arising from the volatility in demand for energy, caused by the weather, consumption per customer and customer churn. It is also exposed to swings in wholesale costs and the uncertainty surrounding its share of government environmental and social schemes. 350 SSE plc Annual Report 2022 ### EPM EPM is responsible for optimising the Group’s electricity, gas and other commodity requirements. The hedging activity undertaken by EPM is governed by the Group’s Energy and Markets Risk Committee in accordance with the Statement on SSE’s Approach to Hedging published in November 2018. ### Business functions The business functions in SSE have already been described in this document. The column headed ‘Not included in the CSS’ principally relates to EPM. Not included Business function Note Generation Supply in CSS Operates and maintains generation assets ✓ Responsible for scheduling decisions 1 P/L F Responsible for interactions with the Balancing Market 2 P/L F Responsible for determining hedging policy 3 ✓ ✓ Responsible for implementing hedging policy/makes decisions to buy/sell energy 4 P/L P/L F Interacts with wider market participants to buy/sell energy 5 ✓ Holds unhedged positions (either short or long) 3 ✓ ✓ ✓ Procures fuel for generation P/L F Procures allowances for generation P/L F Holds volume risk on positions sold (either internal or external) ✓ ✓ Matches own generation with own supply 6 ✓ Forecasts total system demand 7 P/L P/L F Forecasts wholesale price P/L P/L F Forecasts customer demand 8 P/L F Determines retail pricing and marketing strategies ✓ Bears shape risk after initial hedge until market allows full hedge 9 P/L P/L F Bears short term risk for variance between demand and forecast 10 ✓ Key: ✓ function and P&L impacting that area; P/L profit/losses of function recorded in that area; F function performed in that area. Glossary and notes 1 “Scheduling decisions” means the decision to run individual power generation assets. 2 “Responsible for interactions with the Balancing Market” means interactions with the Balancing Mechanism in electricity. 3 Hedging policy was the responsibility of the Energy Markets Risk Committee which is a sub committee of the SSE Executive Committee. 4 SSE EPM implements the hedging policy determined by the Energy Markets Risk committee on behalf of Renewables, Thermal Generation, Business Energy and SSE Energy Services. 5 “Interacts with wider market participants to buy/sell energy” means the business unit responsible for interacting with wider market participants to buy/sell energy, not the entity responsible for the buy/sell decision itself, which falls under “Responsible for implementing hedging policy/makes decisions to buy/sell energy”. 6 “Matches own generation with own supply” means where there is some internal matching of generation and supply before either generation or supply interact with the wider market. The total electricity demand for Business Energy and SSE Energy Services (expressed at NBP) was 19.2TWh and the total UK Generation output was 13.7TWh (71%). 7 “Forecasts total system demand” means forecasting total system electricity demand or total system gas demand. 8 “Forecasts customer demand” means forecasting the total demand of own supply customers. 9 “Bears shape risk after initial hedge until market allows full hedge” means the business unit which bears financial risk associated with hedges made before the market allows fully shaped hedging. 10 “Bears short term risk for variance between demand and forecast” means the business unit which bears financial risk associated with too little or too much supply for own customer demand. 351SSE plc Annual Report 2022 # **Consolidated segmental statement** **For the year ended 31 March 2022** # **Reconciliation of CSS to SSE Financial Statements 2021/22** | | Note | | | --- | --- | --- | | Business Energy | | | | Total Business Energy in SSE Financial Statements | 2,323.5 | (21.5) | | Generation Business | | | | Renewables | | | | Total Renewables in SSE Financial Statements | 776.2 | 568.1 | | Thermal | | | | Total Thermal in SSE Financial Statements | 1,129.2 | 306.3 | Notes Adjustments to reported profit before tax 352 SSE plc Annual Report 2022 ### CSS audit opinion ### Opinion We have audited the financial statements of SSE plc (the Company) for the year ended 31 March 2022, which comprise the Consolidated Segmental Statement (CSS), Basis of preparation, Reconciliation of CSS to the Annual Report of SSE plc and the related disclosure notes. The financial reporting framework that has been applied in their preparation is a special purpose framework comprising the financial reporting provisions of Ofgem’s Standard condition 16B of Electricity Generation licences and Standard 19A of Electricity and Gas Supply Licences. In our opinion, the accompanying CSS of the Company for the year ended 31 March 2022 is prepared, in all material respects, in accordance with the requirements of Standard condition 16B of Electricity Generation licences and Standard 19A of Electricity and Gas Supply Licences and the basis of preparation on pages 347 to 351 . ### Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) including ‘ISA (UK) 800 (Revised) Special Considerations – Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks’. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. ### Conclusions relating to going concern In auditing the CSS, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company’s ability to continue as a going concern for a period of 19 months through to 31 December 2023. