SSE plc Annual Report 2023 ## Right action. ## Right now. ## SSE plc Annual Report 2023 SSE plc Annual Report 2023 ## SSE develops, ## builds, operates and ## invests in low-carbon ## electricity infrastructure ## in support of the ## transition to net zero. ## Its businesses are engaged in onshore and offshore wind, ## hydro power, flexible thermal generation, solar and battery ## technologies, electricity transmission and distribution, and ## localised energy systems. It also provides energy products ## and services to businesses and other customers. SSE at a glance on page 2  ![img-0.jpeg](img-0.jpeg) # Inside this report SECTION I # Strategic Report 2 | SSE at a glance | 2 | | --- | --- | | Chair's statement | 6 | | Chief Executive's review | 6 | | Our strategy | 8 | | Our business model | 10 | | Sector review | 12 | | Net Zero Acceleration Programme Plus | 16 | | A year of strategic progress | 18 | | 2030 Goals and KPIs | 22-25 | | Our stakeholders and s372 statement | 26 | | A sustainable approach | 34 | | Non-financial information statement | 67 | | Risk-informed decision making | 68 | | Financial Review | 78 | | Operating Review | 95 | SECTION II # Directors' Report 110 SECTION III # Financial Statements 192 ![img-1.jpeg](img-1.jpeg) # Electronic tagging (ESEF) In accordance with European Single Electronic Format (ESEF), requirement that UK-licensed companies publish primary financial statements in machine-readable format, SSE's 2023 Annual Report and Accounts, and notes to the Financial Statements, are published as an XHTML tagged document on sse.com. # Alternative Performance Measures SSE assesses the performance of the Group using a variety of performance measures. These measures are not all defined under IFRS and are therefore termed 'non-GAAP' measures. A reconciliation from these non-GAAP measures to the nearest prepared measure in accordance with IFRS is presented and described on pages 194 to 201. The Alternative Performance Measures SSE uses might not be directly comparable with similarly listed measures used by other companies. # Measurement restatements There has been an immaterial restatement to the Financial Statements for the year ended 31 March 2022. For further details, please see page 239. # The purpose of this report # Strategic Report Sustainability Report 2023 # Directors' Report # Financial Statements # Using our complete reporting suite Throughout this report you can find links to our complementary suite of reporting by following these icons: online at sse.com/annualreport2023 in other SSE publications within another section of this report # Help us cut paper Printing of this Annual Report is carbon balanced, with trees planted to help offset the climate impact of its production. While SSE has sought to reduce the environmental impact of this publication as far as possible, it encourages readers to opt out of receiving printed copies and make use of SSE's digital reporting suite at sse.com/investors, in order to reduce material and resources used. # Glossary While every effort is made to explain technical terms and abbreviations where they appear in the text of this Annual Report, a glossary is provided to further assist the reader on page 347. SSE plc Annual Report 2023 1 ## SSE at a glance ### Together, as a Group, SSE’s businesses are Financial highlights Group operating profit/loss ### well positioned to capture the substantial In the face of exceptional ## macro-economic conditions, £2,529.2m ### growth opportunities generated by driving SSE saw strong financial Adjusted ### and accelerating the net zero agenda performance in 2022/23 thanks to its resilient business model, ## through electricity infrastructure. £(146.3)m solid operational delivery and good progress on its strategy. Reported Below-plan renewables output was offset in the year by thermal, flexible hydro and gas storage assets which were rewarded for providing timely system backup. ### Market Economically ### based regulated | SSE Renewables | SSE Thermal | | --- | --- | | Onshore and offshore wind; flexible, run-of-river | Gas-fired power stations; hydrogen | | and pumped storage hydro; solar and battery. | carbon capture and storage; gas storage. | | Operating profit | Operating profit | | £580.0m | £1,031.9m | | Adjusted | Adjusted | | £446.3m | £1,089.5m | | Reported | Reported | | Operating profit contribution to Group | Operating profit contribution to Group | | 23% | 41% | | Proportion of Group capex | Proportion of Group capex | | 48% | 10% | ### Balance between renewables and thermal output/earnings provides ### a natural hedge against market volatility and weather variability. ### Energy Portfolio Management Operating profit/loss Procuring the fuel required for, and trading the power output from, SSE’s generation assets, as well as trading ## £80.4m (£2,626.0) on behalf of its supply businesses. Adjusted Reported 2 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### Non-financial | Profit/loss before tax | Earnings/Losses Per Share | | Safety (TRIR) per 100,000 | | --- | --- | --- | --- | | | | highlights | hours worked | | £2,183.6m | 166.0p | | | The Total Recordable ## 0.19 Adjusted Adjusted Injury Rate safety measure increased in the year due | £(205.6)m | (14.7)p | a rise in contractor hours | Economic contribution | | --- | --- | --- | --- | | | | worked on construction. | UK/ROI | | Reported | Reported | | | SSE continues to make a ## significant contribution to £6.04bn/ Dividend Adjusted investment and capex the economies it operates in ## as it delivers on its ambitious €429m ## 96.7p £2,803.3m investment programme. (after refunds, including acquisitions) ### Balance between market-exposed and ### stable, economically-regulated earnings . | SSEN Transmission | SSEN Distribution | Energy Customer Solutions | | --- | --- | --- | | Connecting power generation | Powering 3.9m homes | Providing access to green energy for | | to urban areas of demand. | and businesses. | households and businesses. | | Operating profit | Operating profit | SSE Airtricity operating profit | | £372.7m | £382.4m | £5.6m | | Adjusted | Adjusted | Adjusted | | £405.5m | £382.4m | £5.2m | | Reported | Reported | Reported | | Operating profit contribution | Operating profit contribution | SSE Business Energy operating profit | | to Group | to Group | | ## £17.9m ## 15% 15% Adjusted Proportion of Group capex Proportion of Group capex ## £17.9m Reported ## 18% 19% ### SSE Distributed Energy inc Solar and Battery* Operating profit/loss ## £(27.4)m Adjusted ## £33.5m Reported * From April 2023 the Solar and Battery business is part of SSE Renewables. 3SSE plc Annual Report 2023 ## Chair’s statement The actions SSE is taking now will be part of the foundation of a transformed energy system aligned to the sector’s 1.5°C global warming pathway – one that is cleaner, more affordable and more secure. In support of those goals we are accelerating renewables, transforming electricity networks, providing vital flexible generation back-up, and working hard to ensure ## Right no-one is left behind along the way. ### Responding to uncertainty The war in Ukraine exposed Western Europe’s dependency on imported gas. The resulting market volatility and energy price spikes have rightly made policy makers and energy providers the subject ## action. of intense scrutiny and public discourse. Our response has been unambiguous, focusing our efforts on where we can make the biggest difference. By investing record amounts – in excess of profits – in critical national infrastructure we are ## Right helping to address the causes rather than the symptoms of the energy crisis. As this Strategic Report shows, we have successfully navigated the challenges that came with turbulent markets and unfavourable weather, and engaged ## now. constructively with policy makers to ensure that we can continue to fulfil our purpose, and generate value for our shareholders and society more widely. ### A year of unprecedented challenge in the global ### The people driving our delivery ### energy markets has cemented the role that SSE None of our objectives or outcomes are ### and other energy providers must play in providing possible without the dedication and hard work of our people. The executive team ### long-term solutions to the challenges of national and our highly capable and committed ### energy security, affordability and climate change. employees and contractors have delivered strong operational and financial performance in a challenging year, and on behalf of the Board I thank them all for their efforts. I’d also like to express my personal gratitude to our outgoing Finance Director, Gregor Alexander, who leaves us in December after more than 20 years’ excellent financial stewardship of the Company. He should be very proud – not only of what he has achieved during his time at SSE – but of the strong position in which he leaves us. We are losing one of the FTSE’s finest FDs but after a rigorous selection process we have a highly capable successor in Barry O’Regan. Barry has been integral to SSE’s growth story for many years now, particularly in terms of the reshaping of the Group, and we all look forward to working with him through the transition. 4 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### “None of our objectives or outcomes are possible ### without the dedication and hard work of our ### workforce. The executive team and our highly ### capable and committed employees and contractors ### have delivered strong operational and financial ### performance in a challenging year, and on behalf ### of the Board I thank them all for their efforts.” | Engagement with SSE colleagues was a | We have since refreshed the programme | Leaving no-one behind | | --- | --- | --- | | feature of the 2022/23 Board agenda and | with the launch of a more stretching ‘NZAP | A truly just transition to net zero will leave | | I was particularly pleased that we were able | Plus’ which includes plans for £18bn of | no-one behind and that means bringing | | to use the time after the main business of | investment out to 2027. | our stakeholders with us. SSE was an early | | the AGM to meet a number of employees | | adopter of the principles of a just transition | | face-to-face and more than 3,500 in a | These revised plans, in the context of | and we recognise that continued consensus | | virtual townhall setting to discuss the | SSE’s Net Zero Transition Plan, reflect the | in favour of net zero will, in part, depend on | | Board’s commitment to ensuring SSE offers | continuing strength of our business model | the fairness, perceived and experienced, of | | a truly safe and inclusive workplace. | and balance sheet, the urgency of climate | the way in which the costs and benefits of | | | action and the wealth of opportunities | climate action are distributed. | | Getting everyone who works for SSE | presented to us by the transition to net | | | home safe at the end of each working | zero and the encouraging economic and | It will require actions as well as words | | day has always been our top priority, but it | policy tailwinds we see for the sector. | and we will continue to take tangible steps, | | has been a difficult year. The devastating | | for example, by recruiting people from | | death in June of Liam Macdonald, | Going further, and faster | high-carbon industries as part of the | | a young contractor working on Shetland, | We are proud of the progress we are | expected intake of the 1,000-plus new | | has caused us to refocus our efforts. | making with a strategy that, over the | jobs we expect to create each year. | | A new contractor safety team has been | medium term, will help to address the | | | established to ensure our partners are | dilemmas of affordability, environment | Businesses like SSE do not operate in | | supported and performance is closely | and security of energy provision. | isolation. We create value for society and | | monitored across all our large capital | | provide the critical infrastructure needed | | projects (See pages 63 and 162 ). | We are working with governments to | for a prosperous economy. And by doing | | | create policy frameworks which will | this in a sustainable way, we secure the | | Right strategy at the right time | accelerate investment into much needed | right to earn a profit. | | With SSE’s opportunities for growth defined | infrastructure, and bring forward long- | | | by the imperative to decarbonise power | term solutions for energy users, the | It forms a social contract that underpins a | | sectors at home and abroad, our Net Zero | environment, and society generally. | culture of ‘doing the right thing’ and inspires | | Transition Plan spells out how we will | | a leadership position on transparency and | | remove greenhouse gas emissions from | As a long-standing Fair Tax-accredited | disclosure that makes us accountable to all | | our own operations, supported by a | company, we are committed to paying the | of our stakeholders for our decision-making | | process for accountability with an annual | right amount of tax, in the right place, at | and actions. | | shareholder ‘say on climate’ resolution. | the right time. And we recognise that taxing | | | | extraordinary profits is reasonable where | A key objective of this Strategic Report | | We welcomed the overwhelming support | those profits are actually realised. But the | and the associated Section 172 Statement | | given to our first AGM vote on SSE’s Net | bigger prize will be the fruits of large-scale | (See page 26 ) is to build on disclosures | | Zero Transition Report in July 2022. | investment in clean energy, so the overall | we have provided in recent years and | | | investment climate remains important. | reflect on the work being done to promote | | Since then, record levels of investment | | SSE’s long-term success. Both reports are | | and the sale of a minority stake in our | The UK has enjoyed a leading position in | approved by the Board in accordance with | | transmission business have provided the | the flows of green capital over the past | the Companies Act 2006 and we welcome | | platform for us to push ahead with large | decade as a result of world-leading policy | comments on the matters covered within | | capital projects, grow our development | making and a stable investment climate. | the following pages. | | pipeline both at home and abroad, and | Others are now seeking to overtake, with | | | implement ambitious business plans in | the US Inflation Reduction Act and the EU’s | | | our regulated networks businesses. | Net Zero Industrial Plan. | | | However, we have always been clear that | The UK Review of Electricity Markets | | | our Net Zero Acceleration Programme | Arrangement (REMA) and other policy | | | (NZAP) was just the start of our ambitions. | interventions offer an opportunity to put | | Sir John Manzoni the UK back at the leading edge and ensure Chair, SSE plc The opportunities and options for SSE to investment can be accelerated throughout 23 May 2023 deploy its capabilities and resources have the value chain. SSE stands ready to assist grown substantially since the programme in that development. launch in November 2021. 5SSE plc Annual Report 2023 ## Chief Executive’s review Over the past year we have continued to create value for our shareholders and society by investing more than we make in profits in the crucial renewables, networks and flexible energy assets needed to unlock a cleaner, more secure and more affordable energy system. We delivered record capital investment, exceeding £2.8bn including acquisitions. I am proud of what has been ## Raising achieved in a shifting and uncertain energy landscape, with the strength of our balanced business mix and the quality of our people and assets shining through. There is no doubt that the year also brought its challenges. But progress made in the face of exceptional macro-economic ## the bar conditions, government intervention in energy markets and the continued impact of the war in Ukraine gives us immense confidence in our strategic direction and optimism about meeting our ambitious 2030 Goals. (See pages 22 to 23 ). ## on net We have always said our Net Zero Acceleration Programme (NZAP) represents the floor, not the ceiling, of our ambitions. Backed by excellent growth options and strong financial performance, we are well placed to explore further investments to support an accelerated transition to net ## zero. zero with the revised ‘NZAP Plus’ we announced in May 2023. ### Commitment and resilience ### The first full year of SSE’s Net Zero Acceleration In volatile times SSE continues to be resilient thanks to our very deliberate mix of ### Programme will be remembered as a period of market-based and economically regulated ### strategic gains and financial and operational progress businesses, world class assets, natural hedges, balance sheet strength and, above ### in a shifting and uncertain energy landscape. everything else, the quality of our people. The nature of our business means everyone at SSE has been keenly aware of, but not immune to, the inflationary pressure of high energy prices in the past year. With this in mind we introduced a number of measures, including bringing forward a proportion of the 2023 pay settlement, to ease the burden on employees over winter. We also know difficult times bring emotional pressures too, and I’m pleased that we have taken what we learned from Covid-19 and continued to improve the mental health and wellbeing support we offer colleagues. On behalf of the executive team, I would like to thank all SSE’s direct employees and contractors – not just for their achievements in 2022/23 – but for their unremitting passion, commitment and dedication to our purpose of building a better world of energy. No matter their role, getting everyone who works for SSE home safe at the end of each day remains our number one priority and that focus is all the keener following the 6 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report responses, and consistent ‘above and ### “Backed by excellent growth options and strong beyond’ levels of service, received plaudits ### financial performance, we are well placed to explore from the government, customers and other stakeholders. ### further investments to support an accelerated ### transition to net zero with the revised ‘NZAP Plus’ Options for strategic growth Enabled by record levels of investment ### we announced in May 2023.” in 2022/23 and the sale of a minority stake in our transmission business, we have | tragic death of Liam Macdonald on Shetland | The final RIIO-ED2 determination sees | confidence in our ability to go even further, | | --- | --- | --- | | in June 2022. As our operational activities | baseline allowances for SSEN Distribution | faster. With renewables opportunities such | | increase so too does our focus on delivering | increasing by £300m from draft | as Coire Glas, Berwick Bank and Ossian | | industry leading safety programmes with | determinations, representing a 22% | (ScotWind), Regulated Asset Value growth | | our partners. (See pages 63 and 162 ). | increase in allowed expenditure compared | in our networks businesses, alongside | | | to an equivalent period in RIIO-ED1. | developments in CCS, hydrogen, solar | | Clean, secure, affordable energy | | and battery technologies, we are creating | | In 2019, we took the decision to align to the | While the original NZAP assumed a 25% | substantial growth options in the near and | | UN’s Sustainable Development Goals (SDGs) | minority stake sale in SSEN Distribution, | medium term. | | with four core associated 2030 Goals. The | we consistently review our options and | | | NZAP Plus sets the pathway for SSE to meet | direction and the NZAP Plus plan now | And as we explore opportunities to grow at | | those broad goals in 2030. Recognising | reflects the decision that retaining 100% of | home, we are also building our capabilities | | that decarbonisation represents a radical | the business is the right strategy at this time. | abroad, by exporting our renewables | | economic transformation affecting all | | expertise to Southern Europe and Japan. | | sectors of society, we continue to advance | A year of milestones | Completion of the Southern European | | the case for a just energy transition. | The first full year of the NZAP was packed | development acquisition this year helped | | | full of milestones on our flagship projects | drive SSE’s secured pipeline up from | | As events of the last year have shown, | whilst the size and diversity of our | 10GW to nearly 14GW with significant | | accelerating the energy transition is not | development pipeline continues to grow. | future prospects even before upcoming | | only a moral imperative in the context of | | auction processes. | | the climate emergency, but is also central | SSE Renewables achieved first power at the | | | to securing a reliable and affordable energy | 1,075MW Seagreen offshore wind project | An optimistic future | | supply. For the electricity system, there is | and made significant progress on Dogger | To close, our strategy looks even better | | no trade-off between our climate ambitions | Bank, the world’s largest offshore wind | one year on than it did at the end of | | and consumer costs or maintaining security | farm, including the opening of the O&M | 2021/22. It is our platform for delivery | | of supply. And, by investing in energy | base in Tyneside. The UK’s most productive | and growth, underpinned by a socially | | independence, SSE is simultaneously | onshore wind farm by output, Viking, | responsible purpose and a value-creating | | tackling the crises of energy affordability | remains on track for operation in 2024. | strategy, investing record amounts in clean, | | and security, as well as climate change. | The pipleline grew and further diversified | green energy infrastructure. | too, with the acquisition of SGRE’s onshore | As a business, we remain committed to | development platform in Southern Europe. | Having navigated the choppy waters of | | --- | --- | --- | | further reducing the system’s reliance on | | market and policy uncertainty this year, | | imported fossil fuels by reinvesting additional | It was also a particularly strong year for our | SSE has emerged with an even clearer | | profits in the accelerated deployment of | thermal business, which officially welcomed | vision of the role we must continue to | | crucial renewable, flexibility and network | Keadby 2 into the fleet with commercial | play in developing and building the energy | | infrastructure. By doing so, we are creating | operations at Europe’s most efficient CCGT | system of the future. | | lasting value for SSE’s stakeholders, and | commencing in March 2023. SSE Thermal’s | | | society as a whole. | portfolio was further bolstered by the | For there is no doubt that, in our people, | | | acquisition of 1.3GW Triton Power with | businesses and assets, we hold an important | | Delivering record investment | Equinor, which holds significant CCS and | part of the long-term solution to the energy | | The NZAP Plus is the platform to achieve | hydrogen potential and has already created | crisis in our hands. And, as we enter 2023/24, | | these aims, giving us a pathway to invest | value for the Group. | we do so emboldened in our pursuit of an | | £38bn in GB and Ireland by the end of the | | energy system that is cleaner, more secure | | decade. SSE is on course to deliver 20% of | In networks, SSEN Transmission oversaw | and more affordable. | | both the electricity networks and offshore | the laying of the Shetland HVDC link, which | | | wind needed to meet the UK’s net zero | is on course to connect the islands to the | | | targets for 2030. And opportunities | GB energy system for the first time in 2024, | | | associated with net zero continue to | while our distribution business delivered | | | accelerate across the value chain, | against a vast range of projects in both the | | Alistair Phillips-Davies not least in SSE’s networks businesses. north and south network regions during Chief Executive, SSE plc the final year of RIIO-ED1. 23 May 2023 Ofgem’s Accelerated Strategic Transmission | Investment (ASTI) framework announcement | SSEN Distribution continued to embed | | --- | --- | | clears the way for SSEN Transmission to build | learnings from our Storm Arwen review | | the assets required to support 50GW of | and action plan, rolling out new processes | | offshore wind by 2030 and SSEN Distribution | and procedures in the Shetland ice storm | | is set to implement a £3.6bn RIIO-ED2 | in December 2022 and Storm Otto in | | business plan agreed with Ofgem. | February 2023. An improvement in storm | 7SSE plc Annual Report 2023 ## 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 ## and investing in the electricity Net Zero ## infrastructure and businesses ## needed in the transition to net zero. OUR GOALS ## SSE’s 2030 Goals, aligned to the UN’s ## SDGs, provide important milestones ## on the journey to net zero. ## Cut carbon ## intensity by 80% More about our progress on page 22  Reduce scope 1 carbon intensity by 80% by 2030, compared to 2017/18 levels, to 61gCO e/kWh. 2 OUR VALUES ## Safety Service ## All of this is underpinned ### If it’s not safe, We are a company ## by a set of core values ### we don’t do it. that customers ### can rely on. ## designed to guide decisions ## and actions in SSE. ### CO 2 8 SSE plc Annual Report 2023 ### CO 2 Financial StatementsStrategic Report Directors’ Report OUR VISION ## To be a leading energy ## company in a net zero world. ## Build Operate ## Invest ## Net Zero Acceleration Programme Plus ## Increase renewable Enable low-carbon ## Champion a fair and ## energy output fivefold generation and demand ## just energy transition Build a renewable energy portfolio Enable at least 20GW of renewable Be a global leader for the just transition that generates at least 50TWh of generation and facilitate around to net zero, with a guarantee of fair renewable electricity a year by 2030. 2 million EVs and 1 million heat work and commitment to paying fair pumps on SSEN’s electricity networks tax and sharing economic value. by 2030. ## Efficiency Sustainability Excellence Teamwork ### We focus on We do things We continually We work together, ### what matters. responsibly to add improve the way respect each other ### long-term value. we do things. and make a difference. ### CO 2 ### CO 9SSE plc Annual Report 2023 2 ### CO 2 ## Our business model WHO AND WHAT WE RELY ON HOW WE DO IT ## Develop ## Key stakeholder groups SSE identifies opportunities in domestic and overseas Direct employees markets where it can best use its capability in providing ### Employees SSE’s strategy and success are dependent the clean, affordable energy infrastructure needed to ## on the shared talent, diversity, innovation c.12k decarbonise the economy. and values of the people it employs. It works with partners with relevant technical and geographic expertise in the deployment of proven and Market cap ### Shareholders and innovative technologies to grow a development pipeline ### debt providers that creates lasting value and benefits all stakeholders. ## SSE must be well-financed, with the ability £19.6bn to remunerate shareholders for their at 31 March 2023 investment, secure debt at competitive rates and grow the business. Networks and ### Energy customers ## supply customers Build Consumers create demand for the energy and services SSE provides and set the tone SSE consistently delivers highly complex electricity ## 4.98m for our purpose. infrastructure in a timely manner and within budget. It draws on a proud heritage of construction Investment in ### Government and regulators infrastructure (capex) and utilises modern technologies in the building SSE relies on policy frameworks and of assets that are critical to a cleaner, cheaper, public services that support investment ## £2.8bn more secure energy system. in critical national infrastructure, are fair on customers and maintain the momentum behind net zero. Investment in ### NGOs, communities, society communities SSE needs the support of the communities it works in and the backing of civil society ## £16.5m in pursuit of a just transition to net zero. ## Operate SSE operates its assets in a responsive and Number of suppliers ### Suppliers, contractors responsible way. It promotes a culture of ### and partners continuous improvement and stakeholder ## SSE relies on a healthy supply chain and c.9,000 engagement to provide quality customer service. works with partners whose capabilities offer synergies for innovative project It invests in asset resilience to meet consumer development and efficient ownership demand and strives to ensure the safety and structures. wellbeing of the people and places impacted by its activities. More on pages 26 to 33  ## Natural environment ## Invest From wind and water used to produce Science-based carbon SSE invests in low-carbon infrastructure as part of targets aligned to | energy, to materials used to build energy | | its net zero-focused strategy. Its investments are | | --- | --- | --- | | infrastructure, natural resources are | | fully funded and underpinned by partnering which | | essential to SSE’s value creation. | 1.5°C | | unlocks value, and debt secured at efficient rates. More on pages 52 to 55  In May 2023, SSE announced it would be enhancing its investment programme as part of an updated ‘NZAP Plus’ amounting to £18bn of capital expenditure. 10 SSE plc Annual Report 2023 WHY WE DO IT THE VALUE WE CREATE The developer premium that comes with SSE's reputation for delivering confidence assets enables it to realise relative key stages of projects through timely sell-downs. By extracting value in this way, SSE does not always wholly own projects on completion but it does retain duties and a solid asset base to support future earnings. SSE's experience in managing large capital projects and navigating regulatory and planning processes offers a competitive advantage when it comes to securing quality development sites and required permissions. As a national clean energy champion, SSE takes seriously the role it has to play in decarbonising the energy system and has published the world's first business strategy for a just transition to net zero. It is providing the renewables, the enabling networks and the flexible thermal generation that will be needed in a smooth transition. SSE also seeks to fulfil its social contract with communities by working with local supply chains, supporting their commitments to decarbonisation, and addressing the impact that change is having on the sector. As a critical service provider, SSE works to ensure the generation plant availability and networks resilience needed to support security of supply in the UK and Ireland. It also operates its assets efficiently through the implementation of innovation, learning and technology to maximise shareholder return and optimise customer value. While SSE is primarily focused on providing and running large infrastructure, it is keenly aware of the cost pressures felt by energy users. It is committed to the supply of affordable energy and the operation of resilient electricity networks for the benefit of customers. SSE invests to fulfil its core purpose and support the Board's endeavours to promote the long-term success of the Company. It invests to create lasting value for shareholders and society, exercising financial discipline that commits only to projects that are expected to offer returns that are greater than the cost of capital. And it invests to help meet its social obligations by contributing to GDP growth through payment of tax and creating quality jobs and supporting the supply chain through growth of the Company. At a Business Unit-level, SSE also invests in innovation and R&D that is furthering the cause of decarbonisation. More detail on this can be found in the SSE Sustainability Report 2023. Employees 3,732 Shareholders and debt providers 96.7p Energy customers €25m Government and regulators £502m/€53.8m NGOs, communities, society 1,160 Suppliers, contractors, partners £6.04bn/€429m Natural environment 4.5% SSE plc Annual Report 2023 11 ## Sector review ## Navigating ## through ## instability ### 2022/23 saw deepening economic uncertainty around the world as ### the post-pandemic energy crisis was exacerbated by Russia’s invasion of ### Ukraine. Soaring energy prices principally driven by the cost of international ### gas contributed to high inflation in economies throughout the world. ### The following pages set out how SSE has responded to the opportunities ### and risks emerging from a rapidly shifting energy sector landscape. ## Households squeezed as impact of ## war reverberates across Europe | The cost of living crisis in 2022/23 further | In response to the cost pressures facing | | --- | --- | | underlined the importance of continued | its customers, SSE spent much of the year | | investment in homegrown sources of | working closely with policymakers to | | energy to reduce national exposure to | develop and embed government support | | external global forces. | schemes. SSE Airtricity established the | largest customer support fund in Ireland, | Simultaneously, governments across | with provision for up to €25m in affordability | | --- | --- | | Europe and the world looked to recalibrate | funding, before later giving each customer | | and expedite their renewable energy | a €35 rebate to honour its commitment to | | ambitions. In tandem with government | not making a profit in 2022/23. Meanwhile, | | policy, SSE continues to take direct aim | SSE Business Energy applied customer | | at the long-term causes of the current | discounts to the value of £721m in the | | crisis by investing billions in domestic | year under the UK Government’s Energy | | low-carbon infrastructure. | Bill Relief Scheme. | A prudent approach to hedging throughout the year also helped insulate the Group The cost of living is directly linked to from the worst short-term commercial SSE’s exposure to the Principal Risk of impacts of the market volatility. Energy Affordability – details of how this is mitigated are on page 73 . 12 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ## Energy security tops ## the political agenda The year saw bold targets and aggressive policy action to bolster domestic energy security as governments set their sights on tackling the energy crisis. The last 12 months put on stark display the importance of clean, affordable, homegrown energy as the solution to countries’ reliance on volatile and expensive international gas markets. Wholesale prices at times in 2022 were up to ten times higher than they were in 2021. Cross-party political consensus crystalised around the importance of rapidly rolling out low-carbon technologies such as wind, CCS, hydrogen, solar, battery and hydro, while urgently accelerating the buildout of enabling networks. Ofgem’s Accelerated Strategic Transmission Investment framework announcement in December 2022 saw SSEN Transmission given the green light to take forward four further subsea HVDC links; a number of new 400kV reinforcement projects and a 400kV upgrade to the existing Beauly- Denny line to unlock the rapid growth of power generation in the North of Scotland. Concurrently, the year saw political attention in the UK and further afield focus even more acutely on the need to accelerate low-carbon infrastructure deployment; not only to increase energy security, but as a force for social and economic good to bring jobs, skills, ## and growth to regional heartlands that Market intervention in unprecedented times need it most. | | With the cost of electricity rising | the mechanisms achieved these aims | | --- | --- | --- | | Analysis from SSE Thermal shows its | substantially in 2022/23, governments | whilst protecting against unintended | | Keadby Carbon Capture project, which | faced exceptional fiscal pressures to | consequences for security of supply | | in December 2022 became the first and | address high energy bills and the impact | and investor confidence. | | only consented CCS plant in the UK, has | of the broader cost of living crisis. In | | | the potential to bring £470m regional | response to the crisis, a raft of proposals | Ongoing dialogue continues to focus | | Gross Value Added and 7,300 years of | to intervene in energy markets were | on the need to ensure the impacts of | | combined work by all employees over | considered with the aim of tackling bills | intervention do not interfere with the | | the lifetime of the asset. | in the immediate term. Throughout the | industry’s ability to deliver record levels | | | year industry worked constructively with | of investment to address the underlying | | | policymakers to navigate the crisis and | causes of the energy crisis. The European | | Energy Infrastructure Failure is one of | engage on the range of potential options | Union’s strong signal on the time-limited | | SSE’s Group Principal Risks, for further | under consideration. | nature of the revenue cap was therefore | | details on how this is managed please | | welcomed by industry, while the UK | | see page 74 . | As a Fair Tax Mark accredited company, | Government has recognised the future of | | | SSE supported the principle of the | the EGL must be considered in the context | | | Electricity Generator Levy (EGL) in the | of protecting investor confidence. | UK and the wholesale electricity revenue cap in the EU to ensure that an appropriate | amount of additional tax is paid where | SSE’s Principal Risks of Energy | | --- | --- | | extraordinary earnings are realised in the | Affordability and Political and | | midst of a crisis. Collectively, the industry | Regulatory Change are interconnected. | | worked closely with UK, Irish and EU | See pages 73 and 76  for details of | | officials through the consultative process | how SSE’s manages its exposure to | | with a view to ensuring that the design of | these risks. | 13SSE plc Annual Report 2023 ### Sector review continued ## International ## competition heats up The momentum behind efforts to decarbonise is fuelling international competition for flows of green capital. Governments around the world have joined the race to attract inward green investment, including the US’s Inflation Reduction Act (IRA). Passed by Congress in 2022, it introduces generous and unlimited tax credits for clean energy investments. The scope and scale of the legislation is beyond anything seen before, amounting to over $250bn in public support for new energy projects in the coming years. In response, other jurisdictions raced to send unambiguously positive messages to investors, with the European Commission instituting a wide-ranging scheme of its own. The REPowerEU programme seeks to ramp up the bloc’s domestic renewable energy generation capacity to 1,236GW by 2030. This was positive news for SSE’s recently acquired Southern European development platform which already offers a secured pipeline of 2.2GW with additional future prospects. Greater choice for investors, combined with attractive support packages around the world, put the onus on the UK to respond, keep capital flowing and retain its leadership position on low-carbon energy. ## March’s Powering up Britain plan set out Supply chains tested as costs climb an initial slew of policy pledges and green | funding, with the Chancellor earmarking | As global demand for low-carbon projects | if it is to meet its energy security and net | | --- | --- | --- | | a further announcement in the Autumn | exponentially grows, so too must the | zero targets; a race to the bottom on costs | | Statement to maintain the country’s | supply chain to deliver it. In the next seven | risks projects not being built and supply | | relative attractiveness in an increasingly | years, the UK alone is targeting more than | chain investments going elsewhere. | | competitive global investment climate. | 100GW of renewables capacity. Like other | | | | industries that have experienced high | At the same time, history shows that | | | growth, the massive expansion of projects | the costs and benefits of such radical | | For more details on how SSE mitigates | to date is already putting pressure on | transitions are not distributed fairly | | its exposures to its Principal Risks of | supply chains – with significant demand | without careful planning and there is an | | Climate Change and Speed of Change | growth still to come. | important role for government working | | please see pages 72 and 77 . | | alongside the private sector. | Over the last 12 months, capital costs for | low-carbon generation projects have risen | A joined-up, collaborative approach | | --- | --- | | on average between 20% and 30%, with | between government, industry and society | | asset costs in some cases exceeding 50%. | is required in 2023/24 and beyond to build | | These cost increases are due to several | sustainable homegrown supply chains to | | factors linked to the supply chain as well as | service growth in demand and unlock | | inflation in construction costs, commodity | economic opportunity in all regions. | price increases and interest rate hikes. | After decades of driving down costs, in | Supply chain pressures influence | | --- | --- | | the case of offshore wind from £140/MWh | SSE’s exposure to its Principal Risk of | | to less than £40/MWh, a clear inflection | Large Capital Projects Management. | | point was reached in 2022/23. Industry | See page 75 . | and government are beginning to think differently about procuring renewables with a focus on value and deliverability, not simply cost. The UK, like other countries, will need to build all its projects 14 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ## Global opportunities emerge ## as net zero resolve hardens | COP27 may have concluded with the | carbon alternatives. In terms of energy, | | --- | --- | | target of 1.5°C in critical condition, but the | this means leaving behind a traditional | | global commitment to renewable energy | system designed around fossil fuels and | | is stronger than ever. | installing a new one – as fast as we can. | | The message from Sharm el Sheikh was | Aiming for 61% of total electricity | | clear: the energy sector must lead the way | generation to come from renewables by | | this decade to keep 1.5°C alive. As it did in | 2030, the International Energy Agency | | Glasgow, SSE played its part on the world | (IEA) estimates that renewable energy | | stage, once again making the case for the | capacity will have to triple, with a huge | | decarbonisation of the energy system to | chunk of this growth to come from wind, | | go further, faster. | solar and hydro. Beyond the installation | of renewable power, this also means | Meeting the objectives of the Paris | installing transmission lines, building | | | --- | --- | --- | | Agreement calls for us to halve global | local smart grids and electricity storage, | | | greenhouse gas emissions by 2030 – | and rolling out technologies that enable | | | just seven years to replace swathes of | system flexibility. | Adapting to extreme | high-emission technologies with low- ## weather events Climate Change remains a Principal Risk for SSE. For further details on how this is As the world adapts to more extreme managed, see page 72 . weather patterns associated with climate change the energy sector finds itself on the front line. Changes in rainfall and wind patterns are felt right across the SSE Group, with lower levels of wind impacting SSE Renewables’ output for the second year running in 2022/23. Prolonged spells of still, dry weather ## SSE’s place in the future energy world conditions in winter tested the resilience of Europe’s energy system to the full, while several weather events this year caused significant damage to parts of SSEN’s network in the North of Scotland. SSE has established crisis management measures to mitigate against the impact of severe weather events on critical national infrastructure and employs meteorological expertise to forecast weather events. SSE’s forecasting allows it to mobilise operational teams in advance of major events, while informing trading positions taken by the Energy Portfolio Management business and purchasing decisions made by SSE’s Procurement team. Climate adaptation strategies have become an increasingly important aspect of government and business decision- making. For SSE, boosting weather resilience and assessing climate adaptation requirements are essential to the ongoing For more detail on the work SSE is doing to meet the resilience of all its operational businesses. challenges of the energy sector of tomorrow, go to www.sse.com/annualreport2023/. Extreme weather influences SSE’s exposure to its Principal Risks of Energy Infrastructure Failure and Portfolio Exposure. See pages 74 and 76 . 15SSE plc Annual Report 2023 ## Net Zero Acceleration Programme Plus ## Optimal pathway ## to growth ### SSE made clear that the Net Zero Acceleration Programme (NZAP) it ### launched in November 2021 was a floor, not a ceiling to its ambitions. ## NZAP Plus is a ## platform to maximise ## stakeholder value Balanced capital investment in ## upgraded, fully-funded plan... ## into the 2030s The demand for what SSE has to offer in building a cleaner, more secure and more affordable energy system is growing steadily. Renewables In May 2023, 18 months on from its initial launch, the NZAP was revised to reflect SSE’s increasing investment ## ~40% and earnings, and the wealth of opportunities created as the world pursues net zero. ## £18bn Electricity networks The new NZAP Plus includes investment of £18bn over the five years to 2027 and a balanced allocation ## ~50% of investment across the Group. The added investment means SSE’s total capital expenditure equates to around £10m a day spent on critical national infrastructure. The plan also features revised growth targets to 2027 for SSE Renewables, Renewables 40% Transmission 30% SSEN Transmission and SSEN Distribution. Thermal and other 10% Distribution 20% The NZAP Plus means more value for shareholders and society, more financial strength, more investment, more jobs, and more growth to come over the next ### decade. Sharper focus on climate solutions Supporting SSE’s 2030 Goals with around 90% Further details on SSE’s NZAP Plus can be found in the expected to be invested in renewables and Financial Review on page 83  and on sse.com . networks, the substantial majority of the NZAP Plus is focused on climate solutions that are aligned to a 1.5°C pathway and also aligned to the Technical Screening Criteria of the EU Taxonomy. ### Updated dividend plan Dividend rebase to 60p from 2024 continues to balance income to shareholders with funding and a strong investment grade credit rating. NZAP Plus also targets dividend growth of 5%-10% from 2024 to 2027. 16 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ## Medium-term targets Long-term targets ## … delivering accelerated growth at … with 2030 Goals aligned ## attractive returns out to 2027… to four UN SDGs … See page 22  for SSE’s progress against these ### Renewables Electricity networks Net capacity Gross RAV CAGR ## … enhanced 2032 growth ## >9GW ~14% ## targets in the NZAP Plus … Pipeline Net installed renewables capacity ## >15GW ## >16GW ### >9GW £14-16bn Net low-carbon flexible thermal ## >2GW ### £12-14bn ### £8.2bn Net networks RAV ### ~4GW ## >£20bn Science-based carbon targets aligned to Offshore wind SSE ownership ## 1.5°C Onshore wind Minority interest Hydro Solar Battery ## … and a Net Zero Transition Plan Adjusted EPS CAGR Net debt/EBITDA ## for net zero emissions on scopes ## 13-16% 3.5-4.0x ## 1 and 2 by 2040, and scope 3 by ## 2050 at the latest. FY22 FY27 FY22 FY27 Forecast annual dividend growth ## 5%-10% 17SSE plc Annual Report 2023 ## A year of strategic progress ## Delivering ## on net zero ### SSE has a clear strategy that is ### aligned to net zero, but delivery ### of it is best seen through the ### progress made, and milestones ### marked over the course of the ### year, by the Group’s individual ### Business Units. ## Building for clean, ## secure, affordable energy | The complexity of building large energy | Seagreen (1,075MW, 49% SSE stake), | After four-and-a-half years in construction, | | --- | --- | --- | | infrastructure assets, often in harsh | overcame difficult weather conditions | Keadby 2 entered commercial operation in | | physical environments, poses risks to | and installation vessel availability problems | March 2023. Fitted with a Siemens Energy | | delivery timelines but, working with its | in 2022/23. The world’s deepest fixed- | 9000HL 50Hz turbine, Keadby 2 is the most | | construction partners, SSE managed to | bottom offshore wind farm, it achieved | efficient CCGT plant of its type in Europe | | make significant progress on flagship | first power in August 2022 and is due for | and work is already under way exploring | | projects across its renewables and | completion in summer 2023. | the potential for hydrogen blending at | | low-carbon thermal portfolio in 2022/23. | | the plant. | Onshore, Viking wind farm (443MW) on | The first offshore platform was installed | Shetland passed a number of milestones | The wellbeing of those working on SSE’s | | --- | --- | --- | | at Dogger Bank (3,600MW, 40% SSE stake), | in the past year, with 70km of access tracks | large capital projects continues to be a key | | the world’s largest wind farm currently | completed, all 103 bases installed and the | focus, with measures taken at Group level | | under construction, in April 2022 and it | first of the turbines installed in April 2023. | in early 2023 to improve the support given | | is on schedule to deliver first power in | | to contracting partners and monitor safety | | summer 2023, assuming normal weather | Flexible thermal generation plant like | on construction sites. | | and resolution of delays to the supply | SSE’s Keadby 2 power combined-cycle | | | of nacelles. | gas turbine (CCGT) station in North | | Lincolnshire will also be needed to meet net zero ambitions. 18 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ## Pursuing opportunities ## at home and abroad | The UK is currently one of the world’s | In Japan, the SSE-Pacifico platform is | | --- | --- | | leading offshore wind markets, but | preparing projects for offshore auctions | | international momentum behind net zero | in a market with huge potential whilst | | means favourable policy environments exist | in Northern Europe and the US, SSE is | | in other jurisdictions where SSE Renewables | working with local partners to gear up | | can deploy its developer capability. | for future auctions. | | The acquisition of a Southern European | Closer to home, Coire Glas, a pumped | | development platform in 2022 increased | storage hydro project that has long been | | SSE’s secured pipeline from 11GW to | on the drawing board awaiting a supportive | | around 14GW. | policy environment for long-duration | electricity storage, moved a step closer to | The platform has 3.8GW of onshore | reality in March 2022 with a commitment | | --- | --- | | wind pipeline and prospects and a | by SSE to £100m of exploratory work. The | | further 1.4GW of hybridisation potential | project, which received planning consent | | in co-located solar across Spain, France, | from the Scottish Government in 2020, | | Italy and Greece. Around 2.4GW is secured | would more than double Britain’s total | | pipeline in Southern Europe, with material | current electricity storage capacity. Subject | | land or permitting rights and construction | to good development progress and | | scheduled to get under way on projects in | prevailing policy, SSE hopes to make | | France and Spain in Summer 2023. | a final investment decision in 2024. | ## A framework for ## transmission growth | SSEN Transmission operates one of the | | The ASTI announcement in December 2022 | | --- | --- | --- | | fastest growing regulated electricity | | means SSEN Transmission can now take | | networks in Europe. The second year of | | forward four further subsea HVDC links; | | RIIO-T2 saw delivery milestones on the | | a number of new 400kV reinforcement | | Shetland HVDC (see separate case study) | | projects and a 400kV upgrade to the | | and SF | -free Kintore substation projects. | existing Beauly-Denny line. | 6 | Progress was also made through Ofgem’s | At the same time, it is vital to recognise the | | --- | --- | | Uncertainty Mechanism on additional | importance of effective engagement with | | investments in an East Coast HVDC link, | communities as this transformational | | Argyll reinforcement works and a Skye link. | infrastructure roll-out progresses. | | Looking further out, and subject to the | SSEN Transmission is therefore working | | right generator commitments and planning | closely with impacted communities | | and Ofgem approvals, the business expects | and other local stakeholders to ensure | | gross Regulated Asset Value to exceed | their views are heard and factored into | | £15bn by FY31. | decision making. | | This projection is based on confidence | This growth trajectory is underpinned by | | provided by Ofgem’s Accelerated Strategic | the proceeds of a minority 25% stake sale | | Transmission Investment framework and its | in SSEN Transmission in November 2022, | | updated Holistic Network Design, which | which unlocked the premium value in | | recognise the need for significant networks | the business and helped rebalance SSE’s | | investment to meet the UK’s ambition for | mix of regulated and market-based | | 50GW of offshore wind by 2030. | revenue streams. | 19SSE plc Annual Report 2023 ### A year of strategic progress continued ## Connecting ## Scotland’s islands Scotland’s three main island groups hold untapped reserves of renewable energy and unlocking that potential moved closer in 2022/23 thanks to progress made on SSEN Transmission’s HVDC link to Shetland and Ofgem’s ‘minded to’ decision on a subsea connection to Orkney. The £660m Shetland HVDC link involves around 260km of cabling, all but 10km of which will be in the sea. The project also requires a 320/132kV substation and HVDC convertor station at Upper Kergord and an HVDC switching station at Noss Head in Caithness to connect to the mainland. The first 100km of cable was successfully installed in July 2022 by a specialist vessel, the NKT Victoria. A further 60km was laid in March 2023 and the remainder will be in place in the North Sea later this year, completing the full subsea link. On track for completion by Summer 2024, the link will enable 600MW of clean, renewable electricity generation to connect – including Viking Energy Wind Farm. The proposal for Orkney would enable ## the connection of up to 220MW of new Powering communities renewables and consists of a new ## substation at Finstown and around through RIIO-ED2 57km of subsea cable connecting at The RIIO-ED2 regulatory price control for network infrastructure that will accelerate Dounreay in Caithness. | 2023-2028 is an important step on the | decarbonisation of streets and homes; | | --- | --- | | road to net zero and throughout the past | improve reliability and services for | | year SSEN Distribution worked to reach a | customers; and build the smart, flexible | | settlement that balances the needs of | network of the future. | customers and the environment. While the original plan contained 64 | The Final Determination published by | outputs, the Final Determination reduced | | --- | --- | | Ofgem on 30 November 2022 quantified | the funding in the core plan by around | | the outputs that need to be delivered and | 12%. This required a recalibration of what | | the funding (allowances) SSEN Distribution | the business can deliver and further | | is provided to do so. | extensive engagement with affected | stakeholders on the likely impacts. The resulting £3.6bn RIIO-ED2 business | plan sees baseline allowances increasing | This follow-up engagement included detail | | --- | --- | | by £300m from the Draft Determinations, | of Uncertainty Mechanisms (UMs) that will | | representing a 22% increase in allowed | enable SSEN Distribution to further invest | | expenditure compared to an equivalent | in the network to facilitate growing net | | period in RIIO-ED1. | zero ambitions. | The business plan was stakeholder-led, with more than 25,000 people having a say in its development. It opens the way for significant investment in the local 20 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ## Backing up the energy ## system of tomorrow SSE recognises that more than just with Equinor to develop the low-carbon renewables will be needed in the transition power station at Peterhead, with the plant to net zero. It is pursuing carbon capture potentially becoming Scotland’s first and storage, hydrogen and battery flexible power station equipped with technologies to provide much-needed carbon capture technology. system flexibility. Although no power CCS projects in SSE Thermal is working with partners in the Humber or Scotland were taken low-carbon industrial clusters in the forward in the first phase of the UK’s Humber and the northeast of Scotland to cluster sequencing process, in March the bring forward a range of projects that can Government launched processes for both a provide crucial system back up. track one expansion and track two, meaning there will be further opportunities ahead. Keadby 3 Carbon Capture Power Station in | the Humber was the first CCS power plant | SSE will also energise its first 50MW | | --- | --- | | project in the country to receive planning | battery storage facility at Salisbury in | | permission. At the same site, development | September 2023 with construction also | | work is under way on Keadby Hydrogen | due to commence in July at its first 30MW | | Power Station, the world’s first major 100% | solar project at Littleton. | hydrogen-fired power station. Both projects in England are part of a | The neighbouring Aldbrough Hydrogen | near-2GW pipeline of solar and battery | | --- | --- | | Pathfinder project will unite hydrogen | projects. This also includes a 150MW | | production, storage and power generation | battery storage site getting under | | in one location by the middle of the decade. | way at SSE’s former coal-fired plant | | The project moved a step closer to fruition | at Ferrybridge, in Yorkshire, which is | | when it secured UK Government backing | expected to be operational in late 2024. | through its Net Zero Hydrogen Fund. For more information on SSE’s progress And the proposed Aldbrough Hydrogen against its net zero-focused strategy go Storage Facility, one of the largest of its to sse.com/news-and-views/. kind, could be in operation by early 2028. In Aberdeenshire, SSE Thermal is working 21SSE plc Annual Report 2023 ## 2030 Goals ## Cut carbon ## Progress ## intensity by 80% ## in action ### SSE’s core business goals for 2030, aligned to ### four UN Sustainable Development Goals (SDGs) ### most material to its business activities, provide ### important milestones on the journey to net zero ### and place sustainability firmly at the heart of ## SSE’s business strategy. Increase renewable ## energy output ### Accelerating business ambition ## fivefold SSE’s 2030 Goals are focused on addressing the challenge of climate change, while ensuring this is done in a just and fair way that creates and shares value with stakeholders. The imperative to accelerate action to deliver net zero was further heightened in 2023, as the Intergovernmental Panel on Climate Change (IPCC) published its ‘final warning’ on the climate crisis and the urgent action that needs to be taken in order to avoid irreversible damage from climate change. With updated 2030 Goals in early 2022 reflecting an accelerated decarbonisation pathway, financial year 2022/23 was marked as a year of delivery. SSE continued to deliver on its net zero ambitions at pace, investing a record £2.8bn in the first full year of its original ## 2021 to 2026 £12.5bn Net Zero Acceleration Programme (NZAP). Enable low-carbon ## generation and ### Measures of progress Reinforcing SSE’s commitment to the achievement of its 2030 ## demand Goals, performance against them is linked to the long-term incentive element of executive remuneration. 2022/23 is the first year progress is measured against SSE’s new, more stretching 2030 Goals announced in February 2022. A summary of this progress is outlined opposite, with more detail available in the Remuneration Committee’s Report from page 166 . ## Champion a fair ## and just energy More on page 35  ## transition 22 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report Reduce Scope 1 carbon intensity by 80% by 2030, | compared to 2017/18 levels, to 61gCO₂e/kWh. | | | | UN SDG | | --- | --- | --- | --- | --- | | | 254gCO | | e/ | | | The scope 1 GHG intensity of electricity generated | | 2 | | | remained relatively stable, falling by 2% between 2021/22 and 2022/23. Progress was made in renewables growth ## kWh and in developing lower-carbon thermal generation options. While SSE Thermal’s Keadby 3 Carbon Capture Power Station Scope 1 GHG intensity of electricity generated project was not progressed to the final stages of the UK Government’s Cluster Sequencing Process, a similar development at Peterhead attracted the Government’s ‘Tier 2’ status. Keadby 2 began commercial operations in March 2023, which is Europe’s most efficient CCGT. SSE ## 17% Thermal also secured 10-year capacity contracts – subject to planning permission and final investment decisions – for Decrease in Scope 1 GHG intensity of generated two new low-carbon power stations fuelled by sustainable electricity from the 2017/18 baseline biofuel in Ireland. Build a renewable energy portfolio that ### generates at least 50TWh of renewable UN SDG ## 10.2TWh electricity a year by 2030. Renewable generation output 2022/23* Having experienced exceptionally still and dry conditions in the prior year, SSE’s renewable generation volumes in 2022/23 rose by 7% but were 13% behind plan due to Seagreen project delays and unfavourable weather. SSE Renewables made progress with its key flagship projects. ## 2.6GW First power was achieved at the 1,075MW Seagreen offshore wind project (49% SSE stake) and progress was made on Renewable energy capacity in Dogger Bank offshore wind farm (3,600MW, 40% SSE stake). construction at 31 March 2023 Onshore, the 443MW Viking wind farm was successful in securing a Contract for Difference (CfD) in July 2022 and construction has progressed well, with the first turbine * Includes pumped storage, biomass and constrained successfully installed in April 2023. off wind in GB. Enable at least 20GW of renewable generation and ### facilitate around 2 million EVs and 1 million heat UN SDG ## >9GW pumps on SSEN’s electricity networks by 2030. Renewable generation capacity connected At the end of 2022/23, there was just over 9GW of renewable to SSEN Transmission network capacity connected to SSEN Transmission’s network, up from 7.9GW the previous year. In the same period, SSEN Distribution had around 208,500 pure electric vehicles or ## c.52,500 plug-in hybrid vehicles registered in its licence areas and had connected around 52,500 heat pumps to its networks. Heat pumps connected to SSEN Distribution’s network SSEN Distribution continued to progress several key innovation projects with partners to support flexible markets and future infrastructure provision for the ## mass adoption of electric vehicles (EVs). c.208,500 Pure electric or plug-in hybrid vehicles registered in SSEN Distribution’s licence areas Be a global leader for the just transition to net zero, ## st with a guarantee of fair work and commitment to ### UN SDG ## 1 year paying fair tax and sharing economic value. Accredited with the Fair Tax Foundation’s Over 2022/23, SSE continued to drive action towards a just new Global Multinational Business Standard transition, publishing two new reports detailing its progress and thought leadership around the topic. SSE’s commitment to fair tax was reaffirmed as it became the first company to transition from the Fair Tax Foundation’s UK HQ Multinational ## th accreditation to the Foundation’s new Global Multinational ## Business Standard. SSE implemented the annual increase in 10 year the real Living Wage, which was brought forward by two Of being a real Living Wage accredited employer months in recognition of the cost-of-living crisis, and continued to work towards rolling out its Living Hours commitment across its supply chain. 23SSE plc Annual Report 2023 ## 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/LOSSES ADJUSTED AND REPORTED PROFIT/LOSS (PENCE) PER SHARE (PENCE) BEFORE TAX (£M) 166.0 2,183.6 (14.7) (205.6) 85.7 94.8 1,158.1 81.0 | | | | 78.4 | | | | 948.9 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 206.3 | | | | 2,418. 0 | | | | Adjusted Reported | | | | Adjusted Reported | | | | Strategic relevance: SSE has a growth-enabling | Strategic relevance: Adjusted EPS gives a | | | | Strategic relevance: SSE’s objective is to earn a | | | | | dividend plan that remunerates shareholders for | meaningful measure of financial performance | | | | sustainable level of profit over the medium term. | | | | | their investment in the Company. | over the medium term. | | | | | | | | Performance: The reported figure for 2022/23 Performance: The recommended full-year Performance: Results in 2022/23 are attributable reflects a significant adverse fair value movement dividend for 2022/23 is in line with SSE’s five-year to strong performance of SSE’s business mix in on derivatives in the year. dividend plan to 2023. volatile market conditions. ADJUSTED AND REPORTED OPERATING PROFIT COMBINED NETWORKS REGULATED ASSET ADJUSTED INVESTMENT, CAPITAL BY BUSINESS (£M) VALUE (£M) AND ACQUISITIONS (£M) Adjusted 372.7 382.4 580.0 2023 405.5 382.4 446.3 2023 8,209 2,067.8 Adjusted 380.5 351.8 568.1 2022 7,423 380.5 351.8 427.8 912.0 2022 Transmission Distribution Renewables Strategic relevance: SSE’s purpose is built on the Strategic relevance: SSE’s ownership of three Strategic relevance: SSE applies strict financial strategic logic of electricity businesses and assets economically-regulated electricity networks discipline that supports investment in assets that that share common skills and capabilities in pursuit gives the Group steady, index-linked revenue. are expected to provide returns that are greater of net zero. than the cost of capital. Performance: Inflation in 2022/23, combined | | Performance: Combined, SSE’s renewables and | | with acceleration of network build-out and | Performance: The good progress made | | --- | --- | --- | --- | --- | | | electricity networks businesses accounted for | | reinforcement, contributed to higher RAV | in execution of the Net Zero Acceleration | | | 53% of Group adjusted operating profit. | | values in the year. | Programme resulted in a record investment | | 2023 2023 | | | | year for the Group in 2022/23. | | 2023 2023 | | 2,803.3 96.7 | | | | 2023 | | 9,556 | | | | 2022 2022 | | | | | Reported 3,476.3 241.2 2022 2022 2022 24 SSE plc Annual Report 2023 2021 2021 2021 2021 2021 Reported Financial StatementsStrategic Report Directors’ Report ### Non-financial KPIs ### More information RENEWABLE GENERATION OUTPUT SCOPE 1 GHG INTENSITY (GWH)* (GCO E/KWH) 2 ### SSE’s social contribution See pages 56 to 66  10,227 254 ### Financial Review 9,496 See pages 78 to 94  10,242 256 ### SSEN Transmission ### Operating Review Strategic relevance: Renewables assets and Strategic relevance: As a significant generator See pages 96 to 97  | increasing renewables output over time are | of electricity, SSE must reduce the impact | | --- | --- | | core to SSE’s business strategy, which is | of its operations and has set science-based | | centred around the net zero transition. | targets aligned to a 1.5°C pathway. | ### SSEN Distribution | | Performance: Volumes increased slightly | Performance: SSE’s scope 1 GHG intensity | | --- | --- | --- | | Operating Review | year-on-year but output finished behind | reduced slightly by 2% between 2021/22 and | | See pages 98 to 99  | plan due to variable weather and Seagreen | 2022/23. SSE remains on track to achieve its | | | project delays. | target to reduce intensity by 80% between | 2017/18 and 2030. * Includes pumped storage, biomass and ### SSE Renewables constrained off wind in GB. ### Operating Review See pages 100 to 102  ADJUSTED EBITDA JOBS SUPPORTED IN UK AND IRELAND TOTAL RECORDABLE INJURY RATE PER (£M) 100,000 HOURS WORKED (EMPLOYEES AND CONTRACTORS COMBINED) 42,370 2,251.3 47,130 0.17 1,995.3 60,550 0.15 | Strategic relevance: Extracting interest, tax, | Strategic relevance: SSE relies on the people | Strategic relevance: Safety is SSE’s No 1 value | | --- | --- | --- | | depreciation and amortisation from earnings | that work for it in order to operate, with its | and getting everyone home safe after each | | provides a useful measure of SSE’s operational | activities supporting jobs in both urban and | working day remains its top priority. | | performance. | rural areas. | | Performance: There was a rise in contractor | Performance: EBITDA in 2022/23 reflects the | Performance: Through its operations in the | hours worked in construction, which | | --- | --- | --- | | strong operational performance achieved by | UK and Ireland, SSE supported 39,940 and | represents a higher-risk environment than | | SSE’s balanced mix of businesses. | 2,430 jobs respectively. | normal operations. Data includes the sad | death in June 2022 of a young contractor, Liam Macdonald, working on Shetland. ADJUSTED AND REPORTED CAPEX BY CORE ECONOMIC CONTRIBUTION IN UK/IRELAND*TAXES PAID IN THE UK/IRELAND BUSINESS, BEFORE REFUNDS (£M) | | | | | | £502m | | £6.04bn | | --- | --- | --- | --- | --- | --- | --- | --- | | Adjusted | | | | €53.8m | | €429m | | | | 495.5 | 421.0 | 837.5 | | | | | 2023 543.8 502.0 997.0 £335m £5.98bn 2023 €46.4m €417m Adjusted 614.4 364.8 674.3 2022 £379m £5.36bn 614.4 456.1 458.4 2022 €20.4 m €415m 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. SSE is accredited to and thriving economy to enable its business electricity assets and infrastructure needed to the Fair Tax Foundation’s Global Multinational success, which is why it calculates the value achieve net zero. Business Standard and believes in paying the it adds to UK and Irish GDP each year. right amount of tax, at the right time and in Performance: SSE’s renewables and networks Performance: SSE’s GDP contribution in its the right place. | | businesses accounted for around 81% of capex | | | home markets remained fairly consistent | | --- | --- | --- | --- | --- | | | in the year. | | Performance: An increase in total taxes | between 2021/22 and 2022/23. | | 2023 2023 | | | paid reflects increased profitability and | | | | | | corresponding corporation taxes paid | * Previous years figures have been adjusted to | | 2023 2023 2023 2023 2023 | | 0.19 3,3 82.1 | | | | | | | during 2022/23. | current prices. | | 2022 2022 Reported | | | | | | 2022 2022 2022 2022 2022 | | 259 | | | 25SSE plc Annual Report 2023 2021 2021 2021 2021 2021 2021 Reported 2021 ## Our stakeholders ## Creating lasting ## societal value supporting objectives. Situations will exist ## Section 172 where not every stakeholder interest can ### Our key be addressed in full, however stakeholder ## statement ### stakeholder groups regard continues to the greatest extent possible in decision-making at every level. A sustainable strategy is one that serves The framework set by the Board in which the interests of people and planet. ### Employees decision-making takes place is explained Through delivery of its strategy SSE fulfils SSE’s strategy and success are on page 124 . an unwritten social contract, under which dependent on the shared talent, society provides human capital and the diversity, innovation and values This statement, and the following right to earn a profit and in return the of the people it employs. stakeholder pages, summarise how the Company safely and reliably provides Board has upheld SSE’s social contract energy, invests in critical infrastructure, ### Shareholders and debt through the discharge of its duties under creates jobs and contributes to GDP. ### providers Section 172 of the Companies Act 2006. SSE must be well-financed, with the In doing so, it promotes the long-term Central to this contract are SSE’s key ability to remunerate shareholders success of the Company for the benefit stakeholders; identified as the people, for their investment, secure debt at of SSE’s six key stakeholder groups communities and organisations with an competitive rates and grow the business. by considering: interest in its purpose, strategy, operations and actions and who may be affected by ### Energy customers (a) The likely consequences of any decision them. The relationship with key stakeholders Consumers create demand for the in the long term. is two-way and an overview of the energy and services SSE provides (b) The interests of the Company’s reciprocal nature is set out in SSE’s business and set the tone for our purpose. employees. model and across the pages 28 to 33 . (c) The need to foster the Company’s ### Government business relationships with suppliers, Strategic stakeholder engagement ### and regulators customers and others. underpins the understanding of issues SSE relies on policy frameworks and (d) The impact of the Company’s material to each group and includes a public services that support investment operations on the community combination of business-led and Board- in critical national infrastructure, are and the environment. level interaction. This approach is reflective fair on customers and maintain the (e) The desirability of the Company of legislative and regulatory requirements momentum behind net zero. maintaining a reputation for high and is designed to ensure all views are standards of business conduct. heard. The result is stakeholder influence ### NGOs, communities (f) The need to act fairly between within, and validity of, business plans and ### and civil society members of the Company. SSE needs the support of the communities it works in and the Detail of how s172 and stakeholder backing of civil society in pursuit factors have influenced Board decision- of a just transition to net zero. making in the year can be found on ### Suppliers, contractors pages 127 to 129 . ### and partners SSE relies on a healthy supply chain and works with partners whose capabilities offer synergies for innovative project development and efficient ownership structures. 26 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### Considering long-term consequences Fostering stakeholder relationships ### s172 link (a) s172 links (b, c) As a long-term business, SSE’s actions have far-reaching impact Constructive two-way dialogue with SSE’s key stakeholders, which is recognised in SSE’s strategic approach of creating value including employees, suppliers, customers and communities, for shareholders and society. Four 2030 Goals and a clear net tracks priorities and identification of issues as they arise. Supporting zero-focused strategy frame decision-making, and provide conversations and strategic engagement reflect an operating important interim milestones to 2050. These parameters, set by model based on autonomous Business Units with decision-making the Board, are reflected within strategy work and objectives, which authority. The Board creates the correct conditions for this approach extends to: capital investment; the Group budget; dividend plans; by setting SSE’s long-term direction, overarching decision-making and future resourcing requirements. SSE’s Risk Management framework and culture. This is in line with the Board’s own Framework, including the Group’s Principal Risks, the identification understanding of stakeholder needs, as advocated through SSE’s of emerging risks and the Group’s Risk Appetite statement further Just Transition Strategy and engagement surrounding the future | shape long-term perspectives. | of the energy system. | | --- | --- | | Relevant S172(a) disclosures | Relevant S172(b,c) disclosures | | Pages 8 to 9  Board-agreed purpose, vision and strategy. | Page 124  SSE’s decision-making framework. | | Pages 126 to 129  Board strategy work and decisions 2022/23. | Pages 28 to 33  Stakeholder engagement and actions. | | Pages 68 to 77  Approach to risk-informed decision-making. | Pages 56 to 66  Ensuring a just transition. | ### Protecting communities and environment Setting culture and conduct ### s172 link (d) s172 link (e, f) SSE recognises the serious threat that climate change poses to the The Board leads and monitors SSE’s culture, by setting the natural world, and therefore to communities and the economy. tone and framework within which agreed values and accepted Climate change features across all areas of the Board agenda, and behaviours can be embraced by employees. This includes a safe SSE commits to open and transparent disclosure to allow proper and inclusive working environment that encourages doing the assessment of its environmental performance and the potential right thing, through responsible business conduct and making impact of various climate scenarios on future financial performance. a positive difference for stakeholders. Relevant S172(d) disclosures Relevant S172(e,f) disclosures Pages 36 to 55  Accelerating climate action and Protecting Pages 137 to 138  Board focus on culture. the natural environment. Pages 58 to 63  SSE’s approach to fair and decent work, Page 130 to 131  Board-level oversight of sustainability inclusion and diversity, and health, safety and wellbeing. and climate. Page 156  Audit Committee and TCFD. Pages 162 to 165  SSE’s SSHEAC. 27SSE plc Annual Report 2023 ### Our stakeholders continued ## Employees ### Why we engage Input to SSE Value created 2022/23 ### Actions Engagement helps Talent, skills, values Inclusive, fulfilling SSE attract, retain and and human capital. and high-performing develop a talented workplace. • In response to the cost of workforce now and living crisis an interim salary for the future. increase of 5% for all eligible employees was agreed from 1 October 2022 (see page ### How we engage Material issues in 2022/23 179 ). • To maximise the opportunity Group engagement • SSE’s employee offering: reward, presented by full Board • Multi-channel Leader-led Engagement benefits, inclusivity, flexibility in attendance at the AGM, an Programme with in-person and virtual context of rising cost of living. all-employee Q&A session interactions. • Ways of Working in the post-pandemic followed the main business • Employee voice soundings through workplace. of the day (see page 135 ). annual survey of all colleagues. • Agreement with trade union partners • Following relaxation of • Assessment of employee sentiment on pay progression. covid restrictions, the Board and engagement with strategy through • Employee wellbeing, support and resumed a full programme post-communication polling. resilience. of engagement across sites • Analysis of data from exit surveys. • Giving all employees a voice and (see pages 135 and 163 ). • Engagement with trade unions. taking action in response to key • SSE’s employee offering: reward, benefits, issues identified in the Great Place inclusivity, flexibility in context of rising to Work survey. cost of living. • Engagement with SSE’s Inclusion and Diversity strategy. Board engagement • Engagement with SSE’s approach • Participation in Leader-led Engagement to a just transition to net zero. Programme. • Active support of SSE’s I&D strategy ### Priorities for 2023/24 through involvement in awareness activities with SSE’s Belonging Groups. • Ensuring a safe, inclusive and • Employee-focused work by the flexible workplace. non-Executive Director for Employee • Attraction and retention of talent. Engagement and subsequent feedback • Maintaining culture in a rapid growth to the Board. phase and amidst international • Site visits and hosting of employees expansion. at Board events. More on pages 58 to 63  MEASURING ENGAGEMENT AND VALUE CREATED Employee engagement score Combined attendance at in-person Employee sentiment towards SSE’s and virtual employee events net zero-focused strategy | 82% | 82% | 84% | | | | --- | --- | --- | --- | --- | | | | | 43,000 | 92% | | 2021 | 2022 | 2023 | employees attended | | 28 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ## Shareholders and debt providers ### Why we engage Input to SSE Value created 2022/23 ### Actions To enable informed Ensure financial stability, Sustainable return on decisions from those provide stewardship long-term investment that invest in and lend perspectives and through capital growth • Provided deeper insight to SSE through open feedback on strategic and dividends and into the SSE Renewables communication. priorities. achieving 2030 Goals. and SSEN Transmission businesses, including exposure to wider management through a ### How we engage Material issues in 2022/23 two-day investor event | Group engagement | | • Financial and ESG performance | | | (see page 132 ). | | --- | --- | --- | --- | --- | --- | | • Responding to queries from shareholders | | | compared to market expectations. | • Chair and Chief Sustainability | | | | and debt providers and holding meetings | • Benefits and detriments of a balanced | | | Officer held a virtual ESG | | | with all types of investors on an ongoing | | business mix including the merits of | | investor seminar focusing on | | | basis. | | flexible generation and gas storage. | | the 2022 Net Zero Transition | | • Engagement with environmental, social | | • Optimising capital allocation across | | | Report (see page 133 ). | | | and governance (ESG) ratings agencies | | SSE’s Business Units including the sale of | • Re-established physical | | | | used by many investors and debt providers | | a minority stake in SSEN Transmission. | | overseas roadshows with | | | to gauge sustainability credentials. | • High and turbulent gas and power | | | Executive Directors following | | | | | prices, their impact on SSE and | | investor demand. | | Board engagement | | | government policy, including the | • Initiated an annual Chair | | | • A programme of Director-investor | | | Electricity Generator Levy. | | roadshow focused on | | | meetings covering key financial | • Progress against, and alignment to, | | | Corporate Governance. | | | announcements, long-term priorities | | a 1.5°C climate pathway. | • Engaged with debt providers | | | | and specific issues at investors’ request. | • The effect of competition, cost | | | to raise £1.7bn of new hybrid | | • Participation in virtual and physical | | | pressures and supply chain constraints | | capital and long-term debt | | | investor conferences. | | on returns in renewables investment. | | over the last 12 months. | | • Dedicated ESG webinars and conference | | • The level of protection SSE has against | | | | | | participation and an annual review of | | rising inflation and interest rates. | | | | | SSE’s performance in a dozen investor- | • SSE’s refinancing requirements and | | | | | | led ESG reviews and ratings. | | liquidity availability. | | | • Monthly Board updates on investor and financial market sentiment. ### Priorities for 2023/24 • Detailed reporting of shareholder feedback during and after Half- • Timely engagement on the progression and Full-year Results roadshows. of SSE’s ongoing investment programme • Bi-annual updates from SSE’s brokers. and financial and investment targets. • Executive Director engagement with credit • Continued evolution and refinement of ratings agencies used by debt providers. SSE’s strategy, governance and policies. • Engagement with shareholders at SSE’s • Alignment of green and hybrid bond Annual General Meeting. strategy, debt terms, maturity and covenants to NZAP Plus targets. • Responding to changing shareholder More on pages 132 to 133  perceptions and market environment, sharing feedback internally. • Positive shareholder vote on the annual Net Zero Transition Report. Dividend Per Share Earnings Per Share One-to-one investor sessions 2022/23 | | 96.7p | | 166.0p | | | --- | --- | --- | --- | --- | | 85.7p | | 94.8p | | 182 | | 81.0p | | 78.4p | | | 2023 2023 29SSE plc Annual Report 2023 2022 2022 2021 2021 ### Our stakeholders continued ## Energy customers ### Why we engage Input to SSE Value created 2022/23 ### Actions Dialogue aims to Customer priorities, Reliable and inclusive support the transition to expectations and provision of service. a decarbonised energy ultimate remuneration. • SSE Airtricity announced system in a fair and measures in response to the affordable way. cost of living crisis, and made no profit, returning €35 to every customer in April 2023 (see pages 64, 82 and 107 ). • SSEN Distribution responded ### How we engage Material issues in 2022/23 to two storms which | SSE directly serves energy customers | | Networks customers | | | impacted its network, | | --- | --- | --- | --- | --- | --- | | in the domestic (all-island Ireland) and | | • Benefits and costs of RIIO-ED2 | | | working to restore power | | business-to-business (UK and Ireland) | | | settlement. | | to customers swiftly (see | | energy supply markets and provides | | • Increased resilience and greater | | | page 98 ). | | grid connection to non-direct networks | | | support for all household customers | • SSEN Distribution led the | | | customers in its Distribution and | | | in vulnerable situations. | | creation of a new Priority | | Transmission operating licence areas. | | • Improved customer service/connections | | | Services Register website, | | | | | processes in Distribution. | | to better support customers | | Group engagement | | • Impact of extreme storms with a | | | (see page 65 ). | | • Dedicated panels to ensure the | | | particular focus on investment, | | | | | perspectives of vulnerable customers | | communications and support for | | | | | are considered and forums to engage | | vulnerable customers. | | | | | with large business customers. | • Impact of potential rota load | | | | | • Monitoring a wide range of indicators of | | | disconnections (RLD). | | | performance and customer sentiment. • Working with third parties to actively Energy supply customers identify and make provision for customer • Affordable and accessible energy in the vulnerability, including through context of ongoing market volatility and encouraging eligible customers to be increasing international instability. added to the Priority Services Register. • Energy efficiency and the cost of energy for business customers. Board engagement • Continued focus on the best way for • Updates from SSE’s customer facing businesses to decarbonise, highlighting Business Units on the influence of the cost-reduction benefits with energy customer factors driving business costs on the rise. direction and propositions. • Providing clarity to businesses on how • Monitoring of customer performance to access energy bill support. to ensure delivery of an appropriate • Decisions relating to prices and profits. level of service and investment. ### Priorities for 2023/24 More on pages 64 to 65  • Safe, reliable and efficient delivery of service to networks customers. • Cost of living pressures on direct retail customers. • GB domestic retail brand separation finalisation. MEASURING ENGAGEMENT AND VALUE CREATED Customers on SSEN Distribution’s Stakeholder engagement events SSE Airtricity’s support scheme on the Priority Services Register (PSR) held by SSEN Distribution island of Ireland was worth up to 770,844 768,104 853,416 870 827 715 ## €25m 2021 2022 2023 2021 2022 2023 30 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ## Government and regulators ### Why we engage Input to SSE Value created 2022/23 ### Actions Constructive Public policy and Considered and expert engagement aims regulatory frameworks. sector views; investment to ensure fair and in delivery of • Direct engagement with effective energy sector government priorities. the UK Government on frameworks for energy formulation of the temporary customers and investors. Energy Generator Levy in an effort to secure the best short-term outcomes for SSE’s stakeholders ### How we engage Material issues in 2022/23 (see page 39 ). | Group engagement | | • Accelerating infrastructure delivery | | • Engagement with UK | | | --- | --- | --- | --- | --- | --- | | • Primarily through SSE’s Political | | | to improve energy security and | | Government on its Review | | | Engagement Policy under which it | | decarbonise the sector. | | of Electricity Market | | | makes representations to the institutions | • Strategic investment in networks | | | Arrangements to ensure | | | of government in a politically-neutral | | to facilitate net zero and improve | | the best long-term outcomes | | | way consistent with the Company’s core | | energy resilience. | | for SSE’s stakeholders and | | | purpose and strategy. | • Navigating the energy crisis to support | | | net zero. | | • Ongoing dialogue with the industry | | | consumers and businesses facing high | • Working with the Irish | | | | regulator Ofgem on networks price | | energy costs whilst protecting investor | | Government on the provision | | | controls, market design and carbon | | confidence in the UK. | | of Emergency Generation | | | pricing, and support for low-carbon | • Policy frameworks to bring forward | | | capacity at Tarbert to 2028 | | | energy technologies. | | investment in CCS and hydrogen. | | and implementation of | | • Participation in UK trade delegations | | • The evolution of the electricity | | | the EU revenue cap | | | abroad. | | market and support mechanisms | | (see page 105 ). | | • Events, panel discussions, round tables | | | to continue to deliver investment in | | | | | and thought-leadership publications to | | energy infrastructure. | | | | | engage policy-makers and regulators | • Building support for Coire Glas and the | | | | | | with energy issues. | | need for policy support mechanisms | | | for long duration storage. Board engagement • Oversight of the implementation of ### Priorities for 2023/24 SSE’s Political Engagement Policy and corresponding advocacy priorities. • Engagement with all parties on SSE’s • Monitoring of engagement activity and net zero-focused advocacy priorities. responses to regulators to ensure that • Engagement with governments and strategic, financial, investment and regulators in the emerging overseas operating frameworks align to the markets in which SSE has an interest. external landscape. • Ensuring electricity market design reforms being considered in the UK and EU support cost-effective renewables More on page 13  and network investments. • Policy support for flexible energy solutions including long duration energy storage and CCS and hydrogen technologies. • Consenting and progression of low-carbon investment programme. Meetings with political or regulatory Stakeholder mentions of SSE and Shared platforms with stakeholder stakeholders its projects representatives ## 81 65 34 31SSE plc Annual Report 2023 ### Our stakeholders continued ## NGOs, communities and civil society ### Why we engage Input to SSE Value created 2022/23 ### Actions Working openly Distinctive social, Robust social contract and progressively environmental and through which value seeks to support the energy-related is shared. • Multi-stakeholder event held achievement of shared perspectives. to promote just transition goals with both social (see page 56 ). and environmental • SSE invested £16.5m in benefit. communities across the UK and Ireland (see page 57 ). • SSE contributed a total of £6.47bn to the UK and Irish ### How we engage Material issues in 2022/23 economies and supported | Group engagement | | • Net zero transition planning, considering | | 42,370 jobs (see page 57 ). | | --- | --- | --- | --- | --- | | • Partnering with key NGOs to deliver | | | both social and nature interdependencies. | | | | social and environmental benefits for | • The cost of energy, particularly in the | | | | | the communities in which SSE operates. | | context of the cost of living crisis. | | | • Community consultation events | | • Socio-economic and environmental | | | | | throughout the year to gather feedback | | impact of SSE’s investments in | | | | on projects and business plans. | | communities that host low-carbon | | | • Collaboration with academic | | | infrastructure. | | | | partnerships to inform strategic | • Policies and practices that support | | | | | decision-making and knowledge | | a just and fair transition to net zero. | | | | sharing on policy, energy systems | • Employment standards, including Living | | | | | and innovation. | | Wage, safe workplaces and inclusion | | and diversity. | Board engagement | | • Responsible behaviour on tax policies | | | --- | --- | --- | --- | | • Review of SSE’s 2030 Goals set aligned | | | and tax transparency. | | | to UN Sustainable Development Goals | • The allocation and impact of SSE’s | | | | framework and oversight of associated | | community investments. | | | strategic delivery plans. | • Impacts on the natural environment. | | • Due consideration of the local community benefits of large ### Priorities for 2023/24 capital project investment. • Creation of quality green jobs in support of a just transition. • Response to storms, network resilience. • Community support schemes that address vulnerability. • Constructive dialogue on the development of large capital projects. • The impact of SSE’s activities on nature and eco-systems. More on page 57  MEASURING ENGAGEMENT AND VALUE CREATED Communities directly engaged with Strategic academic partnerships SSE Airtricity’s donation to through SSE Renewables’ community EnergyCloud will help divert investment funds surplus energy to up to ## 150 5 10,000 fuel poor homes 32 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ## Suppliers, contractors and partners ### Why we engage Input to SSE Value created 2022/23 ### Actions Fostering healthy Quality goods and Sustainable reciprocal relationships services and investment. relationships, helps SSE to ensure it value creation and • Collaboration with partners achieves the greatest partnership expertise. on SHE performance with all-round value from the establishment of central its investments and team in 2022/23 to drive activities. forward a strategy to support performance among principal contractors working on large capital projects ### How we engage Material issues in 2022/23 (see page 164 ). | Group engagement | | • Leadership on net zero, circular | | • Launch of the Coalition | | | --- | --- | --- | --- | --- | --- | | • SSE’s primary method of engagement | | | economy, human rights, social and | | for Wind Industry Circularity | | | is through its Supplier Relationship | | environmental impacts. | | to support the re-use, | | | Management (SRM) programme. This | • Collaborative working with supply chain | | | refurbishment and re- | | | is aligned to SSE’s Business Units and | | partners to support strategic delivery | | engineering of broken | | | encompasses around 40 suppliers who | | and supply chain capacity in areas such | | wind turbine parts | | | are key to the growth and success of | | as SSEN Transmission growth, RIIO-ED2, | | (see page 55 ). | | | business ambitions. | | ScotWind and hydrogen production. | • Continued engagement on | | | • A forum of 21 supply chain partners, | | • Inward investment and local content | | | supply chain learnings at | | | called the Powering Net Zero Pact, | | opportunities across the supply chain. | | COP27 (see page 66 ). | | | supports collaborative, pre-competitive | • Alignment of supply chain partners | | | | | | work on sustainability challenges. | | and other sector leaders to minimise | | | | • Monthly engagement sessions with | | | resource gaps. | | | | | sustainability professionals in supply | • Positioning SSE as a ‘customer of | | | | | | chain organisations, led by Business Unit | | choice’ within the energy sector. | | | | | Sustainability and Procurement and | • Mitigation of potential human rights risk. | | | | Commercial sustainability teams. • Consultations with strategic suppliers, ### Priorities for 2023/24 senior leaders, Business Units and internal Procurement and Commercial • Implementation of new contractor teams on current and future supply safety strategy. chain needs. • UK supply chain resilience. • Ongoing interaction through Supplier | Board engagement | | | Relationship Management programme. | | --- | --- | --- | --- | | • SSE’s Executive Directors meet with | | • Promotion of Powering Net Zero Pact | | | | suppliers and strategic partners, | | and circular economy. | | | including shareholders in joint ventures. | • Continued focus on industry | | | • Regular Board updates on joint venture | | | understanding of Scope 3 emissions. | | | project strategy and progress in | • Driving cross-sector collaboration | | | | domestic and international markets. | | on net zero delivery and mitigation | of human rights risks. • Monitoring supply chain risk areas such as human rights and modern slavery. More on page 66  | Participants in SSE’s Supplier | Members of the Powering | Leadership status maintained | | --- | --- | --- | | Relationship Management | Net Zero Pact | for supply chain engagement | | programme | | with CDP for its 2022 submission | 45 ## 34 21 (vs 11 2022) 28 2023 33SSE plc Annual Report 2023 2022 2021 ## A sustainable approach ## Embedding ## sustainability ### “It is impossible to be sustainable without ### taking action to tackle climate change. But it is ### possible to tackle climate change in a way that SSE’s approach to ### is unsustainable for people and nature. That is sustainability reporting ### why, while SSE is wholly focused on finding SSE integrates the principles of long-term sustainability within its business strategy. ### the profitable solutions to the problem of Factoring in environmental and social ### climate change, it is seeking to do so in a considerations to business activities is central to creating and sharing value with ### way that adds value to communities and stakeholders, and for ensuring the continued ### the wider environment too.” success of the Company. Stakeholders are vested in SSE’s sustainability impacts, and SSE is committed to providing Rachel McEwen comprehensive and transparent non- Chief Sustainability Officer financial disclosures. SSE’s most material environmental and | SSE’s approach to sustainability 35  | social disclosures, including climate-related | | --- | --- | | Accelerating climate action | issues – specifically, reporting against | | Climate-related financial disclosures | Task Force on Climate-related Financial | | and GHG emissions performance 36 to 51  | Disclosures (TCFD) recommendations – | nature and ensuring a fair and just energy Protecting the natural environment transition, are integrated into this Annual Responsible resource use and managing Report. SSE’s Sustainability Report 2023 is impacts on nature and biodiversity 52 to 55  the sister document to the Annual Report Ensuring a just transition 2023, providing enhanced disclosure of Workforce disclosures, including inclusion SSE’s policies, practices and performance and diversity, and how SSE creates and against key economic, social and shares value with customers, communities environmental impacts and goals. and supply chain 56 to 66  Further disclosures can be found at sse.com/sustainability . 34 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report | A sustainable business strategy | recent developments in standardised | | Full detail of both the process and the results | | --- | --- | --- | --- | | The UN’s 17 Sustainable Development | sustainability reporting frameworks | | of the double materiality assessment can be | | Goals (SDGs) are the global blueprint for a | which require disclosures against material | | found in SSE’s Sustainability Report 2023 . | | sustainable future and provide a powerful | sustainability-related issues. | | | | framework to align SSE’s strategic business | | | Aligning with external | | objectives with societal ones. | Over 2022/23, SSE undertook a double | | frameworks | | | materiality assessment, supported by a | | SSE is a signatory to the United Nations | | Since 2019, SSE has aligned its business | third-party, with the objective of confirming | | Global Compact (UNGC), incorporating the | | strategy to the SDGs most material to its | the environmental, social and governance | | Ten Principles of the UNGC into its approach | | business. The schematic below depicts the | (ESG) issues most material to its business | | to business, and aligns disclosures and KPIs | | flow of sustainability from SSE’s objective | activities. Following a process of stakeholder | | in its Sustainability Report to international | | set in its strategy statement to “create value | consultation and analysis, the assessment | | non-financial reporting standards, including | | for shareholders and society”, with UN | identified 21 sustainability issues material to | | the Global Reporting Initiative (GRI) and the | | SDGs providing the framework to guide | SSE. The top five of these material issues are | | SASB Standards. SSE also actively engages | | the creation of that shared value. Within | outlined below, alongside where further | | with key investor ESG ratings agencies | | this framework SSE has identified four | detail can be found. | | and investor-led initiatives. Detail of SSE’s | | SDGs which are highly material to the | 1. Carbon emissions (see pages 49 to 51 ). | | performance in these ratings can be | | business, and to which it has linked its | 2. Sustainable energy generation | | found at sse.com/sustainability . | | four core 2030 Goals, and a further three | | (see pages 100 to 102 ). | | | material SDGs, which are focused on the | 3. Affordable and reliable energy | | Developments in standardised sustainability | | environment and guide the pillars of SSE’s | | (see pages 64 and 65 ). | disclosures have continued at pace over | | environment strategy. More information on | 4. Supply chain management | | 2022/23, including the International | | SSE’s sustainability framework can be found | | (see page 66 ). | Sustainability Standards Board (ISSB) | | in the Sustainability Report 2023 . | 5. Skilled workforce (see page 58 ). | | consultation on its first two frameworks, | expected to be finalised in summer 2023, | Focusing on the most | The results confirm that SSE’s approach to | and the EU Corporate Sustainability | | --- | --- | --- | | material issues | sustainability remains focused on the most | Reporting Directive (CSRD) coming | | SSE’s stakeholders expect meaningful | material issues from both an internal and | into force in January 2023. While these | | information relating to its social and | external perspective. Carbon emissions align | frameworks will not impact SSE this year, | | environmental impacts. That means | to the SDG 13, sustainable energy generation | SSE continues to monitor developments | | disclosures must be focused on the issues | and affordable and reliable energy align to | and remains mindful of these frameworks | | most material to its business activities. | the SDG 7 and SDG 9. The issues arising from | in its 2022/23 reporting, working towards | | This principle is further reinforced through | supply chain management and a skilled | preparedness for upcoming disclosure | | | workforce predominantly align to SDG 8. | requirements. | ### 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 ### Three further material SDGs linked to SSE’s Environmental Strategy Resource use Natural environment 35SSE plc Annual Report 2023 ### A sustainable approach continued ## Accelerating ## climate action ### The climate emergency requires urgent action. That is why SSE’s net zero ### ambitions place climate action front and centre of its strategy. SSE aims ### to support the transition to a decarbonised power system and align with ### a 1.5°C global warming pathway. ### Climate-related financial disclosures | Climate change represents both a risk | Mandated climate-related | actively seek feedback from shareholders | | --- | --- | --- | | and an opportunity to the energy sector. | financial disclosure in the UK | and stakeholders on best practice on | | That is why, since 2018, SSE structures its | The Financial Conduct Authority | TCFD disclosures. | | climate disclosures against the Task Force | (FCA) listing rule LR 9.8.6 R(8) requires | | | on Climate-related Financial Disclosures | organisations to report against the TCFD | SSE has considered climate change in the | | (TCFD) recommendations. Climate | recommendations, recommended | preparation of the financial statements | | disclosures provide a channel to elevate | disclosures and the Annex and guidance | as at 31 March 23 on pages 192 to 347  | | climate challenges informing decisions | (published 2021) in annual reports. | and further information has been included | | and driving change to deliver a net | | in note 4.1(v) Impact of climate change | | zero economy. | SSE believes that whilst it is compliant | and the transition to net zero – financial | | | with the listing rule there is still opportunity | judgement and estimation uncertainty | | | for increasing maturity across all TCFD | on pages 213 to 214 . | disclosure requirements. SSE continues to ## Task Force on Climate-related ## Financial Disclosures (TCFD) ## recommendations | Governance | Strategy | Risk Management | Metrics and Targets | | --- | --- | --- | --- | | Disclose the organisation’s | Disclose the actual and | Disclose how the | Disclose the metrics and | | governance around | potential impacts of | organisation identifies, | targets used to assess | | climate-related risks | climate-related risks and | assesses, and manages | and manage relevant | | and opportunities. | opportunities on the | climate-related risks. | climate-related risks and | | | organisation’s businesses, | | opportunities where such | | More on pages 37 and 38  | strategy, and financial | More on page 48  | information is material. | planning where such information is material. More on pages 49 to 51  More on pages 39 to 47  Compliant Compliant Compliant Compliant 36 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### Governing climate-related risks and opportunities | Board oversight of climate issues | Compliance with Group policies is also | | --- | --- | | Responding to the challenge of climate | considered as part of the annual review of | | change is central to SSE’s strategy and, as | the effectiveness of the System of Internal | | a result, the SSE Board considers climate | Control (see page 159 ). | change as it establishes SSE’s purpose, | vision and strategy. | The Board’s Schedule of Reserved | TCFD Governance | | --- | --- | --- | | | Matters; the Terms of Reference of | recommendations: | | Throughout 2022/23 climate matters were | the Board Committees and the Group | | | assessed in dedicated strategy sessions | Executive Committee; and the role | | ### Governance | and during Board meetings. Board sessions | profiles for key Board roles present the | | | --- | --- | --- | | considered both transitional and physical | division of responsibilities across SSE | | | climate-related opportunities and risks and | relating to climate matters (sse.com  | a) Describe the board’s | | | and pages 114 to 141 ). | oversight of climate-related | took this into account in the decisions it risks and opportunities. made (see page 131 ). ### Board climate expertise b) Describe management’s role ### The Board is supported by a series of and training in assessing and managing Board-level and Executive-level governance Collectively, and individually, members climate-related risks and of the Board possess a depth of long- opportunities. committees in carrying out its role to oversee climate-related opportunities standing energy sector experience. The and risks. This is set out in the governance specific expertise required to lead SSE’s pathways below. net-zero aligned strategy within the external operating context, including considering of the impact of climate matrix details the individual non-Executive SSE has a set of 19 Group Policies applicable change, is set out in the SSE’s skills Directors who support these attributes. across its entire organisation, of which matrix on page 115 . Amongst other The Executive Directors are deemed to Climate Change and Sustainability are matters, knowledge deemed material to meet all of the criteria in the skills matrix two. Policies are reviewed and endorsed the Board’s role includes clean energy and lead the delivery of SSE’s strategy, by the Group Executive Committee and technologies and climate science, science-based targets and a set of 2030 approved by the Board annually. alongside understanding of the policy Goals, which is supported by extensive framework required to support society engagement on climate-related issues transition to a net zero world. The skills with SSE’s stakeholders. ### Structured governance pathways See the Corporate Governance framework on page 122 . Board of Directors Sets SSE’s purpose, vision and strategy. Oversees SSE’s material sustainability matters including climate change. Board Level Nomination Committee Audit Committee Responsible for Board appointments to Oversees SSE’s climate-related financial disclosures support SSE’s strategy. in SSE’s Annual Report. Safety, Sustainability, Health and Remuneration Committee Environment Advisory Committee Responsible For Remuneration Policy that includes Oversees SSE’s climate adaptation and climate factors. resilience plans. Executive Group Executive Committee Group Risk Committee Level Implements SSE’s strategy which includes Reviews the processes, controls and content climate change policies and practice. of climate-related financial disclosures. TCFD Steering Group Advises on the development of comprehensive, fair, balanced and understandable Business Level climate-related financial disclosures. TCFD Working Group Responsible for the production of SSE’s climate-related opportunity and risk disclosures with appropriate stakeholder input. 