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s ability to continue as a going concern. ### Emphasis of matter – basis of accounting and restriction on distribution and use We draw attention to pages 347 to 351  of the CSS, which describe the basis of accounting. The CSS is prepared to assist the Company in complying with the financial reporting provisions of the contract referred to above. As a result, the CSS may not be suitable for another purpose. Our report is intended solely for the Company, in accordance with our engagement letter dated 10 May 2022, and should not be distributed to or used by parties other than the Company. Our opinion is not modified in respect of this matter. ### Other information The other information comprises the information included in the annual report, other than the CSS and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the CSS does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the CSS itself. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. ### Responsibilities of directors Management is responsible for the preparation of the CSS in accordance with the financial reporting provisions of Section Z of the contract, and for such internal control as management determines is necessary to enable the preparation of CSS that are free from material misstatement, whether due to fraud or error. In preparing the CSS, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. 353SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### CSS audit opinion continued ### Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. ### Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management. • We obtained an understanding of the legal and regulatory frameworks that are applicable to the company and determined that the most significant are IFRS, FRS 101, the Companies Act 2006, the UK Corporate Governance Code and relevant tax compliance regulations in the jurisdictions in which the group operates. We also considered non-compliance of regulatory requirements, including the Office of Gas and Electricity Markets (Ofgem) and regulations levied by the UK Financial Conduct Authority and Prudential Regulatory Authority. We have spoken with the SSE head of regulation to confirm our understanding. • We understood how SSE plc is complying with those frameworks by making enquiries of management, internal audit, those responsible for legal and compliance procedures and the company Secretary. We verified our enquiries through our review of board minutes and papers provided to the Audit Committee. • We assessed the susceptibility of the Company’s CCS to material misstatement, including how fraud might occur by meeting with management from various parts of the business to understand where it considered there was susceptibility to fraud. We also considered performance targets and their propensity to influence on efforts made by management to manage earnings. We considered the programmes and controls that the group has established to address risks identified, or that otherwise prevent, deter and detect fraud; and how senior management monitors those programmes and controls. Where the risk was considered to be higher, we performed audit procedures to address each identified fraud risk. • Based on this understanding we designed our audit procedures to identify noncompliance with such laws and regulations. Our procedures involved: journal entry testing, with a focus on manual consolidation journals and journals indicating large or unusual transactions based on our understanding of the business; enquiries of legal counsel, group management, internal audit, business area management at all full and specific scope management; and focused testing. In addition, we completed procedures to conclude on the compliance of the disclosures in the annual report and accounts with all applicable requirements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities . This description forms part of our auditor’s report. ### Other matter We have reported separately on the statutory financial statements of SSE plc. Ernst & Young LLP Glasgow 24 May 2022 354 SSE plc Annual Report 2022 ### Shareholder information ### Shareholder enquiries Shareholder portal The Company’s register of members is maintained by our appointed www.sse-shares.com  Registrar, Link Group. Shareholders with queries relating to their This free online service, provided by Link Group, allows shareholdings should contact Link directly: shareholders to easily manage their share portfolios, including: • View, update and calculate the market value of their | Link Group | | shareholdings. | | --- | --- | --- | | 10th Floor, | • Change address details and dividend payment instructions. | | | Central Square | • View share price histories and trading graphs of listed companies. | | 29 Wellington Street ### Leeds E-communications programme LS1 4DL You can also choose to go a step further and sign-up to SSE’s eCommunication programme which allows you to receive Telephone: 0345 143 4005 notification of the availability of new shareholder documentation. Email: SSE@linkgroup.co.uk Simply register on our shareholder portal www.sse-shares.com . ### Financial calendar You will require your Investor Code (IVC), which can be found on any recent shareholder communications from SSE. Publication of Annual Report 17 June 2022 Where delivery of an email fails, we will attempt to contact Q1 Trading Statement 21 July 2022 you by post to update your details. Keep us informed of changes AGM 21 July 2022 to your email address through our shareholder portal Ex-dividend date for final dividend 28 July 2022 www.sse-shares.com . Record date for final dividend 29 July 2022 ### Dividends Final date for Scrip elections 25 August 2022 The Company typically pays dividends twice yearly. Interim Payment date 22 September 2022 dividends are paid in March, and final dividends are paid in September once approved by shareholders at the AGM. With Notification of Close Period by 30 September 2022 significant focus on payment methods for dividends in recent Results for six months to 30 September 16 November 2022 years, in terms of efficiency, cost and security, SSE plc made the decision that from September 2019, it would no longer be paying dividends by cheque. All dividends are now credited to a ### Website shareholder’s nominated UK bank/building society account. If you