37SSE plc Annual Report 2023 ### A sustainable approach continued ### Accelerating climate action continued | In 2022/23, SSE’s Board alongside | The Group Risk Committee (GRC) | | | --- | --- | --- | | members of the executive team received | monitors all Group risks on a regular | | | updates on climate reporting (including | basis and ensures that the Business Units | Aligning incentives to | | the Taskforce on Climate-related Financial | are managing the risks for which they | | ### climate outcomes Disclosures (TCFD) and Corporate are responsible. The GRC has overall SSE’s approach to Executive Sustainability Reporting Directive (CSRD)), responsibility for ensuring the right Director remuneration reflects as well as deep dives on technical topics mechanisms are in place for managing the role of sustainability and including the future of hydrogen, the all risks, including climate-related risk climate-related considerations role of carbon capture and storage and and opportunities. within SSE’s purpose and distribution networks and net zero. These strategy, with sustainability- are detailed in the discussion of how the Reporting to the GRC is a TCFD Steering linked metrics and targets Board sets SSE’s strategy on page 125 . Group, comprising representatives from forming an element of Group Finance, Group Risk, Investor performance-related pay. ### Role of senior management Relations, Company Secretary, Corporate The framework of SSE’s 2030 Strategy is implemented by the Group Affairs and Sustainability, focused on Goals has been used since 2019 Executive Committee through SSE’s advising, steering and governing the to assess performance, which Business Units. This includes ensuring development of fair, balanced and was linked to the performance that business decisions are aligned with understandable climate-related financial based Annual Incentive Plan SSE’s strategy and objectives, such as its disclosures. The TCFD Working Group until 2021/22. The updated 2030 Goals and science-based targets. supports the TCFD Steering Group to Directors’ Remuneration Policy, produce SSE’s TCFD disclosures. approved by shareholders As Chair of the Group Executive Committee at the 2022 AGM, has seen the Chief Executive is responsible for performance against these climate-related initiatives. The Chief Goals now linked to the Executive agrees the annual objectives longer-term Performance for the Chief Sustainability Officer who Share Plan, which will vest for is a direct report. The Chief Sustainability the first time in 2025. More Officer advises the Board, Group Executive information can be found in Committee, Group Risk Committee and the Remuneration Committee Business Units on climate-related matters Report on pages 173 and 183 . and progress against SSE’s Net Zero Transition Plan. ### Climate governance activity in 2022/23 Some of the key governance-based decisions taken in the year are presented in the timeline below. Further detail of net zero-linked strategic decisions made during the year can be found on pages 126 to 129 . MAY 2022 OCT 2022 FEB 2023 MAR 2023 | Board-level | Board approval | SSHEAC review | Board approval of the | Audit Committee | Board approval | | --- | --- | --- | --- | --- | --- | | | of management- | of climate adaptation | updated Net Zero | approval of SSE’s | of SSE’s Just Transition | | | sponsored climate | plans. | Transition Plan. | approach to climate- | priorities for 2023/24. | | | resolution proposed | | | related financial | | | | at the 2022 Annual | | | disclosures and | | | | General Meeting. | | | associated assurance | | arrangements. | Executive-level | Safety, Health | Recommended Board | Group Risk Committee | Recommended Board | | --- | --- | --- | --- | --- | | | and Environment | approval of SSE’s | approval of SSE’s | approval of SSE’s Just | | | Committee | updated Net Zero | governance and | Transition priorities for | | | review of climate | Transition Plan. | controls for SSE’s | 2023/24. | | | adaptation plans. | | TCFD disclosures. | | 38 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### A strategy to support net zero | Providing profitable solutions | The Plan was updated in November 2022 to | | | --- | --- | --- | | to climate change | take account of feedback from shareholders | | | SSE’s purpose is to build a better world of | and other stakeholders. Changes involved | | | energy for tomorrow and, by doing this, | the inclusion of SSE’s joint acquisition of | | | SSE is helping directly to address the | Triton Power (see more information on | | | energy transition to net zero. It achieves | pages 103 to 105 ); the addition of | TCFD Strategy | | this through its strategy of developing, | cross-cutting issues to recognise the | recommendations: | | building, operating and investing in the | importance that climate adaptation and | | | electricity infrastructure and businesses | resilience and the just transition play in the | | ### Strategy needed to decarbonise the power sector. transition to net zero; and, an enhanced definition of net zero to SSE and further SSE’s goal is to achieve net zero GHG explanations on the role of neutralisation a) Describe the climate-related technologies in achieving net zero. risks and opportunities the emissions across its scope 1 and scope 2 organisation has identified emissions by 2040 (subject to security of To ensure its Plan remains relevant and over the short, medium, supply requirements) and for remaining and long term. | scope 3 emissions by 2050. These long- | comprehensive, SSE develops and iterates | | | --- | --- | --- | | term net zero ambitions are supported | its content and its active involvement in the | b) Describe the impact | | | UK’s Transition Plan Taskforce, ensuring it | of climate-related risks | by interim science-based targets aligned can both influence and learn from and opportunities on the to a 1.5°C pathway. emerging best practice. organisation’s businesses, strategy, and financial ### A plan for a net zero transition planning. SSE’s Net Zero Transition Plan, available With climate-related disclosure provided at sse.com/sustainability , sets out for within SSE’s Annual Report and Sustainability c) Describe the resilience of the Report, its annual Net Zero Transition Report organisation’s strategy, taking stakeholders the key actions SSE will take to provides a summary and navigation tool into consideration different drive progress towards its net zero ambitions from which shareholders vote each year. climate-related scenarios, and its interim science-based targets aligned including a 2°C or lower to a 1.5°C pathway. SSE’s first Net Zero SSE’s Net Zero Transition Report can scenario. | Transition Report, published June 2022, | be found at sse.com/sustainability . | | --- | --- | | presented SSE’s progress against its plan | Progress in 2022/23 is disclosed across | | and was received by shareholders through | this Annual Report and SSE’s Sustainability | | its climate resolution at its Annual General | Report 2023 . | Meeting with 98.92% of votes in favour. ### Engagement in action ### Government and regulators ## Engaging on policy interventions Throughout the year SSE worked and the wholesale electricity revenue cap Engagement was well received and helped constructively with policymakers to in the EU to ensure that an appropriate inform practical implementation of the navigate the energy crisis and engage amount of additional tax on extraordinary policy in a number of important aspects. on the range of potential political earnings – where they materialise – interventions under consideration. are paid at a time when consumers are SSE will continue to work constructively experiencing abnormally high prices. with all parties to respond to the energy As a responsible business, SSE believes that crisis, without impacting industry’s ability electricity generators have a role to play in Alongside other industry participants and appetite to deliver the unprecedented bringing down energy prices, but in a way and stakeholders, SSE worked closely levels of private capital needed to address that protects investor confidence in the with the UK and Irish government officials the main cause of the energy crisis – our energy sector and energy security more through their consultative process with dependence on imported fossil fuels. broadly. As a Fair Tax Mark accredited a view to ensuring that the design of Addressing the causes of the crisis, rather company SSE also believes in paying its the mechanisms achieved these aims than the short-term symptoms, will fair share of tax. whilst protecting against unintended ultimately require policy frameworks consequences for security of supply that support long-term investment. SSE supported the principle of the or investor confidence. Electricity Generator Levy (EGL) in the UK 39SSE plc Annual Report 2023 ### A sustainable approach continued ### Accelerating climate action continued | Advocating for climate action | Aligning capital deployment | Financing climate strategies | | --- | --- | --- | | SSE actively and positively advocates for | to a 1.5°C pathway | SSE understands that investors seek robust | | more ambitious climate change policy to | SSE supports the integration of standardised | mechanisms through which they can | | achieve net zero and conducts its advocacy | and robust sustainability considerations | ensure their investments are sustainable | | in line with the goals of the Paris Agreement | into all of its investment decisions. This is | and take account of climate-related risks. | | and its own net zero strategy. | achieved through internal investment criteria | To support both its own developments and | | | which tests capital investment decisions | the growth of green finance, SSE also has | | In 2022/23 SSE’s climate advocacy was | against SSE’s commitment to its core 2030 | pursued a strategy of issuing green bonds, | | focused on the acceleration of renewables | Goals, including the targeted reductions | when appropriate, to fund its investments. | | deployment to deliver net zero and avoid | in GHG emissions consistent with a 1.5°C | | | future cost-of-living crises. The importance | Paris-aligned pathway as verified by the | In July 2022, SSE issued a €650m seven- | | of progress on decarbonising thermal | Science Based Targets initiative. | year Green Bond, the proceeds of which | | generation, heat, and transport has also | | were allocated to help fund SSE Renewables’ | | been an advocacy priority for the Group | In November 2021, SSE announced its | flagship onshore and offshore wind projects | | in 2022/23. | Net Zero Acceleration Programme which | which are currently under construction or | | | committed to enhanced investment in | recently completed. This marks SSE’s fifth | | To maintain momentum towards achieving | renewables, networks and flexibility, whilst | Green Bond in six years and reaffirms its | | net zero ambitions in the UK SSE engaged | beginning to export SSE’s renewables | status as one of the largest issuer of Green | | the UK’s Department for Environment and | capabilities overseas. With rising ambitions | Bonds from the UK corporate sector. It | | Rural Affairs on matters relating to climate | in key markets, combined with an increasing | remains the only UK corporate to offer | | adaptation and resilience planning, and | focus on energy security, SSE has upgraded | multiple Green Bonds and this latest | | responded to UK government consultations | this strategic programme for the period | issuance brings SSE’s total outstanding | | on the Electricity Networks Strategic | 2022 to 2027, referred to as ‘NZAP Plus’, | green bonds to over £2.5bn. More | | Framework and the Review of Electricity | to invest more capital into the low-carbon | information can be found at sse.com/ | | Market Arrangements (REMA). In Ireland, | electricity infrastructure needed by society. | greenbond . | SSE successfully advocated for an increase | to the 2030 offshore wind target from 5GW | With around 90% of the NZAP Plus | Material climate impacts | | --- | --- | --- | | to 7GW and responded to the Government’s | expected to be invested in either | The most material climate-related | | hydrogen strategy for Ireland. | renewables or networks, the substantial | opportunities and risks are described | | | majority of the investment plan is directly | in detail on pages 42 to 45  and have | | SSE also supported the Transition Plan | focussed on climate solutions to achieve | the potential to significantly impact SSE’s | | Taskforce preparers and users working | SSE’s 2030 Goals, the four material UN | business, strategy and financial planning. | | group to develop guidance on Transition | Sustainable Development Goals (SDGs) | | | Plans and is now a member of the TPT’s | which underpin them and is aligned to | The opportunities (pages 42 and 43 ) relate | | Delivery Group after involvement with the | the Technical Screening Criteria of the EU | to the role that renewables, transmission and | | TPT sandbox (testing) exercise. | Taxonomy. The remaining 10% includes | distribution electricity networks, and thermal | | | investment in low-carbon flexible service | generation play in supporting the transition | | Detail of advocacy activities undertaken | technologies, such as the two recently | to net zero. The material risks (pages 44 and | | across 2022/23 can be found throughout | announced Biofuel projects in Ireland, | 45 ) are associated with the physical | | the Strategic Report of this Annual | as well as other capital investment such | impacts of extreme or changing weather | | Report (pages 2 to 109 ) and in SSE’s | as maintenance spend and investment in | conditions on renewable and network | | Sustainability Report 2023  available | Group IT infrastructure. | operations; alongside transition risks | | on sse.com/sustainability . | | related to renewable wholesale prices | and resilience of thermal power generators to changing policy. ### 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 . 40 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report | Further information on each climate- | | Stated Policies Scenario (STEPS) which | Report Representative Concentration | | --- | --- | --- | --- | | related opportunity and risk is also | | reflects current policy settings based | Pathways (RCPs). For the 1.5°C scenario, | | presented in SSE’s CDP Climate Change | | on ‘sector by sector’ and ‘country by | SSE used the Met Office Climate | | Programme submission, available at | | country’ assessments of the specific | Projections 1.6°C temperature pathway | | sse.com/sustainability . | | policies that are in place, as well as | which is consistent with the IPCC RCP | | | | those that have been announced by | 2.6 pathway. The 4°C scenario draws | | Conducting climate | | governments around the world and is | from the UK Met Office 4.3°C temperature | | scenario analysis | | consistent with a global temperature | pathway which is consistent with the | | In 2022/23, SSE conducted scenario | | rise of 2.5°C. | IPCC RCP 8.5 pathway. | | analysis of its material climate-related | 2. National Grid Future Energy Scenarios | | | | opportunities and risks. SSE introduced | | which involve four different, credible | General climate change trends project an | | ‘impact pathways’ to map each potential | | pathways for the future of energy | increased chance of warmer, wetter winters | | climate event and its effect on SSE’s | | between now and 2050. SSE uses | and hotter, drier summers along with an | | business activities. To calculate the | | the ‘Leading the Way’ and ‘Consumer | increase in the frequency and intensity | | potential financial impact a combination | | transformation’ pathways, which are | of extremes. These trends are projected | | of data sources were used involving | | aligned to the UK Net Zero emissions | to occur from the middle of the century | | historical internal business data, external | | by 2050 target that aims to keep global | onwards. As a result, SSE has modelled | | independent climate-related scenario | | temperature rise to below 1.5°C, for its | the physical risks of climate change in | | data alongside current and approved | | 1.5°C scenario. SSE uses the National | 2050 and 2080 to reflect the longer term | | forecast financial data. | | Grid Future Energy Scenario ‘Falling | nature of changes in climate. In addition, | | | | short’ pathway for its 2.5°C scenario, | for these physical risks SSE has used | | Transition risk scenario frameworks: to | | this does not achieve the UK net zero | climate projection data associated with | | quantify the potential financial impact | | emissions by 2050 target and is | a 1.5°C and 4°C temperature change to | | of the climate transition opportunities or | | therefore assumed to represent a | assess the impact of a more extreme | | risks two external independent climate- | | pathway that leads to a warmer global | warming scenario. | | related scenarios were drawn from to | | temperature outcome of 2.5°C. | | inform scenario analysis: Physical risk scenario frameworks: to | 1. International Energy Association’s (IEA) | | quantify the potential financial impact | | --- | --- | --- | | | Net Zero Emissions by 2050 scenario | of the physical risk of climate change, | | | shows a pathway to limit global | SSE used the UK Met Office’s climate | | | temperature to 1.5°C and aligns with the | projections (UK CP18) tool. The UK CP18 | | | International Panel on Climate Change | data aligns to the International Panel on | | | (IPCC) sixth assessment report; and IEA | Climate Change’s (IPCC) Sixth Assessment | 41SSE plc Annual Report 2023 ### A sustainable approach continued ### Accelerating climate action continued ## Understanding climate-related opportunities and risks The purpose of TCFD disclosures is to demonstrate the resilience of a company to climate change. An important way to consider that resilience, is to define climate-related opportunities and risks and subject them to different climate outcomes. The next four pages are dedicated to helping stakeholders understand SSE’s resilience under varying scenarios and timeframes. This analysis does not represent a prediction of the future, simply a tool to understand a plausible spectrum of outcomes. Pages 42 and 43  assesses SSE’s climate opportunities and pages 44 and 45  considers SSE’s identified climate risks. ### Potential financial impact of assessed climate opportunities Opportunities 2030 ( EBIT £bn) 2050 (EBIT £bn) 1.5°C 2.5°C 1.5°C 2.5°C 1 1. Accelerated wind investment 0.48 – 0.66 0.35 – 0.47 1.09 – 1.50 0.63 – 0.86 2 2. Accelerated transmission growth 0.46 – 0.62 0.21 – 0.28 1.10 – 1.50 0.82 – 1.11 1 3. Valuable flexible hydro 0.00 – 0.01 0.00 – 0.01 0.15 – 0.20 0.13 – 0.17 1 4. Valuable flexible thermal 0.14 – 0.20 0.66 – 0.99 0.05 – 0.07 3 5. Driving distribution transformation 0.09 – 0.12 0.04 – 0.06 0.31 – 0.42 0.28 – 0.37 The potential financial impact of all scenarios is stated in GBP billion (£bn) based on one-year annualised earnings before interest and tax (EBIT) and presented as a range to reflect sensitivities applied to each climate scenario. For each opportunity, the annualised EBIT is adjusted for the capacity or other growth assumptions from the noted scenarios. Further adjustments for price changes based on increased system capacity were made for opportunities 1 and 3. 1 The 1.5°C scenario draws from the IEA Net Zero Emissions by 2050 pathway and from the IEA STEPS pathway for the 2.5°C scenario. 2 The 1.5°C scenario draws from the National Grid Future Energy Scenario ‘Leading the way’ pathway and from the National Grid Future Energy Scenario ‘Falling short’ pathway for the 2.5°C scenario. 3 The 1.5°C scenario draws from the National Grid Future Energy Scenario ‘Consumer transformation’ pathway and from the National Grid Future Energy Scenario ‘Falling short’ pathway for the 2.5°C scenario. ### Resilience after scenario analysis Climate change scenarios present different possible futures and are based on independent projections from external scenario providers including the International Energy Agency (IEA), National Grid Future Energy Scenarios and the Intergovernmental Panel on Climate Change (IPCC). Scenarios are not forecasts and should not be relied upon for decision making. The scenarios are designed for SSE to test its resilience against a range of different future states and inform strategic decision making. The scenario analysis completed by SSE on its material climate opportunities indicates that SSE, its strategy and financial plans are resilient under a range of climate-related scenarios, including a 1.5°C and 2.5°C temperature pathway. Due to SSE’s strategy to focus on the transition to a net zero world, opportunities under a 1.5°C scenario represent greater growth than those under a 2.5°C temperature pathway. ### Climate opportunity impacts With five relevant material climate opportunities identified, each is defined with its impact on strategy described below: ### 1. Accelerated wind investment | Context | Impact to SSE | Strategic alignment | | --- | --- | --- | | UK and international binding net zero targets | As part of the scenario analysis, SSE assessed its | Under the NZAP Plus, SSE anticipates that around | | supported by renewable capacity growth plans | current and pipeline wind portfolio to understand | 5GW of additional net capacity will be added | | and targets provide an opportunity to invest | the potential opportunity of accelerated wind | across the five-year plan, with net installed | | in the growth of SSE’s installed onshore and | investment to the business in 2030 and 2050. | capacity exceeding 9GW by March 2027. This | | offshore wind generation capacity. | The 1.5°C scenario indicated a significantly | investment strategy aligns to the opportunities | | | greater opportunity in 2030, with a range of | arising from a 1.5°C scenario. | Key assumptions included the wind capacity £0.48bn to £0.66bn and an opportunity of more projections from the IEA Net Zero Emissions than double that in 2050 with a range of £1.09bn by 2050 and STEPS scenarios, SSE’s current to £1.50bn, when compared to a warmer 2.5°C and pipeline wind investment projections and scenario for the same time horizons. internal wind capture price factors. 42 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report Link to strategy Develop Operate Build Invest ### 2. Accelerated transmission growth | Context | electricity transmission network assumptions | Strategic alignment | | --- | --- | --- | | All net zero pathways for the UK require new | have been used in the scenario analysis. | While SSEN Transmission has completed the first | | sources of renewable wind generation, at scale, | | year of its five-year RIIO-T2 investment plan, | Impact to SSE in the north of Scotland. This energy must be making progress with key strategic investments As part of the scenario analysis, SSE assessed transported to the regions of demand, requiring under the Ofgem uncertainty mechanism, the current and future capital investment plans significant expansion of the north of Scotland the scale of growth to 2030 has become clear. for its SSEN Transmission business. The National electricity transmission network. Ofgem’s ‘Pathway to 2030’ identified £7bn of Grid ‘Leading the way’ Future Energy Scenario further investment required in the north of Projected renewables generation capacity for indicated a significantly greater opportunity in Scotland establishing confidence that both Scotland from the National Grid Future Energy 2030 and 2050, with ranges of £0.46bn to national climate targets can be met, and that Scenarios ‘Leading the way’ and ‘Falling short’ £0.62bn and £1.10bn to £1.50bn respectively, SSEN Transmission’s growth will more closely and SSE’s investment in the north of Scotland when compared to the ‘Falling short’ scenario. align with the ‘Leading the way’ climate scenario. ### 3. Valuable flexible hydro | Context | Emissions and STEPS scenarios, SSE’s renewable | with a range of £0.15bn to £0.20bn, when | | --- | --- | --- | | A renewables-led electricity system will require | investment projections and internal price factors | compared to the warmer 2.5°C scenario. | | support from flexible generators that provide | to take account of market volatility. | | Strategic alignment system services, such as short-term reserve, Impact to SSE SSE seeks to invest in its existing 1.5GW of frequency and long-duration storage services. The scenario analysis assessed the optimisation of hydro capacity as well as develop pumped The opportunity exists to use low-carbon flexible SSE’s existing hydro assets and the development storage capacity at Coire Glas as part of its hydro capacity and invest in pumped storage of Coire Glas a large scale, long-duration pumped current five-year investment programme. This capacity to support the GB electricity system. storage project. The 1.5°C scenario indicated a investment strategy is therefore aligned to the Key assumptions included the projected hydro greater opportunity for SSE’s hydro assets in 2050 opportunities arising from a 1.5°C scenario. generation capacity from the IEA Net Zero reflecting the impact of investing in Coire Glas, ### 4. Valuable flexible thermal Context carbon thermal generation assumptions have Strategic alignment A renewables-led electricity system requires been used in the scenario analysis. SSE is actively developing options to decarbonise support from flexible generators that provide its fleet, most notably in carbon capture and Impact to SSE system services, such as short-term reserve, storage and hydrogen technologies. Projects The scenario analysis assessed current and frequency, security of supply and price stability. include carbon capture and storage projects as future capital investment plans for SSE’s There is the opportunity to repurpose SSE’s part of the UK cluster sequencing programme Thermal business. The 1.5°C scenario indicated existing gas-powered electricity generators, at Keadby in the Humber and Peterhead in the a significantly greater opportunity in 2050, with a as well as invest in new low-carbon thermal North of Scotland alongside hydrogen projects at range of £0.66bn and £0.99bn, when compared generation assets. Keadby and Saltend and the repurposing of SSE’s to a warmer 2.5°C scenario. The opportunity Aldbrough Gas Storage site for the safe storage of Natural gas with carbon capture and storage highlights that investment in low-carbon thermal hydrogen. These plans are therefore aligned to generation projections from the IEA Net Zero technologies in the short and medium term the opportunities arising from a 1.5°C scenario. Emissions by 2050 and STEPS scenarios and SSE’s present greater growth in the long term. current and future investment plans in low- ### 5. Driving distribution transformation | Context | transformation’ and ‘Falling short’ and SSEN | opportunity in 2030 and 2050, with ranges of | | --- | --- | --- | | To deliver net zero targets across all sectors | Distribution’s investment plans to support the | £0.09bn to £0.12bn and £0.31bn to £0.42bn | | and countries requires a shift to zero emission | electrification of the energy system have been | respectively, when compared to the ‘Falling | | vehicles and electric heating. In the UK this | used in the scenario analysis. | short’ scenario. | requires the transformation of the distribution Impact to SSE Strategic alignment system to ensure the system is fit to manage the As part of the scenario analysis, SSE assessed SSEN Distribution’s current RIIO-ED2 business potential five to ten-fold increase in annual load the current capital investment plans for its plan for 2023 to 2028 sets out the flexibility and expected between now and 2038. | | SSEN Distribution business. The National Grid | network investment required to accelerate net | | --- | --- | --- | | Projected electricity consumer demand from the | ‘Consumer transformation’ Future Energy | zero and therefore is aligned to the opportunities | | National Grid Future Energy Scenarios ‘Consumer | Scenario indicated a significantly greater | arising from a 1.5°C scenario. | 43SSE plc Annual Report 2023 ### A sustainable approach continued ### Accelerating climate action continued ### Potential financial impact of assessed physical risks of climate change To SSE, climate-related risk expresses itself in two ways: through the physical risk associated with a climate changed world; and through the transition risks associated with policy or market change. The tables presented on pages 44 and 45  present SSE’s material climate- related risks alongside the potential financial impact against a series of climate scenarios. The impacts described are designed to aid understanding of SSE’s climate risks and are not intended to be forward looking guidance. ### Physical climate risks from a changed climate Risks 2050 (EBIT £bn) 2080 (EBIT £bn) 1.5°C 4°C 1.5°C 4°C 1 1. Variable renewable generation risk (0.10) – (0.14) (0.13) – (0.17) (0.15) – (0.20) (0.20) – (0.27) 2 2. Storm, wind and heat damage to networks assets risk (0.07) – (0.09) (0.07) – (0.10) (0.13) - (0.18) (0.15) - (0.20) The potential financial impact of all scenarios is stated in GBP billion (£bn) based on one-year annualised earnings before interest and tax (EBIT) and presented as a range to reflect sensitivities applied to each climate scenario. Storm, wind and heat damage to networks assets risk is stated in GBP billion (£bn) based on one year annualised storm costs. External climate models have inherent limitations, with a lack of data on extreme climate events, and lower confidence levels on certain climate variables such as wind. SSE’s assessments account for uncertainties by extracting average wind speed data to assess the impact. 1 The 1.5°C scenario draws from the IEA Net Zero Emissions by 2050 pathway and the UK Met Office Climate Projections (UK CP18) 1.6°C temperature pathway which is consistent with the IPCC RCP 2.6 pathway. The 4°C scenario draws the IEA Net Zero Emissions by 2050 pathway and the UK Met Office CP18 4.3°C temperature pathway which is consistent with the IPCC RCP 8.5 pathway. 2 The 1.5°C scenario draws from the National Grid Future Energy Scenario ‘Consumer transformation’ pathway and the UK Met Office Climate Projections (UK CP18) 1.6°C temperature pathway which is consistent with the IPCC RCP 2.6 pathway. The 4°C scenario draws the National Grid Future Energy Scenario ‘Falling short’ pathway and the UK Met Office CP18 4.3°C temperature pathway which is consistent with the IPCC RCP 8.5 pathway. ### Resilience after scenario analysis The scenario analysis completed by SSE on its material climate physical risks indicates that SSE is reasonably resilient to identified climate- related scenarios including 1.5°C and 4°C pathways. For SSE, the potential financial impact at a 1.5°C pathway presents a lower risk in the scenarios than a 4°C pathway. This reflects the potential impact of greater global warming and the associated weather impacts of sustained higher temperatures and extreme weather events (including storms, heat waves and flooding) associated with a warming world. Due to SSE’s strategy and the key controls that it employs to manage and mitigate the climate risks, SSE is positioned well to respond to the risks presented in both a 1.5°C pathway and 4°C pathway. ### Physical climate risk impacts ### 1. Variable renewable generation | Context | Impact to SSE | £0.27bn, when compared to a 1.5°C scenario for | | --- | --- | --- | | Longer term changes in climate patterns cause | This is a perennial risk that impacts SSE. | the same time horizons. | | sustained higher temperatures that may result | For instance, in the first half of 2021/22 SSE | Strategic alignment | | in lower rainfall and reduced wind levels. These | experienced one of the driest and calmest summer | The technical and geographical nature of SSE’s | | changes may impact SSE’s renewable output | periods (April to September) on record which | renewable capacity alongside meteorological | | and associated earnings in the short, medium | reduced adjusted operating profit through the | monitoring, crisis management and business | | and long term. | summer period and impacted financial plans for | continuity plans are some of the ways that SSE | | | the year. For the future, with a five-fold increase | manages and mitigates its business against this risk. | Key assumptions included the IEA Net Zero in renewables capacity by 2031 and prospects Emissions by 2050 wind generation projections beyond 2031, this risk will continue to impact SSE. and the Met Office UK Climate projections for average wind speed times. The 4°C scenario indicated a greater risk in 2050, with a range of £0.13bn and £0.17bn and a more significant risk in 2080 with a range of £0.20bn to ### 2. Storm, wind and heat damage to networks assets Context frequency of extreme storms and heat waves £0.20bn when compared to a 1.5°C scenario Increased severity of extreme weather events, have been used in the scenario analysis. for the same time horizons. such as storms, floods and heat waves bring Impact to SSE Strategic alignment prolonged extreme temperatures, wind or This risk has the potential to impact SSE’s A programme of investment into the rainfall. This may damage or stress network networks assets in the medium and long term. strengthening and improvement of SSE’s assets and result in additional costs to repair For example, in the 2021/22 winter season, SSE networks alongside meteorological modelling, and maintain the network and the loss of experienced five storms named by the Met Office crisis management and business continuity plans incentive revenue for distribution operators. | | that became Red Alert events and impacted over | are some of the ways that SSE manages and | | --- | --- | --- | | Projected electricity consumer demand from | 100,000 customers with many impacted for a | mitigates its business against this risk. | | National Grid Future Energy Scenarios ‘Consumer | multi-day period. | | transformation’ and ‘Falling short’, Met Office UK The 4°C scenario indicated a more significant risk Climate projections for average wind speed times in the longer term, with a range of £0.15bn to and internal assumptions on the projected 44 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report Link to strategy Develop Operate Build Invest ### Potential financial impact of assessed transition risks ### Transition risks arising from policy and market change Risks 2030 (EBIT £bn) 2050 (EBIT £bn) 1.5°C 2.5°C 1.5°C 2.5°C 1 3. Accelerated gas closure risk (0.34) – (0.51) (0.17) – (0.26) 2 4. Wind capture market risk (0.11) – (0.15) (0.03) – (0.04) (0.38) – (0.52) (0.10) – (0.14) The potential financial impact for the accelerated gas closure risk is stated in GBP billion (£bn) based projected Net Present Value for each gas-fired power station and the wind capture market risk is stated in GBP billion (£bn) based on one-year annualised earnings before interest and tax (EBIT). All scenarios are presented as a range to reflect sensitivities applied to each climate scenario. Further adjustments for price changes based on increased system capacity were made for risk 4. 1 The 1.5°C scenario draws from the National Grid Future Energy Scenario ‘Leading the way’ pathway and from the National Grid Future Energy Scenario ‘Falling short’ pathway for the 2.5°C scenario. 2 The 1.5°C scenario draws from the IEA Net Zero Emissions by 2050 pathway and from the IEA STEPS pathway for the 2.5°C scenario. ### Resilience after scenario analysis The scenario analysis completed by SSE on its material climate transition risks indicates that SSE is resilient to identified climate-related scenarios including 1.5°C and 2.5°C pathways. For SSE, the potential financial impact at a 1.5°C pathway presents a greater risk than the 2.5°C pathway in these climate scenarios. This reflects the potential impact of climate policy in the 1.5°C scenario which may bring forward the closure of unabated thermal generation to 2030 or earlier and potentially impact future earnings. Whilst the wind capture market risk has the potential in the 1.5°C scenario to have a greater impact on SSE’s current renewable capacity and future new renewable capacity and potential future earnings. Due to SSE’s strategy and the key controls that SSE employs to manage and mitigate the climate risks, SSE is positioned well to respond to the risks presented in both a 1.5°C pathway and 2.5°C pathway. ### Climate transition risk impacts ### 3. Accelerated gas closure Context Impact to SSE remaining power stations to close by 2035. The More aggressive climate change policy may bring SSE’s existing 5.3GW fleet of installed gas- and 1.5°C scenario indicated a greater risk in 2030, | forward the closure of unabated gas generation | oil-fired generation will be nearing the end of its | with a range of £0.34bn and £0.51bn when | | --- | --- | --- | | from 2030. | expected life by the end of the 2020s. However, | compared to a warmer 2.5°C scenario for the | | | 2.3GW of Combined Cycle Gas Turbine (CCGT) | same time horizon. | Key assumptions included the National Grid capacity will still be in operation in 2030. The Future Energy Scenarios ‘Leading the way’ and Strategic alignment climate scenario analysis assessed the impact of ‘Falling short’ for installed unabated natural gas To mitigate this risk, SSE is in the process this capacity not being able to generate beyond generation capacity decline projections in 2030 of repurposing existing thermal assets and 2030 without low-carbon abatement technology. and 2035 and the net present value of existing developing low-carbon thermal technologies gas-fired power stations with a life expectancy Under the 1.5°C scenario all remaining gas-fired and in addition has a strong pipeline of new post 2030. capacity closes by 2030 whilst the 2.5°C scenario renewables projects that provide a natural assumes some gas-fired power stations are still hedge against this risk. able to operate beyond 2030 but expects any ### 4. Wind capture market | Context | 2050 and STEPS scenarios, internal non- | projections for both pathways. The 1.5°C | | --- | --- | --- | | All credible pathways to net zero in the UK and | subsidised wind output and internal wind capture | scenario indicated a greater risk in 2030, with | | beyond assume the dramatic scaling up of wind | price factors. | a range of £0.11bn and £0.15bn and a more | | (especially offshore) generated electricity. As | | significant risk in 2050 with a range of £0.38bn | Impact to SSE wind generation capacity increases, it is expected to £0.52bn, when compared to a warmer 2.5°C The wind capture market risk has the potential that the average electricity price wind power scenario for the same time horizons. to be greater in a 1.5°C scenario than in the 2.5°C (‘wind capture price’) achieves will be less than scenario due to the expectation that the 1.5°C Strategic alignment the average price for electricity (‘baseload price’). scenario expects new renewable capacity to be SSE’s balanced portfolio of generation capacity, There is a risk that this lower average price for built at a greater pace to meet the net zero by power hedging strategies and the fact that SSE wind output is more extreme than expected by 2050 goal. factors wind capture price into its long term price the market or SSE. forecasts are some of the ways that SSE manages The climate scenario assessed SSE’s current and Key assumptions included wind capacity and mitigates its business against this risk. future renewables capacity against the future IEA projections from the IEA Net Zero Emissions by 45SSE plc Annual Report 2023 ### A sustainable approach continued ### Accelerating climate action continued | Classifying sustainable | The reason that SSE’s taxonomy-eligible | Proxies | | --- | --- | --- | | investments | revenue appears low in relation to its | Where financial results are not | | Progressing towards a UK | total revenue is primarily due to Energy | appropriately split into Taxonomy | | Green Taxonomy | Portfolio Management (EPM) trading activity | eligible activities (namely Energy Portfolio | | SSE is an advocate of the development | and the sale of power to end customers, | Management trading and power sale | | of sustainable finance beyond green and | both of which are high volumes, with | activities), revenue has been allocated | | sustainable debt markets. SSE supports the | pass-through costs and lower margins than | based on purchased power volumes | | integration of standardised sustainability | in larger businesses such as renewables | from renewable versus non-renewable | | criteria into investment decisions. Its | generation and networks. SSE believes | assets, and operating profit/loss has been | | own internal investment criteria ensures | that revenue is a poor measure in assessing | apportioned based on internal contractual | | alignment of capital investment plans to its | its economic activity and that the most | trading agreements. | | core 2030 Goals which includes targeted | appropriate measures of its taxonomy- | | | reductions in GHG emissions consistent | eligible economic activity are in relation to | Materiality | | with a 1.5°C Paris Agreement pathway. | its capital investment and its operating profit. | The analysis has been prepared by applying | a top-down review of SSE’s activities and the | The announcement by the UK Government | The taxonomy non-eligible activities are | alignment with existing segmental reporting | | --- | --- | --- | | in March 2023 that it would consult on a | associated with SSE’s thermal generation | within taxonomy eligible activities. There | | UK Green Taxonomy in Autumn 2023 was | and gas storage businesses. As these | are some activities that fall below specified | | therefore a welcome step, and SSE looks | businesses continue their decarbonisation | thresholds which are not taxonomy eligible. | | forward to engaging in the consultation | pathways, it is expected that emerging | As SSE’s reporting processes and controls | | process. SSE continues to make the | activities such as low-carbon flexible | will be refined ahead of implementation of | | case that a UK-appropriate taxonomy – | generation or hydrogen storage will | the UK Green Taxonomy, it is expected that | | consistent with the broad principles | qualify in the future. | some reclassification of activities may occur | | established by the EU Taxonomy but with | | due to changes in materiality thresholds or | | a focus on being simpler, more transparent | Finally, activities that have not been | clarification on eligible activity criteria. | | and auditable – would help support the | identified in the taxonomy as they either | | | quality of standards, labels and disclosures | do not significantly contribute to climate | | | required to define green finance activity. | change mitigation or could yet be | | | SSE’s Sustainability Report 2023  | integrated into the Taxonomy at a later date | | | discusses the opportunities to enhance | comprise SSE’s Business Energy, Airtricity, | | | the UK Green Taxonomy, available at | Distributed Energy, EPM and Corporate | | | sse.com/sustainability . | businesses. These activities either operate | | as customer focussed businesses, a route Assessing SSE’s eligible activities to market for generation, or do not contain To provide stakeholders with an indication material activities at this time. of the scale of SSE’s green economic | activities, SSE has taken a best efforts | Providing the UK Green Taxonomy does | | --- | --- | | approach to consider its alignment | not deviate significantly from the EU model, | | to the EU Taxonomy. Key strategic | SSE expects its assessment of its taxonomy | | activities (ie onshore wind, offshore wind, | eligible activities disclosed on page 47  to | | transmission, distribution) from SSE’s | be consistent with a future UK framework. | Reporting Segments were assessed against ### the technical screening criteria. While an Taxonomy eligible activities ### internal assessment against the Do No at a glance Significant Harm and minimum safeguards Assumptions criteria was undertaken, a second party SSE’s accounting policies for these opinion has not yet been sought. calculations are based on the current EU Taxonomy Regulation 2020/852, The financial metrics disclosed continue and delegated acts. to be classified based on SSE’s reportable | segments. Table 1 on page 47  provides | Linkage principle | | --- | --- | | the output from this principle-based | In calculating each taxonomy-eligible | | assessment of SSE’s taxonomy aligned | proportion, a ‘linkage principle’ has been | | activities. | applied, stipulating that any revenue, | operating profit/loss or capital expenditure | Taxonomy eligible activities in 2022/23 | that can be justifiably linked to an identified | | --- | --- | | are from SSE’s onshore and offshore wind | taxonomy economic activity can be | | generation, hydro (run of river and pumped | classified as taxonomy-eligible. Using | | storage) as well as its networks transmission | this principle, revenue and operating | | and distribution activities. In 2022/23, | profits from SSE’s balancing activities, | | the proportion of SSE’s taxonomy-eligible | hedging, and trading can be linked to | | activities across the different measures | the EU taxonomy eligible activities when | | were: adjusted operating profit, 55%; | the activity is undertaken to directly | | adjusted investment and capital | support the eligible activities. | expenditure, 81%; and, revenue, 26%. 46 SSE plc Annual Report 2023 Table 1: Assessment of SSE's taxonomy aligned activities | Total taxonomy eligible activities | 3,243.8 | 26.0 | 1,397.4 | 55.2 | 1,755.2 | 81.2 | | --- | --- | --- | --- | --- | --- | --- | | Taxonomy non-eligible activities | 3,951.2 | 31.6 | 1,241.4 | 49.1 | 160.7 | 7.5 | | Total taxonomy partially/not-aligned activities | 5,295.7 | 42.4 | (109.6) | (4.3) | 244.7 | 11.3 | | Total continuing operations | 12,490.7 | 100.0 | 2,529.2 | 100.0 | 2,160.6 | 100.0 | Revenue ![img-2.jpeg](img-2.jpeg) ■ Eligible ■ Not eligible ■ Not aligned Adjusted operating profit ![img-3.jpeg](img-3.jpeg) Adjusted investment and capital expenditure ![img-4.jpeg](img-4.jpeg) SSE plc Annual Report 2023 47 ### A sustainable approach continued ### Accelerating climate action continued ### Climate opportunity and risk management | Identifying and assessing climate | In 2022/23, the assessment process | | | --- | --- | --- | | opportunities and risks | reconfirmed that the material climate- | | | SSE’s Group Risk Management Framework | related opportunities and risks (on pages | | | (pages 156 and 157 ) is complemented by | 50 to 53  of SSE’s Annual Report 2022 ) | | | a specialist TCFD climate assessment that | remained relevant to SSE with some minor | | | identifies and assesses climate opportunity | amendments to a few such as, the ‘storm | TCFD Risk Management | | and risk in the short, medium and long term. | damage network risk’ was updated to | recommendations: | more precisely account for the impact The climate risk assessment involves senior of wind and heat (page 44 ). ### Risk Management business leader interviews supported by ### ongoing business unit risk assessments to Managing climate opportunities ### capture and understand a long list of climate and risks a) Describe the organisation’s SSE’s System of Internal Control defines the processes for identifying opportunities and risks. A materiality test policy, standards and governance for the and assessing climate- is completed, and a final list of significant management of all risks, including those related risks. climate opportunities and risks defined. relating to climate. The system involves b) Describe the organisation’s SSE identifies the climate impact on its the critical controls that are in place to processes for managing manage risk including climate risk. Controls climate-related risks. operations over the short (up to three | years), medium (four to 10 years) and long | include business continuity plans, crisis | c) Describe how processes | | --- | --- | --- | | term (up to 30 years) from the perspective | management and incident response, large | for identifying, assessing, | | of market, policy or regulatory transition | capital project governance and internal and | and managing climate-related | | opportunities and risks. Climate impacts | external assurance. | risks are integrated into the | | to SSE’s operations from the physical risks | | organisation’s overall risk | | | The climate-related opportunities and | management. | of climate change are assessed over the | short (up to three years), medium (four to | risks (pages 42 to 45 ), combined with | | --- | --- | | 10 years) and long term (up to 80 years). | SSE’s Sustainability Report 2022  and CDP | | SSE’s time horizons for assessing climate- | Climate Change response provides further | | related opportunities and risks are aligned | information on these actions and controls. | with other business practice time horizons. ### Integrated climate-related Climate change is a Group Principal Risk The three climate-related time horizons ### risk assessment to SSE and has the ability to affect the mirror the investment, capital and SSE’s Group Risk Management Framework achievement of agreed strategic objectives regulatory time horizons that govern SSE’s (pages 156 and 157 ) manages risks and the long term success of SSE (see page financial, operational and capital plans. that can threaten the achievement of 72 ). Scenarios related to physical risks SSE’s strategic objectives, including associated with climate change form part Materiality is tested for each climate climate change. of SSE’s viability assessment (page 71 ). opportunity or risk based on its ability Climate-related influencing factors and key to have a substantive potential financial developments are also considered against impact on SSE’s strategy or significant all relevant Group Principal Risks (pages 68 impact on SSE’s stakeholders. to 77 ). 48 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### Climate metrics and targets | GHG emissions preparation | GHG emissions inventory | | | --- | --- | --- | | SSE’s GHG inventory is prepared in | Table 2, in combination with the energy | | | accordance with the UK Government’s | use data outlined in Table 6 on page 54 , | | | environmental reporting guidelines | represents SSE’s disclosures in line with the | | | (BEIS, March 2019); the Greenhouse Gas | UK Government Streamlined Energy and | | | Protocol: A Corporate Accounting and | Carbon Reporting requirements. SSE | TCFD Metrics and | | Reporting Standard (revised edition) | takes an operational control consolidation | Targets recommendations: | | developed by the World Resources Institute | approach to account for its GHG emissions. | | | and the World Business Council for | Under the operational control approach, | | ### Metrics and Targets | Sustainable Development (2004); and | SSE includes all joint arrangements that it | | | --- | --- | --- | | ISO 14064-1:2018 Specification with | has operational control in its scope 1 and 2 | | | Guidance at the Organization Level | inventory. For activities SSE does not have | a) Disclose the metrics used | by the organisation to assess for Quantification and Reporting of operational control, the GHG emissions climate-related risks and Greenhouse Gas Emissions and Removals. from the most material joint arrangements opportunities in line with (where SSE holds an equity share equal to its strategy and risk For more information on SSE’s GHG or greater than 50%) are included in SSE’s management process. emissions data and how it is produced, scope 3 inventory. b) Disclose Scope 1, Scope 2, see SSE’s GHG and Water reporting criteria and, if appropriate, Scope 3 available at sse.com/sustainability . SSE’s inventory details its direct and greenhouse gas (GHG) indirect GHG emissions (scopes 1, 2 and 3) emissions, and the performance (measured in million tonnes related risks. of carbon dioxide equivalent – MtCO e), 2 provided as total emissions as well as split c) Describe the targets used by the organisation to manage out by UK and Irish activity. It also provides climate-related risks and a carbon intensity measure based on direct opportunities and performance GHG emissions released for each unit of against targets. electricity SSE produced. More on sse.com/sustainability  Table 2: SSE’s GHG inventory (A) This data is subject to external independent limited assurance by Unit 2022/23 2021/22 PricewaterhouseCoopers LLP (‘PwC’). 1 (A) (B) Total GHG emissions MtCO e 11.33 9.93 For the results of that assurance, see 2 PwC’s assurance report and SSE’s GHG (A) (B) 6.08 5.75 and Water Reporting Criteria 2023 on 1 Scope 1 GHG emissions – total (UK/Ire) MtCO e (5.35/0.73) (4.22/1.53) sse.com/sustainability . 2 (A) (B) (B) This data was also subject to external 0.44 0.49 independent limited assurance by | Scope 2 GHG emissions – total (UK/Ire) MtCO | | | e | (0.44/<0.01) | | (0.49/<0.01) | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | 2 | | | | | PricewaterhouseCoopers LLP (‘PwC’). | | | | | | | (A) | | (B) | For the results of that assurance, | | | | | | 4.81 | | 3.69 | | | | | 1,4 | | | | | | | see PwC’s assurance report in SSE’s | | Scope 3 GHG emissions – total (UK/Ire) | | MtCO | e | (4.12/0.69) | | (2.86/0.83) | | | | | | | 2 | | | | | Sustainability Report 2022 and SSE’s GHG | | Scope 1 GHG emissions intensity of | | | | | | | | and Water Reporting Criteria 2022, both | | | | | | | (A) | | (B) | available on sse.com/sustainability . | | electricity generated gCO | | | e/kWh 254 | | | 259 | | | 2 2 Total renewable generation output 9,665 8,799 – total (UK/Ire) GWh (8,308/1,357) (7,602/1,197) 3 | Total non-renewable generation output | 14,302 | 13,356 | | --- | --- | --- | | – total (UK/Ire) GWh | (12,770/1,532) | (10,394/2,962) | | | 23,967 | 22,155 | | Total generation output – total (UK/Ire) GWh | (21,078/2,889) | (17,996/4,159) | 1 Excludes immaterial GHG emissions from Keadby 2 gas-fired power station, which was in the final stages of testing from September 2022 and was handed over to SSE on 15 March 2023. 2 Total includes pumped storage and biomass output and excludes constrained-off wind in Great Britain. 3 Includes 50% output from Seabank power station reflecting the end of SSE’s power purchase agreement on 30 September 2021 and SSE’s 50% ownership share from October 2021 onwards. Also includes 50% output from Saltend power station and Indian Queens power station from the date of SSE’s acquisition of Triton Power on 1 September 2022. Excludes output from Keadby 2 gas-fired power station which was handed over to SSE on 15 March 2023. 4 Includes GHG emissions associated with gas generation through Joint Venture holdings according to equity share. They are: Seabank gas-fired power station and Triton Power (which includes Saltend gas-fired power station, Indian Queens gas-fired power station and the decommissioned Deeside Power station. This reflects the fact that under SSE’s operational control method of reporting GHG emissions, Joint Venture equity share of GHG emissions is classed under the scope 3 ‘investment’ category in accordance with the GHG Protocol. 49SSE plc Annual Report 2023 ### A sustainable approach continued ### Accelerating climate action continued | Absolute GHG emissions | Total scope 3 emissions increased by 30% | | | Scope 1 GHG intensity | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | in 2022/23 | between 2021/22 and 2022/23. The two | | | in 2022/23 | | | | | To understand the GHG emission trends | material contributing factors include: | | | SSE’s scope 1 GHG emissions intensity fell | | | | | between reporting periods the GHG | • The inclusion of 0.6MtCO | | e GHG | by 2% to 254gCO | | e/kWh from 259gCO | e/ | | | | | 2 | | | 2 | 2 | | emission inventory is broken down by scope | | emissions from Saltend gas-fired power | | kWh the previous year, which is a fall | | | | | and a description of material contributing | | station from September 2022 onwards. | | of 17% since the 2017/18 base year of | | | | | factors presented. In 2022/23, SSE’s total | | This reflects SSE’s 50% purchase of | | 307gCO | e/kWh. | | | 2 | GHG emissions consisted of 54% scope 1 | | Triton which completed in September | | | | --- | --- | --- | --- | --- | | emissions, 4% scope 2 emissions and 42% | | 2022. The emissions from Triton are | | SSE’s intensity performance is calculated | | scope 3 emissions. Overall, SSE’s total | | defined as scope 3 emissions according | | based on two elements – total generation | | GHG emissions increased by 14% between | | to SSE’s 50% ownership share. | | output, comprising thermal and renewables | | 2021/22 and 2022/23. | • 12 months of GHG emissions data | | | generation sources and total scope 1 GHG | | | | from Seabank (50% equity share) | | emissions (99% of which is from thermal | | Between 2021/22 and 2022/23, GHG | | contributing 0.9MtCO | e following the | generation). | 2 | emissions arising from electricity generation, | | end of SSE’s power purchase agreement | | | --- | --- | --- | --- | | consisting 99% of SSE’s scope 1 emissions, | | in September 2021. It should be noted | Output from SSE’s renewable generation | | increased by 6%. This was predominantly a | | that, prior to September 2021, 100% | portfolio (inc. pumped storage and biomass) | | result of a rise in output from SSE’s thermal | | of Seabank GHG emissions were | increased to 9.7TWh in 2022/23, from | | generation plant by 7% compared to the | | accounted in SSE’s scope 1 emissions | 8.8TWh the previous year, a rise of 10% | | previous year due to market conditions | | according to the GHG Protocol. | between the same periods. This was driven | | and the reinstatement of operations | | | by increased output having experienced | | following planned and unplanned | The increase in scope 3 emissions is partly | | an exceptionally still and dry weather | | outages the previous year. The impact | offset by a reduction of 5.5% in gas sold | | conditions the previous year and output | | of weather, demand and availability | GHG emissions between 2021/22 and | | from the operational turbines at Seagreen | | of plant creates variation in the pathway | 2022/23. | | offshore wind farm. | of emissions reduction. | | | With scope 3 emissions increasingly | Output from SSE’s thermal generation | | --- | --- | --- | --- | | SSE’s scope 2 GHG emissions were | | becoming a greater proportion of SSE’s | also increased, however this was by a | | 0.44MtCO | e in 2022/23, representing an | GHG emission inventory as a result of | lesser extent than for renewables output. | 2 | 11% reduction from the previous year. This | the approach it is taking to delivery its | This meant that the proportion of total | | --- | --- | --- | | reduction in scope 2 emissions is largely | strategy, SSE is working with its Joint | generation output contributed to by | | a result of a fall in the greenhouse gas | Venture partners to ensure each put in | renewable generation continued to | | emissions associated with losses on the | place their own Net Zero Transition Plans. | represent 40% of the total portfolio | | electricity network, which is a result as | SSE’s scope 3 emissions represent 42% of | in 2022/23. | | a fall in the grid electricity factor by 9% | its total GHG emissions inventory and the | | | over the same period. | emissions associated with Joint Venture | Overall, SSE’s scope 1 GHG intensity was | | | thermal generation contributes to 32% | slightly lower than the previous year due to | | | of the scope 3 GHG inventory. | a reduction in output from the most carbon | intensive generating plant in SSE’s portfolio, including from carbon intensive peaking plant in Ireland. 35,000 30,000 9 e) 25,000 20,000 6 15,000 (million tonnes CO 10,000 3 Scope 1 GHG emissions 5,000 Renewables output Coal output Gas and oil output* Multifuel output Scope 1 GHG emissions * In 2022/23, oil-fired generation output contributed around 2% of gas and oil output. 40,000 12 2 Generation output (GWh) 50 SSE plc Annual Report 2023 18/19 19/20 20/21 21/22 22/23 Financial StatementsStrategic Report Directors’ Report ### Performance against targets SSE’s total scope 1 and 2 GHG emissions GHG emissions from gas sold to To support improved performance, SSE combined were 6.52MtCO e in 2022/23, customers, which contribute around 45% 2 | measures and reports progress against | this is a reduction of 41% from the 2017/18 | of SSE’s scope 3 emissions in 2022/23, | | --- | --- | --- | | interim science-based targets on a 1.5°C | base year of SSE’s SBTi-approved absolute | decreased by 5.5%. This was a result of | | pathway. This performance is outlined in | scope 1 and 2 GHG target. Overall, SSE’s | lower market demand reflecting increased | | Table 3. | scope 1 and 2 GHG emissions have | market prices. This means GHG emissions | | | reduced significantly compared to the base | from gas sold have reduced by 15% from | | SSE remains on track to achieve its | year, reflecting lower output from thermal | 2017/18. SSE’s SBTi-approved target is to | | SBTi-approved target to reduce scope 1 | power stations and the closure of SSE’s last | reduce GHG emissions from gas sold by | | GHG emissions intensity by 80% between | coal-fired power plant in March 2020. SSE | 50% between 2017/18 and 2034. | | 2017/18 and 2030. It is expected that SSE’s | aims to reduce absolute scope 1 and 2 | | | NZAP Plus will develop and connect the | GHG emissions by 72.5% between 2017/18 | | | renewables capacity which will contribute | and 2030. | | to a reduction in the scope 1 GHG intensity by 2030. Table 3: SSE’s performance against its science-based carbon targets Target Unit 2017/18 2021/22 2022/23 Target Progress against target Reduce the GHG intensity of scope 1 gCO e/kWh 307 259 254 61 17% reduction in GHG intensity 2 GHG emissions by 80% by 2030, since 2017/18 from a 2017/18 base year Reduce absolute scope 1 and 2 GHG MtCO e 11.06 6.24 6.52 3.04 41% reduction in absolute 2 | emissions by 72.5% by 2030 from a | | | scope 1 and 2 GHG emissions | | --- | --- | --- | --- | | 2017/18 base year | | | since 2017/18 | | Reduce absolute GHG emissions | MtCO | e 2.53 2.29 2.16 1.27 15% reduction in GHG | | 2 | from use of products sold by 50% | | emissions from gas sold | | --- | --- | --- | | by 2034 from a 2017/18 base year | | since 2017/18 | | Engage with 50% of suppliers by | % 0 48 51 50 52% of SSE’s suppliers (by value) | | | spend to set an SBT by 2024 | | that set or committed to set | their own science-based targets through the SBTi | Working with supply chain | At 31 March 2022, 34% of SSE’s suppliers | SSE’s generation activities in the GB are | | | | --- | --- | --- | --- | --- | | partners to drive climate action | by value had set their own science-based | subject to the UK Emissions Trading | | | | To support the reduction of emissions | targets through the SBTi, with a further | Scheme (UK ETS), which is a cap-and-trade | | | | associated with the goods and services | 17% committed to setting one. In 2022/23, | emissions scheme. In addition, SSE’s | | | | SSE purchases, SSE seeks to engage with | SSE and CDP Supply Chain collaborated | generation assets in GB are subject to the | | | | 50% of suppliers (according to financial | to deliver supplier webinars that aimed at | Carbon Price Support mechanism which | | | | expenditure) to set their own science- | increasing the climate change questionnaire | sets a price per tonne of carbon emitted and | | | | based targets by 2024. SSE continued to | response rate from its suppliers, the | combined with the UK ETS allowance price, | | | | engage with its supply chain on climate | engagement led to 237 key suppliers | makes up the Total Carbon Price paid by | | | | matters through its partnership with the | responding to the questionnaire and | electricity generators. In Ireland SSE’s | | | | Supply Chain Sustainability School with | a supplier response rate of 56%. | generation assets are subject to the EU | | | | nearly 27% of suppliers by spend using the | | Emissions Trading Scheme (EU ETS). At the | | | | resources and training available. In addition, | Carbon pricing | time of reporting, SSE used carbon prices of | | | | a carbon working group was set up through | As a generator of electricity, SSE is | £78/tCO | in GB and €86/tCO | in the EU. Our | | | | | 2 | 2 | | the Powering Net Zero Pact, that aims to | subject to policies that impact the price | future plans include assumptions on low, | | | | collaborate on a fair and just transition to | of carbon, which means the price of | central and high carbon range forecasts. | | | | net zero carbon emissions, with the aim of | carbon is an explicit consideration in | | | | | improving scope 3 emissions reporting. | many investment decisions. | SSE is required to report its GHG emissions | | | and energy consumption and this is presented on page 54 . For further details on SSE’s approach to carbon pricing see SSE’s Sustainability Report 2023  alongside SSE’s CDP climate change submission sse.com/sustainability . 51SSE plc Annual Report 2023 ### A sustainable approach continued ## Protecting ## the natural ## environment ### Nature has a central role in supporting the achievement of net zero and adapting ### to a climate changed world, and the nature and climate crises must be addressed ### hand-in-hand. SSE’s Environment Strategy provides a framework for SSE to ### manage and mitigate impacts to terrestrial, freshwater and marine ecosystems, ### and build a business that uses resources efficiently and embraces the principles ### of a circular economy. | Emerging nature frameworks | and operating in a sustainable way. The | SSE’s Environment Strategy provides the | | --- | --- | --- | | 2022/23 saw a continued international | SHEC is responsible for setting SHE | framework by which SSE considers these | | focus on nature and biodiversity and some | performance targets, which include | wider environmental impacts. It is centred | | significant steps forward for biodiversity | environmental performance. | around three UN Sustainable Development | | were made, including the landmark deal | | Goals (SDGs) focused on the environment: | | made at the UN Convention on Biological | The SHEC reports to the Sustainability, | SDG14 Life Below Water; SDG15 Life Above | | Diversity (UNCBD) in Canada in December | Safety, Environment Advisory Committee | Land; and, SDG12 Responsible Consumption | | 2022, to protect a third of the planet for | (SSHEAC) which is a Board level committee | and Production. The Strategy is supported | | nature by 2030. | that has specific oversight of environment | by policies and procedures to guide SSE’s | | | matters. | day-to-day operations and interactions with | | While frameworks such as the Taskforce | | the environment. | | on Nature-related Financial Disclosures | At business level, Managing Directors are | | | (TNFD) and the EU Corporate Sustainability | accountable for environmental performance | To ensure effective environmental | | Reporting Directive (EU CSRD) are emerging, | and for managing environmental impacts by | management, SSE operates an | | there remains room for greater clarity on | applying SSE’s SHE Management System. | environmental management system which | | best practice measurement and disclosure | | sets the controls, processes and procedures. | | of nature-related information. Increasing | SSE’s Group Environment Policy guides | In 2022/23, a number of SSE’s business units | | meaningful disclosures around nature- | decision making within the company | achieved ISO14001 certification – SSEN | | related impacts is a key focus for SSE, and | and outlines its commitments around | Distribution, SSE Energy Customer Solutions | | it will monitor how these frameworks and | protecting the environment, preventing | and SSE Enterprise. All of SSE’s businesses | | standards develop and work to improve | pollution and operating in a sustainable | are now certified to ISO14001. | | its own disclosures, including against its | way. This policy is approved by the SSE | | | biodiversity net gain metrics. | Board and is available publicly for SSE’s | Further detail around SSE’s approach | | | stakeholders at sse.com/sustainability . | to managing environmental impacts, | | Governing environmental | | including information on its ISO14001 | | performance | A strategic approach to | certification, can be found in SSE’s | | SSE’s Chief Executive has overall lead | environmental protection | Sustainability Report 2023 . | | responsibility for environmental | While SSE’s GHG emissions are its most | | | performance, including at Board-level. The | material environmental impact, it also | | | Safety, Health and Environment Committee | has wider impacts on the natural world | | | (SHEC) advises the Board on matters relating | that must be carefully managed. Halting | | | to safety, health and environment (SHE). The | the impact of nature loss and providing | | | work of the SHEC is designed around SSE’s | opportunities to enhance ecosystems | | | eight SHE Enduring Goals, one of which is | and biodiversity will support SSE to meet | | | Environment: Protecting the environment | its net zero ambitions. | | 52 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### OUR TARGET Managing water use SSE’s total water abstracted excluding Water plays a significant role in SSE’s hydro operations also fell slightly over ## SSE is committed operations, being used in the energy this period. This was predominantly due to production process including as a coolant an unplanned outage at a thermal power ## to delivering station that uses a once through (direct) in power stations and a source for power generation in hydroelectric generators. SSE cooling water system. Such assets have ## Biodiversity Net also uses water as an amenity in its buildings. higher abstraction rates than stations with cooling tower systems. ## Gain by 2025 on SSE has policies and processes in place, ## all onshore Large and works closely with environmental Total water abstracted by SSE (excluding hydro | | regulators, to ensure that it uses water in a | generation) (million m | 3 ) | | --- | --- | --- | --- | | Capital Projects in | sustainable way in its operations. SSE has | | | | | an ongoing investment programme within | Fresh water (rivers and groundwater) | | | the UK and Ireland | | Brackish and estuarine water | | its hydro operations to improve efficiency, enhance water capture and minimise spill from its plant. None of SSE’s thermal and hydro generation | Understanding SSE’s nature | assets impact on water stressed areas, as | | | --- | --- | --- | | impacts and dependencies | defined by the relevant environmental | | | SSE operates in some of the UK and | regulators in the jurisdictions in which | 777 | ## 729 Ireland’s least populated places, home to they operate. a wide variety of valuable ecosystems and | habitats. It works to manage the impacts of | In 2022/23, total water abstracted by | | | | | --- | --- | --- | --- | --- | | | | 3 | 2.2 | 1.9 | | its activities to ensure it protects and, where | SSE fell to 23,354 million m | from 23,896 | | | 3 | possible, enhances these environments. | million m | the previous year. This was | | 2022/23 2021/22 | | --- | --- | --- | --- | --- | | Measurable, science-based data as | largely due to a reduction in water passing | | | | | presented in SSE’s Sustainability Report | through SSE’s hydro generation plant as a | | Total water consumed increased | | | 2023  are key to ensuring nature impacts | result of lower levels of rainfall compared | | significantly over this period, by over 70%. | | | and dependencies are understood and | to the previous year. The vast majority | | This was due to increased output from | | | considered in decision making with the aim | (97%) of water abstracted in 2022/23 | | thermal generation overall, as well as a | | | of making progress towards preserving and | was used in SSE’s hydro generation | | proportional increase in the output from | | | protecting nature. | operations. This water is technically | | thermal power plant with cooling towers | | | | recorded as abstracted, but it passes | | which have higher evaporative losses | | | Targeting biodiversity net gain | through turbines to generate electricity | | of water than once through (direct) | | | For onshore Large Capital Projects, all of | and is returned to the environment almost | | cooling systems. | | | SSE’s Business Units have committed to | immediately, and therefore has minimal | | | | | delivering no ‘net loss’ in biodiversity on | environmental impact. | | | | those consented from 2023 onwards and ‘net gain’ in biodiversity on those consented from 2025 onwards. Table 4: SSE’s water data Unit 2022/23 2021/22 SSE’s approach to Biodiversity Net Gain | began in 2020, with the development of | Water use | | | | | | | --- | --- | --- | --- | --- | --- | --- | | SSEN Transmission’s site optioneering | | 3 | | (A) | | (B) | | | Total water abstracted Million m | | 23,354 | | 23,896 | | toolkit, which is now in implementation 3 Total water abstracted Million m 731 779 and allows consideration of biodiversity (exc. Hydro generation) at the earliest stages of development and | has been recognised for its pioneering | | | 3 | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Freshwater abstracted | Million m | | | 2.2 | | | 1.9 | | | approach. In 2022, SSE Renewables also | (rivers and groundwater) | | | | | | | | | | published optioneering toolkits and project | (exc. hydro generation) | | | | | | | | | | biodiversity net gain metric, which has | | | 3 | | | (A) | | | (B) | | | Total water returned Million m | | | 23,353 | | | 23,895 | | | adapted the SSEN site optioneering toolkit 3 (A) (B) and the Defra Biodiversity Metric 3.1. Total water consumed Million m 1.4 0.8 Biodiversity net gain will also be delivered by SSEN Distribution as part of its ED2 (A) This data is subject to external independent limited assurance by PricewaterhouseCoopers LLP (‘PwC’). business plan. While SSE has focused on For the results of that assurance, see PwC’s assurance report and SSE’s GHG and Water Reporting Criteria terrestrial habitats it is also exploring the 2023 on sse.com/sustainability . (B) This data was also subject to external independent limited assurance by PricewaterhouseCoopers LLP potential for enhanced biodiversity within (‘PwC’). For the results of that assurance, see PwC’s assurance report in SSE’s Sustainability Report 2022  the marine environment. and SSE’s GHG and Water Reporting Criteria 2022, both available on sse.com/sustainability . 53SSE plc Annual Report 2023 ### A sustainable approach continued ### Protecting the natural environment continued ### Managing air emissions Table 5: SSE’s air emissions data In 2022/23, emissions of nitrogen oxides (NOx), sulphur dioxide (SO ) and particulate Unit 2022/23 2021/22 2 matter (PM10) all reduced compared to Air emissions the previous year, with emissions of SO 2 Sulphur dioxide (SO ) – thermal Tonnes 1,336 3,021 reducing by more than a half. The falling 2 generation trend across three of these key air emission sources, reflects a reduction in output from Nitrogen oxide (NOx) – thermal Tonnes 3,870 4,573 oil-fuelled peaking plant in Ireland compared generation to the previous year. Sulphur hexafluoride (SF ) – Kg 424 305 6 thermal generation and Mercury emissions to air increased almost electricity transmission and fivefold, due to an increased level of test distribution activities running on back-up fuel oil that was required during the year, as dictated by Transmission Particulates emissions (PM10) Tonnes 116 277 Operator on the island of Ireland. See Table 5 from thermal generation assets for full data on air emissions. Mercury emissions from Kg 10.6 2.2 thermal generation assets Sulphur hexafluoride (SF ) is a highly 6 effective insulating gas used for safety in electrical transformers and in 2022/23, Table 6: SSE’s energy use data SSE’s SF emissions increased by almost 6 Unit 2022/23 2021/22 40% compared to the previous year. This was due to a combination of factors, Energy use* including more robust reporting of minor Purchased heat from non- GWh 3.3/0.06 3.3/0.08 leakages and increasing numbers of assets renewable sources – UK/Ire (to deliver net zero) that still requires SF 6 as an insulating gas. SSE has a number of Purchased electricity from GWh 103.7/1.1 73.3/0.98 initiatives to reduce its dependency on SF renewable sources – UK/Ire 6 in its networks, including working with | | | Purchased electricity from non- | GWh | 97.9/0 | 118.6/0 | | --- | --- | --- | --- | --- | --- | | suppliers to install SF | -free alternatives | | | | | | | 6 | renewable sources – UK/Ire | | | | across its electricity transmission network. You can read more about what SSE is doing * This information, taken in conjunction with Table 2 on page 49 , represents SSE’s disclosures in line with to reduce the impact of SF in its business 6 the UK Government Streamlined Energy and Carbon Reporting requirements. activities in its Sustainability Report 2023  and its Net Zero Transition Plan. data centres) was from renewable sources, introducing the concepts of circularity into up from around 39% the previous year. its business activities and is collaborating ### SSE’s energy consumption with stakeholders to create solutions for Between 2021/22 and 2022/23, the energy SSE is a member of the Climate Group’s industry-wide challenges and support SSE purchased for use in its assets (offices, EP100 initiative to encourage businesses to circular supply chains. depots, thermal power stations, gas storage double energy productivity associated with facilities, and data centres) increased by 5%, office and depot buildings by 2030 from a Table 7 outlines SSE’s key waste data, from 196GWh to 206GWh. 2011 baseline. including by end destination. In 2022/23, SSE managed 6,063 tonnes of waste, up A large contributor to this trend was a 60% ### Embedding circular from 5,287 tonnes in 2021/22. This increase increase in energy consumed in SSE’s gas ### economy principles was due to SSE widening the scope and storage facilities compared to 2021/22. This Circularity is built on the principles of improving the accuracy of its waste data. was largely due to increased gas storage reducing waste, increasing resource SSE’s target for 2022/23 was to divert 85% activities at SSE’s Aldbrough facility to efficiency, and promoting renewable of waste by tonnage from landfill and ensure security of supply. energy sources. By adopting circular recycle 40% of waste by tonnage. It strategies, SSE is able to minimise its exceeded these targets, with 65% of SSE’s Energy consumed in SSE’s offices, depots environmental impact, enhance total waste being recycled/composted and data centres reduced by 5% compared operational efficiency, strengthen and only 5% being sent to landfill. The to 2021/22. This was due to the continued resilience to resource shortages and proportion of waste sent to landfill more investment by SSE in 2022/23 in a range create new value for stakeholders. SSE is halved compared to the previous year, of energy efficiency measures including a programme of LED lighting upgrades to depot sites and it continued its ‘Better Off’ behaviour change campaign. ### Data and assurance SSE takes an integrated approach towards assurance utilising internal audit In 2022/23, SSE purchased 100% of its and external assurance providers to ensure accurate, complete disclosures. electricity for use in its directly managed Where data has been externally and independently assured, this has been offices from renewable sources, backed by noted in the relevant tables. In all other areas, data is identified and disclosed renewable guarantees. In 2022/23, around according to SSE’s internal processes, guided by environmental regulations 52% of the electricity that SSE purchased where appropriate. for its assets (offices, depots, thermal power stations, gas storage facilities, and 54 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report with a higher proportion of waste being Table 7: SSE’s waste data by end destination processed as energy from waste and an increase in recycled waste as well, as a 2022/23 2021/22 result of improved recycling processes Total waste produced Tonnes 6,063 5,287 implemented at sites and as the inclusion waste recycling data such as metals. Proportion of total waste: Sent to landfill % 5% 12% Over 2023/24, SSE expects to further Processed as energy from waste % 29% 25% broaden the coverage of waste performance data to include large capital Recycled % 62% 59% projects and minor works. SSE’s 2023/24 Composted/sent to anaerobic digestion % 3% 1% performance target is to divert 95% of waste by tonnage from landfill and recycle Treated % 2% 4% 50% of waste by tonnage. It is expected Hazardous waste Tonnes 144.4 147.9 that the planned scope expansion of waste data in 2023/24 will influence performance, Data excludes waste data from contractors for large capital projects, minor works contracts and some in particular recycled waste data. SSE will specialised waste streams. continue to review its waste target to ensure that it remains stretching. ### Engagement in action ### Suppliers, contractors and partners ## A coalition for circularity in the wind sector SSE Renewables’ wind portfolio in the UK instructive to establishing a wider circular and Ireland comprises some of the most model throughout the wind industry productive onshore wind generation assets supply chain. in Europe. The optimum maintenance of those assets further maximises value To support the acceleration of a circular to SSE, whilst contributing to climate economy for the wind sector based mitigation solutions. The opportunity to in the UK, this year SSE Renewables, the maintain the components of those assets University of Strathclyde and Renewable using circular economy principles (reduce, Parts joined forces to launch CWIC, the reuse, repair, remanufacture, recycle, Coalition for Wind Industry Circularity. and recover) is emerging as an important CWIC aims to stimulate collaboration driver of future commercial, social and between industry peers, suppliers, environmental value. and government agencies to unlock and deliver economic, social, and SSE Renewables is driving forward a environmental opportunities. There are strategy to increase the use of refurbished immediate opportunities in the repair and remanufactured minor component and maintenance of existing wind assets, parts for the maintenance and repair of and a longer-term prize through the existing components across its wind design of future wind technology both portfolio, with particular focus on its onshore and offshore. onshore portfolio in the immediate term. Through a partnership with Scottish-based SME, Renewable Parts Ltd, rather than replacing broken turbine gears with newly manufactured gears, Renewable Parts refurbish and repair existing components to a high standard, with high-performance outcomes. This practical solution has been 55SSE plc Annual Report 2023 ### A sustainable approach continued ## Ensuring a ## just transition ### A sustainable transition to net zero is one that is fair ### to working people, consumers and communities. ### SSE seeks to ensure the benefits of net zero are ### shared widely and unfairness is predicted and pre- ### empted. Influencing a fair and just transition to net ### zero is a strategic objective for SSE. ## Leading on a just transition | SSE published its Just Transition Strategy | | of the Prospect trade union and | • Measuring progress report: A progress | | | --- | --- | --- | --- | --- | | in November 2020, setting out the 20 | | environmental NGO WWF aimed to | | update published in April 2023 in which | | principles it will follow to ensure that the | | bring the notion of a just transition | | SSE set out to demonstrate the impact | | impacts from the decisions it takes are fair | | to life. The film explains that a just | | its 20 principles for a just transition | | and that it maximises the opportunities | | transition is about protecting workers | | have had across the business. These | | for communities to benefit from net zero. | | and communities in the face of | | specifically aim to promote a smooth, | | The 20 principles sit under five key themes: | | substantial industrial change and that | | fair and just transition to net zero by | | good green jobs, consumer fairness, | | people must be at the centre of efforts | | disclosing progress (or otherwise) | | building and operating new assets, | | to tackle climate and nature crises. This | | against the Just Transition Strategy. | | looking after people in high-carbon | | documentary has been shared widely | | | | jobs, supporting communities. | | with stakeholders including trade | More details on the report and the short | | | | | unions, investors, and NGOs, and was | documentary can be found at sse.com/ | | | With SSE’s Just Transition Strategy, and a | | also shown to over 1,660 employees. | sustainability/just-transition/ | | | subsequent report focused on the worker | • Multi-stakeholder event: An event | | | | | transition in 2021, SSE continued extensive | | in London in April 2023 aimed to | | | | multi-stakeholder engagement in the pursuit | | normalise the just transition within | | | | of a net zero transition that is fair to working | | corporate climate discourse, enhancing | | | | people, consumers and communities. | | accountability and bringing the just | | | Just transition: transition from concept to action. measuring progress This has taken several different forms Theobjectives included establishing a From action to accountability including: sense of collaboration and openness around a just transition; showing SSE’s • Just transition documentary: A short good stewardship of its own transition documentary featuring voices of SSE to net zero and highlighting the business employees with the lived experience of benefits that come from establishing transitioning from high- to low-carbon the world’s first business strategy for a work, supplemented by the perspectives just transition. 56 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### SSE’s UK and Irish GDP contribution, jobs supported and taxes paid for 2022/23 | UK contribution to GDP | UK jobs supported | UK taxes paid | | --- | --- | --- | | £6.04bn | 39,940 | £502m | | 2021/22: £5.98bn | 2021/22: 45,290 | 2021/22: £335m | | Ireland contribution to GDP | Ireland jobs supported | Ireland taxes paid | | €429m | 2,430 | €53.8m | | 2021/22: €417m | 2021/22: 1,840 | 2021/22: €46.4m | 2021/22 contribution to GDP figures have been adjusted to current prices. ## Sharing the benefits from net zero ### Contributing to jobs and GDP The purpose is to demonstrate an ongoing Invested in communities across the UK and Ireland Under its revised Net Zero Acceleration commitment to upholding the principles of by SSE in 2022/23. Programme Plus, SSE plans to invest £18bn fair tax as SSE expands internationally. in the five years to March 2027. This scale of ## £16.5m investment generates considerable value Over 2022/23, SSE’s total tax contribution for the communities in which SSE operates. was £1.3bn, consisting of £549m taxes paid (including £217m corporation tax) and | Every year SSE commissions an | £764m taxes collected. Further information | SSE recognises the exceptional challenges | | --- | --- | --- | | independent assessment of the value it | on SSE’s tax position can be found on | faced by communities because of the cost | | adds to GDP and the jobs it supports across | pages 93 and 237 to 239  of this report, | of living crisis and in 2022/23 consulted | | the UK, Scottish and Irish economies. Over | and in the Sustainability Report 2023 . | with a wide range of stakeholders to | | 2022/23, SSE contributed an estimated | | understand where community funding | | £6.04bn to UK and €429m to Irish GDP. This | SSE is committed to the transparency of its | could make the biggest difference. With | | represented a slight increase compared to | tax affairs and publishes an annual Talking | stakeholder approval, SSE focused on | | 2021/22 figures, which were £5.98bn and | Tax report with enhanced country-by- | investing in projects which would directly | | €417m respectively (adjusted for current | country tax disclosures alongside detail of | help improve energy efficiency and reduce | | prices). Jobs supported in these countries | SSE’s tax strategy. SSE’s Talking Tax reports | fuel poverty. In November 2022, SSE | | fell from 47,130 in 2021/22 to 42,370 in | can be found on sse.com/sustainability . | Renewables’ Sustainable Development | | 2022/23, due to a reduction in supply chain | | Fund panel awarded its largest-ever single | | spend. More detail on SSE’s contribution to | Sharing value directly | award of £1m to support the Highland | | GDP and jobs supported in 2022/23 can be | with local communities | Energy Efficiency Programme which | | found in SSE’s Sustainability Report 2023 . | An integral part of a just transition is being | provides energy efficiency measures | | | a positive contributor to local communities | including solar, battery, air source heating | | SSE’s economic contribution reports can | by sharing the economic value from its | and insulation to households in extreme | | be found at sse.com/sustainability . | assets and its business activities. During | fuel poverty. | 2022/23, SSE invested around £16.5m in | Paying a fair share of tax | communities across the UK and Ireland. | More detailed disclosure on SSE’s | | --- | --- | --- | | SSE considers the responsible payment | This included £10m awarded through | community investment can be found | | of tax a core element of how it shares | SSE Renewables community funds, | in SSE’s Sustainability Report 2023 , | | value with society. While SSE was the first | £1.4m awarded through SSEN’s Resilient | available at sse.com/sustainability . | | FTSE 100 company to be Fair Tax accredited | Communities Fund, and around £5m of | | | in 2014, in 2022/23, SSE also became the | donations made directly to charitable | | | first company to transition from the Fair Tax | groups by SSE Airtricity to support with | | | Foundation’s UK HQ Multinational | the cost of living crisis (see page 64 ), | | | accreditation to the Foundation’s new | alongside smaller contributions from | | | Global Multinational accreditation. | employee-led initiatives. | | 57SSE plc Annual Report 2023 ### A sustainable approach continued ### Ensuring a just transition continued ## A guarantee of fair and decent work | Jobs for net zero | SSE’s employee retention level in 2021/22 | SSE has also continued to develop its | | --- | --- | --- | | With the scale of growth in energy | was 90.5%, which remained slightly | graduate offering to ensure that it attracts | | investment over the next decade, it is | elevated compared to pre-pandemic rates. | future talent into this key early career | | essential that action is taken to attract more | In 2022/23, retention decreased to 89.5% | pipeline. SSE has significantly expanded the | | people into STEM (Science, Technology, | reflecting a return towards pre-pandemic | number of graduate placements, from 60 | | Engineering, Maths) careers, whilst training | labour market conditions. SSE’s 2022/23 | participants in 2020/21 to 220 graduates | | existing talent to ensure the sector has a | voluntary turnover rate was 7.0%, compared | enrolled for the September 2023 scheme | | future-fit workforce with the skills and | to 7.8% in 2021/22. | which covers 13 different programmes. | talent to deliver net zero. | | Developing the future skills | More information on SSE’s approach to | | --- | --- | --- | | Within SSE, at least 1,000 new jobs are | required for net zero | learning and development and its training | | expected to be created every year to 2025. | SSE’s investment in learning, training and | programmes can be found in its | | Opportunities will be created in a range | development increased to £10.4m in | Sustainability Report 2023 . | | of role types, which will mean adding to | 2022/23 from £7.5m in 2021/22. Average | | | existing skills and delivering new skills as | training hours per full-time employee was | Paying a fair wage | | SSE moves into new technologies. To fill | 19.8, a decrease from 20.7 in 2021/22, | Fair remuneration is a cornerstone of SSE’s | | these roles, SSE’s recruitment strategy | with 85.5% of SSE’s employees receiving | approach to being a responsible employer | | seeks to bring new talent into the | some form of training over the year. | and providing good jobs. SSE is actively | | organisation immediately, at the same | | involved in the living wage movement. | | time as developing a longer-term pipeline | Core to SSE’s strategy to build its future | Having been a real Living Wage accredited | | to meet the skills needs of the future. | workforce is consistent investment in its | employer in the UK since 2013, it has also | | | pipeline programmes. These pipeline | paid the Living Wage in Ireland since 2016 | | | programmes include apprenticeships, | and continues to chair the Living Wage | | New jobs expected to be created every | technical skills trainee programmes | Scotland’s Leadership Group. | | year to 2025 | and graduate programmes. The number | | | | of people on one of SSE’s pipeline | In September 2022 in response to the | | 1,000 | programmes increased to 564, compared | cost-of-living crisis, the Living Wage | | | to 465 individuals in 2021/22. Investment in | Foundation announced the new real Living | | | pipeline programmes increased to £12.8m | Wage for the UK two months earlier than | For the jobs of today, SSE focuses on in 2022/23 from £9.8m in 2021/22. This usual. This saw a 10.1% increase from the recruiting new talent through its early brings SSE’s total investment in pipeline 2021 UK rate. SSE welcomed the action careers and pipeline programmes, as programmes over the last three years to taken by the Living Wage Foundation and well as attracting those from sectors like just over £30m. implemented the increase in November oil and gas as part of the just transition, 2022, backdated to the 1 October 2022. and reaching those in wider industries with similar skills such as mining, construction, Total investment in learning, training and Since its accreditation as a Living Hours transport and logistics. pipeline programmes in 2022/23 employer in March 2021, SSE has been working to roll out this enhanced standard To support a long-term pipeline, SSE ## £23.2m across its supply chain. works to inspire young people into STEM careers through strategic partnerships with ### The right to freedom of secondary and primary schools (see SSE’s Over 2022/23, SSE identified the critical ### association and collective Sustainability Report 2023  for details), skills of its workforce required to deliver its ### bargaining and over 2022/23 has performed a skills Net Zero Acceleration Programme (NZAP). Everyone in SSE has the fundamental right gap analysis to understand key training Actions have been identified to develop the to freedom of association and to join a trade requirements for existing talent (see skills of new and existing talent for the key union. SSE has four recognised trade union ’Developing the future skills required for roles it recognises as facing potential skills partners (Prospect, Unite, Unison and the net zero’ on this page for more details). shortages. This approach to development GMB) which it works with through the Joint and training is especially important for skills Negotiating and Consultative Committee At 31 March 2023, SSE’s headcount was gaps that recruitment alone will not solve. and through regular ongoing dialogue. 12,180, up from 10,754 at 31 March 2022. In 2022/23, 50.3% of SSE’s total direct This includes 100 employees in locations Targeted investment and focus was given workforce were covered by collective outside the UK and Ireland. To meet the to a series of specific skills gaps and bargaining agreements. Broader demand of its growing Business Units, the shortages across the SSE Group, from incorporation of employee voice is total number of people joining SSE rose upskilling existing electrical jointers, to recognised by SSE as an important part from 2,290 in 2021/22, to 3,226 for the developing new roles in system planning of decision-making and strategy. See the same time period in 2022/23. This means to support smart grids. Simultaneously, SSE stakeholder engagement section on that SSE filled a total of 4,401 positions is working to understand the skills required employees on page 28  of this report. | across internal and external recruitment over | for new technologies of the future, for jobs | | --- | --- | | 2022/23, an increase of 38% from 2021/22. | that may not exist today, but which may | | For information about SSE’s approach to | be required to be implemented at pace | | inclusive and diverse hiring, see its Inclusion | to deliver net zero by 2030. | and Diversity Report 2023 . 58 SSE plc Annual Report 2023 **A growing package of employee benefits** **Table 8: Reported incidents of suspected wrongdoing by category** | | 2022/23 | | --- | --- | | Health and safety | 8 | | Dishonest behaviour | 16 | | Conduct | 10 | | Inclusion and diversity | 2 | | Drugs/alcohol | 5 | | Regulatory Compliance | 1 | | General | 8 | | Total | 50 49 | 2023 Inclusion and Diversity Report **Table 9: Outcomes of investigations into reported incidents of suspected wrongdoing** | | 2022/23 | | --- | --- | | | 10 | | | 1 | | | 0 | | | 1 | | | 16 | | | 12 | | | 4 | | | 1 | | | 5 | | Total | 50 49 | 2023 page 63 **Embedding a healthy business culture** **Reporting and investigating wrongdoing** **Supporting whistleblowers** sse.com/sustainability sse.com/sustainability and 138 pages 137 556 plc Annual Report 2023 59 ### A sustainable approach continued ### Ensuring a just transition continued ## Promoting inclusion and diversity | SSE’s approach to | Creating an inclusive | | | --- | --- | --- | | inclusion and diversity | employee culture | | | SSE’s Inclusion and Diversity Strategy, | Listening to employees enables SSE | Inclusion and Diversity | | launched in 2021, builds on the inclusion | to focus business priorities and improve | Report 2023 | | and diversity initiatives that SSE has been | initiatives, whilst also ensuring employees | SSE publishes an annual | | undertaking since 2014. It is framed on | feel valued and have increased | Inclusion and Diversity Report, | | four pillars: Ambition; Education and | opportunities for development. SSE gains | which provides comprehensive | | Development; Inclusive Processes; and | insight on employee voice through its | information around SSE’s | | Employee Voice. | ’Belonging in SSE’ communities, each of | Inclusion and Diversity Strategy | | | which is sponsored by a Managing Director, | and progress against it. | | Delivery of the strategy relies on | and which aim to bring people together | | | engagement and effort from many | across the organisation for open and | Further information around | | in SSE, and has been informed through | constructive employee-led discussion. | SSE’s approach to inclusion | | collaborating with external partners | Over 2022/23, SSE increased its members | and diversity over 2022/23, | | to identify opportunities for further | in the ‘Belonging in SSE’ communities to | the actions it is taking to drive | | improvement. It focuses on inclusion for all | just over 2,000 and continued to listen to, | improvements and plans for | | by listening to underrepresented groups | and engage with, employees on subjects | the coming years, see SSE’s | | and their unique experiences, and invests | such as intersectionality, culture, ethnicity, | Inclusion and Diversity Report | | leadership development to help shape and | and neurodiversity. Each Belonging in | 2023 , available at sse.com/ | | influence the actions needed to embed | SSE community has developed an action | sustainability . | | positive change across all levels of the | plan and every two months they meet | | | business. Learnings from these initiatives | with SSE’s Group Executive sponsors to | | | will continue to develop the strategy further. | discuss progress and opportunities to | | move forward with their action plans. ### Developing leadership to | drive inclusion from the top | Measuring progress | | --- | --- | | SSE’s has a number of leadership | A key part of SSE’s Inclusion and Diversity | | programmes in place, which are designed | Strategy is the ability to measure the | | to build leadership confidence and raise | progress being made as a result of the | | awareness for all to create an inclusive | various initiatives in place. SSE has been | | workplace. This includes SSE’s Igniting | tracking progress against a wide range of | | Inclusion Programme, which supports | diversity metrics within the business since | | managing directors and Business Unit | 2015, including the proportion of women, | | executive committees to learn about key | ethnic minority, disabled, and LGBTQIA+ | | inclusion and diversity themes, and how | employees. Setting measurable ambitions | | these can be practically applied in the | that align with best practice enables SSE | | workplace. Over 2022/23, SSE also | to work towards stretching ambitions and | | embedded inclusivity throughout its | monitor its progress against these. | existing Leadership Blueprint, ensuring that leaders build proud and inclusive teams. ### Ambition Education and development Setting measurable goals Focusing on behaviours Setting ambitions and KPIs, and using Building leadership confidence and external benchmarking. raising awareness for all to create an inclusive workplace. ### Inclusive processes Employee voice Embedding best practice Actively listening Ensuring policies and processes are Understanding what matters to employees inclusive and support everyone. to inform and shape the improvements needed. 60 SSE plc Annual Report 2023 ## SSE's 2023 gender pay gap ### SSE's 2023 UK gender pay gap performance UK gender pay gap Median **15.3%** Mean **12.1%** UK bonus gender pay gap Median **14.7%** Mean **44.3%** Interim cost-of-living pay increase: Increasing representation of women in high-paid roles Salary uplift for employees on Joint Agreement contracts: 2023 Inclusion and Diversity Report sse.com/sustainability ![img-5.jpeg](img-5.jpeg) SSE plc Annual Report 2023 61 ### A sustainable approach continued ### Ensuring a just transition continued ### Making progress with Table 10: SSE’s gender data for senior levels and all employees at 31 March in ### women’s representation each year In 2021/22, SSE simplified its gender 2022/23 2021/22 % Female (Male/ % Female (Male/ reporting and set stretching gender Year Ambition Female headcount) Female headcount) ambitions in line with the FTSE Women 1 Board Ongoing 50%, with no less 46% (7/6) 50% (6/6) Leaders Review. These are outlined in than 40% female Table 10 and are approved by the Group representation Executive Committee (GEC) and Board- level Nomination Committee. Group Executive – – 27% (8/3) 25% (6/2) 2 Committee (GEC) Over 2022/23, progress has been made 2 GEC and direct 2025 40% female 34% (54/28) 22.4% (45/13) across the business, moving SSE closer reports (excl. to achieving its medium- and long-term administrative roles) targets. Female representation on the 3 Board is currently 42%, following changes Leadership Group 2030 40% female 25% (812/274) 23.7% (681/212) to the Board which took effect post 31 March 2023, which remains above All employees 2030 33% female 30% 28.8% the 40% Board Policy target. Full details (8,525/3,655) (7,658/3,096) of changes across membership and Nomination Committee focus are set 1 As at 23 May 2023, the Board has 42% female representation (seven men and five women), see page 149  out on pages 115 and 142 to 149 . The for more detail. representation of women in the GEC and 2 In the context of gender reporting, the GEC includes all members of the GEC and the Company Secretary. direct reports has increased from 22.4% at This is the definition of senior managers in SSE for the purposes of s414C(8)(c)(ii). 31 March 2022 to 34% at 31 March 2023, 3 Employees in SSE’s senior level pay grades. representing maintenance of the progress disclosed in the 2022 Annual Report and offering a strong platform for continued ### Wider diversity targets provide meaningful insight. At 31 March work towards the 2025 ambition of 40%. | SSE tracks progress against a range of | 2023, SSE had an employee disclosure rate | | --- | --- | | diversity metrics, including the proportion | of 39% of the total employee population for | | of ethnic minority, disabled, and LGBTQIA+ | diversity metrics including ethnicity, sexual | | employees. Senior leaders focus on | orientation, and disabilities, an increase | | progress as part of broad internal inclusion | from 32% the previous year. SSE’s diversity | | and diversity ambitions quarterly, and these | data based on the population of employees | | metrics are reviewed twice yearly by the | disclosing this information is provided in | | GEC and the Board. SSE understands that | Table 11. Increasing employees’ voluntary | | transparency supports inclusion and | disclosure of their diversity data, even if they | | diversity progress, and therefore is working | select ‘prefer not to say’, is essential in order | | to increase the proportion of employees | for SSE to set ambitions, develop strategies, | | disclosing their diversity data to SSE, so that | and gain learnings that will increase diversity | | it can improve external disclosure as it | within the business. See SSE’s Inclusion and | | becomes feasible to do so. | Diversity Report 2023  for details about | how SSE is working to increase diversity Over 2022/23, SSE has developed its data disclosure rates. ethnicity pay gap analysis, in line with the UK Government guidelines published in An ethical business culture alongside April 2023. SSE is using this data for internal inclusion and diversity are directly analysis and aims to publish its ethnicity pay linked to the Group Principal Risk of gap when employee disclosure rates are People and Culture – full details are high enough to ensure anonymity and available on page 75 . Table 11: SSE’s wider diversity data at 31 March in each year* Ambition 2022/23 2021/22 Diversity category Year (% of employees) (% of employees) (% of employees) Disability 2030 8 8.9 6.8 Ethnic Minority 2030 15 8.1 6.3 LGBTQIA+ 2030 8 3.8 3.6 * Data is collected on SSE’s HR data reporting system ‘Harmony’. Gender has a 100% completion rate, and is based on biological sex. Disability, Ethnic Minority, and LGBTQIA+ data is voluntarily disclosed by employees, with a 39% disclosure rate at 31 March 2023 and a 32% disclosure rate at 31 March 2023. Data excludes those without facility to share information on Harmony. . 