SSE maintains its website, www.sse.com , to provide ease haven’t already registered your UK bank/building society account of shareholder access to information about the Company and details with Link Registrar or would like to amend the details on its performance. It includes a dedicated Investors section where your account, you can do this by: you can find electronic copies of Company reports and further • logging in to the dedicated Shareholder Portal at information about shareholder services including: www.sse-shares.com ; or • share price information; • calling Link on 0345 143 4005* and speaking to one of • dividend history and trading graphs; the team. • the Scrip dividend scheme; • telephone and internet share dealing; and If you do not have a UK bank or building society account, your • downloadable shareholder forms. dividends can be paid directly into a bank account outside of the UK using the International Payment service. Please visit ### Digital news https://ww2.linkgroup.eu/ips  for further information. SSE uses a dedicated news and views website (available at www.sse.com/news-and-views ) and Twitter (www.twitter.com/ ### Scrip dividend sse ) to keep shareholders, investors, journalists, employees and Alternatively, shareholders may want to join the Scrip dividend other interested parties up-to-date with news from the Company. scheme and receive future dividends in the form of additional new shares. Further details of the Scrip dividend scheme can be found ### Sustainable communications at www.sse.com/investors/shareholder-services/dividends-and- SSE’s sustainable communications strategy aims to reduce scripscheme/ . You should still complete a bank mandate to the volume of paper being used in its communications with enable future dividend payments should you ever withdraw from shareholders and other stakeholders. Shareholders are able the Scrip scheme. to access a wide range of shareholder documentation, including Annual Reports, the Notice of Annual General Meeting and ### Share dealing useful forms through the Investors section of SSE’s website, Share dealing services are available from Link Share Dealing Services. www.sse.com/investors . We encourage shareholders to accept electronic formats as the default method for accessing ### Telephone dealing shareholder documentation and dividend information. For information on the telephone dealing service call 0371 664 0445* All new shareholders are automatically registered as opting to Lines are open Monday-Friday, 8.00am – 4.30pm access shareholder documentation through the ‘Investors’ area Please have your Investor Code (IVC) ready. of our website. These shareholders receive a notification, by post, when new relevant documentation has been placed on the website. Shareholders who wish to opt for printed documentation and communication should confirm this in writing to Link Group. 355SSE plc Annual Report 2022 FINANCIAL STATEMENTS ### Shareholder information continued ### Internet dealing For information on the internet dealing service log on to: https:// ww2.linkgroup.eu/share-deal/ . Information provided on these services should not be construed as a recommendation to buy, sell or hold shares in SSE plc, nor to use the services of Link Share Dealing Services. Link Share Dealing Services is a trading name of Link Market Services Trustees Limited which is authorised and regulated by the Financial Conduct Authority. If you live in a country where the provisions of such services would be contrary to local laws or regulations, this should be treated for information only. ### Dissentient shareholders Scottish and Southern Energy plc (now known as SSE plc) was formed in 1998 following the merger of Scottish Hydro Electric plc and Southern Electric plc. The terms of the offer through which the merger was effected was that for every Southern Electric plc ordinary share held, shareholders received one Scottish and Southern Energy plc (now SSE plc) ordinary share. A number of shareholders did not respond to the original merger offer, resulting in subsequent tracing communications over the following years. In 2017, more than 12 years after the formation of SSE, a complete tracing programme was initiated through the asset reunification company Capita Employee Benefits (Consulting) Limited (Capita Tracing), to locate dissentient shareholders and reunite them with their funds. The steps agreed were designed to enable the best possible outcome for dissentient shareholders and provided clear details of the actions required to claim their asset entitlement. Following the completion of all reasonable steps over £2m (in a combination of shares and accrued dividends) was returned to dissentient shareholders. As required by the Companies Act 2006, the remainder totalling over £9m was transferred to the Chancery Division of the High Court of Justice. Unclaimed monies can still be claimed through direct application to the Chancery Division of the High Court of Justice. The process for making such an application was provided to outstanding claimants and further details are provided at www.sse.com/investors/shareholder- services/useful-information/southern-electric-unclaimed- dividends/ . 356 SSE plc Annual Report 2022 ® Printed on material from well-managed, FSC - certified forests and other controlled sources. This publication was printed with vegetable oil- ® based inks by an FSC -recognised printer that holds an ISO 14001 certification. The outer cover of this report has been laminated with a biodegradable film. Around 20 months after composting, an additive within the film will initiate the process of oxidation. ### SSE PLC ANNUAL REPORT 2022 Powering change together For further information about SSE, please contact: SSE plc Corporate Affairs Inveralmond House 200 Dunkeld Road Perth PH1 3AQ UK +44 (0)1738 456000 info@sse.com Registered in Scotland No. 117119 ### sse.com Follow the latest news from SSE on Twitter at: twitter.com/sse ### @SSE