62 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ## Protecting health, safety and wellbeing ### Monitoring health Table 12: Total Recordable Injury Rates for SSE’s employees and contractors ### and safety performance Unit 2022/23 2021/22 Safety remains SSE’s first priority with the objective that ‘everyone gets home safe’ Total Recordable Injury Rate Per 100,000 0.19 0.17 and that focus is all the keener following – employees and contractors hours worked the tragic death of Liam Macdonald, a Total Recordable Injury Per 100,000 0.10 0.09 young contractor working on Shetland, Rate – employees hours worked in June 2022. Total Recordable Injury Per 100,000 0.34 0.32 The Total Recordable Injury Rate (TRIR) Rate – contractors hours worked for direct employees and contractors combined was 0.19 per 100,000 hours worked, up from 0.17 in 2021/22. This the wellbeing support and guidance In 2022, SSE also launched a pilot increase reflects a significant surge in available to employees. scheme in partnership with the British investment and construction, and an Heart Foundation providing employees associated rise in contractor hours worked. ### Increased investment with free health assessments. The service Further detail on SSE’s TRIR is outlined ### in employee health was accessed by over 150 colleagues in in Table 12, with additional information Over 2022/23, SSE made a significant 2022/23 and SSE plans to make it more on contractor safety outlined on pages 66 investment to enhance the health support widely available in 2023/24. and 164 . it provides to its employees. One of the key investments it made was the launch These initiatives build upon a strong SSE seeks to embed a strong safety culture of a new service, WeCare, which enables foundation of existing support services and to ensure that all those working on its employees in the UK and Northern Ireland including Nuffield mental health and behalf feel confident to speak up around to access free online GP appointments musculoskeletal support, comprehensive safety. In SSE’s 2022 all-employee survey, within 48 hours and access to a private Employee Assistance Programmes, which had a 79% response rate, 92% of prescription service, to help colleagues a suite of toolkits covering mental health, employees said that their manager sets receive the medical care they need. menopause and other health issues, a the right example when it comes to Safety, WeCare can be used by all UK and series of health and wellbeing webinars Health and Environment and 94% said that Northern Ireland employees, as well as and Nudge, a financial education resource. SSE makes it easy for people to do the right their immediate family who live in the same thing on Safety, Health and Environment. home, and it also offers 24/7 support on physical and mental health issues, general Safety and the Environment remains Detailed information on SSE’s health wellbeing and financial and legal matters. as a Principal Risk to the Group, further and safety performance over 2022/23 is Employees in Ireland can receive similar details on how this is mitigated can be provided in the Safety, Sustainability, Health support through SSE’s partnerships with found on page 77 . and Environment Advisory Committee VHI Healthcare. report on pages 162 to 165  of this report and in the Sustainability Report 2023 . ### Taking a holistic ### approach to wellbeing In 2021/22, SSE undertook a strategic review of occupational benefits which ### also included recruitment of a dedicated WeCare Head of Health and Wellbeing. The review recognised that while a very good range of support was already in place, there were Free online GP appointments opportunities for some services to be used within 48 hours. more and/or expanded upon. Access to a private | Building upon the outcomes of the | prescription service. | | --- | --- | | strategic review and recognising the impact | 24/7 support on physical | | which Covid and the cost of living crisis | and mental health issues, | | have had on employees’ wellbeing, over | general wellbeing and financial | | 2022/23 SSE developed a holistic range of | and legal matters. | | benefits which support physical, mental | Can be used by all UK and | | and financial wellbeing. | Northern Ireland employees, as | well as their immediate family. In addition to providing a wider range of support services, a key focus in 2022 was to make it easier for employees to access the right form of support when they need it. As a result, SSE launched the Health Hub, an online portal with clear signposting to all of 63SSE plc Annual Report 2023 ### A sustainable approach continued ### Ensuring a just transition continued ## Providing affordable and clean energy | Avoiding the next energy crisis | and accelerated energy efficiency rollout for | plans to deliver up to 40,000 installations | | --- | --- | --- | | SSE recognises the hugely challenging | homes and businesses is more important | over the next 10 years. This activity is also | | circumstances faced by energy consumers | now than ever. It is this multi-track approach, | helping to support local jobs, with the | | in 2022/23. SSE Airtricity responded through | supporting customers in the short-term, with | creation of 200 highly skilled green jobs | | a combination of keeping tariffs as low as | industry and government working together | over the next two years announced by | | possible for all consumers through not | in the medium-term for a secure, clean and | Activ8 in 2022, supporting a just transition | | passing through the full impact of wholesale | affordable future energy system. | towards net zero. | costs, a price freeze for financially vulnerable | consumers and customer support funds. | Powering greener homes | Energy Affordability remains a Principal | | --- | --- | --- | | The business also honoured its commitment | and businesses | Risk to the Group, for further details | | not to make a profit in the year. Residual | SSE Business Energy helps business | please see page 73 . | | profits of €8.6m were distributed to ROI | customers of all sizes across the UK to | | | domestic customers in full, after the year- | reduce their carbon emissions through its | | | end in April 2023, amounting to a credit of | green electricity offering. All SSE Business | | | €35 per customer. | Energy green electricity is backed by | | Renewable Energy Guarantees of Origin | Short-term measures, however, are not a | (REGOs) and is independently verified. | | --- | --- | | long-term solution to high energy costs | In addition to this, SSE Airtricity has a 50% | | and a reliance on unpredictable sources of | ownership share in Activ8 Solar Energies, | | energy. Therefore, the need to accelerate | which carried out over 1,500 domestic | | the delivery of renewable energy generation | solar installations in 2022/23, with further | ### Engagement in action ### Energy customers ## Supporting customers ## through exceptional times SSE Airtricity provided a holistic range vulnerable households, at no cost, The number of customers of practical measures up to the value and a €2.5m donation to not-for-profit benefiting from Airtricity holding of €25m, including targeting families organisation EnergyCloud, which will prices at June 2022 levels was who are struggling financially. This has help divert surplus renewable energy included: to up to 10,000 fuel poor homes ## 60,000 across Ireland. | • Price promise: SSE Airtricity held | | • Working with partners to support | | | --- | --- | --- | --- | | | energy costs at June 2022 levels | | households: over 2022/23, SSE | | | until the end of March 2023, for | | Airtricity made donations to trusted | | | up to 60,000 financially vulnerable | | charity partners to support households | | | customers. | | in need of financial assistance across | | • Discretionary fund: a €1m | | | the island of Ireland, regardless of who | | | discretionary fund was created to | | their supplier is. This included a €1m | | | provide direct support to customers | | donation to St Vincent de Paul (SVP) | | | in difficulty. | | and donations totalling £2m to Bryson | | • Energy efficiency measures: to | | | Charitable Group. | | | help tackle one of the root causes of | • Energy Bill Relief Scheme: Airtricity | | | | fuel poverty, SSE Airtricity supported | | also applied discounts to the value | | | vulnerable households with energy | | of £116m in the year to customers | | | efficiency. This has included delivering | | under the UK Government’s Energy | | | home energy upgrades for up to 600 | | Bill Relief Scheme. | 64 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report | Providing an inclusive service | next two decades with technology rapidly | | | --- | --- | --- | | to network customers | advancing and high-carbon heating and | | | SSEN Distribution’s Priority Service Register | transport being phased out. | Creating new standards | | (PSR) is the mechanism to target support | | in equal EV access | | for people in vulnerable situations. The | In addressing these critical issues, | | | PSR provides support for customers who | SSEN Distribution has created an action | In October 2020 SSEN Distribution | | require adapted services, or who may need | plan for delivering a just transition for | established ‘Equal EV’, a collaboration | | additional support, particularly in the event | energy consumers. With 10 commitments, | with Disabled Motoring UK (DMUK) | | of power cuts. It is therefore critical that the | it will progress alongside further | to identify the unique enablers | | Register is comprehensive, accurate and | recommendations for the energy industry | and barriers faced by drivers with | | captures all those in need. | and policy makers to help unlock the | vulnerabilities adopting electric | | | benefits of net zero for all consumers. | vehicles (EVs) and the role of | | To achieve that aim, in March 2023 a | | technologies and Distribution | | new website thepsr.co.uk  was created | SSEN Distribution’s commitments cover | Network Operators in removing | | through a collaborative initiative led | a range of areas, including: supporting | barriers. The insights gained from | | by SSEN Distribution and including 10 | knowledge-sharing and collaboration; | the work have been instructive and | | Distribution Network Operators (DNOs) | addressing emerging vulnerabilities resulting | have supported the inclusion of a | | and Gas Distribution Network Operators | from the transition to net zero; ensuring | commitment to improve accessibility | | (GDNs). This website brings together | equal access to electricity infrastructure; and, | at public charge points for disabled | | individual registers from DNOs and GDNs, | supporting remote and rural communities, | users in the UK Government’s Electric | | making it easier to raise awareness of the | which may be off-grid, to benefit from the | Vehicle Infrastructure Strategy. | | additional support available nationwide. | electricity system of the future. | | | Furthermore, the website supports external | | In 2022, the Equal EV project fed into | | partners such as local and national charities | The full report can be found at | the creation of the British Standard | | and NHS Trusts to promote the PSR to their | ssen.co.uk . | Institution (BSI) PAS 1899, a new | | customer base through a clear process. | | specification on accessible public | charge points for EVs covering the ### Unlocking a just transition design of charge points, including ### for network customers the location spacing and surrounding A FAIR ENERGY SSEN Distribution is at the forefront of environment, as well as the FUTURE enabling net zero at a local level, operating Unlocking a just transition appropriate information, signals for consumers the electricity distribution network that will March 2023 and indicators to be provided. facilitate new forms of heating, battery | storage and many more electric vehicles. | In addition, Disabled Motoring | | --- | --- | | In March 2023, it published a report which | UK (DMUK) launched a parking | | explores how net zero can be delivered | standard called the Disabled Parking | | fairly for consumers, ensuring people | Accreditation (DPA) which signposts | | can participate in and benefit from the | off-street car parks that are | | energy transition. | accessible to disabled people and | will soon include a dedicated section The report, titled A Fair Energy Future , on EV charge point provision. details the partnerships and innovation projects SSEN Distribution has undertaken to explore and understand the new energy challenges that consumers will face in the 65SSE plc Annual Report 2023 ### A sustainable approach continued ### Ensuring a just transition continued ## Supporting a sustainable supply chain | An increasing focus on | Mitigating modern slavery | Battery projects, and mitigation actions are | | --- | --- | --- | | contractor safety | in the supply chain | ongoing. SSE Renewables increased focus | | In 2022/23 there was a significant rise | Over 2022/23, SSE continued to deliver | on high-risk areas such as vessels which | | in contractor hours worked on SSE’s | its Modern Slavery Action Plan. Key | service offshore wind farms to identify | | large capital projects, which represent a | developments over the year included | key risk areas and ensure additional due | | higher-risk environment than for SSE’s | the rolling out its updated modern slavery | diligence is put in place where required. | | operational activity. SSE’s contractor TRIR | clause and Living Hours clause into supplier | | | increased slightly compared to 2021/22 | contracts, and completion of onsite | In addition, SSE continued to actively | | performance and there was a contractor | modern slavery audits. | participate in a number of industry | | fatality on Shetland in June 2022. See | | working groups and initiatives that seek to | | the Safety, Sustainability, Health and | SSE finalised the programme of onsite | develop best practice and industry-wide | | Environment Advisory Committee report | modern slavery audits for three of its key | approaches to addressing modern slavery. | | on pages 162 to 165  of this report for | sites, which have been undertaken by third | | | more information around SSE’s response | party organisation Stronger Together since | More information on SSE’s actions to | | to this incident. | 2021/22. Findings showed that health, | mitigate the risk of human rights abuses | | | safety, and labour standards were very high | and modern slavery, and the industry | | Given the rise in contractor hours worked in | on all three sites assessed and that risk of | collaboration being undertaken, can | | SSE’s current growth phase, there is a need | modern slavery was very low. The gap | be found in SSE’s Sustainability Report | | for a strategy that builds stronger, more | analysis highlighted key improvement | 2023 . | | collaborative relationships with supply chain | areas, including around risk identification, | | | partners to keep everyone safe. | supplier due diligence and training, which | | Healthy supply chains influence SSE’s have been embedded in SSE’s Action Plan. exposure to the Principal Risks of Large A dedicated, Group-level contractor safety Capital Projects Management and Speed team was established in early 2023 to Deep dive assessments for high risk areas of Change – further details on how these ensure partners are fully supported and of SSE’s business activities continued. Work are managed can be found on pages 75 performance is monitored across all of was undertaken with Slave Free Alliance and 77 . SSE’s large capital projects. to identify risk associated with Solar and ### Engagement in action ### Suppliers, contractors and partners ## Supply chain learnings from COP27 | SSE participated in climate debates on the | The result of the engagement was an | | --- | --- | | fringe of COP27 in Egypt in November | understanding of the importance of | | 2022. SSE’s objective in its attendance | ‘FPIC’ principles (free, prior and informed | | was to further the case for net zero | consent) and an imperative to work more | | through the practical demonstration | closely with the most strategic suppliers | | and example of its investments in | on efforts to ensure components | | low-carbon infrastructure in the UK, | contained within the manufactured | | Ireland and beyond. | capital assets SSE procures are sourced | from responsible sources. One further objective was to learn from | international experiences in relation | The engagement at COP27 was | | --- | --- | | to the mining and extraction of metals | particularly instructive to SSE and has | | and minerals critical to the technology | led to the development of a workstream | | required by SSE’s investments. | that can deliver a transition to net zero in | a responsible and ethical way. This work, SSE actively participated in discussions directly with suppliers, is in addition to and panels on the just transition, ongoing human rights work with the considering issues through the lens of Sustainability Supply Chain School and indigenous communities, many of whom industry collaborations including Utilities host the commercial mining of minerals Against Modern Slavery and Scotland such as cobalt, lithium and silicon. Against Modern Slavery. 66 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ## 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 2023 . | Reporting requirement and | Relevant Group Principal | Relevant Group Policies | Policy embedding, due diligence, | | --- | --- | --- | --- | | SSE’s material areas of impact | Risks, pages 72 to 77  | on sse.com | outcomes and key performance indicators | | Environmental matters | Climate Change | Group Climate Change Policy | 2030 Goals progress, | | • Delivering net zero | | | pages 22 to 23  | | | Safety and the Environment | Group Environment Policy | | • Managing climate-related A year of strategic progress, issues pages 18 to 21  • Carbon performance, metrics and targets Accelerating climate action, • Responsible resource use pages 36 to 51  – water and energy use, Protecting the natural air emissions environment, pages 52 to 55  • Managing impacts on the natural environment and Safety, Sustainability, Health biodiversity and Environment Advisory Committee Report, pages 162 to 165  | Employees | People and Culture | Group Employment Policy | 2030 Goals progress, | | --- | --- | --- | --- | | • Protecting health, safety | | | pages 22 to 23  | | | Safety and the Environment | Group Safety and | | and wellbeing Health Policy Ensuring a just transition, • Investing in training pages 56 to 66  and learning • Culture and ethics Focusing on culture, • Reward and benefits pages 59 and 137 to 138  • Employee voice Empowering the employee • Promoting inclusion voice, pages 134 to 136  and diversity Safety, Sustainability, Health and Environment Advisory Committee Report, pages 162 to 165  | Social matters | People and Culture | Group Sustainability Policy | 2030 Goals progress, | | --- | --- | --- | --- | | • Ensuring a just transition | | | pages 22 to 23  | | | Speed of Change | Group Taxation Policy | | • Contributing to jobs Ensuring a just transition, and GDP Energy Affordability Group Procurement Policy pages 56 to 66  • Sustainable procurement and supporting local supply chains • Paying a fair share of tax • Supporting customers through the cost of living crisis • Sharing value with local communities | Human rights, | People and Culture | Group Human Rights Policy | SSE’s social contribution, | | --- | --- | --- | --- | | anti-corruption | | | pages 58 to 59  | | | Large Capital Projects | Group Corruption and | | and anti-bribery Management Financial Crime Prevention Focusing on culture, • Reinforcing an ethical Policy pages 59 and 137 and 138  business culture • Speaking up against Group Whistleblowing Policy wrongdoing • Prevention of bribery and corruption • Approach to human rights and modern slavery 67SSE plc Annual Report 2023 ## Risk-informed decision making ## Managing SSE’s risks ### The execution of SSE’s strategy and the creation of value from ### the opportunities arising from net zero are dependent on the ### effective identification, understanding and mitigation of the ### Group’s Principal Risks. Throughout 2022/23 SSE has met and review of SSE’s Principal Risks that took way that reflects the expectations of SSE’s managed unprecedented challenge place during the financial year. key stakeholder groups. in the markets in which it operates. As | highlighted in the Chair’s Statement on | SSE’s risk management process is | These material influencing factors also | | --- | --- | --- | | pages 4 and 5 , issues such as safety | comprised of four main stages summarised | have an impact on the nature and extent | | programmes, affordability, sectoral risks | in the diagram below. Continued maturity | of risks the Board is willing to take to meet | | (such as extremely volatile commodity | and refinement of our risk management | these objectives, and related mitigation | | prices and inflationary pressures), extreme | framework ensures that it remains aligned | strategies adopted by the Group. Material | | weather and climate change have featured | with SSE’s strategy and this year included | changes in the nature, proximity and | | heavily in strategic risk discussions. | the review and redrafting of the Group Risk | potential impacts of SSE’s Group Principal | | | Management Policy which is available to | Risks are regularly assessed by the | | While managing these external challenges, | view on sse.com . | oversight committees and the Business | | SSE has continued to make substantial | | Unit executive committees with appropriate | | progress on the execution and delivery | SSE’s sector review on pages 12 to 15  | mitigations implemented where necessary. | | of it’s Net Zero Acceleration Programme | provides more detail on the range of external | | | (NZAP), with in excess of £2.8bn of capital | factors that influenced the risk exposures to | Overseeing risk | | investment including acquisitions delivered | the Group over the course of the year. | The Group Executive Committee and its | | during the course of the year. Supporting | | subcommittees (as detailed on page 122 ) | | a just transition through continuing to | Board considerations | have responsibility for overseeing SSE’s | | create options for investment and growth | Effective identification, understanding | Principal Risks. During the third quarter of | | by boosting energy security, supporting | and mitigation of Principal Risks underpins | SSE’s financial year, an assessment of each | | communities and creating green jobs, | the Board’s approach to setting strategic | Principal Risk is completed by the assigned | | coupled with its balanced mix of | objectives for SSE and informing strategic | oversight committee. This assessment | | businesses, uniquely positions SSE for | decision making (please see page 124  for | requires committee members to provide | | the transition to net zero and resilience | SSE’s decision making context). The Board | commentary on contextual changes to the | | against volatility. These factors along | aims to consider all material influencing | risks, consider whether over the course of | | with the ongoing geopolitical crisis in | factors and key external trends in the energy | the year the risks have become more or less | | Ukraine having a significant impact on | market, including those relating to climate | material based on impact and likelihood | | energy affordability and security of supply | change, technological developments and | and to confirm effective mitigations are in | | concerns, formed the basis of the full | government policy and aims to do so in a | place for controlling risks. Consideration is | also given to emerging risks and whether any of those identified have the potential to become a Principal Risk to the business in the medium to long-term. ### Principal Risk assessment processes These responses are then consolidated into reports, one for each Principal Risk, which are presented back to the committees along with the results of provisional viability Individual risk testing and analysis of relevant, current reviews management information and key information relating to Business Unit Principal Risks and controls. These reports form the basis for the committees to discuss Outputs: and confirm the risk trend (more, less or Actions Committee equally material), overall effectiveness of the and risk Risk Risk self-assessments risk control and monitoring environment, disclosures monitoring identification and whether any additional control improvement actions are required. This is Risk Risk an inclusive and iterative process that results response assessment in considered and objective outputs and a robust assessment of the Principal Risks. The outputs from these committee assessments are then presented to the Group Executive Executive Committee for full review. Board Committee assessment assessment 68 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report Risk trend key ### Group Principal Risks As reflected throughout the Strategic Report, this year exposures to a number of external factors, Increased in materiality particularly those driven by macro-economic and geopolitical events, have increased materially. This, in turn, has increased the residual exposures of a number of the Group Principal Risks set Not changed significantly out on the following pages, primarily Energy Affordability, Cyber Security and Resilience, Portfolio Exposure and Political and Regulatory Change. Reduced in materiality The graphic below illustrates SSE’s 11 Group Principal Risks positioned to highlight the residual risk impact scores against residual likelihood scores following completion of the Principal Risk Self Assessment process. ### Change to individual risk rating Change to individual risk rating 1. Climate Change 2. Cyber Security and Resilience 3. Energy Affordability 1 3 8 4. Energy Infrastructure Failure 5. Financial Liabilities 7 6 10 11 2 9 6. Large Capital Projects Management 7. People and Culture 4 Residual Likelihood HighLow 8. Political and Regulatory Change 5 9. Portfolio Exposure 10. Safety and the Environment 11. Speed of Change Residual Impact 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 – Political and Regulatory Change and Portfolio Exposure. | This year, due to the pace of change in | been redefined and renamed ‘Portfolio | important revisions have been made to | | | --- | --- | --- | --- | | the markets in which SSE operates, an | Exposure’. The second revision relates to | the descriptions of each of the Principal | | | additional assessment of the Principal Risks | the previously named Group Principal Risk | Risks to take account of key changes | | | was undertaken by the relevant subject | of ‘Politics, Regulation and Compliance’ | and corresponding mitigations that were | | | matter experts and the Group Executive | which has been redefined and renamed | introduced during the year. | | | Committee during the last quarter of the | ‘Political and Regulatory Change’, both | | | | financial year. The output of this was then | of these revisions have been made in order | Full details of the Group Principal Risks | | | considered, with any emerging risks or | to better reflect and articulate the risk | are available on pages 72 to 77 . Key | | | additional material changes resulting from | exposures to the Group. | developments that have influenced the | | | this being proposed to the Board. | | risk exposures to the Group have also | | | | An essential tenet of SSE’s Risk Management | been highlighted in detail throughout the | | | 2022/23 Review Outcome | process is the consideration of potential | Strategic Report. | | | Following the 2022/23 annual review | emerging risks and whether any of those | | | | process, the number of Principal Risks to | identified have the potential to become a | | | | the Group remains at 11 with two revisions | Group Principal Risk in the medium to long | | | | of note. The previously named Group | term. While no new emerging Principal | | | | Principal Risk of ‘Commodity Prices’ has | Risks have been identified this year | | 69SSE plc Annual Report 2023 | ### Risk-informed decision making continued ### Managing SSE’s risks continued | Risk Appetite Statement | Fundamentally: | | In determining its appetite for specific risks, | | | --- | --- | --- | --- | --- | | The Group risk appetite remains aligned | | | the Board is guided by three key principles: | | | to the achievement of SSE’s strategic | • SSE has a clear strategy to create value | | | | | objectives. SSE will however only accept | | for shareholders and society in a | 1. Risks should be consistent with SSE’s | | | risk where it is consistent with its core | | sustainable way by developing, building, | | core purpose, financial objectives, | | purpose, strategy and values; is well | | operating, and investing in the electricity | | strategy and values; | | understood; can be effectively managed; | | infrastructure and businesses needed in | 2. Risks should only be accepted where | | | is in line with stakeholder expectations | | the transition to net zero. | | relevant approvals have been attained | | and offers commensurate reward. | • SSE has a good understanding of the | | | through the Governance Framework | | | | risks and opportunities in the Great | | to confirm appropriate reward is | | The sectors in which SSE operate are part of | | Britain and Ireland energy markets | | achievable on the basis of objective | | a rapidly changing industry subject to a high | | and a strong associated knowledge | | evidence and in a manner that is | | degree of political, regulatory and legislative | | of adjacent EU markets, augmented by | | consistent with SSE’s purpose, strategy | | change as well as risk arising from other | | its acquisitions. UK and Irish markets, | | and values; and | | developments including technology, the | | alongside EU markets therefore provide | 3. Risks should be actively controlled and | | | impact of competition, stakeholders’ | | the Group’s geographic focus, with | | monitored through the appropriate | | evolving expectations and climate change. | | expansion into other new international | | allocation of management and | | Furthermore, each of SSE’s Business Units | | markets being subject to rigorous | | other resources, underpinned | | have differing levels of exposure to additional | | scrutiny and ensuring the appropriate | | by the maintenance of a healthy | | risks. For example, the Transmission and | | governance arrangements which are | | business culture. | | Distribution businesses are economically | | consistent with the Group’s values and | | | | regulated and are characterised by relatively | | strategic goals are in place. | The Board has overall responsibility for | | | stable, inflation linked cash flows while the | • Safety is SSE’s first value and it has no | | determining the nature and extent of the | | | SSE Renewables business benefits from cash | | appetite for risks brought on by unsafe | risk it is willing to take to achieve strategic | | | flows linked to government-mandated | | actions, nor does it have any appetite | objectives and for ensuring that risks are | | | renewables subsidies. Those Business Units | | for risks brought on by insecure actions | managed effectively across the Group. | | | that generate and trade energy are also | | including those relating to cyber security. | | | | exposed to significant medium- to long- | | In areas where SSE is exposed to risks | | | | term energy market and commodity risks in | | for which it has little or no appetite, | | | | operational and investment decision making. | | even though it has implemented high | | | standards of control and mitigation, the The key elements of SSE’s Strategic nature of these risks mean that they Framework – including SSE’s Purpose, cannot be eliminated completely. Strategy, Goals and Values, as well as the focus of its business model, are fully reflective of its risk appetite (see pages 8 and 9  for further details). 70 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report £bn Matures Comment ### Viability Statement SSE provides the energy needed today SSE plc 1.30 March 2026 while building a better world of energy SSE plc 0.20 October 2026 for tomorrow through creating value for | shareholders and society in a stainable | SSE plc 1.00 February 2024 Collateral facility with 1 year | | | --- | --- | --- | | way by developing, building, operating and | | extension option (in favour | | investing in the electricity infrastructure | | of the banks) | and businesses needed in the transition SSEN Transmission* 0.75 November 2025 2, 1 year extension options to net zero. The delivery of SSE’s purpose (in favour of the Group) and execution of its strategy depends on SSEN Distribution 0.25 November 2025 2, 1 year extension options the skills and talent of a diverse workforce, (in favour of the Group) the quality of its assets and the effective identification, understanding and mitigation 3.50 of risk. * The Transmission facility is available to that Business Unit only. As required within provision 31 of the UK Corporate Governance Code, the Board The Group is an owner and operator of events that have been observed either has formally assessed the prospects of critical national infrastructure and has in the markets within which the Group the Company over the next four financial a proven ability to maintain access to operates or related markets globally. years to the period ending March 2027. capital markets during stressed economic Examples include critical asset failure to The Directors have determined that as this conditions. The Group has demonstrated generation assets (for Energy Infrastructure time horizon aligns with the Group’s Net this through securing £3.0bn of funding Failure); changes to key government Zero Acceleration Programme Plus, which since April 2021 including the issuance of energy policies (for Political and Regulatory includes a fully funded capital investment a 1bn Euro Hybrid bond in April 2022 and Change); and the physical impacts of programme to 2027, a greater degree €650m bond in July 2022. Further detail climate change on distribution assets of confidence over the forecasting relating to planned funding is available in through more frequent and increasingly assumptions modelled can be established. A6.3  Accompanying Information to the severe storm events (for Climate Change). Financial Statements in the Annual Report In making this statement the Directors and Accounts. Scenarios are stress tested against forecast have considered the resilience of the Group available financial headroom and in taking into account its current position, The Group has a number of highly addition to considering these in isolation, the Principal Risks facing the Group and attractive and relatively liquid assets – the Directors also consider the cumulative the control measures in place to mitigate including a regulated asset base which impact of different combinations of each of them. The Directors recognise the benefits from a strong regulated revenue scenarios, including those that individually significance of the strong balance sheet stream as well as the operational wind have the highest impact. with total undrawn committed lending portfolio – which provide flexibility of facilities as shown above: | options. This has been demonstrated | Upon the basis of the analysis undertaken, | | --- | --- | | through the success of the programme | and on the assumption that the fundamental | | of disposals set out by the Group in June | regulatory and statutory framework of the | | 2020 and with the recent sale of a 25% | markets in which the Group operates does | | stake in the Transmission business. | not substantively change, and the Group | continues to be able to refund its debt at | To help support this Statement, over the | maturity, the Directors have a reasonable | | --- | --- | | course of the year a suite of severe but | expectation that the Group will be able to | | plausible scenarios has been developed | continue to meet its liabilities as they fall | | for each of SSE’s Principal Risks. These | due in the period to March 2027. | scenarios are based on relevant real life 71SSE plc Annual Report 2023 ## Group Principal Risks Climate Change Risk trend | What is the risk? | Material influencing factors | Key mitigations | | | --- | --- | --- | --- | | The risk that SSE’s strategy, | • The impact of physical risks associated | • Policy link: SSE Climate Change Policy and SSE | | | investments or operations | with climate change, such as severe | | Sustainability Policy. | | are deemed to have an | adverse weather that causes damage or | • SSE is investing on average £10m a day on | | | unacceptable future impact | interrupts energy supply or generation. | | decarbonising infrastructure over a five-year | | on the natural environment | • The speed of technological | | period to FY27 as part of its Net Zero Acceleration | | and on national and | developments. | | Programme Plus. | | international targets to | • Transitional risks relating to developments | • SSE provides transparent disclosures of its | | | tackle climate change. | in political and regulatory requirements | | governance around climate-related risks and | | | related to the products and services that | | opportunities to allow its stakeholders to properly | | | SSE provides. | | assess its performance in managing climate related | ### Oversight • Ensuring the continuation of Large issues. Group Risk Committee Capital Projects which are fundamental • The Group Executive Committee is responsible to Group net zero targets. for implementing the Group strategy set by the ### Link to strategy | • Global and domestic policies including | | Board and driving climate-related performance | | --- | --- | --- | | those published by the UK’s Committee | | programmes across the organisation. The Chief | | on Climate Change relating to the 6th | | Sustainability Officer is responsible for advising the | | carbon budget for the period 2032 and | | Board, Group Executive Committee and businesses | | 2037. | | on climate related matters and provides support | | • Political and regulatory engagement. | | in the implementation of relevant initiatives across | | • Plans to transition to a decarbonised | | the Group. | | energy system. | • The TCFD Steering Group, which consists of | | | • Geopolitical events relating to the | | representatives from Finance, Group Risk and | | security of supplies and macro- | | Sustainability conducts an annual review of the | | economic stress. | | outputs of the climate-related risk and opportunity | assessment process and assesses the potential financial impact of key risks 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. As part of the 2022 Directors’ Remuneration Policy review, the Remuneration Committee further strengthened the link between sustainability and executive pay by introducing sustainability measures in the long-term incentive (PSP) for the first time. Performance is assessed against SSE’s 2030 Goals and also against strategic performance in relation to the implementation of the NZAP strategy. These measures are worth a combined 30% of the overall award. 72 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report Risk trend key Link to strategy Increased in Not changed Reduced in Develop Operate Build Invest materiality significantly materiality Cyber Security and Resilience Risk trend ### What is the risk? Material influencing factors Key mitigations The risk that key infrastructure, • Software or hardware issues, including • Policy link: SSE Cyber Security Policy and SSE networks or core systems are telecoms networks, connectivity and Data and Information Management Policy. compromised or are otherwise power supply interruption. • Key technology and infrastructure risks are rendered unavailable. • Heightened threat of cyber-attacks incorporated into the design of systems and due to geopolitical events. are regularly appraised with risk mitigation • Increased sophistication and likelihood plans recommended. ### Oversight of ransomware attacks. • SSE conducts regular internal and third-party testing Group Risk Committee • International expansion. of the security of its information and operational • Ineffective operational performance, technology networks and systems. ### Link to strategy for example, breach of information • Continued strengthening and embedding of the security rules or poor management cyber risks and controls framework to continue to of resilience expertise. identify threats and reduce exposures through, for • Employee and contractor understanding example, improved use of data analytics and further and awareness of information security migration from unsupported systems. requirements. • Significant longer term Security Programme • Malicious cyber attack. 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. • Over the course of the year an updated Cyber Security Culture Strategy was launched. This has been designed to continue to improve the cyber security maturity across the Group and build positively on the existing, strong cyber culture. The implementation of this strategy will be assessed and monitored to measure its impact on the levels of cyber security awareness and culture across the Group. Energy Affordability Risk trend | What is the risk? | Material influencing factors | | Key mitigations | | | --- | --- | --- | --- | --- | | The risk that energy customers’ | • Technology changes and innovations | | • Policy link: SSE Sustainability Policy. | | | ability to meet the costs of | | to develop sustainable infrastructure | • SSE Airtricity established the largest customer | | | providing energy, or their ability | | and energy solutions. | | support fund in Ireland, with provision for up to | | to access energy services is | • Supply chain cost management. | | | €25m in affordability funding, and SSE Business | | limited, giving rise to negative | • Public policies, including those aimed | | | Energy has implemented the Energy Bill Relief | | political or regulatory | | at reducing carbon emissions and | | Scheme. | | intervention that has an impact | | energy consumption. | • Robust stakeholder engagement across | | | on SSE’s regulated networks | • Accessibility to energy and related | | | government, regulators and relevant counterparties. | | and energy businesses. | | services for all. | • SSE is focused on fixing the long-term causes, not | | | | • Increased focus on energy security in | | | the short-term symptoms of the current energy | | | | response to current geopolitical events. | | crisis, as such it continues to advocate for | ### Oversight • Required investment in the upgrading of progressive policies that will help bring forward Group Executive Committee the UK’s energy infrastructure to achieve necessary investment in low-carbon infrastructure net zero. at lowest cost to reduce customers’ exposure to gas ### Link to strategy • Political interventions. price volatility and deliver net zero affordability. • Fluctuations in the cost of fuels. • Supplier and customer failures and related bad debt. 73SSE plc Annual Report 2023 ### Group Principal Risks continued Energy Infrastructure Failure Risk trend ### What is the risk? Material influencing factors Key mitigations The risk of national energy • Longer term changes in climate patterns • Policy link: Business Unit Asset Management infrastructure failure, whether cause sustained higher temperatures Policies. in respect of assets owned by that may result in lower rainfall and • SSE assesses the climate impact on its operations SSE or those owned by others reduced wind impacting renewable over the short, medium and long term from the which SSE relies on, that generation output. perspective of market, policy or regulatory transition prevents the Group from • Government policy regarding the risks and opportunities and the physical risks of a meeting its obligations. operation of the energy network changed climate. which relates to security of supply. • SSE’s dedicated Engineering Centres of Excellence • Failures in any aspect of the Great Britain review and develop plans to ensure the ongoing ### Oversight national critical infrastructure. integrity of its generation assets is maintained. Group Executive Committee • Appropriate asset management and • Targeted investment plans to ensure the ongoing necessary upgrading works of both health and integrity of network assets. ### Link to strategy generation and network assets. • Crisis management and business continuity plans • Malicious attack on the Great Britain are in place across the Group. These are tested energy infrastructure. regularly and are designed for the management of, • Energy network balancing mechanisms. and recovery from, significant energy infrastructure • Continued availability of competent failure events. Where there are material changes in personnel. infrastructure (or the management of it) additional • Continued availability of key systems. plans are developed. • SSE continues to be an active participant in national security forums such as the Centre for the Protection of National 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. Financial Liabilities Risk trend | What is the risk? | Material influencing factors | Key mitigations | | | --- | --- | --- | --- | | The risk that funding is not | • Ongoing commitment to an investment | • Policy link: SSE Financial Management Policy. | | | available to meet SSE’s financial | grade credit rating. | • Committed borrowings and facilities are always | | | liabilities, including those | • Global macroeconomic changes and | | available equal to at least 105% of forecast | | relating to its defined benefit | subsequent volatility in foreign exchange | | borrowings over a rolling 6-month period. | | pension schemes, as these fall | markets. | • Detailed and continuous financial modelling and | | | due under both normal and | • Fluctuations in interest rates and inflation | | forecasting on a Group and Business Unit basis. | | stressed conditions without | which influence borrowing costs. | • SSE seeks to maintain a diverse and innovative | | | incurring unacceptable costs or | • Defined benefit pension scheme | | portfolio of debt to avoid over-reliance on any one | | risking damage to its reputation. | performance including the impact of | | market. This allows it to build relationships with, and | | | fluctuations in gilt yields on the value | | create competition between, debt providers. | | | of scheme liabilities. | • Each of SSE’s defined benefit pension schemes | | ### Oversight • Counterparty credit limit exposures. has a Board of Trustees which acts independently Group Risk Committee • Operational and trading collateral of the Group. requirements. • The approval of all material counterparty credit ### Link to strategy limits is a matter reserved for the Board. • The newly formed Collateral Committee meet weekly to monitor ongoing collateral requirements. • SSE has a proven ability to maintain access to capital markets during stressed economic conditions. The Group has demonstrated this through securing £3.0bn of funding since April 2021 including the issuance of a 1bn Euro Hybrid bond in April 2022 and €650m bond in July 2022. 74 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report Risk trend key Link to strategy Increased in Not changed Reduced in Develop Operate Build Invest materiality significantly materiality Large Capital Projects Management Risk trend | What is the risk? | Material influencing factors | | Key mitigations | | | --- | --- | --- | --- | --- | | The risk that SSE develops and | • Appropriate contractual arrangements | | • Policy link: SSE’s Large Capital Projects Governance | | | builds major assets that do not | | which meet the requirements of any | | Framework manual ensures that all major capital | | realise intended benefits or | | jurisdiction in which SSE operates. | | investment projects for the Group are governed, | | meet the quality standards | • New or unproven technology. | | | developed, approved and executed in a consistent | | required to support economic | • Appropriate and effective budget | | | and effective manner, with full consideration of | | lives of typically 25 to 60 years | | management. | | best practice project delivery. The manual, which | | within forecast timescales | • All aspects of supply chain management, | | | was reviewed and updated in detail during 2022, | | and budgets. | | including those relating to human rights, | | provides common standards across the Group and | | | | modern slavery and labour standards as | | incorporates continuous improvement practices. | | | | well as supply chain impacts associated | • The Large Capital Project Services function employs | | ### Oversight with new entities, new assets and a new dedicated quality and assurance teams who perform Group Large Capital Projects network structure created by joint in-depth quality reviews, the outputs of which are Committee ventures and Brexit. presented to the Board where appropriate. • Availability and capacity of competent • Ongoing interaction with key suppliers through ### Link to strategy contractors in any jurisdiction in which SSE’s Supplier Relationship Management SSE operates. Programme. • In major projects, SSE generally manages insurance placement by organising owner-controlled insurance. This strategy allows it to have greater control and flexibility over the provisions in place. SSE also sees the insurance market as an important source of information on the reliability of technology and uses this to inform the design process of major projects. • Appropriate governance arrangements, including those relating to Joint Venture and Partner Management. People and Culture Risk trend | What is the risk? | Material influencing factors | | Key mitigations | | | --- | --- | --- | --- | --- | | The risk that SSE is unable to | • Rewarding employee contributions | | • Policy link: SSE Employment Policy and SSE | | | attract, develop and retain an | | through fair pay and benefits. | | Whistleblowing Policy. | | appropriately skilled, diverse | • Acquisition of competent skills and | | • SSE has a detailed Inclusion and Diversity | | | and responsible workforce and | | resources to support growth plans in | | plan, progress against which is reviewed and | | leadership team, and maintain | | international markets. | | monitored by SSE’s Group Executive Committee | | a healthy business culture | • SSE embraces cultural diversity in the | | | on a regular basis. Further details are available | | which encourages and | | workplace and recognition of the value | | on pages 60 to 62  and on page 136  of the | | supports ethical behaviours | | and benefit of having an inclusive and | | Directors’ report. | | and decision making. | | diverse workforce. | • SSE Governance arrangements, including those | | | | • A responsible employer ethos. For full | | | relating to JV and Partner Management. | | | | details please see the Sustainability | • There are a wide range of tools and services | | ### Oversight Report . available to all employees to support mental health Group Executive Committee • Clearly defined roles, responsibilities and and wellbeing, including those provided as part accountabilities for all employees. of the Employee Assistance Programme. Further ### Link to strategy • Availability of career development details on careers sse.com/employee-benefits . opportunities and appropriate succession • “Doing the Right Thing, a guide to ethical business planning that recognises potential future conduct”, explicitly outlines the steps employees skills shortages. should take to ensure their day-to-day actions and • Clear personal objectives and decisions are consistent both with SSE’s values and communication of the SSE set of values. ethical business principles. All SSE employees can • A focus on ethical business conduct and report incidents of wrongdoing through both creating a culture in which employees internal and external mechanisms. SSE uses an feel confident to speak up when they independent ‘Speak Up’ phone line and email suspect wrongdoing. service, hosted externally by SafeCall, through • The health and wellbeing of all employees which incidents can be reported. (see the Sustainability Report  for • SSE’s business leaders are required to undertake further detail). regular succession planning reviews. At a Group • Clear and well-structured employee level, SSE continues to develop its approach to the engagement and communications. management of talent. 75SSE plc Annual Report 2023 ### Group Principal Risks continued Political and Regulatory Change Risk trend | What is the risk? | Material influencing factors | Key mitigations | | | --- | --- | --- | --- | | The risk associated with | • SSE’s most significant contribution is | • Policy link: SSE Political and Regulatory | | | operating in a fast-paced, | to align with the Paris Agreement goal | | Engagement Policy. | | highly regulated environment | and aim to achieve net zero greenhouse | • The Group has dedicated Corporate Affairs, | | | which is subject to constantly | gas emissions by at least 2050. | | Regulation, Legal and Compliance departments | | changing political, regulatory | • Material changes to regulatory | | that provide advice, guidance and assurance to | | and legislative expectations | frameworks in any jurisdiction in which | | each business area regarding the interpretation of | | and interventions. | SSE operates. | | political, regulatory and legislative change. These | | | • Government intervention into the | | teams take the lead in engagement with regulators, | | | structure of the energy sector in any | | politicians, officials, and other such stakeholders. | ### Oversight jurisdiction in which SSE operates. Full details of SSE’s Stakeholder Engagement can be Group Executive Committee • Constitutional uncertainty in any found on page 26 to 33 . jurisdiction in which SSE operates. • SSE has a clear Political Engagement Policy that ### Link to strategy • Changes in financial, employment, sets out principles for any employees who make safety and consumer legislation and/or representations to institutions of governments regulation and the impact of these or to legislatures on the Company’s behalf. changes on business-as-usual activities • SSE Governance arrangements, including those in any jurisdiction in which SSE operates. 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. Portfolio Exposure Risk trend | What is the risk? | Material influencing factors | Key mitigations | | | --- | --- | --- | --- | | The risk to the Group’s | • Global geopolitical events. | • Policy link: An asset-by-asset approach to hedging | | | portfolio value associated | • Fluctuations in demand, supply and | | strategy that ensures trading positions cannot have | | with fluctuations in both the | generation capabilities both in Great | | a material impact on SSE Group earnings. The latest | | price and physical volume of | Britain and globally. Further detail is | | update on SSE’s hedging approach can be found on | | key energy market indices or | available on page 12  of the Strategic | | sse.com . | | drivers– primarily gas, carbon | Report. | • The Group Energy Markets Exposure Risk | | | and electricity – as well as | • Generation technology advancements. | | Committee has operational oversight of commodity | | foreign exchange values, CO | • Government intervention into the | | positions; reporting to the Board Energy Markets | 2 permits and oil. structure of the energy sector in any Risk Committee that has responsibility for jurisdiction in which SSE operates. monitoring the ongoing effectiveness of Group • International and national agreements hedging arrangements. For further details please ### Oversight on climate change. see pages 160 to 161 . Group Risk Committee • International flows of fuel. • SSE uses VaR and PaR measures to monitor and control exposures. Trading limits are reviewed ### Link to strategy regularly by the 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 Accounts. • SSE monitors the impact from recent reforms in Europe (e.g., the European Market Infrastructure Regulation (EMIR), Markets in Financial Instruments Directive (MiFID) and Regulation on Energy Market Integrity and Transparency (REMIT)) and those resulting from the Electricity Market Reform (EMR) process. 76 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report Risk trend key Link to strategy Increased in Not changed Reduced in Develop Operate Build Invest materiality significantly materiality Safety and the Environment Risk trend | What is the risk? | Material influencing factors | | Key mitigations | | | --- | --- | --- | --- | --- | | The risk of harm to people, | • Safety culture and SSE’s commitment to | | • Policy link: SSE Safety and Health Policy and | | | property or the environment | | getting everyone home safe. | | SSE Environment Policy. | | from SSE’s operations. | • Clear and appropriately communicated | | • Safety is the Group’s No. 1 value with Board | | | | | safety processes. | | oversight being provided by the Safety, | | | • Regular and documented training. | | | Sustainability, Health and Environment Advisory | ### Oversight • The size, scale, complexity and number Committee (SSHEAC). Group Safety, Health and of projects under way. • SSE has formed a new central Contractor Safety Environment Committee • Adverse weather. Team supported by dedicated Contractor SHE • Challenging geographic locations. Managers and Assurance Auditors to improve ### Link to strategy • Appropriate task and asset risk contractor safety performance. For full details assessment. please see the Sustainability Report . • Clear, effective and regular • Crisis management and business continuity plans communications of all relevant safety are in place across the Group. These are tested updates. regularly and are designed for the management • Competent employees and contractors. of, and recovery from, significant safety and environmental events. • Each business carries out regular SHE assurance reviews of the risks faced, the controls in place and the monitoring that is undertaken. • SSE’s dedicated Engineering Centres of excellence review and develop plans to ensure that the integrity of its generation assets is maintained. Speed of Change Risk trend ### What is the risk? Material influencing factors Key mitigations The risk that SSE is unable to • Geopolitical events. • Policy link: SSE Operating Model Policy. keep pace with the speed of • Fast developing customer needs and • The Board sets the risk appetite of the Group change affecting the sector expectations in relation to efficient, and approves and regularly reviews the Group’s and markets in which it innovative and flexible products and commercial strategy, business development initiatives operates and so fails to meet services. and long-term options ensuring alignment of risk the evolving expectations of • Technological developments and appetite and strategic objectives. its stakeholders or achieve its innovation. • SSE’s Group operating model has been designed strategic objectives. • Net-zero strategic goals. to ensure dynamic and efficient decision-making, • Increased competition from market empowered and accountable delivery of Business entrants including international oil Unit strategies and to fulfil SSE’s purpose to provide ### Oversight companies. energy needed today while building a better world Group Executive Committee • Longer term capital investment plans and of energy for tomorrow. Details of SSE’s decision- budgets. making context are available on page 124  of the ### Link to strategy • The size, scale and number of change Directors Report. programmes under way, including those • The Group Executive Committee is responsible for relating to regulatory or legislative ensuring that Business Unit strategies are consistent requirements in any jurisdiction in which and compatible with the overarching Group strategy SSE operates. and its vision to be a leading energy provider in a net • Governance and decision-making zero world. frameworks, including those relating to JV and Partner Management. 77SSE plc Annual Report 2023 Financial Review # Platform for growth. pages 16 and 17 ![img-6.jpeg](img-6.jpeg) A handwritten signature in black ink, appearing to read 'Gregor Alexander'. Gregor Alexander Finance Director, SSE plc 78 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### Financial Review Year ended 31 March 2023 This Group Financial Review sets out the financial performance of the SSE Group for the year ended 31 March 2023. See also the separate sections on Group Financial Outlook, 2023/24 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 | | --- | --- | --- | --- | --- | --- | | 2023 | | 2022 | 2023 | | 2022 | | | £m | £m | | £m | £m | Operating profit/(loss) 2,529.2 1,530.9 (146.3) 3,749.5 Net Finance (costs)/income (345.6) (372.8) (59.3) (273.2) Profit/(loss) before tax 2,183.6 1,158.1 (205.6) 3,476.3 Current tax (charge)/credit (358.8) (107.1) 110.0 (881.3) Effective current tax rate (%) 16.4 9.2 12.7 26.2 Profit/(loss) after tax 1,824.8 1,051.0 (95.6) 2,595.0 Less: hybrid equity coupon payments (38.8) (50.7) (38.8) (50.7) Less: profits attributable to minority interests – – (23.6) – Profit/(loss) after tax attributable to ordinary shareholders 1,786.0 1,000.3 (158.0) 2,544.3 Earnings/(loss) per share (pence) 166.0 94.8 (14.7) 241.2 Number of shares for basic/reported and adjusted EPS (million) 1,075.6 1,055.0 1,075.6 1,055.0 Shares in issue at 31 March (million)* 1,090.3 1,067.6 1,090.3 1,067.6 * Excludes treasury shares. 2021/22 numbers above restated to recognise Keadby 2 pre-commissioning revenues and costs in Income Statement following adoption of amendments to IAS 16 Property, Plant and Equipment – Proceeds Before Intended Use. Dividend Per Share (pence) March March 2023 2022 Interim dividend 29.0 25.5 Final dividend 67.7 60.2 Full Year dividend 96.7 85.7 | Impact from market volatility | Within SSE Renewables, the established | Whilst this hedging approach provides | | --- | --- | --- | | The Group’s balanced mix of economically | hedging approach generally reduces | relatively stable realised power prices, | | regulated and market-based businesses | its broad exposure to commodity price | market volatility in periods where wind | | provides a natural hedge against short-term | variation at least 12 months in advance | volumes are significantly lower than | | commodity price volatility. Nevertheless, | of delivery. This approach secures | expected can necessitate ‘buy-backs’ of | | the volatile commodity price environment | value for the business, by reducing | excess forward sales contracts at higher | | throughout the year combined with the | exposure to short-term commodity price | prices, which would reduce the trading | | continued higher power price, gas price | movements which would drive variable | result, as has also been seen in 2022/23. | | and inflation rate environment, will have | financial performance. | | | a continued impact on SSE’s businesses | | For SSE Thermal (as well as the Hydro plant | | which can be summarised as follows: | Hedges may be achieved either through | within SSE Renewables), value has come | | | the forward sale of power or gas and | from the ability of the plant to respond | | SSEN Transmission and SSEN Distribution | carbon equivalents. This approach aims to | to market conditions and provide vital | | operate under a regulatory price control | reduce the exposure of these wind assets to | balancing services to support security | | framework which is set by Ofgem. Returns | volatile spot power market outcomes whilst | of supply through flexibility provision in | | under this framework have no direct | still providing an underlying commodity | less predictable market conditions. | | relationship to power and gas market | price hedge. When gas-and-carbon | | | prices. However, both allowed revenues | hedges are converted into electricity | The last twelve months has seen the | | and Regulated Asset Values are index linked | hedges a ‘spark spread’ is realised which | Thermal business navigate extreme | | (Transmission to CPI(H) for the RIIO-T2 | can lead to changes in the average hedge | volatility in the forward power markets. | | price control period which lasts from 1 April | price expected. This can increase the | Whilst some of this volatility is directly | | 2021 to 31 March 2026, and Distribution to | previously published average hedge price, | attributable to the war in Ukraine and | | RPI (for RIIO-ED1 which ended on 31 March | as has been seen in 2022/23, or decrease it. | ensuing gas crisis, there are other more | | 2023) and CPI(H) (for RIIO-ED2 which lasts | | fundamental drivers relating to price | | from 1 April 2023 to 31 March 2028). | | uncertainty which are longstanding. | 79SSE plc Annual Report 2023 ### Financial Review continued | These longer-term price drivers include | required for trade with counterparties and | commodity contracts, while the high | | --- | --- | --- | | liquidity, carbon price basis risk, regulatory | on exchanges, this was monitored closely | proportion of fixed-rate debt provides | | or political interventions, and the availability | by the Group and effectively managed | robust financing in an inflationary | | of risk capital and collateral within the | with more than sufficient levels of liquidity | environment. | | markets. This business therefore aims to | maintained. The level of collateral required | | | reduce earnings volatility by establishing a | has decreased over the second six months | Operating profit | | hedge for the expected economic output | of the financial year as older trades have | Adjusted and reported operating profits/ | | in the six months prior to delivery, although | been settled and newer trades have | losses in SSE’s business segments for the | | this approach is closely monitored for any | experienced lower levels of volatility. | year to 31 March 2023 are set out below; | | unexpected changes in exposures as a | | comparisons are with the same period to | | result of current market conditions, such as | SSE Business Energy and SSE Airtricity | 31 March 2022 unless otherwise stated. | | the plant availability exposure, counterparty | (aside from Northern Ireland, where SSE | | | credit risk, and changes to cost of capital | Airtricity’s gas supply business is subject | SSEN Transmission: Adjusted operating | | for collateral. | to a regulatory pricing mechanism) are | profit decreased by 2% to £372.7m, | | | not subject to a regulated price cap and | which includes a £(32.8)m minority interest | | Higher power and gas prices are generally | therefore variable tariffs are adjusted | adjustment following completion of the | | more economically favourable for these | dynamically and fixed tariff rates are reset | 25% divestment on 30 November 2022. | | businesses, driving premiums over forward | for new customers as wholesale costs | SSEN Transmission’s significantly higher | | peak spark prices which includes market- | increase or decrease. Although the | allowed revenues in the year were partially | | based income from other sources outside of | businesses are insulated against gas price | offset by a combination of a negative | | the simple spark spread such as Balancing | rises insofar as they are hedged, there | timing impact on lower-than-expected | | Mechanism and ancillary Grid contracts. | are external circumstances that would | Transmission Network Use of System | | Income from Capacity Mechanism is known | result in hedge adjustments such as | ‘TNUoS’ volumes, and increases in | | ahead of each delivery year and is unrelated | weather, supplier failures and broader | operating costs and depreciation charges, | | to current market conditions. | economic conditions. Due to the difficult | as the business continues to grow the asset | | | affordability circumstances created by | base and develop its operational capacity. | | However, if plant is unavailable at times | escalating wholesale prices across the year, | | | of system stress then excess forward sales | a decision was made to protect domestic | Reported operating profit increased | | contracts would again need to be ‘bought | customers in Ireland from the full impact | by 7% to £405.5m, reflecting all of the | | back’ in the market which would negatively | of these increases; tariff changes therefore | adjustments above except for the £(32.8)m | | impact the trading result. | did not fully reflect increases in wholesale | minority interest adjustment, as minority | | | prices. A dynamic forecasting approach has | interests are fully consolidated for all profit | | The Gas Storage assets are operated on a | been implemented to help the business | metrics except for Earnings Per Share | | merchant basis, to optimise value arising | respond quickly to volume changes. | under IFRS. | from changes in the spread between | summer and winter prices, market volatility | Both businesses have administered | SSEN Distribution: Adjusted and reported | | --- | --- | --- | | and plant availability. As such, volatile | government-backed support schemes | operating profit increased by 9% to | | gas prices are generally positive for this | during the year, intended to protect | £382.4m in the period. Higher allowed | | business, to the extent that the assets | domestic and non-domestic customers | revenues including previously under- | | can respond to volatility and capture the | from the full impact of the heightened power | recovered allowances following the | | positive gas price spreads arising. To the | and gas price environment. These schemes | impact of coronavirus on Distribution | | extent that gas remains in storage at the | provide discounts to customers based on | Use of System ‘DUoS’ volumes in 2020/21, | | period end, a remeasurement gain or loss | estimated usage and recover amounts from | were broadly offset by a negative timing | | may also be recognised with reference to | government based on actual customer | impact on lower-than-expected volumes | | the forward month market price. | usage – the most material of these being | in 2022/23. In addition, 2022/23 operating | | | the Energy Bills Relief Scheme (‘EBRS’). | costs were lower than prior year mainly | | Energy Portfolio Management, as the | | driven by a reduction in fault costs, given | | market-facing commodity trader for each | In relation to Airtricity, vertical integration | the impact of severe weather on the | | business unit, holds the Group’s direct | of generation and customer businesses | network during 2021/22. | | exposure to unsettled commodity contracts | in the Irish market limits commodity | | | and therefore may experience significant | exposures with some benefit received | SSE Renewables: Adjusted operating profit | | unrealised mark-to-market remeasurement | through Renewable Energy Feed-in Tariffs | increased by 2% to £580.0m in the year. | | gains or losses in periods of volatility. | (‘REFIT’) receipts on legacy wind assets. | Having experienced exceptionally still and | | However, these revaluations are unrelated | | dry weather in he prior year, volumes | | to operating performance with traded | Finally, SSE Group is well funded with a | increased 0.7TWh or 7% in the current | | volumes backed by SSE’s future generation | strong investment grade credit rating; a | year but were still around 1.5TWh or | | output or expected customer demand. | high proportion of the £8.9bn adjusted | 13% behind planned levels due to less | | Whilst EPM is permitted to take small | net debt (c.92%) is fixed rate and the | favourable weather than the long-term | | positions in the market to manage the | average maturity of SSE’s debt is 6.4 years. | average and delays to construction of the | | Group’s trading requirements and execute | The Group has been successful despite | Seagreen project. | | optimisation opportunities, this is contained | challenging debt markets, issuing €1bn of | | | within strict Value at Risk (‘VAR’) limits that | Hybrid Bonds, a £350m Private Placement | In line with SSE’s hedging approach, SSE | | limits trading exposure in volatile markets. | and a €650m Eurobond earlier in the | Renewables entered the financial year with | | | financial year at well-below current market | around 40% of its wind volume hedged | | During the year, market volatility and | prices. SSE’s balance sheet strength allows | in gas and carbon equivalents, rather than | | increased margining requirements resulted | the Group to meet additional collateral | electricity. The conversion of those gas | | in a significant increase in the collateral | requirements on higher and more volatile | and carbon trades into electricity ahead | 80 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### Operating profit performance for the year to 31 March 2023 Business-by-business segmental Adjusted Reported | March | | March | March | | March | | --- | --- | --- | --- | --- | --- | | 2023 | | 2022 | 2023 | | 2022 | | | £m | £m | | £m | £m | Operating profit/(loss) SSEN Transmission 372.7 380.5 405.5 380.5 SSEN Distribution 382.4 351.8 382.4 351.8 Electricity networks total 755.1 732.3 787.9 732.3 SSE Renewables 580.0 568.1 446.3 427.8 SSE Thermal 1,031.9 300.4 1,089.5 624.2 Gas Storage 212.5 30.7 249.2 125.4 Thermal total 1,244.4 331.1 1,338.7 749.6 SSE Business Energy (GB) 17.9 (21.5) 17.9 (21.5) SSE Airtricity (NI and Ire) 5.6 60.4 5.2 60.4 Energy Customer Solutions total 23.5 38.9 23.1 38.9 Energy Portfolio Management 80.4 (16.8) (2,626.0) 2,083.6 Distributed Energy (27.4) (10.9) (33.5) (29.2) Neos Networks (39.8) (16.1) (56.0) (140.0) Corporate unallocated (87.0) (95.7) (26.8) (113.5) Total operating profit/(loss) from continuing operations 2,529.2 1,530.9 (146.3) 3,749.5 Net finance (costs)/income (345.6) (372.8) (59.3) (273.2) Profit/(loss) before tax from continuing operations 2,183.6 1,158.1 (205.6) 3,476.3 Notes: Table above excludes any result from discontinued operations, being the Group’s investment in Scotia Gas Networks Limited which was disposed on 22 March 2022 (2022/23: £nil; 2021/22: adjusted operating profit of £21.0m) and the Group’s Gas Production operations which were disposed on 14 October 2021 (2022/23: adjusted operating profit of £nil; FY2021/22: adjusted operating profit of £101.4m). 2021/22 restated to recognise Keadby 2 pre-commissioning revenues and costs in Income Statement following adoption of amendments to IAS 16 Property, Plant and Equipment – Proceeds Before Intended Use. 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 shareholders and other stakeholders. Following the acquisition in the year of Triton Power Limited (JV with Equinor, SSE’s share 50%), the definitions SSE uses for adjusted measures have been refined to consider the treatment of fair value gains arising from acquisition of a business or a joint venture interest. Aside from this refinement, the definitions are consistently applied and 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. | of delivery in the year – combined with an | Elsewhere, the higher and more volatile | Reported operating profits have increased | | --- | --- | --- | | unusually high and volatile electricity price | price environment was beneficial for | by 4% to £446.3m in the year. In addition | | attributable to factors such as the war in | flexible hydro and pumped storage, | to the factors noted above, the reported | | Ukraine and French nuclear outages – | as those assets efficiently responded to | result also reflects a £18.6m reduction in | | drove a significant uplift in the achieved | capture peak prices in the market. Finally, | exceptional charges mainly as a £28.6m | | price on hedged volumes in the year, with | the adjusted result also includes a net | exceptional tax charge recognised in | | approximately £216m additional benefit | £43m charge relating to the Electricity | the prior year – driven by the impact on | | captured. This uplift more than offset a | Generator Levy, which came into effect | Joint Venture deferred tax balances from | | £(143)m net loss from Seagreen which | from 1 January 2023 and is charged | the substantive enactment of the UK | | mainly reflected the buy-back costs of | on receipts generated from eligible | Corporation Tax rate change, which | | undelivered hedged volumes in a higher | generation sources which are in excess | – was non-recurring. | | price environment. | of a £75/MWh benchmark. | | 81SSE plc Annual Report 2023 ### Financial Review continued | However, this reduction in exceptional | Gas Storage: Adjusted operating profit | SSE Airtricity: Adjusted profitability | | --- | --- | --- | | charges was partially offset by a £10.1m | increased by 592% to £212.5m, compared | decreased to £5.6m from £60.4m in the | | increase in Joint Venture share of interest | to £30.7m in the prior year. The higher and | prior year. Airtricity responded to the hugely | | and tax charges driven by higher profitability | more volatile gas market price environment | challenging circumstances faced by its | | in these entities. | during the year benefitted these assets | domestic energy customers during the | | | which operated on a merchant basis to | 2022/23 financial year and – through a | | SSE Thermal Generation: Adjusted | capture positive gas price spreads. In | combination of keeping tariffs as low as | | operating profit increased 244% to | normal market conditions, the seasonal | possible for all consumers through not | | £1,031.9m, compared to £300.4m in the | price spread occurs between summer and | passing through the full impact of wholesale | | prior year. SSE has continued to invest in | winter which results in minimal profitability | costs, a price freeze for financially | | optimising its thermal generation fleet | for this segment in the first half of the year. | vulnerable consumers, customer support | | despite many years of low returns and | However, due to low Russian gas supplies | funds and finally, in April 2023, a €35 | | significant write-downs because it believed | and increased European demand as gas | rebate to each customer – honoured its | | the inherent value the fleet offers the energy | stores were built up for winter, the usual | commitment not to make a profit in the year | | system through its flexibility would eventually | spread was inverted, with summer gas | in recognition of the cost-of-living crisis. | | be recognised. As noted previously, the last | prices higher than winter at points during | The cost of the €35 rebate will be reflected | | twelve months has seen the Thermal | the period. That inversion led to around | in Airtricity’s financial results for 2023/24. | | business navigate extreme volatility in the | £46m of incremental profitability in the | | | forward power markets through the flexibility | first six months of the year. Aside from that | Reported profitability has decreased to | | it offers. The increase in adjusted operating | one-off benefit, the assets continued to | £5.2m from £60.4m in the prior year | | profit reflects additional capacity in the year | capture the usual summer-winter spread | reflecting the movements above as well | | from Triton Power (acquired on 1 September | while supporting vital energy security in | as a £(0.4)m share of interest and tax in | | 2022, £220m adjusted operating profit) and | times of high gas demand across the winter. | the current year from Joint Ventures. | | Keadby 2 (entered commercial operation on | Again, the strong performance of the Gas | | | 15 March 2023, £37m adjusted operating | Storage business affirms SSE’s decision | Energy Portfolio Management: Adjusted | | profit), and additional generation volumes | during previous years when earnings were | operating profit has increased to £80.4m | | from SSE Thermal’s existing feet together | weaker to continue investing in these | from a £(16.8)m loss in the prior year. EPM | | with higher power prices and a strong | critical assets. | continues to generate a relatively low level | | performance in the balancing market. In | | of baseline operating earnings through | | addition, capacity market revenues – which | Reported operating profit increased by | service provision to those SSE businesses | | are unaffected by market prices – were | 99% to £249.2m in the year. In addition | requiring access to the energy markets. | | £33m higher compared to the prior year. | to the movements above, the prior year | However, in addition to this, the business | | | included an impairment reversal of £97.3m | is permitted to take small optimisation | | This was partially offset by £97m of | compared to a £45.7m further reversal | opportunities whilst managing liquidity and | | hedge buy-back losses due to unplanned | during 2022/23 as historic impairment | shape on external trades. As outlined above, | | outages – mainly arising from Great Island | charges against these assets were partially | these optimisation opportunities are subject | | CCGT but also the reduction in capacity | reversed. In addition, the reported results | to strict internal VAR limits and controls. | | from Tarbert oil-fired station – as well as | include a £(9.0)m revaluation loss on gas | The increase in profitability is mainly due to | | higher operating costs and increases in | held in storage, compared to a £(2.6)m loss | the heightened volatility and price of power | | depreciation charges due to historic | in the prior year. | and gas trades in the market, which has | | impairment reversals recognised in | | driven higher profits from the trading and | | September 2021 and March 2022. | SSE Business Energy: Adjusted and | optimisation activities for this business. | reported profitability increased to £17.9m | Reported operating profit increased | of profit in 2022/23 compared to a £(21.5)m | A reported operating loss of £(2,626.0)m | | --- | --- | --- | | by 75% to £1,089.5m in the year. The | loss in the prior year. Market volatility since | was recognised in the year, compared | | acquisition in September 2022 of Triton | the start of 2022 continues to create a | to a £2,083.6m profit in the prior year. | | Power has resulted in a number of | challenging environment for consumers | In addition to the movements above, | | exceptional items being recognised: a | and consumer-facing businesses such | the reported operating result includes | | £140.7m fair value uplift on acquisition | as Business Energy and Airtricity. With | the net remeasurement loss on forward | | and a £172.0m fair value remeasurement | the prior year loss including around | commodity derivatives in the period which | | on operating derivatives (net of tax) were | £34m of one-off charges relating to | are fair valued in accordance with IFRS 9. | | mostly offset by a £(291.6)m impairment | non-recoverable Balancing System use | In line with previous years, this excludes | | charge reflecting the profitability delivered | of Service ‘BSUoS’ costs and additional | any remeasurement on ‘own use’ | | to date by that business. These movements, | mutualisation costs, 2022/23 has | contracts and is unrelated to underlying | | combined with a £89.1m gain on disposal | demonstrated a recovery in underlying | operating performance. | | of Fiddlers Ferry land, a £17.8m reversal | profitability as the economy continued to | | | of historic Great Island CCGT impairment | emerge from the impact of coronavirus. | Distributed Energy: An adjusted operating | | and an increase in the Joint Venture share | | loss of £(27.4)m was recognised, compared | | of interest and tax charges of £50.9m | However, even with the UK Government’s | to a loss of £(10.9)m in the prior year. The | | account for the majority of the difference. | EBRS support scheme, bad debt expenses | business continues to incur losses as it | | The prior year result included £333.3m of | have increased by £(89.5)m from prior year | invests to support business growth, | | exceptional items, mainly comprising the | reflecting the deterioration of aged debt as | particularly in the solar and battery storage | | reversal of historic impairment charges | consumers’ finances are stretched. | business which will be reported under SSE | | relating to the Groups’ CCGT plants. | | Renewables from April 2023. | 82 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report | The reported operating loss of £(33.5)m has | volatility associated with mark-to-market | | excluding any output from the Dogger | | --- | --- | --- | --- | | increased from a prior year loss of £29.2m | IFRS 9 remeasurements and means that | | Bank A wind farm which is expected to | | which reflects the above factors partially | items deemed to be exceptional due to | | achieve first power during the year and | | offset by a smaller £(6.1)m charge mainly | their nature and scale do not distort the | | remains unhedged. | | related to the sale of the Contracting and | presentation of SSE’s underlying results. | • For SSE Thermal and Gas Storage, | | | Rail business in June 2021 compared to the | For more detail on these and other | | assuming normal plant availability, | | £18.3m charge recognised in the prior year. | adjusted items please refer to the | | SSE expects adjusted operating profit | | | Adjusted Performance Measures | | to be more than £750m as the full-year | | Neos Networks: SSE’s remaining 50% share | section of this statement. | | effect from the additional Keadby 2 and | | in the Telecoms business Neos Networks | | | Triton Power capacity is combined with | | Limited recorded an adjusted operating loss | In the year ended 31 March 2023, SSE’s | | a sustained higher price environment in | | of £(39.8)m compared to £(16.1)m in the | adjusted Earnings Per Share on continuing | | the medium-term. | | prior year, and a reported operating loss of | operations was 166.0p. This compares to | | | | £(56.0)m compared to a loss of £(140.0)m | 94.8p for the previous year and reflects | Taking the above factors into account, | | | in the prior year. This result reflects the | the movements in adjusted operating | SSE currently expects to report full-year | | | losses incurred to support future business | profit outlined in the section above. | 2023/24 adjusted Earnings Per Share of | | | growth, and includes a £37.7m impairment | | more than 150p. | | of the Group’s investment in that business ### Group financial outlook – of which £31.8m has been treated as SSE is fulfilling its commitment to growing ### non-exceptional. 2023/24 and beyond the 2022/23 dividend by RPI and is recommending a 96.7p full-year dividend in ### Financial outlook for 2023/24 Corporate unallocated: Adjusted operating line with that plan. Also in line with that plan, The 2022/23 financial year saw SSE’s loss of £(87.0)m compares against a loss in 2023/24, the dividend will be rebased to balanced portfolio of market-based and of £(95.7)m in the prior year. Whilst there 60p in order to align future dividends with economically-regulated businesses continues to be an unwind of historic SSE’s ambitious growth profile. successfully navigate the risks and transitional service agreements with opportunities arising from the higher SSE Energy Services (disposed to Ovo Capital expenditure and investment in and more volatile price environment. In in January 2020), Neos Networks (part- 2023/24 is expected to exceed the £2.8bn particular, the strong performance from disposed in January 2019) and SSE record investment in 2022/23, with the net flexible thermal and hydro plant more than Contracting (disposed to Aurelius in July debt to EBITDA ratio expected to be within offset the impact of the challenges faced by 2021), the segment has also benefited the 3.5x – 4.0x target range. onshore and offshore wind, namely lower from a review of the corporate cost base than expected windspeeds and construction ### at the start of the year. Net Zero Acceleration delays and the associated buy-back costs on ### Programme Plus Seagreen offshore wind farm. Reported operating loss of £(26.8)m SSE is a purpose-led company, seeking compares against a loss of £(113.5)m in the to provide the energy needed today SSE remains focused on delivering long- prior year which included a £(13.1)m adverse while building a better world of energy term sustainable financial performance. revaluation adjustment relating to the legacy for tomorrow. It is a long-term business And whilst energy prices and energy Gas Production decommissioning provision. with a clear strategy aligned with the price volatility have been reducing In the current year, a £50.5m positive transition to net zero. from the highs of the last financial year, revaluation adjustment was recognised SSE expects a relatively higher price on the same provision. In November 2021, SSE set out a five-year environment to endure. capex plan that aligned capital allocation ### Adjusted Earnings Per Share with the Group’s 2030 Goals and its Against this backdrop, SSE remains To monitor its financial performance changing energy mix. This plan, referred to confident that its businesses will continue over the medium term, SSE reports on as the Net Zero Acceleration Programme, or to deliver strong adjusted operating profit its adjusted Earnings Per Share measure. NZAP, provided the optimal pathway at that in the 2023/24 financial year, specifically: This measure is calculated by excluding the time to maximise total shareholder returns • For SSEN Transmission, increases to charge for deferred tax, interest costs on from both earnings and asset value growth, the allowed revenue under RIIO-T2 net pension liabilities, exceptional items, whilst remunerating shareholders through a combined with timing effects from depreciation on fair value adjustments, rebased dividend with attractive growth. under-recoveries in the prior year are revaluation adjustments to the retained expected to more than offset both 60% Gas Production decommissioning This plan and the targets contained within it increases to the cost base as well as obligation and the impact of certain – which were partially updated in May 2022 the impact from an additional eight remeasurements. to reflect the evidence of increasing value months of earnings attributable to creation potential – represented a floor, not minority interests. SSE’s adjusted EPS measure provides an a ceiling, and were intended to position SSE • For SSEN Distribution, increases to the important and meaningful measure of to take other opportunities as they emerge. operational cost base are not expected underlying financial performance. In to be recovered until future periods adjusting for depreciation on fair value In the time since the NZAP was launched, under the tariff setting process, with adjustments, revaluation adjustments the global green transition has accelerated allowed revenue therefore expected to to the retained 60% Gas Production as countries look towards providing energy be broadly flat. decommissioning obligation, exceptional security by increasing their renewables and • For SSE Renewables, assuming normal items and certain remeasurements, low-carbon generation ambitions. weather and plant availability, SSE adjusted EPS reflects SSE’s internal expects to report around 12.5TWh performance management, avoids the of generation output during 2023/24, 83SSE plc Annual Report 2023 ### Financial Review continued ### NZAP Plus highlights and inflationary impacts, means around £7bn of net investment is expected Key targets and ambitions NZAP (previous) NZAP Plus (new) across the five-year period – a £2bn Five-year targets: to 2025/26 to 2026/27 increase on the expected investment | – Capital investment (net) £12.5bn £18.0bn | | | | in the previous plan – and is expected to | | --- | --- | --- | --- | --- | | – Adjusted Earnings Per Share CAGR 7 – 10% | | | 13–16% | drive a c.20% adjusted operating profit | | | From 2020/21 87.5p | From 2021/22 94.8p | | CAGR across the five year plan subject | | – Dividend growth beyond 2023/24 | At least 5% to 2025/26 Between 5–10% to | | | to normal weather and a c.£85/MWh | | 60p rebase | | | 2026/27 | baseload power price in 2026/27. | – Net debt/EBITDA expectations Below 4.5x Between 3.5–4x – Net installed Renewable capacity Around 8GW More than 9GW • Low-carbon flexible thermal generation – Net Networks RAV >£9bn £12–14bn and other businesses (c.10%) The extreme volatility seen in energy Ten-year ambition: to 2030/31 to 2031/32 markets over the last year has made it clear that investment in flexible, – Net installed Renewable capacity >13GW >16GW low-carbon thermal generation – such – Net installed low-carbon flexible capacity >3GW* >2GW as sustainable biofuels, carbon capture – Net Networks RAV >£14bn >£20bn and storage and ultimately hydrogen – will be critical to society in the transition * Included Distributed Energy capacity from Solar & Battery, now included within Renewable capacity ambition. to net zero as a counterbalance for increasing intermittent renewables | It is against this backdrop, and in light of | increasing with around £3.5bn of expected | | generation. The NZAP Plus expects to | | --- | --- | --- | --- | | recent business performance, that SSE now | investment compared to around £2bn | | invest up to £2.5bn in SSE Thermal’s | | expects to meet or exceed the original | in the previous plan. This increase | | increasing pipeline of low-carbon | | NZAP financial targets. SSE has therefore | reflects 100% ownership of the business | | flexible generation prospects, which | | announced an ‘NZAP Plus’ which rolls the | over the period, and is driven by the | | currently stands at around 5GW across | | plan forward by 12 months and upgrades | £3.6bn of totex in the RIIO-ED2 Final | | a range of technologies, and deliver | | the targets, ambitions and investment mix | Determination, which runs from April | | expected adjusted operating profits | | to match the enhanced opportunity. | 2023 to March 2028, with the potential | | of around £500m on average across | | | for additional investment in other net | | the remaining four years to 2026/27. | | Upgraded capital investment plan to 2027 | zero-aligned projects to meet the | | | | The NZAP Plus is a five-year £18.0bn capital | increasing electrification demands of | The remaining capital investment will | | | investment plan to 2026/27 – mainly driven | consumers. This investment is expected | | be spent across SSE’s corporate centre, | | by new growth (c.£2.2bn or c.20%) but also | to drive the gross RAV to between | | distributed energy and customers | | updating for supply chain cost increases | £6–7bn by the end of 2026/27, and | | businesses, which remain part of a | | (c.£2.0bn or c.15%), removal of the | deliver expected adjusted operating | | very deliberate business model with | | Distribution minority interest assumption | profits of at least £450m on average | | each playing its own role in delivering | | (c.£0.6bn or c.5%) and project phasing | across the five year plan. | | SSE’s net zero-focused strategy. | (c.£0.7bn or c.5%). This increase – which Overall, as SSEN Transmission and SSEN With around 90% of the NZAP Plus collectively represents an increase of over Distribution continue to form a key expected to be invested in renewables 40% on the NZAP – is focused on: part of the low-carbon electricity core in and networks, the substantial majority of • Regulated electricity networks (c.50%) SSE, the total electricity networks RAV is the investment plan is focused on climate SSEN Transmission (c.30%) will expected to increase from £8.2bn at the solutions to achieve SSE’s interim 2030 comprise the majority of expected start of the plan to between £14–16bn by Goals which are linked to material UN investment in electricity networks, as the the end, of which SSE’s share after Minority Sustainable Development Goals (SDGs), RIIO-T2 baseline investment programme Interest is expected to be between and it is aligned to the Technical Screening has increased through uncertainty £12–14bn. On a gross basis, this equates Criteria of the EU Taxonomy. mechanism projects such as the Skye and Orkney subsea links. Whilst the to a c.14% compound average growth Maintaining disciplined investment majority of Ofgem’s Accelerated rate (‘CAGR’) over the five-year plan. at attractive returns Strategic Transmission Investment (ASTI) • Renewable energy generation (c.40%) The changing investment mix within the framework will be delivered towards the Since November 2021, SSE Renewables NZAP Plus reflects SSE’s focus on allocating end of the decade, the five-year plan also has continued to grow its secured capital based on clear internal investment includes early construction costs as these pipeline of projects – which currently criteria intended to maximise total projects are progressed. As such, SSEN stands at c.15GW – and also the quality shareholder returns whilst ensuring strategic Transmission investment is expected to and diversity of these prospects. With a alignment with SSE’s net zero electricity increase to over £5bn from over £3bn continued focus on financial discipline focus. This investment criteria includes: in the previous plan, net of the 25% through targeting attractive returns on • Strategic fit – aligned with SSE’s Minority Interest share, driving the gross new projects, it is expected that around commitment to its 1.5-degree science- Regulatory Asset Value (‘RAV’) to between 5GW of additional net capacity will be based carbon targets, business mix £8–9bn by the end of 2026/27, and added across the five-year plan, with net and capabilities; deliver expected adjusted operating installed capacity of more than 9GW by • Optimum mix – balancing risk and profits of at least £400m on average March 2027. This growth will be fulfilled returns through a mix of economically across the five year plan. through a diverse mix of technologies, regulated and unregulated, market- with an increasing number of attractive based assets; and Whilst SSEN Distribution (c.20%) has battery and solar projects adding to SSE • Targeted returns – focusing investment a lower share of networks investment, Renewables’ core hydro, onshore and on high-quality assets where SSE’s the absolute amount of investment is offshore wind projects. The incremental capabilities can deliver favourable risk- capacity, combined with changing mix adjusted project returns, namely targeting: 84 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report | – Onshore wind and solar: returns | A fully-funded plan, supported by | Looking further ahead, SSE is therefore also | | | --- | --- | --- | --- | | between 50–300bps over WACC for | a strong balance sheet | rolling forward and upgrading key targets | | | unlevered projects, depending on the | Through effective capital allocation, raising | for the 10 years to 2032 as set out below: | | | balance of merchant, technology and | debt at highly attractive terms, capital | • A fourfold increase in SSE’s owned | | | construction risk for each project; | recycling and unlocking value through | | renewables capacity to over 16GW | | – Offshore wind: more than 11% equity | partnerships, SSE continues to demonstrate | | (net) from c.4GW today; | | returns (excluding developer profits) | that it can take advantage of the accretive | • Delivering more than 2GW of net | | | for project financed developments; | opportunities it creates. It has a proven | | installed low-carbon flexible thermal | | – Networks: between 7–9% return | ability to realise value from disposals, create | | capacity; | | on equity, assuming a level of | sustainable earnings growth and maintain | • An increase to more than £20bn (net) | | | outperformance, CPIH inflation | strong investment grade credit ratings – all | | in SSE’s electricity networks RAV, from | | of 2% p.a. and an average gearing | whilst aligning with a 1.5-degree pathway. | | £8.2bn (gross) in March 2022, equivalent | | ratio of 60%; | | | to a 14% gross RAV CAGR. | | – Emerging technologies: between | The Group’s business mix, future capital | | | | 300–500bps over WACC for | investment and funding plans are designed | Disposal of minority stake | | | unlevered projects, reflecting | to ensure that it retains an investment | in networks | | | the expected increased risk on | grade credit rating which provides capacity | The selected use of partnerships remains a | | | newer, first-of-a-kind technologies | to reach a 4.5x net debt/EBITDA ratio. | key part of SSE’s strategy: to spread risk and | | | including carbon capture and | The financial strength of the Group means | financial exposure; to unlock value whilst | | | storage, hydrogen-fuelled | that it expects to be within an average of | avoiding non-earning debt; and to enable | | | generation and battery storage. | 3.5–4.0x net debt/EBITDA across the | future investment and growth. | | five-year plan. | These investment criteria – and targeted | | During 2022/23, the Group completed a | | --- | --- | --- | | returns – are applied in both domestic and | More ambitious targets to 2032 | 25% minority interest disposal of the SSEN | | overseas markets. | The upgraded targets and ambitions within | Transmission business to Ontario Teachers’ | | | the NZAP Plus provide the platform for | Pension Plan Board for consideration of | | Updating the growth-supporting | SSE’s businesses to grow substantially | £1,465m at a premium to RAV of around | | dividend plan | through the remainder of the decade, and | 1.9x at 30 September 2022. | | The original NZAP set out a five-year | are necessary to deliver the Group’s 2030 | | | dividend plan to support accelerated growth | Goals and associated 1.5 degree aligned | | | by confirming previous commitments to | carbon targets. | | target dividend increases in line with RPI for 2021/22 and 2022/23, before rebasing to 60 | pence in 2023/24 and targeting at least 5% | Supplemental financial information | | | | | | --- | --- | --- | --- | --- | --- | | dividend increases in 2024/25 and 2025/26. | Adjusted investment and capex summary | | | | | | | | March | March | | March | | The Board has delivered on this dividend | | 2023 | 2023 | | 2022 | | commitment for 2021/22 and 2022/23 | | Share % | | £m | £m | | and continues to consider that the rebased | SSEN Transmission (excluding 25% MI from 1 Dec 2022) 23% 495.5 614.4 | | | | | | dividend to 60 pence in 2023/24 supports | SSEN Distribution 19% 421.0 364.8 | | | | | | SSE’s ongoing ambitions to accelerate | Regulated networks total 42% 916.5 979.2 | | | | | investment in the assets required to reach SSE Renewables 39% 837.5 811.0 net zero. SSE Thermal 7% 153.2 123.4 Gas Storage – 6.3 2.1 The capital allocation outlined in the NZAP Thermal Total 7% 159.5 125.5 Plus is expected to drive a 13-16% Group | adjusted Earnings Per Share CAGR over the | Energy Customer Solutions 2% 49.4 39.8 | | --- | --- | | five-year plan – against the 2021/22 baseline | Energy Portfolio Management – 4.7 2.4 | | of 94.8 pence – with around 50% of adjusted | Distributed Energy 6% 124.7 26.6 | | EBITDA expected to be underpinned by | Corporate unallocated 4% 68.3 78.7 | index-linked revenue streams. Adjusted investment and capital expenditure, The NZAP Plus extends the original NZAP before refunds 100% 2,160.6 2,063.2 dividend plan to 2027 and, reflecting the SSE Board’s confidence in future earnings growth, now sets out a commitment to Project finance development expenditure refunds – (136.7) target dividend increases of between 5 to 10% per year in 2024/25, 2025/26 and Adjusted investment and capital expenditure 2,160.6 1,926.5 2026/27. This updated dividend plan aims to balance income to shareholders with Acquisitions 642.7 141.3 funding and a strong investment grade credit rating alongside an upgraded investment plan that will ultimately Adjusted investment, capital and acquisitions create greater value and total returns for expenditure 2,803.3 2,067.8 shareholders over the long term. This plan also retains the scrip dividend option for Notes: 2021/22 restated to recognise Keadby 2 pre-commissioning revenues and costs in Income Statement shareholders with the cap on take-up still following adoption of amendments to IAS 16 Property, Plant and Equipment – Proceeds Before Intended Use. set at 25% and implemented if necessary by means of a share buyback. 85SSE plc Annual Report 2023 ### Financial Review continued | This successful transaction reflected both | In the final year of RIIO-ED1, SSEN | In SSE Thermal, around £88m was invested | | --- | --- | --- | | the current value and significant growth | Distribution invested £178m in the North | on the development of the 50MW Slough | | potential of SSEN Transmission as one of | networks across a broad range of projects, | Multifuel station, a joint venture with CIP, | | Europe’s fastest growing transmission | with additional reinforcement spend | which is progressing towards handover | | networks, with the proceeds released by | needed following storm damage in FY22. | during 2024/25. As well as around £20m of | | the sale supporting the significant growth | SSEN Distribution’s SHEPD network | residual spend on Europe’s most efficient | | and investment across the Group. | delivered investment of £10m to upgrade | gas fired station at Keadby 2, which entered | | | infrastructure at Aultbea-Ullapool and £5m | commercial operation on 15 March 2023, | | While the November 2021 NZAP assumed | on Islay to maintain and enhance network | limited early development expenditure on | | that a similar 25% minority stake in the SSEN | reliability to these island communities. | Keadby 3 was included within Thermal’s | | Distribution business would be disposed by | Both projects are under way and will be | reported number. | | the 2025/26 financial year, SSE consistently | complete by 2023/24. Further south, major | | | reviews strategic options and direction and | capital investment continued in the SEPD | SSE’s hedging position at | | the NZAP Plus plan now reflects retaining | network with a total spend of £243m in the | 31March 2023 | | 100% of the business. Strategies evolve | period, including upgrades to the network | SSE has an established approach to hedging | | and a significant strengthening of SSE’s | in Bordon and Alton to enhance resilience | through which it generally seeks to reduce | | balance sheet and an upgraded NZAP | and future proof it for predicted uptake in | its broad exposure to commodity price | | Plus investment plan which remains well | consumer led low-carbon-technology. | variation at least 12 months in advance of | | balanced are the main factors contributing | | delivery. SSE continues to monitor market | | to the Board assessment that continuing to | Significant expenditure was delivered on | developments and conditions and alters its | | hold 100% of SSEN Distribution is the right | SSE Renewables’ flagship construction | hedging approach in response to changes in | | strategy at this time. | projects, including £339m of equity | its exposure profile, such as the acceleration | | | drawdown for Seagreen Offshore | of hedging by SSE Renewables previously | | SSEN Distribution is a high-quality, core | Windfarm, as the development progresses | disclosed in May 2022. SSE will continue to | | business for the Group and will make | towards commercial operations over the | provide a summary of its hedging approach, | | a significant contribution to delivering | summer of 2023. Construction of Viking | including details of any changes in the | | sustainable long-term value as it plays a key | wind farm on the Shetland islands has | period, within its Interim and Full-year | | role in enabling net zero for consumers. | continued according to plan, with an | Results Statements. | additional £202m deployed, the first | SSE’s capital expenditure | turbine erected in April 2023 and the | A summary of the hedging position for | | --- | --- | --- | | programme | project on track to achieve commercial | each of SSE’s market-based businesses is | | During the year to 31 March 2023, | operations in Summer 2024, while all | set out below. | | SSE’s adjusted investment, capital | spend on the Dogger Bank wind farm | | | and acquisitions expenditure totalled | in the year was funded by debt raised | | | £2,803.3m, representing an increase of | at the project level, and therefore not | | | 36% versus the prior year. Included within | included in SSE’s adjusted investment, | | | the amount recorded are acquisitions | capital and acquisitions expenditure. | | totalling £642.7m of which £519.5m is in respect of the Southern European onshore SSE Renewables – GB wind and hydro wind development platform acquisition and The following table provides an update for SSE’s GB Wind and Hydro generation hedge £123.2m in respect of SSE’s share of the positions against the forecast merchant volume exposure as at 31 March 2023. purchase of Triton Power, both transactions completed on 1 September 2022. 2021/22 2022/23 2023/24 2024/25 2025/26 Wind Expected volume – TWh 4.2 5.3 6.5 6.8 6.8 The remaining investment was delivered Volume hedged – % 85% 91% 85% 77% 17% mainly by SSE’s Renewables, Networks Proportion of hedge in and Thermal business units including the electricity – % 100% 62% 68% 30% 20% highlights discussed below. Hedge price - £MWh £48 £54 £75 £115 £116 In SSEN Transmission, the second year Hydro Expected volume – TWh 3.6 3.5 3.5 3.6 3.6 of RIIO-T2 saw deployment of a further Volume hedged – % 83% 85% 85% 68% 23% £495.5m of capex (SSE share, excluding 25% Proportion of hedge in from 1 December 2022 onwards), including electricity – % 100% 100% 84% 31% 10% £152m on the Shetland connection with Hedge price – £/MWh £50 £63 £86 £113 £113 160km of the total 260km subsea cable which will connect the Shetland islands to Note: where gas and carbon trades have been used as a proxy for electricity, a constant 1MWh : 69.444 th and the GB Transmission system now installed. 1MWh : 0.3815 te/MWh conversion ratio between commodities has been applied. In addition, £144m of spend was invested progressing the East Coast development project which will increase the overhead The expected volumes include SSE’s equity The table excludes additional volumes and lines from 132kV to 275kV and ultimately share of forecast pre-CFD volumes from income for BM activity, ROCs, ancillary to 400kV, as well as a further £55m on the Seagreen offshore wind farm. No volumes services, capacity mechanism and shape Argyll project. have yet been included for Viking onshore variations and optimisations. It also excludes wind farm nor Dogger Bank offshore wind volumes and income relating to Irish wind farm as hedging for these assets has not output, pumped storage and CfDs. commenced. 86 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report | Energy output hedges for both wind and | Gas Storage: The assets are being | Energy Portfolio Management (EPM): EPM | | --- | --- | --- | | hydro are progressively established over | commercially operated to optimise value | provides the route to market and manages | | the 36 months prior to delivery (although | arising from changes in the spread between | the execution for all of SSE’s commodity | | the extent of hedging activity for future | summer and winter prices, market volatility | trading outlined above (spark spread, | | periods depends on the level of available | and plant availability. At 31 March 2023, | power, gas, oil and carbon). This includes | | market depth and liquidity). Normal target | 125.6mTh of gas inventory was physically | monitoring market conditions and liquidity | | hedge levels continue to be achieved | held which represents c.65% of SSE’s share | and reporting net Group exposures. The | | through the forward sale of either | of capacity (at 31 March 2022, 0.9mTh of | business operates under strict position | | electricity, or gas and carbon equivalents. | gas inventory representing c.1% of SSE’s | limits and VAR controls. There is some | | Where the market depth and liquidity | share of capacity). | scope for small position-taking to | | significantly differs between gas and | | permit EPM to manage around shape and | | carbon, the hedging approach allows – | UK Business Energy: The business supplies | liquidity whilst taking small optimisation | | for any time period – for the separate | electricity and gas to business and public | opportunities. This is contained within a | | forward sale of either commodity where it | sector customers. Sales to contract | total VAR limit of £5m. | | is believed that it would reduce risk against | customers are hedged: at point of sale for | | | or secure value for generation assets. This | fixed contract customers; upon instruction | Ireland: Vertical integration of the | | has not been applied to date. | for flexi contract customers; and on a | generation and customer businesses in | | | rolling hedge basis for tariff customers. | Ireland limits the Group’s commodity | | This approach aims to reduce the exposure | | exposure in that market. | | of these wind assets to volatile spot power | Given the pricing and macro-economic | | | market outcomes whilst still providing an | context, Business Energy is dynamically | | | underlying commodity price hedge. When | monitoring nearer term consumption | | | gas-and-carbon hedges are converted | actuals for any early signs of demand | | | into electricity hedges a ‘spark spread’ is | variability and adjusting future volumes | | | realised which can lead to changes in the | hedged accordingly. | | average hedge price expected. This can increase the previously published average ### hedge price, as has been seen in 2022/23, Summarising movements on exceptional items and ### or decrease it. certain remeasurements Exceptional items For wind energy output, SSE’s established In the year ended 31 March 2023, SSE recognised a net exceptional charge within approach to hedging seeks to account for continuing operations of £(0.4)m before tax. The following table provides a summary the effect of the ‘wind capture price’ by of the key components making up the net charge: targeting a hedge of less than 100% of its Total anticipated wind energy output for the Exceptional credits/(charges) within continuing operations £m coming 12 months. The targeted hedge Thermal Electricity Generation historic impairment reversal 17.8 percentage is reviewed and adjusted as Gas Storage historic impairment reversal 45.7 necessary to reflect any changes in future Fiddlers Ferry land sale 89.1 market and wind capture insights. The Triton Power Joint Venture bargain purchase gain and impairment (150.9) last such revision occurred in March 2022, Neos Networks impairment (5.9) with around 90% of the anticipated energy Reversal of previously recognised exceptional charges or judgements 3.8 output from wind for the coming twelve months being hedged from that date. Total exceptional charge (0.4) The approach to hedging hydro energy Note: The definition of exceptional items can be found in note 3.2 of the Financial Statements. output remains unchanged at approximately 85% of its anticipated energy output for the In addition to the above exceptional items from continuing operations, a net exceptional coming twelve months. gain within discontinued operations of £35.0m after tax was recognised. This related to the release of a provision following further clearance granted in respect of the Group’s GB Thermal: In the six months prior to disposal of its Gas Production business which completed on 14 October 2021. delivery, SSE aims to hedge all of the expected economic output of its CCGT For a full description of exceptional items, see note 7 of the Financial Statements. assets, having progressively established this hedge over the 18 months prior to delivery. Certain remeasurements In the year ended 31 March 2023, SSE recognised an adverse net remeasurement within This hedging approach is adjusted to take continuing operations of £(2,351.5)m before tax. The following table provides a summary into account any changes in exposures as a of the key components making up the adverse movement: result of current market conditions, such as Total the plant availability exposure, counterparty Certain remeasurements within continuing operations £m credit risk, and changes to cost of capital Operating derivatives (including Joint Ventures, net of tax) (2,544.4) for collateral. Commodity stocks held at fair value (9.0) Financing derivatives 201.9 Hedging activity also depends on the availability of sufficient market depth and Total net adverse remeasurement (2,351.5) liquidity, which can be limited, particularly for periods further into the future. 87SSE plc Annual Report 2023 ### Financial Review continued | Operating derivatives | As in prior years, the reported result does | These remeasurements are presented | | --- | --- | --- | | SSE enters into forward purchase contracts | not include remeasurement of ‘own use’ | separately as they do not represent | | (for power, gas and other commodities) | hedging agreements which do not meet the | underlying business performance in the | | to meet the future demands of its energy | definition of a derivative financial instrument | period. The result on financing derivatives | | supply businesses and to optimise the | under IFRS 9 ‘Financial Instruments’. | will be recognised in adjusted profit before | | value of its generation assets. Some of | | tax when the derivatives are settled. | | these contracts are determined to be | Commodity stocks held at fair value | | | derivative financial instruments under IFRS | Gas inventory purchased by the Gas | Reported profit before tax and | | 9 and as such are required to be recorded | Storage business for secondary trading | Earnings Per Share | | at their fair value as at the date of the | opportunities is held at fair value with | Taking all of the above into account, | | financial statements. | reference to the forward month market | reported results for the year to 31 March | | | price. The £(9)m adverse movement in the | 2023 are significantly lower than the | | SSE shows the change in the fair value | year reflects the increase in the underlying | previous year. In addition to the £(2,351.5)m | | of these forward contracts separately as | volumes of gas held at year end have been | net pre-tax loss on forward commodity, | | this mark-to-market movement does not | negatively impacted by lower forward | gas inventory and financing derivative fair | | reflect the realised operating performance | market prices. | value remeasurements and the £(0.4)m net | | of the businesses. The underlying value | | pre-tax exceptional charge noted above | | of these contracts is recognised as the | However, whilst this movement reflects | – reported results also include £16.2m of | | relevant commodity is delivered, which | the net change in fair value of physical gas | interest income on the net pension asset. | | for the large majority of the position at | inventory held at the year end, it does not | | | 31 March 2023 is expected to be within | take into account any positive or negative | Reported results in the prior year reflected | | the next 6 – 12 months. | mark-to-market movement on forward | pre-tax certain re-measurement gains of | | | contracted sales. Therefore, similar to | £2,118.8m mainly driven by the significant | | The change in the operating derivative | derivative contracts held at fair value, | volatility in commodity markets in the prior | | mark-to-market valuation was a £(2,544.4)m | we do not expect that all of this valuation | year, as well as pre-tax exceptional items | | adverse movement from the start of the | movement will be realised by the business. | of £305.0m mainly driven by the reversal | | year, reflecting a £(2,708.2)m adverse | | of historic SSE Thermal and Gas Storage | | movement on fully consolidated operating | Financing derivatives | impairment charges, and £7.6m of interest | | derivatives offset by a £163.8m share of | In addition to the movements above, a | income on the net pension asset. | | positive movement on derivatives in jointly | positive movement of £201.9m was | | | controlled entities (net of tax) which mainly | recognised on financing derivatives in the | | | results from commodity hedging within the | year ended 31 March 2023, including | | | Triton Power Joint Venture. | mark-to-market movements on cross- | | currency swaps and floating rate swaps that | The adverse movement of £(2,708.2)m on | | are classed as hedges under IAS 39. These | | --- | --- | --- | | fully consolidated operating derivatives | | hedges ensure that any movement in the | | includes: | | value of net debt is predominately offset by | | • Settlement during the year of £272.0m | | a movement in the derivative position. The | | | of previously net ‘out-of-the-money’ | adjustment was primarily driven by higher | | | contracts in line with the contracted | interest rates driving significant reductions | | | delivery periods; and | in the ‘out of the money’ position on SSE’s | | • An adverse net mark-to-market | | fixed rate swaps, in addition to settlement | | | remeasurement of £(2,980.2)m on | of previously ‘out-of-the-money’ contracts | | | unsettled contracts, largely entered | in line with the contracted delivery periods. | into during the course of 2021/22 and 2022/23 and in line with the Group’s stated approach to hedging. This mark-to-market remeasurement – which compares to a £3,527.2m positive movement in the prior year – reflects the extreme volatility seen in commodity markets during the period. 88 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### Financial management and balance sheet Debt metrics March September March 2023 2022 2022 Net Debt/EBITDA* 2.7x N/A 4.0x Adjusted net debt and hybrid capital (£m) (8,894.1) (9,988.6) (8,598.2) Average debt maturity (years) 6.4 6.5 6.8 Adjusted interest cover 7.6x 4.2x 4.0x Average interest rate for the period (excluding JV/assoc. interest and all hybrid coupon payments) 3.35% 3.25% 3.29% Average cost of debt at period end (including all hybrid coupon payments) 3.92% 3.83% 3.81% * Note: Net debt represents the group adjusted net debt and hybrid capital. EBITDA represents the full year group adjusted EBITDA, less £147m (at March 2023) for the proportion of adjusted EBITDA from equity-accounted Joint Ventures relating to project financed debt. Net finance costs reconciliation | March | | March | | --- | --- | --- | | 2023 | | 2022 | | | £m | £m | Adjusted net finance costs 345.6 372.8 Add/(less): Lease interest charges (29.4) (30.4) Notional interest arising on discounted provisions (22.1) (5.7) Hybrid equity coupon payment 38.8 50.7 Adjusted finance costs for interest cover calculation 332.9 387.4 SSE principal sources of debt funding March September September 2023 2022 2021 Bonds 54% 52% 55% Hybrid debt and equity securities 18% 18% 21% European investment bank loans 5% 7% 7% US private placement 10% 10% 9% Short-term funding 9% 10% 5% Index-linked debt 4% 3% 3% % Of which has been secured at a fixed rate 92% 92% 96% Rating Agency Rating Criteria Date of Issue Moody’s Baa1 ‘stable outlook’ ‘Low teens’ Retained Cash Flow/Net Debt March 2023 Standard and Poor’s BBB+ ‘positive stable’ About 18% Funds From Operations/Net Debt December 2022 | Maintaining a strong | While there may be short-term fluctuations | | • In September 2022, SSE Thermal, | | | --- | --- | --- | --- | --- | | balance sheet | in leverage as demonstrated by the 2.7 net | | | alongside Equinor as 50/50 partners, | | A key objective of SSE’s long-term approach | debt/EBITDA achieved at 31 March 2023 | | | completed the acquisition of the Triton | | to balancing capital investment, debt | (2022: 4.0x), it is expected that this ratio will | | | Power portfolio with SSE’s share of the | | issuance and securing value and proceeds | generally fall between 3.5 – 4.0x across the | | | purchase being £123.2m. | | from disposals is by maintaining a strong | five years to 31 March 2027. | | • In December 2022, a 25% Minority | | | net debt/EBITDA ratio. SSE calculates this | | | | Interest stake in SSEN Transmission was | | ratio based on a methodology that it | SSE’s S&P credit rating were updated in | | | disposed of, with £1.46bn of proceeds | | believes best reflects its activities and | December 2022 to at BBB+ ‘positive outlook’ | | | received from Ontario Teachers Pension | | commercial structure, in particular its | and its Moody’s rating remains at Baa1 with | | | Plan. | | strategy to secure value from partnering | ‘stable outlook’. | | | | | by using Joint Ventures and non-recourse | | | Debt summary as at 31 March 2023 | | | project financing. | Adjusted net debt and hybrid capital | | The SSE Group issued £1.7bn of hybrid | | | | SSE’s adjusted net debt and hybrid capital | | capital and new medium- long-term debt | | | SSE considers it has the capacity to reach | was £8.9bn at 31 March 2023, up from | | in the year ended 31 March 2023 whilst also | | | a ratio of up to around 4.5x, comparable | £8.6bn at 31 March 2022. In addition to | | significantly increasing short-term debt | | | with private sector utilities across Europe, | dividends, capex spend and revaluation | | capacity in the form of Commercial Paper: | | | whilst remaining above the equivalent | of currency debt as well as various working | | • In March 2022, the SSE Group through | | | ratios required for an investment grade | capital movements, this movement | | | its SSEN Transmission entity priced and | | credit rating. | includes the completion of two acquisitions | | | committed to a £350m dual tranche | | | and one divestment during the year: | | | private placement, being a £175m | | | • In September 2022, SSE Renewables | | | 10-year tranche at 3.13% and £175m | | | | completed the acquisition from Siemens | | 15-year tranche at 3.24% giving an all-in | | | | Gamesa Renewable Energy of an | | average rate of 3.19%. The proceeds | | | | onshore development platform across | | were received on 30 June 2022. | Spain, France, Italy and Greece for a consideration of €580m (£519.5m); and 89SSE plc Annual Report 2023 ### Financial Review continued | • In April 2022, SSE plc issued a €1bn | | • Over the course of the year, SSE plc | | August 2023, £35m maturing in April 2023 | | --- | --- | --- | --- | --- | | | NC6 equity accounted hybrid bond at | | rolled maturing short-term debt in the | and £120m maturing in September 2023 | | | 4% to refinance the dual tranche debt | | form of Commercial Paper in addition to | (both US Private Placements) and a €700m | | | accounted hybrid bonds issued in March | | raising a further £0.4bn, which takes the | bond maturing in September 2023. Despite | | | 2017. SSE has taken advantage of the | | total outstanding Commercial Paper at | this, the Group expects to have minimal | | | 3-month par call option on these 2017 | | 31 March 2023 to €1,376m (£1,048m). | long-term debt refinancing requirements | | | hybrid bonds, meaning they were repaid | | Commercial Paper has been issued in | to 2024/25, given expected asset disposal | | | on 16 June 2022 in advance of the first | | Euros and swapped back to Sterling | proceeds. As noted above, a further | | | call date. The €1bn equity accounted | | at an average cost of debt of 4.53% | €1,048m (£929m) of short-term debt in | | | hybrid bond has been kept in Euros and | | and matures between April 2023 and | the form of Commercial Paper is also due | | | the proceeds were used to cover the | | June 2023. | to mature in the second half of 2023/24, | | | portion of the maturing hybrid that was | | | however the current intention is to roll | | | originally swapped to Euros (€575m) and | In addition to the March 2017 hybrid bonds | | this maturing short-term debt forward | | | to finance a portion of SSE Renewables’ | which were called in June 2022 as noted | | throughout the 2023/24 financial year. | | | European onshore development | above, a further £613m of medium-to- | | | | | platform acquisition as noted above. | long-term debt has matured in the year | | Hybrid bonds summary as at | | • In August 2022, SSE plc issued a 7 year | | comprising £163m (US Private Placement) | | 31 March 2023 | | | €650m Eurobond at a coupon of 2.875% | which matured in April 2022, £300m | | Hybrid bonds are a valuable part of SSE’s | | | which was left in Euros as part of our | (Eurobond) which matured in September | | capital structure, helping to diversify SSE’s | | | net investment hedge in overseas assets | 2022 and £150m European Investment | | investor base and most importantly to | | | held in that currency. The bond was 8 | Bank fixed rate loan which matured in | | support credit rating ratios, with their 50% | | | times oversubscribed which allowed SSE | October 2022. In the next twelve months, | | equity treatment by the rating agencies | | | to secure a highly competitive rate for | there is a further £719m of medium-to- | | being positive for SSE’s credit metrics. | | | the issuance. | long-term debt maturing being £50m | | | | | | (European Investment Bank) maturing in | | A summary of SSE’s hybrid bonds as at | 31 March 2023 can be found below: Issued Hybrid Bond Value 1 All in rate 2 First Call Date Accounting Treatment July 2020 £600m 3.74% Apr 2026 Equity accounted July 2020 €500m (£453m) 3.68% July 2027 Equity accounted April 2022 €1bn (£831m) 4.00% Apr 2028 Equity accounted 1 Sterling equivalents shown reflect the fixed exchange rate on date of receipt of proceeds and is not subsequently revalued. 2 All in rate reflects coupon on bonds plus any cost of swap into sterling which currently only applies to July 2020 Hybrid. Further details on each hybrid bond can be found in notes 21 and 22 to the Financial Statements and a table noting the amounts, timing and accounting treatment of coupon payments is shown below: Hybrid coupon payments 2023/24 2022/23 HYe FYe HYa FYa Total equity (cash) accounted £74m £74m £39m £39m Total debt (accrual) accounted – – £21m £21m Total hybrid coupon £74m £74m £60m £60m | SSE’s July 2020 and April 2022 hybrid bonds | Managing net finance income/(costs) | Summarising cash and cash equivalents | | --- | --- | --- | | are perpetual instruments and are therefore | SSE’s adjusted net finance costs – which | At 31 March 2023, SSE’s adjusted net debt | | accounted for as part of equity within the | includes interest on debt accounted hybrid | included cash and cash equivalents of | | Financial Statements but, consistent with | bonds but not equity accounted hybrid | £0.9bn, down from £1.0bn at March 2022. | | previous years, have been included within | bonds – were £345.6m in the year ended | | | SSE’s ‘Adjusted net debt and hybrid capital’ | 31 March 2023, compared to £372.8m in | The cash collateral position has increased | | to aid comparability. The March 2017 | the previous year. The lower level of finance | from £74.7m of cash provided as collateral | | hybrid bonds which were called and | costs from year to year mainly reflects lower | at 31 March 2022 to £316.3m of cash | | settled in 2022/23 had a fixed redemption | levels of net debt during the financial year | provided at 31 March 2023. Cash collateral | | date and were therefore debt accounted | given proceeds from the disposal of Scotia | is only required for forward commodity | | and included within Loans and Other | Gas Networks on 22 March 2022 (£1,225m) | contracts traded through commodity | | Borrowings; as such they were already part | and a 25% minority interest stake in SSEN | exchanges, and generally comprises an | | of SSE’s adjusted net debt and hybrid capital. | Transmission on 30 November 2022 | ‘initial margin’ element based on the size | | | (£1,465m). | and period of the trade and a ‘variation | | The coupon payments relating to the | | margin’ element which will change from | | equity accounted hybrid bonds are | Reported net finance income was £59.3m | day to day depending on the fair value | | presented as distributions to other equity | compared to a reported net finance cost of | of that trade each day. The level of cash | | holders and are reflected within adjusted | £273.2m in the previous year, reflecting the | collateral either provided or received | | Earnings Per Share when paid. The coupon | movements above as well as the £201.9m | therefore depends on the volume of | | payments on debt accounted hybrid bonds | positive movement on financial derivatives | trading through the exchanges, the periods | | are treated as finance costs under IFRS 9 | previously referenced. | being traded and the associated price | ‘Financial Instruments’. 90 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report | volatility. As collateral is only required | environment, alongside heightened | Revolving credit facility/ | | --- | --- | --- | | on a portion of trades, the movement in | price volatility in those markets. The | short-term funding | | collateral provided or received will not | collateral position is lower than earlier | SSE has £3.5bn of committed bank facilities | | correlate to the IFRS 9 fair value movement | in the financial year as volatility and risk | in place to ensure the Group has sufficient | | recognised, which also only covers a | factors have reduced, although prices do | liquidity to allow day-to -day operations | | portion of the total Group trading activity. | remain heightened when compared to | and investment programmes to continue in | | The cash collateral position had increased | previous years. | the event of disruption to Capital Markets | | at 31 March 2023 due to the continued | | preventing SSE from issuing new debt for a | | higher forward power and gas price | | period of time. These facilities are set out in | the table below. 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 Nov 22 SHET plc Syndicated Revolving Credit Facility with 11 Relationship Banks 2025 £750m Nov 22 SHEPD plc and SEPD plc Syndicated Revolving Credit Facility with 11 Relationship Banks 2025 £250m Feb 23 SSE plc Syndicated Revolving Credit Facility with 10 Relationship Banks 2024 £1.0bn | Ahead of the 25% minority interest stake | In addition to these committed bank | Ensuring a strong debt structure | | --- | --- | --- | | disposal, SSEN Transmission entered a | facilities, the Group has access to £50m | through medium- and long-term | | three-year £750m facility and SSE | of uncommitted bank lines and a £15m | borrowings | | Distribution entered a similar 3 year £250m | overdraft facility. | The ability to raise funds at competitive | | facility, both having two one-year optional | | rates is fundamental to investment. SSE’s | | extensions. These facilities were entered | Maintaining a prudent treasury policy | fundraising over the past five years, | | into to help cover the future long-term | SSE’s treasury policy is designed to be | including senior bonds, hybrid capital and | | funding requirements and the working | prudent and flexible. In line with that, cash | term loans, now totals £9.5bn and SSE’s | | capital of those businesses as they look | from operations is first used to finance | objective is to maintain a reasonable range | | to become financially independent of the | regulatory and maintenance capital | of debt maturities. Its average debt maturity, | | Group. The facilities will therefore support | expenditure and then dividend payments, | excluding hybrid securities, at 31 March | | the ongoing capital expenditure investment | with investment and capital expenditure for | 2023 was 6.4 years, down from 6.8 years at | | programmes that are required to deliver | growth generally financed by a combination | 31 March 2022. This movement reflects the | | their ambitious future growth plans and | of cash from operations, bank borrowings | £1.7bn of new hybrid capital and long-term | | will be drawn on a regular basis. | and bond issuance. | debt issued in the last twelve months but | has been offset by a higher short-term | The new £1bn facility signed in February | As a matter of policy, a minimum of 50% | funding position via Commercial Paper. | | --- | --- | --- | | 2023 was executed to cover potential cash | of SSE’s debt is subject to fixed rates of | SSE’s average cost of debt is now 3.92%, | | collateral requirements required to cover | interest. Within this policy framework, SSE | compared to 3.81% at 31 March 2022. | | commodity position on exchanges or via | borrows as required on different interest | | | credit support annex’s on bilateral contracts. | bases, with financial instruments being | Going Concern | | | used to achieve the desired out-turn | The Directors regularly review the Group’s | | The facilities can also be utilised to cover | interest rate profile. At 31 March 2023, 92% | funding structure and have assessed that | | short-term funding requirements; however, | of SSE’s borrowings were at fixed rates. | the Full Year Financial Statements should | | the majority remain undrawn for most of | | be prepared on a going concern basis. | | the time and at 31 March 2023, £100m was | Borrowings are mainly in Sterling and | | | drawn on the new £750m Scottish Hydro | Euros to reflect the underlying currency | In making their assessment the Directors | | Electric Transmission plc facility. | denomination of assets and cash flows | have considered sensitivities on the forecast | | | within SSE. All other foreign currency | future cashflows of the Group for the period | | The two SSE plc facilities totalling £1.5bn | borrowings are swapped back into either | to 31 December 2024 resulting from the | | that mature in 2026 are classified as | Sterling or Euros. | current volatile market conditions; the | | sustainable facilities with interest rate and | | Group’s credit rating; the success of the | | fees paid dependant on SSE’s performance | Transactional foreign exchange risk arises | Group’s disposal programme through | | in environmental, social and governance | in respect of procurement contracts, fuel | 2020/21 to 2022/23; the successful issuance | | matters, as assessed independently by | and carbon purchasing, commodity | of £1.7bn of hybrid equity, Eurobond and | | Moody’s ESG Solutions. The new £750m | hedging and energy portfolio management | private placement debt issued during the | | Transmission facility is also classified as a | operations, and long-term service | period; and the likelihood of disposal of | | sustainable facility with interest rate and | agreements for plant. | assets which have been announced as in | | fees paid dependant on four ESG KPI’s | | progress and related debt funding. The | | being achieved. | SSE’s policy is to hedge any material | Directors have also considered the Group’s | | | transactional foreign exchange risks | obligations under its debt covenants, | | In addition to the above, a $300m private | through the use of forward currency | with projections to 31 December 2024 | | placement shelf facility exists with NY Life | purchases and/or financial instruments. | supporting the expectation that there will | | which can be drawn in approximately two | Translational foreign exchange risk arises in | be no breaches. | | equal tranches 12 months apart over the | respect of overseas investments; hedging | | | next three years. At 31 March 2023 no | in respect of such exposures is determined | | | drawings have been made on this facility. | as appropriate to the circumstances on a | | case-by-case basis. 91SSE plc Annual Report 2023 ### Financial Review continued | The Directors have assessed that the Group | Scheme will be capped at 25%. SSE plans | scrip dividend take-up for the financial | | --- | --- | --- | | remains able to access Capital Markets, as | to implement this cap by means of a share | year will be calculated and any intention | | demonstrated by the £3.6bn of debt issued | repurchase programme, or ‘buyback’, in | to initiate a buy-back will be announced. | | over the last 24 months. There is also an | October each year following payment of | It is intended that any scrip buy-backs in | | expectation of continued availability of | the final dividend. The scale of any share | respect of 2022/23 will be completed | | the Commercial Paper market along with | repurchase program would be determined | before 31 March 2024. | | future available liquidity in the private | by shareholder subscription to Scrip | | | placement market in addition to the | Dividend Scheme across the full year, | SSE believes limiting the dilutive effect | | Group’s existing liquidity with £3.5bn | taking into account the interim and final | of the Scrip in this way strikes the right | | of undrawn committed borrowing | dividend elections. | balance in terms of giving shareholders | | facilities which has been increased by | | choice, potentially securing cash dividend | | £2.0bn during the 2022/23 financial year. | Following approval of the dividend at the | payment savings and managing the | | | Annual General Meeting on 20 July 2023, | number of additional shares issued. | | Operating a scrip dividend scheme | the scrip reference price will be determined | | | SSE’s Scrip Dividend Scheme was last | across the period from 27 July to 2 August | | | renewed for a three-year period at the | 2023, with notification of the final scrip | | | 2021 AGM and continues to be offered | reference price issued on 3 August 2023. | | | to all shareholders. For the period out to | Following receipt of the final dividend scrip | | | 2026/27, take-up from the Scrip Dividend | elections on 24 August 2023, the overall | | ### 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 around £3bn as at 31 March 2023. SSE SSE share of external debt SSE Shareholder loans SSE principal JVs and associates 1 Asset type holding as at 31 Mar 2023 as at 31 Mar 2023 Marchwood Power Ltd 920MW CCGT 50% No external debt £26m Seabank Power Ltd 1,234MW CCGT 50% No external debt No loans outstanding SSE Slough Multifuel Ltd 50MW energy-from-waste facility 50% No external debt £128m Triton Power Holdings Ltd 1,200MW CCGT & 140MW OCGT 50% No external debt No loans outstanding Beatrice Offshore Windfarm Ltd 588MW offshore wind farm 40% £681m Project financed Dogger Bank A Wind Farm Up to 1,200MW offshore wind farm. 40% £745m Project financed Dogger Bank B Wind Farm Up to 1,200MW offshore wind farm. 40% £616m Project financed Dogger Bank C Wind Farm Up to 1,200MW offshore wind farm. 40% £344m Project financed North Falls Offshore Wind Farm Ltd Offshore wind farm extension 50% No external debt No loans outstanding Ossian Offshore Windfarm Ltd ScotWind seabed 40% No external debt No loans outstanding 2 Seagreen Offshore Windfarm Ltd 1,075MW offshore wind farm 49% £628m £816m Seagreen 1a Ltd Offshore wind farm extension 49% No external debt £16m Cloosh Valley Wind Farm 105MW onshore windfarm (part of 25% No external debt £26m Galway Wind Park) Clyde Windfarm (Scotland) Ltd 522MW onshore wind farm 50.1% No external debt £127m Dunmaglass Windfarm Ltd 94MW onshore windfarm 50.1% No external debt £46m Lenalea Wind Energy DAC 30MW of onshore windfarm 50% No external debt £8m Stronelairg Windfarm Ltd 228MW onshore wind farm 50.1% No external debt £88m Neos Networks Ltd Private telecoms network 50% No external debt £56m 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, £223m of the £816m of SSE Shareholder loans advanced to Seagreen Windfarm Limited as at 31 March 2023 have been classified as equity. 92 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report | Taxation | In November 2022, SSE published ‘Talking | outside the UK in which it currently has | | --- | --- | --- | | SSE is one of the UK’s biggest taxpayers, | Tax 2022: Fair tax in a time of change’ report. | significant trading operations. SSE’s | | and in the 2022 PwC Total Tax Contribution | It did this because it believes building trust | operations elsewhere are still at an early | | survey published in November 2022 was | with stakeholders on issues relating to tax is | stage and are not yet paying material | | ranked 16th out of the 100 Group of | important to the long-term sustainability of | amounts of tax. | | Companies in 2022 in terms of taxes | the business. | | | borne (those which represent a cost to | | As with other key financial indicators, SSE’s | | the company, and which are reflected | As part of the Spring Finance Bill, released | As with other key financial indicators, SSE’s | | in its financial results). | on 23 March 2023, the UK Government | focus is on adjusted profit before tax and, in | | | published the final draft legislation behind | line with that, SSE believes that the adjusted | | SSE considers being a responsible taxpayer | the Electricity Generator Levy (‘EGL’). | current tax charge on that profit is the tax | | to be a core element of its social contract | This measure introduces a temporary 45% | measure that best reflects underlying | | with the societies in which it operates | charge on exceptional receipts generated | performance. SSE’s adjusted current tax | | and seeks to pay the right amount of tax | by specific generation sources which are | rate, based on adjusted profit before tax, | | on its profits, in the right place, at the | in excess of a £75/MWh benchmark price | was 16.4%, compared with 9.2% in 2021/22 | | right time. While SSE has an obligation | (adjusted in line with Consumer Price Index). | on the same basis. The increase in rate is | | to its shareholders, customers and other | The levy will be in effect from 1 January | primarily as a result of higher profit before | | stakeholders to efficiently manage its total | 2023 to 31 March 2028, and therefore a | tax, partly mitigated by increased capital | | tax liability, it does not seek to use the tax | net charge of £43m has been recognised | allowances. In addition, a decision finding in | | system in a way it does not consider it was | in respect of the EGL within the 2022/23 | SSE’s favour was released by the Supreme | | meant to operate or use tax havens to | financial year which has been excluded | Court on 17 May 2023 on the group’s | | reduce its tax liabilities. | from the Income Tax disclosure in line with | long-running capital allowances case in | | | current accounting practice. | relation to Glendoe Hydro Electric Station. | | Under its social contract SSE has an | | The successful outcome has resulted in | | obligation to the society in which it | In the year to 31 March 2023, SSE paid | the release of a £27.9m corporation tax | | operates, and from which it benefits – for | £501.7m of profit taxes, property taxes, | provision, which in turn reduced SSE’s | | example, tax receipts are vital for the public | environmental taxes, and employment taxes | adjusted underlying current tax rate for | | services SSE relies upon. Therefore, SSE’s tax | in the UK, compared with £335.3m in the | the year by 1.3%. | | policy is to operate within both the letter | previous year. The increase in total taxes | | | and spirit of the law at all times. | paid in 2022/23 compared with the previous | The UK Budget in March 2021 introduced | | | year was primarily due to higher levels of | a ‘super-deduction’ for qualifying capital | | SSE was the first FTSE 100 company | corporation tax being paid on UK profits and | expenditure incurred during the two-year | | to be Fair Tax Mark accredited and has | higher levels of Climate Change Levy being | period from 1 April 2021 to 31 March 2023. | | now been accredited for nine years. The | paid as a result of fewer outages at SSE’s | Capital allowances rates of 130% and 50% | | group’s overseas expansion presented the | gas-fired power stations compared with the | replace the existing rates of 18% and 6% | | opportunity to move to Fair Tax Foundation’s | previous year. | respectively for qualifying capital expenditure | | Global Multinational Business Standard | | in that period, significantly increasing the | | Accreditation, which was launched in | In 2022/23 SSE also paid €53.8m of taxes in | amount of capital allowances available on | | late 2021, SSE being the first company | Ireland, compared to €46.4m the previous | the Group’s capital investment programme. | | to transition from the UK headquartered | year, due to increased profits in SSE’s Irish | | | accreditation to the global accreditation. | businesses. Ireland is the only country | | 93SSE plc Annual Report 2023 ### Financial Review continued ### Pensions Contributing to employees’ pension schemes – IAS 19 March March 2023 2022 Pension scheme asset recognised in the balance sheet before deferred tax £m 541.1 584.9 Pension scheme liability recognised in the balance sheet before deferred tax £m – – Net pension scheme asset recognised in the balance sheet before deferred tax £m 541.1 584.9 Employer cash contributions Scottish Hydro Electric scheme £m 1.0 1.0 Employer cash contributions SSE Southern scheme £m 52.1 58.0 Deficit repair contribution included above £m 38.0 40.9 | In the year to 31 March 2023, the surplus | The Scottish Hydro Electric Pension | Additional information on employee | | --- | --- | --- | | across SSE’s two pension schemes | Scheme has insured against volatility in its | pension schemes can be found in note 23 | | decreased by £43.8m, from £584.9m | deferred and pensioner members through | to the Financial Statements. | | to £541.1m, primarily due to actuarial | the purchase of ‘buy-in’ contracts meaning | | | losses of £79.2m and contributions | that the Group only retains exposure to | | | made to the schemes. | volatility in active employees. During the | | year the Scottish Hydro Electric Pension | The valuation of the SSE Southern Pension | Scheme surplus decreased by £150.9m | | --- | --- | | Scheme increased by £107.1m in 2022/23 | mainly as a result of actuarial losses from | | primarily due to actuarial gains of £72.8m, | plan assets. | in particular the impact of higher discount rates, as well as deficit repair contributions exceeding service costs. 94 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### Operating review ## usiness Unit ## Operating Review ### SSE’s strategy of sustainably developing, building, ### operating and investing in the electricity infrastructure ### and businesses needed in the transition to net zero 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, are highly complementary. With common skills and capabilities in the development, construction, financing and operation of highly technical electricity assets, there are strong synergies between them and valuable links across them. SSE’s business mix is very deliberate, highly effective, fully focused and well set to prosper on the journey to net zero, whilst contributing to energy security and affordability. The review of the Business Units that follows provides visibility of performance and future priorities. 95SSE plc Annual Report 2023 95SSE plc Annual Report 2023 ### Operating Review continued ## SSEN Transmission ### SSEN Transmission owns, operates and develops the high voltage electricity transmission system ### in the North of Scotland and its islands. Following a minority stake sale completed in November ### 2022, the business is owned 75% by SSE plc and 25% by Ontario Teachers’ Pension Plan Board. ### All capex and RAV references in this update relate to 100% of the business unless otherwise ### stated. The business is well placed to capture significant long-term growth opportunities from ### investment in enhancing energy security and enabling the development of renewables across ### the North of Scotland. | | Operational delivery | complete. 160km of the total 260km of | | --- | --- | --- | | | In 2022/23, SSEN Transmission delivered | subsea cable is now installed. Noss Head | | Who SSEN Transmission | another year of exceptional operational | Switching Station in Caithness, which the | | serves | performance, achieving the maximum | Shetland HVDC link will connect to, was | | Electricity generators, large electricity | reward available through the Energy Not | successfully energised in April 2023. Upon | | demand customers and ultimately | Supplied Incentive of £0.8m for the third | competition, the Shetland HVDC link will | | all electricity customers across the | consecutive year, which will be reflected in | connect to the existing Caithness-Moray | | North of Scotland and beyond. | revenue in 2024/25. This strong operational | HVDC link, becoming the world’s first | | | performance is underpinned by a robust | multi-terminal HVDC system outside of | | How it supports SSE’s strategy | programme of inspection, maintenance, | China. It is a key innovation to support the | | SSEN Transmission invests in the | refurbishment and replacement of its | future development of integrated HVDC grids, | | critical infrastructure needed for a | transmission assets, keeping the lights on for | with HVDC links to date largely point-to-point | | network for net zero that connects | communities around the North of Scotland | connections. The project remains on track | | sources of renewable electricity to the | and ensuring reliable network access for its | for completion and energisation in 2024. | | national grid and transports it to areas | electricity generation customers to support | | | of demand. | security of supply. | Good progress continues to be made to | increase the capacity of the North East | How it is remunerated | SSEN Transmission’s capital investment | transmission network to 400kV, with this | | --- | --- | --- | | Through economically regulated | programme remains on track with good | phase of network upgrades remaining on | | returns recovered from generators | progress being made on all major projects. | track for energisation by the end of 2023. | | and customers that are potentially | This includes the second phase of the | Work to incrementally increase the east | | enhanced through efficient delivery. | Inveraray-Crossaig overhead line replacement | coast transmission network also remains | | In addition to Certain View | project, with the installation of all steel towers | on track, to 275kV by the end of 2023 and | | expenditure, Uncertainty Mechanisms | now complete and the project on track for | then to 400kV by 2026. | | permit recovery of additional revenue | energisation this summer. As well as | | | in a given price control period to | maintaining and enhancing network reliability | These strategic investments in new and | | reflect additional investment | to the communities it serves, the Inveraray- | upgraded infrastructure are key to help | | requirements. These Uncertainty | Crossaig project will also enable the growth in | enable the continued growth in renewable | | Mechanisms fund network upgrades | renewable electricity generation across the | electricity generation across the North of | | during the price control period. | region as part of the wider Argyll and Kintyre | Scotland. These renewable connections | | | 275kV Strategy. | includes the completion of the third circuit of | the Seagreen offshore wind farm connection ### “Through our ambitious to Tealing substation in Angus which The Shetland High Voltage Direct Current | investment programme as one | (HVDC) transmission link also continues to | completed in November 2022. | | --- | --- | --- | | of Europe’s fastest growing | make excellent progress with the second | | | | phase of the subsea cable installation works, | As at 31 March 2023, the total installed | ### transmission networks, we which commenced in March 2023, now capacity of the North of Scotland ### are committed to improving transmission network was around 10.5GW, ### network reliability for the of which just over 9GW is from renewable ### communities we serve, sources. This includes the successful energisation of the Creag Rhiabhach ### alongside supporting climate wind farm (92MW) near Lairg in December ### and energy security targets, 2022 and the successful completion of all ### as we deliver a network for net three phases of the Seagreen (1,075MW) ### zero at an affordable cost to grid connection. Factoring in the forecast ### consumers, while providing growth in renewables in the remaining years of the RIIO-T2 period, SSEN ### a fair return to shareholders.” Transmission remains well on track to | Rob McDonald | meeting, and likely exceeding, its goal to | | --- | --- | | Managing Director, | transport the renewable electricity that | | SSEN Transmission | powers 10m homes. | For financial performance commentary please refer to the Financial Review. 96 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### SSEN Transmission key performance indicators unlocks early pre-construction expenditure March March to help secure the supply chain, alongside 2023 2022 allowances to support early construction SSEN Transmission activities. 1 Transmission adjusted operating profit – £m 372.7 380.5 Transmission reported operating profit – £m 405.5 380.5 In light of these developments, SSEN Gross Regulated Asset Value (RAV) – £m 4,836 4,155 Transmission has upgraded its long term 1 SSE Share Regulated Asset Value (RAV) – £m 3,627 4,155 RAV target, which is now expected to exceed 2 Renewable Capacity connected to SSEN Transmission Network – MW 9,208 7,790 £15bn by 2032. Subject to timely and positive 1 Transmission adjusted investment and capital expenditure – £m 495.5 614.5 planning decisions and the outcome of competitive tenders for delivery of these 1 Excludes 25% minority interest from 1 December 2022. projects, SSEN Transmission is committed 2 Includes full Seagreen Transmission Entry Capacity. to 2030 delivery of these projects. Beyond these investments, in October 2022, | Growth opportunities in RIIO-T2 | disappointed by the decision, which went | Ofgem published its decision on the onshore | | --- | --- | --- | | SSEN Transmission continues to make | against the recommendations of the | and offshore classification of the offshore | | tangible progress in unlocking several | Council’s own Planning Officer, with no | HND assets. It confirmed that a proposed | | investments over and above its baseline | other statutory stakeholder objections | subsea connection from Fetteresso to a new | | investment case secured at the start of | received, and continues to review what | substation in Lincolnshire will be classed as | | RIIO-T2. These additional projects, which | this means for its delivery programme and | an onshore electricity transmission asset, | | are being taken forward through Ofgem’s | will work with all stakeholders to minimise | which is likely to support further growth. | | Uncertainty Mechanisms, will be key to | the impact of this on new renewable | | | delivering a pathway to net zero and | generation connections. | With the HND enabling around 11GW of | | helping support energy security. | | ScotWind’s 28GW ambition, a follow-up | | | In March 2023, Ofgem provisionally | exercise is now under way which will set | | In October 2022, SSEN submitted to Scottish | approved long established plans to provide | out how ScotWind’s full offshore wind | | Ministers its Section 37 planning application | a 220kV subsea transmission link to Orkney, | ambition will be realised, the outcome of | | for the replacement and upgrade of the Fort | the timing of which remains subject to | which is expected before the end of 2023. | | Augustus to Skye transmission line, with | Ofgem’s final decision and ongoing | The Scottish Government is also consulting | | Highland Council’s Planning Committee | discussions with the supply chain. | on its Draft Energy Strategy and Just | | unanimously supporting the application | | Transition Plan, which includes proposals | | in March 2023. The replacement line is | Further expenditure to connect new | for an additional 8-12GW of onshore wind | | required to maintain security of supply | renewable generation, enable rail | by 2030. | | and enable the connection of renewable | electrification and support system security | | | electricity generation along its route. In May | is also expected throughout the RIIO-T2 | Recognition by Ofgem and the ESO of these | | 2023, Ofgem published for consultation | period and beyond when the need for this | further potential growth and investment | | its response to SSEN Transmission’s FNC, | investment becomes certain. | opportunities, alongside ever-increasing | | setting out its ‘minded-to approve’ | | UK and Scottish Government energy targets | | provisional decision. Subject to timely | Subject to regulatory and planning | and ambitions, underlines the importance | | planning and regulatory approvals, the | approvals, SSEN Transmission’s expenditure | of the Transmission network, particularly in | | project is on track for completion in 2026. | across the price control period could take | the North of Scotland, in transitioning the | | | its RAV to between £8bn to £9bn by 2027. | GB energy system to net zero. | Following Ofgem’s approval of SSEN | Transmission’s Initial Needs Case for the | Further growth opportunities | Given the scale of investment required to | | --- | --- | --- | | Argyll 275kV Strategy in December 2022, in | In July 2022, the National Grid Electricity | deliver net zero, it is crucial that the policy | | May 2023, SSEN Transmission submitted its | System Operator (ESO) published the | landscape and regulatory framework, | | FNC. This followed a direction from Ofgem | Pathway to 2030 Holistic Network | particularly financial parameters, continue | | to allow submission in advance of securing | Design (HND). It set out the onshore and | to attract the investment required to | | all main planning consents due to the risk of | offshore electricity transmission network | support delivery of the most ambitious | | delay and likely increase in cost that would | infrastructure required to deliver the UK | investment plan in low-carbon | | otherwise have been the case, alongside | Government’s 50GW by 2030 offshore | infrastructure for a generation. | | providing certainty to support the project’s | wind target. | | procurement process. The Argyll and Kintyre | 275kV Strategy is required to upgrade the | In December 2022, Ofgem published | | --- | --- | | local transmission network from 132kV to | its Accelerated Strategic Transmission | | 275kV operation, supporting the forecast | Investment (ASTI) framework decision, | | growth in renewables in the region. | which provided the regulatory framework | under which those investments will be taken | The decision in October 2022 by Argyll | forward. Ofgem’s ASTI decision is a major | | --- | --- | | and Bute Council’s Planning Committee to | step forward in strategic network planning | | raise an objection to SSEN Transmission’s | for electricity transmission infrastructure and | | proposed overhead line between Creag | included ‘approval of need’ of all investments | | Dhubh and Dalmally has resulted in a Public | in SSEN Transmission’s network region set | | Local Inquiry (PLI), which is now under | out in the HND report as ‘required’ to enable | | way. SSEN Transmission remains extremely | 2030 targets. The ASTI framework also | 97SSE plc Annual Report 2023 ### Operating Review continued ## SSEN Distribution ### SSEN Distribution, operating under licence as Scottish Hydro Electric Power Distribution plc ### (SHEPD) and Southern Electric Power Distribution plc (SEPD), is responsible for safely and ### reliably maintaining the electricity distribution networks supplying over 3.9m homes and ### businesses across central southern England and the North of Scotland. SSEN Distribution’s ### networks cover the greatest land mass of any of the UK’s Distribution Network Operators with ### over 75,000km² of extremely diverse terrain. The business has significant growth opportunities ### as a key enabler of the local and national transition to a net zero future. | | Operational delivery | The SHEPD CI rate increased from 56 | | --- | --- | --- | | | In December 2022, Ofgem published its | in 2021/22 to 60 in 2022/23, with CML | | Who SSEN Distribution | Final Determinations for the RIIO-ED2 price | increasing from 57 to 59. Whilst performance | | serves | control outlining its response to SSEN’s | in response to unplanned network faults | | Over 3.9m homes and businesses | Business Plan ‘Powering Communities | improved in comparison to 2021/22, | | and generators and service providers | to Net Zero’. SSEN Distribution accepted | reflecting investment in automation and | | that are, or want to be, connected | Ofgem’s Final Determination in March | operational response, a rise in planned | | to its distribution networks and | and will continue to work closely with the | interruptions to facilitate new connections | | customers in its operating areas. | regulator to ensure the price control has | has impacted IIS performance. In SEPD, | | | the agility and flexibility required to keep | the CI rate increased to 44 up from 42 the | | How it supports SSE’s strategy | pace with net zero requirements. The price | previous year and CMLs also increased to | | It provides timely connection | control began in April 2023 and will run | 46 from 42 the previous year. Adverse | | of local renewables and the co- | until March 2028. | weather which did not qualify as exceptional | | ordinated delivery of investment | | under IIS provisions and a major transmission | | and flexible solutions to alleviate | Major capital investment | fault affecting 55,000 customers were also | | network constraints and enable | The new price control period will see the | contributory factors in performance for | | further electrification. | acceleration of SSEN Distribution’s major | the period. | capital investment programme across | How it is remunerated | both its networks, delivering significant | In 2022/23 the SSEN Distribution network | | --- | --- | --- | | Through economically regulated | improvements for customers and | was affected by two extreme weather | | returns recovered from customers | supporting future earnings through RAV | events, an ice storm in Shetland in | | and connecting parties. Additional | growth. This builds on continued capital | December 2022 and Storm Otto in February | | earnings come through efficient | delivery in the final year of RIIO-ED1, where | 2023. Power restoration efforts during both | | delivery of investment and | SSEN Distribution invested £421m, bringing | weather events were swift and effective | | performance-related incentives. | the total investment since the beginning of | as reflected in a motion in the Scottish | | | the price control to £2.7bn. | Parliament praising SSEN Distribution’s | ‘exceptional response’ to Storm Otto, | “RIIO-ED2 is a critical milestone | Customer interruptions and | citing improvements in restoration, | | --- | --- | --- | | in the journey to net zero. We | incentive score | communications and customer service. | | have a pivotal role to play in | Under the RIIO regulatory regime and | | | | the Interruptions Incentive Scheme (IIS), | In response to the security of supply | ### strengthening our network SSEN Distribution is incentivised on its concerns across GB and possibility of ### and increasing our resilience, performance against the loss of electricity emergency disconnections, Distribution ### whilst future-proofing our supply through the recording of Customer was the first Distribution Network Operator ### system to enable the greater Interruptions (CI) and Customer Minutes (DNO) to develop an emergency planning Lost (CML), which includes both planned portal for customers and conducted ### uptake of low-carbon and unplanned supply interruptions. These engagement with over 2,500 stakeholders ### technologies to allow our incentives will typically be collected two to help ensure preparedness and ### customers to meet their years after they are earned. community resilience. ### net zero goals.” Chris Burchell Managing Director, SSEN Distribution 98 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### SSEN Distribution key performance indicators March March 2023 2022 SSEN Distribution Distribution adjusted and reported operating profit – £m 382.4 351.8 Regulated Asset Value (RAV) – £m 4,720 4,054 Distribution adjusted investment and capital expenditure – £m 421.0 364.8 Electricity Distributed – TWh 36.1 37.6 Customer Minutes Lost (SHEPD) average per customer 59 57 Customer Minutes Lost (SEPD) average per customer 46 42 Customer Interruptions (SHEPD) per 100 customers 60 56 Customer Interruptions (SEPD) per 100 customers 44 42 | Improving customer satisfaction | Growth opportunities | Insights are now being used to facilitate | | --- | --- | --- | | SSEN Distribution’s Broad Measure | Delivering in the new RIIO-ED2 price | extensive engagement with local | | performance has again improved in 22/23 | control period | authorities and stakeholders to support | | achieving a total incentive return of £4.4m | SSEN Distribution’s RIIO-ED2 Business Plan, | local net zero planning. This includes | | and continuing the upward trend which | which was co-created with stakeholders, | collaborative work with the Isle of Wight | | has been supported by a comprehensive | is a core component of SSE Group’s NZAP | Council and local generators to produce | | improvement plan for each Broad Measure | Plus. The Final Determination from Ofgem | a first-of-its-kind local net zero island | | category. In 2022/23 SSEN Distribution was | provides SSEN Distribution with a proposed | study, which has identified core network | | the most improved DNO for Customer | total base expenditure of £3.6bn, an uplift | development needed to unlock renewables | | Satisfaction, with the speed of improvement | of over 22% on the equivalent period in | and meet future demands. This provides a | | being five times that of the industry average. | RIIO-ED1, including potential additional | robust case to unlock further investment | | | investment opportunities of up to £0.7bn | through uncertainty mechanisms early in | | In 2022/23 SSEN Distribution received its | over the period through uncertainty | the price control. | | highest ever league table position in the | mechanisms and reopeners. | | | Stakeholder Engagement and Customer | | SSEN Distribution is also increasing | | Vulnerability (SECV) standings, resulting | Accelerating connections | tendering its flexibility services in areas | | in an estimated revenue of £1.5m. Support | With the transition to net zero gathering | where localised high demand can be offset | | for customers in vulnerable situations also | pace, SSEN Distribution is seeing a | to extend overall network capacity. SSEN’s | | increased with registrations to SSEN’s | significant rise in the uptake of low-carbon | RIIO-ED2 Distribution System Operator | | Priority Services Register rising by 11% | technologies, particularly EV charge points, | Strategy targets delivery of 5GW in flexible | | compared to the previous financial year | heat pumps, and battery storage. The | services and 3.7GW of flexible connections | | through targeted communications and | business has seen a 75% uplift in the | by 2028. Overall, SSEN will invest around | | partnerships. In addition, over 14,500 | number of electric vehicle charge points | £70m in DSO capabilities in the five-year | | households were supported by fuel poverty | connected compared to last year. | period, enabling greater consumer | | and energy efficiency measures, an | | take-up of low-carbon technologies | | increase of almost 70% on 2021/22. | The SEPD network is experiencing rapid | while delivering an estimated £460m of | | | growth in both generation and demand | benefits through deferred reinforcement | | In March 2023, SSEN published its Fair | requests, with significant large load | and avoided capital expenditure. | | Energy Future report, and in doing so | requests coming from data centres and | | | became the first DNO to publish a | contracted batteries doubling over the | Building a workforce for the future | | consumer-led just transition action plan | past year. In SHEPD, generation demand | During the RIIO-ED2 price control period, | | aimed at securing a fair and inclusive net | has tripled from 3.7GW to 9.5GW over the | SSEN Distribution will increase its | | zero transition for all. | past 18 months. | workforce materially as it delivers the | infrastructure required for net zero, safely, | For financial performance commentary | Empowering local investment | efficiently and in line with customers’ | | --- | --- | --- | | please refer to the Financial Review. | and growing flexibility | expectations. In the last year alone, its | | | Project LEO, SSEN Distribution’s industry- | graduate intake increased by 180% and | | | leading project established to replicate the | trainee engineers by 90%, with specific | | | future energy system and test flexibility | pipelines for digital skills, alignment to | | | services at the ‘grid edge’, has concluded. | and a focus on recruiting for difference, | including neurodiversity. 99SSE plc Annual Report 2023 ### Operating Review continued ## SSE Renewables ### SSE Renewables develops and generates zero carbon electricity at scale from wind farms ### and provides clean flexible power from its hydro schemes. The business comprises existing ### operational assets and those under development in onshore wind, offshore wind, flexible hydro ### electricity, run-of-river hydro electricity, pumped storage, as well as solar and battery technology ### co-located on existing UK and new international markets. In April 2023, the standalone Solar and ### Battery business, that had previously reported alongside SSE Distributed Energy, was integrated ### into SSE Renewables to optimise technological, planning and development synergies. | | Operational delivery | SSE Renewables is the leading owner, | | --- | --- | --- | | | SSE Renewables’ operational offshore | operator and developer of onshore | | Who SSE Renewables serves | wind installed capacity is 487MW with its | wind farms across the UK and Ireland. | | Electricity customers across markets | onshore wind and hydroelectric installed | Operational onshore wind fleet availability | | in GB, Ireland and abroad who are | capacity at 1,969MW and 1,459MW | was high throughout the year. Volumes | | increasingly seeking lower-carbon | respectively. SSE Renewables is currently | finished at 93% of plan at year end with | | sources of energy. | leading the construction of more offshore | lower than forecast wind resource in Q4 | | | wind than any other company in the world. | impacting volumes. | | How it supports SSE’s strategy | Whilst availability across all technologies | | | SSE Renewables is driving the net zero | has remained high, the lower-than- | While the end of the financial year saw | | transition through the development, | expected wind and rainfall observed | lower wind resource than anticipated, | | financing, construction and operation | over the last three years continued in | autumn and winter saw an improved | | of world-class renewables. | the last financial year, resulting in lower | performance with Beatrice and Greater | | | than normal production. | Gabbard offshore wind farms achieving | | How it is remunerated | | 91% of plan overall, reducing to 73% when | | Through the wholesale electricity | SSE Renewables’ hydro assets play an | including Seagreen and the impact of its | | market, ancillary services market, | increasingly critical role in delivering | construction delay. There are now 50 | | Capacity Market, Balancing | cost-effective, low-carbon flexibility to | turbines generating at Seagreen producing | | Mechanism revenue from hydro | the system, providing additional diversified | significant volumes and a new-build | | output, power purchase agreements, | revenue streams. Following a very dry | Vestas operational service vessel has | | and government support schemes | summer, autumn rain was above average | been mobilised to site. | | for renewable energy. | followed by drier than average conditions | | | | over the winter months resulting in output | For financial performance commentary | | | for the year being behind plan. Plant | please refer to the Financial Review. | | “We are working to keeping | availability, however, was very strong | | | global warming to a 1.5°C | and following an intensive period of | Construction programme | | | summer maintenance outages, which | All three phases of the world’s largest | ### pathway through the were delivered to plan, winter plant offshore wind farm at Dogger Bank (each ### development, construction availability was exceptional with the fully 1,200MW, SSE share 40%) continue to ### and operation of renewables. flexible plant and the pumped storage progress. Onshore works are continuing on ### We are currently building asset at Foyers performing particularly well. all three phases, with the three convertor ### more offshore wind energy stations at various stages of construction SSE Renewables is actively progressing plans and the onshore HVDC cables already ### than any other company to enhance assets across its operational installed on Dogger Bank A and B. The ### in the world and we have hydro fleet, including the addition of operation and maintenance base at Port ### ambitions to do more, pumping capacity, generation capacity of Tyne is complete and was officially ### delivering our diverse pipeline increases and grid services capabilities. opened in March. ### of over 11GW across wind, Offshore work is well under way for Dogger ### hydro, solar and batteries.” Bank A with successful installation of the | Stephen Wheeler | first monopiles and transition pieces and | | --- | --- | | Managing Director, | the 175km offshore export cable. In April, | | SSE Renewables | Dogger Bank A reached another milestone | with the installation of the world’s first unmanned HVDC offshore substation, making it the first project in the UK to use this technology to transmit the electricity produced back to shore, ensuring that the electricity is transmitted efficiently over long distances while minimising losses. Dogger Bank A is still expecting to achieve first power during Summer 2023, assuming normal weather. However, due to delays to 100 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### SSE Renewables key performance indicators A consent application was submitted March March to the Scottish Government in December 2023 2022 2022. The first connection date is in 2027 SSE Renewables and the full project could be complete Renewables adjusted operating profit –£m 580.0 568.1 around the end of the decade. Renewables reported operating (loss) –£m 446.3 427.8 Renewables adjusted investment and capital expenditure Ossian offshore wind farm, owned by before acquisitions – £m 837.5 811.0 the SSE Renewables (3.6GW, share 40%), Generation capacity – MW Marubeni Corporation and Copenhagen Onshore wind capacity (GB) – MW 1,285 1,285 Infrastructure Partners (CIP) consortium, Onshore wind capacity (NI) – MW 117 122 is one of the largest floating offshore wind | Onshore wind capacity (ROI) – MW 567 567 | projects in development worldwide and | | --- | --- | | Total onshore wind capacity – MW 1,969 1,974 | could play a key role in meeting the UK | | Offshore wind capacity (GB) – MW 487 487 | Government’s floating wind targets. | | Conventional hydro capacity (GB) – MW 1,159 1,159 | The project continues to progress through | | Pumped storage capacity (GB) – MW 300 300 | the early stages of development with the | | Total renewable generation capacity (inc. pumped storage) – MW 3,915 3,920 | Environmental Impact Assessment Scoping | | Contracted capacity 2,787 2,792 | Report for the Ossian Array submitted to | | Generation output – GWh | the Scottish Government in March 2023. | Onshore wind output (GB) – GWh 2,770 2,502 | Onshore wind output (NI) – GWh 286 264 | North Falls offshore wind farm (up to | | --- | --- | | Onshore wind output (ROI) – GWh 1,357 1,196 | 504MW, SSE Renewables share 50%), an | | Total onshore wind output – GWh 4,413 3,962 | extension to Greater Gabbard off the east | | Offshore wind output (GB) – GWh 1,846 1,430 | coast of England, continues to progress | | Conventional hydro output (GB) – GWh 3,037 3,107 | through development ahead of planning | | Pumped storage output (GB) – GWh 301 227 | submission next year. North Falls could | | Total renewable generation (inc. pumped storage) – GWh 9,597 8,726 | be operational by 2031, depending on the | grid connection solution. Total renewable generation (also inc. constrained off) – GWh 10,159 9,423 In February, SSE Renewables announced Note 1: Capacity and output based on 100% of wholly owned sites and share of joint ventures. early scoping work to explore options for Note 2: Contracted capacity includes sites with a CfD, eligible for ROCs, or contracted under REFIT. developing a fourth phase of Dogger Bank Note 3: Onshore wind output excludes 456GWh of constrained off generation in FY2022/23 and 469GWh in FY2021/22; Offshore wind output excludes 106GWh constrained off generation in FY2022/23 wind farm. There are two options being and 228GWh in FY2021/22. explored for the energy generated: a Note 4: Biomass capacity of 15MW and output of 68GWh in FY2022/23 and 73GWh FY2021/22 is excluded, grid connection and/or green hydrogen with the associated operating profit or loss reported within Distributed Energy. production. The project’s progression Note 5: Onshore NI and contracted capacity reduced by 5MW in the period following the sale of Bessy Bell I remains subject to agreement with the in July 2022. Crown Estate. the manufacturing of nacelles for the In hydro, phase one of the Tummel In March 2023, SSE Renewables’ GE Haliade X turbine, the commercial Bridge power station refurbishment was Gordonbush Hydrogen project was operations date for Dogger Bank A has been completed on schedule. The two existing shortlisted for funding from the UK pushed back by a few months to Q3 2024. ‘camelback’ turbines and accompanying Government’s Net Zero Hydrogen Fund. The project is working with GE to assess machinery were removed in preparation whether impacts on Dogger Bank B and C for the installation of two new, bespoke SSE Renewables recently announced are likely, as well as options to mitigate. turbines in Q2 2023. additional plans to adapt its existing conventional 152.5MW Sloy hydro power ### On Seagreen 1 (1,075MW, SSE share 49%), Growth opportunities – plant with pumping capabilities. Subject ### which will be Scotland’s largest and the Domestic to final design, the converted Sloy scheme world’s deepest fixed-bottom offshore wind SSE Renewables’ core markets of the UK could be capable of delivering up to farm once operational, installation of all 114 and Ireland continue to offer considerable 25GWh of long-duration electricity storage foundations (‘jackets’) was completed in April growth opportunities. capacity, providing vital reserve capacity for 2023 including the world’s deepest jacket at an increasingly renewables-led energy a depth of 58.6m. With 84 turbines installed In March, the UK Government opened the system as well as critical energy security and 53 turbines exporting power to the grid application window for Allocation Round 5 back-up. as of 18 April 2023, the project continues (AR5). SSE Renewables projects Seagreen to make significant progress towards its 1A Strathy South, Bhlaraidh Extension, In March, SSE Renewables confirmed a commercial operations date during the Aberarder and Viking are all eligible to £100m commitment to further develop summer of 2023. bid for the auction, with results expected plans for the Coire Glas pumped hydro by September 2023. However, the low storage project (c. 1,300MW). The project, Onshore, construction is progressing well administrative strike price (caps) in the which received planning consent from the on Viking (443MW) in Shetland with turbine auction, particularly for offshore wind, Scottish Government in 2020, would more installation under way and all turbines do not reflect the cost increases faced than double Britain’s total current electricity expected to be up by the end of 2023. by projects. As a result, SSE Renewables storage capacity. Subject to a favourable Viking is expected to be fully operational will not be entering Seagreen 1A into revenue stabilisation mechanism for long by Autumn 2024. the auction. It will continue to seek an duration electricity storage, Coire Glas alternative route to market to progress could reach a final investment decision by In Ireland, Lenalea wind farm (30MW, this project. the end of 2024 with the objective of being SSE share 50%) construction is progressing fully constructed and commissioned by and it is due to be completed by the end of Located in the North Sea, in the outer 2031 and therefore play a significant role 2023. Following a final investment decision Firth of Forth, Berwick Bank wind farm has in the UK Government’s 2035 target for a in August, Yellow River (101MW) started the potential to deliver 4.1GW of installed decarbonised power system. construction at the beginning of November capacity, making it one of the largest 2022 and will proceed on a merchant basis. offshore opportunities in the world. 101SSE plc Annual Report 2023 Asia-Pacific declared offshore wind zone of Gippsland, ### Operating Review continued SSE Renewables continues to pursue in waters off the coast of Victoria. The ### SSE Renewables continued offshore wind development activities in outcome of the bid is expected by the Japan through its joint venture SSE Pacifico end of 2023. (80% stake). It is assessing participation in | SSE Renewables remains committed to | the upcoming Round 2 auction whilst also | North America | | --- | --- | --- | | delivering Arklow Bank Wind Park 2 (up to | targeting future auctions. The Japanese | SSE Renewables views the United States | | 800MW), despite being unsuccessful in | Government has announced its intention | as an attractive growth market, particularly | | Ireland’s first Offshore Renewable Energy | to open up its Exclusive Economic Zone | following the introduction of the Inflation | | Support Scheme (ORESS) auction in May | to potential future floating wind projects. | Reduction Act. It continues to actively | | 2023. It will proceed to submit a planning | SSE Renewables has formed a 50/50 joint | explore US market entry opportunities | | application later this year to Ireland’s | venture with Equis to bid for a feasibility | across onshore and offshore wind and | | planning board, An Bord Pleanála, whilst it | licence for an offshore wind farm project | adjacent technologies. | | explores future ORESS contracts and other | in Australia’s first Federal Government | | routes to market. | The Irish Government has confirmed a new | SSE Renewables project pipeline | | | | | | --- | --- | --- | --- | --- | --- | | | | Capacity | | SSE Share | | | target of 20GW of offshore wind by 2040 | Project Location Technology | | (MW) | | (MW) | with at least four ORESS auctions starting In construction next year with ‘plan-led’ designated zones Dogger Bank A GB Offshore wind 1,200 480 identified by the Government based on Dogger Bank B GB Offshore wind 1,200 480 grid capacity. Dogger Bank C GB Offshore wind 1,200 480 Seagreen 1 GB Offshore wind 1,075 527 Building on its existing Irish offshore Viking GB Onshore wind 443 443 development portfolio (Setanta (1,000MW) Yellow River Ireland Onshore wind 101 101 Lenalea Ireland Onshore wind 30 15 and Celtic Sea Array (1,200MW), SSE Littleton GB Solar 30 30 Renewables has submitted an application Salisbury GB Battery 50 50 for an investigative foreshore licence for Ferrybridge GB Battery 150 150 surveys of the seabed for a possible new Total in construction – GW 2.8GW 1GW offshore wind farm in the Atlantic Ocean off the coast of Tarbert, Co. Kerry. Late-stage development Seagreen 1A GB Offshore wind 500 245 In January, SSE Renewables announced Bhlaraidh Extension GB Onshore wind 99 99 Strathy South GB Onshore wind 208 208 plans for its first solar and battery Other GB & Ireland GB & Ire Onshore wind – 137 | installation, co-located at its existing | | 1 | | | --- | --- | --- | --- | | | Spanish projects Spain Onshore wind | | 281 291 | | operational wind farm in Co. Wexford, | | 1 | | | | France, Italy and Greece projects Various Onshore wind | | 125 125 | | Ireland. The planning application for the | Coire Glas GB Pumped storage 1,300 1,300 | | | | project, a 21MW solar photovoltaic (PV) | ByPass GB Solar 50 50 | | | | array and a 10MW/2hr battery energy | Monk Fryston GB Battery 320 320 | | | | storage system, will be submitted in the | Tawnaghmore GB Battery 100 100 | | | | coming months. | Total late-stage development – GW 2.9GW | | | Early-stage development ### Growth opportunities – Berwick Bank GB Offshore wind 4,100 4,100 ### International Ossian (ScotWind lease) GB Offshore wind 3,600 1,440 | Europe | Arklow Bank 2 Ireland Offshore wind 800 800 | | --- | --- | | SSE Renewables is progressing its Southern | North Falls GB Offshore wind 504 252 | | Europe development portfolio with at least | Cloiche GB Onshore wind 125 125 | | three projects (totalling c.100MW) aiming | Other GB & Ireland GB & Ire Onshore wind – 311 | 1 Spanish projects Spain Onshore wind 808 808 for a final investment decision this year. The 1 France, Italy and Greece projects Various Onshore wind 1,190 1,190 first two projects (in France and Spain) are Fiddler’s Ferry GB Battery 150 150 targeting construction commencing in Staythorpe GB Battery 350 350 Summer 2023, with at least one further Total early-stage development – GW 9.5GW project targeting a final investment decision later in the financial year. Total secured pipeline – GW 15.1GW Other future prospects | SSE Renewables remains focused | Dogger Bank D GB Offshore wind 1,320 660 | | --- | --- | | on offshore wind in Northern Europe, | Setanta (Braymore Point) Ireland Offshore wind 1,000 1,000 | | despite missing out on the Dutch | Celtic Sea Array ROI Offshore wind 1,200 1,200 | | and Polish tender processes. In the | Tarbert Ireland Offshore wind 1,000 1,000 | Japanese projects Japan Offshore wind ~6,000 ~4,800 Netherlands, SSE Renewables is now Other GB GB Onshore wind – ~550 focused on the upcoming Ijmuiden Ver Other Ireland Ire Onshore wind – ~200 | zone tenders (2 x 2GW), with bids now | | 1 | | | --- | --- | --- | --- | | | Spanish projects Spain Onshore wind | | ~1,750 ~1,750 | | expected in Q1 2024 following finalisation | | 1 | | | | France, Italy and Greece projects Various Onshore wind | | ~700 ~700 | | of the sites and tender process by the Dutch | Other GB Hydro GB Hydro 75 75 | | | | authorities later this year. SSE Renewables | Other Solar GB Solar ~400 ~400 | | | | has partnered with APG, acting on behalf of | Other Battery GB Battery ~900 ~900 | | | | Dutch pension fund ABP (the Netherlands’ | Total future prospects >13,000 | | | largest), for the tenders. And in Poland, the business continues to look at offshore Notes: All capacities are subject to change as projects refined. Table reflects ownership and development partnering opportunities. status as at May 2023. Late-stage is consented in GB and grid or land security elsewhere, early-stage has land rights in GB and some security over planning or land elsewhere. Future prospects are named sites where non-exclusive development activity is under way. Additional solar and battery storage projects reflects Solar and Battery team now forming part of SSE Renewables. Note 1: Includes solar hybridisation. 102 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ## SSE Thermal ### SSE Thermal owns and operates conventional flexible thermal ### generation in GB and Ireland, and around 40% of GB’s ### conventional underground gas storage capacity. These assets ### provide much-needed system flexibility. SSE Thermal is actively ### developing options to progressively decarbonise its portfolio, ### most notably in carbon capture and storage and hydrogen ### technologies, with biofuel as a bridge into hydrogen. | | Operational delivery | Following an agreement in June, SSE | | --- | --- | --- | | | In a year of record performance, SSE | Thermal, alongside Equinor as 50/50 | | Who SSE Thermal serves | Thermal’s fleet delivered strong availability | partner, completed the acquisition of the | | Electricity suppliers, traders and | In the GB market, which increased in the | Triton Power portfolio on 1 September in | | other generators through the | second half. The impact of unplanned | a £341m transaction, providing additional | | energy market; the national grid, | outages, most notably at Great Island, | flexibility and decarbonisation options. | | and ultimately electricity customers. | more than offset by strong operational | The portfolio includes the 1.2GW Saltend | | | availability across the portfolio. This | power station in the Humber along with | | How it supports SSE’s strategy | enabled the fleet to use its inherent | two smaller plants, Indian Queens power | | SSE Thermal is providing critical | flexibility to sell output to the market | station, a 140MW OCGT in Cornwall, and | | flexibility to offset renewables | and contract forward ahead of delivery, | Deeside power station in North Wales, a | | variability as the energy system | capturing value through forward spark | decommissioned CCGT which provides | | transitions to net zero. The strategic | spreads. The fleet has also been able to | carbon-free inertia to the system. While | | importance of its Gas Storage assets | optimise in response to market conditions, | the Triton portfolio delivered value on | | has been highlighted by recent world | particularly during periods of low wind. | an unhedged basis immediately after | | events and the increasing focus on | Robust asset management allowed the | acquisition, a hedging strategy has since | | national energy self-sufficiency. | fleet to meet availability expectations | been implemented to reduce ongoing | | | and capture market value through a | merchant exposure. | | How it is remunerated | volatile period, despite outages at Medway, | | | The wholesale energy market, | Marchwood and Great Island. Managing | In July, SSE Thermal completed the sale of | | Capacity Market and ancillary services | availability responsibly is and continues | the closed and decommissioned Fiddlers | | market provide the core revenue | to be a key focus for SSE Thermal, both | Ferry power station. | | streams. The fleet also responds to | within year and when taking a view of | | | forward market volatility and within | future system needs. | In March, in line with requirements under | | day demand, providing flexible | | the Industrial Emissions Directive, SSE | | generation and storage. | In March 2023, Keadby 2, Europe’s most | Thermal announced the closure of Tarbert | | | efficient CCGT, entered commercial | oil-fired power station in Ireland by the end | | | operation following a full commissioning | of December 2023. Great Island CCGT and | | | phase which started in October 2021. | Rhode and Tawnaghmore peaking plant | ### “The performance of our Keadby 2 includes a first-of-a-kind turbine continue to play an important role in a tight ### flexible generation and gas that displaces older, more carbon intensive system, where increased dispatchable ### storage assets this past year | | plant on the system. Before entering | capacity is required to meet system needs. | | --- | --- | --- | | underlines the value that SSE | commercial operation, Keadby 2 had been | | | Thermal can create for the | generating intermittently across the year, | For financial performance commentary | | | capturing early value. Keadby 2’s 15-year | please refer to the Financial Review. | ### Group, the GB energy system Capacity Market agreement is due to ### and society more broadly. ### commence in October 2023 and all Growth opportunities ### We will continue to optimise milestones to secure this agreement Developing decarbonised alternatives ### these assets while progressing have been completed. to the existing CCGT fleet will be vital to ### with new, lower-carbon deliver SSE’s goal to cut carbon intensity by 80% by 2030 and achieve its science-based ### opportunities that will carbon reduction targets, aligned with a ### help smooth the transition 1.5°C global warming scenario. ### to net zero.” In GB, SSE Thermal is developing projects Catherine Raw that include carbon capture and storage Managing Director, (CCS) and hydrogen; technologies that SSE Thermal will be critical to the transition to net zero, enabling enhanced renewables deployment by balancing the system. CCS and hydrogen remain at the heart of the UK Government’s plans. In the past year, the UK Government has committed to 103SSE plc Annual Report 2023 ### Operating Review continued ### SSE Thermal continued ### SSE Thermal key performance indicators deliver hydrogen transport and storage March March business models by 2025 to support its 2023 2022 10GW hydrogen production ambition, SSE Thermal it has indicated that it will consult on the Thermal adjusted operating profit –£m 1,031.9 300.4 potential for hydrogen-to-power market Thermal reported operating profit –£m 1,089.5 624.2 interventions later in 2023 and issued Thermal adjusted investment and capital expenditure, before a call for evidence on future support acquisitions – £m 153.2 123.4 for power-CCS projects. Generation capacity – MW Gas- and oil-fired generation capacity (GB) – MW 5,538 3,975 Aldbrough Hydrogen Pathfinder, SSE Gas- and oil-fired generation capacity (ROI) – MW 1,292 1,292 Thermal’s hydrogen value chain proof- | Total thermal generation capacity – MW 6,830 5,267 | of-concept project, was shortlisted to | | --- | --- | | Generation output – GWh | progress to a due diligence phase after | | Gas- and oil-fired output (GB) – GWh 16,781 11,303 | submitting a bid for funding and Hydrogen | | Gas- and oil-fired output (ROI) – GWh 1,532 2,962 | Production Business Model support | | Total thermal generation – GWh 18,313 14,265 | through the Net Zero Hydrogen Fund. | Aldbrough Hydrogen Pathfinder seeks to unite hydrogen production, hydrogen Note 1: Capacity is wholly owned and share of joint ventures, and reflects Transmission Entry Capacity; March storage and a 100% hydrogen-fired 2023 capacity reflects share of Triton Power portfolio with acquisition completed 1 September 2022. Note 2: Output is based on SSE 100% share of wholly owned sites and 100% share of Marchwood PPAs due open-cycle gas turbine (OCGT) on one to the contractual arrangement. In September 2021 SSE’s offtake agreement for 100% of output from site by the middle of the 2020s. This project its Seabank CCGT JV expired, with output following that date only recognised to the extent of its 50% will enable and inform the scaling up of equity share. SSE’s, the wider Humber, and the UK’s Note 3: Output in GB in year to March 2023 excludes 1,184GWh of pre-commissioning output from Keadby 2 hydrogen ambitions and help de-risk CCGT which commissioned 15 March 2023. further hydrogen investment. With the role of small-scale peaking plant expected to increase, this integrated concept also delivers expertise and experience in ### SSE Thermal capacity contract awards low-carbon OCGTs. The following agreements have been awarded through competitive auctions: SSE is continuing to develop options Station SSE share Station Asset type capacity of contract Capacity obligation for hydrogen blending into Keadby 2, with pre-FEED activity under way. Option Medway (GB) CCGT 735MW 100% To September 2027 assessment and scoping activity for a Keadby (GB) CCGT 755MW 100% To September 2027 further 100% hydrogen-fired CCGT at 16 years commencing Keadby 3 also continues. Pre-FEED activity Keadby 2 (GB) CCGT 893MW 100% October 2022 is also under way for Aldbrough Hydrogen Peterhead (GB) CCGT 1,180MW 100% To September 2027 Storage. The Triton Power portfolio adds Seabank (GB) CCGT 1,234MW 50% To September 2027 to this hydrogen pipeline, with plans to Marchwood (GB) CCGT 920MW 100% To September 2027 blend up to 30% low-carbon hydrogen Saltend (GB) CCGT 1,200MW 50% To September 2027 by 2027. Indian Queens (GB) OCGT 140MW 50% To September 2027 Energy from 15 years commencing In December Keadby 3 Carbon Capture Slough Multifuel (GB) Waste 50MW 50% October 2024 Power Station became the first power-CCS Burghfield (GB) OCGT 45MW 100% To September 2027 project to secure planning consent in the Chickerell (GB) OCGT 45MW 100% To September 2027 UK. Alongside the contract awarded in Great Island (Ire) CCGT 464MW 100% To September 2027 June for the completion of FEED (Front End Gas/oil Engineering Design), this demonstrates the Rhode (Ire) peaker 104MW 100% To September 2027 project’s advanced development. In March Gas/oil the UK Government announced the first Tawnaghmore (Ire) peaker 104MW 100% To September 2027 carbon capture projects to be supported Tarbert (Ire) Oil 620MW 100% To September 2023 by government-backed contracts – this 10 years commencing included projects located in Teesside and Tarbert (Ire) Biofuel 300MW 100% October 2026 the northwest of England. As a Humber- 10 years commencing based project, Keadby 3 has not progressed Platin (Ire) Biofuel 150MW 100% October 2026 to the final stage of negotiations for a Dispatchable Power Agreement. The UK Capacity contracts are based on de-rating factors issued by the delivery body for each contract year, Government has instead identified the therefore will not directly match SSE’s published station capacity. Humber as a region to be supported Capacities stated reflect Transmission Entry Capacity. through subsequent phases of its cluster Marchwood (SSE equity share 50%) tolling arrangement means SSE receives 100% of economic benefit from capacity contract. sequencing process by 2030 at the latest. Keadby 1 has capacity obligation in 2023/24, 2025/26 and 2026/27 but none in 2024/25. There are opportunities for Keadby 3 to Medway has capacity obligation in 2023/24 and 2026/27 but none in 2024/25 and 2025/26. access CO storage in either the Endurance 2 Keadby 2 16 year obligation comprised of a T-1 and a 15 year contract. store (a Track-1 CO transport and storage 2 system) or Viking (identified as a minded-to Track-2 CO transport and storage system 2 104 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report | by UK Government). Next steps on cluster | hydrogen operations are being developed, | standards. This would provide a bridge to a | | --- | --- | --- | | sequencing are expected later in 2023, | well-located relative to the HyNet cluster. | hydrogen future with both units having | | with work progressing to complete FEED | It is also investigating options to use | the potential to convert to the fuel. As with | | for Keadby 3. | alternative fuels, such as hydrogen | Aldbrough Hydrogen Pathfinder, these | | | derivatives. Construction activity for | projects reflect the expected role peaking | | The UK Government also set out further | Slough Multifuel remains on track to | generation will play in the system. | | detail for Track-2 clusters. Acorn was | complete in summer 2024. | | | identified as a ‘minded-to’ Track-2 CO | | Low-carbon projects in Ireland are | 2 | transport and storage system, alongside | | In Ireland, SSE Thermal is advancing | progressing alongside activity to deliver | | --- | --- | --- | --- | | Viking, for deployment by 2030. Acorn | | projects using sustainable biofuel as a | a Temporary Emergency Generation | | would provide CO | storage for Peterhead | lower carbon alternative to fossil-fuels | unit, at the request of the Irish authorities. | 2 | Carbon Capture Power Station. Further | and as a bridge to hydrogen. In March it | | Following legislation and a site selection | | --- | --- | --- | --- | | expressions of interest for Track-2 clusters | provisionally secured 10-year Capacity | | process undertaken by EirGrid, approved | | are being accepted by the UK Government | Market agreements for two new low- | | by the Commission for the Regulation | | ahead of next steps being communicated | carbon power stations to commence | | of Utilities, the Tarbert site was selected | | later in 2023. Peterhead Carbon Capture | in 2026/27 delivery year: | | to host 150MW of generation capacity, | | Power Station is continuing to develop with | • 260MW of de-rated electricity | | to run on distillate oil. It will operate as an | | a planning application submitted in March | | generation at Tarbert (€129,000/MW) | emergency plant with a maximum running | | 2022 and announcement of the award of | • 140MW de-rated electricity generation | | time of 500 hours per annum. Under the | | a FEED contract in July. It remains well- | | at Platin (€177,000/MW) | Irish Government’s emergency generation | | placed to participate in future Dispatchable | | | legislation, this capacity is to cease | | Power Agreement allocation processes. | The proposed low-carbon units at Tarbert | | operations as soon as the temporary | | | in Co. Kerry and Platin in Co. Meath would | | electricity emergency has been addressed, | | SSE Thermal is seeking opportunities to | help to protect security of supply and | | and no later than March 2028. The unit | | expand its GB low-carbon pipeline. It | provide flexible backup to Ireland’s growing | | would only be utilised when it is clear that | | continues to explore the decarbonisation | renewables sector. The proposed units will | | market-sourced generation will not be | | of the Medway site through hydrogen | initially run on Hydrotreated Vegetable Oil | | sufficient to meet system needs. | | or CCS. It has identified a potential new | (HVO), which is produced by processing | | | | location for low-carbon power generation | waste oils to create a fossil-free alternative | | | | in northwest England, where CCS and | to diesel in accordance with EU sustainability | | | ### Gas Storage | Operational delivery | SSE Gas Storage key performance indicators | | | | --- | --- | --- | --- | | | | March | March | | SSE Gas Storage performed strongly, | | 2023 | 2022 | navigating highly volatile gas markets and Gas Storage optimising assets to help ensure security Gas Storage adjusted operating profit – £m 212.5 30.7 of gas supply for the UK whilst providing Gas Storage reported operating profit – £m 249.2 125.4 important liquidity to the market. These Gas storage adjusted investment and capital expenditure – £m 6.3 2.1 assets are a significant risk management Gas storage level at period end – mTh 123 1 tool to the portfolio by offering short- Gas storage level at period end – % 65 1 notice flexibility to mitigate exposures from wind speeds and demand variability. ### Growth opportunities Plans to develop an innovative hydrogen SSE’s gas storage assets have made a Underlining the clear societal value these storage project at Aldbrough with Equinor, substantial contribution this year, with high assets provide, the UK Government’s announced in July 2021, are progressing. withdrawals and the technical ability to Powering Up Britain Energy Security Plan, Following the commitment in the British cycle quickly in response to market signals. published in March, highlighted that gas Energy Security Strategy to deliver Over the past three years the equivalent of storage had operated successfully over the hydrogen transport and storage business two caverns of storage have been added winter helping to meet demand caused by models by 2025, the UK Government through studies into maximum and cold weather spells. The UK Government published a consultation on this at the minimum operating pressures. Aldbrough will consider the future role that storage end of August 2022. This consultation Caverns 6 and 9 were successfully returned can play in the longer term, considering notes the importance of storage as to service ahead of winter 2022/23, adding the need to align with future plans for a ‘system balancer’ and envisages further capacity. As a result of an increase hydrogen and CO storage. SSE Thermal underground hydrogen storage becoming 2 in future market revenues forecast from remains committed to working with UK important to the functioning of the these types of assets, the historical Government departments and Ofgem hydrogen economy by the end of the impairments have been almost fully to ensure the critical role of UK storage is decade. As described in the previous reversed on Aldbrough at the year-end. properly valued, and low-carbon options section, Aldbrough Hydrogen Pathfinder can be delivered in tandem. has progressed to due diligence following For financial performance commentary a bid into the Net Zero Hydrogen Fund. please refer to the Financial Review. 105SSE plc Annual Report 2023 Operating Review # Energy Customer Solutions Who Energy Customer Solutions Serves 700,000 domestic and business customers in the all-island Ireland energy supply market, and around 469,000 non-domestic customers in GB. How it supports SSE's strategy By responding to the climate emergency through the provision of green energy solutions to customers who are increasingly focused on the transition to net zero. How it is remunerated By competing for customers and direct billing to them and third party intermediaries (in GB) and through state-supported schemes (in ROI). "In response to the cost inflation associated with events of the past year, SSE's customer businesses have focused on managing risk to ensure the best possible outcomes for our customers, supporting those that are vulnerable and working with governments on assistance packages." Nikki Flanders Managing Director Energy Customer Solutions SSE Business Energy key performance indicators | | March 2021 | | --- | --- | | SSE Business Energy | 17.9 | | | 12,108 | | | 200 | | | 167 | | | 108 | | | 0.43 | SSE Business Energy Operational delivery Growth opportunities ![img-7.jpeg](img-7.jpeg) 106 SSE plc Annual Report 2023 # **SSE Airtricity key performance indicators** | | March 2023 | | --- | --- | | SSE Airtricity | | | | 5.6 | | | 5.2 | | | 11.0 | | | 7.8 | | | 5,795 | | | 193 | | | 0.74 | # **SSE Airtricity** **Operational delivery** # **Growth opportunities** SSE plc Annual Report 2023 107 ### Operating Review continued ## SSE Distributed Energy ### Distributed Energy brings low-carbon energy solutions to business-to-business markets – ### including major regional and partnership opportunities. With private wires, heat networks, ### behind-the-meter solar and battery, EV charging and competitive networks all part of the ### UK’s net zero plans it is well positioned for future growth. As mentioned on previous pages, ### grid-scale Solar and Battery will report under the SSE Renewables segment from 1 April 2023, ### but progress in 2022/23 is outlined below. ### SSE Distributed Energy key performance indicators March March 2023 2022 ### Who SSE Distributed Energy SSE Distributed Energy ### serves SSE Distributed Energy adjusted operating (loss) –£m (27.4) (10.9) For the public sector and commercial SSE Distributed Energy reported operating (loss) –£m 33.5 (29.2) markets in GB and Ireland. It provides SSE Heat Network customer accounts 11,431 11,291 smart digital solutions for assets 1 Biomass, heat network and other capacity – MW 26 33 deployed and for businesses, Biomass, heat network and other output –GWh 96 104 buildings, and cities. 1 Capacity in March 2023 reflects sale of 8MW Chippenham gas-fired power station and changes to ### How it supports SSE’s strategy capacity installed on heat networks. Distributed energy, solar and battery storage assets have an increasingly | important role to play in the GB | Operational delivery | Growth opportunities | | --- | --- | --- | | energy system as electrification | SSE’s Distributed Energy team has opened | Distributed Energy has significant growth | | accelerates and generation is | its first EV charging hub in Glasgow with | opportunities including supporting | | increasingly led by intermittent | plans to roll out a further 300 such hubs | gigafactories and landmark redevelopment | | wind output. They also provide | across the UK and Ireland. It has also | projects like Teesside. It is also developing | | valuable diversity and optionality | launched its ‘Enhance’ technology platform | heat network technologies including a | | to the SSE portfolio. | which schedules, dispatches, and controls | new £25m low-carbon district heating and | | | flexible assets to facilitate trading or Grid | electricity scheme in Aire Valley, Leeds. | | How it is remunerated | balancing actions. | | | By competing for customers and | | Following its acquisition of the Imperial | | direct billing to them and third party | SSE announced significant milestones in | Park private wire network in Wales; | | intermediaries (in GB) and through | its solar and battery storage business in the | Distributed Energy will continue to explore | | state-supported schemes (in ROI). | reporting period which now has a 1.2GW | opportunities to help businesses cut | | | solar and battery pipeline secured and a | carbon and costs as well as supporting | | | further 1.3GW of other prospective sites | the transition to net zero at a local level. | | “Enterprise continues to identify | under development. These milestones | | | and grow new ventures that | include breaking ground in September | Transferring the Solar and Battery business | | | at its first 50MW battery storage project | to SSE Renewables allows it to scale up and | ### complement SSE’s core at Salisbury with construction starting this develop opportunities both domestically ### portfolio both to public sector summer at a 30MW solar farm at Littleton and internationally, as well as take on ### and commercial markets. The | | in Worcestershire. Construction of a | co-location projects. Solar is a cost- | | --- | --- | --- | | success of Solar and Battery | new 150MW battery storage project at | effective low-carbon technology and | | is proof of our key role for SSE | Ferrybridge in Yorkshire is also getting | the UK Government has reaffirmed its | | | under way with the assets expected to | commitment to its 70GW target by 2035; | ### Group in incubating new areas be fully operational in late 2024. whilst battery storage is a key part of the ### of growth that will help drive net zero jigsaw with its ability to rapidly ### net zero.” For financial performance commentary store and discharge energy when needed please refer to the Financial Review. most by the grid. Neil Kirkby Managing Director, SSE Enterprise 108 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ## Energy Portfolio Management (EPM) ### Energy Portfolio Management (EPM) trades commodities for SSE’s market-based Business Units, ### securing value on behalf of SSE’s asset portfolios in wholesale energy markets and managing ### volatility through risk managed trading of energy-related commodities for SSE’s market-based ### Business Units. SSE trades the principal commodities to which its asset portfolios are exposed, ### as well as the spreads between two or more commodity prices (e.g. spark spreads): power ### (baseload and other products); gas; and carbon (emissions allowances). Each commodity ### has different risk and liquidity characteristics, which impacts the quantum of hedging possible ### (see also SSE’s hedging Position in the Financial Review). ### EPM key performance indicators March March 2023 2022 ### Who EPM serves EPM SSE’s individual Business Units and EPM adjusted operating profit/(loss) –£m 80.4 (16.8) the SSE Group. EPM reported operating (loss)/profit –£m (2,626.0) 2,083.6 ### How it supports SSE’s strategy The work EPM does is key to | managing risk associated with the | Operational delivery | Growth opportunities | | --- | --- | --- | | operations behind SSE’s Net Zero | EPM navigated continued energy market | Transformation of the EPM Business Unit | | Acceleration Programme. It trades | volatility, with winter 2022/23 seeing a | continues with further recruitment and | | the principal commodities to which | reduction in volatility. EPM ensures the SSE | changes in systems and processes. | | SSE’s asset portfolios are exposed, | portfolio was hedged in accordance with | Focus has been on core delivery in the | | as well as the spreads between two | the Group’s approach to hedging and then | exceptional market environment, alongside | | or more commodity prices (e.g. spark | optimised through prompt periods. The | developments in market modelling, | | spreads); power (baseload and other | value EPM secured for SSE’s asset portfolio | assurance, data governance and analytics, | | products); gas; and carbon (emissions | continues to be reported against individual | and wind balancing. | | allowances). Each commodity | Business Units. | | | has different risk and liquidity | | European trading continues in small | | characteristics, which impacts | For financial performance commentary | volumes with the intention to increase this | | the quantum of hedging possible. | please refer to the Financial Review. | through 23/24. | | How it is remunerated | | Energy Economics, SSE’s long-term price | | It receives fees for providing energy | | forecasting and market analysis team, | | trading services to the constituent | | moved into EPM at the end of the financial | | parts of the SSE group. | | year providing significant synergies and | enhanced opportunities to share knowledge across the teams. ### “The core strengths of the ### EPM team in prompt and ### curve trading have served us ### well in navigating the market ### turbulence of the past year. ### We have an eye to the future, ### reinforcing our existing ### expertise while rapidly growing ### our capabilities in advanced ### data analytics and international ### markets to support the Group’s ### growth ambitions.” Gordon Bell Managing Director, Energy Portfolio Management 109SSE plc Annual Report 2023 ## In this section | Chair's introduction | 112 | | --- | --- | | Governance at a glance | 114 | | Board at a glance | 115 | | Board of Directors | 116 | | Group Executive Committee | 121 | | Our corporate governance | 122 | | Considered decision-making | 124 | | Setting strategy | 125 | | Guiding strategic progress | 126 | | Governing SSE for long-term success | 130 | | Understanding shareholder views | 132 | | Empowering the employee voice | 134 | | Focusing on culture | 137 | | Defining Board responsibilities | 139 | | Assessing Board performance | 140 | | Nomination Committee Report | 142 | | Audit Committee Report | 150 | | Energy Markets Risk Committee Report | 160 | | Safety, Sustainability, Health and Environment Advisory Committee Report | 162 | | Remuneration Committee Report | 166 | | – Remuneration Committee Chair's statement | 166 | | – Remuneration at a glance | 168 | | – Annual report on remuneration | 170 | | – Directors' Remuneration Policy – a summary | 185 | | Other statutory information | 188 | | Statement of Directors' responsibilities in respect of the Annual Report and the Financial Statements | 191 | ![img-8.jpeg](img-8.jpeg) # Directors' Report 110 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report 111SSE plc Annual Report 2023 ## Chair’s introduction Supported by the clarity of our purpose and a strong Net Zero Acceleration Programme (NZAP) the objectives of work in the year was clear; to provide sharp focus to the strategic agenda, engage constructively on a fair policy framework for its delivery, and ensure SSE is positioned to deliver for its stakeholders in the long term. This encompasses our responsibility, as a Board, ## Leading to understand and represent stakeholder views and material issues arising from the current economic backdrop. ### Leading the correct response Through the strategic agenda, we have overseen and positively challenged the pace and progress of large capital projects, ## for the continuing to assess whether the NZAP pursues the right actions in the changing external context. Our strategy days in Summer 2022 supported in-depth analysis of how the environment has evolved since November 2021, and throughout the year the clear targets we set have been tracked ## long through dialogue with senior leadership, strategic deep dives, and the introduction of an NZAP dashboard. This covers pipelines, project construction and options for further growth. The confidence we have in our growth strategy and the value it will create is reflected in the NZAP Plus plans ## term. announced in May 2023. More details are available on page 125 . Significant progress has been made in ### The ultimate measure of effective and the year. We sold a minority stake in SSEN Transmission, and have a clear path for SSEN ### responsible corporate governance is how Distribution to make increased investment ### it stands up in periods of challenge. SSE under the RIIO-ED2 price control. SSE Renewables progressed flagship projects ### was tested in 2022/23 by unprecedented and continues to pursue opportunities at ### volatility, and the Board supported decisions home and internationally. SSE Thermal enhanced the CCS and hydrogen potential ### and actions that considered the issues of of its portfolio, supported by the partnership ### affordability, security, sustainability and fairness. acquisition of Triton Power for which we updated our Net Zero Transition Plan. Energy Customer Solutions remains dynamic in its response to cost of living and customer support, and we are providing flexibility for the future through distributed energy, solar and battery technologies. More on Board strategy work is on pages 125 to 129 . ### Managing sector impacts The risks presented through inflationary pressure, volatile commodity prices, increased competition and the totemic issue of climate change are subject to defined governance through standing Board and Committee work. On capital investment, we have reviewed decision-making criteria at regular intervals to ensure opportunities are appraised in line with our view of acceptable returns, an input which is complemented by Audit Committee feedback on our funding and treasury policy. 112 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report Our approach to hedging has provided a level of rigour and support provided. With We look forward to working with Barry, baseline to manage portfolio exposures, a rise in contractor hours worked across who brings depth of financial and energy and we have reviewed the governance and large capital projects a central Contractor expertise having been actively involved in risk metrics overseen by the Energy Markets Safety Team is now also in place. SSE’s strategic growth. Risk Committee (EMRC) to ensure controls | remain appropriate in the current climate. | This was the first year, since Covid-19, | As reported previously, and in line with | | --- | --- | --- | | | where the Board conducted a full schedule | succession plans, Dame Sue Bruce stepped | | Specific updates have allowed Board | of site visits. Virtual large-scale engagement | down from the Board on 31 March 2023 and | | and Remuneration Committee input on | complements this approach, and I am | Peter Lynas will not seek re-election at the | | employee cost of living support and SSE’s | extremely pleased it was a record year | 2023 AGM. We extend our thanks for the | | overall employee value proposition, to | for employee participation across SSE | commitment and experience they will have | | ensure actions are considered holistically | with in-person and virtual events attended | provided to the Board over the last nine | | and support those most deeply impacted. | more than 40,000 times. Collectively | years, and Melanie Smith, John Bason and | | | we have been able to reach 32 locations | Lady Elish Angiolini bring their own depth of | | Climate change and a just transition to | across the UK and Ireland, with over 3,500 | expertise to the Board roles they assume | | net zero sit at the core of SSE’s strategy, | employees participating in the post-AGM | following these non-Executive changes. | | and focus continues to be provided to | engagement sessions alone. | | | our science-based targets, supporting | | Standing Nomination Committee work, | | sustainability strategies and transparent | Dame Sue Bruce established the direct link | in conjunction with 2021/22 evaluation | | reporting of our social, environmental and | between the Board and employee voice | findings, sees one new addition to the | | economic impacts. Accordingly, separate | through the Non-Executive Director for | Board, with the appointment of Maarten | | Sustainability and Net Zero Transition | Employee Engagement role, and I would | Wetselaar as a non-Executive Director from | | Reports accompany this Annual Report. | like to extend my thanks to Sue for the | 1 September 2023. Maarten is a leader in | | | thoughtful agenda she passes on to Lady | the energy transition and I look forward to | | Validating our actions | Elish Angiolini to lead. We know colleagues | welcoming him when he joins. | | Our analysis of the operating context is | value discussing topics of importance | | | not conducted in isolation, and we value | with senior leaders and we will support | Inclusion and diversity are priority areas for | | additional perspectives to foster unbiased | continued and open conversations. | the Board and Nomination Committee, and | | discussion and challenge our view of the | | we commit to reporting transparently on | | long term. Methods to gather insights have | Engagement is supported by the Cultural | progress. After the above Board changes, | | included stakeholder soundings of our | Dashboard we review twice a year. This | membership will comprise 42% women; this | | strategy, guest speaker sessions, and | has again matured and through purposeful | is above our 40% ambition and we continue | | internally facilitated deep dives. Given the | design it prompts thinking of the individual | to work within the enduring policy aim of | | speed of change on both a national and | strands which contribute to, or have the | gender parity. In line with the FCA Listing | | international level, a vast array of topics has | potential to influence, our culture. More | Rule, we explain that the roles of Chair, | | been covered through external sessions, | on employee listening and culture is on | Senior Independent Director, Chief Executive | | including the political and economic | pages 134 to 138 . | and Finance Director are all held by men. | outlook, policy developments, and the | geo-political context. | Assessing performance | Within senior leadership, we are pleased | | --- | --- | --- | | | In 2021/22 the external Board evaluation | with the improvement in gender diversity | | On behalf of the Board, I confirm the | was conducted by Lintstock, following | compared to 31 March 2022 but there | | continued value we place on conversations | two consecutive internal processes in the | is more work to do. The reset of our | | with shareholders, which take place through | preceding years. To provide a measured | internal ambitions in 2022 sets a minimum | | investor meetings and events, and questions | assessment of progress, we re-engaged | standard, not an endpoint, and we continue | | across the year and around the AGM. We | Lintstock to complete follow-up reviews in | work to understand the levers for change. | | hosted two additional initiatives in 2022/23, | 2022/23 and 2023/24, for which the format | We further welcome the Parker Review’s | | an ESG seminar focused on our Net Zero | will reflect that of our internal evaluation | recommendation for voluntary ethnicity | | Transition Report, and a two-day session in | approach. I am pleased the 2022/23 report | targets at the same level and will ascertain | | Inverness which provided the opportunity | confirmed our effective operation, and that | a challenging yet credible position to work | | to meet management teams and visit key | additional actions have been identified for | towards for 2027. More on Nomination | | sites. Our engagement approach in 2023/24 | our plan of Board work. More on the | Committee work is on pages 142 to 149 . | | will continue to support understanding of | evaluation is on pages 140 to 141 . | | | shareholder opinion and we will respond to | | I hope you find the Directors’ Report which | | the feedback we receive. For the 2023 AGM | Balanced leadership | follows a transparent and engaging | | we again offer inclusive participation through | In April 2023, we announced the retirement | account of work across 2022/23. | | a hybrid meeting and we encourage virtual | of Gregor Alexander and his stepping down | | | participation if you cannot attend in person. | from the Board on 1 December 2023, after | | what will be 21 years as Finance Director. | Our people and safety | Gregor has been with SSE since its inception, | | --- | --- | | Our people and their safety are paramount, | joining Scottish Hydro-Electric in 1990, and | | and I reiterate how saddened we were by | has been instrumental to the transformation | | the death of Liam Macdonald, a contractor | of the Group. His financial leadership and | Sir John Manzoni working on Shetland in June 2022. The counsel are evident in the strong position in Chair, SSE plc Board and Safety, Sustainability, Health which he leaves SSE. Following an external 23 May 2023 and Environment Advisory Committee recruitment process, Barry O’Regan, current (SSHEAC) apply sharp focus to our safety Finance Director, SSE Renewables, will performance and continue to monitor the succeed him as Chief Financial Officer. 113SSE plc Annual Report 2023 ## Governance at a glance ### UK Corporate ### Governance Code ### Key activities in 2022/23 The Board continues to assess its approach to corporate ### Appraised strategic Assessed external governance through application of the FRC’s UK Corporate ### delivery context Governance Code (the Code) and reports against the 2018 Overseeing NZAP progress and Conducting deep dives and external Code for the year ended 31 March approving the NZAP Plus speaker sessions 2023. A copy can be found at pages 125 to 129  page 125  www.frc.org.uk . Fully-funded capital investment plan Knowledge sessions held For 2022/23, the Board confirms ## £18bn 19 compliance against the Code Provisions. The assessment of independence which supported the time limited extension to the tenure of Dame Sue Bruce and Peter Lynas is set out on page 146 . ### Enhanced shareholder Amplified employee The spirit of the Code continues to ### dialogue listening be upheld through the work of the | Continuing the Chair’s shareholder | Participating in diverse events across | Board and its Committees, which | | --- | --- | --- | | roadshow as a standing event | all areas of the Group | includes application of the Code’s | | pages 132 to 133  | pages 134 to 136  | Principles. The below confirms | where disclosures to evidence Number of Chair roadshow meetings Board-employee engagements this approach are located, and cross-references are used where ## 20 58 supporting information is located outside of the Directors’ Report. Board Leadership and ### Progressed Board Considered Board Company Purpose ### succession diversity See pages 122 to 138  Approving the appointment of a new Confirming the difference across non-Executive Director and Finance Board membership including gender, Director succession plans ethnicity and broader characteristics Division of Responsibilities pages 144 to 145  pages 148 to 149  See page 139  Number of Board members Female Board membership ## 12 42% Composition, Succession and Evaluation See pages 140 to 149  Audit, Risk and Internal Control See pages 150 to 165  Remuneration See pages 166 to 187  114 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ## Board at a glance ### Planned Director changes • Dame Sue Bruce stepped down from the Board on 31 March 2023. • Peter Lynas steps down from the Board on 20 July 2023. • Maarten Wetselaar joins the Board on 1 September 2023. • Gregor Alexander to be succeeded by Barry O’Regan on 1 December 2023. ### Board composition Board gender balance (as at 23 May 2023) Rolling three-year female representation Average non-Executive Director tenure (as at 23 May 2023) ## 42% 43% ## 3.98 female membership female years | | 42% | 5 | | | | | Sir John | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 30% | 37% | 43% | Manzoni | | Men | | 58% | 7 | | | | | Lady Elish Angiolini 31 March 31 March 31 March 2021 2022 2023 John Bason Debbie Crosbie Board independence (as at 23 May 2023) Board ethnicity (as at 23 May 2023) Tony Cocker Peter Lynas ## 73% 1 independent ethnic minority background Helen Mahy Melanie Smith 8 White British 11 Dame Angela Executive Directors 3 Māori 1 Strank Non-Executive 1 ### Skills to support long-term success The below skills matrix sets out the expertise the non-Executive Directors have assimilated outside of their SSE Board role. The collective position is enhanced by the innate differences in approach and thinking styles, which results from the diverse background and experience of each individual as set out in the biographies on pages 116 to 120 . Sir Lady Dame John Elish John Tony Debbie Peter Helen Melanie Angela Manzoni Angiolini Bason Cocker Crosbie Lynas Mahy Smith Strank Tenure (years) 2 1 <1 5 1 8 7 4 3 Experience of operating context and disruptive trends Energy sector, energy regulation and energy     markets Government and public policy      Clean energy, renewables and climate science     Global business, scale and complexity        Digital and data       Stakeholders and social impact          Skills to challenge and set a sustainable strategy 9 years Large capital project management        Financing, economics and capital markets      Partnering, M&A and transactions       Risk management          Consumer insight        Responsible leadership of a large organisation Corporate governance and leadership          Culture, safe working and people development          Independent non- Executive Directors 115SSE plc Annual Report 2023 Women 0 1 2 3 4 5 6 7 8 9 Chair ## 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 | | --- | --- | --- | --- | --- | | 2 years | 21 years | 20 years | 5 years | 5 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 detailed knowledge of the energy | | energy industry and both the private and public | knowledge of the Group, having held senior roles | Director on the Board since 2002. Prior to being | which was followed by a series of commercial | sector through a 20-year career with E.ON SE and | | sectors. Through an executive career at BP which | across multiple business areas. Prior to joining the | appointed as Finance Director, Gregor worked | roles before becoming Managing Director, Energy | Powergen plc, encompassing responsibility for: | | spanned 24 years, he held a number of senior roles | Board in 2002 as Energy Supply Director, Alistair | in senior finance roles and led specialist teams | Portfolio Management, and a member of SSE’s | thermal generation; onshore and offshore wind | | including Chief Executive, Refining and Marketing | was Director of Corporate Finance and Business | including as Group Treasurer and Tax Manager. | then Management Board in 2012. In 2014, he was | (including Scroby Sands and the London Array, | | in which he was a Main Board member. This was | Development. In 2010, he became Generation | Gregor has also served on the Boards of SSE’s | appointed Managing Director, Wholesale, and a | the world’s largest offshore wind farm when | | followed by President and Chief Executive Officer | and Supply Director, before his appointment | networks businesses over a number of years. | member of SSE’s Group Executive Committee. | built); commodity trading and risk management; | | at Talisman Energy Inc before a move to UK | as Deputy Chief Executive in 2012 then Chief | He is a Chartered Accountant and member | In 2017 he joined the Board as Group Energy | and retail. Latterly, he held the position of CEO | | Government where he spent six years as Chief | Executive in 2013. Alistair is a fellow of the | of the Accounting for Sustainability (A4S) CFO | Director, a role which was expanded to Group | and Chair of E.ON UK plc, comprising the main | | Executive of the Civil Service and Permanent | Energy Institute and a Chartered Accountant. | Leadership Network. | Energy and Commercial Director in November | businesses in the UK. Previous roles include CEO | | Secretary of the Cabinet Office. He has previously | | | 2020. This role was re-titled Chief Commercial | of E.ON Energy Trading SE and Managing Director | | been a non-Executive Director of SABMiller plc | | | Officer in March 2022. | of E.ON UK Energy Wholesale. He has served on | | and Chair of Leyshon Energy Limited. | | | | 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 as | | • Literacy in complex energy and commodity | | • Extensive CEO and MD experience across | | | | with diverse perspectives gained across | | approach to strategy; evidenced through | | leader of SSE’s financial strategy, including | | markets which is supported by technical | | renewables, generation, commodity portfolio | | | multiple sectors, organisational settings | | continued delivery under the Group operating | | the approach to sustainable financing and | | and operational expertise. | | management and energy trading. | | | and geographies, which complement the | | model, Net Zero Acceleration Programme, | | long-term performance, and the link between | • End-to-end experience in large capital | | • Wide-ranging technical and operational | | | | responsibilities of SSE Chair. | | and sustainability plans and targets. | | financial, social and environmental factors. | | projects including joint venture engagement | | insight, surrounding energy infrastructure | | • Experienced in the governance of large-scale | | • Broad knowledge of the energy markets in | | • Experienced in directing significant corporate | | | and governance, which has been applied | | and assets including the delivery of major | | | business operations, leading reform and the | | Great Britain and Ireland and across Europe, | | projects and major transactions, including | | in the development of SSE’s diverse and | | thermal and renewable energy projects. | | | management of complex projects to drive | | which informs views of long-term direction. | | SSE’s approach to investments, divestments | | flexible generation portfolio, including the | • UK and European energy industry and | | | | commercial performance, skills key to the | • Proactive approach to understanding | | | and partnering to create strategic value. | | renewables pipeline. | | non-Executive experience enhances Board | | | fulfilment of SSE’s vision and purpose. | | stakeholder priorities including the impact of | • Oversees governance in the management | | • Commercially minded in seeking future | | | understanding of trends relevant to SSE’s | | • Strong communicator with insight into | | | the energy crisis, SSE’s societal response to | | of Group risks including those emerging | | growth within SSE’s market-based businesses, | | operations and of utilities regulation. | | | the management and development of | | net zero and the pace, focus and investment | | from the net zero transition and external | | including internationally, having supported | • A balanced sounding board with additive | | | | stakeholder relations aligned with SSE’s | | needed to deliver a clean, secure and | | economic environment, with a focus on | | key capital recycling opportunities and | | experience in strategic consultancy and | | | approach to decision-making. | | cost-effective energy system. | | capital investment, resilient supply chains, | | transactions to refine SSE’s business mix and | | energy and utility stakeholder management. | | • Working knowledge of energy regulation, | | • Detailed understanding of policy, politics, | | | project delivery and digital. | | secure optimum value from investments. | | | | | government and policy considerations which | | and regulation, enabling constructive | • Deep appreciation of shareholder views | | • Understanding of change management and | | | | | | underpin the success of a net zero transition. | | engagement in these areas. | | and ESG matters including the continued | | sources of commercial risk, having overseen | | | | • Brings sharp focus to people leadership, | | • Focused on people development to support | | | commitment to lead on fair tax, fair work | | SSE’s monitoring and response to recent | | | | | succession planning and inclusion and | | culture and capabilities for future growth. | | and sharing economic value through of SSE’s | | market volatility. | | | | | diversity. | | | | 2030 Goals. | | | | | | 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. | | • Chair of SSEN Distribution Board from | | • Chair of SSEN Transmission Board from | | • Member of Energy UK Board. | | • Chair of Infinis Energy Management Limited. | | | • Chair of the Atomic Weapons Establishment. | | | April 2023. | | October 2022. | | | • Visiting Professor at Aston University. | | | • Non-Executive Director of KBR Inc. | | • Non-Executive Director of Anglian Water | | • Director of Neos Networks Limited from | | | | • Chair of Future Biogas Limited from March | | | | | | Services Limited from November 2022. | | February 2023. | | | | 2023. | | | | • Member of the Scottish Energy Advisory | | • Stepped down as non-Executive Director | | | | | | | | | | Board. | | of Stagecoach Group plc in June 2022. | | | | | • Member of the UK Government’s Hydrogen Advisory Council. 116 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report 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 ### Sir John Manzoni Alistair Phillips-Davies Gregor Alexander Martin Pibworth Tony Cocker Committee Chair Chair Chief Executive Finance Director Chief Commercial Officer Senior Independent Director NC ER SHE RC ER ER SHE NC AC ER SHE ### External appointments Date of appointment Date of appointment Date of appointment Date of appointment Date of appointment The Board considered and approved 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 | | | --- | --- | --- | --- | --- | --- | | and Chair from April 2021 | Chief Executive from July 2013 | since October 2002 | and Chief Commercial Officer from | Independent Director from October 2020 | taken on by Alistair Phillips-Davies, | | | | | November 2020 | | Tony Cocker, Debbie Crosbie, Helen | Mahy and Melanie Smith during the Board tenure Board tenure Board tenure Board tenure Board tenure period, confirming there would be 2 years 21 years 20 years 5 years 5 years no impact on the time commitment Career and experience Career and experience Career and experience Career and experience Career and experience required for their respective roles. 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 detailed knowledge of the energy For the non-Executive Directors, energy industry and both the private and public knowledge of the Group, having held senior roles Director on the Board since 2002. Prior to being which was followed by a series of commercial sector through a 20-year career with E.ON SE and an additional assessment of sectors. Through an executive career at BP which across multiple business areas. Prior to joining the appointed as Finance Director, Gregor worked roles before becoming Managing Director, Energy Powergen plc, encompassing responsibility for: independence and objectivity spanned 24 years, he held a number of senior roles Board in 2002 as Energy Supply Director, Alistair in senior finance roles and led specialist teams Portfolio Management, and a member of SSE’s thermal generation; onshore and offshore wind was conducted, with no concerns | including Chief Executive, Refining and Marketing | was Director of Corporate Finance and Business | including as Group Treasurer and Tax Manager. | then Management Board in 2012. In 2014, he was | (including Scroby Sands and the London Array, | | | --- | --- | --- | --- | --- | --- | | in which he was a Main Board member. This was | Development. In 2010, he became Generation | Gregor has also served on the Boards of SSE’s | appointed Managing Director, Wholesale, and a | the world’s largest offshore wind farm when | identified. The resultant position | | followed by President and Chief Executive Officer | and Supply Director, before his appointment | networks businesses over a number of years. | member of SSE’s Group Executive Committee. | built); commodity trading and risk management; | is believed to be consistent with | | at Talisman Energy Inc before a move to UK | as Deputy Chief Executive in 2012 then Chief | He is a Chartered Accountant and member | In 2017 he joined the Board as Group Energy | and retail. Latterly, he held the position of CEO | recognised proxy advisor guidelines. | | Government where he spent six years as Chief | Executive in 2013. Alistair is a fellow of the | of the Accounting for Sustainability (A4S) CFO | Director, a role which was expanded to Group | and Chair of E.ON UK plc, comprising the main | | | Executive of the Civil Service and Permanent | Energy Institute and a Chartered Accountant. | Leadership Network. | Energy and Commercial Director in November | businesses in the UK. Previous roles include CEO | | | Secretary of the Cabinet Office. He has previously | | | 2020. This role was re-titled Chief Commercial | of E.ON Energy Trading SE and Managing Director | | | been a non-Executive Director of SABMiller plc | | | Officer in March 2022. | of E.ON UK Energy Wholesale. He has served on | | | and Chair of Leyshon Energy Limited. | | | | 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 as | | • Literacy in complex energy and commodity | | • Extensive CEO and MD experience across | | | | with diverse perspectives gained across | | approach to strategy; evidenced through | | leader of SSE’s financial strategy, including | | markets which is supported by technical | | renewables, generation, commodity portfolio | | | multiple sectors, organisational settings | | continued delivery under the Group operating | | the approach to sustainable financing and | | and operational expertise. | | management and energy trading. | | | and geographies, which complement the | | model, Net Zero Acceleration Programme, | | long-term performance, and the link between | • End-to-end experience in large capital | | • Wide-ranging technical and operational | | | | responsibilities of SSE Chair. | | and sustainability plans and targets. | | financial, social and environmental factors. | | projects including joint venture engagement | | insight, surrounding energy infrastructure | | • Experienced in the governance of large-scale | | • Broad knowledge of the energy markets in | | • Experienced in directing significant corporate | | | and governance, which has been applied | | and assets including the delivery of major | | | business operations, leading reform and the | | Great Britain and Ireland and across Europe, | | projects and major transactions, including | | in the development of SSE’s diverse and | | thermal and renewable energy projects. | | | management of complex projects to drive | | which informs views of long-term direction. | | SSE’s approach to investments, divestments | | flexible generation portfolio, including the | • UK and European energy industry and | | | | commercial performance, skills key to the | • Proactive approach to understanding | | | and partnering to create strategic value. | | renewables pipeline. | | non-Executive experience enhances Board | | | fulfilment of SSE’s vision and purpose. | | stakeholder priorities including the impact of | • Oversees governance in the management | | • Commercially minded in seeking future | | | understanding of trends relevant to SSE’s | | • Strong communicator with insight into | | | the energy crisis, SSE’s societal response to | | of Group risks including those emerging | | growth within SSE’s market-based businesses, | | operations and of utilities regulation. | | | the management and development of | | net zero and the pace, focus and investment | | from the net zero transition and external | | including internationally, having supported | • A balanced sounding board with additive | | | | stakeholder relations aligned with SSE’s | | needed to deliver a clean, secure and | | economic environment, with a focus on | | key capital recycling opportunities and | | experience in strategic consultancy and | | | approach to decision-making. | | cost-effective energy system. | | capital investment, resilient supply chains, | | transactions to refine SSE’s business mix and | | energy and utility stakeholder management. | | • Working knowledge of energy regulation, | | • Detailed understanding of policy, politics, | | | project delivery and digital. | | secure optimum value from investments. | | | | | government and policy considerations which | | and regulation, enabling constructive | • Deep appreciation of shareholder views | | • Understanding of change management and | | | | | | underpin the success of a net zero transition. | | engagement in these areas. | | and ESG matters including the continued | | sources of commercial risk, having overseen | | | | • Brings sharp focus to people leadership, | | • Focused on people development to support | | | commitment to lead on fair tax, fair work | | SSE’s monitoring and response to recent | | | | | succession planning and inclusion and | | culture and capabilities for future growth. | | and sharing economic value through of SSE’s | | market volatility. | | | | | diversity. | | | | 2030 Goals. | | | | | | 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. | | • Chair of SSEN Distribution Board from | | • Chair of SSEN Transmission Board from | | • Member of Energy UK Board. | | • Chair of Infinis Energy Management Limited. | | | • Chair of the Atomic Weapons Establishment. | | | April 2023. | | October 2022. | | | • Visiting Professor at Aston University. | | | • Non-Executive Director of KBR Inc. | | • Non-Executive Director of Anglian Water | | • Director of Neos Networks Limited from | | | | • Chair of Future Biogas Limited from March | | | | | | Services Limited from November 2022. | | February 2023. | | | | 2023. | | | | • Member of the Scottish Energy Advisory | | • Stepped down as non-Executive Director | | | | | | | | | | Board. | | of Stagecoach Group plc in June 2022. | | | | | • Member of the UK Government’s Hydrogen Advisory Council. 117SSE plc Annual Report 2023 ### Board of Directors continued INDEPENDENT NON-EXECUTIVE DIRECTORS | Lady Elish Angiolini QC | | | John Bason | | | Debbie Crosbie | | | Peter Lynas | | | Helen Mahy CBE | | | Melanie Smith CBE | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Non-Executive Director | | | Non-Executive Director | | | Non-Executive Director | | | Non-Executive Director | | | Non-Executive Director | | | Non-Executive Director | | | | NC | SHE | RC | NC | AC | 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 June 2022 | | | 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 | | | | 1 year | | | Under 1 year | | | 1 year | | | 8 years | | | 7 years | | | 4 years | | | | Career and experience | | | Career and experience | | | Career and experience | | | Career and experience | | | Career and experience | | | Career and experience | | | | Lady Elish has an extensive public sector legal | | | John brings significant listed company and recent | | | 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 strategy and | | | | career, serving as Lord Advocate of Scotland | | | and relevant financial and international experience | | | financial services leadership and became the | | | spanning all areas of finance. He retired from the | | | Counsel of National Grid plc. She is an experienced | | | transformation experience. Most recently, she | | | | from 2006 to 2011, across two government | | | through a career in global businesses. He joined | | | first female Chief Executive of Nationwide | | | role of Group Finance Director of BAE Systems plc | | | non-Executive Director with previous directorships | | | built the Ocado Retail joint venture – the world’s | | | | administrations, having previously been Solicitor | | | Associated British Foods plc (ABF) as Finance | | | Building Society in 2022. Prior to this appointment, | | | in March 2020, prior to which he was Director, | | | at Bonheur ASA, Aga Rangemaster plc, Stagecoach | | | largest pureplay online grocer and the UK’s fastest | | | | General for Scotland. Since then, she has carried | | | Director in 1999 and held this position until | | | Debbie served as CEO of TSB from May 2019 and | | | Financial Control, Reporting and Treasury. His early | | | Group plc, SVG Capital plc, Chair of MedicX Fund | | | growing grocer, of which she was CEO until 2022. | | | | out independent public inquiries and reviews | | | stepping down in April 2023. Whilst in post, ABF’s | | | was previously an Executive Director and Chief | | | career involved roles within GEC Marconi, where | | | Limited, Deputy Chair and Senior Independent | | | Prior to this she was Strategy Director for Marks & | | | | for the UK and Scottish Governments and held | | | diverse food, ingredients and retail businesses | | | Operating Officer of Clydesdale Bank, where | | | he was appointed Finance Director of Marconi | | | Director of Primary Health Properties PLC, and | | | Spencer with responsibility for group strategy, M&S | | | | positions in academia, serving as Principal of | | | employed 128,000 people and operated in 53 | | | she led preparations for its successful demerger | | | Electronic Systems before the completion | | | Chair of The Renewables Infrastructure Group | | | Bank and M&S Services. Earlier roles include Global | | | | St Hugh’s College Oxford since 2012. She is also | | | countries across Europe, Asia, the Americas, | | | from National Australia Bank and subsequent IPO. | | | of the British Aerospace/Marconi merger. | | | Limited. She was a member of the Parker Review | | | Strategy and Marketing Director at Bupa, Chief | | | | a Pro-Vice Chancellor of Oxford University and | | | Australia and Africa. Prior to this, John was | | | Debbie is a fellow of the Chartered Institute of | | | He is a Fellow of the Chartered Association | | | steering committee into the Ethnic Diversity of | | | Operating Officer at TalkTalk and a Partner in | | | | previous Chancellor of the University of West of | | | Finance Director of the international distribution | | | Bankers and a member of the Glasgow Economic | | | of Certified Accountants. | | | UK Boards. She is a patron of the Social Mobility | | | McKinsey’s Consumer practice. | | | | Scotland. She is Chair of the Board of Trustees for | | | and services group Bunzl plc. Non-Executive | | | Leadership Board and the Strathclyde University | | | | | | Business Partnership, Co-chair of the Employers | | | | | | | the legal action non-governmental group Reprieve | | | experience includes Senior Independent Director | | | Business School Advisory Board. | | | | | | Social Mobility Alliance and Chair of the Global | | | | | | | and a patron of several charities. | | | and Audit Committee Chair of Compass Group | | | | | | | | | Media Campaign to end FGM. | | | | | | PLC. John is a Chartered Accountant. | 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 | | • Extensive leadership experience and | | • Extensive experience of the implementation | | • Brings recent and relevant financial | | • Long-standing energy and regulatory | | • Highly qualified to appraise strategy | | | | Scottish governance and has practical | | international perspective, gained from global | | of strategy, including execution of far- | | experience to the Board and strong | | expertise, including understanding of the | | development and execution, having | | | experience of working with the UK and | | companies and complex operations, which | | reaching transformation projects within | | direction to the Audit Committee, as Chair | | legal, compliance, governance and risk | | advised and led growth, brand and business | | | Scottish governments through involvement | | will be invaluable to SSE’s growth and entry | | large consumer-facing organisation, | | of which, he drives focus on the risk and | | frameworks in which SSE’s businesses operate | | transformation in the consumer and retail | | | in independent public reviews, whilst | | into new markets. | | and the critical role of digital and data. | | control environment including Group | | and a decade of experience overseeing | | sectors worldwide. | | | maintaining no political affiliation. | • A proven track record in developing financial | | • Understanding of capital allocation, | | | resilience, cyber security and the ethics | | renewables infrastructure investment. | • Deep commercial and digital experience | | | • Strong ambassadorial skills developed | | | and commercial strategy, including M&A, | | optimisation, and investment appraisal | | and compliance culture. | • Insight into a broad range of investor and | | | across multiple goods and services categories, | | | through an international stakeholder network | | corporate transactions and large capital | | frameworks central to SSE’s growth plans. | • International business perspective and | | | stakeholder perspectives and trends from | | including insurance, telco and energy that | | | in judicial, governmental, diplomatic, and | | projects, which complements SSE’s Net | • Responsible for efficient and effective | | | an applied understanding of long-term | | cross-sectoral, international and external | | furthers Board understanding of the customer. | | | academic fields. | | Zero Acceleration Programme Plus, and | | operations in high profile organisations | | project management and delivery, including | | Board interests that enable wider discussion | • Has a people centric style and wide-ranging | | | • Exercises a strong sense of social purpose | | | supports appointment to the role of Audit | | in a heavily regulated sector, requiring a | | investment appraisal, contracting and supply | | and debate. | | experience in a global context including a | | | and adds depth of perspective to Board | | Committee Chair from 21 July 2023. | | compliance-driven approach and proficiency | | chain experience. | • Advocate of a strong safety and employee | | | strong cultural appreciation. | | | considerations, including as an advocate | • Understanding of the listed company context | | | in IT and cyber security, risk management and | • Up-to-date investor relations experience | | | wellbeing culture, extensive knowledge of | • An entrepreneurial organisational leader, | | | | for employee views in the Boardroom; | | with practical experience of investor relations | | internal controls. | | through his executive career at BAE and | | sustainability, and applies a wide focus to | | actively engaging with stakeholder views | | | reinforcing SSE’s approach to wider | | and ESG strategy, placing upmost importance | • Business leader with expert understanding | | | pensions insight having been Chair of the | | social equity including social mobility and | | to create high performing organisations. | | | value creation. | | on the role of sustainability. | | of the wider organisational responsibilities | | trustee Board of a major UK scheme. | | inclusion and diversity. | | | to employees and society. | 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 | | • Non-Executive Director of Bloomsbury | | • Chief Executive of Nationwide Building | | • Senior Independent Director of First Group plc. | • Non-Executive Director of Gowling WLG | | • Advisory Board member of Manaia. | | | | of Oxford. | | Publishing Plc. | | Society. | | | (UK) LLP. | • Trustee of Sadler’s Wells. | | | • Principal of St Hugh’s College Oxford. | | • Chair of the charity FareShare. | | • Member of the Glasgow Economic | | | • Non-Executive Director of NextEnergy Solar | | • Founder of Mokaraka Trust. | | | • Chair of the Sarah Everard Inquiry. | | • Primark Strategic Advisory Board Chair from | | | Leadership Board. | | | Fund from April 2023. | • Trustee of Somerset House from | | | • Chair of Board of Trustees of Reprieve. | | | April 2023. | • Member of the Business School Advisory | | | • Stepped down as Chair of The Renewables | | | December 2022. | | • Stepped down as Chair of the Discipline | | • Stepped down as Finance Director of | | | Board of Strathclyde University. | | | Infrastructure Group Limited in October 2022. | • Stepped down as CEO of Ocado Retail | | | | Board of ICAS in March 2023. | | Associated British Foods plc in April 2023. | • Member of the FCA Practitioner Panel | | | • Stepped down as Commissioner for The | | | Limited in August 2022. | | | | | | | from June 2022. | | | Equality and Human Rights Commission in | | | | | | | | • Director of UK Finance from May 2023. | | | | March 2023. | | | 118 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report | Lady Elish Angiolini QC | | | John Bason | | | Debbie Crosbie | | | Peter Lynas | | | Helen Mahy CBE | | | Melanie Smith CBE | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Non-Executive Director | | | Non-Executive Director | | | Non-Executive Director | | | Non-Executive Director | | | Non-Executive Director | | | Non-Executive Director | | | | NC | SHE | RC | NC | AC | 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 June 2022 | | | 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 | | | | 1 year | | | Under 1 year | | | 1 year | | | 8 years | | | 7 years | | | 4 years | | | | Career and experience | | | Career and experience | | | Career and experience | | | Career and experience | | | Career and experience | | | Career and experience | | | | Lady Elish has an extensive public sector legal | | | John brings significant listed company and recent | | | 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 strategy and | | | | career, serving as Lord Advocate of Scotland | | | and relevant financial and international experience | | | financial services leadership and became the | | | spanning all areas of finance. He retired from the | | | Counsel of National Grid plc. She is an experienced | | | transformation experience. Most recently, she | | | | from 2006 to 2011, across two government | | | through a career in global businesses. He joined | | | first female Chief Executive of Nationwide | | | role of Group Finance Director of BAE Systems plc | | | non-Executive Director with previous directorships | | | built the Ocado Retail joint venture – the world’s | | | | administrations, having previously been Solicitor | | | Associated British Foods plc (ABF) as Finance | | | Building Society in 2022. Prior to this appointment, | | | in March 2020, prior to which he was Director, | | | at Bonheur ASA, Aga Rangemaster plc, Stagecoach | | | largest pureplay online grocer and the UK’s fastest | | | | General for Scotland. Since then, she has carried | | | Director in 1999 and held this position until | | | Debbie served as CEO of TSB from May 2019 and | | | Financial Control, Reporting and Treasury. His early | | | Group plc, SVG Capital plc, Chair of MedicX Fund | | | growing grocer, of which she was CEO until 2022. | | | | out independent public inquiries and reviews | | | stepping down in April 2023. Whilst in post, ABF’s | | | was previously an Executive Director and Chief | | | career involved roles within GEC Marconi, where | | | Limited, Deputy Chair and Senior Independent | | | Prior to this she was Strategy Director for Marks & | | | | for the UK and Scottish Governments and held | | | diverse food, ingredients and retail businesses | | | Operating Officer of Clydesdale Bank, where | | | he was appointed Finance Director of Marconi | | | Director of Primary Health Properties PLC, and | | | Spencer with responsibility for group strategy, M&S | | | | positions in academia, serving as Principal of | | | employed 128,000 people and operated in 53 | | | she led preparations for its successful demerger | | | Electronic Systems before the completion | | | Chair of The Renewables Infrastructure Group | | | Bank and M&S Services. Earlier roles include Global | | | | St Hugh’s College Oxford since 2012. She is also | | | countries across Europe, Asia, the Americas, | | | from National Australia Bank and subsequent IPO. | | | of the British Aerospace/Marconi merger. | | | Limited. She was a member of the Parker Review | | | Strategy and Marketing Director at Bupa, Chief | | | | a Pro-Vice Chancellor of Oxford University and | | | Australia and Africa. Prior to this, John was | | | Debbie is a fellow of the Chartered Institute of | | | He is a Fellow of the Chartered Association | | | steering committee into the Ethnic Diversity of | | | Operating Officer at TalkTalk and a Partner in | | | | previous Chancellor of the University of West of | | | Finance Director of the international distribution | | | Bankers and a member of the Glasgow Economic | | | of Certified Accountants. | | | UK Boards. She is a patron of the Social Mobility | | | McKinsey’s Consumer practice. | | | | Scotland. She is Chair of the Board of Trustees for | | | and services group Bunzl plc. Non-Executive | | | Leadership Board and the Strathclyde University | | | | | | Business Partnership, Co-chair of the Employers | | | | | | | the legal action non-governmental group Reprieve | | | experience includes Senior Independent Director | | | Business School Advisory Board. | | | | | | Social Mobility Alliance and Chair of the Global | | | | | | | and a patron of several charities. | | | and Audit Committee Chair of Compass Group | | | | | | | | | Media Campaign to end FGM. | | | | | | PLC. John is a Chartered Accountant. | 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 | | • Extensive leadership experience and | | • Extensive experience of the implementation | | • Brings recent and relevant financial | | • Long-standing energy and regulatory | | • Highly qualified to appraise strategy | | | | Scottish governance and has practical | | international perspective, gained from global | | of strategy, including execution of far- | | experience to the Board and strong | | expertise, including understanding of the | | development and execution, having | | | experience of working with the UK and | | companies and complex operations, which | | reaching transformation projects within | | direction to the Audit Committee, as Chair | | legal, compliance, governance and risk | | advised and led growth, brand and business | | | Scottish governments through involvement | | will be invaluable to SSE’s growth and entry | | large consumer-facing organisation, | | of which, he drives focus on the risk and | | frameworks in which SSE’s businesses operate | | transformation in the consumer and retail | | | in independent public reviews, whilst | | into new markets. | | and the critical role of digital and data. | | control environment including Group | | and a decade of experience overseeing | | sectors worldwide. | | | maintaining no political affiliation. | • A proven track record in developing financial | | • Understanding of capital allocation, | | | resilience, cyber security and the ethics | | renewables infrastructure investment. | • Deep commercial and digital experience | | | • Strong ambassadorial skills developed | | | and commercial strategy, including M&A, | | optimisation, and investment appraisal | | and compliance culture. | • Insight into a broad range of investor and | | | across multiple goods and services categories, | | | through an international stakeholder network | | corporate transactions and large capital | | frameworks central to SSE’s growth plans. | • International business perspective and | | | stakeholder perspectives and trends from | | including insurance, telco and energy that | | | in judicial, governmental, diplomatic, and | | projects, which complements SSE’s Net | • Responsible for efficient and effective | | | an applied understanding of long-term | | cross-sectoral, international and external | | furthers Board understanding of the customer. | | | academic fields. | | Zero Acceleration Programme Plus, and | | operations in high profile organisations | | project management and delivery, including | | Board interests that enable wider discussion | • Has a people centric style and wide-ranging | | | • Exercises a strong sense of social purpose | | | supports appointment to the role of Audit | | in a heavily regulated sector, requiring a | | investment appraisal, contracting and supply | | and debate. | | experience in a global context including a | | | and adds depth of perspective to Board | | Committee Chair from 21 July 2023. | | compliance-driven approach and proficiency | | chain experience. | • Advocate of a strong safety and employee | | | strong cultural appreciation. | | | considerations, including as an advocate | • Understanding of the listed company context | | | in IT and cyber security, risk management and | • Up-to-date investor relations experience | | | wellbeing culture, extensive knowledge of | • An entrepreneurial organisational leader, | | | | for employee views in the Boardroom; | | with practical experience of investor relations | | internal controls. | | through his executive career at BAE and | | sustainability, and applies a wide focus to | | actively engaging with stakeholder views | | | reinforcing SSE’s approach to wider | | and ESG strategy, placing upmost importance | • Business leader with expert understanding | | | pensions insight having been Chair of the | | social equity including social mobility and | | to create high performing organisations. | | | value creation. | | on the role of sustainability. | | of the wider organisational responsibilities | | trustee Board of a major UK scheme. | | inclusion and diversity. | | | to employees and society. | 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 | | • Non-Executive Director of Bloomsbury | | • Chief Executive of Nationwide Building | | • Senior Independent Director of First Group plc. | • Non-Executive Director of Gowling WLG | | • Advisory Board member of Manaia. | | | | of Oxford. | | Publishing Plc. | | Society. | | | (UK) LLP. | • Trustee of Sadler’s Wells. | | | • Principal of St Hugh’s College Oxford. | | • Chair of the charity FareShare. | | • Member of the Glasgow Economic | | | • Non-Executive Director of NextEnergy Solar | | • Founder of Mokaraka Trust. | | | • Chair of the Sarah Everard Inquiry. | | • Primark Strategic Advisory Board Chair from | | | Leadership Board. | | | Fund from April 2023. | • Trustee of Somerset House from | | | • Chair of Board of Trustees of Reprieve. | | | April 2023. | • Member of the Business School Advisory | | | • Stepped down as Chair of The Renewables | | | December 2022. | | • Stepped down as Chair of the Discipline | | • Stepped down as Finance Director of | | | Board of Strathclyde University. | | | Infrastructure Group Limited in October 2022. | • Stepped down as CEO of Ocado Retail | | | | Board of ICAS in March 2023. | | Associated British Foods plc in April 2023. | • Member of the FCA Practitioner Panel | | | • Stepped down as Commissioner for The | | | Limited in August 2022. | | | | | | | from June 2022. | | | Equality and Human Rights Commission in | | | | | | | | • Director of UK Finance from May 2023. | | | | March 2023. | | | 119SSE plc Annual Report 2023 ### Board of Directors continued INDEPENDENT COMPANY NON-EXECUTIVE SECRETARY DIRECTORS ### Dame Angela Strank DBE Sally Fairbairn Non-Executive Director Company Secretary and Director of Investor Relations | NC | SHE | RC | | | --- | --- | --- | --- | | Date of appointment | | | Date of appointment | | Non-Executive Director since May 2020 | | | Company Secretary and Director of Investor | Relations since December 2014 Board tenure 3 years Career and experience Career and experience Dame Angela brings depth of executive experience Sally joined SSE in 1997 as a chartered accountant from a long-standing international career in the working in the Corporate Finance team. Through energy sector, which included 38 years’ service at this role, which included responsibility for BP. Prior to retirement in December 2020, she was long-term financial modelling of the SSE Group, a member of BP’s Executive Management team as she developed knowledge of the SSE’s diverse BP Group Chief Scientist and Head of Downstream operations and the UK energy industry. In 2007, Technology. This followed international business Sally became Director of Investor Relations and and technical leadership positions spanning R&D, Analysis allowing her to develop extensive engineering, digital, product development and experience of the shareholder and financial analyst innovation, business development, finance and community, and through associated engagement, renewable energy. Angela is a Fellow of the Royal has detailed understanding of investor views. Society, the Royal Academy of Engineers, and the Sally was appointed to the joint role of Company UK Energy Institute. She was awarded a DBE for Secretary and Director of Investor Relations in long-standing services to the energy industry and December 2014. pioneering STEM careers, especially for women. Skills and attributes which support strategy and long-term success • Expert understanding of the current and future role of technology and science within the broader energy and manufacturing industries, including the impact of disruptive trends and resultant transformation. • Knowledge of leading and collaborating on a large scale and with international outlook, having worked extensively in culturally diverse environments including the Middle East, Europe, the Far East, Africa and America. • Corporate social responsibility and sustainability experience through active involvement in climate science research, the energy transition, reputation and safety management, pioneering women in STEM careers, and as a champion of inclusion and diversity; having chaired the Corporate Sustainability Committee, and Safety, Ethics and Sustainability Committee in two FTSE 100 companies. Key external appointments and changes • Non-Executive Director of Rolls Royce plc. • Non-Executive Director of Mondi plc. 120 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ## Group Executive Committee ### Alistair Phillips-Davies Gregor Alexander Martin Pibworth Chief Executive Finance Director Chief Commercial Officer ### Chris Burchell Rob McDonald Sam Peacock Catherine Raw MD, SSEN Distribution MD, SSEN Transmission MD, Corporate Affairs, Regulation MD, SSE Thermal and Strategy | Chris has been MD, SSEN Distribution | Rob has been MD, SSEN Transmission | Sam joined the Group Executive | Catherine has been MD, SSE Thermal | | --- | --- | --- | --- | | since November 2020, following an | since January 2019, having joined | Committee in April 2020 and leads | since April 2022, and brings extensive | | extensive career in transport where | SSE in 1997 and holding a number | SSE’s teams overseeing corporate | operational and commercial | | he held several MD and Group level | of senior roles within the Group | strategy, government and regulatory | experience from her previous roles in | | operational and commercial | Regulation function. Prior to his | affairs, communications, brand, and | the international mining firm Barrick | | leadership positions, including with | current position, he was MD, | local project communications. Prior | Gold where she was both Chief | | Arriva, The Go-Ahead Group and | Corporate and Business Services | to joining SSE in 2011, he directed | Operating Officer for North America | | Railtrack. Chris also brings wider | covering Legal, Regulation, | government affairs at Ofgem and | and Chief Financial Officer. Prior | | sector experience having been a | Compliance, Safety and Large | worked at leading communications | to this, Catherine was a Managing | | non-Executive Director with OFWAT | Capital Projects Services across SSE. | agency Edelman, as well as in | Director and Fund Manager at | | and as Chair of the Rail Delivery | | Parliament and in Government. | BlackRock, one of the world’s largest | | Group trade body. | | | fund management companies. | ### John Stewart Liz Tanner Stephen Wheeler Sally Fairbairn Director of HR General Counsel MD, SSE Renewables Company Secretary and Director of Investor Relations, Committee John has been Director of HR since Liz is a barrister and has been Group Stephen has been MD, SSE Secretary | joining SSE in July 2009. Prior to this | General Counsel since March 2019, | Renewables since January 2022 | | --- | --- | --- | | he worked in a broad range of senior | having joined SSE in 2002 as part of | having previously held the roles | | management roles in the energy and | the acquisition of Neos Networks. | of MD, SSE Thermal and MD, SSE | | water sectors and has experience of | Since joining SSE, Liz has held a | Ireland. Prior to SSE, he was part | | working in both the UK and in the US. | variety of legal and commercial | of the management team that grew | Biographical details of the Executive He oversees all areas in relation to roles within a number of different the Airtricity renewable energy Directors and Company Secretary SSE’s people including talent and SSE Group companies and currently platform before SSE acquired it in and Director of Investor Relations. | capability, training and development, | oversees the corporate functions of | 2008. Before joining Airtricity, he | | | --- | --- | --- | --- | | employee engagement, and | Legal, Compliance, Data Protection | spent over 10 years working with | | | inclusion and diversity. | and Large Capital Project Services. | ABB and Siemens internationally. | More on pages 116 to 120  | 121SSE plc Annual Report 2023 ## Our corporate governance ### SSE’s Governance Framework ### SSE plc Board Board oversight Safety, Sustainability, Energy Markets Nomination Health and Remuneration Audit Committee Risk Committee Committee Environment Committee (EMRC) Advisory Committee (SSHEAC) See pages 142 to 149  See pages 150 to 159  See pages 160 to 161  See pages 162 to 165  See pages 166 to 187  Board Committees 75% SSEN Transmission Board SSEN Distribution Board Group Executive Committee Management accountability Group Safety, Group Large SSEN SSEN SSE SSE Health and Group Risk Capital Transmission Distribution Renewables Thermal Environment Projects Group Energy Energy SSE Group Group Energy Customer Portfolio Enterprise Disclosure Investment Markets Solutions Management Exposure Risk Business Unit Executive Committees Group Committees Dedicated Boards oversee SSE’s economically regulated networks businesses in compliance with applicable regulatory licence conditions. SSE Energy Customer Solutions comprises SSE Airtricity and SSE Business Energy. SSE Enterprise comprises the business activities within SSE Distributed Energy. | Our corporate governance | was further updated in May 2023 as | Supporting Committees | | --- | --- | --- | | Corporate governance in SSE can be | explained on page 83 . Overseeing | Areas of importance to the Board and | | explained as the minimum expectations | execution of the NZAP has been a key | SSE’s operations influence the features | | set by the Board surrounding standards, | Board focus in 2022/23 and complemented | of the Governance Framework, this is | | responsible conduct and controls. | by strategic review work to confirm its | illustrated in part by the Committees which | | SSE’s Board-led Governance Framework | continued applicability as the optimum | support the Board and the Group Executive | | supports this approach by mapping | pathway for all stakeholders. Details of | Committee. The Board Committees are | | where accountability resides in line with | how SSE’s businesses and associated | delegated a specific area of focus by | | delegated authorities, and as such, is a key | business model provide the best possible | the Board, while the Group Executive | | part of SSE’s System of Internal Control. | balance to deliver this long-term value is | Committee establishes and oversees the | | | set out on pages 2 to 11 . | Committees needed at Group and Business | | The Board | | Unit level to achieve strategic delivery. | | The primary role of the Board is to lead SSE | The Group Executive Committee | Clarity surrounding the responsibilities | | in a way that ensures its long-term success, | and Business Units | of each Committee is ensured through | | whilst generating value for shareholders | Once set by the Board, the implementation | approved Terms of Reference. | | and wider stakeholders. This is a broad- | of strategy is the responsibility of the Group | | | ranging duty and is directed by the | Executive Committee and management | Monitoring of delegated matters is | | cornerstones of SSE’s purpose and vision. | across SSE’s Business Units. Oversight | supported by formal reporting channels. | | These guiding statements are considered | of performance is achieved through | For Board Committees, this is a personal | | on an ongoing basis by the Board, and their | structured operational and financial | account from the non-Executive Director | | positioning continues to underpin a strategy | reporting from the Executive Directors | who chairs the Committee following each | | focused on clean energy infrastructure and | at each Board meeting, in addition to | Committee meeting. On executive matters, | | energy security in the transition to net zero. | presentations from each Business Unit | the Chief Executive, Finance Director and | | | across the year. These presentations | Chief Commercial Officer are responsible | | The Board agrees and monitors SSE’s | comprise strategic updates and approvals | for providing full updates at each Board | | strategy through a continuing programme | in line with SSE’s Governance Framework. | meeting. These mechanisms are in addition | | of work. In 2021/22, this saw approval | Operational and financial performance for | to sub-Committee minutes, written reports | | and announcement of SSE’s Net Zero | 2022/23 is covered across the Strategic | and agreed KPIs to monitor financial and | | Acceleration Programme (NZAP), which | Report on pages 1 to 109 . | non-financial performance. | 122 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report | Board reserved matters | | Board Charter | | specialist functions, with individuals from | | --- | --- | --- | --- | --- | | To safeguard the areas material to the | | The Schedule of Reserved Matters is one of | | different levels across the organisation | | delivery of SSE’s purpose, vision and | | a collection of documents which make up | | invited to present at Board meetings and | | strategy, the Board retains a schedule | | SSE’s Board Charter. The contents of the | | deep dive sessions. For details of employee | | of matters reserved for its decision. This | | Board Charter govern Board operations | | engagement and knowledge development in | | ensures the necessary framework and | | and pertinent Group-wide matters and | | 2022/23 see pages 134 to 136 and 147 . | | resources are in place for the Group to | | is subject to annual Board review and | | | | meet its stated objectives and covers the | | approval. The Board Charter contains: | | Meeting agendas are developed by the Chair, | | below areas. Examples of how the Board | | | | Chief Executive and Company Secretary. | | has considered these matters are set out | | • SSE plc’s Articles of Association.* | | These are structured around a pre-agreed | | on pages 125 to 131 . | | • Board’s Schedule of Reserved Matters.* | | annual plan of Board business and the status | | | | • SSE’s guide to good business ethics.* | | of projects, strategic workstreams and the | | Strategy and performance | | • SSE’s Guide to Governance. | | overarching operating context. Adequate | | • Approval and review of commercial | | • Board Committee Terms of Reference.* | | time is allocated to support effective and | | | strategy, business development and | • Non-Audit Services Policy.* | | constructive discussion, and guidance is | | | long-term strategic options. | • Procedure for Taking Independent | | available to authors and presenters of Board | | • Oversight of performance in line with | | | Advice. | materials. An electronic meeting portal | | | approved strategy and objectives. | • Non-Executive Directors’ Shareholding | | allows efficient navigation of papers, | | • Review and approval of priorities | | | Policy. | information and requests. | | | surrounding SSE’s principal sustainability | • Board Inclusion and Diversity Policy.* | | | | | impacts, including climate change. | • Responsibilities of key Board roles.* | | Before or after every Board meeting, the | | • Major transactions and any material | | | | non-Executive Directors meet without the | | | extension or closure of operations. | * Documents available in full on sse.com . | | Executive Directors present. This allows any | issues surrounding meeting business to be | Financial management | | Board operations | raised separately from full Board discussion. | | --- | --- | --- | --- | | • Approval of annual operating and | | The Board, led by the Chair, seeks to | | | | capital expenditure budgets. | nurture a culture in which informed and | Board meetings in 2022/23 | | • Approval of dividend policy and key | | transparent decision-making takes place. | In the period to 31 March 2023, there | | | financial communications. | This is supported by clearly defined Board | were six scheduled meetings of the | | • Changes in SSE’s capital structure. | | roles and constructive dialogue within | Board with update calls in alternate | | | | and outside of meetings. The division | months to maintain coverage of key | | Risk and control | | of responsibilities across the Board is | business developments, emerging issues | | • Ensuring sound systems of internal | | explained on page 139 . | and opportunities. Arrangements remain in | | | control and risk management. | | place should a Board decision or approval | | • Oversight of emerging and principal | | As one of the key responsibilities of the | be required outside of these times. Where | | | risks. | non-Executive Directors is to challenge and | an individual is unable to attend a meeting, | | | | provide counsel, it is deemed appropriate | feedback is sought in advance by the | | People and culture | | that relationships can be built across SSE. | relevant Board or Committee Chair and | | • Approach to people, succession, | | The Board therefore has unfettered access | Secretary, and a debrief offered thereafter. | | | and inclusion and diversity. | to senior leadership, their teams and | | • Agreement and monitoring of a healthy Nomination Audit Remuneration corporate culture including SSE’s values Board Committee 1 Committee EMRC SSHEAC 2 Committee 3 and framework of cultural controls. Number of meetings held 6 8 4 4 5 4 Sir John Manzoni 6/6 8/8 – 4/4 3/5 4/4 Governance • Changes to Board and Board Alistair Phillips-Davies 6/6 – – – – – Committee structure, size and Gregor Alexander 6/6 – – 4/4 – – composition. • Approval of shareholder Martin Pibworth 6/6 – – 4/4 5/5 – communications. Tony Cocker 6/6 8/8 4/4 4/4 5/5 – • Confirmation of stakeholder approach. | • Approval of Board-level corporate | | Lady Elish Angiolini 6/6 7/8 – – 5/5 4/4 | | | --- | --- | --- | --- | | | governance matters. | | 4 | | | | John Bason | 5/5 5/5 3/3 – – – | Dame Sue Bruce 6/6 7/8 – – – 4/4 Regulation • Approval of the electricity distribution Debbie Crosbie 6/6 8/8 4/4 4/4 – – and transmission price control reviews Peter Lynas 6/6 7/8 4/4 – – 4/4 proposed by Ofgem. Helen Mahy 6/6 8/8 4/4 – 5/5 – Melanie Smith 6/6 8/8 – 4/4 – 3/4 Dame Angela Strank 6/6 7/8 – – 5/5 4/4 1 Nomination Committee. Dame Sue Bruce and Dame Angela Strank were unable to attend an additional short-notice meeting due to prior engagements. Lady Elish Angiolini was unable to attend one meeting due to illness. Peter Lynas was unable to attend one meeting due to a prior commitment which was notified upon the meeting date being set. 2 SSHEAC. Sir John Manzoni was unable to attend one meeting due to travel disruption, with the other an additional short-notice meeting which conflicted with a prior commitment. 3 Remuneration Committee. Melanie Smith was unable to attend an additional short-notice meeting due to a prior commitment. 4 John Bason joined the Board, Nomination and Audit Committee on 1 June 2022. 123SSE plc Annual Report 2023 ## Considered decision-making ### Decision-making context ### Stakeholder views Suppliers, Shareholders Energy Government NGOs, communities Employees contractors and and debt providers customers and regulators and civil society partners ### 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 137 to 138 . ### Decision-making context network supports this work, with Board The Board has a duty to lead by example oversight and understanding of views and set the correct tone to ensure fair and achieved through both direct Board ### responsible decision-making across SSE. engagement and reporting of below-Board Stakeholder engagement SSE’s Governance Framework represents activity. This allows the timely recognition of ### priorities the backdrop to this, through which the emerging stakeholder considerations, with The following priorities have Board confirms ambitions, parameters and the Board’s own engagement guiding the been identified by the Board expectations to drive long-term success. expectation that senior leadership and SSE’s for constructive focus and These expectations are further embodied Business Units take demonstrable account assessment across engagement across SSE’s purpose, vision, strategy, and of stakeholder opinion in their decisions and work in 2023/24: culture, and the belief that stakeholder longer-term objectives. views should be considered within • Progressing and evolving ### long-term plans and day-to-day operations. Addressing stakeholder the Net Zero Acceleration ### priorities Programme Plus to support ### Engaging with stakeholders The response to stakeholder views across stakeholder value creation. The approach to stakeholder engagement business plans is depicted across the • Continued leadership and is directed by a Board-agreed framework. Annual Report, with the pages that follow advocacy surrounding a This confirms SSE’s key stakeholder groups; providing insight surrounding the direct just transition to net zero. the purpose of meaningful stakeholder interaction of stakeholder views with Board • Playing a part in addressing relations; and how stakeholder views should discussions and decisions in 2022/23. the energy related be considered at Business Unit and Group consequences of the ongoing level. These principles are explained in the It is recognised SSE’s purpose, and the war in Ukraine, with long term Section 172 Statement on pages 26 to 27 . issues of energy security and affordability, energy affordability and the climate emergency, and the societal energy security being key Given the societal impact and scale of SSE’s impact of net zero are of wide stakeholder outputs of Group strategic business operations, breadth and depth interest. A number of engagement priorities and Business Unit plans. of stakeholder engagement is required, to based on these topics have therefore ensure decisions demonstrate an appropriate been identified for 2023/24 and are set Read more on SSE’s stakeholders degree of stakeholder awareness. A mature out opposite. and how the priorities above executive and business-led stakeholder been identified through supporting engagement on pages 26 to 33 . 124 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ## Setting strategy | The Net Zero Acceleration Programme | Supplementing the above are strategic | | | | --- | --- | --- | --- | | (NZAP), published in November 2021, set | deep dives which examine specific areas | Strategic deep dives | | | out SSE’s fully-funded capex plan to 2026. | of growth or material factors on which | 9 sessions held covering: | | | In the period since then, the NZAP has been | future priorities depend. To bolster the | • Pumped storage and digitalisation | | | the platform for investment in low-carbon | Board’s approach to challenge and | • Transmission investment drivers | | | assets and electricity infrastructure. A key | understanding of stakeholder views, | • Distribution networks and | | | Board focus across the year was ensuring | objective opinions are sought through | | net zero | | the NZAP remained the correct pathway for | soundings on strategy and by inviting | • The role of carbon capture | | | SSE and that its execution was progressing | external speakers to present views on the | | and storage | | at the correct pace. The growth ambitions | external operating environment and future | • The future for hydrogen | | | and science-based climate targets for | trends. Details of deep dives and external | • International energy markets | | | achievement by 2031 underpinning it | engagements which took place in 2022/23 | • Commodity risk metrics and | | | provided a clear framework for decision- | are set out opposite. | | management | | making and assessment of progress. | | • Digital innovation | | | | Following consideration of SSE’s | • Sustainability and climate | | | Reviewing external context | opportunities and recent business | | reporting | | The Board’s appraisal and oversight of | performance, as well as the external | | | | SSE’s situation is supported by an agreed | environment and the acceleration of the | Engaging external opinion | | | strategic agenda embedded across | global green transition, in May 2023, the | 10 external speakers engaged | | | its annual plan of work. This includes | Board approved SSE’s NZAP Plus. This rolls | providing diverse perspectives on: | | | dedicated strategy days, Business Unit-led | forward the original NZAP by 12 months to | • UK political and economic | | | strategic updates at agreed intervals across | 2027 and upgrades the targets, ambitions | | outlook | | the year, and Board-level approvals linked | and investment mix to reflect the enhanced | • Domestic policy environment | | | to strategic projects. An NZAP dashboard | opportunities SSE has. The Board is clear | • Global politics and economics | | | setting out a holistic view of Group-wide | that the NZAP Plus is still a fully-funded | | of the energy transition | | progress was developed at the request | plan, now including expected capital and | • Time value of new technologies | | | of the Board and is reviewed three times | investment of £18bn over the five year | | | | a year. | period to 2027. For full details of NZAP | | | Plus see page 83 . ### Board strategy days ### 2022/23 Purpose To review changes in the external environment since approval of the NZAP and understand the potential impact on long-term direction. Through this assessment, confirm both the risks and opportunities facing SSE and identify key topics which should be considered to continue to maximise shareholder and stakeholder value. Attendees • The Board across • Group Strategy Team sessions • Group Executive Committee • Business Unit Leadership Teams • Corporate Finance Team Reviewing Board debate was set against the backdrop of unprecedented market volatility driven by macro-economic and geo- the external political factors, which have played a role in the energy and affordability crises across 2022/23. Within this context, the context Board considered the short-, medium- and long-term actions required to transition to net zero by 2050 and the following influencing external factors material to NZAP execution: • Policy and regulatory frameworks to deliver energy security and market reform for a fair and just transition to net zero. • Economic and inflationary pressures on project delivery, supply chains and wider stakeholder experience. • The competitive environment, market share and diversification across geographies. • The growth landscape and risk-adjusted returns of the existing pipeline, new projects and technologies. • The role of SSE’s key stakeholder relationships in NZAP delivery. Confirming The continued shareholder and societal value of the NZAP and its alignment with SSE’s purpose was tested through strategic assessment of the following areas: options • The optimum business mix to support net zero and deliver long-term value in an evolving energy sector. • Progress against NZAP targets across each Business Unit and the pathways supporting growth and identification of further opportunities. • Financial strategy incorporating the balance of capital allocation and the ways to fund accelerated growth. • Investor priorities and views surrounding strategy and NZAP ambitions. • The role of SSE’s people, the embedded organisational culture, skills and capabilities. Outcomes The following represents the outcomes and next steps which were agreed to shape upcoming Board work: and next • Confirmation that SSE’s business mix remains optimal for it to focus on NZAP execution. steps • Approval of the strategic priorities for each Business Unit and agreement on the optimal growth areas within them. • Setting an ongoing programme of strategic questions and topics for consideration throughout 2022/23. 125SSE plc Annual Report 2023 ## Guiding strategic progress ### The following key developments have been the subject and result of the Board’s ### oversight of strategic progress, and form the basis of principal decisions taken ### in the year. Discussion and debate have been underpinned by the NZAP, Board ### strategy work, and SSE’s 2030 Goals, with end outcomes influenced by the ### needs of SSE’s key stakeholder groups. ### Key strategic developments | Growing renewables and system flexibility | Exploring low-carbon technologies | | --- | --- | | 1. Yellow River wind farm Final Investment Decision. | 6. Triton Power portfolio acquisition with Equinor. | | 2. Southern Europe renewables platform | 7. Net Zero Transition Plan updates approved. | | acquisition completes. | 8. Aldbrough hydrogen pathfinder progresses | | 3. Coire Glas exploratory work confirmed. | to due diligence in net zero hydrogen fund. | | 4. Ferrybridge battery approval. | 9. Platin and Tarbet power stations in Ireland | | 5. International opportunities and bid parameters. | provisionally secure capacity agreements to | support development. | Accelerating transmission network capacity | Increasing investment in local networks | | --- | --- | | 10. SSEN Transmission responds to Ofgem consultation | 13. SSEN Distribution responds to Ofgem RIIO-ED2 | | on transmission investments required for 2030 | draft determinations. | | government targets. | 14. SSEN Distribution responds to Ofgem RIIO-ED2 | | 11. SSEN Transmission minority stake sale completes. | final determinations. | | 12. Ofgem approves transmission investments required | 15. SSEN Distribution accepts of Ofgem’s RIIO-ED2 | | for 2030 government targets. | final determinations. | | Focusing on a fair net zero transition | Advocating for all stakeholders | | 16. ‘Just transition: measuring progress’ published. | 17. ‘Ambition to Action: A Delivery Plan for Cleaner, | Homegrown Energy’ published. ### 2022 2023 JUNE JULY AUG SEPT OCT NOV DEC JAN MAR APR MAYFEB 1 2 3, 4 | | | 7 | | 8 | 96 | | --- | --- | --- | --- | --- | --- | | | 10 | | 11 12 | | | | 13 | | | 14 | 15 | | 16 17 5 ### NZAP Plus ### By 2027 By 2032 ### Balanced capital investment Science-based Renewables net Networks net gross ### in fully-funded plan targets aligned capacity RAV CAGR ### to 1.5°C ## >9GW £12-14bn Renewables 40% Thermal/other 10% Transmission 30% Adjusted EPS CAGR Net debt/EBITDA Distribution 20% ## 13-16% 3.5-4.0x 126 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report 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 ## Growing renewables Exploring low-carbon ## and system flexibility technologies ### What did the Board review: 1,2,3,4,5 What did the Board review: 6,7,8,9 The Board has appraised growth opportunities in The long-term decarbonisation of the UK power system Great Britain, Ireland and internationally to support relies on a pipeline of viable low-carbon projects which can SSE Renewables’ development pipeline. The strategic support security of supply and grid stability. The Board has drivers remain the deployment of end-to-end large confirmed the platform industrial low-carbon clusters can capital project expertise to address global net zero provide for these projects, and underpinned by the principles ambitions and enhance portfolio diversity. At home, as of a just transition to net zero, reviewed opportunities to generation is increasingly led by intermittent wind output, repurpose existing thermal generation sites and partner on the Board confirmed its view of the important role of the new technologies needed to drive change. pumped hydro storage and installed battery capacity to provide system flexibility and integrate renewable energy. ### Section 172 and stakeholder factors • Security of supply for society. Low-carbon thermal ### Section 172 and stakeholder factors generation is the flexible back-up to a predominantly • Delivering long-term energy affordability. renewables energy system. The Board commits to Developing and building indigenous renewable energy deploying SSE’s capabilities and partnership expertise to and storage is part of the solution to long-term security deliver these new technologies, which allow employees of supply and affordability. to transfer existing skills to transition to net zero. • Futureproofing market design. Project decisions and • Reducing environmental impact. SSE has a Board- bid parameters have been based on an assessment of approved target to achieve net zero emissions across risk-return profiles within current policy frameworks. scope 1 and 2 emissions by 2040 at the latest (subject A key focus has been constructive engagement with to security of supply requirements) and for remaining policy makers to ensure the energy system promotes scope 3 emissions by 2050 at the latest. This long-term investment in net zero-linked projects, whilst delivering ambition is supported by a series of interim targets societal benefit and a fair return for investors. approved by the Science Based Targets Initiative (SBTi) • Safeguarding supply chains. A Board review and aligned to a 1.5°C pathway. considered procurement and commercial activity • Stakeholder expectations. The Triton acquisition and engagement, to support supply chain capacity considered ESG investor views and the long-term and capability for new and future projects. In addition priority to decarbonise the sites on which the assets to the impact of inflation, commodity exposure, were situated. Transparency surrounding the impact material scarcity, and the potential sustainability of this decision was ensured through updates to SSE’s risks of new technologies. Net Zero Transition Plan, to confirm the approach to managing and reporting on the GHG emissions associated with investments. ### Next steps and future opportunities • Exporting expertise. Continuing to apply financial ### discipline to international expansion, building diversity, Next steps and future opportunities and leveraging SSE’s approach to partnering across • Advancing low-carbon thermal. New low-carbon complementary geographies which align with SSE’s flexible generation – using CCS and hydrogen culture and values. technology – is key to reducing emissions and • Promoting system flexibility. Advancing the case transitioning away from unabated gas generation. for policy and market design frameworks that support • Supporting local economies. Ongoing engagement investment in long-duration pumped storage hydro with local communities will support the creation of technologies which is vital in the transition to net zero. low-carbon economies in areas impacted by the decline of carbon intensive activity. The objective is to deliver local benefit and strengthen stakeholder relations through open dialogue. | Link to NZAP Plus | | Link to 2030 Goals | Link to NZAP Plus | | Link to 2030 Goals | | --- | --- | --- | --- | --- | --- | | • Capital expenditure | | | • Capital expenditure | | | | | and investment | | | and investment | | | • Net installed | | | • Net low-carbon | | | | | renewable capacity | | | flexible capacity | | 127SSE plc Annual Report 2023 ### Guiding strategic progress continued ## Accelerating transmission Increasing investment ## network capacity in local networks ### What did the Board review: 10,11,12 What did the Board review: 13,14,15 SSEN Transmission is delivering its Business Plan under SSEN Distribution’s Business Plan for the RIIO-ED2 price the RIIO-T2 price control period. The Board has reviewed control period sets out the investment and targeted performance against the plan and provided financial improvements for the 3.9m customers in communities approvals for projects within its certain view. To support across its network. Following initial submission of growth, the sale of a 25% minority stake in the business the Business Plan in November 2022, the Board has was approved in November 2022. This was followed remained updated on the structured dialogue between by confirmation from Ofgem, within its network-wide SSEN Distribution and Ofgem across the determination Accelerated Strategic Transmission Investment (ASTI) process, which led to final settlement in March 2023. framework, of eight additional investments within SSEN Transmission’s network area required to meet the ### Government’s 2030 ambitions. Section 172 and stakeholder factors • Supported by stakeholders. SSEN’s RIIO-ED2 Business Plan, co-created through extensive ### Section 172 and stakeholder factors stakeholder engagement, remains committed to • Unlocking value. The stake sale was assessed against significant improvements in reliability, resilience, SSE’s strategic partnership criteria and Ontario and services for customers, alongside acceleration Teachers’ were deemed to be a strong fit for a minority of investment in local network infrastructure and shareholder in SSEN Transmission. The sale parameters flexible systems to power communities to net zero. were confirmed to have no detrimental impact on • Fair outcomes. Considering each stage of SSEN stakeholders, and the proceeds directly supported the Distribution’s finalisation of the Business Plan with NZAP and now the NZAP Plus, through net zero- Ofgem, the Board reviewed the commitment to enabling investment in SSEN Transmission and a increase investment and commensurate benefits rebalancing of capex across SSE’s Business Units. for end-users. • Framework for growth. The priorities raised through • Supporting communities. Following the storms SSEN Transmission’s response to the proposed ASTI of winter 2021/22, the Board assessed findings framework, aligned with the Board’s view of certainty from comprehensive reviews which considered over the need for transmission network capacity for the business’s response to the exceptional weather 2030 and informed engagement with stakeholders to events and impact on customers. This informed enable success, including the supply chain. the view of system reliability covered by RIIO-ED2 • Powered by people. Updates were considered on proposals and saw endorsement of next steps to workforce planning, focusing on critical talent and shape future approach. targeted programmes for diversity, pipelines, and training and development which supporting the ### pace of required expansion. Next steps and future opportunities • Minority stake sale. While the November 2021 NZAP assumed a 25% minority stake in the SSEN ### Next steps and future opportunities Distribution business, SSE consistently reviews strategic • A network for net zero. Delivery of a price control options and direction and the NZAP Plus plan now business plan that protects customers’ interests and reflects retaining 100% of the business. A significant supports the building of national critical infrastructure strengthening of SSE’s balance sheet and an upgraded | | remains a priority. | | NZAP Plus investment plan are the main factors | | --- | --- | --- | --- | | • Supply chain management. Ongoing engagement | | | contributing to the Board assessment that continuing | | | with supply chain partners to ensure resource | | to hold 100% of SSEN Distribution is the right strategy | | | capacity and material availability meets SSEN | | at this time. | | | Transmission’s needs as it reinforces the network | • A focus on service. Ongoing monitoring of delivery | | | | in the North of Scotland. | | of the RIIO-ED2 Business Plan, with focus on | effectiveness of the system reliability measures within it. | Link to NZAP Plus | | Link to 2030 Goals | Link to NZAP Plus | | Link to 2030 Goals | | --- | --- | --- | --- | --- | --- | | • Capital expenditure | | | • Capital expenditure | | | | | and investment | | | and investment | | | • Net networks RAV | | | • Net networks RAV | | | | • Net debt/EBITDA | | | • Net debt/EBITDA | | | | | consistent with | | | consistent with | | | | investment grade | | | investment grade | | | | rating | | | rating | | 128 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report 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 ## Focusing on a fair Advocating for ## net zero transition all stakeholders ### What did the Board review: 16 What did the Board review: 17 With SSE’s strategy focused on low-carbon investments, Progress towards net zero requires constructive dialogue the Board is concerned to ensure that the interdependencies with policy makers. In May 2023, the Board reviewed of climate action are understood and, where appropriate, ‘From Ambition to Action: A Delivery Plan for Cleaner, managed carefully. Ensuring a fair transition to net zero for Homegrown Energy’; a resource to help frame political working people, consumers and communities is outlined in engagement over the course of the year as political parties SSE’s Just Transition Strategy, published in 2020. In March develop their own manifestos ahead of an upcoming 2023, the Board reviewed progress against that strategy and General Election. In doing so, it considered the policies had oversight of the publication of a first-of-a-kind progress which SSE advocates should be adopted, to deliver report. The Board also considered the priorities for action in investment in clean energy infrastructure and achieve the year ahead, including an enhanced focus on attracting cross-party ambitions on decarbonisation, energy security former high-carbon workers into SSE. and the green economy. All of which are aligned to and consistent with SSE’s NZAP Plus and 2030 Goals. ### Section 172 and stakeholder factors ### • Embedding stakeholder dialogue. SSE’s principles Section 172 and stakeholder factors for a just transition to net zero are underpinned by a • Championing progress. With political attention commitment to high quality multi-stakeholder dialogue. turning towards a likely General Election in 2024 political SSE’s Board was represented at an event in London in stakeholders will be increasingly focused on setting out April 2023 to launch the report, ‘Just transition: measuring the policy platform which they will present to the progress’ which provided an opportunity to bring together electorate. These will ultimately come together in the stakeholders including employees, trade union partners, party manifestos which are published prior to the election. suppliers, investors, and NGOs, amongst many others. • Supporting net zero policy. All political parties have • Understanding stakeholder views. Employees and made significant commitments to decarbonise the their trade union representatives are concerned that SSE power sector; increase deployment of renewables; and delivers opportunities for the existing workforce as it boost investment in homegrown energy infrastructure. continues to transition away from high carbon activity. • Stakeholder-led advocacy. The SSE manifesto is Investors are keen to be able to track SSE’s progress and tailored to the priorities of our stakeholders and is designed hold it to account. Environmental NGOs want to be certain to set out tangible policies which could be adopted to help there is no watering down of climate commitments, and the parties achieve their publicly stated-targets. human rights advocates are focused on protecting the • Maintaining neutrality. As with all of SSE’s rights of working people in SSE’s supply chains. engagement, the document will be politically neutral and applicable across the parties; focusing on areas where there is broad social consensus on the direction ### Next steps and future opportunities of travel for the energy sector. • Supporting people and communities. In the year ahead, SSE will further develop interventions to attract and ### support former high carbon workers, particularly those Next steps and future opportunities from the oil and gas industry. The transition to smart • Framework for progressive engagement. SSE’s electricity grids at a local level, provides opportunities to Ambition to Action document will form the basis of policy deliver benefits to consumers and actions will be taken to engagement from its launch in May 2023, through to the ensure the benefits reach as wide a population as possible. General Election. Bi-lateral, party neutral engagement • Reporting on progress. Achieving, and balancing the with key stakeholders will be conducted throughout a multitude of social expectations in the transition to net programme of events including at Party Conferences. zero will be supported by maximum transparency. In • Setting a long-term framework. SSE will periodically addition to continuous stakeholder engagement, SSE refresh Ambition to Action to ensure that it has longevity has committed to provide a biannual dedicated Just and relevance over this period; including adding public Transition Report, alongside its usual annual disclosures. polling data to demonstrate levels of support amongst the electorate for the positions included. | Link to NZAP Plus | | Link to 2030 Goals | Link to NZAP Plus | | Link to 2030 Goals | | --- | --- | --- | --- | --- | --- | | • Capital expenditure | | | • Capital expenditure | | | | | and investment | | | and investment | | | • Net installed | | | • Net installed | | | | | renewable capacity | | | renewable capacity | | | • Net networks RAV | | | • Net networks RAV | | | | • Net low-carbon | | | • Net low-carbon | | | | | flexible capacity | | | flexible capacity | | 129SSE plc Annual Report 2023 ## Governing SSE for long-term success ### Supporting work on long-term strategic direction, Board agendas have focused on matters to ### ensure effective performance and governance of SSE. These topics are diverse and draw on the ### Board’s Schedule of Reserved Matters, SSE’s culture and values, and the operating context. | Strategy and performance | | | | Financial management | | | --- | --- | --- | --- | --- | --- | | Role of the Board | | Safety, health and environment (SHE) | | Role of the Board | | | To set conditions for the delivery of | | • Maintained strong focus on performance | | To assess financial performance and set the | | | strategy and creation of stakeholder value, | | | through review of SHE metrics and targets | parameters which define SSE’s financial and | | | and oversee SSE’s response to the external | | | – across a broad range of measures – | investment strategy. | | | environment. | | | at the start of every Board meeting. | | | | | | • Continues to oversee the response | | Financial performance | | | Business Unit performance and operating | | | to the fatality at Viking wind farm with | • Assessed financial performance and | | | context | | | support from the SSHEAC. | | the impact of unusually volatile market | | • Monitored large capital project progress | | • Received updates on SHE strategy | | | conditions on a wider than normal range | | | and operational performance through | | and plans aligned to Business Unit | | of potential financial outcomes. | | | standing updates from the Executive | | specific risks including the hazards of | • Monitored variances against budget, | | | | Directors at every meeting and Business | | a significant rise in contractor hours | | and reviewed the latest financial forecast | | | Unit Leadership Team presentations | | across large capital projects and actions | | against analyst consensus and market | | | across the year. | | to drive SSE’s safety culture. | | guidance, approving updated EPS | | • Assessed the impact of energy market | | • Considered mental health and wellbeing | | | guidance as required. | | | volatility on SSE’s portfolio through | | support for those impacted by the fatality | • Approved and recommended half and | | | | monthly updates on price movements, | | at Viking wind farm; for service advisors | | full-year dividends of 29.0p and 67.7p. | | | endorsing EMRC recommendations in | | delivering SSE’s customer cost of living | | | | | relation to hedging and internal | | response; and for all employees against | Capital investment | | | | governance to manage commodity | | the challenging economic backdrop. | • Tracked capital expenditure through | | | | and credit requirements and exposures. | | | | monthly financial updates and the NZAP | | • Followed developments in the policy | | Sustainability | | | dashboard, reviewing project spend, | | | and political landscape, advocating | • Endorsed work to address agreed | | | emerging risks and opportunities. | | | unwavering focus on net zero and the | | sustainability priorities and the progressive | • Monitored the economic backdrop – | | | | transition pathway through constructive | | evolution of SSE’s reporting on material | | characterised by financial market | | | stakeholder engagement, receiving | | environmental, social and governance | | volatility and inflation – reviewing and | | | standing feedback from the Executive | | (ESG) issues, including work to meet TCFD | | updating accepted project returns at | | | Directors and Corporate Affairs teams | | recommendations on scenario analysis | | regular intervals to ensure a prudent | | | on business-led activities. Including, | | and initiating a double materiality review. | | approach to investment appraisal. | | | amongst other matters, consideration | • Approved actions for 2022/23 with a | | | | | | of the Energy Generator Levy as it was | | focus on: engaging in the debate on | Financial planning and funding | | | | being developed. | | proportionate standardisation of | • Approved the 2023/24 budget which | | | • Noted measures being taken to | | | sustainability disclosure; pioneering just | | reflected strategic progress and job | | | address the affordability agenda for | | transition work; and embedding tailored | | creation under the NZAP, including | | | domestic customers in Ireland centred | | sustainability assessments and action | | more certainty in SSE Networks | | | on progressive options to support the | | plans within each large capital project. | | business plans and delivery of new | | | most vulnerable and help with delivering | • Considered risk mitigations to address the | | | capacity in the form of Keadby 2 and | | | sustainable solutions, including the | | zero-tolerance policy for human rights | | on- and off-shore wind projects. | | | return of profits to customers. For more | | abuse in operations and supply chains; | • Reviewed the long-term financial model | | | | detail see page 107 . | | approving updates to SSE’s Human Rights | | following updates to assumptions and | | • Monitored business compliance | | | and Modern Slavery Statement. | | outputs, in line with strategic progress | | | performance in line with applicable | • Re-affirmed the governance pathways | | | and changes in SSE’s external operating | | | legislative and regulatory frameworks | | for ESG topics which form the basis of | | context, including more certainty | | | and received updates on relevant | | external benchmarks and indices, and | | about the need for electricity networks | | | inquiries. | | SSE’s year-on-year ratings performance. | | investment, the impact of inflation, | | | | • Supported continued participation in | | | and long-term energy price forecasts. | | | | | the global conversation on collective | • Reviewed funding requirements as | | Setting and reviewing strategy climate action at COP27 in Egypt in overseen by the Audit Committee, More on pages 125 to 129  which senior leadership participated. considering maturing debt, financial headroom and market conditions to ensure good liquidity, a strong balance SSHEAC Report sheet and capacity for future growth. More on pages 162 to 165  • Considered the annual ratings review process and an enduring investment grade credit rating. • Confirmed the governance of SSE’s pension schemes with a specific update covering the contingency planning in place to reduce any potential impact of gilt-driven volatility. 130 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report | Governance | | Risk and internal control | | People and culture | | | --- | --- | --- | --- | --- | --- | | Role of the Board | | Role of the Board | | Role of the Board | | | To promote responsible leadership based | | To set the approach to risk management | | To understand employee views and set the | | | on transparency and a dynamic approach | | and oversee an effective system of | | cultural tone underpinning a fair workplace | | | to corporate governance. | | internal controls. | | and ethical business practice. | | | Shareholder communications | | Risks, viability and internal controls | | Supporting employees | | | • Approved the contents of 2022/23 | | • Reviewed and approved the | | • Challenged the approach to | | | | trading statements, Half-year Results, | | methodology and findings of the | | addressing recognised cost of living | | | the Annual Report and Accounts, and | | Group Principal Risk review and | | issues to ensure solutions were targeting | | | supporting regulatory announcements; | | emerging risk assessment supporting | | those most affected; overseeing an | | | considering feedback from the Audit | | SSE’s Risk Appetite Statement and | | interim salary increase and an amplified | | | Committee on significant judgements, | | other risk disclosures. | | communications programme | | | the fair, balanced and understandable | • Confirmed the output of the assessment | | | highlighting existing benefits to | | | assessment, and the going concern | | which forms the basis of SSE’s Viability | | assist with financial wellbeing. | | | basis of preparation. | | Statement. | • Discussed the strategy surrounding | | | • Approved the notice and business of the | | • Confirmed the ongoing effectiveness | | | post-pandemic working practices | | | Annual General Meeting 2023 including | | of SSE’s System of Internal Control. | | including locational flexibility to match | | | the continued say on climate through | • Endorsed SSE’s data privacy programme | | | employees’ needs and offering hybrid | | | SSE’s Net Zero Transition Report, | | as a contributor to the sustainability | | working practices where possible; | | | and endorsed plans for shareholder | | agenda, reviewing GDPR metrics, | | stressing the importance of employee | | | participation through pre-meeting | | milestones and international | | consultation on lessons learned and | | | engagement and a continued hybrid | | implementation. | | maintaining engagement with SSE’s | | | meeting format. | • Complementing the work of the Audit | | | culture especially for new recruits. | Committee, evaluated cyber risk and | Board and Board Committees | | information security, spanning: the threat | Doing the right thing | | | --- | --- | --- | --- | --- | | • Monitored Nomination Committee | | environment and notable external attacks | • Conducted a biannual review of the | | | | work on Board composition, succession | in line with geo-political tensions, the | | performance of SSE’s whistleblowing | | | planning and wider capability; approving | maturity of SSE’s controls and capabilities | | arrangements considering employee | | | the appointment of Maarten Wetselaar | to detect and respond, the effectiveness | | confidence in the process, | | | from 1 September 2023, updates to | of training in ongoing assurance, and key | | benchmarking of performance and | | | Board Committee membership, and | risks and plans to support NZAP growth. | | post-Covid 19 trends, the origin of | | | the succession plans for the Finance | | | cases, and the ease at which reports | | | Director and Company Secretary. | | | can be made alongside protections | Risk-informed decision making • Re-affirmed SSE’s Board Inclusion and for those that speak-up; effectiveness More on pages 68 to 77  | Diversity Policy and noted external | | was confirmed alongside a dynamic | | --- | --- | --- | | developments and views in relation | | continuous improvement programme. | | to actions and progress – from the | System of Internal Controlaaa a | | | FTSE Women Leaders Review, the | More on page 159  | | Empowering the employee voice Parker Review and investors – reviewing and Focusing on culture SSE’s position in conjunction with the More on pages 134 to 138  Nomination Committee and Group HR. • Reviewed the findings and actions from the Board performance evaluation. • Monitored and approved SSE’s conflicts of interest register, confirming the continued independence of each ### non-Executive Director. Climate change Role of the Board This includes assessment of policy External developments To ensure decisions are sustainable frameworks; the operation of energy • Reviewed current and future governance in the long-term and the approach to markets; the impact of climate change and reporting developments, considering climate change is addressed through on weather; the role of innovation and FRC thematic reviews; the Government’s work on strategy, operations and risk. technology within SSE’s asset base; response to its consultation on corporate changes to customer behaviour; and governance and audit reform; live Supporting Board work investor views of SSE’s business model workstreams relating to sustainability, SSE’s purpose, vision and strategy are and growth. climate, and transition plan reporting; fully aligned with net zero. The physical and reporting against the FCA’s inclusion and transitional risks, and opportunities In turn, the framework set by the Board and diversity Listing Rule. associated with climate change, are based on its view of climate-related therefore not a singular agenda item. issues, includes strategic targets, They are embedded across all areas business goals, the approved budget, of Board work with long-term net zero consistent investment criteria, considerations couched in the risk management parameters including possible pathways to net zero. SSE’s Risk Appetite, and SSE’s approach to stakeholder engagement. 131SSE plc Annual Report 2023 ## Understanding shareholder views | Gathering views | Institutional investors | Retail shareholders | | --- | --- | --- | | The Board engages with a range of equity | Collectively, in 2022/23, the Board | To allow management of an individual’s | | and debt investors to help inform strategic | engaged directly with institutional investors | shareholding, SSE’s recently refreshed | | decision making, communicate SSE’s | representing over 45% of issued share | investor website houses all regulatory news | | sustainable business plans, and report | capital. The programme of engagement – | announcements and published financial | | on environmental, social and governance | which encompassed 182 one-to-one | and non-financial reports. The Investor | | (ESG) and financial performance. | sessions with investors – was mainly | Relations team and the Company | | | focused across three periods of roadshows: | Secretariat, with support from SSE’s | | Engagement by the executive team is | immediately following the preliminary | Registrar, engage directly with retail | | led by the Chief Executive and Finance | Full-year Results announcement; in | shareholders in response to private | | Director, with participation from the Chief | advance of the Annual General Meeting; | shareholding queries. | | Commercial Officer and other members | and immediately following the Half-year | | | of the Group Executive Committee, | Results announcement. | Annual General Meeting (AGM) | | focusing on operations, and financial and | | The Board encourages shareholders to | | sustainability performance in executing | Members of the Executive Team met | participate in the AGM – through casting | | SSE’s strategy. Engagement by the Chair | physically with investors in the United | votes and raising questions on the business | | leads on corporate governance, strategy | Kingdom, France, Germany, Switzerland, | of the meeting. A hybrid meeting format | | development, people and wide-ranging | and Australia during the year, and virtually | allows full remote participation for those | | ESG matters. | met with investors from other locations | who cannot attend in person, and answers | | | such as North America and Asia. This | to questions and the results of the meeting | | Open and regular dialogue remains | complemented a number of physical | are published on sse.com  as soon as | | the foundation to the Board’s approach, | and virtual investor events which covered | practicable after the event. In 2022, all | | with managed communication channels | specific focus areas as set out below | resolutions were passed with in excess | | in place for all to use (see page 345 ). | and opposite. The Chair also continued | of 81.90% votes cast in favour. | | Notwithstanding, the Board, executive | proactive and open dialogue with investors | | | management and the Investor Relations | on priorities and views of corporate | Debt investors | | team proactively engage with investors | governance, meeting physically with many | Engagement with solicited credit ratings | | through an annual programme of activity; | of SSE’s largest shareholders in advance | agencies, being Standard & Poors’ and | | and ongoing communication with analysts, | of the Annual General Meeting. | Moody’s, takes place throughout the | | proxy advisors, ESG ratings agencies and | | course of the year, with increased dialogue | | financial ratings agencies helps improve | Supplementing one-to-one engagement, | ahead of the annual ratings review process | | disclosure and allows stakeholders to | the Executive Directors attended 15 industry | and in line with Company related news | | better assess SSE’s performance. | conferences, mainly physical, and held 29, | flows. Regular dialogue is also maintained | | | mainly virtual, group meetings which were | between key relationship banks and debt | | | attended by a number of shareholders and | investors with SSE’s Treasury team and the | | | prospective investors. | Finance Director. | ### Engagement in action ### Shareholders and debt providers ## Showcasing SSE’s Transmission ## and Renewables businesses | In September 2022, an in-person event was | assets and the available investment | | --- | --- | | hosted by the Finance Director in Inverness, | opportunities. To provide additional | | for sell-side analysts and large institutional | context, site visits to Blackhillock HVDC | | shareholders to delve deeper into SSE’s | converter station, Glendoe hydroelectric | | Transmission and Renewables businesses. | scheme and Stronelairg wind farm formed | | Each area was discussed on separate days | part of the agenda. | and sessions facilitated by presentations from the senior managers leading on The event was met with highly positive strategic execution within the respective feedback, with attendees confirming the Business Units. presentations were educational; the exposure to wider senior management These materials, and supporting demonstrated their expertise; and the discussions which were made available site visits brought the scale and quality on sse.com  shortly after the event, of assets to life. demonstrated the value of each business’s 132 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### Engagement in action ### Shareholders and debt providers ## Continued dialogue on climate | Following the publication of SSE’s Net Zero | This engagement was set against the | | --- | --- | | Transition Plan, and in support of the first | backdrop of how SSE strives to balance | | annual shareholder vote on its Net Zero | social, environmental and economic | | Transition Report (proposed at the 2022 | impacts whilst enhancing value for | | AGM), the Chair hosted a climate-focused | stakeholders. To allow questions and | | investor event with SSE’s Chief Commercial | feedback on SSE’s approach a Q&A session | | Officer and Chief Sustainability Officer in | followed the presentations. Following the | | June 2022. This online event set out SSE’s | session, stakeholders confirmed improved | | progress in relation to its agreed climate | understanding of SSE’s decarbonisation | | targets – covering climate-related | plans and Just Transition Strategy; and | | strategies, plans and performance – | the resolution to receive SSE’s Net Zero | | as well as touching on SSE’s work on | Transition Report received 98.9% of votes | | the just transition. | cast in favour at the AGM. | | Sharing and interpreting | The feedback provided by shareholders | raised by shareholders during the period, | | --- | --- | --- | | feedback | during and after Full-year and Half-year | which were considered across Board | | The Board receives monthly updates on | Results Roadshows is communicated | deliberations are set out on page 29 . | | investor and financial market sentiment, | directly to the full Board in a biannual | | | providing insight into recent share price | shareholder feedback paper including | | | movements; a briefing on recent sell-side | updates from SSE’s brokers. The Board, | | | analyst commentary; and key monthly | through the SSHEAC, receives a full annual | | | movements in the share register. This is | review of SSE’s performance in investor-led | | | covered through a combination of written | ESG reviews and ratings in addition to, | | | reports and verbal feedback from meetings | through the Finance Director, updates on | | | which have taken place. | credit ratings agency reviews. Key matters | | Shareholder engagement activity 2022/23 46 34 34 21 20 14 14 Number of 8 8 shareholder 6 6 meetings | Full-year | AGM | Half-year | | --- | --- | --- | | 2021/22 | governance | 2022/23 | | results | | results | 133SSE plc Annual Report 2023 APR 22 MAY 22 JUN 22 JUL 22 AUG 22 SEP 22 OCT 22 NOV 22 DEC 22 JAN 23 FEB 23 MAR 23 ## Empowering the employee voice ### How the Board engages ### The two-way dialogue between the The scale at which virtual sessions can Engagement Board and employees is facilitated by a be offered amplifies understanding of ### highlights combination of engagement methods. employee views and material issues. These are set out in full below and include face-to-face discussions at meetings, site The adoption of a diverse range of listening Sites visited visits, and attendance at employee events. channels continues to support the principle With 2022/23 being the first year in which that everyone in SSE should have a voice ## 32 | in-person engagements could fully resume, | and is consistent with employee feedback | | --- | --- | | the Board-employee programme travelled | surrounding the benefit of multiple platforms | | to 32 sites encompassing all of SSE’s | through which to raise areas of interest or | Board-led virtual engagement Business Units and a number of corporate concern. In turn, it supports the Board in sessions functions. gathering a fair and representative view of the issues which are important to employees ## 13 Virtual engagement platforms, which and builds an appreciation of how these may evolved during the pandemic, have differ by geography, business area, role, and remained a key part of the engagement individual circumstances. Non-Executive Director for strategy providing simultaneous access to Employee Engagement a diverse audience of roles and locations. sessions ## Board listening approach 13 ### Engagement audience and purpose Total employee attendance at | All-employees | | People leaders | | Senior leadership | | Board calls | | --- | --- | --- | --- | --- | --- | --- | | • Offers Board | | • Provides the opportunity | | • Creates a platform for | | | | | perspectives which can | | to replay key messages | | two-way interaction | 23,835 | | | otherwise be missed | | which the Board has | | between the Board | | | | from business-led | | heard through listening | | and senior leaders who | | | | communications. | | channels. | | lead SSE’s teams. | Largest audience size | | • Provides the Board with | | • Supports and challenges | | • Allows the Board to | | | | | insight of employee | | management actions | | offer views and personal | | ## 3,781 opinion on life at SSE in response. external perspectives. and key areas of interest or concern. All-employee survey engagement score 2022/23 ### Engagement format and value created ## 84% Director-employee Focus groups Site visits sessions Allows interaction across Allows non-Executive Provides employees diverse geographies Directors to travel with access to the Board and cross-sections of across SSE and feel and with direct two-way employees, and being understand employees’ interaction supporting smaller in size, provides experience of the detailed discussion of the opportunity to seek out operational environment. specific topics. added context surrounding These visits can be followed employee sentiment by informal roundtables Leadership and business through true conversation. to allow deeper two-way roadshows and The impact can be fast and dialogue on matters of conferences influence decisions which importance. Provides an opportunity to may affect employees. exchange views on SSE’s Digital channels and strategy and both Group- All-employee surveys written communications wide and business-specific Exists as a long-standing Reinforces matters of priorities, supporting wider tool with a mature strategy importance and embeds engagement and awareness that attracts a strong the tone through the including the contribution response rate. The results Board’s written reflections. and impact made by are viewed as representative This can include employees. of the majority of employee observations and takeaways voices and shape the from other engagement cultural agenda, ensuring activities to allow a that employee sentiment wider reach. is considered in all key decision making. 134 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report | | Q&A with Lady Elish Angiolini | Where do you see opportunities | | --- | --- | --- | | | What are your reflections on the value | for 2023/24? | | | of direct Board-employee engagement | I’ve been able to speak with many | | | in SSE? | colleagues across SSE and have been | | | Engagement is very valuable to the Board | impressed with the dedicated team | | | as it builds trust, collaboration and aligns | spirit and commitment to SSE’s purpose. | | | the Board and employee approach. I can | A willingness to share views has given | | | see how the Board seeks diverse feedback | me a good understanding of employee | | | from employees delivering on strategy, | experiences in SSE and I look forward | | | and it’s essential that direct engagement | to exploring priorities in conversations | | | continues as a core activity. | to come. | | | Since joining the Board in 2021, | What skills and perspective would | | | what insight have you gained into | you like to bring to conversations | | | the employee experience in SSE? | in the year? | | | This is a period of record growth and we | I have an inquisitive nature and like to | | Non-Executive Director for | must continue investing in face-to-face | listen to all views to encourage honest and | | Employee Engagement | and virtual engagements to understand | frank discussion, which will help highlight | | The Nomination Committee oversees | how employees and SSE’s culture are | areas for me to bring to the Board. I’ve | | the recommended appointment of the | responding. We should also build on | also been involved with organisations | | Non-Executive Director for Employee | relationships with employee-led groups | undergoing intense periods of change | | Engagement, which Lady Elish Angiolini | like the ‘Belonging in SSE’ communities, | and this will support my understanding | | assumed from 1 April 2023 in a handover | who are strong advocates of the | of employee sentiment. | | from Dame Sue Bruce. In considering the | employee voice. | | successor to the role, the Nomination Committee noted Elish’s rich experience in assimilating and interpreting views and ### translating findings into a required course Engagement in action ### of action. These skills support the core Employees purpose of the employee-Board link and the desire to operate in an empathetic and thoughtful way. ## Engaging on net zero The creation of the role remains a natural and progressive step in the evolution of SSE’s employee voice strategy, providing | an enhanced and more interactive | The successful delivery of SSE’s strategy | The AGM virtual Q&A session was open | | --- | --- | --- | | understanding of employee sentiment. | is dependent on employees feeling | to all employees and attended by more | | | engaged with the Group’s purpose. | than 3,500 people from across Great | | Each year, the programme of work for | A key objective over 2022/23 was | Britain and Ireland. Directors addressed | | the Non-Executive Director for Employee | therefore connecting people’s roles | queries on a wide range of issues and of | | Engagement is structured and supported | with net zero and feeling engaged with | the attendees who provided feedback | | in collaboration with SSE’s Head of | senior leaders. Full Board attendance | on the event, 90% said they valued | | Employee Engagement. The success | at the Annual General Meeting (AGM) | hearing from the Board and 85% found | | of the role is measured in action, whereby | 2022 was seen as an opportunity to | the session helped them to connect | | the employee voice is consistently | deliver this. | their roles to the Group’s net zero- | | represented in meetings attended by the | | aligned strategy. | | Non-Executive Director for Employee | The event was used for both in-person | | | Engagement, allowing the views and | and virtual interaction, with members | | | opinions of colleagues to feature and | of the Board taking part in a roundtable | | | contribute to discussions and decisions | discussion with colleagues from a | | | being made. | range of businesses, geographies and | | demographics, alongside leads from the ‘Belonging in SSE’ communities. The employee group sought advice, opinions and feedback on topics including flexible working patterns, the challenges faced by neuro-diverse colleagues, mental health awareness and career progression. 135SSE plc Annual Report 2023 ### Empowering the employee voice continued ### Board response to employee views Discussions with employees have been broad ranging in 2022/23 and cognisant of the energy crisis, net zero, cost of living and employee well-being. Through the full suite of listening and engagement channels, the below confirms how the Board has responded to material issues raised by employees across the year. These are set out under key themes which are checked through SSE’s all-employee survey to ensure they are reflective of employee priorities and to assess progress and improvement. Key themes Active Board engagement ### Inclusion and diversity • Melanie Smith hosted an all-employee Q&A during Race Equality Week and encouraged the sharing of diversity information, to support actions that focus on making SSE more inclusive. Why the Board engaged • The Chair and Non-Executive Director for Employee Engagement participated in a session The Board champions SSE’s with the ‘Belonging in SSE’ community leads, and heard views on lived experiences, inclusion and diversity approach, challenges, aspirations and priorities for the Board. Key takeaways were shared more widely and seeks insight surrounding using internal communications and would continue to inform Board policy development. the effectiveness of plans and • The Board sponsored events including Perthshire Pride which was attended by employees, initiatives in order to continually the Chief Commercial Officer and the Non-Executive Director for Employee Engagement; and further progress. the Finance Director participated in the ‘It Takes All Kinds of Minds’ international conference which was aligned with Neurodiversity Focus Week across SSE internal channels. ### Strategy, net zero and • Tony Cocker and Melanie Smith were involved in Leadership Roadshows and SSE’s Leadership ### climate change Conference with the Executive Directors, to cover topics including strategy, execution and growth, people and wellbeing. Why the Board engaged • The Board oversaw activities to embed SSE’s Just Transition Strategy, with an externally- The Board acts in response to available video featuring key stakeholders and just transition themes, launched internally all-employee survey and call through an all-employee virtual session. feedback, which cited a want • The Chief Executive and Helen Mahy visited the Arklow Bank wind farm phase 2 development to engage further with senior site and project team, with key takeaways being environmental and stakeholder consultation, leaders on SSE’s strategy and and community engagement. the drive to net zero. • Over 800 SSE leaders joined the Chief Executive, the Chair and Debbie Crosbie for a call exploring the Leadership Blueprint and their pivotal role in delivering SSE’s strategy and Net Zero Acceleration Programme. ### Digital strategy • Melanie Smith spent time with the Digital Team on strategic progress, with views shared with the Board thereafter, around skills to keep pace with developments in energy technology. Why the Board engaged • An all-employee call hosted by the Chief Executive shared progress towards SSE’s digital The Board understands the ambitions and provided a forum for employee questions and views. development in the digital space • A virtual meeting between the Non-Executive Director for Employee Engagement and is a key area and seeks views on the Information Security and Privacy Group discussed cyber security priorities for SSE and challenges, opportunities, progress employees, and led to Dame Sue Bruce sponsoring the Cyber Security Month which brought and making employees part additional focus to this area. of digital initiatives and change. ### Great place to work and • The Chief Commercial Officer held an all-employee session to explore engagement survey ### ways of working results and covered well-being, reward and recognition, strategy and communication of key messages, reaching an audience of over 3,000 employees. Why the Board engaged • Prompted by an employee request, a session in Glasgow with the Non-Executive Director The Board seeks views of employee for Employee Engagement explored the post-pandemic return to the office, with employees needs in order to drive culture and sharing experiences and views on hybrid working. meet expectations surrounding • The Non-Executive Director for Employee Engagement and Lady Elish Angiolini attended working practices and wider a welcome event to meet SSE’s newest intake of graduates which considered career support; areas which continue to development and navigation. evolve post-pandemic and in the • A session was held with representatives from Business Energy and the Non-Executive Director current cost of living context. for Employee Engagement, to discuss all-employee survey results and actions to address focus areas identified through the survey. 136 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ## Focusing on culture ### A healthy corporate culture is one in which SSE has a purpose, values and strategy that are ### respected by its stakeholders, and an operating environment that is inclusive, diverse, supportive ### and engaging; that encourages employees to make a positive difference for stakeholders; in ### which values guide responsible decisions and actions; and in which attitudes and behaviours ### are consistent with high standards of conduct and doing the right thing. ### Aligning with purpose, employees of key Board activity. Senior observed behaviours and trends. These can ### vision and strategy leaders across SSE have the same be described as a combination of the below Company culture has internal and external responsibility to lead, embed and oversee reported metrics, standing reports and influence, guiding interactions within SSE cultural standards. listening channels. and directing decisions with stakeholder • Feedback from Board-employee Culture is embedded at Board-level by: engagement and Non-Executive Director impact. This context is reflected within • SSE’s Governance Framework and for Employee Engagement insights. the above Board-approved definition of a practices (see pages 122 to 124 ). • Employee survey results. healthy corporate culture, which supports • Board decision-making (see pages 125 • Twice yearly Cultural Dashboard review. purpose, vision, strategy and long-term to 131 ). • Monthly people updates from the Chief success, by setting a baseline against which • People matters, appointments and Executive covering key developments cultural guidance can be developed and succession planning (see Nomination and employee sentiment. cultural indicators tested. | | | Committee Report ). | • Monthly compliance reporting from | | | --- | --- | --- | --- | --- | | Setting the tone | • SSE’s risk, controls and compliance | | | the Finance Director. | | A healthy corporate culture is a shared | | approach (see Audit Committee and | • Monthly safety and wellbeing data. | | | deliverable, which starts with the Board | | EMRC Reports and page 68 ). | • Whistleblowing performance reports. | | | setting the correct tone. This is supported | • Focus on safety, sustainability, health | | | | | through approval of SSE’s values, and their | | and the environment (see SSHEAC | The Cultural Dashboard (see page 138 ) | | | translation into accepted attitudes and | | Report ). | remains a health check, comprising data | | | behaviours within SSE’s Group Policies and | • Attitudes towards reward and | | from Group HR and Group Compliance. | | | an employee guide ‘Doing the Right Thing; | | remuneration (see Remuneration | A key section aligns employee survey data | | | SSE’s guide to good business ethics’, all of | | Committee Report ). | with people metrics and KPIs under cultural | | | which are supported by mandatory training | | | strands. This allows the Board to consider | | | | Monitoring and measuring | | where there are deviations between what | | for everyone in SSE. | | The Board uses multiple sources to assess | is being heard and underlying behaviours. | | --- | --- | --- | | Leading by example is through the Board’s | the strength of culture and understand how | During 2022/23, the Board retaining | | own conduct and communication to | it manifests across employee sentiment, | oversight of ongoing culture-related | workstreams through its wider agenda. ### Engagement in action ### Employees ## Understanding operational culture | Over 2022/23 the Board have visited a | station and engaged with partner and | Networks. In advance of a Board | | --- | --- | --- | | wide range of locations and business | contractor representatives on project | meeting, engagement took place with | | areas, providing direct access to | scope, approach and progress, and as | employees working on flexible energy trials | | operations and ensuring front-line | part of his induction John Bason visited | at the innovation project, Local Energy | | employees could share their experiences | Montrose harbour, the site associated | Oxfordshire (LEO). Insight was gathered | | with the Board. These visits further | with the Seagreen offshore wind farm, to | surrounding the technical, commercial, | | enhanced understanding of the cultural | gain a deeper insight into the industry. | social and regulatory challenges and the | | tone and sentiment across Business Units. | | potential for a community-based approach | | | Thermal. Helen Mahy visited the | to local flexibility. | | Renewables. Visits by the Chair, | Thermal engineering hub in Leeds to | | | John Bason, Dame Angela Strank and | meet and discuss areas important to the | Energy Customer Solutions. Lady Elish | | Tony Cocker covered Coire Glas site | Team including inclusion and diversity, | Angiolini visited the team in Belfast to learn | | investigation works, Stronelairg wind | development and mentoring, the results | more about improvements to the customer | | farm, and Foyers and Glendoe power | of the all-employee survey and technical | experience and compliance, and heard | | stations over a two-day period, gaining | developments including Carbon Capture | examples of the challenges experienced | | insight into the challenges and progress | and Storage. | by customers in vulnerable circumstances | | in current and future renewables | | and how colleagues support each other | | operations from employees. The Chair | | when dealing with hardship and difficult | | visited Dogger Bank wind farm HVDC | | customer scenarios. | 137SSE plc Annual Report 2023 ### Focusing on culture continued ### Measuring culture through our dashboard ### Our culture is shaped and 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 employee sentiment surrounding the core themes and actions SSE is taking in each area... | Employee | Inclusion | Safety | Our | | Doing the | My | Senior | | --- | --- | --- | --- | --- | --- | --- | --- | | engagement | | | strategy | | right thing | manager | leaders | | 84% ▲ | 85% ▲ | 93% ▲ | 83% ▼ | | 85% ▲ | 76% | 66% ▲ | | Life at SSE | My Team | Wellbeing | | | | | | | 73% | 85% | 76% ▲ | | ▲ ▼ | Movement relative to internal 2021 trend benchmark. | | | ### Supported by key people metrics and KPIs… | 10.5% ▲ | 83% | of | 255 ▲ | Just over 1 in 5 | 95.5% ▲ | 1,992 | 58 ▲ | | --- | --- | --- | --- | --- | --- | --- | --- | | Employee | employees able | | Safe Days. | SSE colleagues | Certification | Leaders engaged | Board-led | | turnover. | to work flexibly. | | | have made the | across mandatory | with the | employee | | | | | 6.9 ▲ | transition from | eLearning | Leadership | engagements, | | | 8 ▲ | | Sick days | high to low- | courses. | Blueprint Plans*. | including | | 4,401 ▲ | ‘Belonging | | per head. | carbon roles*. | | | 13 Non-Executive | | vacancies | in SSE’ | | | | 50 ▲ | | Director for | | filled. | communities | | | | employee | | Employee | | | with over 2,000 | | | | contacts on | | Engagement | | | active members. | | | | Speak Up | | sessions. | platforms. ▲ ▼ Movement relative to 2021/22. ### Continually supported by cultural action plans and Board support in 2022/23… | Provided | In response to | SSHEAC safety | Oversees | Continued focus | Direct Board | Board’s approach | | --- | --- | --- | --- | --- | --- | --- | | continued | employee views | and wellbeing site | ongoing delivery | on front line | engagement | to understanding | | oversight of | and engagement, | visits continue | of the Net Zero | communications | with leaders to | and assessing | | critical skills | oversaw | to be conducted | Acceleration | (see page 137 ). | provide feedback | strength of | | investment, | enhanced Family | (see page 165 ). | Programme | | and direction | culture (see | | performance | Leave entitlement | | and 2030 Goals | Reviewed SSE’s | (see page 136 ). | page 137 ). | | initiatives and | for pregnancy | Reviewed | (see pages 125 | whistleblowing | | | | development | loss, fertility | safety, health | to 129 ). | arrangements | Continues | | | of employee | treatment and | and wellbeing | | and performance | to sponsor | Board presence | | proposition | partner’s leave. | performance at | Directly | (see page 131 ). | a leadership | across SSE’s full | | (see pages 146 | | the start of every | supported | | review which | engagement | | to 147 ). | Amplified direct | Board meeting. | employee | Board support | confirmed | approach | | | engagement | | communications | for SSE’s cyber | a strong, | (see pages 134 to | | Oversight of top | with employees | Received | on strategy | security month. | collaborative | 136 ). | | leaver reasons; | on the topic | updates on the | (see page 136 ). | | organisational | | | SSE’s employer | of inclusion | formation of a | | | environment with | | | brand; and | and diversity | new Contractor | | | trust and support. | | | activity which | (see page 136 ). | Safety Team. | | | | | communicates SSE’s proposition to external candidates. * New measure. See also culture on the Board agenda on page 28 . Embedding a healthy business culture on page 59 . 138 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ## Defining Board responsibilities Through the Board Charter, the Board approves the clear division of responsibilities between the Chair and Chief Executive and sets out what is expected of the non-Executive Directors, recognising the defined roles of Senior Independent Director and Non-Executive Director for Employee Engagement. The below confirms the split of executive and non-Executive accountabilities which support the integrity of the Board’s operations. ### Executive Non-Executive Chief Executive Chair • Proposing and directing the delivery of Board-agreed strategy • Leading the effective operation and governance of the Board. through leadership of the Group Executive Committee. • Ensuring decision-making has long-term focus, and SSE’s • Ensuring SSE’s decisions and actions have long-term focus, approach to sustainability, including climate change, is through management, implementation and progression of addressed through strategic, operational and risk considerations. sustainability interventions, which support strategy and address • Setting agendas to support balanced decision-making. material impacts including climate change. • Demonstrating objective judgement and applying sufficient • Communicating and providing feedback on the implementation challenge to proposals. and impact of Board-agreed policies on behaviours and culture, • Ensuring effective Board relations and a culture that supports ensuring SSE operates in line with its values. constructive debate. • Assuming responsibility for the overall performance of SSE’s • Engaging with major shareholders and key stakeholders to Business Units and leading the functions of: HR; Corporate ensure the Board understands and considers their views. Affairs, Regulation and Strategy; and Sustainability. • Overseeing the annual Board evaluation and identifying • Engaging with SSE’s six key stakeholder groups and leading required actions. on related activity at EU, International and UK level. • Setting the cultural tone and leading initiatives to assess culture. 1 Finance Director Senior Independent Director • Deputising for the Chief Executive. • Providing a sounding board for the Chair. • Proposing policy and actions to support sound financial • Leading the Chair’s performance evaluation. management and leading on M&A transactions. • Serving as an intermediary to other Directors when necessary. • Leading the functions of: Finance; Procurement and Logistics; • Being available to all stakeholders if they have concerns Group Risk and Audit; IT and Cyber Security; Investor Relations requiring resolution. and Company Secretarial; and the General Counsel areas of responsibility. Independent non-Executive Directors • Overseeing relationships with the investment community. • Challenging and assisting in the development of strategy. • Engaging with SSE’s six key stakeholder groups and leading • Reviewing and measuring the performance of management. on related activity in Scotland. • Providing independent insight and support based on relevant experience. Chief Commercial Officer • Reviewing financial information and ensuring the System of • Supporting the work of the Chief Executive and Finance Internal Control and Risk Management Framework are effective. Director. • Reviewing succession plans for the Board and senior leadership. • Leading SSE Renewables, SSE Thermal, Energy Portfolio • Monitoring actions to support inclusion and diversity. Management, Energy Customer Solutions and SSE Enterprise • Engaging with key stakeholders and reporting to the Board at Board level. on perspectives. • Driving growth and commercial market risk activities for • Setting executive remuneration policy. all of SSE’s non-networks businesses at Group level. • Serving on, or chairing, various Committees of the Board. • Leading executive relations with trade unions. 1 • Engaging with SSE’s six key stakeholder groups and leading Non-Executive Director for Employee Engagement on related activity in Ireland and Northern Ireland. • Providing an employee voice in the Boardroom. • Developing, implementing and reporting on employee engagement initiatives. • Representing the Board and its decision-making in discussions ### Company Secretary with employees. • Engaging with officers of trade unions and internal trade unions • Safeguarding compliance with Board procedures and providing representatives on strategic issues affecting the workforce. support to the Chair. • Ensuring the Board has high quality information, adequate time and appropriate resources. • Advising the Board 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. 139SSE plc Annual Report 2023 ## Assessing Board performance ### Annual Board evaluation | The Board monitors and improves | The 2022/23 Board and Board Committee | The methodology of the 2022/23 follow- | | --- | --- | --- | | performance by reflecting on the | evaluations were facilitated by Lintstock | up reviews were aligned with that of an | | continuing effectiveness of its activities, | Ltd (Lintstock). This followed Lintstock | internal evaluation and structured to allow | | the quality of its decisions and by | conducting the 2021/22 external Board | identification of new focus areas. Besides | | considering the individual and collective | and Board Committee performance | the provision of the Board and Board | | contribution made by each Board member. | reviews, with their services re-engaged | Committee evaluation work, there was no | | This is assessed annually through the | for a further two years to provide efficient | other contractual connection between SSE | | Board evaluation process. | and consistent oversight of the actions | or the individual Directors and Lintstock. | and themes identified. ### Progress against 2021/22 evaluation findings Opportunities for refinement Update on actions Optimising oversight The Board reviewed proposals for monitoring progress on strategic execution and agreed updates of strategic execution to further optimise Board oversight. These centred on the preparation and presentation of certain strategic reports, including the NZAP dashboard, which has been reviewed in the year. Alignment on A revised framework for constructive challenge and monitoring of people matters is in place, with people matters it agreed to enhance Board knowledge of SSE’s leadership teams through increased face-to-face engagement. Details of work on talent, and inclusion and diversity, is on pages 134 to 136 . Leveraging The findings supported the view that the management team was highly expert and proficient in external voices the suite of technical matters which fall under its remit. There was an opportunity for the Board to complement this, through the use of third-party or external expertise on particular topics. Accordingly, Board deep dives have been conducted and several external speakers engaged to provide a diverse perspective on certain subjects (see page 125 ). ### 2022/23 Board evaluation process | Stage 1 | Stage 2 | Stage 3 | | Stage 4 | | --- | --- | --- | --- | --- | | Re-engaging | Design of | Review | | Findings | | Lintstock | the evaluation | methodology | | and actions | | Following a selection | Considering the findings | The questionnaire was | | Based on the information | | process, and in compliance | of the 2021/22 external | issued, and to achieve a | | and views garnered from | | with the UK Corporate | Board performance review, | comprehensive suite of | | the review responses, | | Governance Code, | it was agreed the review | feedback, questions were | | Lintstock produced | | Lintstock were engaged | of the Board and its | structured around agreed | | the Board and Board | | to perform an external | Committees in 2022/23 | topics, comprising: | | Committee evaluation | | review of the Board and | be conducted by Lintstock | • Board dynamics; | | reports for review. The | | its Committees in 2021/22. | in the same format as an | • Board composition; | | finalised report of findings | | After seeking the opinion | internal evaluation. This | • Board support; | | was provided to the Board | | of the Board, the Chair | centred on the use of a | • management and focus | | and actions agreed. | | with assistance from the | detailed questionnaire, | | of meetings; | | | Company Secretary and | to be completed by | • stakeholder oversight; | | | | Director of Investor | the Board, Committee | • strategic oversight; | | | | Relations, re-engaged | members, and secretaries. | • risk management and | | | | Lintstock to facilitate | | | internal control; and | | | the Board evaluations in | | • succession planning | | | | 2022/23 and 2023/24, as it | | | and people oversight. | | was deemed efficient and appropriate in the cycle of continuous improvement. 140 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### 2022/23 Board evaluation findings The findings of the Board evaluation the contribution to the development of Whilst the findings were positive and were positive, with progress thought to strategy; and Board support through the confirmed the Board to be operating have been achieved across a number Company Secretary and training. effectively, there remained as with all of evaluation areas. Areas which scored balanced process, opportunities for well, relative to an external benchmark, The findings further affirmed strong Board improvement and refinement. included: the clarity of strategic purpose; composition, with discussions cognisant of the relationship between the non- the attributes which should be considered Executive Directors and Chief Executive; in future appointments, alongside how oversight of strategic implementation; these should be balanced and prioritised within succession plans. Opportunities for refinement Commentary and actions Enhancing contact with It was acknowledged ongoing activities were enhancing the Board’s appreciation of these areas, SSE’s culture, senior teams, notwithstanding, increased structure and planning would maximise the impact of this work. Business Units, and strategic Actions agreed by the Board: context • A Board planner for visits and existing pre-Board meeting sessions has been circulated to ensure these be utilised to good effect. • A biannual review of competitor strategies is to take place and continue on an ongoing basis. • Deep dives will be arranged on specific topics such as ESG, technology and influences on long-term energy prices. Continued consideration The Board was supportive of progress in this area, noting that positive results would take time to of people issues be visible within the organisation. As such, there were a number of practices the Board wished to continue and develop further. Actions agreed by the Board: • To maintain a focus on diversity progress, targets and reporting will continue as a biannual item at the Nomination Committee (see pages 148 to 149 ). • To facilitate Board oversight and provide support on capacity to deliver strategy and growth, the Nomination Committee should continue to consider activities to build capability (see page 146 ). • There should be a continued focus on succession at an Executive Director and senior leadership level. In fulfilment of this, the Board will attend talent dinners biannually; succession plan updates will continue at the Nomination Committee; and in line with standing practice non-Executive Directors can attend management conferences and talent invited to present at Board meetings. Board composition The Board identified ongoing management of Board succession, and ensuring a smooth transition in roles, as priority areas of focus, given a number of changes to Board membership. The findings also supported the view it would be beneficial for greater geographic representation across its composition. Actions agreed by the Board: • In light of the above, in 2022/23, the succession plan for Finance Director was approved, and a non-Executive Director search was undertaken which saw the appointment of Maarten Wetselaar (see pages 144 to 145 ). | Board Committees | individual skills (see page 115 ), the | Directors. He has a high degree of visibility | | --- | --- | --- | | The evaluation of Board Committee | time commitment, and independence | and availability, is inclusive, and always | | performance found that each Committee | assessments (see pages 143 and 146 ) | looking to hear views while putting his | | remained effective in providing Board | confirmed that each Director continues | own experience to appropriate use. | | support. Specific findings and the | to contribute positively. | He leads and conducts the Board well, | | agreement of actions was overseen by | | both in the formal Board meetings and | | each Committee Chair, with consideration | Chair performance | through regular interactions outside the | | of the overall findings for the Board. | The performance of the Chair was | Boardroom. He engages actively with | | | evaluated by the Senior Independent | colleagues at all levels and has continued | | Progress will continue to be monitored | Director, based on: feedback gathered | to engage constructively with investors on | | by each Committee, with details set out in | by an external facilitator; a thorough | strategy, governance, and ESG. | | the Reports across pages 142 to 187 . | discussion with non-Executive and | | | | Executive Directors; and individual input | The priority focus areas for the Chair in | | Individual Director performance | from non-Executive and Executive | the coming year, were agreed and aligned | | Individual Director performance and | Directors and selected senior managers. | with those identified through the evaluation | | contribution was assessed through | | process for the Board as a whole. It was | | one-to-one meetings with the Chair. | The output of this performance review | confirmed that he devoted sufficient time | | These sessions allowed reflection on | confirmed that Sir John Manzoni continues | to the role, and in all respects met the | | personal development and discussion of | to be a effective and energetic Chair. He | requirements of the Code. | | matters relevant to Boardroom culture and | leads ambitious and constructive challenge, | | | process. The findings, in combination with | and appropriate support of the Executive | | 141SSE plc Annual Report 2023 ## Nomination Committee Report ### Role of the Committee • Inclusion and diversity. Under The Nomination Committee provides the Board’s Policy, considers the dedicated focus to the following perspectives and attributes across people-led matters. the Board and senior leadership, confirming ambitions and work to • Board leadership. Identifies drive progress, reviewing overall the skills, knowledge and support for Group-wide inclusion experience required for the and diversity strategy. effective leadership and long-term success of SSE, managing the The Committee’s Terms of Reference balance of competencies through are available on sse.com . Non-Executive Director for Employee succession planning, knowledge Engagement. Both Melanie and Lady Elish development and recruitment. bring their own expertise to these positions. • Board Committees. Monitors the size, structure and composition ### Key activities in 2022/23 In our annual review of Board Committee of the Board’s Committees to • Reviewed Board composition. membership, and in advance of the change ensure the appropriate Board • Recommended the succession in Audit Committee Chair, we agreed support now, and going forward. plan for both the Finance Director John Bason would join the Remuneration • Talent pipeline. Monitors the and Company Secretary. Committee from May 2023, retaining the senior leadership pipeline and • Recommended the appointment practice that the Audit Committee Chair initiatives to develop internal of a new non-Executive Director. provide a consistent view of Group capability, engaging in leadership • Assessed inclusion and diversity performance across relevant Board forums. programmes and updates on external recruitment. performance. Inclusion and diversity remains a core area of work, framed by the Board Inclusion and Diversity Policy and the internal ambitions which represent a commitment to progress. The diversity of the Board is on | Dear Shareholder, | with defined parameters, and from a | page 115 , with membership comprising | | --- | --- | --- | | The execution of orderly succession | shortlist comprising both internal and | 42% women and one Director from an | | plans to support the strength of the Board | external candidates, Barry O’Regan, Finance | ethnic minority background. This will | | has been a significant Committee focus, | Director, SSE Renewables, was identified as | remain the position after the changes | | and underpinned by assessment of the | the strongest fit for the role. This objective | described above. Across membership, | | Board’s skills, knowledge, and tenure, in | outcome confirms the strength of internal | difference is enhanced through diverse | | the context of SSE’s long-term growth and | talent development, and we will focus on | perspectives and backgrounds and we | | operating environment. The skills matrix | an effective transition for 1 December 2023. | seek to ensure this extends to Board | | on page 115  confirms the attributes we | Gregor has been instrumental in shaping | Committees and Chair roles. Per the FCA’s | | identify as key in the Board’s leadership role. | SSE’s investment case and delivering our | Listing Rule, we explain the positions of | | | financial objectives over his 21 years in post, | Chair, Senior Independent Director, Chief | | The external evaluation in 2021/22, cited an | and we look forward to working with Barry | Executive and Finance Director are held by | | opportunity to monitor Board membership | in his role as Chief Financial Officer on the | men. This will continue to be considered | | as SSE progressed its Net Zero Acceleration | opportunities that lie ahead. More on the | within our agenda, with regard for our | | Programme, and this was explored in the | above processes and detail of how diversity | policy and stakeholder views. | | candidate specification for a new non- | was considered in Board recruitment during | | | Executive Director. We are delighted the | the year is on pages 144 to 145 . | Discussions with the Executive Directors and | | resultant search sees Maarten Wetselaar | | Group HR considers inclusion and diversity | | join the Board on 1 September 2023. | In another change, Sally Fairbairn, our | action below-Board level. Within senior | | Maarten’s appointment enhances existing | Company Secretary and Director of | management women’s representation is | | international and renewables infrastructure | Investor Relations also signalled her | 34.1% and we continue to work towards a | | capabilities, and brings a global outlook | intention to retire, which was supported | target of 40% for 2025. An area of focus will | | and career of energy leadership expertise | by the recommendation in May 2023 that | be agreeing a supplementary ambition for | | to the Board. He will become a member of | Liz Tanner become General Counsel and | ethnicity across this senior population. More | | the Nomination, Audit, and Energy Markets | Company Secretary from 1 August 2023. | on inclusion and diversity can be found on | | Risk Committees upon appointment. | | pages 148 to 149  and in the Inclusion and | | | We thanked Dame Sue Bruce for her | Diversity Report on sse.com . | | The Board has continued to benefit from | dedication, as she stepped down after just | | | the long-standing experience of the | over nine years’ service on 31 March 2023. | | | Executive Directors, and regularly reviews | And on 20 July 2023, we will see Peter Lynas | | | the internal pipeline and external talent | complete his final term as a non-Executive | | | pool to confirm optionality for any change. | Director. A number of changes in Board | | | In 2022/23, we progressed the succession | roles, set out in the 2022 Annual Report | | | plan for the Finance Director, Gregor | and on page 146 , take place as a result. | | Sir John Manzoni Alexander, with external support from Melanie Smith is now Remuneration Chair of the Nomination Committee Korn Ferry. This was a robust process, Committee Chair and Lady Elish Angiolini 23 May 2023 142 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report | Membership and attendance | This was followed in April 2023, with the | Sally Fairbairn, Company Secretary and | | --- | --- | --- | | The membership of the Committee | announcement that Gregor Alexander | Director of Investor Relations will also step | | comprises the non-Executive Directors | would be stepping down from the Board | down from the role following notification | | and the Chair of the Board, who is also | on 1 December 2023, at which time he | of her retirement. The Committee | | Chair of the Committee. The Company | will have served as Finance Director for | subsequently recommended the split of | | Secretary is Secretary, and where | 21 years. In support of a comprehensive | her responsibilities, with Liz Tanner, SSE’s | | appropriate, the Executive Directors are | process, internal succession plans and the | current General Counsel also to become | | invited to attend meetings. Biographical | results of an external search, were subject | Company Secretary in support of this | | details of the Committee members can | to interview and selection with support | change. This transition will take effect from | | be found on pages 116 to 120 . The | from an independent recruitment firm. | 1 August 2023. The position of Director of | | Committee met eight times in 2022/23 | The resultant recommendation, which | Investor Relations will become a separate | | with attendance on page 123 . | was approved by the Board, will see Barry | role within the Investor Relations Team. | O’Regan, current Finance Director, SSE | Board leadership | Renewables, become Chief Financial | Time commitment | | --- | --- | --- | | Composition and succession | Officer on 1 December 2023. | The expected time commitment of the Chair | | The composition of the Board is informed | | and non-Executive Directors is agreed and | | by plans for orderly succession across Board | Details of the work which supported each | set out in writing in a Letter of Appointment. | | and Committee roles. This is supported by | of the above appointments is set out on | This is issued following confirmation of an | | regular assessment of the skills, experience | pages 144 to 145 . | individual’s capacity to take on the role and | | and diversity the Board needs, in line with | | involves an assessment of existing external | | strategy and changes in SSE’s operating | As reported in 2021/22, John Bason joined | commitments and demands on time. | | context. The backdrop to these discussions | the Board as Audit Committee Chair | Any changes, such as additional external | | comprises the full breadth of Board work | designate on 1 June 2022. At which time | appointments which could impair the ability | | set out across the Directors’ Report, and the | he became a member of the Nomination | to meet the above, can only be accepted | | elements of Board composition and diversity | Committee and Audit Committee. | following approval of the Board. The | | set out on page 115 . | | acceptance of an external appointment by | | | Following their respective nine year terms, | an Executive Director also remains subject | | Resulting from the above, and in line with | Peter Lynas steps down from the Board on | to prior Board consent. Approved changes | | work to support SSE’s Net Zero Programme, | 20 July 2023 and Dame Sue Bruce stepped | across 2022/23 are set out on page 117 . | | an independent non-Executive Director | down on 31 March 2023. The succession | | | recruitment process was initiated in the | plan for their key Board roles is confirmed | | | year. Following a robust search, this saw the | on page 146 . | | recommendation that Maarten Wetselaar join the Board from 1 September 2023. ### Committee evaluation The annual review of Committee performance was facilitated by Lintstock (see pages 140 to 141 ) and the outputs considered by the full Committee. This confirmed the Committee’s continued effective operation and agreement of actions for 2023/24. Evaluation confirmed • A robust process supports the review of Board composition and capabilities and has resulted in effective succession planning across non-Executive roles. • Work on senior leadership pipelines with Group HR has strengthened and enabled deeper discussion surrounding talent and capability. • A clear rhythm of work has been established to review the impact of inclusion and diversity strategy at all levels, creating a platform to drive progress. Actions for 2023/24 • Board composition. Focus should be maintained on the collective and individual skills of the Board, in the context of tenure and SSE’s long-term growth, with support for transitions in membership. • Executive succession and talent pipeline. Positive challenge should continue surrounding the depth and breadth of succession plans for senior leadership, alongside work on internal and external talent pools. • Inclusion and diversity. The amplification of the inclusion and diversity agenda should be supported; assessing progress and identifying where targeted action is needed to deliver change. 143SSE plc Annual Report 2023 ### Nomination Committee Report continued ### Board recruitment Independent ### and succession process non-Executive ### Director ### appointment ### Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Confirm Engage Assess Review Identify the Key search criteria objective of an external how the technical preferred • Large capital projects. the process recruitment specification and cultural candidate to • Operations, and role firm and set out can be met fit to agree recommend development, specification. process. through a shortlist. to the Board. or construction a longlist. of renewable energy. • International business and M&A. • Engagement with ### Embedding inclusivity capital markets. SSE’s Board Inclusion and Diversity Policy sets out actions to promote diverse appointments and inclusive recruitment processes. This includes using gender neutral language to ensure role specifications are accessible to a wide range of candidates and engaging those who are signatories to the enhanced voluntary code of conduct for executive search firms. As SSE champions a culture which embraces difference, organisational fit remains a key parameter in additional to technical capability. More on inclusion and diversity, and the Board’s policy can be found on pages 148 to 149 . ### External search firms Russell Reynolds supported the search for a new non-Executive Director and has no further connection with SSE or its Directors. Korn Ferry provided its executive search services, within the Finance Director succession work, independent of other leadership development and below-Board reward ### consultancy support for which it is engaged by SSE. Finance Director ### succession Key search criteria • Strong financial, listed company and investor credentials. • Experience of organisational scale and complexity. • Demonstrable capital investment and M&A expertise. • Proficiency in managing debt and funding strategies. ### Diversity of ### key board roles For details of SSE’s disclosure against Listing Rule 9.8.6(9) please see page 149 . 144 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report External search diversity Supporting overall Board diversity Maarten Wetselaar brings distinct and additive international energy leadership and ## 29% 12% 15 related perspectives to the Board. Both from his current role as Chief Executive of of profiles of profiles nationalities CEPSA, the Spanish multinational oil, gas, and diversified energy company, and 26 years gender ethnically represented at Shell, where he played a pivotal role in establishing its renewables business activity. diverse diverse His breadth and depth of experience across conventional and new energy projects enhance existing Board knowledge and will reinforce positive challenge. In addition, expertise across business growth and portfolio transformation, and working knowledge across capital and commodity markets, remain key to SSE’s growth and strategy. | Stage 1 To enhance | Stage 2 Russell Reynolds | Stage 3 Maintaining as | Stage 4 A shortlist of | Stage 5 | | --- | --- | --- | --- | --- | | existing Board | was engaged to support | broad a brief as possible, | candidates was engaged | A recommendation | | capabilities across | the process and | the Committee created | to meet with each | was made to appoint | | growth in new | identified search | a longlist for discussion. | member of the sub- | Maarten Wetselaar | | markets and emerging | categories, aligned | An agreed sub- | Committee, and an | to the Board and | | international options, | to the key criteria, to | Committee worked | update provided to | Nomination, Audit, | | an objective search for | allow consideration of | with the search firm to | the full Committee to | and Energy Markets | | a new non-Executive | different backgrounds | support engagement | provide comments on | Risk Committees from | | Director was agreed | and leadership models. | and considerations in | progress. The preferred | 1 September 2023. This | | by the Committee. | This comprised direct | respect of interest, | candidate was then | followed confirmation | | | and indirect expertise | bandwidth, and conflicts | invited to meet with two | of independence and | | | across the energy value | for this pool. | Executive Directors. | capacity to take on | | | chain to foster diversity | | | the role. | of candidate profiles. External search diversity Supporting overall Board diversity The appointment of Barry O’Regan represents internal succession, as he moves from ## 47% 7% 6 the role of Finance Director, SSE Renewables in which he also has responsibilty for of profiles of profiles nationalities corporate finance across the SSE Group. Following rigorous assessment, he was gender ethnically represented confirmed to bring the individual and technical attributes required of Chief Financial diverse diverse Officer and deemed a highly capable successor possessing substantive financial and energy sector experience from a 20-year career. He brings his own strengths to the financial leadership and growth of SSE, having been integral to the reshaping of the Group and overseeing many of SSE’s large capital investments, in addition to leading teams and working across financial control, corporate finance and M&A, treasury, reporting and operational finance. | Stage 1 The Committee | Stage 2 Korn Ferry was | Stage 3 A longlist was | Stage 4 The Chief | Stage 5 It was | | --- | --- | --- | --- | --- | | initiated work to assess | appointed to initiate | compiled, and potential | Executive and Director | recommended to the | | and develop existing | a prospective scan of | candidate fit measured | of HR, refined a shortlist | Board to enact the | | succession plans for the | external pools against | against the key criteria. | of internal and external | succession plan for | | role of Finance Director. | an agreed role | Existing internal | options for sub- | Finance Director in line | | This was led by a | specification. Different | succession plans were | Committee discussion. | with confirmation of | | non-Executive sub- | search streams were | graded in the same | Each member of | Gregor Alexander’s | | Committee, with | engaged to support | way and presented to | the sub-Committee | intention to retire. This | | involvement from the | identification of a depth | the sub-Committee | met high-potential | recommended that Barry | | Chief Executive and | and breadth of profiles | alongside this work. | candidates, with the | O’Regan be appointed | | Director of HR. | and allow prioritisation | At the request of the | Chief Commercial | Chief Financial Officer | | | of the key search criteria. | sub-Committee, Korn | Officer engaged in the | from 1 December 2023, | | | | Ferry engaged with | final stages. All non- | with a phased transfer of | | | | interested candidates. | Executive Directors were | responsibility for IT and | | | | | invited to meet with the | General Counsel teams | | | | | sub-Committee’s | to the Chief Executive, | | | | | preferred candidate. | and for Procurement to | the Chief Commercial Officer. 145SSE plc Annual Report 2023 ### Nomination Committee Report continued | Director re-appointment | Conflicts of interest and independence | Following review in 2022/23, and to the | | | --- | --- | --- | --- | | All non-Executive Directors undertake a | Each Director has a duty to disclose | exclusion of the interested Director in each | | | fixed term of three years subject to annual | any actual or potential conflict of | case, the Committee recommended, and | | | re-election by shareholders. The fixed | interest situations, as defined by law, for | Board confirmed: updates to the Conflicts | | | term can be extended, and consistent with | consideration and approval if appropriate by | of Interest Register; the continuing | | | best practice, does not exceed nine years | the Board. This requirement is supported by | independence and objective judgement | | | subject to defined circumstances as | an annual authorisation process, in which | of each non-Executive Director; and the | | | identified by the Committee. | the Committee reviews SSE’s Conflicts of | overall independence of the Board in line | | | | Interest Register, and seeks confirmation | with the recommendations of the Code. | | | Extensions recommended in the period | from each Director of any changes or | | | | were a second three-year term for Dame | updates to their position. | Additional safeguards to support Director | | | Angela Strank, and a time-limited extension, | | independence continue through: | | | from 1 July 2023 to the conclusion of the | This process informs the simultaneous | • Meetings between the Chair and the | | | AGM on 20 July 2023, in the tenure of Peter | assessment of a non-Executive Director’s | | non-Executive Directors, individually | | Lynas. The latter was to facilitate an orderly | independence, as following the absence | | and collectively, without the Executive | | handover in the role of Audit Committee | of any conflict, the Committee reflects | | Directors present. | | Chair. In line with standing practice, each | upon the outcome of each individual | • Separate and clearly defined roles for | | | decision was supported by the continuing | Director’s performance evaluation (see | | the Chair, as head of the Board, and the | | independence, experience, and contribution | page 141 ) and the circumstances set | | Chief Executive, as head of executive | | that each Director brings to both Board and | out in the Code which could compromise | | management (see page 139 ). This | | Committee work. | an individual’s position. | | division of responsibility is supported | by a degree of contact outside of Board meetings to ensure an effective ongoing dialogue and channel for the timely escalation of external or internal developments. ### Director induction All Directors receive a comprehensive John Bason induction programme induction programme. This is tailored Areas covered Sessions by through discussion with the Chair SSE’s purpose, strategy, operating Chief Executive and the Company Secretary and context, and business model Group Strategy considers existing expertise and MD of each Business Unit any prospective Board or Board Committee roles. Financial performance and Finance Director strategy, funding, assurance, Senior Finance leaders The agreed plan for John Bason and investment community External Auditor comprised a balance of knowledge- Investor Relations based sessions with internal SSE’s Brokers functions and external advisors, Energy sector and trends, SSE’s energy Chief Commercial Officer in addition to site visits across portfolio and long-term energy markets locations to provide exposure to SSE’s businesses and working Net zero transition, sustainability, Chief Sustainability Officer environments. Delivery has been and stakeholder engagement Group Corporate Affairs in phases with information material Safety, health and the environment, Director of HR to the non-Executive Director role and SSE’s people and culture Group Safety, Health and provided in the early stages. Environment Manager Corporate governance and Company Secretary and An induction programme for Maarten Board operations Director of Investor Relations Wetselaar and Barry O’Regan will be agreed upon joining the Board. Legal and regulatory views of the external General Counsel environment and SSE’s risk profile SSE’s Legal Advisors Director of Regulation Group Chief Information Officer 146 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report | Knowledge and training | Changes can be recommended to support | On investing in broader talent and capability, | | --- | --- | --- | | Any Director can request further information | succession plans, in line with new Board | updates are provided on critical skills | | to support their individual duties or | appointments, or in response to the annual | investment and performance improvement, | | collective Board role. The arrangements are | review described above. In 2022/23, the | which are centred on an agreed set of | | overseen by the Company Secretary and | Board approved the following membership | leadership capabilities and competencies | | can be internally or externally facilitated, | recommendations. | required for SSE’s long-term growth. | with sessions typically originating from | technical Board discussions, an identified | The previously agreed succession plan, for | In the context of SSE’s Net Zero | | --- | --- | --- | | training opportunity, or area of general | the Board roles held by Dame Sue Bruce, | Acceleration Programme, emphasis has | | interest relating to SSE. Outside of monthly | saw Melanie Smith assume the role of | been placed on commercial expertise, | | agenda time, the Board schedule included | Remuneration Committee Chair, and Lady | project delivery, digital, data, and the | | nine strategic deep dives in 2022/23 in | Elish Angiolini become SSE’s non-Executive | international context, with these endorsed | | addition to several external speaker sessions | Director for Employee Engagement, both | as key development areas for structured | | – which were often structured to precede | with effect from 1 April 2023. The views | training interventions. The Committee has | | Board discussion at meetings. Further details | of the Committee which led to the above | also had input from external partners on | | of the topics covered are on page 125 . | recommendations are set out on page 149 | how talent is benchmarking externally, and | | | of the Annual Report 2022 . | on a specific focused initiative to encourage | | Through SSE’s mandatory training | | more gender diversity into senior leadership | | programme, all Directors are requested | Supporting his appointment as Audit | talent pipelines. | | to refresh their understanding of current | Committee Chair designate, John Bason | | | obligations and recent developments in | takes on the role of Audit Committee Chair | The Committee also continued to receive | | areas pertinent to their role. These modules | on 21 July 2023. This follows Peter Lynas | updates on the progress of the Leadership | | address, among other matters: Directors’ | stepping down from the Board on 20 July | Development Review which has been | | Duties; competition law; anti-money | 2023. John also joins the Remuneration | providing leadership teams with feedback | | laundering and financial sanctions; data | Committee in advance of this date on | about how they align with SSE’s Leadership | | protection; and inclusion and diversity. | 22 May 2023. | Blueprint and Enterprise Leadership Model. | | In 2022/23, a cyber security session was | | In providing Board-level support to the | | offered to all Board members covering | Talent capability and | Leadership Blueprint, Debbie Crosbie | | the threat landscape; cyber awareness | development | participated in a virtual session with leaders, | | and defence; and actions to support SSE’s | Succession for senior leadership roles, | to explore the refreshed framework and | | security culture. | and strategy to support talent development | behaviours which define leadership within | | | by building capability for the future, is | SSE’s culture. | | To remain abreast of, and connected to, | overseen by the Committee with support | | | broader societal trends, expectations and | from Group HR, with formal updates | To provide direct exposure to the talent | | issues, the Directors are encouraged to | considered at least twice a year. | pool and allow reciprocal sharing of | | participate in seminars and events hosted | | experiences, members of the Committee | | by external organisations. Discussion | On succession, at least annually, the | engage in core talent programmes, | | with peers, other sectors, and individuals | Committee reviews the existing internal | with the diversity across training cohorts | | in different professional and personal | pipeline of candidates for immediate and | monitored to encourage and progress | | situations, is viewed as an opportunity | medium- to longer-term movement into | difference. Additional engagement | | to develop broader perspectives and | key leadership and functional roles. This | with future leaders is facilitated through | | insights, which can translate into different | is subject to routine challenge to ensure | presentations at meetings, business-led | | thinking styles and new debate within | understanding of the breadth of internal | sessions, and attendance at conferences. | | Board discussions. | potential and experience represented by | The open two-way dialogue between the | | | external talent pools. | Directors and all levels of the organisation | | Board Committees and key roles | | is a key tool for observing and informally | | Board Committee composition and the | In 2022/23 the Committee received updates | coaching emerging talent. | | appointment of key Board roles is designed | on Board, Group Executive Committee | | | around the following principles: to ensure | and Business Unit Executive Committee | | | alignment between skills and specific | succession options, which included a review | | | Committee responsibilities; to prevent | of timing of readiness, and consideration of | | | undue reliance on the capacity of any | new talent and succession capability that | | | Director; and to comply with recognised | had been recruited into SSE. The Committee | | | guidance including the Code. Annually, | also received updates on the targeted | | | the Board considers the composition of | development activity that is taking place | | | its Committees to assess the allocation | across the population, and engaged in | | | of skills and how the diversity of the | a number of discussions with external | | | Board is carried through, by extension, | providers to understand the impact of | | | to its supporting forums. At 23 May | these key initiatives. | | 2023, each Committee has at least 40% female membership across non- Executive positions. 147SSE plc Annual Report 2023 # Nomination Committee Report ## Inclusion and diversity Senior leadership ambitions pages 60 to 62 SSE's Inclusion and Diversity Report 2023 sse.com ### Role of the Committee page 60 ## Board policy sse.com ## Board engagement on inclusion and diversity pages 134 to 136 ## Board inclusion and diversity ### Board Policy #### How the policy links to strategy People are at the heart of the transformational change needed to achieve net zero, and SSE believes innovative solutions to climate change require diverse perspectives, different experiences, and new skills. The principles of equality, fairness, inclusion and diversity must be at the heart of everything it does. #### Policy principles - Identify Board and Committee needs and the balance of diversity characteristics. See page 143 - Adopt a formal and inclusive Board recruitment process. - Engage firms who are signatories to the enhanced code of conduct and discuss ambitions for diverse candidate lists. - Recruit on an objective and shared understanding of merit. See page 144 to 145 - Nurture an inclusive Board and Committee culture. - Oversee work to develop a diverse talent pipeline. - Be aware of stakeholder expectations and challenge targets in wider strategy. See pages 137, 147 and 148 #### Policy targets - An ultimate goal of enduring gender parity, whereby the Board commits to female representation of not less than 40%, with the aim to maintain as close to 50% male and female representation as possible on a rolling basis. Target met. 42% women on the Board at 23 May 2023. 42.8% rolling three-year female representation at 31 March 2023. - Consider female representation across the roles of Chair, Senior Independent Director, Chief Executive and Finance Director. See explanation opposite. - The Board should have at least one Director from an ethnic minority background. Target met. 1 ethnic minority represented across Board membership. 148 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report | Explanation against LR 9.8.6(9) | succession plans. Assisted by purposeful | SSE’s Senior Independent Director, | | --- | --- | --- | | As at the Company’s chosen reference | design, diversity was considered at each | Tony Cocker, has held the position since | | date, 31 March 2023, and in line with FCA | stage and details of the recommendation | October 2020 following appointment | | Listing Rule 9.8.6(9), SSE confirms it has | made by the Nomination Committee is set | to the Board in May 2018. Tony was | | met the targets for at least 40% female | out on page 145 . The overriding priority | appointed in line with the internal | | membership on the Board and for one | across all Board appointments remains | succession plan for the role and | | Director to be from an ethnic minority | identification of the strongest candidate | continues to effectively support the | | background. It has not met the target | for the role, based on clear search criteria | Board and Chair in this position. | | for one of the positions of Chair, Senior | and the need for an orderly transition. | | | Independent Director, Chief Executive or | | Full details of the skills and attributes | | Finance Director to be held by a woman. | Further detail of the challenge applied | which support each of the above | | The reasons for this are set out below. | by the Nomination Committee on the | appointments can be found in the | | | continued development of a diverse | individual Director biographies set | | Executive Directors | internal pipeline, and the work to oversee | out on pages 116 to 120 . | | The roles of Chief Executive and Finance | external benchmarking to ensure SSE has | | | Director have been held by Alistair | the diversity and capabilities needed for | Work continues to ensure that gender | | Phillips-Davies and Gregor Alexander for 9 | future growth, is set out on page 147 . | and ethnicity, alongside broader diversity | | and 20 years respectively. These positions | | characteristics are present across the | | support the long-term strategic delivery | Chair and Senior Independent Director | Board and targeted action would be taken | | of the SSE Group and remain subject to | SSE’s Chair, Sir John Manzoni, has held | should the overall diversity of membership | | considered succession planning to ensure | the position since April 2021 following | be deemed insufficient at any time. | | this strength of leadership continues. | appointment to the Board in September | | | | 2020. This resulted from a robust and | In support of transparent disclosure, SSE | | The announcement in April 2023, that | inclusive appointment process and | will continue to report on its progress in | | Barry O’Regan would succeed Gregor | details of how diversity was challenged | the Annual Report in advance of the FTSE | | Alexander in the role of Chief Financial | at each stage can be found in the | Women Leaders target date of December | | Officer from December 2023, was the | Annual Report 2021 . | 2025, and welcomes feedback and | | result of a rigorous external process | | engagement from shareholders and | | and objective assessment of internal | | wider stakeholders on this topic. | ### Data under LR 9.8.6(10) In line with LR 9.8.6(10), as at the reference date of 31 March 2023, the composition of the Board and Executive Management was as follows. ### Gender (sex) | Number | | | | Number of | | Number | | Percentage | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | of Board | Percentage | senior positions on the Board | | | in Executive | | | of Executive | | | members | of the Board | | (CEO, CFO, SID and Chair) | | Management | | 1 | Management | 1 | Man 7 54% 4 8 73% Woman 6 46% 0 3 27% ### Ethnic background | | Number | | | | | Number of | | Number | | Percentage | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | of Board | | Percentage | senior positions on the Board | | | in Executive | | | of Executive | | | | members | | of the Board | | (CEO, CFO, SID and Chair) | | Management | | 1 | Management | 1 | | White British or other White | | 12 92% 4 11 100% | | | | | | | | | | (including minority-white groups) Mixed/Multiple Ethnic Groups – – – – Asian/Asian British – – – – Black/African/Caribbean/Black British – – – – Other ethnic group, 1 8% – – including Arab Not specified/ prefer not to say – – – – 1 Per the definition within the Listing Rules, executive management within SSE is the Group Executive Committee including the Company Secretary. Gender is captured as sex for all employees at the onboarding stage and held on the Company’s secure people data system, Harmony. SSE has 100% completion of sex data and that is what is used when reporting the gender diversity of the Board and executive management. Recognising that for some, gender identity can differ from that assigned at birth, all employees are offered the opportunity to volunteer their gender identity directly within Harmony, or by completing a diversity data form that is electronically uploaded onto the system. Ethnicity data is also provided voluntarily and can be offered in the same was as gender identity. SSE has 100% voluntary completion of ethnicity data at Board and executive management level. All diversity data reporting is done securely and in a way that protects anonymity so that no one person can be identifiable. All information is strictly confidential in accordance with SSE’s Privacy Notice in line with the UK and ROI General Data Protection Regulations (UK GDPR and GDPR 2018 and DPA 2018). 149SSE plc Annual Report 2023 ## Audit Committee Report ### Role of the Committee • Review and monitor the Financial reporting effectiveness of the Internal Audit • Review the integrity of the interim function, including the adequacy of and annual Financial Statements. the overall Internal Audit resource. • Review the appropriateness of Internal control and risk accounting policies and practices. management • Review the significant financial • Review and monitor the judgements and estimates effectiveness of the management considered in relation to the of risk and overall System of Financial Statements, including Internal Control. how each was addressed. • Review the framework and analysis approach and key findings are covered • Review the content of the Annual to support both the Going Concern in more detail in the report that follows. Report and Accounts and advise and the long-term Viability The Committee continued to receive the Board on whether taken as Statement. regular updates on the status of the BEIS a whole, it is fair, balanced and consultation on ‘Restoring Trust in Audit understandable. The Committee’s Terms of Reference and Corporate Governance’. Whilst were reviewed during the year, and are External audit there remains areas of uncertainty in the available on sse.com . | • Review and monitor the objectivity | | | measures to be implemented, SSE has | | | --- | --- | --- | --- | --- | | | and independence of the External | | made significant progress in developing | | | | Auditor, and oversee the policy | | the internal control framework for financial | | | | on the provision of Non-Audit | Key activities in 2022/23 | reporting. At each Committee meeting, | | | | Services. | The key areas of focus in the year | an update on progress is provided by the | | | • Review and monitor the | | included: | project team covering legislative and | | | | effectiveness of the external | • Ensuring the business performance | regulatory developments, progress on | | | | audit process and the ongoing | is fairly presented in financial | implementation and validation of Finance | | | | relationship with the External | reporting. | and IT controls, and the change programme | | | | Auditor. | • Assessing the output of an external | to support the organisation adopt the new | | | • Review and make | | quality assessment of the Internal | framework from 1 April 2024. These regular | | | | recommendations to the | Audit function carried out by PwC. | briefings allow the Committee to ensure | | | | Board on the tendering of the | • Overseeing the project to enhance | that necessary preparations are being | | | | external audit contract, and the | the internal control framework for | considered and progressed in line with | | | | appointment, remuneration | financial reporting. | or ahead of regulatory change. | | | | and terms of engagement | • Orderly transition of Audit | | | | | of the External Auditor. | Committee Chair. | On 16 December 2022, I received a | | | | | • Consideration of accounting for | letter from the FRC following their review | | | Internal audit | | new matters in the year including | of the SSE’s 2022 Annual Report and | | | • Review and approve the | | the Energy Bill Relief Scheme and | Accounts. The FRC stated that there were | | | | Internal Audit Plan and monitor | the Electricity Generator Levy. | ‘no questions or queries’ in relation to those | | | | its implementation. | | | 1 | | | | | Annual Report and Accounts | . The FRC did | highlight certain matters which SSE were invited to consider in relation to preparation of the 2023 Annual Report and Accounts, and these matters have been dealt within ### Dear Shareholder, foundations that were established last our approach to disclosure this year. On behalf of the Board, I am pleased year and I am pleased to report that SSE to present the Audit Committee Report is now fully compliant with the TCFD After 9 years as Audit Committee Chair, which is intended to provide shareholders recommendations and recommended I will be standing down following the AGM with an understanding of the work we disclosures. SSE believes there is an in 2023. Over the last year, I have worked have done to provide assurance on the opportunity to further enhance its with my successor, John Bason, to ensure integrity of the Annual Report and Financial reporting in this area and will actively a smooth and orderly transition. I hope Statements for the year ended 31 March seek feedback from shareholders and you find this report informative and take 2023, together with the effectiveness of stakeholders on best practice. assurance from the work undertaken by the Group’s risk management and internal the Committee during the year. controls framework in a year of exceptional During the year, the Committee market volatility. engaged PwC to carry out a detailed External Quality Assessment (EQA) of the | The process which the Group adopted in | Internal Audit function. The findings and | | | --- | --- | --- | | relation to identification and quantification | key recommendations were presented to | | | of its climate-related risks and opportunities, | the Committee in February 2023. Overall, | | | together with the governance processes | the Internal Audit function was found to be | Peter Lynas | | established to oversee and approve the | well established and highly valued across | Chair of the Audit Committee | | associated reporting, were considered | the organisation. A summary of the scope, | 23 May 2023 | by the Audit Committee. The approach adopted this year builds on the strong 1 In line with FRC requirements, the letter provides no assurance that the Annual Report and Accounts are correct in all material respects. The FRC’s role is not to verify the information provided but to consider 150 SSE plc Annual Report 2023 compliance with reporting requirements. Financial StatementsStrategic Report Directors’ Report ### Committee membership the key areas of financial reporting, external Annual financial reporting cycle The composition of the Committee is audit, internal audit, internal control and compliant with the Code and currently risk management. The practice of effective comprises five independent non-Executive governance and quality reporting underpin r N e o b v e Directors as Committee members. Peter all aspects of the work of the Committee. m m t e b p e Lynas has chaired the Committee since The Committee met on four occasions e r S during the year and has met once since External 2014 and is considered by the Board Half-year audit to have recent and relevant financial the end of the financial year. Before each Results planning experience. He was Group Finance Director meeting, the Committee Chair meets with of BAE Systems plc until 31 March 2020 the Finance Director and External Auditor Audit and is a Fellow of the Chartered Association to ensure there is a shared understanding Committee of Certified Accountants. Peter Lynas will of the key issues to be discussed. Committee meetings are held in advance of Board External stand down after the AGM on 20 July 2023 | | | | Full-year | Audit | | | --- | --- | --- | --- | --- | --- | | and John Bason, who joined the Board on | meetings to facilitate an effective and | | | | | | | | | Results | control | | | 1 June 2022, and became a member of the | timely reporting process. The Committee | | | testing | | | | Chair provides a report to the Board | | | | r y | | Audit Committee on appointment will take | | M | | | a | | | | a | | | r u | y over the role as Chair. John Bason was following each meeting. b F e Group Finance Director of Associated | British Foods plc until 28 April 2023 and | Meetings are routinely attended by: the | | | --- | --- | --- | | is a member of the Institute of Chartered | Chair of the Board; the Finance Director; | | | | the Director of Group Risk and Audit; | These engagements provide an additional | Accountants in England and Wales. Both Partners from the External Auditor; and opportunity for open dialogue and feedback John Bason and Debbie Crosbie are also the Deputy Company Secretary (who without management being present. considered by the Board to have recent and relevant financial experience. The Board is Secretary to the Committee). Senior finance and business managers are invited In addition to the scheduled meetings, considers that the Audit Committee as a to attend certain meetings to enable the the Committee Chair meets separately whole has competence relevant to the Committee to gain a deeper level of with the Finance Director, Director of sector, with two members having had insight on particular items of business. The Group Risk and Audit, External Auditor significant executive roles in the energy Committee meets with the External Auditor and Committee Secretary to ensure the sector, and all members possessing an privately at least twice each year in line with work of the Committee is focused on key appropriate level of experience in corporate the financial reporting calendar and also and emerging issues. financial matters. Biographical details of the Audit Committee members can be found on with the Director of Group Risk and Audit. pages 116 to 120  and details of meeting attendance are set out on page 123 . Gregor Alexander, who joined SSE at its ### Committee evaluation inception in 1998 and has been Finance Director since 2002, will step down from The actions identified from the 2021/22 evaluation relating to Audit Committee the Board on 1 December 2023. Following a Chair transition and developing the approach to risk management have made good competitive recruitment process supported progress in the year, and will continue to feature on the Committee agenda in the by an external executive search firm, Barry year ahead. The annual review of Committee performance in 2022/23 was facilitated O’Regan will be appointed as Chief Financial by Lintstock (see pages 140 to 141 ), with the output considered and follow-up Officer and as an Executive Director of SSE actions agreed by the Committee. The evaluation confirmed the effective operation plc with effect from 1 December 2023. of the Committee, and the Board endorsed the view that the Audit Committee continued to effectively discharge its responsibilities. Barry trained as a chartered accountant | with PwC in Dublin before joining Airtricity | Evaluation | • Meetings were well managed and effectively chaired. | | | --- | --- | --- | --- | | in 2005, and subsequently the SSE Group | confirmed | • The relationships between the Audit Committee and the Finance | | | in 2008. With nearly 20 years’ experience | | | Director, Director of Risk and Audit and other members of senior | | working in the energy sector, Barry has | | | management were open and honest and benefitted from a high | | a wealth of knowledge across financial | | | degree of constructive challenge. | | control, corporate finance and M&A, | | • The key accounting judgements were given an appropriate | | | treasury, reporting and operational finance. | | | degree of focus and challenge. | He is currently Finance Director of SSE Actions to • Support to the new Audit Committee Chair. Renewables as well as having responsibility progress • Arrange briefings to gain an external perspective on how for corporate finance across the whole during other organisations are dealing with matters such as risk of SSE. 2023/24 and audit reform. • Focus in further developing the approach to risk management ### Meetings and integrated assurance, underpinned by the Audit and The Committee has a structured forward- Assurance Policy. looking planner to reflect the Group’s • Continue to oversee the project to enhance the internal controls annual financial reporting cycle. The over financial reporting, including the developments to enhance planner informs the business considered the level of automation, process and standards. at each meeting and is regularly reviewed and updated to reflect areas identified for additional focus. Much of the work of the Committee is necessarily targeted around 151SSE plc Annual Report 2023 ### Audit Committee Report continued ### Focus of Audit Committee business over the year Cross Actions Outcomes September November February May reference Financial Reporting | Reviewed the financial statements prepared | The Committee challenged management | • • | Pages | | --- | --- | --- | --- | | for the half and full year, and challenged | on a number of its judgements and sought | | 154 to | | management on the appropriateness of the | detailed explanations including the opinion | | | 156  accounting in relation to the significant financial of the External Auditor. The Committee made judgements, estimates, exceptional items and a recommendation to the Board in support of basis of preparation as a going concern. Received approving the financial statements, the going a report from the External Auditor covering the concern statement, and letter of representation accounting, financial control and audit issues issued to the External Auditor. identified during the half-year review and full-year audit. | Assessed the appropriateness and presentation | The Committee concurred with management’s | • • | Pages | | --- | --- | --- | --- | | of APMs to enable comparability with other | approach that the APMs as defined were | | 194 to | | companies. | appropriate and enabled comparability with | | | 201  other companies. | Reviewed a report on the Group’s tax position | The Committee supported judgements around | • | Pages | | --- | --- | --- | --- | | covering adjusted underlying tax rate, areas | the Energy Bill Relief Scheme and recognition of | | 237 to | | of potential tax exposure and provisioning | the Electricity Generator Levy. The Committee | | | 239  and Fair Tax Mark accreditation. were satisfied with the enhanced disclosures made in support of the Fair Tax Mark accreditation. | Reviewed and challenged the scenarios aligned | The Committee were satisfied that the viability | • • | Page 71 | | | --- | --- | --- | --- | --- | | to the Group Principal risks to stress test the | assessment process was robust and that the | | |  | | viability assessment proposed by management | length of the period was appropriate, and | | | | | and reasons why a four-year assessment period | adequately disclosed. | | | | was appropriate. | Reviewed the impact of climate change | The Committee reviewed the impact of the | • • | Pages | | --- | --- | --- | --- | | on disclosure, including the assurance | accelerated NZAP programme on financial risks, | | 42 to | | arrangements relating to the TCFD and | judgements and disclosures. The Committee | | | 45  other ESG-related disclosures. challenged the consistency in key assumptions and concluded that the impact of climate change had been adequately addressed, and that the assurance processes supporting the narrative reporting for TCFD and other ESG-related disclosures were satisfactory. | Reviewed whether the company’s position | The Committee sought confirmation that the | • | Pages | | --- | --- | --- | --- | | and prospects as presented in the 31 March | Fair, Balanced and Understandable assurance | | 154 | | 2023 annual report and financial statements | framework had been adhered to and made | | | and were considered to be a fair, balanced and an affirmative recommendation to the Board. 191  understandable assessment of the company’s position and prospects. External Audit | Reviewed and challenged the proposed | The Committee monitored progress made by | • • • • | | Page | | --- | --- | --- | --- | --- | | external audit strategy for 2022/23, including | the external audit team against the agreed plan, | | | 156  | | the audit approach, significant risks and areas | and approved refinements to the audit strategy | | | | | of audit focus, scope and level of materiality. | in line with business developments. | | | | | Reviewed the effectiveness of the External | The Committee concluded that the external | | • • | Page | | Auditor to ensure the independence, objectivity, | auditor and audit process was effective and a | | | 156  | | quality, rigour and challenge of the audit | recommendation was made to the Board on the | | | | | process is maintained. | reappointment of EY as the auditor for the year | | | | ending 31 March 2024 at the forthcoming AGM. | Reviewed the non-audit services and related | The Committee approved the non-audit | • • • • | Page | | --- | --- | --- | --- | | fees provided by the external auditor for | services and related fees provided by the | | 157  | | 2022/23 and the policy on non-audit services | External Auditor for 2022/23 and made a | | | | provided by the auditor for 2022/23. | recommendation to the Board to adopt an | | | updated Non-Audit Services Policy to address the application of pre-concurrence on non-audit services as required by the International Ethics Standards Board for Accountants. Negotiated and agreed the statutory audit fee The Committee approved the fee for the 2022/23 • • • Page for 2022/23. audit, including an adjustment to reflect changes 157  to the scope arising from developments in the year. Reviewed the findings from the External The Committee challenged management • Page Auditor’s controls report. to resolve non-material issues relating to the 156  internal controls. The Committee concluded that the overall control environment was effective. 152 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report Cross Actions Outcomes September November February May reference Internal Audit | Received updates on the work undertaken | The Committee monitored the implementation | • • • • | Page | | --- | --- | --- | --- | | by Internal Audit, including audit resource, | of the 2022/23 Internal Audit Plan and confirmed | | 158  | | progress with the 2022/23 Internal Audit | they were satisfied with progress. The Committee | | | | Plan, significant findings and audit actions. | reviewed findings and audit actions and | | | challenged management to ensure remedial actions were delivered in a timely manner. | Reviewed and challenged the integrated | The Committee approved the Internal Audit Plan | • | Page | | --- | --- | --- | --- | | assurance planning approach and the Internal | for 2023/24 and the rolling three-year Internal | | 158  | | Audit Plan for 2023/24, in addition to the areas | Audit Plan focus areas. | | | of focus included in the rolling three-year Internal Audit Plan. Reviewed and challenged the output of the The Committee confirmed the effectiveness • • Page external quality assessment of the Internal Audit of the Internal Audit function. 159  function which had been delivered by PwC. Internal control and risk management | Received an update on the work undertaken | The Committee monitored the implementation | • • | Page | | --- | --- | --- | --- | | by Group Compliance, including resource | of the 2022/23 Compliance Programme and | | 137  | | and progress with the compliance review | confirmed they were satisfied with progress and | | | | programme and resulting actions. | that findings and actions were being closed-out | | | by management in a timely manner. | Received an update on the status of audit | The Committee reviewed progress against the | • • • • | Pages | | --- | --- | --- | --- | | reform, including progress with the project | project plan at each meeting, and were satisfied | | 150 | | to further strengthen and embed the financial | that the necessary preparations were being | | | and control framework. progressed in line with or ahead of regulatory 158  change. Received an update on Cyber Risk and The Committee monitored progress in maturing • • – Information Security covering both the level of cyber security across the organisation Information and Operational Technology. and provided feedback to the Board. Received a report on the qualifying companies The Committee challenged management on • – in the Group required to publish reports on compliance with the Prompt Payment Code their payment practices, policies and payments. and sought assurance that further improvement plans were in place. | Reviewed Treasury operations, including | In line with the authority delegated by the | • • | Pages | | --- | --- | --- | --- | | the funding plan, liquidity, going concern, | Board, the Committee approved a range of | | 89 to | | hedging and credit ratings. | funding and treasury related transactions. | | | 92  Received an update on the programme to The Committee approved the work-plan to • Page enhance the approach to risk management. implement an expanded risk management 68  framework across the organisation. | Received an update on the governance | The Committee monitored the implementation | • • | | | - | | --- | --- | --- | --- | --- | --- | | arrangements to oversee the risk relating | and integration of the anti-financial crime | | | | | | to anti-financial crime including fraud, bribery | governance arrangements against the expanded | | | | | | and corruption. | international foot-print. | | | | | | Reviewed the effectiveness of the System of | The Committee reviewed and challenged | | • • | Page | | | Internal Control, including risk management. | management on the assurance frameworks | | | 158  | | to assess the effectiveness of the System of Internal Control. The Committee made a recommendation to the Board that the System of Internal Control continued to be effective. Governance | Reviewed the approach to all the governance | The Committee were satisfied with the scope | • • | Page | | --- | --- | --- | --- | | related activity carried out during the year to | and coverage of the governance related activity | | 151  | | support the work of the Committee, including | relevant to the work of the Committee and | | | | the forward plans of agenda items and areas | approved the forward plan of Agenda items. | | | of focus for 2022/23. | Reviewed the Committee Terms of Reference. The Committee made a recommendation to | | • | | Page | | --- | --- | --- | --- | --- | | | the Board to re-approve the Terms of Reference. | | | 150  | | Reviewed the content of the 2022/23 Audit | The Committee approved the 2022/23 Audit | | • | Pages | | Committee Report and Principal Risk related | Committee and Principal Risk related disclosures | | | 150 to | | disclosures. | for inclusion in the 2023 Annual Report. | | | | 159  Reviewed a report on the disclosure of The Committee were satisfied that the disclosure • Page information to the External Auditor. arrangements were appropriate. 190  153SSE plc Annual Report 2023 ### Audit Committee Report continued | Financial reporting | five specific areas for 2022/23. The | | | | --- | --- | --- | --- | | The Annual Report and Accounts seek | accounting for the Group’s disposal | Fair, balanced and | | | to provide the information necessary to | programme, which was completed in | understandable | | | enable an assessment of SSE’s position and | the prior financial year, was no longer | assurance framework | | | performance, business model and strategy. | considered by the Committee to be a | The assurance framework used in | | | The Finance team worked closely with the | significant financial judgement. | the preparation of the 2023 Annual | | | External Auditor to ensure SSE provides the | | Report and Accounts to assist the | | | required level of disclosure, including the | The Group’s most significant financial | Directors in the discharge of their | | | appropriateness of alternative performance | judgement areas, some of which are | requirement to state that, taken | | | measures (APMs) and their consistency with | also areas of estimation uncertainty, | as a whole, it is fair, balanced | | | IFRS financial information. In preparing the | are explained on page 155 . For each | and understandable and provides | | | Financial Statements for 2023 there are | of these areas the Committee considered | the information necessary for | | | several areas requiring the exercise of | the key facts and judgements outlined by | shareholders to assess the | | | judgement or a high degree of estimation. | management, and requested the External | Company’s performance, business | | | This section outlines the significant areas | Auditor to provide a professional view on | model and strategy is as follows: | | | of judgement that have been considered by | whether the judgements were appropriate. | | | | the Committee – through discussion and | The Committee specifically discussed with | • a verification process dealing | | | detailed reporting by both management | the External Auditor how management’s | | with the factual content; | | and the External Auditor – to ensure | judgement and assertions were challenged | • comprehensive reviews | | | appropriate rigour has been applied. Other | and how professional scepticism was | | undertaken independently | | key accounting judgements and areas | demonstrated during their audit of | | by senior management to | | of estimation uncertainty applied in the | these areas. This also included the | | consider messaging and balance; | | preparation of the Financial Statements for | adequacy of the disclosures within | • comprehensive reviews | | | 2023 are provided in notes 4.2 and 4.3 . | the Financial Statements. | | undertaken by the Company’s | Brokers to ensure consistency | The Independent Auditor’s Report on | In the year ahead, the Committee will | | and balance; | | --- | --- | --- | --- | | pages 326 to 336  sets out the audit | continue to respond to energy market | • reporting by the External Auditor | | | approach to Key Audit Matters. In addition, | reform and will consider any new and | | of any material inconsistencies; | | EY drew other audit matters to the attention | emerging judgements and estimates. | | and | | of the Audit Committee. These areas of | | • comprehensive review by | | | audit focus include: customer debtor | Going Concern and | | the Directors and the senior | | recoverability; going concern; accounting | Viability Statement | | management team during the | | for Renewables‘ acquisition of the Siemens | The Committee reviewed the information | | drafting process to ensure that | | Gamesa platform and the Thermal | to support the assessment and disclosure | | the key messages being followed | | acquisition of a 50% stake in Triton Power; | of the Going Concern Statement prior to | | in the annual report were aligned | | recoverability of Ovo loan note; goodwill | Board approval (see A6.3  Accompanying | | with the company’s performance | | valuation for Renewables acquisitions in | Information to the Financial Statements). | | and strategy and that the narrative | | Europe and Japan; Seagreen Contract for | Given the cash surplus of £0.9bn at 31 March | | sections of the annual report | | Difference; Generation own use volume | 2023; the committed borrowing facilities of | | were consistent with the | | breach; change in Renewables cash | £3.5bn maintained by the Group with £3.4bn | | financial statements. | | generating units; taxation judgements; | of these facilities undrawn at 31 March 2023; | | | | exceptional items and APMs; accounting | the current commercial paper market | The Committee and Board received | | | for the sale of a 25% stake in SSEN | conditions, with £0.9bn outstanding at | confirmation from management that | | | Transmission; climate considerations; and | 31 March 2023; and the assumption the | the assurance framework had been | | | decommissioning provisions. In addition, | Group will be able to refinance maturing | adhered to for the preparation of | | | the current volatility in the energy sector | debt, the Directors have concluded that both | the 2023 Annual Report. | | | has led to a number of new matters that | the Group and SSE plc as Parent Company | | | | require consideration by management, | have sufficient headroom to continue as a | | | | and through the audit, including: Electricity | going concern. In coming to this conclusion, | | | | Generator Levy (EGL); and the accounting | the Directors have considered sensitivities | | | | for Government Support Schemes. | on future cashflow projections. In the very | | | unlikely event of not being able to access Significant financial judgements the revolving credit facility or otherwise and estimates refinance as may be required, the Group’s In the process of applying the Group’s options include deferring uncommitted accounting policies, management capex, delaying or deferring dividend necessarily makes judgements and payments and implementing further cost estimates that have a significant effect reductions. The Financial Statements are on the amounts recognised in the therefore prepared on a going concern basis. Financial Statements. Throughout the year, management presents its up-to-date The Committee agreed the parameters view of the key accounting issues and its and reviewed the supporting report for the resulting judgements to the Committee. Board’s assessment of the prospects of the Company which is covered in the Viability In consultation with the External Auditor, Statement on page 71 . the Committee reviewed the significant financial judgement areas and identified 154 SSE plc Annual Report 2023 Significant financial judgements and estimates for the year ended 31 March 2023 How those were addressed by the Audit Committee Retirement benefit obligations (Estimation uncertainty) note 23 Impairment testing and valuation of certain non-current assets (Financial judgement and estimation uncertainty) note 15 A1 Revenue recognition – customers unbilled supply of energy (Financial judgement and estimation uncertainty) A1.2 note 18 158 plc Annual Report 2025 155 ### Audit Committee Report continued Significant financial judgements and estimates for the year ended 31 March 2023 How those were addressed by the Audit Committee Impact of climate change and transition to net zero (Financial judgement and estimation uncertainty) Climate change, the transition to net zero and the Task Force on Climate change continues to be a key focus. The Committee Climate-related Financial Disclosures (TCFD) have been considered reviewed and challenged the implications of climate and the Net Zero in the preparation of these financial statements. The Group has a Acceleration Plus Programme for significant accounting judgements clearly articulated Net Zero Acceleration Plus Programme set out on and ensured that the disclosures were reflective. The process which pages 16 to 17  to lead in the UK’s transition to net zero and aligns the Group adopted in relation to identification and quantification of its its investment plans and business activities to that strategy. These plans climate-related risks and opportunities is explained at pages 36 to 51  are supported by the Group’s Green Bond framework under which the along with the governance processes established to oversee and fifth green bond was issued in July 2022 (see note 21 ). The proceeds approve the associated reporting. The Audit Committee reviewed the of the fifth green bond were allocated to fund Renewables’ wind approach adopted by the TCFD Steering Group in relation to this matter projects. The impact of future climate change regulation could have and was also briefed by the External Auditor on the audit requirements a material impact on the currently reported amounts of the Group’s associated with the adoption of the TCFD including the need for assets and liabilities. In preparing these financial statements, the consistency of disclosure throughout the Annual Report and the following climate change related risks have been considered: technical basis for those disclosures. Following presentation of the • Valuation of property, plant and equipment, and impairment proposed disclosures and the report of the External Auditor on SSE’s assessment of goodwill; approach, the Committee approved the basis of reporting and the • Valuations of decommissioning provisions; related financial judgement disclosures included throughout the • Defined Benefit scheme assets; and financial statements for the year ended 31 March 2023. Further details of • Going concern and viability statement. the sensitivity associated with this judgement is disclosed at note 4.1 . Valuation of other receivables (Financial judgement and estimation uncertainty) The Group holds a £100m loan note due from Ovo Energy Limited The Committee considered the steps applied by management in making following the disposal of SSE Energy Services on 15 January 2020. The its assessment of the significant financial judgements associated with the loan is repayable in full by 31 December 2029, carries interest at 13.25% Ovo loan note. Management has assessed the recoverability of the loan and is presented cumulative of accrued interest payments, discounted based on publicly available and recent financial information, including at 13.25%. At 31 March 2023, the carrying value (net of expected credit Government support schemes and discussions with Ovo Energy Limited loss provision of £1.5m (2022: £1.8m) is £149.5m (2022: £131.0m). The management. The External Auditor explained the work carried out to Group has assessed recoverability of the loan note receivable and has corroborate and challenge the position taken by management. While recognised a provision for expected credit loss in accordance with the the carrying value is considered to be appropriate, changes in economic requirements of IFRS 9. Due to previous energy supplier failures and conditions could lead to a change in the expected credit loss incurred by recent market volatility, the Group’s assessment of the recoverability the Group in future periods. of the loan note is considered a significant financial judgement. | External audit | During the course of the year, EY shared | Independence and objectivity | | --- | --- | --- | | External Auditor | insights and feedback with management, | In addition to the annual review of | | Following a competitive tender process, | and held debriefs to refine the planned | effectiveness, the Committee considered | | EY were appointed by shareholders as | audit approach for the financial year ended | the independence and objectivity of the | | SSE’s External Auditor for the financial | 31 March 2023. | External Auditor through: a combination of | | year commencing 1 April 2019. EY were | | assurances provided by the External Auditor | | re-appointed by shareholders at the 2022 | External Auditor and audit | on the safeguards in place to maintain | | AGM and have continued to serve as SSE’s | process effectiveness | independence; oversight of the Non-Audit | | External Auditor. Hywel Ball is the Senior | An important part of the Committee’s | Services Policy and fees paid; and oversight | | Advisory Partner and Annie Graham is the | work consists of overseeing the Group’s | of SSE’s policy on employing former | | Lead Audit Partner with responsibility for | relationship with the External Auditor to | auditors. The External Auditor confirmed | | signing the SSE plc Audit Opinion on behalf | ensure the independence, quality, rigour | that all its partners and staff complied with | | of EY. Annie Graham leads the engagement | and challenge of the external audit process | their ethics and independence policies | | team and has been in post since EY were | is maintained. The Committee reviews the | and procedures including that none of its | | appointed and will be required to rotate | effectiveness of the audit throughout the | employees working on the audit hold any | | after five years. | year taking into account: | shares in SSE plc. | • the detailed audit strategy for the year | EY presented the strategy and scope of the | | and coverage of the highlighted risks, | External Auditor fees | | --- | --- | --- | --- | | audit for 2022/23 at the Committee meeting | | scope, and level of fees for the audit; | The Committee considered the audit fee | | held in September 2022, highlighting key | • the quality, knowledge and expertise | | proposal for the year to 31 March 2023 at | | areas of audit focus (included within the | | of the engagement team; | its meeting in September 2022. The factors | | Auditor’s Report on pages 326 to 336 ). | • insight around the key accounting and | | driving the increase in the level of fees over | | EY reported against their audit scope at | | audit judgements and the competence | the last three years were discussed with the | | subsequent Committee meetings, providing | | with which the External Auditor has | External Auditor. The impact of increasing | | an opportunity for the Committee to | | applied constructive challenge and | regulatory requirements, changes in the | | monitor progress and raise questions, | | professional scepticism in dealing | business and composition of the Group | | and challenge both EY and management. | | with management; and | and the level of complexity requiring an | | EY shared an independent perspective on | • the outcome of the review of | | increased proportion of specialist resource | | certain aspects of the Group’s financial | | effectiveness of the External Auditor | were amongst some of the factors taken | | control and IT systems arising from its work, | | and audit process discussed on | into consideration by the Committee when | | and reported findings to the Committee in | | page 157 . | agreeing fair commercial arrangements | | February 2023. | | | with the External Auditor. Audit fees in the | current year include scope changes and 156 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### Effectiveness of External Audit Feedback to inform the review of the effectiveness of External Audit External Auditor Management Audit Process Audit Committee Assurance from the Assess output from Assess delivery of Assess output External Auditor a survey of those the audit strategy from annual Audit covering independence subject to the external and Independent Committee evaluation. (relationships, services audit process. Auditors’ Report. Assess output from and related threats Assurance on the Assess output from survey of Audit and safeguards) and disclosure process survey of Audit Committee members, the matters raised for the provision Partners on the regular attendees in the FRC’s Annual of information to external audit process. and Group Finance. Quality Review the auditors. inspection reports Assurance on the and remedial actions operation of audit taken (if any). quality process at 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 the finance management teams across the organisation to consider any areas to enhance the audit process control environment going forward. Services provided by the External Auditor External Auditor Fees are split into two categories for the purposes of approval: £2.5m £0.2m £2.7m • Audit-Related Services. These services are largely carried out by members of the audit engagement team. The work £3.8m £0.1m £3.9m involved is closely related to the work performed in the audit and the threats to auditor independence are ‘clearly £3.9m £0.1m £4.0 insignificant’. Such engagements are routinely pre-approved by the Audit Committee as part of their approval Audit and Audit-Related Services Non-Audit Services of the total annual audit fee. Before engaging in any other work of this | overruns of £0.4m related to the prior | Non-Audit Services Policy | | type, approval is required from the | | --- | --- | --- | --- | | year audit. Assurance and Tax service fees | The Committee oversees the Non-Audit | | Audit Committee. | | incurred in the year were £0.5m (2022: | Services Policy which governs the process | • Non-Audit Services. These are services | | | £0.5m). Non-Audit Services amounted to | for approving certain Non-Audit Services | | other than ‘Audit-Related Services’ | | £0.1m and principally related to regulatory | provided by the External Auditor. The Policy | | for which the External Auditor is an | | accounts and returns required by Ofgem | was updated by the Committee during | | appropriate provider. The threats to | | and comfort letters in connection with | the year to ensure that it remained fit for | | independence arising from such | | funding and debt issuance. The Committee | purpose and aligned to the application | | services are not necessarily ‘clearly | | was satisfied that the work was best | of pre-concurrence on non-audit services | | insignificant’ and the Committee and | | handled by the External Auditor because | as required by the International Ethics | | External Auditor must consider the | | of its knowledge of the Group and the | Standards Board for Accountants. In | | threats to independence and whether | | services provided did not give rise to threats | addition, SSE is required to cap the level of | | any safeguards should be applied. In | | to independence. All Non-Audit Services | non-audit fees paid to its External Auditor | | the absence of any apparent threat to | | were approved in accordance with the | at 70% of the average audit fees paid in the | | auditor independence, approval for the | 2020/212021/222022/23 Non-Audit Services Policy and adhere previous three consecutive financial years. provision of any Non-Audit Service must to the FRC Ethical Standard. Fees paid to be obtained from the Audit Committee. EY during the year are made in note 6  to the Financial Statements. 157SSE plc Annual Report 2023 m ### Audit Committee Report continued | Re-appointment of the External Auditor | Internal Audit Plan | To assist the Committee’s review of the | | --- | --- | --- | | The external audit contract will be put out | The Internal Audit Plan is structured to | System of Internal Control, the different | | to tender at least every 10 years and will be | align with SSE’s operating model, risk | elements are evaluated by relevant key | | conducted by no later than 2029 in line with | profile, control environment and assurance | stakeholders. These evaluations are then | | prevailing best practice. The Committee | arrangements. The Internal Audit Plan | holistically assessed by the Finance Director | | confirms ongoing compliance with the | is split between a one-year plan and a | and a letter is provided to the Committee | | Statutory Audit Services for Large Companies | three-year strategy setting out the broader | summarising the work conducted in the | | Market Investigation (Mandatory Use of | areas of Internal Audit focus, together with | year to improve the control environment and | | Competitive Tender Processes and Audit | the vision and resource for the function. | making a recommendation on the overall | | Committee Responsibilities) Order 2014. | External providers may be engaged to | effectiveness of the System of Internal | | | support delivery of the Internal Audit | Control. In addition, when undertaking the | | The Committee concluded that it is satisfied | plan where specific skills and expertise | review of the effectiveness of the System of | | with the objectivity and independence of the | require to be co-sourced. An integrated | Internal Control, the Committee considers | | External Auditor, and that the effectiveness | assurance mapping and planning process | the assurance evaluations undertaken | | of the external audit process delivered by | is undertaken to ensure that Internal | annually by the Managing Directors of | | EY was robust. The Committee proposed | Audit work is appropriately aligned to, | each of SSE’s seven Business Units. These | | to the Board that it seeks shareholder | and coordinated with, the activities of | assurance evaluations consider each | | approval for the re-appointment of EY as | other relevant assurance providers across | framework of the system of internal control | | the External Auditor for the financial year | the Group. | from a Business Unit perspective and include | | ending 31 March 2024. | | any planned improvements to enhance | | | Internal Audit effectiveness | controls. These improvements are tracked, | | Internal audit | The Committee keeps under review | with updates reported to the executive-level | | Role of Internal Audit | and assesses the independence and | Group Risk Committee on a regular basis. | | Internal Audit plays an important role in | effectiveness of Internal Audit. This year, | | | helping the organisation deliver its vision | the Committee engaged PwC to carry | Risk management | | and objectives by providing independent | out a detailed External Quality Assessment | The Group’s Risk Management Framework | | and objective assurance to management, | (EQA) of the Internal Audit function. The | is designed to manage rather than eliminate | | the Committee and Board on the | process, approach and recommendations | the risk of failure to achieve business | | effectiveness of SSE’s risk management | were presented and discussed by the | objectives. It can only therefore provide | | activities, internal controls and corporate | Committee at its meeting in February | reasonable and not absolute assurance | | governance framework. Internal Audit, led | 2023, and an overview is set out below. | against material misstatement or loss. | by the Director of Group Risk and Audit, | reports to the Committee and functionally | Internal control and | In addition to the ongoing review of | | --- | --- | --- | | to the Finance Director. The purpose, scope | risk management | emerging risks, the Board carried out a | | and authority of Internal Audit is defined | Internal control | robust assessment of the Principal Risks | | within its charter which is approved | The Board has delegated to the Committee | facing the Group, being those that have | | annually by the Committee. | responsibility for reviewing the effectiveness | the potential to threaten its business model, | | | of SSE’s System of Internal Control. This | future performance, solvency or liquidity. | | In fulfilling its role, Internal Audit seeks | covers all material controls including | Further details of the Group Principal Risks | | to add value by encouraging continual | financial, operational and compliance | are set out on pages 68 to 77  and also in | | improvement in the effectiveness of | controls, in addition to the financial | the Group Risk Report. | | business planning, operations and systems, | reporting process. Internal control and | | Internal control and risk promoting wherever possible enhancements risk management in relation to SSE’s energy management effectiveness to internal control processes, and seeking market related exposures are overseen Following the Committee’s review and to embed ‘best practice’ throughout the by the Energy Markets Risk Committee recommendation, the Board agreed that SSE Group. and further information can be found on SSE’s System of Internal Control (including pages 160 to 161 . risk management) continues to be At each Committee meeting, an update effective. This was in accordance with the on Internal Audit is provided covering During the year, the Committee received requirements of the FRC Guidance on Risk an overview of the work undertaken in an update at each meeting from the project Management, Internal Control and related the period, actions arising from audits team established to assess and strengthen Financial and Business Reporting. The conducted, the tracking of remedial the financial reporting control environment Board also confirms that no significant actions, and progress against the Internal in anticipation or ahead of regulatory reform failings or weaknesses have been identified Audit Plan. The Committee routinely meets in the UK. In addition, the Committee during the financial year. Processes are in independently with the Director of Group received a presentation from KPMG with place to ensure that necessary action is Risk and Audit to discuss the results of the a status update on their engagement to taken, and progress is monitored where audits performed and any additional insights support the project. The timing of the areas for improvement are identified. obtained on the risk management and implementation legislation remains unclear, control environment across the organisation. however, management has continued to monitor regulatory developments and provide regular updates to the Committee. 158 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### Effectiveness of Internal Audit | Process | | Approach | | Recommendations | | | --- | --- | --- | --- | --- | --- | | Assessed against: | | Work included: | | Findings included: | | | • The Chartered Institute of Internal | | • Interviews with 16 key | | • Develop the approach and | | | | Auditors’ (CIIA) Code of Ethics and | | stakeholders, including: Audit | | methodology to derive more | | | International Standards for the | | Committee Chair; non-Executive | | data driven analysis and insights; | | | Professional Practice of Internal | | Directors; Executive Directors; and | • Enhance executive and Audit | | | | Auditing, including the Internal | | Managing Directors across the | | Committee reporting to provide | | | Audit Code issued in January 2020; | | business divisions; | | more insight; | | • PwC’s Five Principles of Internal | | • Meetings with five Internal Audit | | • Continue to develop the approach | | | | Audit Excellence Framework; and | | team members; | | to innovation through areas such | | • A benchmark peer group of 8-10 | | • Review of survey sent to all | | | as digital capability and adopting | | | relevant Internal Audit functions. | | members of the Internal Audit | | agile delivery methods; | | | | | Team; | • Develop further the strategic | | | | | • Review of Internal Audit’s structure | | | resourcing model to accommodate | | | | | and remit, audit approach and | | SSE’s international footprint as well | | | | | resource; and | | as leveraging internal and external | | | | • Review of Internal Audit | | | co-sourcing; and | | | | | documentation over the preceding | • Enhancing the approach to | | | | | | 12 months across the areas of | | monitoring and driving | | | | | planning, auditing and reporting. | | performance and productivity. | Outcome Overall, the Internal Audit function was found to be well established and valued across the organisation. The Committee recognised the progress made during the year and confirmed it was satisfied with the overall performance and effectiveness of the Internal Audit function. The findings identified by the EQA will be taken forward and progress reviewed by the Committee. ### System of Internal Control The elements that make up the System of Internal Control are: | • Governance Framework. Designed to | | | For further details please see pages 8 to | | activity that is independent of the day- | | --- | --- | --- | --- | --- | --- | | | ensure focus on the key components | | 23  of the Strategic Report. | | to-day operations of the Business Units | | | of high quality and effective decision | • Risk Management Framework. This | | | and corporate functions. It is made up of | | | making – clarity, accountability, | | framework supports each Business Unit | | Internal Audit, Group Compliance, Large | | | transparency and efficiency. For further | | in managing its risks and helps to ensure | | Capital Projects Services and Group | | | details please see page 122  of the | | that the Board can meet its obligations. | | Safety, Health and Environment | | | Directors’ Report. | | The framework is underpinned by the | • Standards and Quality Framework. | | | • Strategic Framework. This includes | | | fundamental principle that everyone at | | Sets out the expected standards and | | | SSE’s Purpose, Strategy, Goals and | | SSE is responsible for the management | | guidelines to be followed in the delivery | | | Values, as well as the focus of its business | | of risk. | | of the Group’s core purpose. | | | model and forms the basis for all activity | • Assurance Framework. An integrated | | | | | | within the Risk Management Framework. | | programme of audit and assurance | | | 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 Effectiveness of the Internal Audit System of Internal Control Strategic Objectives Principal Risk Group Compliance Group Executive Self-Assessment Financial Group Safety, Health Committee and Risk Appetite Statement Governance Objective and Environment Executive sub- Manuals Committees Viability Assessment Large Capital Key Risk Indicators Projects Services Sustainability Goals Business Unit Principal Risk Business Unit Executive Self-Assessment Business Unit, Policies, Committees and Business Procedures, Processes Corporate Support Assurance Evaluation Assurance and Systems Functions Risk Blueprint 159SSE plc Annual Report 2023 ## Energy Markets Risk Committee Report ### Role of the Committee • The Committee oversees SSE’s ### energy markets risk exposures by: Key activities in 2022/23 • Oversaw arrangements and • Monitoring and supervising recommended actions in relation SSE’s hedging approach; to SSE’s approach to managing • Assessing any potential emerging portfolio exposures during a year energy market issues and risks; of high prices and significant and market volatility. • Reviewing SSE’s internal control • Reviewed and recommended and risk management in this area. changes to the risk and controls monitoring metrics, ensuring In doing so, it assists the Board continued effective oversight of in the effective discharge of its operational effectiveness against responsibilities in relation to risk the backdrop of high prices and management and internal control significant market volatility. in this area. The Committee’s Terms of Reference are available on sse.com . | Dear Shareholder, | metrics overseen by us to ensure they | | During 2023/24, as SSE continues to | | | --- | --- | --- | --- | --- | | I am pleased to introduce the Energy | remained appropriate in the current climate, | | grow internationally, the EMRC will remain | | | Markets Risk Committee (EMRC) Report | and recommended to the Board changes | | focused on providing effective oversight | | | for 31 March 2023. This report details | to ensure operational effectiveness and | | in relation to the Group energy markets | | | the role we play throughout the year | that the correct oversight and reporting | | risk exposures. We will also focus on the | | | to oversee SSE’s energy markets risk | are in place. | | impact, management, and mitigation of | | | exposures and ensure an effective system | | | relevant macroeconomic and geopolitical | | | of risk management controls and related | The EMRC is assisted in its role by the | | events. This will include: | | | processes relevant to energy market risks. | following two Group-level committees: | | • the continued impact of the prolonged | | | | • Group Energy Markets Exposure | | | conflict between Ukraine and Russia | | We have continued to play a key role in | | Committee which meets monthly | | on energy markets; | | overseeing the governance arrangements | | and provides a forum for SSE’s senior | • commodity prices and volatility and | | | in relation to SSE’s approach to managing | | management to discuss and consider | | inflationary pressures; and | | portfolio exposures during a year of high | | energy market risks and exposures. | • changes to regulatory requirements. | | | prices and significant market volatility. At | • For the Customers Business Unit, | | | | | each meeting, we examine and discuss | | Demand Management Committee (DMC) | I would like to thank the members | | | reports of these exposures, consider any | | which meets monthly. The DMC was | of the Committee for their continued | | | proposals from the Executive Team, and | | originally created to monitor the impact | commitment throughout the year, the | | | recommend any changes to SSE’s hedging | | of the coronavirus pandemic on the | open discussions that take place at our | | | approach to the Board as required. In | | Business Unit’s demand profile but | meetings, and the contribution they | | | addition, the EMRC reviews and endorses | | continues in operation to monitor | all provide in support of our work. | | | the hedging approach statement which is | | demand in relation to market volatility. | | | updated for material changes and published | as part of SSE’s interim and preliminary | The minutes of these committees are | | | --- | --- | --- | | results statements. SSE’s latest hedging | provided to the EMRC for review and | | | approach statement (as at 31 March 2023) | comment. | Tony Cocker | | is also set out on page 86  of this Annual | | Chair of the EMRC | | Report. The EMRC will continue to monitor | In line with standing practice, the annual | 23 May 2023 | | and oversee these exposures and, should | Board evaluation is an assessment of our | | | circumstances lead to any change in | performance as a committee. I am pleased | | | approach being required, these will | this concluded that we operate effectively | | | be fully discussed, challenged, and | and that the Board takes assurance from the | | | appropriately reported. | quality of our work. Furthermore, the EMRC | | members are seen to bring a wide range | As a committee, we believe that SSE has | and depth of recent and relevant experience | | --- | --- | | been served well by its prudent approach | across various industries, which will be | | to hedging and has continued to manage | bolstered further by Maarten Wetselaar, | | successfully the changing credit and | who will join the EMRC on 1 September | | collateral requirements. To this end, we also | 2023, with extensive knowledge from his | | reviewed the governance controls and risk | career in the energy industry. | 160 SSE plc Annual Report 2023 Committee membership and attendance page 123 SSE approach to hedging page 86 pages 116 to 120 Committee evaluation pages 140 to 141 Meetings and focus areas in 2022/23 Key EMRC focus areas in 2022/23 Areas of focus: Actions taken Overcoming SSE's hedging approach Energy Markets Risks Internal Control and Risk Management relating to Energy Market Exposures Governance and other SSE plc Annual Report 2023 161 ## Safety, Sustainability, Health and Environment ## Advisory Committee Report ### Role of the Committee • Maintains access to a range of both • Supports and advises the Board internal and external stakeholder on matters relating to safety, perspectives to better achieve the sustainability, health and the creation of shared value for society. environment. • Supports SSE’s commitment to • Provides a leadership forum being a sustainable company that for non-Executive Directors to makes a positive contribution to the work with senior management and communities in which it operates. shape policy, targets and strategy • Actively ensures the maintenance to improve safety, sustainability, of a healthy corporate culture in health, and environmental respect of safety, sustainability, health and environmental matters capital projects. We maintain focus on performance. based on a combination of values, developing SSE’s Environment Strategy, • Reviews the effectiveness of attitudes and behaviours. strengthening our local SHE communities SSE’s strategy, initiatives, training and sharing SSE’s 2022+ SHE vision ‘making and targets in relation to safety, The Committee’s Terms of Reference it easier to do the right thing’. sustainability, health, and the environment. are available on sse.com . Following on from last year, SSE’s • Reviews the implementation Sustainability Team presented two of SSE’s Group Policies relating significant pieces of work: an ESG gap to safety, sustainability, health analysis and a materiality assessment. The and wellbeing, the environment, ### Key activities in 2022/23 ESG gap analysis supported identification and climate change. • Considered safety performance of where improvements can and should • Monitors the resource, and targets be made, not only in ESG disclosures, competence and commitment • Enhanced oversight of employee but in practices and performance as well. in the management of safety, wellbeing initiatives The in-depth materiality assessment sustainability, health, and • Continued visits across sites reconfirmed the most salient sustainability environmental issues to ensure • Reviewed an ESG gap analysis issues to both the Company and its continuous improvement. and materiality assessment stakeholders, identifying areas of opportunity to develop. An increased number of Committee site | Dear Shareholder | contractors. Our commitment – that we all | visits were conducted in 2022/23, supporting | | --- | --- | --- | | I am pleased to present the Safety, | get home safe – is the top priority for us. | oversight of SSE’s safety culture in operation. | | Sustainability, Health and Environment | | Positive impressions were reported back to | | Advisory Committee (SSHEAC) Report | The Committee has reviewed continued | the SSHEAC alongside opportunities to | | for 2022/23; a difficult year which saw the | efforts to enhance employees’ health and | enhance working environments. | | very sad fatality of one of our contractor’s | wellbeing in the year. A focus has been | | | employees at Viking wind farm. This | targeting areas in which we can make a | On behalf of the SSHEAC, I would like to | | incident made us re-think, re-energise and | difference and ensuring it is easy for people | thank all employees and those that work | | be more determined than ever to deliver | to access the help they need. In addition | with SSE for their sustained effort, hard | | on our Safety Family approach with robust | to the employee benefits already offered, | work and commitment. I hope you find | | support for our employees. | last autumn saw the launch of SSE’s Health | the report a useful explanation of our work | | | Hub and ‘We Care’ for employees, which | and of SHE performance during the year. | | This report explains the work of the | offer fast access to different health and | | | SSHEAC during the year, alongside the | wellbeing services. Whilst we have made | | | progress that has been made in relation | great progress in this area in the last few | | | to safety, sustainability, health and | years, there remain areas we would like to | | | wellbeing, and the environment. A more | continue to develop. | Helen Mahy CBE | | in-depth review of these areas, can be | | Chair of the SSHEAC | | found on pages 34 to 67  and in SSE’s | We recognise that SSE is part of the | 23 May 2023 | | Sustainability Report 2023  which is | natural world and want to support the | | | available on sse.com . | conservation, restoration and sustainable | | use of the world’s land and water | Our Safety Family is an important and | resources; and promote the integration | | --- | --- | | distinctive part of SSE’s culture. Through | of amenity, ecosystem and biodiversity | | continuous development, we are looking | improvement into business activities. | | to strike the balance between adding more | As noted in the report that follows, SSE’s | | energy to SSE’s approach whilst reinforcing | Business Units signed up to achieve no | | our existing Safety Family language | net loss in biodiversity by 2023 and net gain | | and principles for our employees and | in biodiversity by 2025 on onshore large | 162 SSE plc Annual Report 2023 Membership Committee evaluation pages 140 to 141 Evaluation themes pages 116 to 120 Meetings and focus in 2022/23 page 123 page 165 Actions for 2023/24 Safety. Meetings Environment. Sustainability. SHE performance Safety Sustainability Report 2023 SHE strategy SSE plc Annual Report 2023 163 ### Safety, Sustainability, Health and Environment Advisory Committee Report continued | | Health and wellbeing | The operational focus of SSE’s Environmental | | | --- | --- | --- | --- | | Contractor safety | The SSHEAC has encouraged and endorsed | Strategy is across three priority pillars: | | | With the very sad news of the | a significant focus on health and wellbeing | 1. Environmental Management and | | | fatality of one of SSE’s contractor’s | across SSE over 2022/23. The Committee | Governance; 2. Responsible Consumption | | | employees, and contractor incidents | reviewed employee absence data and trends | and Production; and 3. Natural Environment. | | | and contractor TRIR being higher than | to ensure that common reasons for absence | | | | SSE’s, the Committee discussed how | and wellbeing in the workplace were | In 2022/23, the total number of | | | SSE can provide more rigour and | considered and understood. Following this, | environmental incidents as a result of SSE’s | | | support, especially as the level of | a new Health Hub was developed to allow | activities totaled 109 compared to 84 the | | | SSE’s delivery through contract | easy access to employee support services. | previous year, the majority of which were | | | partners will increase. | A new feature of the Health Hub was the | minor. SSE’s 2021/22 total environmental | | | | launch of the ’We Care’ health app. Through | incident measure has been restated, | | | SSE has formed a new central | this free of charge service, employees and | attributed to: enhanced governance | | | Contractor Safety Team supported by | their immediate families can access 24/7 | checks that have increased the accuracy of | | | dedicated Contractor SHE Managers | GP consultations and other health related | reporting; and implementing a new SEARS | | | and Assurance Auditors to improve | advice. A programme in partnership with the | system which has helped in improving the | | | contractor safety performance. In | British Heart Foundation on cardiovascular | visibility of incidents and ensuring their | | | SSE’s plan for the next financial year, | assessments was also introduced and will | correct categorisation. This improved | | | key actions have been captured in | continue into 2023/24. | reporting has also supported enhanced | | | the following three categories: 1. | | oversight of environmental performance. | | | Collaborate – how SSE aligns all | In addition, in response to employee | | | | parties to deliver; 2. Support – how to | listening, a series of webinars has also | Following relatively stable performance | | | provide direct support; and 3. Check | broached sensitive subjects such as suicide, | over the past three years, there was a | | | – conduct a comprehensive audit | menopause and more, setting the wellbeing | slight increase in serious environmental | | | across all businesses and directly | objectives and values to build a strategy | incidents in 2022/23, increasing to 31 from | | | with contract partners to identify and | that adapts to business needs. Initiatives to | 24 the previous year. Of these incidents | | | address any issues systematically. | support employees’ physical and mental | SSE saw an increase in the number of | | | | health continue to be provided through | silt-related issues associated with the scale | | | SSE has been working to continually | Nuffield, SSE’s Employee Assistance | up of construction activities, offset by a | | | improve SHE Specification for | Programme and Thrive. | reduction in the number and scale of fluid | | | contractors and provide guidance | | filled cable leaks of its assets. In order to | | | for project management teams. In | Environment | address these issues and take into account | | | addition to the Contractor Safety | SSE’s Environment Strategy is underpinned | the increased project activity, SSE has put | | | Community, local SHE Communities | by an ethos of compliance. It provides a | in place deep dives in four areas: silt, fluid | | | are embedded across all SSE Business | pathway to engage internal and external | filled cables, SF | and waste. | 6 | Units and the Committee saw good | stakeholders by holding SSE accountable | | | --- | --- | --- | | examples of their work on different | for performance against targets and | The number of environmental permit | | sites during visits. | indicators as a measurement of success. | breaches increased to nine in 2022/23 | | | Following a review of the environmental | from seven the previous year, the majority | | | vision, a set of targets were agreed for | of which were self-reported to the relevant | | | 2022/23. Further details of these targets | environmental agencies. All incidents were | | | and performance against them in the | dealt with quickly when identified. | year can be found in SSE’s Sustainability Report 2023  and on pages 53 to 55 . ### Engagement in action ### Suppliers, contractors and partners ## Partnering for safety and wellbeing SSE’s current growth phase, and the In partnership with SSE’s principal wellness rooms, offering defibrillator and resulting increase in contractor hours contractors, it was decided paramedics CPR training, administering medication worked, has sharpened focus on keeping should not just treat injuries but should and providing mental first aid services. the employees of our partners safe. also put a strong emphasis on prevention This approach has already been put and awareness when it comes to safety, into action treating potential incidents An example of this in action is an initiative health and wellbeing. across sites. A recent survey of SSE within SSE Thermal to introduce on-site Thermal colleagues showed that paramedics on large capital projects. By creating a positive safety culture, they on-site paramedics were one of the top are responsible for tasks such as setting three factors helping to create a positive up medical facilities, treatment and Safety, Health and Environment culture on location. 164 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### Engagement in action ### Employees ## Visit to Peterhead | Mark Patterson, the Safety, Health and | We take care of ourselves | What would make it easier for | | --- | --- | --- | | Environment Director, and Helen Mahy, | and each other | people to do the right thing? | | Chair of the SSHEAC, visited Peterhead | Overall housekeeping and station | Covid-19 has presented some real | | Power Station in September 2022 to gain | planning, control and permit work | challenges for SSE’s sites. At the time | | insight into SSE’s Safety Family language | was positive and well ordered. | of this visit, some controls at Peterhead | | in action. Below is a summary of the | Communication between operational | were still in place to protect the control | | takeaways from the visit. | teams, including apprentices, was | room operators from Covid-19, such as | | | strong and responsive. | all visitors to the control room wearing | | If it’s not safe, we don’t do it | | masks. The site induction was also | | The station’s team demonstrated | We plan, scan and adapt | completed online to ensure the process | | openess, a deep sense of trust, and | There was a clear focus on building | was efficient and safe. | | were supportive of each other and the | capability and skills across the existing | | | environment. Safety was embedded | team and getting the station in a position | | | across plant processes and Safety Family | to support any future developments. | | | language was evident across discussions. | It was positive to see new employees | | joining the station from other industries ### We take pride in our work such as oil and gas. ### and our environment The overall impression was that the station team are making good strides towards building a positive SHE culture and ensuring an engaged team. | Sustainability and ESG focus | hierarchy. SSE will use the Sustainability | | --- | --- | | Significant progress was made across the | Report 2023  to communicate enhanced | | most material areas of sustainability in | disclosures recommended by our materiality | | 2022/23, with the SSHEAC reviewing SSE’s | assessment and ESG gap analysis. | performance in key investor environment, | social and governance (ESG) ratings, and | More information can be found on | | --- | --- | | the results of an ESG gap analysis of SSE’s | pages 34 to 67  and in the Sustainability | | performance in two key ratings, approving | Report  which is available at sse.com/ | | areas for development and improvement in | sustainability . | the next financial year. The Committee also | approved the undertaking of a sustainability | Site visits | | --- | --- | | materiality assessment, with the objective | The SSHEAC completes an annual | | of confirming the ESG issues most material | programme of site visits with the main | | to SSE. The focus areas from the materiality | objective of providing support to, and | | assessment and the ESG gap analysis align | engaging with, colleagues working on | | with the UN Sustainable Development | different sites. Physical visits resumed in | | Goals that SSE has previously identified | 2022/23, with Committee members looking | | as being material, and around which it | at different sites in late summer and early | | has based its sustainability approach. The | autumn. Locations visited included Reading, | | recommendations from the two exercises | Slough, Peterhead, Ridgeway (Oxford), | | informed next steps, for example, at a | Perth Training School, Chalvey, Canal Street | | multi-stakeholder event in April 2023, | in Willesden, SSE’s joint venture Activ8, | | a first-of-a-kind, disclosure report was | Leanamore wind farm, Galway wind park | | published and designed to establish a | and Tarbert power station. | framework for measuring and disclosing progress against SSE’s 20 Just Transition The feedback from visits was encouraging Principles to SSE’s stakeholders. with teams working hard to have positive impacts on the environment and local In terms of SSE’s approach to the disclosure communities and ensuring that a thorough of its sustainability impacts, the aim is safety briefing is in place. A report of the to bring about continuous improvement visit to Peterhead is provided above. in both the quality and quantity of | information disclosed. The objective for | A structured approach to site visits ensures | | --- | --- | | the Sustainability Report 2023  is to | that feedback is collected and acted upon. | | provide clarity around SSE’s most material | This is facilitated by a dedicated feedback | | sustainability issues, including those which | template which is completed following | | represent key areas of opportunity for the | each site visit. The site visits agreed for | | business, reinforcing SSE’s sustainability | 2023/24 will be reported on next year. | 165SSE plc Annual Report 2023 ## Remuneration Committee Report | Role of the Committee | | • Determines policy and scope of | | | | --- | --- | --- | --- | --- | | • Determines and agrees SSE’s | | | pension arrangements, service | | | | broad policy for executive | | agreements, share ownership | | | | remuneration and reviews the | | and share retention policies, | | | | ongoing appropriateness and | | termination payments and | | | | relevance of the policy. | | compensation commitments. | | | • Ensures remuneration is | | • Gives due regard to relevant legal | | | | | appropriate, enhances personal | | requirements and corporate | | | | performance and rewards | | governance guidelines. | | | | individual contributions towards | • Reports on executive | | | | | the success of SSE. | | remuneration through the | | | • Ensures directors’ remuneration | | | Directors’ Remuneration Report | Delivery and performance | | | policy is transparent, takes | | and puts forward for shareholder | Our operating model and portfolio remain | | | account of SSE’s risk appetite and | | approval annually at the AGM. | highly complementary and balanced. | | | aligns to SSE’s long-term goals. | | | Our efficient operation of flexible thermal | | • Designs and determines measures | | The Terms of Reference for | | generation and gas storage assets (see | | | and targets for variable pay | the Committee are available | | page 78 ) contributed in a large part, to | | | including LTIPs for Executives | on sse.com  | | strong 2022/23 financial performance. We | | | and approves payouts. | | | have historically tolerated weaker thermal | returns given our long-term belief that the underlying value of thermal flexibility would be key to transitioning to net zero. That value was accentuated by the extreme ### Dear Shareholder, 4. Stakeholders: reflecting SSE’s strategic levels of market volatility we saw this year. This is my first annual statement as Chair of goal of creating value for shareholders SSE’s Remuneration Committee, of which I and society. Strategic delivery in the year was strong, have been a member since January 2020. with critical milestones delivered in On behalf of the Board, my thanks go to Our approach to pay is designed to support SSE’s flagship large capital projects Dame Sue Bruce for her extraordinary SSE’s purpose to provide energy needed (see page 18 ). In light of 2022/23 contribution both as a member of the today while building a better world of performance, our financial strength and Committee from December 2017 and energy for tomorrow. The performance the available opportunity set, we have as its Chair from May 2018. measures and targets on which the Annual upgraded our plans and growth targets Incentive Plan (AIP) and the longer-term to the NZAP Plus, details on page 16 . The Directors’ Remuneration Report sets performance share awards are directly out the detail and rationale for Directors’ linked to execution of SSE’s strategy – the ### 2022/23 AIP outcomes remuneration and covers: Net Zero Acceleration Programme (NZAP). The AIP is determined against a broad • Linking remuneration to strategy range of financial, operational, personal • Delivery and performance Sustainability is at the heart of SSE’s strategy. and sustainability performance targets – 2022/23 AIP outcomes Progress is measured by science-based collectively designed to reflect financial – Vesting of 2020 PSP award business goals for 2030 that align with four and non-financial business performance – Wider workforce pay specific UN Sustainable Development each year. The measures were reviewed – Salary changes Goals. Progress against these goals, last year to support the delivery of the NZAP • Changes to the Board which are detailed on page 183 , was and longer-term goals. Changes included • Pension arrangements linked last year to the vesting of awards strengthening the cashflow measure, the made under the Performance Share Plan introduction of operational measures and ### Linking remuneration to strategy (PSP). Shareholders also approved new the addition of new sustainability metrics. The current Directors’ Remuneration Policy ‘strategic’ measures which assesses was approved at the July 2022 Annual progress towards the successful delivery Performance in the year has been strong. General Meeting with over 91% support. of the NZAP. This means that 30% of the Financial measures exceeded target levels, Sue Bruce led an extensive consultation shares awarded under the new PSP are and good progress has been made in exercise with our largest shareholders and linked to sustainability, either directly respect of operational performance related the Remuneration Committee is extremely through sustainability measures or through to the NZAP. Performance against external grateful for their support. The policy is built strategic measures by virtue of SSE’s sustainability indices, a new measure for on a set of enduring core reward principles: NZAP. The in-year focus on sustainability 2022/23, has also been strong with upper continues through measures which have a quintile ranking achieved across all indices. 1. Sustainability: reinforcing SSE’s weighting of 40% within the 2023/24 AIP, A summary of the detailed AIP scorecard is commitment to being a responsible with 10% assessed against sustainability shown on pages 172 to 173 . employer. indices and 30% relating to operational 2. Simplicity: maximising transparency performance linked to the NZAP. Each year, the Committee considers and avoiding unnecessary complexity. whether there are appropriate reasons to 3. Stewardship: encouraging and fairly Our remuneration policy is structured apply discretion to the AIP outturn. The rewarding good decision-making for to ensure that we have enough flexibility Committee was deeply saddened by the long term. to attract world-class talent. This is the death of Liam Macdonald, a young particularly important as SSE is increasingly contractor working on Shetland, in June exposed to new markets and technologies. 166 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report | 2022. As a result, it used discretion to | wider employee population which were | pay position and will be subject to review | | --- | --- | --- | | reduce the outturn of the AIP. | linked to CPI expected to be in the region | at each point to ensure they reflect Barry’s | | | of 8%. | development in the role. His maximum | | The outturn for the 2022/23 AIP is 88% | | bonus under the AIP will be 130% of salary | | of the maximum following the use of | SSE’s market capitalisation is in the FTSE | and his annual award under the PSP will be | | downward discretion. | 20-50 upper quartile (excluding financial | 225% of salary. It is expected that an award | | | services). SSE total pay potential is below | will be made under the PSP on 1 April 2024. | | Vesting of 2020 PSP award | the median for this benchmark set. SSE’s | He will be required over time to build up a | | The PSP awards granted in June 2020 are | market capitalisation is within the range | shareholding to the value of 225% of salary | | due to vest following the 2022/23 financial | of the median of the FTSE 50 (excluding | and to retain this holding for two years | | year, subject to financial, operational, and | financial services) and total pay potential | after he leaves employment with SSE. His | | value-creation performance conditions | compared to this group is in the lower | existing incentive arrangements, including | | measured over the three-year performance | quartile. As SSE scales and becomes | in-flight share awards, will continue to run | | period ending 31 March 2023. | more international, the Committee will | on their original terms. | increasingly keep a watching brief on pay | The Remuneration Committee objectively | trends and pay levels across the FTSE 50. | Pension arrangements | | --- | --- | --- | | assessed the vesting outcome against | | The Directors’ Remuneration Policy is clear | | the performance measures and targets. | The Committee decided that the increase | that any individual appointed to the Board | | This resulted in an outturn of 76% of the | for each of the Executive Directors from | will receive pension arrangements which | | maximum award. The Committee then | 1 April 2023 should be 5% of salary. | are aligned, in terms of annual percentage | | reviewed the quality of the overall | | contribution, to those of the majority of | | performance and the number of shares | Changes to the Board | SSE employees. | | awarded in 2020 in comparison with the | Gregor Alexander – SSE announced | | | number of shares awarded in 2019 and | on 21 April 2023 that Gregor Alexander, | During the year, the Committee considered | | in 2018. The number of shares under | who has served as Finance Director since | the pension allowance of 15% of salary | | award in 2020 was 85% of the number of | 2002, would step down from the Board | payable to the Chief Commercial Officer, | | shares awarded in 2019. The Remuneration | on 1 December 2023 and retire from SSE | Martin Pibworth, with effect from 1 January | | Committee was satisfied that the Executive | at the end of March 2024. Gregor will | 2023 in the light of the UK Corporate | | Directors have not benefited merely as a | continue in his current positions as Chair of | Governance Code, the views of many | | result of share price volatility. It agreed that | SSE Transmission’s Board and as a Director | investors and representative bodies | | the vesting outcome for these awards was | on the Board of Neos Networks Limited, | on the alignment of executive pension | | appropriate and no discretion was required. | SSE’s joint venture with Infracapital | arrangements with those for all employees. | | More details on the performance measures, | Partners. The Remuneration Committee | It has made no further changes to Martin’s | | the targets, and the performance outturns | without hesitation exercised its discretion | pension allowance of 15%, which is in | | are set out on page 174 . | to treat Gregor Alexander as a ‘good leaver’ | line with the average employer cost for | | | in respect of his retirement, taking in to | employees with similar service. | | Wider workforce pay | account his long and distinguished service. | | | In setting pay policy and agreeing | He will continue to be paid in the usual way | As Chief Financial Officer, Barry O’Regan | | pay outcomes for Executive Directors, | until he steps down from the Board. He will | will receive a cash allowance in lieu of | | the Committee is mindful of the pay | be eligible for a time pro-rated bonus in | contribution to his pension equivalent | | arrangements of the wider workforce. | respect of his service in the financial year | to 12% of salary aligned to the policy for | | Throughout the year, a number of initiatives | 2023/24. One third of his bonus will be | new appointments and the contribution for | | were introduced as part of SSE’s improved | deferred into shares in the usual way. He | the majority of employees in the UK and | | Employee Value Proposition including the | will not receive an award in 2023 under | Ireland irrespective of length of service. | | introduction of a new skills-based pay | the PSP. His outstanding share awards | | | system involving considerable investment, | under the PSP will be time pro-rated to | The defined benefit arrangements for the | | increases to salary ranges and car | reflect the elapsed time between the start | Chief Executive and the Finance Director | | allowances, enhancements to ‘family | of the performance period and the date of | reflect their long service with the business | | friendly’ policies and the introduction | cessation of employment, and the awards | and, in terms of the benefits provided, are | | of additional health benefits. | will vest in accordance with the usual | in line with the arrangements for other | | | timetable. He will be required to retain | employees recruited at the same time. | | In recognition of SSE’s 2021/22 performance | a shareholding for at least two years | | | employees below senior management | following the date of cessation of | Summary | | level were offered a £500 one-off payment | employment in accordance with the | The Remuneration Committee plans to | | in May 2022. Later in response to the | Directors’ Remuneration Policy. | continue to apply SSE’s core principles of | | worsening cost of living crisis part of the | | transparency of decision-making and clarity | | annual salary increase was paid early in | Barry O’Regan – It was announced on | of reporting and to be fully cognisant of the | | October 2022 to help people through | 21 April 2023 that Barry would take up the | perspectives of SSE’s stakeholder groups. I | | the winter with the balance of CPI paid at | appointment of Chief Financial Officer | very much welcome any comments on the | | yearend. Further details on the Employee | from 1 December 2023. Barry will join the | 2022 Directors’ Remuneration Report or on | | Value Proposition and support offered to | Board on the same date. As his home base | any remuneration matters. I can be reached | | employees in response to the cost of living | will remain in Ireland, he will be paid a Euro | via Sally Fairbairn at sally.fairbairn@sse.com. | | crisis can be found in the case study on | base salary of the equivalent of £600,000 | | | page 179 . | a year. It is planned that the base salary | | will increase by 8.3% to the equivalent of | Salary changes | £650,000 with effect from 1 April 2024 and | | | --- | --- | --- | | In reviewing the base salaries of Executive | to the Euro equivalent of £700,000 (an | | | Directors, the Committee considered | increase of 7.7% of salary) with effect from | | | SSE’s strong performance and shareholder | 1 April 2025. The Committee believes that | Melanie Smith CBE | | returns, and NZAP progress. We also | the planned phased increases set out are | Chair of the Remuneration Committee | | considered the increases granted to the | appropriate to achieve a competitive total | 23 May 2023 | 167SSE plc Annual Report 2023 ## Remuneration at a glance ### Directors’ Remuneration Policy in 2023/24 The illustration below shows how SSE intends to operate its Directors’ Remuneration Policy in 2023/24. Element Max 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 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/ 1 | | | 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 vest 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 withholding 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 Post- Career shares The holding requirement for career shares is until two years after cessation of employment. From employment (up to 2022) 2022, PSP awards and deferred bonus shares will all count towards the two-year post cessation policy. 1 The Finance Director ceases to accrue further pension at age 60 in April 2023 and will receive no cash allowance in lieu. ### 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 of SSE’s financial and non-financial KPIs can be seen on pages 24 and 25 . Adjusted Earnings Per Share Cashflow (net debt/EBITDA) Dividend Per Share | 166.0p | 2.7 | 96.7p | | --- | --- | --- | | AIP and PSP | AIP | PSP | | (2021/22 – 94.8p) | (2021/22 – 4.3) | (2021/22 – 85.7p) | | Total Shareholder Return | Total Shareholder Return | Total Recordable | | --- | --- | --- | | (FTSE 100) | (MSCI) | Injury Rate | | Rank 24 | Rank 7 | 0.19 | | of 95 PSP | of 24 PSP | per 100,000 hours worked AIP | | (2021/22 – Rank 13 of 95) | (2021/22 – Rank 6 of 23) | (2021/22 – 0.17) | 168 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### Incentive Plan Performance in 2022/23 Annual Incentive Plan Performance Share Plan 100% 100% 88% 76% 30%30% 30% 24% 20%20% 20%20%20% 19% 20%20%20% 20% 10% 9% 10%10% 10% 7% | Adjusted | Cashflow Personal Operational Total | Sustainability | | | TSR v | TSR v | EPS | DPS | Customer | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | EPS | | | (% of | | FTSE100 | MSCI | growth | growth | | (% of | | | | | maximum | 1 ) | | | | | | maximum) | Maximum Actual 1 The overall total for AIP at 88% includes the Remuneration Committee’s use of downward discretion. See page 174 . ### How pay links to the wider workforce at SSE Base Salary Benefits Pension Short-term Incentive Long-term Incentive | Executive Directors | Base salary is | A range of voluntary | All employees | Annual Incentive | The Performance | | --- | --- | --- | --- | --- | --- | | (3 employees) | typically set | benefits in line with | are members of a | Plan linked directly | Share Plan is a | | | with reference | the wider workforce | defined contribution | to business | share award with | | | to the market, | plus contractual | pension scheme, | performance – | performance | | | performance and | car and private | or one of our legacy | 50% financial, | linked to strategic | | | wider workforce | medical benefits. | defined benefit | 50% non-financial. | performance | | | considerations. | | pension schemes, | 33% of the total | measures. | | | | | unless they have | award is deferred | | | | Annual increases are | | opted out. | into shares for | | | | typically in line with | | | three years. | | | | or less than those for | | The arrangements | | | | Group Executive | | | | Annual Incentive | The Leadership | | | the wider employee | | are diverse and | | | | Committee | | | | Plan considering | Share Plan is also | | | population. | | the employer cost | | | | (8 employees) | | | | performance of the | linked to strategic | typically ranges from Group (directly linked performance 4.5% to 32.5% of Senior Management to the above), the measures over the salary when both (120 employees) business area and longer-term and defined contribution the individual. 25% those with direct and defined benefit 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 | All personal contract | All employees may | | --- | --- | --- | --- | --- | | (12,000 employees) | are subject to | benefits are available | employees will | participate in the | | | negotiation with | to all employees, such | participate in the | Share Incentive | | | recognised trade | as a cycle to work | Annual Incentive | Plan (SSE matches | | | unions and/or are | scheme, a holiday | Plan (as above). | three shares for | | | set in line with | purchase scheme, | 100% of the award | every three bought) | | | market requirements. | health benefits, and | is paid in cash. | and the Sharesave | | | | enhanced maternity, | | (SAYE) plan. | | | Annual increases | paternity and | | | | | are either subject | adoption leave. | | | to negotiation or individual performance. The above applies to employees across the UK and ROI where practically possible. 169SSE plc Annual Report 2023 ## Annual report on remuneration ### 1. Single total figure of remuneration (audited) The table below shows the single total figure of remuneration for each Executive Director for the financial year ending 31 March 2023 relative to the previous year. | Alistair Phillips-Davies Gregor Alexander Martin Pibworth Total | | | | | | | 6 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 2022/23 | 2021/22 | 2022/23 | 2021/22 | 2022/23 | 2021/22 | 2022/23 | | 2021/22 | | £000s | £000s | £000s | £000s | £000s | £000s | £000s | | £000s | 1 Fixed Pay Base Salary 952 924 736 714 655 636 2,343 2,274 2 Benefits 27 26 24 23 18 18 69 67 3 Pension 367 413 260 303 127 159 754 875 Total Fixed Pay 1,346 1,363 1,020 1,040 800 813 3,166 3,216 4 Variable Pay AIP 1,256 1,150 841 771 750 678 2,847 2,599 5 PSP 2,025 2,142 1,369 1,449 1,025 1,084 4,419 4,675 Total Variable Pay 3,281 3,292 2,210 2,220 1,775 1,762 7,266 7,274 Total 4,627 4,655 3,230 3,260 2,575 2,575 10,432 10,490 1 SSE offers all employees a range of voluntary benefits some of which operate under a salary sacrifice arrangement. The salaries shown above are reported before any such adjustments are made. 2 Benefits relate to company car, Share Incentive Plan company contributions and medical benefits. These benefits are non-pensionable. 3 The pension values for Alistair Phillips-Davies and Gregor Alexander represent the increase in capital value of pension accrued over one-year times a multiple of 20 (net of CPI and Directors’ contributions) in line with statutory reporting requirements. 4 The AIP figures above show the value of the award including the portion deferred as shares. 5 The PSP figures for 2021/22 have been readjusted in line with statutory reporting requirements, following last year’s report to show the actual value upon vesting. The estimated value shown in the table for 2022/23 is based on the average share price in the three months to 31 March 2023 of £17.26, as required by the reporting regulations. The value generated through share price appreciation is £849,657 (full details shown on page 175 ). The award remains subject to service until May 2023 and so the prior year comparative will be restated in next year’s report to show the actual value on vesting, as is required by the regulations. 6 Directors have not received any other items in the nature of remuneration other than as disclosed in the table. ### Rationale for 2022/23 single total figure of remuneration There has been very little year-on-year change in the single total figure of remuneration with just a 0.5% reduction. For the Executive Directors, total remuneration has either stayed the same or reduced by up to 0.9%. There have however, been changes in the individual elements of pay. Executive Directors received a base salary increase lower than the wider workforce and AIP outcomes were increased following a year of strong financial, operational and strategic performance. The single total figures reflect the Committee’s decision to exercise discretion in relation to the AIP outturn. PSP outcomes also increased however, share price appreciation reduced from 52% in 2022 to 24% over the three years to the end of March 2023. Values for pensions have all reduced during the year. Martin Pibworth’s pension allowance was subject to a phased reduction to bring it in to line with the wider employee population from 1 January 2023. Alistair Phillips-Davies and Gregor Alexander participate in defined benefit pension arrangements and there has been a reduction in the pension service cost which is a function of the valuation regulations rather than any change in approach. The Remuneration Committee is satisfied that the single total figure of remuneration for each Executive Director is appropriate. ### Base salary In line with the average base salary increase for the wider employee population, Executive Directors’ salaries were increased on 1 April 2022 by 3% from £923,924 to £951,642 for the Chief Executive, from £714,117 to £735,541 for the Finance Director and from £636,300 to £655,389 for the Chief Commercial Officer. ### Benefits Benefits are provided at an appropriate level taking into account market practice at similarly sized companies and the level of benefits provided for other employees in the Company. Core benefits include car allowance, private medical insurance and health screening. The Executive Directors also participate in the Company’s all-employee share schemes on the same terms as other employees. ### Pension The Chief Executive and Finance Director are members of the Southern Electric Pension Scheme and the Scottish Hydro Electric Pension Scheme respectively, and their plan membership predates their Board appointments. They participate in the same defined benefit pension arrangements that were available to all employees recruited at that time. The schemes were closed in 1999 and the service costs are 32.5% of salary. These are both funded final salary pension schemes and the terms of these schemes apply equally to all members. The Executive Directors’ service contracts provide for a possible maximum pension of two thirds final salary from the age of 60. In relation to Executive Directors who are subject to the scheme-specific salary cap (which mirrors the provisions of the previous HMRC cap arrangements) the Company provides top-up (unfunded) arrangements which are designed to provide an equivalent pension on retirement from the age of 60 to that which they would have earned had they not been subject to the salary cap. From 1 April 2017 pensionable earnings increases were capped at RPI +1%. These are legacy arrangements and will not be used for any new external appointments. 170 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report The Chief Executive and Finance Director, in common with all other employees who joined at the same time (26 and 32 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 Finance Director will stop accruing pension under the scheme with effect from his 60th birthday in April 2023. 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. From 1 January 2023, his pension allowance has been in line with the employer contribution for the majority of SSE’s employees, taking into account length of service, at 15% of salary. The table below details pension accrued for each of the Executive Directors as at 31 March 2023 and 2022. | | Accrued | | Accrued | | --- | --- | --- | --- | | pension as at | | pension as at | | | 31 March 2023 | | 31 March 2022 | | | | £000s | | £000s | Alistair Phillips-Davies 549 513 Gregor Alexander 490 461 1 Martin Pibworth 0 0 1 Martin Pibworth received an allowance in lieu of a pension contribution of 20% of salary between 1 April and 31 December 2022, and 15% from 1 January 2023. ### Annual Incentive Plan and Performance Share Plan In setting targets and assessing performance, the Committee followed the process below for both the AIP and PSP: | 1. Set performance | | 2. Set stretching | | 3. Assess performance | | 4. Take account of | | 5. Apply discretion | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | measures aligned | | performance targets | | against targets | | wider environment | | if required | | | with strategy | | | | | | and stakeholders | | | 2022/23 Annual Incentive Plan 1. Set performance measures aligned with strategy AIP requires broad performance across financial metrics (Adjusted EPS and Cashflow) and strategic metrics (Personal, Operational and Sustainability). The performance measures and their weightings are shown below. | | Financial | Personal | | | Operational | | | | Sustainability | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | (50%) | (10%) | | | | (30%) | | | | (10%) | | | | | People | Renewables | | | Distribution | Transmission | | | | Adjusted | | Individual | | | | | | | | | Cashflow EPS Objectives Moody’s Sustainalytics S&P Global (20%) (30%) (10%) Thermal Customer Other Growth & Transactions 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 60% since 2013/14 as shown on page 178 . The Committee had originally intended to use four ESG ratings agencies as the basis for assessing performance in relation to Sustainability (as set out in the 2022 Annual Report). However, the provision of detailed comparative data for the MSCI ESG rating was not possible in 2022/23, and therefore, average performance over three indices rather than four has been used. SSE’s performance against the MSCI ESG rating was in the upper quintile and as such, the Committee is satisfied that this issue has not made a material difference to the outturn of this performance measure. 171SSE plc Annual Report 2023 ### Annual report on remuneration continued 3. Assess performance against targets The table below shows how performance measures are linked to strategy and how performance was ultimately delivered. Performance measure AIP Adjusted EPS Cashflow Personal Operational Sustainability Total Link to strategy Simple Simple Simple Simple Simple Stewardship Sustainable Sustainable Sustainable Sustainable Stakeholders Stakeholders Stewardship Stewardship Stewardship Stakeholders Stakeholders Stakeholders Rationale Underlying Net debt/EBITDA To reflect those Operational goals Three external measure of activities which relating to people, ratings agencies – financial go beyond the the businesses Moody’s, performance and responsibilities and other growth Sustainalytics, strategic KPIs of the role and transactions and S&P Global Weighting 30% 20% 10% 30% 10% Threshold 114p 5.0 See scoring See scoring Median framework below framework below Max 132p 4.5 Upper quintile Outcome 166.0p 2.7 See next section Performance 100% 100% 90% 79% 100% Outturn (% of max 30% 20% 9% 24% 10% 93% incentive) The Personal and Operational goals will be assessed using the scoring framework as follows: Score Illustrative performance assessment Illustrative outturn as % of maximum 1 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% 1 The Remuneration Committee can decide to award an outturn between levels if warranted. 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 | | | | Assessment | Outcome | | --- | --- | --- | --- | --- | --- | | measure Detailed measure Factors to be assessed Summary performance | | | | (score 1-5) | (% of max) | | Personal | Chief | Culture and the SSESET, | Overall, a strong year of performance. | 4+ 90% | | | 10% | Executive | Financial, People Development, | Financial performance exceeded targets. | | | | | | Succession, Stakeholder | Delivered an updated and enhanced NZAP | | | | | Finance | | | 4+ 90% | | | | | Management, Strategy | Plus strategy. Successful disposal of a 25% | | | Director | | and Growth. | stake in the SSEN Transmission business. | | | --- | --- | --- | --- | | Chief | | Acquisition of Triton Power and a Southern | 4+ 90% | | Commercial | | European onshore development platform | | | Officer | | from SGRE. Pipeline progress in solar and | | battery. Key appointments made during the year. Seagreen has faced some challenges and increased contractor hours have had an impact on safety. 172 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report | High-level | | | | Assessment | Outcome | | --- | --- | --- | --- | --- | --- | | measure Detailed measure Factors to be assessed Summary performance | | | | (score 1-5) | (% of max) | | Operations | People | Health and Safety performance | TRIR increased at 0.19 driven by contractor | 4+ 83% | | | 30% | | as measured by Total Recordable | safety performance. Gender Pay Gap | | | | | | Injury Ratio (TRIR); recruitment | decreased. Female leadership increased. | | | | | | plans and inclusion and diversity | 4,400 vacancies filled (1,300 more than | | | | | | as measured by time to hire, | in 2021/22). Time to hire remains steady at | | | | | | filling of vacancies and the | 48 days. Simplified Board I&D scorecard | | | | | | percentage increase in gender | introduced. Progress has been made | | | | | | diversity across SSE. | across all diversity groups. | | | | | Renewables | Cost per MW hour, plant | Production down by c.15% on plan due to | 3+ 65% | | | | | availability, progress on | weather. Plant availability at highest levels | | | | | | renewables pipeline. | across onshore sites and improvements | | | across offshore. 4GW of secured pipeline added. Total pipeline is now >20GW. 2nd in the balancing market. | Distribution | Progress against ED2 business | Good progress against ED2 business plan. | 3+ 65% | | --- | --- | --- | --- | | | plan; incentive income against | SHEPD and SEPD both performing well | | | | agreed target. | following change activity. SSEN Distribution | | the most improved DNO of the year. Some good performance against incentive measures. | Transmission | Contract awards achieved | All T2 outputs are on track to be met. | 4+ 90% | | --- | --- | --- | --- | | | against agreed plan; delivery of | Delivery of outputs are expected to | | | | outputs and approval of projects | outperform despite challenging market | | | | that maintain a trajectory of RAV | conditions. Trajectory of RAV expected | | | | greater than £6bn by 2026. | to be >£6bn. | | | Thermal | Balancing market performance. Rank 1 generator in the balancing market. 5 100% | | | | Customer | Finish above median in the | Ranking in Citizen’s Advice league around | 3+ 65% | | --- | --- | --- | --- | | | Citizen’s Advice non-domestic | upper quartile performance level. Airtricity | | | | supplier league table. | ranked 3rd out of 7 in annual CX survey but | | showed largest year-on-year improvement. | Other | Progress building pipeline across | Solar and battery pipeline increased to | 4+ 85% | | --- | --- | --- | --- | | Growth and | business areas including solar, | 2GW+ incl 22 long-term/greenfield projects | | | Transactions | storage, hydrogen, and other | up to 500MW each. Progress in Distributed | | | | priority business development | Energy. Delivery of first EV hub in Glasgow. | | | | areas; progress made on financial | Transmission stake sale complete. Decision | | | | sell down of T&D businesses. | to retain 100% of Distribution at this time. | | Total 79% High-level Outcome measure Detailed measure Factors taken into account in index scoring Assessment (% of max) Sustainability Moody’s ESG Environment; Human Resources; Human Rights; Community Involvement; Upper quintile 10% rating Business Behaviour; Corporate Governance. (Sep 2022) (formerly V.E.) Peer group: Electric & Gas Utilities Sustainalytics Carbon – own operations; Emissions, Effluents and Waste; Resource Use; Upper quintile sustainability Land Use and Biodiversity; Business Ethics; Corporate Governance; (Nov 2022) index Product Governance; Community Relations; Human Capital; Occupational Health and Safety. Peer group: Electric Utilities S&P Global 27 different categories which cover all of the above and also additional Upper quintile sustainability issues such as Policy Influence, Information and Cyber Security, Talent (Oct 2022) index Attraction and Retention, Stakeholder Engagement, and Climate Strategy. Peer group: ELC Electric Utilities 85th percentile Average performance across three assessments (upper quintile) 100% 173SSE plc Annual Report 2023 ### Annual report on remuneration continued 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. 5. Apply discretion if required Consideration is given to performance outcomes in light of SSE’s performance in the round and against our pay principles. The Committee is clear that no matter their role, getting everyone who works for SSE home safe at the end of each day remains our priority. That focus is all the keener following the tragic death of Liam Macdonald, a young contractor working on Shetland, in June 2022. More information on this including SSE’s wider safety performance and response to this tragedy can be found on page 162  onwards. While safety performance is measured in the formulaic assessment of AIP, the Committee also considered the extent to which a discretionary adjustment should be applied. After careful consideration, the Committee decided to reduce the award outturn to 88%. The discount is greater than the impact of reducing to zero any bonus under the people (and safety) element of the AIP. 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. Maximum (% of salary) AIP earned 1 AIP cash AIP deferred Alistair Phillips-Davies 150% 1,256,167 841,632 414,535 Gregor Alexander 130% 841,459 563,777 277,681 Martin Pibworth  130% 749,765 502,343 247,422 1 Both the cash and deferred element are subject to clawback provisions. 2020 – 2023 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 against targets 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 2020 PSP award vesting this year. Performance measure | | | | | | Customer | Customer (Business | | --- | --- | --- | --- | --- | --- | --- | | PSP TSR v FTSE 100 TSR v MSCI Europe EPS growth DPS growth | | | | | (Distribution) | Energy) Total | | Link to strategy Simple | | Simple | Simple | Simple | Simple | Simple | | | 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 | customers | | | performance | performance | financial | through | needs is at | needs is at core | | | | | performance | payment of | core of our | of our business | | | | | | dividends | 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 24 of 95 | | Rank 7 of 24 | In excess of | RPI Below | | Average rank | | --- | --- | --- | --- | --- | --- | --- | | | (above 75th | (just below | RPI + 10% | | median | 4 of 16 | | | percentile) | 75th percentile) | | | | | Performance 100% 94% 100% 50% 0 68% Outturn (% of max) 20% 19% 20% 10% 0 7% 76% 174 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report 4. Take account of the wider environment SSE’s TSR has performed at the maximum level relative to the FTSE 100 and just below upper quartile against the MSCI European Utilities Index, and performance in relation to Business Energy customer service ranking is also above median. EPS growth over the performance period has exceeded the level for maximum vesting. SSE’s dividend commitment has been met over the three-year period and therefore, threshold performance at RPI has been achieved. While the PSP applies to Executive Directors only, the Committee is mindful of the outturns of the long-term incentive arrangement, the Leadership Share Plan (LSP), which applies to senior managers. 5. Apply discretion if required The Committee believes that the formulaic outcome is a fair reflection of wider performance over this three-year period, in particular the value created for shareholders and taking account of shareholders’ interests. The Committee reviewed the quality of the overall performance and the number of shares awarded in 2020 in comparison with the number of shares awarded in 2019 and in 2018. The number of shares under award in 2020 was 85% of the number of shares awarded in 2019. The Remuneration Committee was satisfied that the Executive Directors have not benefited merely as a result of share price volatility. The table below shows the maximum number of shares available, the dividends accrued over the three-year performance period, the total number of shares vesting based on the performance outturn, the estimated value of these shares, and the value of any share price appreciation. Additional awards in | | | Awards available | | | respect of | | Estimated value | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Awards available | | | (number of | | accrued | Total number of | | of awards | | Share price | | | | (% of salary) | | | shares) | dividends | shares vesting | | vesting | 1 | appreciation | 2 | Alistair Phillips-Davies 200% 131,244 23,143 117, 334 £2,024,952 £389,315 Gregor Alexander 175% 88,761 15,651 79,353 £1,369,476 £263,294 Martin Pibworth  175% 66,430 11,712 59,388 £1,024,917 £197,049 1 The estimated value of the awards vesting has been calculated on the same basis as the PSP value in the single figure table on page 170 . 2 The share price at grant was £13.94 and £17.26 on vesting. ### Other remuneration disclosures Fees paid to the Chair and the other non-Executive Directors during 2022/23 were as follows: Fees £000s Non-Executive Directors 2022/23 2021/22 1 Elish Angiolini 75 42 2 John Bason 62 0 3 Sue Bruce 104 101 Tony Cocker 109 105 4 Debbie Crosbie 75 42 Peter Lynas 94 91 Helen Mahy 90 87 John Manzoni 412 400 Melanie Smith 75 73 Angela Strank 75 73 Total 1,171 1,014 1 Elish Angiolini joined the Board as a non-Executive Director on 1 September 2021. 2 John Bason joined the Board as a non-Executive Director on 1 June 2022. 3 Sue Bruce stepped down from the Board on 31 March 2023. 4 Debbie Crosbie joined the Board as a non-Executive Director on 1 September 2021. 175SSE plc Annual Report 2023 ### Annual report on remuneration continued 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 2023. 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 2023 | | | 31 March 2023 | | | conditions at | | | conditions at | | | outright at | | Director | salary (Actual/% met) | | 1 | 31 March 2023 | | | (DBS Awards) | | | (PSP Awards) | | 31 March 2023 | | | 31 March 2023 | | 31 March 2022 | | Gregor Alexander 717% (225%-met) 292,815 40,798 265,550 130 - 248,434 Elish Angiolini 2,000 – – – – 2,000 John Bason 0 – – – – – Sue Bruce 2,484 – – – – 2,484 Tony Cocker 5,000 – – – – 5,000 Debbie Crosbie 2,000 – – – – 2,000 Peter Lynas 5,000 – – – – 5,000 Helen Mahy 3,310 – – – – 3,310 John Manzoni 2,519 – – – – 2,437 Alistair Phillips-Davies 680% (250%-met) 359,184 60,906 388,782 0 – 293,747 Martin Pibworth 357% (225%-met) 130,006 33,263 223,955 2,338 – 97, 525 Melanie Smith 2,174 – – – – 2,100 Angela Strank 2,152 – – – – 1,669 1 The Shareholding requirement is 250% of base salary for the Chief Executive and 225% for other Executive Directors. It is expected that non-Executive Directors should build up a minimum shareholding of 2,000 shares. The share price at 31/03/2023 (£18.03) was used to calculate shareholding. Directors’ Long-term Incentive Plan interests Deferred Bonus awards granted in 2022 and PSP awards granted in 2022 The tables below shows the Deferred Bonus awards and PSP awards granted to Executive Directors in 2022. Deferred Bonus awards granted 2022 Market Value on Recipient Date of Grant Shares Granted date of award Face Value Gregor Alexander 22/07/2022 14,472 £17.2750 £250,004 Alistair Phillips-Davies 22/07/2022 21,604 £17. 2750 £373,209 Martin Pibworth 22/07/2022 12,739 £17.2750 £220,066 £843,279 PSP awards granted 2023 Market Value on Recipient Date of Grant Shares Granted date of award Face Value Gregor Alexander 22/07/2022 94,192 £17.2750 £1,627,167 £1,627,167 Alistair Phillips-Davies 22/07/2022 135,407 £17.2750 £2,339,156 £2,339,156 Martin Pibworth 22/07/2022 83,928 £17.2750 £1,449,856 £1,449,856 176 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report Directors’ Long-term Incentive Plan interests The table below details the Executive Directors’ Long-term Incentive Plan interests. | | | | | | | | | | | | No. of shares | | No. of shares | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | No. of Shares | | | | Additional | | lapsed during | | realised during | | | | | | | | | Normal Exercise | under award | | Option | | | shares | the year incl. | | the year incl. | | | No. of Shares | | | | | | Period (or Vesting | as at 1 April | | Exercise | | awarded | | | dividend | | dividend | | under award at | | | Share Plan Date of Award | | | Date) | | 2022 | Price | during the year | | | | shares | | shares | | 31 March 2023 | | | | 2 | | | | | | | | | | | | | 4 | | | Gregor | DBP 2016 | | 28/06/2019 28/06/2022 Nil Grant 0 | | | | | | | | | | | | | | 2 Alexander DBP 2016 26/06/2020 26/06/2023 12,494 12,494 2 | DBP 2016 | | | 06/07/2021 06/07/2024 13,832 13,832 | | | | | --- | --- | --- | --- | --- | --- | --- | | | | 2 | | 3 | | | | DBP 2016 | | | 22/07/2022 22/07/2025 14,472 | | | 14,472 | | | 1 | | | | 4 | | | PSP | | | 28/06/2019 28/06/2022 103,991 42,500 82,493 | | | | 1 PSP 26/06/2020 26/06/2023 88,761 88,761 1 | PSP | | 06/07/2021 06/07/2024 82,597 82,597 | | | | --- | --- | --- | --- | --- | | | 1 | | 3 | | | PSP | | 22/07/2022 22/07/2025 94,192 | | 94,192 | Sharesave 12/07/2019 24/11/2022 1,837 901p 1,837 01/10/23 | | Sharesave 21/07/2020 | | | – 31/03/24 130 1,107p 130 | | | | --- | --- | --- | --- | --- | --- | --- | | | | 2 | | | 4 | | | Alistair | DBP 2016 | | 28/06/2019 28/06/2022 Nil Grant 0 | | | 0 | 2 Phillips-Davies DBP 2016 26/06/2020 26/06/2023 18,652 18,652 2 | DBP 2016 | | | 06/07/2021 06/07/2024 20,650 20,650 | | | | | --- | --- | --- | --- | --- | --- | --- | | | | 2 | | 3 | | | | DBP 2016 | | | 22/07/2022 22/07/2025 21,604 | | | 21,604 | | | 1 | | | | 4 | | | PSP | | | 28/06/2019 28/06/2022 153,763 62,842 121,977 | | | | 1 PSP 26/06/2020 26/06/2023 131,244 131,244 1 | PSP | | 06/07/2021 06/07/2024 122,131 122,131 | | | | --- | --- | --- | --- | --- | | | 1 | | 3 | | | PSP | | 22/07/2022 22/07/2025 135,407 | | 135,407 | Sharesave 12/07/2019 26/01/2023 1,997 901p 1,997 2 4 Martin DBP 2016 28/06/2019 28/06/2022 Nil Grant 0 2 Pibworth DBP 2016 26/06/2020 26/06/2023 9,350 9,350 2 | DBP 2016 | | | 06/07/2021 06/07/2024 11,174 11,174 | | | | | --- | --- | --- | --- | --- | --- | --- | | | | 2 | | 3 | | | | DBP 2016 | | | 22/07/2022 22/07/2025 12,739 | | | 12,739 | | | 1 | | | | 4 | | | PSP | | | 28/06/2019 28/06/2022 7 7,828 31,808 61,738 | | | | 1 PSP 26/06/2020 26/06/2023 66,430 66,430 1 | PSP | | 06/07/2021 06/07/2024 73,597 73,597 | | | | --- | --- | --- | --- | --- | | | 1 | | 3 | | | PSP | | 22/07/2022 22/07/2025 83,928 | | 83,928 | Sharesave 12/07/2019 24/11/2022 998 901p 998 01/10/24 Sharesave 12/07/2019 – 31/03/25 1,664 901p 1,664 01/10/25 Sharesave 13/07/2022 – 31/03/26 1,335p 674 674 Shares which are released under the DBP (Deferred Bonus Plan) 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. Note no awards under the DBP 2016 granted to the Executive Directors in the 2019 award year: Gregor Alexander received 13,860 shares, Alistair Phillips-Davies received 20,495 shares and Martin Pibworth received 10,372 shares. 1 The current performance conditions applicable to awards under the PSP are described on page 183 . The 2018 awards under the PSP vested at 66%. 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. Note no awards under the DBP 2016 granted to the Executive Directors in the 2019 award year. 3 The market value of a share on the date on which these awards were made was 1,72750p. 4 The market value of a share on the date on which these awards were realised was 1,72750p. The closing market price of shares at 31 March 2023 was 1,803p and the range for the year was 1,428p to 1,920p. 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 £4,715,794 (2022 - £2,506,172). 177SSE plc Annual Report 2023 ### Annual report on remuneration continued ### 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 | | | Annual variable | | Long-term | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | figure of | | element award | 2 | incentive | | | | remuneration | | 1 | (% of maximum) | | vesting | 3 (% of | | Directors | | (£’000) | | | | maximum) Application of discretion | | 2022/23 (Alistair Phillips-Davies) 4,627 88 76 Downward discretion applied to AIP 2021/22 (Alistair Phillips-Davies) 4,655 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 1 The single total figure of remuneration is calculated on the same basis as the ‘single total figure of remuneration’ table on page 170 . 2 The annual variable element award (AIP) is the figure shown on page 174  and reflected in the ‘single total figure of remuneration table’ on page 170 . 3 The long-term incentive (PSP) vesting is the figure shown on page 175 , and reflected in the ‘single total figure of remuneration table’ on page 170 . 4 For 2013/14, an aggregate number has been applied by combining pro-rata values for each Chief Executive 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 was 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 (GPG) data (see page 61 ) 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 on the following page, the pay ratio has changed from 102:1 at median in 2021/22 to 97:1 in 2022/23 even though the Chief Executive’s remuneration has remained broadly unchanged. This is because employee remuneration at median has increased by almost 10% which can be attributed to a number of initiatives relating to wider employee pay during the year. A skills based pay system was introduced during 2021/22 for around 6,000 employees below senior management level, representing a significant investment in employee pay. In addition, over the course of the year steps have been taken to enhance employee terms and conditions through an 280 improved Employee Value Proposition (EVP), and in response to the cost of living crisis. Further details can be found in the case study on 260 the following page. Some of these initiatives will not impact on employee remuneration until next year’s reporting on the CEO pay ratio. 240 220 200 180 160 140 TSR (rebased to 100) 120 100 178 SSE plc Annual Report 2023 80 March March March March March March March March March March March 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Financial StatementsStrategic Report Directors’ Report Total employee earnings 25th percentile Median 75th percentile (m) 1 Calculation Year Methodology Total Remuneration Ratio Total Remuneration Ratio Total Remuneration Ratio 2022/23 C £34,881 133:1 £47,864 97:1 £65,199 71:1 £543.5 2021/22 C £33,046 136:1 £43,793 102:1 £61,195 73:1 £591.0 2020/21 C £32,268 93:1 £42,295 71:1 £59,454 51:1 £543.1 2019/20 C £29,234 83:1 £40,908 59:1 £54,863 44:1 £510.0 2018/19 C £28,611 57:1 £39,010 41:1 £54,066 30:1 £495.3 1 The reduction in total employee earnings in 2022/23 is due to a reduction in the number of employees at the snapshot date used for capturing this data. SSE 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 commitment to decent work and economic growth can be found within the Sustainability Report  which includes information on our ambition to be a global leader for the just transition to net zero, with a guarantee of fair work and commitment to paying fair tax and sharing economic value. Over the course of the year, the Remuneration Committee has had the opportunity to review the remuneration arrangements for the wider employee population. The impact of the cost of living crisis on employees was a key focus in the year and the Committee was given the opportunity to input on employee cost of living support and SSE’s overall Employee Value Proposition. ### Engagement in action ### Employees ## SSE’s Employee Value Proposition and response ## to the cost of living crisis | An internal working group was set up | | | senior management level in | | | development, attended by 7,600 | | --- | --- | --- | --- | --- | --- | --- | | to tackle the challenge of improving | | | recognition of strong business | | | employees with over 1,000 questions | | SSE’s Employee Value Proposition (EVP), | | | performance. | | | submitted. | | making it fit-for-purpose to support | | • Car cash allowances were reviewed | | | • A comprehensive benefits review was | | | the growth, attraction and retention | | | and subsequently increased. | | | carried out by an independent 3rd party | | challenges we face on our NZAP journey. | | • Electric vehicle business mileage rates | | | | and gaps were identified with a plan for | | As the year unfolded and the cost of living | | | were improved beyond HMRC levels | | | implementation in 2023 and beyond. | | crisis took hold, the scope of the group | | | to cushion varying fuel rates during | | • Agreement was made to introduce | | | expanded to also cover additional | | | the cost of living crisis. | | | an Employee Recognition Platform. | | support for employees in light of this. | | • Improvements were made to family | | | • Enhanced default pension award for | | | | | | friendly policies, including: | | | those in the Defined Contribution | | EVP is wide-ranging and covers areas | | | – Introduction of Partner’s Leave – | | | scheme was agreed. | | such as terms and conditions, culture, | | | | an additional 7 weeks’ paid leave for | | | | policies and employee communication. | | | | partners on top of Paternity Leave. | | | | Some of the activity carried out during | | | – Introduction of up to 2 weeks’ | | | | | the year has included: | | | | full pay for pregnancy loss or | | | | • Salary ranges were increased by | | | | fertility treatment. | | | | | 12% for grades covering around | | – Enhancement to the statutory | | | | | | 5,500 employees. | | | allowance of 2 days’ unpaid leave | | | | • In response to high levels of inflation | | | | for partners to attend antenatal and | | | | | and the cost of living crisis, an interim | | | adoption appointments, to paid | | | | | advance of the annual pay award of up | | | leave and extended to fostering | | | | | to 5% was paid in October 2022. The | | | appointments. | | | | | remaining balance of year 3 of the pay | | – Extension to our Gradual Return | | | | | | deal was payable from 1 April 2023 | | | from Maternity and Adoption Leave | | | | | and is expected to be in the region | | | to other types of leave for new | | | | | of 8% of salary. | | | parents for continuous leave of | | | | • Annual Incentive Plan (AIP) was | | | | 3 months or more. | | | | | extended to include the lowest | • Launch of ‘My SSE Week’ – a week of | | | | | | | graded personal contract employees. | | daily live Teams sessions showcasing | | | | | • Payment of a £500 ‘thank you’ award | | | existing benefits with themes around | | | | | | was made to all employees below | | cost of living, wellbeing and career | | | | 179SSE plc Annual Report 2023 ## Annual report on remuneration ### Annual percentage change in remuneration of the Directors Non-Executive Directors Executive Directors All employees ### Relative importance of the spend on pay page 170 note 8.1 ## 3. Governance External appointments ### Payments for loss of office and payments to past Directors 180 SSE plc Annual Report 2025 Financial StatementsStrategic Report Directors’ Report ### 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 SSE, advice on remuneration disclosures and regulations and comparator group pay. FIT received fees of £76,391 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 SSE or individual Directors. Freshfields LLP also provided advice on legal matters, such as share plan rules, during the year. ### Evaluation The annual review of Committee performance was facilitated by Lintstock (see pages 140 to 141 ) and the outputs considered by the full Committee. This confirmed the Committee’s continued effective operation and agreement of actions for 2023/24. ### Shareholder voting in 2022 On 21 July 2022, shareholders approved the Directors’ Remuneration Policy and the Annual Remuneration Report for the year ended 31 March 2022. The results of the resolutions are shown below. | Annual report on remuneration – shareholding voting in 2022 | | Directors’ Remuneration Policy – shareholder voting in 2022 | | | --- | --- | --- | --- | | | For – 97.42% | | For – 91.43% | | | Against – 2.58% | | Against – 8.57% | | | Total votes cast: 678,690,885 | | Total votes cast: 678,277,304 | | | Votes withheld: 7,337,070 | | Votes withheld: 7,750,651 | ### Remuneration Committee The Terms of Reference for the Committee were reviewed during 2022/23 and are available on SSE’s website (sse.com ). In summary, the Committee determines and agrees with the Board, SSE’s framework and policy for executive remuneration including setting remuneration for all Executive Directors, the Company Chair, the Group Executive Committee and Company Secretary. No material changes were made to the Terms of Reference during the year. The members of the Committee and the meetings attended are set out on page 123 . The following agenda items were considered: Meeting date  Agenda items May 2022 Market and governance update, shareholder consultation, Annual Incentive Plan, Performance Share Plan, Leadership Share Plan, below-Board pay, 2022 Directors’ Remuneration Report, share-plan leaver’s analysis, Remuneration Committee advisor’s performance, 2022-24 Remuneration Committee plan. November Market and governance update, AIP and PSP mid-year performance update, below-Board pay, Executive Director 2022 pensions, 2022-24 Remuneration Committee plan. March 2023 Market and governance update, AIP and PSP performance update, Executive Directors’ salaries and the Chair’s fee, below-Board pay, 2023 Directors’ Remuneration Report, Remuneration Committee Terms of Reference review, 2022-24 Remuneration Committee plan, Remuneration Committee evaluation. 181SSE plc Annual Report 2023 ### Annual report on remuneration continued ### 4. Implementation of the Directors’ Remuneration Policy for 2023/24 The table below sets out how the Remuneration Committee intends to operate the Remuneration Policy for the year ending 31 March 2024 . Element of pay Implementation for 2022/23 Comment Base salary Salaries will be increased by 5% with effect from The Committee took into account: 1 April 2023, as follows: • Strong performance and progress made on the NZAP | Alistair Phillips-Davies £951,642 to £999,224 | • TSR for the year | | --- | --- | | Gregor Alexander £735,541 to £772,318 | • Negotiated increase for employees linked to CPI | | Martin Pibworth £655,389 to £688,158 | • The Committee’s responsibility to stakeholders | for ensuring total remuneration is competitive but not excessive • The flow through to other elements of pay • The increasingly competitive market for executive talent • Relativity against FTSE 50 peer group Benefits No changes proposed. In line with the wider employee population. Pension No changes proposed. From 1 January 2023, the Chief Commercial Officer’s pension is aligned with the majority of employees with a similar length of service at 15%. | Annual Incentive Plan No changes in quantum. | | Current measures were revised ahead of the | | --- | --- | --- | | | No changes proposed to performance measures | 2022/23 performance year and are considered | | | which are shown in detail on the following page. | appropriate. | | Performance Share Plan No changes in quantum. | | Current measures were revised last year | | | No changes proposed to performance measures | in advance of the 2022 PSP grant and are | | | which are shown in detail on the following page. | considered appropriate. | ### AIP – the measures for 2023/24 AIP measures for 2023/24 will remain largely unchanged. Adjusted Earnings Per Share and cash flow remain key measures for the AIP. Personal and operational targets are set annually and are aligned with the NZAP Plus. These will be disclosed in next year’s Directors’ Remuneration Report. Performance measure Adjusted EPS Cash flow Personal/Individual 1 Operational 2 Sustainability Weighting 30% 20% 10% 30% 10% Description Underlying Net debt divided Rewards actions Measures and targets SSE’s performance will be measure of by EBITDA. which go beyond are set in priority areas rated by three external financial the normal including people (safety ratings agencies – performance and responsibilities and inclusion and Moody’s, Sustainalytics a strategic KPI. of the role. May diversity), renewables, and S&P Global. be individual or distribution, transmission, Performance at the team based. thermal, customers and median will be deemed other growth and the threshold and transactions. performance at the upper quintile or above, the maximum. 1 Personal goals will take a holistic view of individual performance and will include measures related to safety, compliance, and regulation, stakeholder management, team and personal development, strategy and transformation, and financial and operational performance. 2 Examples of the operational goals include: People: Health & Safety performance as measured by Total Recordable Injury 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: European projects in construction, cost per MW hour, plant availability, progress on renewables pipeline. Distribution: incentives against agreed targets. Transmission: contract awards achieved against agreed plan; delivery of outputs and approval of projects that maintain a trajectory of RAV greater than £5.6bn by 2024. Thermal: 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; progress review of Large Capital projects reported to the Board. 182 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report The personal and operational goals will be assessed using a scoring framework as follows: Score Illustrative performance assessment Illustrative outturn as % of maximum 1 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% 1 The Remuneration Committee can decide to award an outturn between levels if warranted. ### The measures for awards under the Performance Share Plan for 2023 PSP measures for the 2023 award will remain largely unchanged. 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 | Adjusted | | --- | --- | --- | --- | | | Return relative to the | Return relative to the | Earnings | | Performance measure | FTSE 100 | MSCI European Utilities | Per Share Strategic Sustainability | Weighting 20% 30% 20% 15% 15% | Threshold performance 50th percentile | | 50th percentile | 149p | See below See below | | --- | --- | --- | --- | --- | | | (20% outturn) | (20% outturn) | (20% outturn) | | | Maximum performance 80th percentile | | 80th percentile | 178p | See below See below | | | (100% outturn) | (100% outturn) | (100% outturn) | | The TSR performance targets were strengthened last year 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 plan over the next three years and represents a CAGR between 12% and 17% based off FY22 EPS of 94.8p. The top end of the range exceeds the Board’s expectations and is considered stretching. 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 2023 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 strategy which have been updated this year to reflect the NZAP Plus. Strategic area in NZAP Measures and targets Renewables 8GW pipeline of net installed capacity potential and 0.5GW of international under construction by FY26. Networks growth Transmission and Distribution to exceed the NZAP Plus RAV growth targets of £7 and £6 billion respectively. Energy businesses Solar and battery installed capacity to meet 1GW by FY26. Customer On course to be a leading ppa player in the market by 2026. ### Sustainability measures and targets for the 2023 PSP award SSE’s UN SDG 2030 Goal Measure and Targets SDG 13 Climate Action: Scope 1 carbon intensity reduction to 61gCO e/kWh 2 Reduce scope 1 carbon intensity by 80% by 2030, compared to 2017/18 levels, to 61gCO e/kWh. 2 SDG 7 Affordable and Clean Energy: Renewables output TWh tracked to 2026/27. Build a renewable energy portfolio that generates at least Renewables output TWh by 2030/31. 50TWh of renewable electricity a year by 2030. SDG 9 Industry, Innovation and Infrastructure: GW renewable generation capacity connected to SSEN’s electricity Enable at least 20GW of renewable generation and facilitate transmission network by 2026. around 2 million EVs and 1 million heat pumps on SSEN’s Low-carbon technologies connected to SSEN’s local electricity electricity networks by 2030. distribution networks by 2028. SDG 8 Decent Work and Economic Growth: Achieve performance in the top 10% of rankings on average for Be a global leader for the just transition to net zero, with progress on Just Transition, including in the World Benchmarking a guarantee of fair work and commitment to paying fair tax Alliance (WBA) and others as they emerge. and sharing economic value. 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. 183SSE plc Annual Report 2023 ## Annual report on remuneration ### Chair's and non-Executive Directors' fees 184 55E plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ## Directors’ Remuneration Policy – a summary ### Introduction SSE’s Directors’ Remuneration Policy (the ‘Policy’) was approved with over 91% of shareholders support at the AGM on 21 July 2022. 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 full Policy is provided in the 2022 Annual Report . ### 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 believe that SSE’s Directors’ Remuneration Policy, practice and engagement with employees and shareholders complies fully 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 • Our pay arrangements include a market standard annual sustainable and simple and to support and reward diligent and incentive and long-term share plan, each of which is effective stewardship that is vital to the delivery of SSE’s core explained in detail in our Policy. purpose of providing energy needed today while building a • No complex or artificial structures are required to operate better world of energy for tomorrow, and our strategy of the plans. creating value for 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 • At the heart of the Policy is a focus on the long-term on 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, reflects our values which means • The Committee also has the discretion – which it has doing the right thing, promoting fairness at work and paying used – to override formulaic outcomes if they are deemed our fair share. inappropriate in light of the wider performance of the Company and considering the experience of stakeholders. 185SSE plc Annual Report 2023 ### Directors’ Remuneration Policy – a summary continued ### Policy summary The Policy is summarised in the table below. There are no changes to the operation of the Policy for 2023/24 aside from changes in wording or presentation which are considered to be immaterial. Base Salary Purpose and link to strategy Supports the retention and recruitment of Executive Directors of the calibre required to develop the Company’s strategy. Operation and maximum Base salary is normally reviewed annually with changes effective from 1 April. opportunity Salary increases will normally be capped at the typical level of increases awarded to other employees in the Company, although increases may be above this level in certain circumstances. Performance measures Broad review of performance is included in the annual review process. 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. Operation and maximum For the Chief Executive and Finance Director, funded final salary and top-up unfunded arrangements up opportunity to the maximum two-thirds of final salary at age 60. From 1 April 2017, future pensionable pay increases are capped at RPI + 1%. The Chief Commercial Officer receives a pension contribution of 15% of base salary (effective from 1 January 2023) which reflects the wider employee population taking length of service into account. For new appointments, employer’s pension contributions are capped at 12% of base salary in line with arrangements for SSE employees. Performance measures Not applicable. Benefits Purpose and link to strategy To provide a market-competitive level of benefits for Executive Directors. Operation and maximum Core benefits – currently include car allowance, private medical insurance and health screening. opportunity Participation in the Company’s all-employee share plans on the same terms as UK colleagues. Relocation assistance if required. Reimbursement of travel and business-related expenses incurred. 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. Annual Incentive Plan (AIP ) Purpose and link to strategy Reward Executive Directors for achievement of performance targets linked to SSE’s strategy and core purpose. Operation and maximum Maximum annual incentive opportunity is 150% of base salary for the Chief Executive and 130% of base opportunity salary for the Finance Director and Chief Commercial Officer. The award will normally be delivered: • 67% in cash; and • 33% in deferred shares. Subject to malus and/or claw back provisions. 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. 186 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report Performance Share Plan (PSP) Purpose and link to strategy Reward Executive Directors for their part in delivering the sustained success of SSE and to ensure that their interests are aligned with those of the shareholders. Operation and maximum Maximum value of award is 250% of base salary for the Chief Executive and 225% of base salary for the opportunity Finance Director and Chief Commercial Officer. Shares are awarded which normally vest based on performance over a period of three years with 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. Subject to malus and/or claw back provisions. Performance measures Awards vest based on relative total shareholder return, financial, operational, strategic, or stakeholder- based measures. At least 70% of the award will be based on financial and relative total shareholder return measures. Share Ownership Policy Purpose and link to strategy Align the interests of Executive Directors with those of shareholders who invest in the Company. Operation and maximum The Chief Executive is expected to maintain a shareholding equivalent to 250% of base salary. The opportunity Finance Director and Chief Commercial Officer will be expected to maintain a shareholding of 225% of base salary. Shareholding should be built up within a reasonable timescale. 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 shares for a further two years following cessation of employment. Performance measures Not applicable. Chair and non-Executive Directors’ Fees Purpose and link to strategy 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 and maximum The aggregate level of non-Executive Director fees shall not exceed the maximum limit set out in the opportunity Articles of Association. 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. 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. Performance measures There are no direct performance measures relating to Chair and non-Executive Director fees. The full Policy also includes further information on: • Performance measures and targets. • Recovery provisions. • Committee discretion. • Recruitment policy. • Legacy commitments. • Shareholders’ views. • Directors’ service contracts and non-Executive Directors’ letters • Remuneration engagement across the Group. of appointment. • Illustration of the Policy. • Loss of office policy. Melanie Smith CBE Chair of the Remuneration Committee 23 May 2023 187SSE plc Annual Report 2023 ## 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 2023. The Strategic Report is set out on pages 1 to 109  and the Directors’ Report, which is also SSE’s corporate governance statement, is set out on pages 110 to 191 . 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 109  | | | --- | --- | --- | --- | | Particulars of important events affecting the Company since the financial year end | | | page 275  | | Greenhouse gas emissions | | | page 49  | | Energy consumption | | | page 54  | | Energy efficiency action | | | page 54  | | Employee engagement and involvement | pages 28 and 134 to 138  | | | | Engagement with suppliers, customers and others in a business relationship with the Company | pages 30, 33 and 56 to 66  | | | | A summary of the principal risks facing the Company | | pages 68 to 77  | | 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 236 to 237  Details of any long-term incentive schemes pages 168 to 169  ### Results and dividends The Group’s results and performance highlights for the year are set out on pages 24 to 25 and 78 to 94 . An interim dividend of 29.0 pence per Ordinary Share was paid on 9 March 2023. The Directors propose a final dividend of 67.7p per Ordinary Share. Subject to approval at the AGM 2023, the final dividend will be paid on 21 September 2023 to shareholders on the Register of Members at close of business on 28 July 2023. ### Board of Directors Director appointment and retirement The Company’s Directors who served during the financial year ending 31 March 2023 are provided within the attendance table on page 123 . The biographies of those individuals who were Directors of the Company on 23 May 2023 are on pages 116 to 120 . Details of Board changes are confirmed on page 115 . 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 109 . ### Employment of disabled people SSE has a range of employment policies which clearly detail the standards, processes, expectations and responsibilities of its people and the organisation. These policies were in place for the duration of the year, and are designed to ensure that everyone, including those with existing or new disabilities and people of all backgrounds, are dealt with in an inclusive and fair way from the recruiting process on through their career at SSE. This include access to appropriate training, development opportunities and job progression. Further details of this approach can be found on pages 58 to 62 . 188 SSE plc Annual Report 2023 **Shares** Share capital note 22 Transfer of Ordinary Shares Substantial shareholdings Authority to purchase shares sae.com SSE plc Annual Report 2023 189 ## Other statutory information Voting Annual General Meeting (AGM) sse.com Articles of Association changes Change of control Disclosure of information to the auditor Related party transactions note A5 Post-balance sheet events page 275 pages 110 to 191 Sally Fairbairn Company Secretary, SSE plc 190 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ## 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 parent 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; • 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 necessary for shareholders to assess the Group’s position and performance, business model and strategy. Alistair Phillips-Davies Gregor Alexander Chief Executive Finance Director 23 May 2023 191SSE plc Annual Report 2023 # Financial Statements ## In this section | Alternative Performance Measures | 194 | | --- | --- | | Consolidated income statement | 203 | | Consolidated statement of comprehensive income | 204 | | Consolidated balance sheet | 205 | | Consolidated statement of changes in equity | 206 | | Consolidated cash flow statement | 208 | | Notes to the consolidated financial statements | 209 | | Accompanying information | 276 | | Company balance sheet | 314 | | Company statement of changes in equity | 315 | | Notes to the Company financial statements | 316 | | Independent auditor's report | 326 | | Consolidated segmental statement | 337 | | Independent auditor's report to the Consolidated Segmental Statement | 343 | | Shareholder information | 345 | | Glossary | 347 | ![img-9.jpeg](img-9.jpeg) 192 333 plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report 193SSE plc Annual Report 2023 ### 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 Plus 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 In the year the Group has refined its profit measures for the treatment of fair value gains arising from an acquisition of a business or a joint venture interest, which generates an exceptional opening gain on acquisition. The rationale for including this adjustment to these APMs is set out in adjustment number 6. 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 and • Adjustments to retained Gas Production decommissioning provision 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 Adjusted Profit Profit Profit before tax • Movement on operating and financing derivatives Before Tax measure (‘certain re-measurements’) • 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 joint ventures and associates’ tax 194 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report Closest equivalent Group APM Purpose IFRS measure Adjustments to reconcile to primary financial statements Adjusted Net Profit Net finance costs • Exceptional items Finance Costs measure • Movement on financing derivatives • Share of joint ventures and associates’ interest • 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) • 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 SSE Airtricity operating units, to optimise the value of the production from SSE Renewables and Thermal generation assets or to conduct other trading subject to the value at risk limits set out by the Energy Markets Risk Committee. 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 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. 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’ in the income statement. Finally, the mark-to-market valuation movements on the Group’s contracts for difference contracts entered into by SSE Renewables that are not designated as government grants and which are measured as Level 3 fair value financial instruments are also included within ‘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. 2 Exceptional items Exceptional charges or credits, and the tax effects thereof, are considered unusual by nature or scale and of such significance that separate disclosure is required for the underlying performance of the Group to be properly understood. Further explanation for the classification of an item as exceptional is included in note 3.2. 3 Adjustments to retained Gas Production decommissioning provision The Group retains an obligation for 60% of the decommissioning liabilities of its former Gas Production business which was disposed in October 2021. The revaluation adjustments relating to these decommissioning liabilities are accounted for through the Group’s consolidated income statement and are removed from the Group’s adjusted profit measures as the revaluation of the provision is not considered to be part of the Group’s core continuing operations. 195SSE plc Annual Report 2023 ### Alternative performance measures continued ### Rationale for adjustments to profit measure continued 4 Share of joint ventures and associates’ interest and tax This adjustment can be split between the Group’s share of interest and the Group’s share of tax arising from its investments in equity accounted joint ventures and associates. The Group is required to report profit before interest and tax (‘operating profit’) including its share of the profit after tax from its equity accounted joint ventures and associates. However, for internal performance management purposes and for consistency of treatment, SSE reports its adjusted operating profit measures before its share of the interest and/or tax on joint ventures and associates. 5 Share of joint ventures and associates’ depreciation and amortisation For management purposes, the Group considers EBITDA (earnings before interest, tax, depreciation and amortisation) based on a sum-of-the-parts derived metric which includes a share of the EBITDA from equity accounted investments. While this is not equal to adjusted cash generated from operating activities, it is considered useful by management in assessing a proxy for such a measure, given the complexity of the Group structure and the range of investment structures utilised. For the purpose of calculating the ‘Net Debt to EBITDA’ metric referred at page 89 , ‘adjusted EBITDA’ is further refined to remove the proportion of adjusted EBITDA from equity-accounted joint ventures relating to off-balance sheet debt (see note 5.1(v)). 6 Depreciation and amortisation expense on fair value uplifts The Group’s strategy includes the realisation of value (developer gains) from divestments of stakes in SSE Renewables’ offshore and international developments. In addition, for strategic purposes the Group may also decide to bring in equity partners to other businesses and assets. Where SSE’s interest in such vehicles changes from full to joint control, and the subsequent arrangement is classified as an equity accounted joint venture, SSE may recognise a fair value uplift on the remeasurement of its retained equity investment. Those non-cash accounting uplifts will be treated as exceptional gains in the year of the relevant transactions completing. Furthermore, SSE may acquire businesses or joint venture interests which are determined to generate an exceptional opening gain on acquisition and accordingly will record an accounting fair value uplift to the opening assets acquired. These uplifts create assets or adjustments to assets, which are depreciated or amortised over the remaining life of the underlying assets or contracts in those businesses with the charge being included in the Group’s depreciation and amortisation expense. The Group’s adjusted operating profit, adjusted profit before tax and adjusted Earnings Per Share are adjusted to exclude any additional depreciation, amortisation and impairment expense arising from the fair value uplifts given these charges are derived from significant one-off gains, which are treated as exceptional when initially recognised. 7 Release of deferred income The Group deducts the release of deferred income in the year from its adjusted EBITDA metric as it principally relates to customer contributions against depreciating assets. As the metric adds back depreciation, the income is also deducted. 8 Interest on net pension assets/liabilities (IAS 19 ‘Employee Benefits’) The Group’s interest income relating to defined benefit pension schemes is derived from the net assets of the schemes as valued under IAS 19. This will mean that the credit or charge recognised in any given year will be dependent on the impact of actuarial assumptions such as inflation and discount rates. The Group excludes these from its adjusted profit measures due to the non-cash nature of these charges or credits. 9 Deferred tax The Group adjusts for deferred tax when arriving at adjusted profit after tax, adjusted Earnings Per Share and its adjusted effective rate of tax. Deferred tax arises as a result of differences in accounting and tax bases that give rise to potential future accounting credits or charges. As the Group remains committed to its ongoing capital programme, the liabilities associated are not expected to reverse and accordingly the Group excludes these from its adjusted profit measures. 10 Results attributable to non-controlling interest holders The Group’s structure includes non-wholly owned but controlled subsidiaries which are consolidated within the financial statements of the Group under IFRS. The most significant of those is SSEN Transmission, a 25% stake in which was divested on 30 November 2022 (see note 12.2 in the financial statements for more details of that transaction). There is no impact to disclosures for prior years but in the current year the Group has removed the share of profit attributable to holders of non-controlling equity stakes in such businesses from the point when the ownership structure changed (i.e. for SSEN Transmission, with effect from 1 December 2022) from all of its profit measures, to report all metrics based on the share of profits items attributable to the ordinary equity holders of the Group. The adjustment has been applied consistently to all of the Group’s adjusted profit measures, including removing proportionate non-controlling share of operating profit and depreciation and amortisation from the Group’s adjusted EBITDA metric; removing the non-controlling share of operating profit from the Group’s adjusted operating profit metric; removing the non-controlling share of net finance costs from the Group’s adjusted net finance costs metric; and removing the non-controlling interest share of current tax from the Group’s adjusted current tax metric. 196 SSE plc Annual Report 2023 # **March 2023** | | Reported £m | Movement on derivatives £m | Exceptional costs £m | Adjustments to Gas Production decommissioning provision £m | Depreciation on FV uplift £m | Joint venture interest and tax £m | Interest on net pension argot £m | Deferred tax £m | Share of profit attributable to non- controlling interests £m | Adjusted £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | (146.3) | 2,514.3 | 0.6 | (50.5) | 28.8 | 213.2 | – | – | (30.9) | 2,529.2 | | | (59.3) | (201.9) | (0.2) | – | – | (70.1) | (16.2) | – | 2.1 | (345.6) | | | (205.6) | 2,312.4 | 0.4 | (50.5) | 28.8 | 143.1 | (16.2) | – | (28.8) | 2,183.6 | | | 110.0 | (460.5) | 34.1 | – | – | (143.1) | – | 99.6 | 1.1 | (358.8) | | | (95.6) | 1,851.9 | 34.5 | (50.5) | 28.8 | – | (16.2) | 99.6 | (27.7) | 1,824.8 | | | (62.4) | – | – | – | – | – | – | (4.1) | 27.7 | (38.8) | | | (158.0) | 1,851.9 | 34.5 | (50.5) | 28.8 | – | (16.2) | 95.5 | – | 1,786.0 | | | 1,075.6 | | | | | | | | | 1,075.6 | | | (14.7) | | | | | | | | | 166.0 | | | 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 uplift £m | Depreciation, impairment and amortisation before exceptional changes £m | Share of depreciation, impairment and amortisation before exceptional items attributable to non-controlling interests £m | Adjusted EBITDA £m | | --- | --- | --- | --- | --- | --- | --- | --- | | | 2,529.2 | 201.1 | (13.9) | (28.8) | 704.2 | (9.7) | 3,382.1 | # **March 2022 (restated\*)** SSE plc Annual Report 2023 197 ## Alternative performance measures Rationale for adjustments to profit measure March 2022 (restated*) March 2021 Debt measure | Adjusted Net Debt and Hybrid Capital | Debt measure | Unadjusted net debt | | --- | --- | --- | Rationale for adjustments to debt measure 11 Hybrid equity 12 Cash posted as collateral 13 Lease obligations 198 55E plc Annual Report 2023 # **14 Debt and cash attributable to non-controlling interests** | | March 2023 £m | | --- | --- | | | (8,168.1) | | | 316.3 | | | 405.9 | | | 434.2 | | Adjusted Net Debt | (7,011.7) | | | (1,882.4) | | Adjusted Net Debt and Hybrid Capital | (8,894.1) | # **Capital measures** | Adjusted Investment and Capital Expenditure | Capital measure | Capital additions to intangible assets and property, plant and equipment | | --- | --- | --- | | Adjusted Investment, Capital and Acquisition Expenditure | Capital measure | Capital additions to intangible assets and property, plant and equipment | # **Adjustments to capital measures** # **15 Customer funded additions** # **16 Allowances and certificates** # **17 Additions acquired through business combinations** # **18 Additions subsequently disposed or impaired** SEE plc Annual Report 2023 199 ## Alternative performance measures ### Adjustments to capital measures 19 Joint ventures and associates' additions funding 20 Non-controlling share of capital expenditure 21 Refinancing proceeds/refunds 22 Lease additions 23 Acquisition cash consideration in relation to business combinations | | March 2021 £m | | --- | --- | | | 1,688.6 | | | 1,500.1 | | Capital additions to intangible assets and property, plant and equipment | 3,188.7 | | | (80.9) | | | (805.2) | | | (515.2) | | | - | | | 498.4 | | | (46.7) | | | - | | | (78.5) | | Adjusted Investment and Capital expenditure | 2,160.6 | | | 642.7 | | Adjusted Investment, Capital and Acquisition Expenditure | 2,803.3 | 200 SSE plc Annual Report 2023 # Impact of discontinued operations on the Group's APMs | | March 2023 Gth | | --- | --- | | | 3,382.1 | | | - | | Adjusted EBITDA of continuing operations | 3,382.1 | | | 2,529.2 | | | - | | Adjusted operating profit of continuing operations | 2,529.2 | | | 345.6 | | | - | | Adjusted net finance costs of continuing operations | 345.6 | | | 2,183.6 | | | - | | Adjusted profit before tax of continuing operations | 2,183.6 | | | 358.8 | | | - | | Adjusted current tax of continuing operations | 358.8 | | | 166.0 | | | - | | Adjusted Earnings Per Share of continuing operations | 166.0 | SSE plc Annual Report 2023 201 ## Contents Primary statements Accompanying information Notes to the consolidated financial statements Company financial statements Notes to the Company financial statements 202 53E plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### Consolidated income statement ### For the year ended 31 March 2023 2023 2022 Before | | | | Before | | Exceptional | | | | | exceptional | | | | Exceptional | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | exceptional | | | items and | | | | | items and | | | | items and | | | | | | | | items and | | | | certain | | | | | certain | | | | certain | | | | | | | | certain | | | | re- | | | | | re- | | | | re- | | | | | | | | re- | measurements | | | | measurements | | | | measurements | | | | | Total | | | measurements | | | | | (note 7) | | Total | | (restated*) | | | | | (note 7) | | (restated*) | | | Note | | | | £m | | | £m | £m | | | | £m | | | | £m | | £m | Continuing operations Revenue 5 12 ,490 .7 – 12 ,49 0.7 8 , 6 9 7. 2 – 8 , 6 9 7. 2 Cost of sales 6 (9, 933 . 2) (2 , 7 1 7. 2) (1 2,650.4) (6,40 5. 5) 2 , 0 9 7. 8 (4 , 3 0 7. 7) Gross profit/(loss) 2 , 5 5 7. 5 (2 , 7 1 7. 2) (1 59.7) 2, 2 91 .7 2 , 0 97. 8 4, 3 8 9. 5 Operating costs 6 (1 ,431 .6) (2 30. 4) (1 ,662 .0) (1 , 1 1 7. 6) 2 9 7. 5 (8 20. 1) Debt impairment charges A6.2 (91 .0) – (91 .0) (1 . 1) – (1 . 1) Other operating income 6 1 ,01 5. 0 8 9. 1 1 , 10 4. 1 6 7. 1 4.3 7 1.4 Operating profit/(loss) before joint ventures and associates 2,049.9 (2,858 .5) (8 08 .6) 1 , 24 0 . 1 2, 399.6 3, 639. 7 Joint ventures and associates: Share of operating profit 531 . 9 140. 7 672 .6 2 5 7. 1 – 2 5 7. 1 Share of interest (70 . 1) – (70. 1) (6 7. 8) – (6 7. 8) Share of movement in derivatives – 202 .9 202. 9 – – – Share of tax (104 .0) (39. 1) (1 43. 1) (46 . 3) (33. 2) (79. 5) Share of profit on joint ventures and associates 16 3 5 7. 8 304.5 662. 3 143 .0 (33. 2) 109. 8 Operating profit/(loss) from continuing operations 5 2,407.7 (2 ,55 4.0) (146. 3) 1, 383 .1 2,36 6.4 3 , 74 9 . 5 Finance income 9 1 35. 3 202 . 1 3 3 7. 4 79. 0 24. 2 103 . 2 Finance costs 9 (396 .7) – (396 .7) (3 76 . 4) – (3 76 . 4) Profit/(loss) before taxation 2 , 146 . 3 (2 , 351 . 9) (205 .6) 1 ,08 5.7 2 , 39 0.6 3 ,476 . 3 Taxation 10 (355 .5) 465 .5 110 .0 (149. 6) (7 31 . 7) (881 . 3) Profit/(loss) for the year from continuing operations 1 ,790. 8 (1 ,8 86 .4) (95.6) 936 . 1 1 ,65 8 .9 2, 595 .0 Discontinued operations Profit from discontinued operation, net of tax 12 – 35 .0 35.0 1 16 . 3 366.4 4 82.7 Profit/(loss) for the year 1 ,790. 8 (1 , 851 .4) (6 0.6) 1 ,052.4 2,025.3 3,077.7 Attributable to: Ordinary shareholders of the parent 11 1,7 28.4 (1 ,8 51 . 4) (1 23 .0) 1 ,001 .7 2,025.3 3,027 .0 Non-controlling interests 23.6 – 2 3.6 – – – Other equity holders 38.8 – 38. 8 50.7 – 50.7 (Losses)/Earnings Per Share Basic (pence) 11 (11 .4) 2 86 .9 Diluted (pence) 11 (11 . 4) 286 .4 (Losses)/Earnings Per Share – continuing operations Basic (pence) 11 (14.7) 2 4 1.2 Diluted (pence) 11 (14.7) 24 0 . 7 * The comparative Consolidated Income Statement has been restated. See note 2.1. The accompanying notes are an integral part of these financial statements. 203SSE plc Annual Report 2023 # **Consolidated statement of comprehensive income** **For the year ended 31 March 2023** | | 2023 £m | | --- | --- | | (Loss)/profit for the year | (95.6) | | | 35.0 | | | (60.6) | | Other comprehensive income: | | | Items that will be reclassified subsequently to profit or loss: | | | | 43.3 | | | (12.7) | | | (8.1) | | | 22.5 | | | 342.4 | | | 72.5 | | | (43.1) | | | 394.3 | | Items that will not be reclassified to profit or loss: | | | | (59.4) | | | – | | | (0.4) | | | (59.8) | | Other comprehensive gain, net of taxation | 334.5 | | Total comprehensive income for the year | 273.9 | | Continuing operations | 238.9 | | Discontinued operations | | | Items that will be reclassified subsequently to profit or loss: | – | | Items that will not be reclassified to the profit or loss: | – | | | – | | | 35.0 | | | 35.0 | | Total comprehensive income for the year | 273.9 | | Attributable to: | | | | 206.4 | | | 28.7 | | | 38.8 | | | 273.9 | 204 35E plc Annual Report 2023 # **Consolidated balance sheet** **As at 31 March 2023** | | 2023 £m | | --- | --- | | Assets | | | | 15,395.9 | | | 1,960.3 | | | 1,937.0 | | | 1,115.4 | | | 27.4 | | | 149.5 | | | 246.0 | | | 541.1 | | Non-current assets | 21,372.6 | | | 454.9 | | | 394.9 | | | 3,245.1 | | | 19.9 | | | 891.8 | | | 759.2 | | Current assets | 5,765.8 | | Total assets | 27,138.4 | | Liabilities | | | | 1,820.6 | | | 2,658.6 | | | 9.1 | | | 29.4 | | | 243.3 | | Current liabilities | 4,761.0 | | | 7,239.3 | | | 1,299.1 | | | 959.9 | | | 742.7 | | | 1,021.0 | | Non-current liabilities | 11,262.0 | | Total liabilities | 16,023.0 | | Net assets | 11,115.4 | | Equity: | | | | 547.0 | | | 821.2 | | | 52.6 | | | 441.2 | | | 32.1 | | | 6,689.8 | | Equity attributable to ordinary shareholders of the parent | 8,583.9 | | | 1,882.4 | | | 649.1 | | Total equity | 11,115.4 | **Gregor Alexander** **Sir John Manzoni** Finance Director **Chairman** 558 plc Annual Report 2023 205 # **Consolidated statement of changes in equity** **For the year ended 31 March 2023** | | 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 interests £m | Non-controlling interests £m | Total equity £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 536.5 | 835.1 | 49.2 | 77.5 | 6.6 | 6,572.9 | 8,077.8 | 1,051.0 | 9,128.8 | 40.6 | 9,169.4 | | | – | – | – | – | – | (123.0) | (123.0) | 38.8 | (84.2) | 23.6 | (60.6) | | | – | – | – | 363.7 | 25.5 | (59.8) | 329.4 | – | 329.4 | 5.1 | 334.5 | | | – | – | – | 363.7 | 25.5 | (182.8) | 206.4 | 38.8 | 245.2 | 28.7 | 273.9 | | | – | – | – | – | – | (955.8) | (955.8) | – | (955.8) | – | (955.8) | | | 13.9 | (13.9) | – | – | – | 481.5 | 481.5 | – | 481.5 | – | 481.5 | | | – | – | – | – | – | 18.0 | 18.0 | – | 18.0 | – | 18.0 | | | – | – | – | – | – | – | – | (38.8) | (38.8) | – | (38.8) | | | – | – | – | – | – | – | – | 831.4 | 831.4 | – | 831.4 | | | (3.4) | – | 3.4 | – | – | (107.6) | (107.6) | – | (107.6) | – | (107.6) | | | – | – | – | – | – | 868.3 | 868.3 | – | 868.3 | 579.8 | 1,448.1 | | | – | – | – | – | – | 18.7 | 18.7 | – | 18.7 | – | 18.7 | | | – | – | – | – | – | (23.4) | (23.4) | – | (23.4) | – | (23.4) | | At 31 March 2023 | 547.0 | 821.2 | 52.6 | 441.2 | 32.1 | 6,689.8 | 8,583.9 | 1,882.4 | 10,466.3 | 649.1 | 11,115.4 | 206 SEE plc Annual Report 2023 # **Consolidated statement of changes in equity** **For the year ended 31 March 2022** 156 plc Annual Report 2023 207 ### Consolidated cash flow statement ### For the year ended 31 March 2023 2022 | | | | 2023 | | | | £m | | --- | --- | --- | --- | --- | --- | --- | --- | | | Note | | | £m | (restated*) | | | | Operating (loss)/profit – continuing operations | | (146. 3) | | | | 3 , 74 9 . 5 | | | Operating loss – discontinued operations 12 | | | | – | | (10 0. 5) | | | Operating profit – total operations (146. 3) | | | | | 3, 6 49. 0 | | | | Less share of profit of joint ventures and associates | | (662 . 3) | | | | (28.7) | | | Operating (loss)/profit before jointly controlled entities and associates | | (808 .6) | | | 3,620 . 3 | | | | Pension service charges less contributions paid 23 | | | (19.2) | | | (23.0) | | | Movement on operating derivatives 24 | | 2 ,691 .6 | | | (2,100.4) | | | | Depreciation, amortisation, write downs and impairments | | | 640.7 | | | 303 . 2 | | | Impairment of joint venture investment 7,16 | | | 32 9. 3 | | | 106 .9 | | | Charge in respect of employee share awards (before tax) | | | 18.7 | | | 20.8 | | | Profit on disposal of assets and businesses 7,12 | | | (89. 1) | | | (48 . 2) | | | Release of provisions 20 | | (114 .9) | | | | | (1 .6) | | Release of deferred income 6 | | | (13 .9) | | | (1 7. 6) | | | Cash generated from operations before working capital movements 2 ,6 34 .6 | | | | | 1, 860.4 | | | | Increase in inventories | | | (137.3) | | | (24 . 4) | | | Increase in receivables | | (996.0) | | | | (625.6) | | | Increase in payables | | | 166 .7 | | | 54 4.2 | | | (Decrease)/increase in provisions | | | (15 . 3) | | | | 61 . 3 | | Cash generated from operations | | 1 ,652.7 | | | | 1,8 15.9 | | | Dividends received from investments 16 | | | 296. 5 | | | 1 7 7. 0 | | | Interest paid | | (19 9. 9) | | | | (273 . 5) | | | Taxes paid | | (255 . 3) | | | | (91 . 5) | | | Net cash from operating activities 1 ,494.0 | | | | | | 1 , 6 2 7. 9 | | | Purchase of property, plant and equipment 5 | | (1 , 47 9. 7) | | | (1, 27 3 .6) | | | | Purchase of other intangible assets 5 | | (336 .4) | | | | (182. 2) | | | Deferred income received | | | 13.9 | | | | 12.3 | | Proceeds from disposals 12 | | | 60.0 | | 1 , 36 6 .9 | | | | Purchase of businesses, joint ventures and subsidiaries 12 | | (642 . 7) | | | | (14 5 . 3) | | | Joint venture development expenditure refunds 16 | | | | – | | 136 .7 | | | Loans and equity provided to joint ventures and associates 16 | | (621 .8) | | | | (676.0) | | | Loans and equity repaid by joint ventures 16 | | | 61 .4 | | | | 10.9 | | Increase in other investments 16 | | | (19. 1) | | | | 5.4 | | Net cash from investing activities (2,964.4) | | | | | | (74 4 . 9) | | | Proceeds from issue of share capital 22 | | | 18.0 | | | | 6.3 | | Dividends paid to company’s equity holders 11 | | (4 74 . 3) | | | | (506 .6) | | | Share buy backs 22 | | | (107 .6) | | | | – | | Proceeds from divestments 12 | | 1 ,44 8. 1 | | | | | – | | Hybrid equity dividend payments 22 | | | (38. 8) | | | (50.7) | | | Employee share awards share purchase 22 | | | (23 .4) | | | (14 . 1) | | | Issue of hybrid instruments 22 | | | 831 . 4 | | | | – | | Redemption of hybrid instruments | | | | – | | (426.0) | | | New borrowings 21 | | 1 ,91 4.7 | | | | 506. 1 | | | Repayment of borrowings 21 | | (2 , 242. 5) | | | | (960 .1) | | | Settlement of cashflow hedges | | | (12 .7) | | | | 11.2 | | Net cash from financing activities 1 , 31 2 . 9 | | | | | (1 , 433 .9) | | | | Net decrease in cash and cash equivalents (1 5 7. 5) | | | | | | (55 0.9) | | | Cash and cash equivalents at the start of year | 21 | 1 ,049. 3 | | | 1,6 00. 2 | | | | Net decrease in cash and cash equivalents (1 5 7. 5) | | | | | | (55 0.9) | | Cash and cash equivalents at the end of year 21 891 . 8 1, 0 49. 3 The accompanying notes are an integral part of these financial statements. * The comparative Consolidated Cash Flow Statement has been restated. See note 2.1. 208 SSE plc Annual Report 2023 # Notes to the consolidated financial statements For the year ended 31 March 2023 # 1. General information and basis of preparation # 1.1. General information pages 314 to 325 # 1.2. Basis of preparation Statement of compliance # Going concern page 276 A6 # Basis of measurement A1 page 276 # Use of estimates and judgements pages 212 to 214 # Changes to presentation and prior year adjustments # Changes to estimates # 2. New accounting policies and reporting changes pages 276 to 286 A1 # 2.1. New standards, amendments and interpretations effective or adopted by the Group SSE plc Annual Report 2023 209 # Notes to the consolidated financial statements For the year ended 31 March 2023 # 2. New accounting policies and reporting changes 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 194 3.1 Adjusted measures page 89 210 53E plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report 211SSE plc Annual Report 2023 The financial statements also include an ‘adjusted net debt and hybrid capital’ 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 posted as collateral on commodity trading exchanges, 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 are 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 and to highlight, where the Group is providing 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 in controlled but not wholly owned subsidiaries, disposed or impaired additions and refinancing proceeds and refunds. 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 Plus. As with ‘adjusted Earnings Per Share’, these measures are considered to be of relevance to management and to the ordinary shareholders of the Group as well as to 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 194 to 201 . 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 or on acquisition of an investment, and provisions in relation to 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 qualifying item greater than £40.0m 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 £40.0m threshold was increased during the year from the previously applied limit of £30.0m reflecting the increased profitability of the Group and the growth in the scale of its operations. The only exception to this threshold is for gains or losses on disposal, or divestment of early-stage SSE Renewables international or offshore wind farm development projects within SSE Renewables, which are considered non-exceptional in line with the Group’s strategy to generate recurring gains from developer divestments. Where a gain arises on a non-cash transaction, the gain is treated as exceptional. 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; remeasurements on stocks of commodities held at the balance sheet date; or movements in fair valuation of contracts for difference not designated as government grants. 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. 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. # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **4. Accounting judgements and estimation uncertainty** # **4.1 Significant financial judgements and estimation uncertainties** (i) Impairment testing and valuation of certain non-current assets – financial judgement and estimation uncertainty A1 (ii) Retirement benefit obligations – estimation uncertainty (iii) Revenue recognition – Customers unbilled supply of energy – financial judgement and estimation uncertainty A1.2 212 SEE plc Annual Report 2023 (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 16 to 17 Valuation of property, plant and equipment, and impairment assessment of goodwill 158 plc Annual Report 2023 213 # Notes to the consolidated financial statements For the year ended 31 March 2023 # 4. Accounting judgements and estimation uncertainty # 4.1 Significant financial judgements and estimation uncertainties (v) Impact of climate change and the transition to net zero – financial judgement and estimation uncertainty Valuations of decommissioning provisions Defined Benefit scheme assets Going concern and viability statement # 4.2 Accounting judgements and estimation uncertainties – changes from prior year 2022 Annual Report # 4.3 Other areas of estimation uncertainty (i) Tax provisioning (ii) Decommissioning costs 214 SEE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report 215SSE plc Annual Report 2023 5. Segmental information There have been no changes to the Group’s core operating segments during the year. These segments are used internally by the Board to run the business and make strategic decisions. The Group’s ‘Corporate unallocated’ segment is the Group’s residual corporate central costs which cannot be allocated to individual segments, and also includes the Group’s joint venture investment in Neos Networks Limited. The types of products and services from which each reportable segment derives its revenues are: Business Area Reported Segments Description Continuing operations Transmission SSEN Transmission The economically regulated high voltage transmission of electricity from generating plant to the 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. On 25 November 2022 the Group sold a 25.0% non-controlling interest in this business to the Ontario Teachers’ Pension Plan. Distribution SSEN Distribution The economically regulated lower voltage distribution of electricity to customer premises in the North of Scotland and the South of England. 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 run of river and pumped storage hydro assets in the UK and Ireland, the development of similar wind assets in Japan and Southern Europe and the development of wind, solar and battery opportunities. Revenue from physical generation of electricity in Great Britain is sold to SSE EPM and in Ireland is sold to Airtricity and 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 in Great Britain or REFIT in Ireland) may either be recognised in line with electricity being physically generated or over the contractual period, depending on the underlying performance obligation. With effect from 18 April 2023, Renewables has taken responsibility for the development, delivery and operation for battery storage and solar assets in Great Britain from Distributed Energy, aligning that activity with its international operations. The impact of applying this change is not considered material. This realignment of segmental reporting will be applied in the interim financial statements for the period to 30 September 2023. Thermal SSE Thermal The generation of electricity from thermal plant and the Group’s interests in multifuel assets in the UK and Ireland. Revenue from physical generation of electricity in Great Britain and Ireland is sold to SSE EPM and 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 Great Britain, 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. Energy Customer Solutions Business Energy The supply of electricity and gas to business customers in Great Britain. 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. 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 Energy Distributed Energy The provision of services to enable customers to optimise and manage low-carbon energy use; 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. As noted above, with effect from 18 April 2023, the battery storage and solar assets activity in Great Britain has been transferred to SSE Renewables. # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **5. Segmental information** EPM b i Discontinued operations EPM b i Distribution # **5.1 Segmental information disclosure** **III Revenue by segment** | | Reported revenue 2023 £m | Inter-segment revenue 2023 £m | Segment revenue 2023 £m | | --- | --- | --- | --- | | Continuing operations | | | | | | 656.1 | – | 656.1 | | | 1,102.7 | 81.0 | 1,183.7 | | | 334.8 | 602.7 | 937.5 | | | 740.4 | 3,863.8 | 4,604.2 | | | 12.2 | 5,147.5 | 5,159.7 | | | 3,313.5 | 59.4 | 3,372.9 | | | 1,776.9 | 233.1 | 2,010.0 | | | 139.1 | 20.1 | 159.2 | | | 24,700.6 (20,351.8) | 11,972.4 (937.3) | 36,673.0 (21,289.1) | | | 4,348.8 | 11,035.1 | 15,383.9 | | | 66.2 | 232.1 | 298.3 | | Total continuing operations | 12,490.7 | 21,274.8 | 33,765.5 | | Discontinued operations | | | | | | – | – | – | | Total discontinued operations | – | – | – | | Total SSE Group | 12,490.7 | 21,274.8 | 33,765.5 | 216 SSE plc Annual Report 2023 # Disaggregation of revenue | | Revenue from contracts with customers | | | | | | | | | Total revenue from contracts with customers 2023 £m | Total 2023 £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Goods or services transferred over time | | | | Goods or services transferred at a point in time | | | | Total revenue from contracts with customers 2023 £m | | | | | Use of electricity networks 2023 £m | Supply of energy and auxiliary services 2023 £m | Construction related services 2023 £m | Other contracted services 2023 £m | Physical energy 2023 £m | Gas storage 2023 £m | Other revenue 2023 £m | Other contract revenue 2023 £m | | | | | Continuing operations | | | | | | | | | | | | | | 634.0 | – | – | 20.4 | – | – | 1.7 | 656.1 | – | 656.1 | | | | 1,054.0 | – | – | 12.3 | – | – | 17.9 | 1,084.2 | 18.5 | 1,102.7 | | | | – | 49.7 | – | 87.5 | 184.3 | – | 13.3 | 334.8 | – | 334.8 | | | | – | 736.9 | – | – | – | – | 3.5 | 740.4 | – | 740.4 | | | | – | – | – | – | – | 12.2 | – | 12.2 | – | 12.2 | | | | – | 3,313.5 | – | – | – | – | – | 3,313.5 | – | 3,313.5 | | | | – | 1,756.7 | – | – | – | – | 20.2 | 1,776.9 | – | 1,776.9 | | | | 16.4 | 29.5 | 14.4 | – | – | – | 73.0 | 133.3 | 5.8 | 139.1 | | | | – | – | – | – | 4,158.7 | – | 190.1 | 4,348.8 | – | 4,348.8 | | | | – | – | – | – | – | – | 66.2 | 66.2 | – | 66.2 | | | Total SSE Group | 1,704.4 | 5,886.3 | 14.4 | 120.2 | 4,343.0 | 12.2 | 385.9 | 12,466.4 | 24.3 | 12,490.7 | | SSE plc Annual Report 2023 217 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **5. Segmental information** # **5.1 Segmental information disclosure** (i) Revenue by segment Disaggregation of revenue Continuing operations Total continuing operations Discontinued operations Total discontinued operations Total SSE Group | | 2023 £m | | --- | --- | | | 10,899.8 | | | 1,590.9 | | | 12,490.7 | 218 SSE plc Annual Report 2023 # (ii) Operating profit/(loss) by segment | | 2023 | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Adjusted operating profit reported to the Board £m | Depreciation on fair value uplift £m | 2V/Associate share of interest and tax £m | Adjustments to Gas Production decommissioning provision £m | Non-controlling interests £m | Before exceptional items and certain re-measurements £m | Exceptional items and certain re-measurements £m | Total £m | | Continuing operations | 372.7 | – | – | – | 32.8 | 405.5 | – | 405.5 | | | 382.4 | – | – | – | – | 382.4 | – | 382.4 | | | 580.0 | (18.8) | (103.0) | – | (1.9) | 456.3 | (10.0) | 446.3 | | | 1,031.9 | (10.0) | (60.4) | – | – | 961.3 | 128.0 | 1,089.5 | | | 212.5 | – | – | – | – | 212.5 | 36.7 | 249.2 | | | 17.9 | – | – | – | – | 17.9 | – | 17.9 | | | 5.6 | – | (0.4) | – | – | 5.2 | – | 5.2 | | | (27.4) | – | – | – | – | (27.4) | (6.1) | (33.5) | | | 80.4 | – | – | – | – | 80.4 | (2,706.4) | (2,626.0) | | | (87.0) | – | – | 50.5 | – | (36.5) | 9.7 | (26.8) | | | (39.8) | – | (10.3) | – | – | (50.1) | (5.9) | (56.0) | | Total SSE Group | 2,529.2 | (28.8) | (174.1) | 50.5 | 30.9 | 2,407.7 | (2,554.0) | (146.3) | SSE plc Annual Report 2023 219 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **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 220 SSE plc Annual Report 2023 # **(iii) Capital expenditure by segment** | | Capital additions to intangible assets 2023 £m | Capital additions to property, plant and equipment 2023 £m | | --- | --- | --- | | Continuing operations | 7.2 | 536.6 | | | 15.2 | 486.8 | | | 685.7 | 311.3 | | | 20.8 | 44.5 | | | – | 6.3 | | | 38.9 | – | | | 10.5 | – | | | 62.0 | 66.6 | | | 809.9 | – | | | 38.4 | 48.0 | | Total continuing operations | 1,688.6 | 1,500.1 | | Discontinued operations | – | – | | Total discontinued operations | – | – | | Total SSE Group | 1,688.6 | 1,500.1 | | | – | 6.8 | | | (31.8) | 132.2 | | | – | (80.9) | | | – | (78.5) | | | (208.4) | – | | | (515.2) | – | | Net cash outflow | 933.2 | 1,479.7 | SSE plc Annual Report 2023 221 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **5. Segmental information** # **5.1 Segmental information disclosure** **(iii) Capital expenditure by segment** | | Capital additions to Intangible assets 2023 £m | Capital additions to property plant and equipment 2023 £m | Capital transfers relating to Joint Ventures and Associates* £m | Allowances and certificates* £m | Consumer funded additions* £m | Acquired through business combinations* £m | Lease asset additions* £m | Share of on-controlling interests* £m | Adjusted Investment and Capital Expenditure 2023 £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | At 31 March 2023 | | | | | | | | | | | Continuing operations | | | | | | | | | | | | 7.2 | 536.6 | – | – | – | – | (1.6) | (46.7) | 495.5 | | | 15.2 | 486.8 | – | – | (80.9) | – | (0.1) | – | 421.0 | | | 685.7 | 311.3 | 391.8 | – | – | (515.2) | (36.1) | – | 837.5 | | | 20.8 | 44.5 | 87.9 | – | – | – | – | – | 153.2 | | | – | 6.3 | – | – | – | – | – | – | 6.3 | | | 38.9 | – | – | – | – | – | – | – | 38.9 | | | 10.5 | – | – | – | – | – | – | – | 10.5 | | | 62.0 | 66.6 | – | – | – | – | (3.9) | – | 124.7 | | | 809.9 | – | – | (805.2) | – | – | – | – | 4.7 | | | 38.4 | 48.0 | 18.7 | – | – | – | (36.8) | – | 68.3 | | **Total SSE Group** | **1,688.6** | **1,500.1** | **498.4** | **(805.2)** | **(80.9)** | **(515.2)** | **(78.5)** | **(46.7)** | **2,160.6** | 222 SSE plc Annual Report 2023 Continuing operations Total continuing operations Discontinued operations Total discontinued operations Total SSE Group SSE plc Annual Report 2023 223 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **5. Segmental information** # **5.1 Segmental information disclosure** (iv) Items included in operating profit/(loss) by segment | | Depreciation/impairment on property, plant and equipment | | | Amortisation/impairment of intangible assets | | | | --- | --- | --- | --- | --- | --- | --- | | | Before exceptional charges 2023 £m | Impairment charges/(credits) 2023 £m | Total 2023 £m | Before exceptional charges 2023 £m | Impairment charges/(credits) 2023 £m | Total 2023 £m | | Continuing operations | | | | | | | | | 109.4 | – | 109.4 | 4.7 | – | 4.7 | | | 172.0 | – | 172.0 | 10.2 | – | 10.2 | | | 161.1 | 12.5 | 173.6 | 2.0 | 4.2 | 6.2 | | | 103.3 | (7.2) | 96.1 | 0.6 | – | 0.6 | | | 16.5 | (45.7) | (29.2) | – | – | – | | | 0.2 | – | 0.2 | 4.5 | – | 4.5 | | | 0.1 | – | 0.1 | 6.8 | – | 6.8 | | | 4.7 | 0.4 | 5.1 | 1.7 | – | 1.7 | | | – | – | – | 6.0 | – | 6.0 | | | 38.4 | 1.6 | 40.0 | 18.1 | 14.6 | 32.7 | | **Total SSE Group** | **605.7** | **(38.4)** | **567.3** | **54.6** | **18.8** | **73.4** | Continuing operations Total continuing operations Discontinued operations Total discontinued operations Total SSE Group 224 SSE plc Annual Report 2023 # (v) Earnings before interest, taxation, depreciation and amortisation ('EBITDA') | | Adjusted operating profit reported to the Board (note 5.1(a)) 2023 £m | Depreciation on tax value uplift 2023 £m | Depreciation/Impairment/amortisation before exceptional charges (note 5.1(a)) 2023 £m | 20/Associate share of depreciation and amortisation (note 16.4) 2023 £m | Release of deferred income (note 8) 2023 £m | Share of non-controlling interest depreciation and amortisation 2023 £m | Adjusted EBITDA 2023 £m | | --- | --- | --- | --- | --- | --- | --- | --- | | Continuing operations | 372.7 | – | 114.1 | – | (2.1) | (9.7) | 475.0 | | | 382.4 | – | 182.2 | – | (10.6) | – | 554.0 | | | 580.0 | (18.8) | 179.8 | 92.8 | (0.1) | – | 833.7 | | | 1,031.9 | (10.0) | 114.5 | 60.8 | – | – | 1,197.2 | | | 212.5 | – | 16.5 | – | – | – | 229.0 | | | 17.9 | – | 4.7 | – | – | – | 22.6 | | | 5.6 | – | 6.9 | – | – | – | 12.5 | | | (27.4) | – | 6.8 | – | (0.2) | – | (20.8) | | | 80.4 | – | 6.0 | – | – | – | 86.4 | | | (87.0) | – | 72.7 | – | (0.9) | – | (15.2) | | | (39.8) | – | – | 47.5 | – | – | 7.7 | | Total SSE Group | 2,529.2 | (28.8) | 704.2 | 201.1 | (13.9) | (9.7) | 3,382.1 | SSE plc Annual Report 2023 225 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **5. Segmental information** # **5.1 Segmental information disclosure** (a) Earnings before interest, taxation, depreciation and amortisation ('EBITDA') Continuing operations Total continuing operations Discontinued operations Total discontinued operations Total SSE Group 226 SSE plc Annual Report 2023 # 6. Other operating income and cost | | 2023 £m | | --- | --- | | | 605.7 | | | (89.1) | | | 230.4 | | | 10.8 | | | 11.7 | | | (13.9) | | | (1,012.6) | | | — | | | 0.3 | Auditor's remuneration | | 2023 £m | | --- | --- | | | 0.4 | | | 3.2 | | | 0.3 | | | 0.1 | | | 3.6 | | Total remuneration paid to auditor | 4.0 | pages 150 to 159 556 plc Annual Report 2023 227 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **7. Exceptional items and certain re-measurements** | | 2023 £m | | --- | --- | | Continuing operations | | | Exceptional items (note 7.1) | | | | (233.6) | | | 233.2 | | Total exceptional items | (0.4) | | Certain re-measurements | | | | (2,708.2) | | | (9.0) | | | 201.9 | | | 163.8 | | Total certain re-measurements | (2,351.5) | | Exceptional items and certain re-measurements on continuing operations before taxation | (2,351.9) | | Taxation | | | | (54.1) | | | 499.6 | | | – | | | – | | Taxation | 465.5 | | Total exceptional items and certain re-measurements on continuing operations after taxation | (1,886.4) | | Discontinued operations | | | Exceptional items and certain re-measurements | | | | 35.0 | | | – | | | – | | Total exceptional items and certain re-measurements on discontinued operations after taxation | 35.0 | 228 55E plc Annual Report 2023 | | 2023 £m | | --- | --- | | Continuing operations | | | Cost of sales: | | | | (2,708.2) | | | (9.0) | | | (2,717.2) | | Operating costs: | | | | (233.6) | | | 3.2 | | | (230.4) | | Operating income: | | | | 89.1 | | | 89.1 | | Joint ventures and associates: | | | | 140.7 | | | 163.8 | | | – | | | 304.5 | | Operating profit | (2,554.0) | | Finance income | | | | 201.9 | | | 0.2 | | | 202.1 | | Profit before tax on continuing operations | (2,331.9) | | Discontinued operations | | | | 35.0 | | Joint ventures and associates: | | | | – | | | – | | Profit before tax on discontinued operations | 35.0 | SEE plc Annual Report 2023 229 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **7. Exceptional items and certain re-measurements** # **7.1 Exceptional items** Exceptional items in the year ended 31 March 2023 | | Property, plant and equipment Units 1.0 £m | Provisions and other charges £m | Investment in joint ventures £m | Cash and cash equivalents £m | Other receivable £m | Total charges/ trends/ £m | | --- | --- | --- | --- | --- | --- | --- | | | (17.8) | – | – | – | – | (17.8) | | | (45.7) | – | – | – | – | (45.7) | | | 24.1 | (53.2) | – | (60.0) | – | (89.1) | | | – | – | 150.9 | – | – | 150.9 | | | – | – | 5.9 | – | – | 5.9 | | | – | (1.5) | – | (2.1) | (0.2) | (3.8) | | **Total exceptional items continuing operations** | **(39.4)** | **(54.7)** | **156.8** | **(62.1)** | **(0.2)** | **0.4** | | | – | (35.0) | – | – | – | (35.0) | | **Total exceptional items discontinued operations** | – | **(35.0)** | – | – | – | **(35.0)** | | **Total exceptional items** | **(39.4)** | **(89.7)** | **156.8** | **(62.1)** | **(0.2)** | **(34.6)** | (i) Thermal Electricity Generation – impairment reversal (ii) Gas Storage – impairment reversal (iii) Fiddler's Ferry land sale (iv) Triton Power 50% joint venture acquisition and impairment 230 55E plc Annual Report 2023 | Total exceptional items | 150.9 | | --- | --- | | Total certain remeasurements | (172.0) | | --- | --- | | Total exceptional items and certain remeasurements | (21.1) | | --- | --- | (v) Neos Networks – investment impairment and adjustments to consideration (vi) Other credits **Exceptional items within discontinued operations in the year ended 31 March 2023** (vii) Gas Production – gain on disposal **Exceptional items in the year ended 31 March 2022** 156 plc Annual Report 2023 231 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **7. Exceptional items and certain re-measurements** # **7.1 Exceptional items** Exceptional items in the year ended 31 March 2022 ii) Thermal Electricity Generation – impairment reversals iii) Gas Storage – impairment reversals iv) SSE Contracting – loss on disposal v) Neos Networks – investment impairment and adjustments to consideration vi) Other credits **Exceptional items within discontinued operations in the year ended 31 March 2022** vii) SGN disposal gain viii) Gas Production – impairment loss 232 SSE plc Annual Report 2023 Exceptional items in the year ended 31 March 2021 ## 7.2 Certain re-measurements 558 plc Annual Report 2023 233 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **7. Exceptional items and certain re-measurements** **7.1 Change in UK corporation tax rates** # **Taxation** # **8. Directors and employees** **8.1 Staff costs** | | 2023 £m | | --- | --- | | | 587.6 | | | 69.6 | | | 20.6 | | | 94.0 | | | 771.8 | | | (179.6) | | | 592.2 | # **8.2 Employee numbers** | | 2023 Number | | --- | --- | | | 12,180 | | | 12,180 | 234 55E plc Annual Report 2023 | | 2023 Number | | --- | --- | | | 1,136 | | | 4,197 | | | 1,591 | | | 458 | | | 84 | | | 843 | | | 845 | | | 855 | | | 256 | | | 1,211 | | Total SSE Group | 11,476 | ### 8.3 Remuneration of key management personnel | | 2023 | | | | --- | --- | --- | --- | | | Executive committee members £m | Executive directory £m | Total £m | | | 4.0 | 5.2 | 9.2 | | | 0.9 | 1.0 | 1.9 | | | 0.7 | 0.7 | 1.4 | | | 1.7 | 4.4 | 6.1 | | | 7.3 | 11.3 | 18.6 | SSE plc Annual Report 2023 235 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **9. Finance income and costs** **Recognised in income statement** | | 2023 | | | | | --- | --- | --- | --- | --- | | | Before exceptional items and certain re-measurements £m | Exceptional items and certain re-measurements £m | Total £m | | | Finance income: | 17.5 | – | 17.5 | | | | 16.2 | – | 16.2 | | | | 67.6 | – | 67.6 | | | | 34.0 | 0.2 | 34.2 | | | | 101.6 | 0.2 | 101.8 | | | Total finance income | 135.3 | 0.2 | 135.5 | | | Finance costs: | (50.1) | – | (50.1) | | | | (339.1) | – | (339.1) | | | | – | – | – | | | | (22.1) | – | (22.1) | | | | (29.4) | – | (29.4) | | | | 44.0 | – | 44.0 | | | Total finance costs | (396.7) | – | (396.7) | | | | – | 201.9 | 201.9 | | | Net finance costs | (261.4) | 202.1 | (59.3) | | | | 135.3 | 202.1 | 337.4 | | | | (396.7) | – | (396.7) | | | Net finance costs | (261.4) | 202.1 | (59.3) | | | | 2023 £m | | --- | --- | | | (59.3) | | | (70.1) | | | (16.2) | | | (201.9) | | | (0.2) | | | 2.1 | | Adjusted net finance costs | (345.6) | | | 22.1 | | | 29.4 | | | (38.8) | | Adjusted net finance costs for interest cover calculations | (332.9) | 236 55E plc Annual Report 2023 # **Recognised in other comprehensive income** | | 2023 £m | | --- | --- | | | 43.3 | | | 456.5 | | Total recognised in other comprehensive income | 499.8 | # **10. Taxation** # **10.1 Analysis of charge recognised in the income statement** | | 2023 | | | | --- | --- | --- | --- | | | Before exceptional items and certain re- measurements £m | Exceptional items and certain re- measurements £m | Total £m | | Current tax | 292.3 (22.0) | (20.9) 5.3 | 271.4 (16.7) | | Total current tax | 270.3 | (15.6) | 254.7 | | Deferred tax | 72.9 - 12.3 | (444.6) - (5.3) | (371.7) - 7.0 | | Total deferred tax | 85.2 | (449.9) | (364.7) | | Total taxation charge/(credit) | 355.5 | (465.5) | (110.0) | A2 556 plc Annual Report 2023 237 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **10. Taxation** # **10.1 Analysis of charge recognised in the income statement** | | 2023 £m | 2023 % | | --- | --- | --- | | | (110.0) | 12.7 | | | 364.7 | (42.0) | | | 254.7 | (29.3) | | | | 41.0 | | | 254.7 | 11.7 | | | 89.6 | 4.1 | | | 15.6 | 0.7 | | | (1.1) | (0.1) | | Adjusted current tax charge and effective rate | 358.8 | 16.4 | # **Tax (credit)/charge recognised in other comprehensive income/(loss):** | | 2023 £m | | --- | --- | | | (19.8) | | | 8.1 | | | (11.7) | # **A2** # **10.2 Current tax assets and liabilities** | | 2023 £m | | --- | --- | | | (10.8) | # **Uncertain tax positions** 238 55E plc Annual Report 2023 ### 10.3 Deferred taxation | Charge/(credit) to income statement | 112.0 | (476.7) | 8.9 | (8.9) | (364.7) | | --- | --- | --- | --- | --- | --- | | Charge/(credit) to other comprehensive income/(loss) | – | 8.1 | (19.8) | – | (11.7) | | Charge to equity | – | – | – | 2.0 | 2.0 | | Recognised on acquisition (note 12) | (0.1) | – | – | 27.1 | 27.0 | | Exchange adjustment | 1.6 | – | – | 0.8 | 2.4 | | At 31 March 2023 | 1,255.1 | (90.1) | 135.3 | (1.2) | 1,299.1 | | | 2023 £m | | --- | --- | | | 1,485.1 | | | (186.0) | | | 1,299.1 | ### 11. Dividends and Earnings Per Share #### 11.1 Ordinary dividends | | 2023 Total £m | Settled via scrip £m | Pence per ordinary share | | --- | --- | --- | --- | | | 313.2 | 159.0 | 29.0 | | | 642.6 | 322.5 | 60.2 | | | – | – | – | | | – | – | – | | | 955.8 | 481.5 | | 55E plc Annual Report 2023 239 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **11. Dividends and Earnings Per Share** **11.1 Ordinary dividends** # **11.2 Basic and adjusted earnings/(losses) per share** | | 2023 (Losses)/ earnings £m | 2023 (Losses)/ Earnings Per Share pence | | --- | --- | --- | | | (125.0) | (11.4) | | | (35.0) | (3.3) | | Basic (losses)/earnings on continuing operations used to calculate adjusted EPS | (158.0) | (14.7) | | | 1,886.4 | 175.4 | | Basic excluding exceptional items and certain re-measurements | 1,728.4 | 160.7 | | | (50.5) | (4.7) | | | 28.8 | 2.7 | | | (16.2) | (1.5) | | | 85.2 | 7.9 | | | 14.4 | 1.3 | | | (4.1) | (0.4) | | Adjusted | 1,786.0 | 166.0 | | Basic | (158.0) | (14.7) | | | - | - | | Diluted | (158.0) | (14.7) | # **Reported (losses)/Earnings Per Share** | | 2023 (Losses)/ earnings £m | 2023 (Losses)/ Earnings Per Share pence | | --- | --- | --- | | Basic | (158.0) | (14.7) | | | 35.0 | 3.3 | | (Losses)/Earnings Per Share attributable to ordinary shareholders | (123.0) | (11.4) | | | (158.0) | (14.7) | | | 35.0 | 3.3 | | Diluted (losses)/Earnings Per Share attributable to ordinary shareholders | (123.0) | (11.4) | | | 31 March 2023 Number of shares (millions) | | --- | --- | | | 1,075.6 | | | 1.7 | | | 1,077.3 | 240 SEE plc Annual Report 2023 ### 11.3 Dividend cover | | 2023 Earned/ Earnings Per Share (pence) | 2023 Dividend Per Share (pence) | 2023 Dividend cover (times) | | --- | --- | --- | --- | | | (14.7) | 96.7 | (0.15) | | Adjusted Earnings Per Share (continuing operations) | 166.0 | 96.7 | 1.72 | ## 12. Acquisitions and disposals ### 12.1 Acquisitions #### Current year acquisitions European onshore renewables development platform Assets acquired and liabilities assumed Triton Power – 50% joint venture acquisition Other asset acquisitions 158 plc Annual Report 2023 241 # Notes to the consolidated financial statements For the year ended 31 March 2023 # 12. Acquisitions and disposals # 12.1 Acquisitions # Prior year acquisitions Acquisition of 85% equity interest in Japanese offshore wind development platform Assets acquired # 12.2 Disposals # 10 Significant disposals Current year disposals 25% non-controlling equity stake in Scottish Hydro Electric Transmission plc SHET's summary financial information is as follows: | | 31 March 2023 £m | | --- | --- | | | 4,907.1 | | | 16.5 | | | (370.3) | | | (2,909.4) | | | 1,643.9 | 242 53E plc Annual Report 2023 Profit after taxation 183.7 96.5 280.2 Fiddler's Ferry land sale: Prior 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: SSE plc Annual Report 2025 243 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **12. Acquisitions and disposals** # **12.2 Disposals** # **(i) Disposal reconciliation** | | 2023 £m | | --- | --- | | Net assets disposed: | | | | 24.1 | | | – | | | – | | | – | | | – | | | – | | | – | | | (88.2) | | | – | | Net assets | (64.1) | | Proceeds of disposal: | | | | 60.0 | | | – | | Net proceeds | 60.0 | | Recycle of amounts recognised in hedge reserve | – | | Gain on disposal | 124.1 | | Presentation: | | | Continuing operations | | | Income statement exceptional gain/(loss) | 89.1 | | Income statement non-exceptional credit | – | | | 89.1 | | Discontinuing operations | | | Income statement exceptional credit | 35.0 | | SSE Group | 124.1 | | | 2023 £m | | Net proceeds of disposal | 60.0 | | | – | | | – | | | – | | Net cash proceeds | 60.0 | | | 1,448.1 | | Net cash proceeds | 1,508.1 | 244 SSE plc Annual Report 2023 ### 12.3 Discontinued operations | | 2023 | | | | --- | --- | --- | --- | | | Before exceptional items and certain re- measurements £m | Exceptional items and certain re- measurements £m | Total £m | | Revenue | – | – | – | | | – | – | – | | Gross profit | – | – | – | | | – | – | – | | Operating profit/(loss) before joint ventures | – | – | – | | | – | – | – | | | – | – | – | | | – | – | – | | | – | – | – | | Share of profit/(loss) on joint ventures | – | – | – | | Operating profit/(loss) | – | – | – | | | – | – | – | | | – | – | – | | Profit/(loss) for the year | – | – | – | | | – | 35.0 | 35.0 | | Profit from discontinued operations, net of tax | – | 35.0 | 35.0 | #### Other comprehensive income from discontinued operations | | 2023 £m | | --- | --- | | Items that will be reclassified subsequently to profit or loss: | – | | Items that will not be reclassified to profit or loss: | – | | Other comprehensive loss from discontinued operations | – | #### Cashflows from discontinued operations | | 2023 £m | | --- | --- | | | – | | | – | | Net (decrease)/increase in cash and cash equivalents in discontinued operations | – | 55E plc Annual Report 2023 245 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **13. Intangible assets** | Additions | – | 805.2 | 235.9 | – | 132.3 | 1,173.4 | | --- | --- | --- | --- | --- | --- | --- | | Acquired through business combinations | 410.8 | – | 104.4 | – | – | 515.2 | | Transfer (to)/from property plant and equipment (note 14) | – | – | (2.6) | – | 45.5 | 42.9 | | Disposals/utilised | – | (810.1) | (18.4) | – | (6.4) | (834.9) | | Exchange adjustments | 34.8 | 0.5 | 7.9 | – | – | 43.2 | | At 31 March 2023 | 1,150.5 | 682.4 | 681.6 | 115.9 | 1,083.6 | 3,714.0 | Aggregate amortisation and impairment: | Charge for the year | – | – | – | (0.3) | (54.3) | (54.6) | | --- | --- | --- | --- | --- | --- | --- | | Transfer from property plant and equipment (note 14) | – | – | – | – | (41.6) | (41.6) | | Disposals/utilised | – | – | – | – | 3.3 | 3.3 | | Non-exceptional impairment charge^{(1)} | – | – | (4.2) | – | (14.6) | (18.8) | | At 31 March 2023 | (192.9) | (227.5) | (157.5) | (114.9) | (606.0) | (1,298.8) | | Carrying amount: | | | | | | | | At 31 March 2023 | 957.6 | 454.9 | 524.1 | 1.0 | 477.6 | 2,415.2 | | | 2023 £m | | --- | --- | | | 454.9 | | | 1,960.3 | | | 2,415.2 | 246 55E plc Annual Report 2023 # **(i) Goodwill** | | 2023 £m | | --- | --- | | | 292.3 | | | 196.0 | | | 428.7 | | | 32.4 | | | 8.2 | | | 957.6 | # **(ii) Allowances and certificates** # **(iii) Development assets** # **(iv) Other intangible assets** # **(v) Software assets** 556 plc Annual Report 2023 247 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **14. Property, plant and equipment** Cost: | Additions | – | – | 95.8 | – | 45.4 | 1,323.5 | 35.4 | 1,500.1 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Adjustment to decommissioning asset | (11.1) | (89.5) | – | – | – | – | (44.9) | (145.5) | | Transfer (to)/from intangible assets (note 13)^{(a)} | – | – | – | – | – | 2.6 | (45.5) | (42.9) | | Transfer from assets under construction | 433.8 | 22.5 | 402.3 | 531.6 | 4.8 | (1,412.5) | 17.5 | – | | Disposals | (638.9) | (4.8) | – | – | (13.5) | (0.1) | (40.2) | (697.5) | | Exchange rate adjustments | 24.6 | 38.5 | – | – | 0.6 | 1.6 | 2.7 | 68.0 | | At 31 March 2023 | 3,671.5 | 4,652.7 | 9,997.7 | 5,642.1 | 591.4 | 768.7 | 1,347.3 | 26,671.4 | Depreciation: | Charge for the year | (106.3) | (153.9) | (163.2) | (97.7) | (17.0) | – | (67.6) | (605.7) | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Impairment reversals (note 7)^{(a)} | 17.8 | – | – | – | – | – | 45.7 | 63.5 | | Non-exceptional impairment charges^{(a)} | (10.6) | (12.5) | – | – | (1.0) | (0.3) | (0.7) | (25.1) | | Transfer to intangible assets (note 13)^{(a)} | – | – | 2.3 | – | – | 6.0 | 33.3 | 41.6 | | Transfers | 4.1 | – | – | – | – | (4.1) | – | – | | Disposals | 612.8 | 3.1 | – | – | 5.5 | – | 35.6 | 657.0 | | Exchange rate adjustments | (11.1) | (16.4) | – | – | (0.6) | (0.2) | (2.1) | (30.4) | | At 31 March 2023 | (2,497.7) | (2,095.3) | (4,537.7) | (869.5) | (237.1) | (9.4) | (1,028.8) | (11,275.5) | | Net book value | | | | | | | | | | At 31 March 2023 | 1,173.8 | 2,557.4 | 5,460.0 | 4,772.6 | 354.3 | 759.3 | 318.5 | 15,395.9 | 248 55E plc Annual Report 2023 # Cost | Additions | – | 45.4 | – | 33.1 | 78.5 | | --- | --- | --- | --- | --- | --- | | Disposals | – | (1.0) | – | (12.9) | (13.9) | | At 31 March 2023 | 369.6 | 247.5 | 12.2 | 115.9 | 745.2 | # Depreciation | Charge for the year | (18.5) | (11.9) | (7.4) | (19.8) | (57.6) | | --- | --- | --- | --- | --- | --- | | Disposals | – | 0.3 | – | 12.2 | 12.5 | | Impairment reversal | – | (0.5) | – | – | (0.5) | | At 31 March 2023 | (252.1) | (43.2) | (12.2) | (43.9) | (351.4) | | Net book value | | | | | | | At 31 March 2023 | 117.5 | 204.3 | – | 72.0 | 393.8 | # **15. Impairment testing** A1.2 556 plc Annual Report 2023 249 ### Notes to the consolidated financial statements continued ### For the year ended 31 March 2023 250 SSE plc Annual Report 2023 15. Impairment testing continued 15.1 Goodwill impairment reviews – CGUs testing Following the acquisition of the Southern Europe wind and solar platform from Siemens Gamesa Renewable Energy, the Group has determined that it has three goodwill balances within its SSE Renewables business (GB and Ireland, SSE Southern Europe and SSE Pacifico) that are subject to annual goodwill impairment reviews. In addition, the Group has a legacy goodwill balance within the SSE Enterprise Energy Solutions business. The recoverable amounts of the CGUs supporting the goodwill balances 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. Assets/CGUs Cash flow period assumption Operating and other valuation assumptions Commentary and impairment conclusions Great Britain (GB) and Ireland windfarm CGUs Period to end of life of portfolio assets Modelling methodology and assumptions The VIU assessment is used to test the carrying value of £292.3m of goodwill related to the Group’s GB and Ireland windfarm CGUs. The assessment is based on the discounted pre-tax cash flows expected to be generated by the specific wind farm assets included in the CGU across the remaining useful lives of those assets. The GB and Ireland CGU includes cashflows for operational assets only, being over 50 individual windfarms across Great Britain and the Island of Ireland, given the risk and uncertainty associated with projects in the development stage. Significant developments at Viking, Seagreen and Doggerbank are currently under construction and continue to be excluded from the analysis. Cash inflows for the CGUs are based on the expected average annual generation output based on technical assessment and past experience and are valued based on forward power prices. These factors are subject to management review on an annual basis. The prices applied to projected outputs are based either on observable market information during that period, which is deemed to be 3 years, or on internal estimations beyond the observable market period (a Level 3 basis as defined by IFRS 13 Fair Value Measurement). The projections are also dependent on the UK and Irish government’s continuing support for existing qualifying wind assets through CFD subsidies and ROCs or REFIT. Cash outflows are based on planned and expected maintenance profiles and other capital or replacement costs. The cash flow projections are based on UK and Irish power prices between £55 - £169 per MWh and have been discounted applying a pre-tax real discount rate between 6.9% for GB and 5.8% for Ireland (2022: between 5.1% and 6.0%) based on technology and market risks. Impairment conclusion The recoverable amount of the GB and Ireland CGUs at 31 March 2023 is significantly in excess of the carrying value of the goodwill and tangible and intangible assets attributed to the CGUs. Therefore, no impairment has been recognised. Sensitivity analysis The principal assumptions impacting the valuation model of the GB and Ireland CGU are discount rate, generation volume and electricity price. While cash flow projections are subject to inherent uncertainty, a 10% power price decrease and a 15% decrease in projected generation volumes were modelled, both of which indicated significant headroom on the carrying value of the assets. The 8% volume sensitivity is based on the Group’s assessment of the climate related risk to future volume reduction, as set out in the Group’s TCFD disclosures. A 0.5% increase in the pre-tax real discount rate to 9.8% for GB and 8.74% for Ireland, also indicated significant headroom on the carrying value of the assets. TCFD related sensitivity analysis A significant increase in renewable generation capacity in the Group’s core markets could result in an oversupply of renewable electricity at a point in the future, which would lead to a consequential decrease in the power price achievable for the Group’s GB and Ireland wind generation assets. A downside power price sensitivity, which may arise in a market with significant new build was modelled. This scenario indicated that, despite a modelled 15% reduction in forecast power price, there remained significant headroom on the carrying value in the Group’s GB and Ireland wind generation assets. Changes to weather patterns resulting from global warming could result in calmer weather patterns, which would reduce volumes achievable for the Group’s GB and Ireland wind generation assets (although noting that this would likely lead to capacity constraints and hence higher prices). Despite an 8% reduction in modelled projected volume, there remained significant headroom on the carrying value in the Group’s GB and Ireland wind generation assets. The TCFD Variable wind generation risk scenario modelled the physical risk of average wind speed changes of 4% to 8% over the longer term, consistent with the impairment sensitivity performed. SSE Southern Europe Modelling methodology and assumptions Impairment conclusion # Sensitivity analysis SSE plc Annual Report 2025 251 # Notes to the consolidated financial statements For the year ended 31 March 2023 # 15. Impairment testing # 15.1 Goodwill impairment reviews – CGUs testing SSE Pacifico Modelling methodology and assumptions Impairment conclusion Sensitivity analysis Enterprise Energy Solutions Conclusion 252 SSE plc Annual Report 2023 ## 15.2 Property, plant and equipment, other intangibles and investment impairment reviews – asset testing Changes from prior year GB CCGTs (Headby, Medway, Peterhead and Marchwood (PPA Right of use lease asset) power stations) Modelling methodology and assumptions Conclusion Sensitivity analysis Changes from prior year TCFD related sensitivity analysis – GB CCGTs 556 plc Annual Report 2023 253 ### Notes to the consolidated financial statements continued ### For the year ended 31 March 2023 ### 15. Impairment testing continued 15.2 Property, plant and equipment, other intangibles and investment impairment reviews – asset testing continued 254 SSE plc Annual Report 2023 Assets Cash flow period assumption Operating and other valuation assumptions Commentary and impairment conclusions Great Island CCGT Period to end of life Modelling methodology and assumptions The VIU of the Group’s Great Island CCGT Power station was based on pre-tax discounted cash flows expected to be generated by the plant based on management’s view of the plant’s operating prospects. Cash flows are subject to a pre-tax real discount rate of 12.4% (2022: 11.0%) reflecting the specific risks in the Irish market. Conclusion The VIU assessment performed on the asset indicated an impairment of £nil, at 31 March 2023. The Group recorded an exceptional impairment reversal of £17.8m at 30 September 2022 on its Great Island CCGT based on observable power prices at that date. This reversal represented a final full reversal of historical impairments. The carrying value of the Great Island asset at 31 March 2023 is £269.9m against an assessed recoverable value of £280.4m. Sensitivity analysis A 1% increase in the discount rate would result in an impairment of £9.6m. A 20% decrease in gross margin would result in an impairment of £77.8m. A €10/KW decrease in projected non-contracted capacity market prices would result in an impairment of £13.8m. TCFD related sensitivity analysis – Great Island 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 2023, 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 £31.3m at 31 March 2023. Under the TCFD Accelerated Gas Closure risk scenario, the indicative potential present value of the future economic benefit lost from early closure of Great Island by 2030 was less than £0.04bn. Gas Storage assets (Atwick and Aldbrough) Period to end of life The VIU of the Group’s Gas Storage assets at Aldbrough and Atwick were based on pre-tax discounted cash flows expected to be generated by the storage assets based on management’s view of the assets’ operating prospects. Cash flows are subject to a pre-tax real discount rate of 18.8% for Atwick and 13.8% for Aldbrough reflecting risks specific to the assets. Conclusion The VIU assessment performed on the assets indicated a net impairment reversal of £45.7m to Aldbrough. The Group’s Atwick site, which has no remaining historic impairments, indicated significant headroom on the fair value exercise performed as at 31 March 2023. At 31 March 2023, the carrying value of Aldbrough is £92.6m and the carrying value of Atwick is £62.3m. Both carrying values represent the net book value of the storage assets and exclude the carrying value of cushion gas volumes. Gas Storage assets (Atwick and Aldbrough) Sensitivity analysis – Atwick Sensitivity analysis – Aldbrough Investment in Triton Power Holdings Limited Modelling methodology and assumptions Conclusion Sensitivity analysis SSE plc Annual Report 2023 255 ### Notes to the consolidated financial statements continued ### For the year ended 31 March 2023 ### 15. Impairment testing continued 15.2 Property, plant and equipment, other intangibles and investment impairment reviews – asset testing continued 256 SSE plc Annual Report 2023 Assets Cash flow period assumption Operating and other valuation assumptions Commentary and impairment conclusions Investment in Triton Power Holdings Limited continued TCFD related sensitivity analysis – Triton 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 the UK transitions to a net zero economy. However, this has not been treated as an indicator of impairment at 31 March 2023, as legislation has not been introduced or enacted by the balance sheet date. Triton 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 Triton by 2030, it would result in an impairment of £76.5m at 31 March 2023. Under the TCFD Accelerated Gas Closure risk scenario, the indicative potential lost discounted EBIT from early closure of Saltend by 2030 was less than £0.1bn. Investment in Neos Networks Limited n/a The Group has valued its 50% joint venture investment in Neos Networks Limited (‘NNL’) based on projected valuations that could be achieved in a market transaction, using earnings multiples observable from recent similar transactions. Due to the nature of the valuation technique, which was performed to approximate an achievable fair value less costs to sell, a wide range of valuations were derived from this exercise. The Group has used a point estimate valuation within the range of possible valuations based on earnings targets and earning multiples that the Group believes are achievable. The Group has assessed that this is a level 3 valuation in the fair value hierarchy, with the key inputs being EBITDA and the transaction multiple. Conclusion The valuation exercise resulted in a wide range of reasonably probable valuations for the business from an impairment of £74.9m to headroom of £1.2m based on current contracts and probable contract wins. The business fundamentals remain strong and a change to the current client base would have an impact on this assessment. The Group has assessed that within this range of valuations, a point valuation resulting in an impairment of £37.7m best represents the recoverable value of the investment. Following the impairment, the Group’s carrying value of equity investment, shareholder loans and receivables due from NNL is £174.8m. 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 reduce the impairment to £20.2m, whereas a 12% decrease in the EBITDA assumption would result in an impairment of £58.7m. A 10% decrease to the multiple assumption would result in an impairment of £56.1m, whereas a 10% increase to the multiple assumption would result in an impairment of £18.3m. ## 16. Investments ### 16.1 Joint Ventures and associates | Share of net assets/cost | 2023 | | | | --- | --- | --- | --- | | | Equity £m | Loans £m | Total £m | | | 1,239.5 | 736.9 | 1,976.4 | | | 263.6 | 489.7 | 753.3 | | | – | (61.4) | (61.4) | | | (294.1) | – | (294.1) | | | 663.6 | – | 663.6 | | | – | – | – | | | 342.4 | – | 342.4 | | | (0.2) | – | (0.2) | | | 50.0 | (50.0) | – | | | (329.3) | – | (329.3) | | | 1.5 | 0.2 | 1.7 | | | 1,937.0 | 1,115.4 | 3,052.4 | ### 16.2 Additions and disposals of equity in the current year Additions in the year Disposals of equity in the year ### 16.3 Acquisitions and disposals of equity in the previous year Additions in the previous year arising on loss on control Disposals of equity in the previous year Sale of stake in Dogger Bank C: Sale of investment in SGN: ### 16.4 Principal joint ventures and associates A3 558 plc Annual Report 2023 257 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **16. Investments** # **16.4 Principal joint ventures and associates** # **Share of results of joint ventures and associates** | | 2023 Windfarms £m | 2023 Thermal Generation £m | 2023 Other^{1)} £m | 2023 Total £m | | --- | --- | --- | --- | --- | | | 471.0 | 1,003.5 | 90.3 | 1,564.8 | | | 10.2 | – | – | 10.2 | | | (92.8) | (60.8) | (47.5) | (201.1) | | | (111.4) | (540.1) | (48.5) | (700.0) | | | 277.0 | 402.6 | (5.7) | 673.9 | | | (55.6) | (4.2) | (10.3) | (70.1) | | | (11.0) | 213.9 | – | 202.9 | | | (44.9) | (98.0) | (0.2) | (143.1) | | Share of post taxation results | 165.5 | 514.3 | (16.2) | 663.6 | | Recognised in other comprehensive income | 453.4 | 3.1 | – | 456.5 | | | (113.3) | (0.8) | – | (114.1) | | Total comprehensive income | 505.6 | 516.6 | (16.2) | 1,006.0 | # **Share of joint ventures and associates' assets and liabilities** | | 2023 Windfarms £m | 2023 Thermal Generation £m | 2023 Other^{1)} £m | 2023 Total £m | | --- | --- | --- | --- | --- | | | 5,379.4 | 396.7 | 316.9 | 6,093.0 | | | 155.4 | 309.7 | 21.8 | 486.9 | | | 187.6 | 63.6 | 12.1 | 263.3 | | | (220.1) | (191.5) | (72.5) | (484.1) | | | (4,631.5) | (205.3) | (176.6) | (5,013.4) | | | 870.8 | 373.2 | 101.7 | 1,345.7 | | | 550.4 | 68.0 | (27.1) | 591.3 | | | 1,421.2 | 441.2 | 74.6 | 1,937.0 | | | 906.1 | 153.7 | 55.6 | 1,115.4 | | | 2,327.3 | 594.9 | 130.2 | 3,052.4 | A3, A4 and A5 # **16.5 Joint operations** 258 SSE plc Annual Report 2023 # **16.6 Other investments held at fair value through other comprehensive income** | Additions in year | 8.7 | | --- | --- | | Fair value adjustment through other comprehensive income | 19.1 | | At 31 March 2023 | (0.4) | | | 27.4 | # **17. Inventories** | | 2023 £m | | --- | --- | | | 179.3 | | | 125.4 | | | 142.2 | | | (52.0) | | | 394.9 | # **18. Trade and other receivables** | | 2023 £m | | --- | --- | | Non-current assets | 149.5 | | Current assets | 1,404.0 | | | 666.1 | | | 226.0 | | | 316.3 | | | 632.7 | | | 3,245.1 | | Total trade and other receivables | 3,394.6 | A6 156 plc Annual Report 2023 259 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **19. Trade and other payables** | | 2023 £m | | --- | --- | | Current liabilities | | | | 694.6 | | | 54.1 | | | 560.8 | | | 1,349.1 | | | 2,658.6 | | Non-current liabilities | | | | 161.3 | | | 798.6 | | | 959.9 | | Total trade and other payables | 3,618.5 | # **20. Provisions** | Charged in the year | 6.8 | 16.9 | 4.5 | 21.7 | 49.9 | | --- | --- | --- | --- | --- | --- | | Decrease in decommissioning provision | (196.0) | – | – | – | (196.0) | | Unwind of discount | 22.1 | – | – | – | 22.1 | | Released during the year | – | (45.2) | (11.0) | (43.2) | (99.4) | | Disposed during the year | (56.7) | – | – | – | (56.7) | | Utilised during the year | (12.2) | (51.0) | (2.0) | – | (65.2) | | Transfers | 1.8 | 5.6 | (10.1) | 2.7 | – | | Exchange rate adjustments | 6.2 | – | – | – | 6.2 | | At 31 March 2023 | 712.1 | 20.3 | 20.9 | 18.8 | 772.1 | | At 31 March 2023 | | | | | | | Non-current | 686.0 | 19.9 | 18.6 | 18.2 | 742.7 | | Current | 26.1 | 0.4 | 2.3 | 0.6 | 29.4 | | | 712.1 | 20.3 | 20.9 | 18.8 | 772.1 | # **Decommissioning provisions** 260 53E plc Annual Report 2023 | | Value of Provision 31 March 2021 £m | | --- | --- | | | 218.5 | | | 165.0 | | | 119.4 | | | 201.4 | | | 7.8 | | Total | 712.1 | #### Impact of climate change on the Group's decommissioning provisions #### Sensitivity analysis | | 2021 £m | | --- | --- | | | 781.4 | | | 793.2 | | | 747.1 | | | 714.5 | #### Legal and restructuring provisions #### Employee-related provisions #### Other provisions 55E plc Annual Report 2023 261 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **21. Sources of finance** **21.1 Capital management** | | 2023 £m | | --- | --- | | | 8,654.0 | | | (891.8) | | | 7,762.2 | | | 1,882.4 | | | (434.2) | | | (316.3) | | | 8,894.1 | | | 8,583.9 | | | 17,478.0 | Interest Cover Ratio: 'Operating Profit' 'Net Interest Payable' 262 55E plc Annual Report 2023 # **21.2 Loans and other borrowings** | Current | 2023 £m | | --- | --- | | | 1,738.5 | | | 82.1 | | | 1,820.6 | | Non-current | 6,915.5 | | | 323.8 | | | 7,239.3 | | | 9,059.9 | | | (891.8) | | Unadjusted net debt | 8,168.1 | | Add/(less): | 1,882.4 | | | (434.2) | | | (405.9) | | | (316.3) | | Adjusted net debt and hybrid capital | 8,894.1 | # **21.3 Borrowing facilities** 556 plc Annual Report 2023 263 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **21. Sources of finance** # **21.3 Borrowing facilities** Analysis of borrowings | | 2023 Weighted average interest rate** | 2023 Face value £m | 2023 Tier value £m | 2023 Currying amount £m | | --- | --- | --- | --- | --- | | Current | | | | | | | 2.6% | 50.0 | 49.4 | 50.0 | | | 4.5% | 1,029.4 | 1,033.5 | 1,019.2 | | | – | – | – | – | | | – | – | – | – | | | 2.8% | 35.0 | 35.3 | 35.0 | | | 2.9% | 120.0 | 118.8 | 119.8 | | | 1.8% | 514.6 | 510.8 | 514.5 | | Total current borrowings | | 1,749.0 | 1,747.8 | 1,738.5 | | Non-Current | | | | | | | 3.4% | 500.0 | 479.5 | 499.9 | | | – | – | – | – | | | – | – | – | – | | | – | – | – | – | | | 4.4% | 204.1 | 259.6 | 204.1 | | | 1.3% | 531.4 | 508.3 | 531.4 | | | 0.9% | 527.5 | 495.3 | 526.2 | | | 3.1% | 64.0 | 59.9 | 63.5 | | | 3.2% | 247.1 | 257.4 | 245.0 | | | 3.2% | 35.0 | 31.7 | 34.7 | | | 1.4% | 591.4 | 545.8 | 590.5 | | | 1.5% | 250.0 | 212.8 | 249.1 | | Between two and five years | | 2,950.5 | 2,850.3 | 2,944.4 | | | – | – | – | – | | | – | – | – | – | | | – | – | – | – | | | – | – | – | – | | | 8.4% | 500.0 | 575.0 | 497.6 | | | 2.9% | 571.5 | 548.3 | 569.8 | | | 1.8% | 442.9 | 388.1 | 442.9 | | | 5.5% | 350.0 | 364.1 | 350.1 | | | 3.1% | 175.0 | 152.8 | 175.0 | | | 2.3% | 350.0 | 255.9 | 347.4 | | | 2.1% | 250.0 | 177.7 | 248.4 | | | 4.6% | 325.0 | 301.2 | 324.2 | | | 3.2% | 175.0 | 142.2 | 175.0 | | | 6.3% | 350.0 | 372.0 | 347.5 | | | 4.5% | 165.9 | 190.4 | 165.5 | | | 2.0% | 173.1 | 140.4 | 173.1 | | | – | – | – | – | | | – | – | – | – | | Over five years | | 3,828.4 | 3,608.1 | 3,816.5 | | | | | | 154.6 | | Total non-current borrowings | | 6,778.9 | 6,458.4 | 6,915.5 | | Total borrowings | | 8,527.9 | 8,206.2 | 8,654.0 | 264 SSE plc Annual Report 2023 # ii) Lease liabilities | Additions during the year | 393.5 | | --- | --- | | Disposals during the year | 79.9 | | Unwind of discount | (1.4) | | Repayment in the year | 28.3 | | At 31 March 2023 | (94.4) | | | 405.9 | | | 2023 £m | | --- | --- | | | 94.5 | | | 202.4 | | | 316.1 | | | 613.0 | | | (207.1) | | | 405.9 | # iii) Hybrid debt # 21.4 Reconciliation of net increase in cash and cash equivalents to movement in adjusted net debt and hybrid capital | | 2023 £m | | --- | --- | | | (157.5) | | | (1,914.7) | | | (831.4) | | | 2,148.1 | | | – | | | (216.2) | | | 434.2 | | | 241.6 | | (Increase)/decrease in adjusted net debt and hybrid capital | (295.9) | 556 plc Annual Report 2023 265 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **21. Sources of finance** # **21.5 Reconciliation of movements in financing liabilities** | | Financing cash flows | | | | | Non-cash movements | | | | | 31 March 2023 £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | At 31 March 2022 £m | New borrowings £m | Disposal of borrowings £m | Repayment of borrowings £m | Repayment of lease creditors £m | Fair value movements £m | Foreign exchange movements £m | Lease liabilities £m | Re-classification £m | Other £m | | | **Financing Liabilities** | | | | | | | | | | | | | Bank loans | 549.8 | – | – | – | – | – | – | – | (50.0) | 0.1 | 499.9 | | Private placement | 784.5 | 350.0 | – | – | – | (3.2) | – | – | (154.8) | 1.6 | 978.1 | | Fixed rate Eurobonds | 4,945.0 | 545.5 | – | – | – | 75.1 | 47.4 | – | (514.5) | 0.4 | 5,098.9 | | Index linked loans | 299.3 | – | – | – | – | – | – | – | – | 39.3 | 338.6 | | Hybrid debt | 973.9 | – | – | (1,029.4) | – | 51.1 | 4.1 | – | – | 0.3 | – | | **Total long term borrowings** | **7,552.5** | **895.5** | **–** | **(1,029.4)** | **–** | **123.0** | **51.5** | **–** | **(719.3)** | **41.7** | **6,915.5** | | Bank loans | 150.0 | – | – | (150.0) | – | – | – | – | 50.0 | – | 50.0 | | Fixed rate Eurobonds | 299.9 | – | – | (299.9) | – | – | – | – | 514.5 | – | 514.5 | | Other short term loans – non-amortising | 506.1 | 1,019.2 | – | (506.1) | – | – | – | – | – | – | 1,019.2 | | US private placement | 162.7 | – | – | (162.7) | – | – | – | – | 154.8 | – | 154.8 | | **Total short term borrowings** | **1,118.7** | **1,019.2** | **–** | **(1,118.7)** | **–** | **–** | **–** | **–** | **719.3** | **–** | **1,738.5** | | | 8,671.2 | 1,914.7 | – | (2,148.1) | – | 123.0 | 51.5 | – | – | 41.7 | 8,654.0 | | **Lease liabilities** | **393.5** | **–** | **–** | **–** | **(94.4)** | **–** | **–** | **106.8** | **–** | **–** | **405.9** | | **Total loans and borrowings** | **9,064.7** | **1,914.7** | **–** | **(2,148.1)** | **(94.4)** | **123.0** | **51.5** | **106.8** | **–** | **41.7** | **9,059.9** | | Assets held to hedge long term borrowings | 242.1 | – | – | – | – | (371.4) | – | – | – | – | (129.3) | | | 9,306.8 | 1,914.7 | – | (2,148.1) | (94.4) | (248.4) | 51.5 | 106.8 | – | 41.7 | 8,930.6 | 266 53E plc Annual Report 2023 SSE plc Annual Report 2023 267 # Notes to the consolidated financial statements For the year ended 31 March 2023 # 22. Equity # 22.1 Share capital Allotted, called up and fully paid: | Issue of shares^{(i)} | 27.7 | 13.9 | | --- | --- | --- | | Shares repurchased^{(ii)} | (6.9) | (3.4) | | At 31 March 2023 | 1,093.9 | 547.0 | # 22.2 Capital redemption reserve # 22.3 Hedge reserve # 22.4 Translation reserve # 22.5 Hybrid Equity | | 2023 £m | | --- | --- | | | 598.0 | | | 453.0 | | | 831.4 | | | 1,882.4 | (i) 2 July 2020 £600m and €500m Hybrid Capital Bonds (ii) 12 April 2022 €1,000m Hybrid Capital Bonds 268 55E plc Annual Report 2023 ### (iii) Coupon Payments 22.6 Equity attributable to non-controlling interests 23. Retirement benefit obligations Defined benefit schemes Actuarial valuations Future contributions Scottish Hydro Electric Pension Scheme SSE Southern Group of the Electricity Supply Pension Scheme SSE plc Annual Report 2023 269 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **23. Retirement benefit obligations** Pension summary as measured under IAS 19: | | 2023 £m | 2023 £m | | --- | --- | --- | | | (152.0) | 566.6 | | | 72.8 | 174.5 | | | (79.2) | 541.1 | IFRC 14 surplus restrictions # **23.1 Pension scheme assumptions** | | At 31 March 2023 | | --- | --- | | | 3.5% | | | 3.2% | | | 4.8% | | | 3.2% | # **Scottish Hydro Electric** | | At 31 March 2023 | | | --- | --- | --- | | | Male | Female | | | 22 | 24 | | | 24 | 26 | # **SSE Southern** | | At 31 March 2023 | | | --- | --- | --- | | | Male | Female | | | 22 | 24 | | | 24 | 26 | 270 SSE plc Annual Report 2023 # 23.2 Sensitivity analysis Scottish Hydro Electric | | At 31 March 2025 | | | --- | --- | --- | | | Increase/decrease in assumption | Effect on scheme's liabilities | | | 0.1% | +/-0.1% | | | 0.1% | +/-0.7% | | | 0.1% | +/-0.7% | | | 1 year | +/-1.9% | SSE Southern | | At 31 March 2025 | | | --- | --- | --- | | | Increase/decrease in assumption | Effect on scheme's liabilities | | | 0.1% | +/-0.1% | | | 0.1% | +/-1.2% | | | 0.1% | +/-1.3% | | | 1 year | +/-3.3% | # 23.3 Valuation of combined Pension Schemes | | Quoted £m | Unquoted £m | Value at 31 March 2025 £m | | --- | --- | --- | --- | | | 94.3 | – | 94.3 | | | 1,381.6 | – | 1,381.6 | | | 122.8 | – | 122.8 | | | – | 532.4 | 532.4 | | | 1,057.5 | – | 1,057.5 | | | | | 3,188.6 | | | | | (2,647.5) | | | | | 541.1 | | | | | (135.3) | | | | | 405.8 | SSE plc Annual Report 2025 271 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **23. Retirement benefit obligations** # **23.4 Movements in the combined defined benefit asset obligations and assets during the year:** | | 2023 | | | | --- | --- | --- | --- | | | Assets £m | Obligations £m | Total | | Included in Income Statement | 4,311.2 | (3,726.3) | 584.9 | | | – | (28.2) | (28.2) | | | – | (5.7) | (5.7) | | | – | – | – | | | 114.8 | (98.6) | 16.2 | | | 114.8 | (132.5) | (17.7) | | Included in Other Comprehensive Income | | | | | | – | 71.7 | 71.7 | | | – | 1,099.8 | 1,099.8 | | | – | (135.1) | (135.1) | | | (1,115.6) | – | (1,115.6) | | | (1,115.6) | 1,036.4 | (79.2) | | Other | | | | | | 53.1 | – | 53.1 | | | 0.1 | (0.1) | – | | | (175.0) | 175.0 | – | | | (121.8) | 174.9 | 53.1 | | Balance at 31 March | 3,188.6 | (2,647.5) | 541.1 | # **23.5 Pension scheme contributions and costs** Charges/(credit) recognised | | 2023 £m | | --- | --- | | | 33.9 | | | – | | | 33.9 | | | (114.8) | | | 98.6 | | | (16.2) | | | 2023 £m | | | (1,000.8) | # **Defined contribution scheme** # **Employer financed retirement benefit (EFRB) pension costs** # **Staff costs analysis** | | 2023 £m | | --- | --- | | | 33.9 | | | 60.1 | | | 94.0 | 272 SEE plc Annual Report 2023 # **23.6 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 # **23.7 Risk mitigation** (i) De-risking (ii) Asset buy-in (iii) Asset-liability matching strategies used by the Scheme # **23.8 Risk assessment** (i) Maturity profile of the defined benefit obligations SEE plc Annual Report 2023 273 # **Notes to the consolidated financial statements** **For the year ended 31 March 2023** # **23. Retirement benefit obligations** # **23.8 Risk assessment** (ii) Information about the defined benefit obligations # **23.9 Pension scheme policies** (i) Recognition of gains and losses (ii) Methods and assumptions used in preparing the sensitivity analyses (iii) Asset recognition (iv) Fair value assessment of scheme assets # **24. Financial instruments** # **24.1 Financial instruments – income statement** | | 2023 £m | | --- | --- | | Operating derivatives | (2,980.2) | | | 272.0 | | | (2,708.2) | | | 81.3 | | | 120.6 | | | 201.9 | | Net income statement impact | (2,506.3) | 274 SSE plc Annual Report 2023 ## 24.2 Financial instruments – balance sheet | Derivative financial assets | 2023 £m | | --- | --- | | | 246.0 | | | 759.2 | | Total derivative assets | 1,005.2 | | Derivative liabilities | (1,021.0) | | | (243.3) | | Total derivative liabilities | (1,264.3) | | Net liability | (259.1) | A6 and A7 ## 25. Commitments and contingencies ### 25.1 Capital commitments | | 2023 £m | | --- | --- | | Capital expenditure: | 1,035.6 | ### 25.2 Contingent assets and liabilities ## 26. Post balance sheet events ### 26.1 Glendoe Hydro Electric Station announcement SEE plc Annual Report 2023 275 ## Accompanying information ### A1. Basis of consolidation and significant accounting policies A1.1 Basis of consolidation Subsidiaries (Accompanying Information A3) Interests in joint arrangements and associates (note 16 and Accompanying Information A3) Foreign currencies | | 2021 | | --- | --- | | EUR v GBP | 1.1374 | | | 1.1564 | | US$ v GBP | 1.2337 | | | 1.2050 | | JPY v GBP | 163.8230 | | | 163.2888 | 276 556 plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report 277SSE plc Annual Report 2023 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 Unit 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 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 years’ allowed revenue as set out in the regulatory licence. No accounting adjustments are made for over- or under-recoveries in the year that they arise as they are contingent on future events (being the transmission of electricity in a future period). The over or under recovery adjustment is recognised in the subsequent period when included within the tariffs that form allowed revenue under the regulatory agreement. 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 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 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 years’ allowed revenue as set out in the regulatory licence. No accounting adjustments are made for over- or under-recoveries in the year that they arise as they are contingent on future events (being the distribution of electricity in a future period). The over or under recovery adjustment is recognised in the subsequent period when included within the tariffs that form allowed revenue under the regulatory agreement. 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 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. ### Accompanying information continued 278 SSE plc Annual Report 2023 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 gas 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 mechanism, 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 (in Ireland) and business end-user customers (in GB and Ireland) 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 judgements involved in 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 related to the Contracting and Rail business, which was disposed on 30 June 2021. For construction related services, revenue was 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 was 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 was 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 was 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 were expensed as incurred. No extended warranty periods were offered. Payments from customers were 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 on physical power and gas supplies recognised ‘point in time’ as delivered to the national settlements body or third parties. 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. 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. Financial StatementsStrategic Report Directors’ Report 279SSE plc Annual Report 2023 Physical energy production The Group’s Gas production business was disposed on 14 October 2021 and was presented as a discontinued operation within the prior year financial statements. Revenue from the physical production of natural gas, crude oil and condensates arose from the Group’s interest in various joint ventures and associates and was based on the entitlement method; whereby the Group’s share of interest and production sharing terms were used to determine the allocation of production to each party in the arrangement. Revenue was recognised ‘point in time’ based on the production delivered to the customer at the specified delivery point and measured based on the applicable market price as specified in the customer contracts. 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 Distributed Energy 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. Other operating income – Government Grants (note 6) During the year ended 31 March 2023, the UK and Irish governments introduced customer support schemes under which licensed energy suppliers are required to provide a discount on gas and electricity prices to customers. The level of discount applied to each customer varied dependent upon energy tariff and support scheme applicable to each customer. Where SSE provided a discount to customer through reduction of energy bill, the cost of applying these discounts was recovered from the Government. The amounts reclaimed under this scheme are recognised as government grant income within Other Operating Income in the consolidated income statement. The most significant customer support scheme administered by the Group during the year was the Energy Bill Relief Scheme, applicable to GB commercial gas and electricity customer usage during the period 1 October 2022 to 31 March 2023. This scheme impacts GB Business Energy with discounts made to SSE’s billings to customers and unbilled income accrual and a separate asset recognised in respect of claimed or to-be-claimed receipts from the UK government. Contract for Differences (‘CfD’) 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. In the year, the Group recognised no income or expense related to Contracts for Difference with the LCCC within its wholly owned subsidiaries. The Group’s joint venture investment, Beatrice Offshore Windfarm Limited, has a CfD with the LCCC which resulted in payments from the LCCC of £25.6m in the year (SSE share of £12.8m recognised within share of profit). The Group’s wholly owned Viking windfarm and joint venture investment Seagreen Wind Energy Limited also have a CfD arrangements in place with LCCC, however these agreements have not yet commenced and no income or cost was recognised during the year. Where the CfD strike price falls below the spot price of generation and payments are made to the LCCC, these payments are expensed as incurred within operating costs. The Group has commercial CfD arrangements in place where the Group has agreed to provide a revenue support contract. Where the Group has entered into these arrangements and there is no relationship with a government entity, the instruments are classified as derivatives and accounted for under IFRS 9. The Group has assessed that due to the valuation complexity of these arrangements, they are Level 3 financial instruments in the fair value hierarchy. On day 1, the Group recognises no gain or loss arising from the instrument, but instead defers this gain or loss and recognises it progressively over the life of the instrument. At each balance sheet date the fair value of the instrument is assessed with any movement in fair value recognised in the income statement in the period it arises. None of these contracts were active at 31 March 2023. 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. ## Accompanying information ### A1. Basis of consolidation and significant accounting policies #### A1.2 Significant accounting policies Finance income and costs (note 9) page 283 page 276 Taxation (note 10) Business Combinations (note 12) Held for sale assets and liabilities and discontinued operations (note 12) 280 516 plc Annual Report 2025 Financial StatementsStrategic Report Directors’ Report 281SSE plc Annual Report 2023 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 the cash-generating units (CGUs) or groups of CGUs expected to benefit from the combination’s synergies. The CGUs (or groups of CGUs) 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 Thermal and Business Energy 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 from 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. The Group continues to hold EU ETS certificates to settle obligations arising through the activities of its Irish Thermal generation assets. 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. 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 renewable obligation, they are recorded at market value at the point of generation or purchased within intangible assets. The Group can hold ROCs in excess of the Group’s renewables obligation, which, due to limited evidence of liquidity or net settlement for ROC trades, 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 renewable 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, battery storage and solar developments, thermal generation projects 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. Revenue and costs incurred through pre-commissioning testing activities are reflected in the income statement. 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. ### Accompanying information continued 282 SSE plc Annual Report 2023 A1. Basis of consolidation and significant accounting policies continued A1.2 Significant accounting policies continued Intangible assets (note 13) continued 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 to 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. Cloud computing arrangements The Group has contracts for Software as a Service (SaaS) and Platform as a Service (PaaS) Cloud Computing Arrangements. Where the Group does not control the underlying assets in these arrangements, costs are expensed as incurred. Implementation costs in respect of these contracts are capitalised when the definition and recognition criteria of an intangible asset under IAS 38 are met. 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. 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 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) 23 to 30 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 and buildings) 30 to 40 Fixtures, IT assets, vehicles and mobile plant (classified within Other assets) 3 to 15 Financial StatementsStrategic Report Directors’ Report 283SSE plc Annual Report 2023 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. Lease arrangements (note 21) Lease arrangements are separately distinguished from service contracts based on 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 282 . 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 the 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 property, plant and equipment 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 property, plant and equipment 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. ### Accompanying information continued 284 SSE plc Annual Report 2023 A1. Basis of consolidation and significant accounting policies continued A1.2 Significant accounting policies continued Impairment review (note 15) continued For assets subject to impairment testing, the asset’s carrying value is compared to the asset’s (or cash-generating unit’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 cash-generating unit (‘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 property, plant and equipment assets 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. Inventories (note 17) Inventories – aside from inventory purchased by the Gas Storage business for trading activities – 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 trading activities 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 to decommission 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, a 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 exclude 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 unwind of discounting of 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. Financial StatementsStrategic Report Directors’ Report 285SSE plc Annual Report 2023 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 scheme assets or 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. 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 . 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 the Group’s 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. ### Accompanying information continued 286 SSE plc Annual Report 2023 A1. Basis of consolidation and significant accounting policies continued A1.2 Significant accounting policies continued Financial instruments (note 24) continued Interest rate and foreign exchange derivatives 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, 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. ## A2. Taxation ### Reconciliation of tax charge to adjusted underlying current tax | | 2021 £m | 2023 % | | --- | --- | --- | | | (205.6) | | | | (662.3) | | | (Loss)/profit before tax | (867.9) | | | | (164.9) | 19.0 | | | (41.6) | 4.8 | | | (1.6) | 0.2 | | | — | — | | | 448.8 | (51.7) | | | (6.7) | 0.8 | | | (27.5) | 3.2 | | | (7.4) | 0.9 | | | 79.7 | (9.3) | | | 0.1 | — | | | (0.1) | — | | | (5.1) | 0.6 | | | (16.7) | 1.9 | | | (2.3) | 0.3 | | Reported current tax charge and effective rate | 254.7 | (29.3) | | | 34.3 | (4.0) | | | 1.6 | (0.2) | | | (448.8) | 51.7 | | | 6.7 | (0.8) | | | 27.5 | (3.2) | | | (12.8) | 1.5 | | | 7.0 | (0.8) | | | 9.0 | (1.0) | | | 1.9 | (0.2) | | | 8.9 | (1.0) | | Reported deferred tax credit and effective rate | (364.7) | 42.0 | | Group tax charge and effective rate | (110.0) | 12.7 | SEE plc Annual Report 2023 287 ## Accompanying information ### A2. Taxation #### Reconciliation of tax charge to adjusted underlying current tax | | 2023 £m | | --- | --- | | | (205.6) | | | 2,312.8 | | | 143.1 | | | 28.8 | | | (28.8) | | | (50.5) | | | (16.2) | | Adjusted profit before tax | 2,183.6 | | | 2023 £m | 2023 % | | --- | --- | --- | | Adjusted profit before tax | 2,183.6 | | | | 414.9 | 19.0 | | Tax effect of: | | | | | (41.7) | (1.9) | | | (0.6) | – | | | 5.7 | 0.2 | | | 6.3 | 0.3 | | | 6.0 | 0.3 | | | (3.6) | (0.2) | | | (12.7) | (0.6) | | | (7.4) | (0.3) | | | 24.1 | 1.1 | | | (7.0) | (0.3) | | | 3.9 | 0.2 | | | (22.0) | (1.1) | | | (9.4) | (0.4) | | | 2.3 | 0.1 | | Adjusted current tax charge and effective rate | 358.8 | 16.4 | 288 SSE plc Annual Report 2023 A1 and A6 A1 # **A3. Related undertakings** **A3.1.1 Subsidiary undertakings** 2023 Holding % | 100.0 | | --- | | 100.0 | | 100.0 | | 80.0 | | 80.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 75.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0* | | 100.0 | | 100.0 | | 100.0 | | 80.0 | | 100.0 | | 100.0 | 556 plc Annual Report 2023 289 ## Accompanying information ### A3. Related undertakings #### A3.1.1 Subsidiary undertakings | | 2023 Holding % | | --- | --- | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0* | | | 100.0 | | | 80.0 | | | 100.0* | | | 100.0 | | | 100.0 | | | 100.0 | | | 80.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 80.0 | | | 100.0 | | | 80.0 | | | 80.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 75.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | 290 SSE plc Annual Report 2023 2023 Holding % 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 55E plc Annual Report 2023 291 ### Accompanying information continued ### A3. Related undertakings continued A3.1.1 Subsidiary undertakings continued 292 SSE plc Annual Report 2023 Company Country of incorporation Registered address (key) 2023 Holding % 2022 Holding % Principal activity SSE DE Solar Holdco Limited England and Wales B 100.0 – Holding Company SSE Digital Services Limited England and Wales B 100.0 – Holding Company 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 EV M7 Limited England and Wales B 100.0 – Power Generation SSE EV Operational Assets Limited (formerly EV Operational Assets Limited) England and Wales B 100.0 – Power Generation SSE Ferrybridge Battery Limited England and Wales B 100.0 – Power Generation SSE Fiddlers Ferry Battery Limited England and Wales B 100.0 – Power Generation SSE Foxholes Solar Limited (formerly Foxholes Solar Limited) England and Wales B 100.0 – Power Generation SSE Galloper Offshore Windfarm Holdings Limited England and Wales B 100.0 100.0 Holding Company 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 Imperial Park PN Limited England and Wales B 100.0 – Power Generation SSE Insurance Limited Isle of Man G 100.0 100.0 Insurance SSE Knapthorpe Solar Limited (formerly Knapthorpe Solar Limited) England and Wales B 100.0 – Power Generation 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 Muskham Solar Limited (formerly Muskham Solar Limited) England and Wales B 100.0 – Power Generation SSE OWS Glasgow Limited Scotland A 100.0 100.0 Property Holding SSE Pacifico K.K. Japan Y 80.0 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 (Netherlands) Holdings B.V. Netherlands AA 100.0 100.0 Holding Company SSE Renewables Developments (Germany) GmbH Germany AJ 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 Limited Scotland A 100.0 100.0 Holding Company SSE Renewables Limited Scotland A 100.0 100.0 Holding Company SSE Renewables North America Inc. United States W 100.0 100.0 Renewable Development SSE Renewables North America Offshore Wind LLC. United States W 100.0 100.0 Renewable Development SSE Renewables North America Services Inc United States W 100.0 – Renewable Development SSE Renewables Off Shore Limited Ireland C 100.0 100.0 Holding Company SSE Renewables Offshore Windfarm Holdings Limited Scotland A 100.0 100.0 Holding Company SSE Renewables Onshore Windfarm Holdings Limited Northern Ireland F 100.0 100.0 Holding Company SSE Renewables Poland Holdings Limited Scotland A 100.0 100.0 Holding Company SSE Renewables Poland sp z.o.o. (formerly Virtomille Investments sp z.o.o.) Poland X 100.0 100.0 Renewable Development 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 | 2023 Holding % | | --- | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 80.0 | | 80.0 | 55E plc Annual Report 2025 293 ### Accompanying information continued ### A3. Related undertakings continued A3.1.1 Subsidiary undertakings continued 294 SSE plc Annual Report 2023 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 Aberarder Wind Farm LLP OC398487 Bhlaraidh Wind Farm Limited SC663027 Fibre Power (Slough) Limited 02902170 Fusion Heating Limited NI056373 Keadby Wind Farm Limited 06852112 Slough Utility Services Limited 03486590 SSE Beatrice Offshore Windfarm Holdings Limited SC436255 SSE DE Battery Holdco Limited 13561962 SSE DE EV Holdco Limited 14278443 SSE Enterprise Limited 10060563 SSE Imperial Park PN Limited 02631510 SSE Maple Limited 10604848 SSE Medway Operations Limited 02647585 SSE Micro Renewables Limited SC386017 SSE OWS Glasgow Limited SC228283 SSE Production Services Limited 02499702 SSE Renewables Holdings (UK) Limited NI043239 SSE Renewables Offshore Windfarm Holdings Limited SC436251 SSE Renewables Onshore Windfarm Holdings Limited NI049557 SSE Renewables Poland Holdings Limited SC723844 SSE Renewables UK Limited NI048447 SSE Renewables Wind Farms (UK) Limited SC654502 SSE Retail Limited SC213458 SSE Seabank Investments Limited 02631512 SSE Seabank Land Investments Limited 07877772 SSE Thermal Energy Holdings Limited 12650549 SSE Toddleburn Limited SC259104 SSE Viking Limited 06021053 SSEPG (Operations) Limited 02764438 Strathy Wind Farm Limited SC663103 Tealing Solar Park Limited 08783684 A3.1.2 Joint arrangements (incorporated) Company Country of incorporation Registered address (key) 2023 Holding % 2022 Holding % Principal activity AtlasConnect Limited Scotland A 50.0 50.0 Dormant Baglan Pipeline Limited England and Wales K 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 Cloosh Valley Wind Farm Designated Activity Company Ireland L 25.0 25.0 Power Generation Cloosh Valley Wind Farm Holdings Designated Activity Company Ireland L 25.0 25.0 Holding Company Clyde Windfarm (Scotland) Limited** Scotland A 50.1 50.1 Power Generation DB Operational Base Limited England and Wales J 40.0 40.0 Warehousing and storage facilities Deeside Power (UK) Limited England and Wales AF 50.0 – Power Generation Deeside Power Operation Limited England and Wales AF 50.0 – Power Generation Digital Reach Partners Limited Scotland A 50.0 50.0 Telecommunications Doggerbank Offshore Wind Farm Project 1 Holdco Limited England and Wales B 40.0 40.0 Holding Company Doggerbank Offshore Wind Farm Project 1 Projco Limited England and Wales B 40.0 40.0 Renewable Development Doggerbank Offshore Wind Farm Project 2 Holdco Limited England and Wales B 40.0 40.0 Holding Company Doggerbank Offshore Wind Farm Project 2 Projco Limited England and Wales B 40.0 40.0 Renewable Development Doggerbank Offshore Wind Farm Project 3 Holdco Limited England and Wales B 40.0 40.0 Holding Compan y | 2023 Holding % | | --- | | 40.0 | | 50.1 | | 49.0 | | 50.0 | | 50.0 | | 50.0 | | 50.0 | | 47.5 | | 50.0 | | 50.0 | | 50.0 | | 50.0 | | 49.0 | | 50.0 | | 50.0 | | 50.0 | | 49.0 | | 50.0 | | 50.0 | | 50.0 | | 50.0 | | 40.0 | | 40.0 | | 50.0 | | 50.0 | | 50.0 | | 50.0 | | 49.0 | | 49.0 | | 49.0 | | 49.0 | | 49.0 | | 49.0 | | 50.0 | | 50.0 | | 50.1 | | 50.0 | | 50.0 | | 50.0 | | 50.0 | | 50.0 | | 50.0 | | 50.0 | # **A3.1.3 Associates** | 2023 Holding % | | --- | | 25.0 | 158 plc Annual Report 2023 295 ## Accompanying information ### A3. Related undertakings A.3.1.4 Registered address key ### A4. Joint ventures and associates 296 532 plc Annual Report 2023 | | Saabanh Power Limited 2023 £m | Manchwood Power Limited 2023 £m | SSE Straight Multifast Limited 2023 £m | Clyde Windfarm Scotland Limited 2023 £m | Seagreen Wind Energy Limited 2023 £m | Beatrice Offshore Windfarm Limited 2023 £m | Durmington Windfarm Limited 2023 £m | Shrewsbury Windfarm Limited 2023 £m | Tribe Power Holdings Limited 2023 £m | West Natsoorie Limited 2023 £m | Other 2023 £m | Total 2023 £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 274.5 | 103.8 | – | 297.5 | 95.2 | 376.5 | 68.7 | 151.5 | 1,628.7 | 159.2 | 62.3 | 3,217.9 | | | – | – | – | – | – | 25.5 | – | – | – | – | – | 25.5 | | | (6.9) | (30.7) | – | (29.1) | (27.9) | (89.6) | (7.7) | (13.7) | (84.0) | (95.0) | (30.4) | (405.0) | | | (216.5) | (21.0) | – | (56.8) | (40.8) | (94.8) | (12.6) | (28.0) | (415.1) | (80.3) | (40.1) | (1,006.0) | | | 51.1 | 92.1 | – | 211.6 | 56.5 | 217.6 | 48.4 | 109.8 | 1,129.6 | (16.1) | (8.2) | 1,652.4 | | | (0.7) | (5.2) | – | (18.4) | (20.7) | (85.4) | (6.1) | (12.1) | (2.4) | (20.7) | (3.0) | (154.7) | | | 50.4 | 46.9 | – | 201.2 | 15.8 | 152.2 | 42.3 | 97.7 | 1,127.2 | (36.8) | (11.2) | 1,677.7 | | | (10.6) | (6.1) | – | (35.6) | (5.8) | (26.0) | (8.1) | (15.1) | (179.2) | – | (4.2) | (292.7) | | | 39.8 | 40.8 | – | 157.6 | 12.0 | 126.2 | 34.2 | 78.6 | 948.0 | (36.8) | (15.4) | 1,385.0 | | Recognised in other comprehensive income | | | | | | | | | | | | | | | – | – | – | – | – | – | – | – | – | – | – | – | | | – | – | – | – | – | – | – | – | – | – | – | – | | | – | – | 6.2 | – | 141.0 | 152.4 | – | – | – | – | 807.6 | 1,107.2 | | | – | – | (1.6) | – | (35.3) | (38.1) | – | – | – | – | (201.8) | (276.8) | | | – | – | 4.6 | – | 105.7 | 114.3 | – | – | – | – | 605.8 | 830.4 | | | 39.8 | 40.8 | 4.6 | 157.6 | 117.7 | 240.5 | 34.2 | 78.6 | 948.0 | (36.8) | 590.4 | 2,215.4 | | | 19.9 | 20.4 | – | 78.9 | 5.9 | 50.5 | 17.1 | 39.3 | 474.0 | (18.4) | (24.0) | 663.6 | | | 47.0 | 22.4 | – | 169.1 | – | 146.5 | 35.2 | 95.6 | 101.4 | – | 2.0 | 617.2 | | | 96.2 | 154.1 | 353.5 | 560.4 | 3,329.8 | 1,906.0 | 175.0 | 330.2 | 189.6 | 626.2 | 6,288.3 | (3,909.3) | | | 48.8 | 55.5 | 10.0 | 119.0 | 19.4 | 50.5 | 27.5 | 58.2 | 507.0 | 41.9 | 59.9 | 995.7 | | | 69.5 | 32.8 | 8.4 | 83.4 | 86.4 | 91.3 | 19.0 | 48.3 | 16.7 | 23.3 | 86.1 | 565.0 | | | (19.1) | (56.3) | (25.6) | (20.4) | (97.2) | (176.3) | (4.6) | (19.8) | (301.7) | (144.0) | (246.8) | (1,051.8) | | | (61.6) | (65.9) | (265.2) | (437.3) | (2,870.7) | (1,000.4) | (139.3) | (200.0) | (18.0) | (353.1) | (5,241.9) | (11,512.4) | | | 133.6 | 136.2 | 83.1 | 305.1 | 407.7 | 71.1 | 77.6 | 157.9 | 393.6 | 194.3 | 945.6 | 2,905.8 | | | 50% | 50% | 50% | 50.1% | 49% | 40% | 50.1% | 50.1% | 50% | 50% | | | | | 133.6 | 136.2 | 83.1 | 305.1 | 407.7 | 71.1 | 77.6 | 157.9 | 393.6 | 194.3 | 945.6 | 2,905.8 | | | 66.8 | 60.1 | 41.5 | 152.8 | 109.8 | 28.4 | 58.8 | 70.1 | 106.8 | 97.2 | 376.4 | 1,145.7 | | | (20.3) | 0.3 | 30.9 | 37.2 | 141.8 | (15.3) | 68.1 | 214.7 | 57.1 | (22.5) | 108.3 | 591.3 | | | 46.5 | 68.4 | 72.4 | 180.0 | 341.6 | 13.1 | 106.9 | 293.8 | 253.9 | 74.7 | 489.7 | 1,307.0 | SSE plc Annual Report 2023 297 ## Accompanying information ### A4. Joint ventures and associates | | | | --- | --- | | | | | | | | | | | | | | | | | Recognised in other compreh- ensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 298 SSE plc Annual Report 2023 ## A5. Related party transactions ### Trading transactions | | 2023 Sale of goods and services £m | 2023 Purchase of goods and services £m | 2023 Amounts owed from £m | 2023 Amounts owed to £m | | --- | --- | --- | --- | --- | | Joint ventures: | | | | | | | – | – | – | – | | | 122.4 | (228.5) | – | (16.8) | | | – | – | – | – | | | 4.8 | (280.5) | 0.1 | (49.5) | | | 4.7 | (176.5) | 1.0 | (8.7) | | | 2.4 | (146.2) | – | (21.7) | | | 1.1 | (66.4) | – | (9.1) | | | 3.8 | (23.8) | 46.2 | (5.8) | | | 35.2 | (44.4) | 22.9 | (7.5) | | | 25.4 | – | 7.6 | – | | | – | – | – | – | | | 14.0 | (219.2) | 1.1 | (50.8) | A7.2 156 plc Annual Report 2023 299 ### Accompanying information continued 300 SSE plc Annual Report 2023 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. 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 (the ‘Group Energy Markets Exposures Risk Committee’) and the Board Sub-committee chaired by non-Executive Director Tony Cocker (the ‘Energy Markets Risk Committee (EMRC)’). These Committees oversee the Group’s management of its energy market exposures, including its approach to hedging. During the year ended 31 March 2023, the Group was exposed to exceptional volatility in energy markets impacting the primary commodities to which it is exposed (Gas, Carbon and Power) due to the ongoing impacts from the war in Ukraine and other global factors. The Group’s approach to hedging, and the diversity of its energy portfolios (across Wind, Hydro, Thermal and Customers) has provided significant certain 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. Market access to energy markets to enable hedging and prompt optimisation has been maintained by a combination of three key actions. Firstly, bilateral counterparty limits have been increased (subject to Executive Director authorisation) and SSE has continued to utilise market access provided by exchange platforms and auctions. Secondly, the SSE Group Parent Company Guarantee has been increased appropriately to reflect the impact of market volatility on counterparty exposures. Finally, since March 2022, SSE Treasury facilities have been increased by circa £730m with relationship banks and insurance companies in order to facilitate letters of credit to be posted as collateral instead of cash to support the route to market of the Group. At 31 March, the Group’s collateral position was as follows: Note 2023 £m 2022 £m Collateral posted included within trade and other receivables 18 316.3 74.7 Net collateral posted/(received) 316.3 74.7 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. Financial StatementsStrategic Report Directors’ Report 301SSE plc Annual Report 2023 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 authority 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 2023, EPM had pledged £443.6m (2022: £545.9m) of cash collateral and letters of credit and had received £110.8m (2022: £95.8m) 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. ## Accompanying information ### A6. Financial risk management #### A6.2 Concentrations of risk | | 2023 £m | | --- | --- | | | 8.0 | | | 137.2 | | | 88.3 | | | 41.0 | | | 1.5 | | | 386.9 | | | 125.1 | | | 31.8 | | | 567.5 | | | 16.7 | | Total SSE Group | 1,404.0 | | | 2023 £m | | --- | --- | | | 1,229.0 | | | 116.3 | | | 65.6 | | | 162.3 | | | 1,573.2 | | | (169.2) | | | 1,404.0 | | | 2023 £m | | --- | --- | | | 78.2 | | | 116.8 | | | (25.8) | | | 169.2 | 302 SSE plc Annual Report 2023 A6.3 Liquidity risk and Going Concern SSE plc Annual Report 2023 303 ## Accompanying information ### A6. Financial risk management #### A6.3 Liquidity risk and Going Concern | Liquidity risk | 2023 Carrying value £m | 2023 Contractual cash flows £m | 2023 0-12 months £m | 2023 1-2 years £m | 2023 2-5 years £m | 2023 > 5 years £m | | --- | --- | --- | --- | --- | --- | --- | | | 1,019.2 | (1,029.8) | (1,029.8) | – | – | – | | | 200.0 | (253.4) | (10.7) | (10.7) | (232.0) | – | | | 1,574.7 | (2,064.5) | (96.5) | (194.3) | (917.7) | (856.0) | | | 5,705.5 | (7,596.0) | (182.8) | (681.3) | (2,040.7) | (4,691.2) | | | 154.6 | – | – | – | – | – | | | 8,654.0 | (10,943.7) | (1,319.8) | (886.3) | (3,190.4) | (5,547.2) | | | 405.9 | (613.0) | (94.5) | (55.8) | (146.6) | (316.1) | | | 9,059.9 | (11,556.7) | (1,414.3) | (942.1) | (3,337.0) | (5,863.3) | | | 1,152.8 | (1,841.9) | (1,770.2) | (97.5) | 1.0 | 24.8 | | | 37.4 | (37.4) | (8.5) | (8.5) | (17.2) | (3.2) | | | 55.2 | (55.2) | (5.0) | (4.9) | (13.2) | (32.1) | | | 11.5 | (337.7) | (292.0) | (42.3) | (3.4) | – | | | 7.4 | 2.0 | (50.7) | 66.4 | (13.7) | – | | | 1,264.3 | (2,270.2) | (2,126.4) | (86.8) | (46.5) | (10.5) | | | 694.6 | (694.6) | (694.6) | – | – | – | | | 694.6 | (694.6) | (694.6) | – | – | – | | | 11,018.8 | (14,521.5) | (4,235.3) | (1,028.9) | (3,383.5) | (5,873.8) | | | (239.3) | 638.9 | 518.2 | 82.1 | 37.0 | 1.6 | | | (765.9) | 1,445.5 | 970.5 | 40.9 | 127.9 | 306.2 | | | (1,005.2) | 2,084.4 | 1,488.7 | 123.0 | 164.9 | 307.8 | | | 10,013.6 | (12,437.1) | (2,746.6) | (905.9) | (3,218.6) | (5,566.0) | 304 556 plc Annual Report 2023 A6.4 Commodity risk SSE plc Annual Report 2023 305 ### Accompanying information continued 306 SSE plc Annual Report 2023 A6. Financial risk management continued A6.4 Commodity risk continued 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 less than 100% of anticipated wind energy output for the coming 12 months, progressively establishing the hedge over the 36 months prior to delivery. From May 2021, this has been around 90%. Power, Gas, Carbon Hydro 85% of forecast generation 12 months in advance of delivery, progressively established over the 36 months prior to delivery. Power, Gas, Carbon GB Thermal 100% of expected output 6 months in advance of delivery, progressively established over the 18 months prior to delivery. Power, Gas, Carbon Gas Storage The annual auction to offer gas storage capacity contracts from Atwick for 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. Gas Business Energy Sales to contract customers are 100% hedged: at point of sale for fixed, upon instruction for flexi and on a rolling basis for tariff customers. Power, Gas 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 effect these hedges and EPM then trading onwards with external counterparties and markets. 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 to the Group Energy Markets Exposures Risk Committee, and to the Energy Markets Risk Committee (‘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, within the Group’s financial statements only certain commodity contracts are designated as financial instruments under IFRS 9. As a result, it is only the fair value of those 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. 2023 | Base Price* | Seasonality possible increase/decrease in variable | | --- | --- | | 113 | +90/-71 | | --- | --- | | 149 | +89/-72 | | 74 | +54/-39 | | 98 | +69/-54 | | 597 | +290/-244 | | 172 | +138/-108 | 2023 | Impact on profit and equity (£m) | | --- | 399.3 (306.3) A6.5 Currency risk 550 plc Annual Report 2023 307 ## Accompanying information ### A6. Financial risk management #### A6.5 Currency risk | | 2023 £m | | --- | --- | | | 2,516.5 | | 2023 | | | | | | --- | --- | --- | --- | --- | | | SEK (million) | S (million) | € (million) | CNH (million) | | | – | 564.0 | 3,700.0 | – | | | 420.9 | 7.9 | 123.9 | 334.2 | | | 420.9 | 571.9 | 3,823.9 | 334.2 | | | 420.9 | 571.9 | 2,266.1 | 334.2 | | | – | – | 1,557.8 | – | | | – | – | 1,369.6 | – | | | At 31 March 2023 £m | At 31 March 2023 £m | | --- | --- | --- | | | – | – | | | 98.9 | 24.4 | | | – | – | | | – | – | | | – | – | | | 98.9 | 24.4 | 308 516 plc Annual Report 2023 # **A6.6 Interest rate risk** | | 2023 Carrying amount £m | | --- | --- | | Interest bearing/earning assets and liabilities: | (8,473.9) 441.0 | | | (8,032.9) | | Represented by: | 891.8 135.2 (8,654.0) (405.9) | | | (8,032.9) | | | 2023 £m | | --- | --- | | | 3.7 | 556 plc Annual Report 2023 309 ## Accompanying information ### A7. Fair value of financial instruments #### A7.1 Fair value of financial instruments within the group | | 2023 Amortised cost £m | 2023 FV7DC/ FV7DC/ £m | 2023 Total carrying value £m | 2023 Fair value £m | | --- | --- | --- | --- | --- | | Financial assets | | | | | | Current | | | | | | | 1,404.0 | – | 1,404.0 | 1,404.0 | | | 12.7 | – | 12.7 | 12.7 | | | 316.3 | – | 316.3 | 316.3 | | | 891.8 | – | 891.8 | 891.8 | | | – | 759.2 | 759.2 | 759.2 | | | 2,624.8 | 759.2 | 3,384.0 | 3,384.0 | | Non-current | | | | | | | – | 27.4 | 27.4 | 27.4 | | | 149.5 | – | 149.5 | 149.5 | | | 1,114.6 | – | 1,114.6 | 1,114.6 | | | – | 246.0 | 246.0 | 246.0 | | | 1,264.1 | 273.4 | 1,537.5 | 1,537.5 | | | 3,888.9 | 1,032.6 | 4,921.5 | 4,921.5 | | Financial liabilities | | | | | | Current | | | | | | | (694.6) | – | (694.6) | (694.6) | | | – | – | – | – | | | (1,738.5) | – | (1,738.5) | (1,747.8) | | | (82.1) | (243.3) | (82.1) | (82.1) | | | – | (243.3) | (243.3) | (243.3) | | | (2,515.2) | (243.3) | (2,758.5) | (2,767.8) | | Non-current | | | | | | | (6,760.9) | (154.6) | (6,915.5) | (6,458.4) | | | (323.8) | – | (323.8) | (323.8) | | | – | (1,021.0) | (1,021.0) | (1,021.0) | | | (7,084.7) | (1,175.6) | (8,260.3) | (7,803.2) | | | (9,599.9) | (1,418.9) | (11,018.8) | (10,571.0) | | Net financial liabilities | (5,711.0) | (386.3) | (6,097.3) | (5,649.5) | 310 SSE plc Annual Report 2023 # A7.1.1 Basis of determining fair value # A7.2 Fair value hierarchy | | 2023 Level 1 £m | 2023 Level 2 £m | 2023 Level 3 £m | 2023 Total £m | | --- | --- | --- | --- | --- | | Financial assets | – | 743.9 | 22.0 | 765.9 | | | – | 227.8 | – | 227.8 | | | – | 11.5 | – | 11.5 | | | – | – | 27.4 | 27.4 | | | – | 983.2 | 49.4 | 1,032.6 | | Financial liabilities | (189.6) | (959.4) | (23.8) | (1,152.8) | | | – | (92.6) | – | (92.6) | | | – | (18.9) | – | (18.9) | | | – | (154.6) | – | (154.6) | | | (189.6) | (1,205.5) | (23.8) | (1,418.9) | 55E plc Annual Report 2023 311 ## Accompanying information ### A7. Fair value of financial instruments A7.2 Fair value hierarchy Level 3 financial instrument fair value as at 31 March 2022 #### Deferred measurement differences Deferred measurement difference as at 31 March 2022 Deferred measurement difference as at 31 March 2023 Financial assets Financial liabilities 312 532 plc Annual Report 2023 # A8: Hedge accounting # A8.1 Cash flow hedges A1 | | 2023 Carrying amount | 2023 Expected cash flows | 2023 0 – 12 months | 2023 1-2 years | 2023 2-5 years | 2023 >5 years | | --- | --- | --- | --- | --- | --- | --- | | Interest rate swaps: | 25.2 | 28.1 | 6.5 | 5.5 | 15.8 | 0.3 | | | – | – | – | – | – | – | | | 25.2 | 28.1 | 6.5 | 5.5 | 15.8 | 0.3 | | Cross currency swaps: | 178.9 | 194.0 | 110.1 | 56.0 | 27.9 | – | | | (37.4) | (30.3) | (17.8) | (17.6) | (10.6) | 15.7 | | | 141.5 | 163.7 | 92.3 | 38.4 | 17.3 | 15.7 | | Forward exchange contracts: | 2.4 | (120.4) | (106.9) | (11.7) | (1.8) | – | | | (11.5) | (337.7) | (292.0) | (42.3) | (3.4) | – | | | (9.1) | (458.1) | (398.9) | (54.0) | (5.2) | – | # A8.2 Net investment hedge SSE plc Annual Report 2023 313 # **Company balance sheet** **As at 31 March 2023** | | 2023 £m | | --- | --- | | Assets | | | | 50.4 | | | 81.6 | | | 1,904.1 | | | 11,382.6 | | | 48.2 | | | 366.6 | | Non-current assets | 13,833.5 | | | 1,002.1 | | | 1.4 | | | 788.9 | | | 167.1 | | Current assets | 1,959.5 | | Total assets | 15,793.0 | | Liabilities | | | | 1,588.5 | | | 2,667.1 | | | 5.3 | | | 13.5 | | Current liabilities | 4,274.4 | | | 4,307.8 | | | 78.3 | | | 196.5 | | | 79.2 | | Non-current liabilities | 4,661.8 | | Total liabilities | 8,936.2 | | Net assets | 6,856.8 | | Equity: | | | | 547.0 | | | 821.2 | | | 52.6 | | | (3.0) | | | 3,556.6 | | Equity attributable to ordinary shareholders of the parent | 4,974.4 | | | 1,882.4 | | Total equity | 6,856.8 | **Result for the year** **Gregor Alexander** Finance Director **Sir John Manzoni** Chairman 314 55E plc Annual Report 2023 ## Company statement of changes in equity ### Statement of changes in equity | | Share capital £m | Share premium account £m | Capital redemption reserve £m | Hedge reserve £m | Retained earnings £m | Total attributable to ordinary shareholders £m | Hybrid Capital £m | Total £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | At 1 April 2022 | 536.5 | 835.1 | 49.2 | 13.3 | 2,278.3 | 3,712.4 | 1,051.0 | 4,763.4 | | Profit for the year | – | – | – | – | 1,960.6 | 1,960.6 | 38.8 | 1,999.4 | | Other comprehensive income | – | – | – | (16.3) | (113.7) | (130.0) | – | (130.0) | | Total comprehensive income for the year | – | – | – | (16.3) | 1,846.9 | 1,830.6 | 38.8 | 1,869.4 | | Dividends to shareholders | – | – | – | – | (955.8) | (955.8) | – | (955.8) | | Scrip dividend related share issue | 13.9 | (13.9) | – | – | 481.5 | 481.5 | – | 481.5 | | Issue of treasury shares | – | – | – | – | 18.0 | 18.0 | – | 18.0 | | Distributions to Hybrid equity holders | – | – | – | – | – | – | (38.8) | (38.8) | | Redemption of Hybrid equity | – | – | – | – | – | – | – | – | | Issue of Hybrid | – | – | – | – | – | – | 831.4 | 831.4 | | Share buy back | – | – | – | – | (107.6) | (107.6) | – | (107.6) | | Credit in respect of employee share awards | – | – | – | – | 18.7 | 18.7 | – | 18.7 | | Investment in own shares* | (3.4) | – | 3.4 | – | (23.4) | (23.4) | – | (23.4) | | At 31 March 2023 | 547.0 | 821.2 | 52.6 | (3.0) | 3,556.6 | 4,974.4 | 1,882.4 | 6,856.8 | SSE plc Annual Report 2023 315 # Notes to the Company financial statements For the year ended 31 March 2023 1. Principal accounting policies 1.1 General information 1.2 Basis of preparation Going concern A6 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 and A6 A1.2 316 SEE plc Annual Report 2023 ## 2. Supplementary financial information ### 2.1 Auditor remuneration ### 2.2 Employee numbers ### 2.3 Directors' remuneration and interests pages 166 to 187 ## 3. Investments in associates and joint ventures | | 2023 | | | | --- | --- | --- | --- | | | Equity £m | Loans £m | Total £m | | Share of net assets/cost | 12.7 | 129.2 | 141.9 | | | 19.5 | 15.8 | 35.3 | | | – | – | – | | | 50.0 | (50.0) | – | | | – | (13.4) | (13.4) | | | (31.8) | – | (31.8) | | At 31 March | 50.4 | 81.6 | 132.0 | ## 4. Subsidiary undertakings A3 ### Investment in subsidiaries | | 2023 £m | | --- | --- | | | 1,883.6 | | | 20.5 | | | 1,904.1 | SSE plc Annual Report 2023 317 # **Notes to the Company financial statements** **For the year ended 31 March 2023** # **5. Trade and other receivables** # **6. Trade and other payables** # **7. Taxation** Current tax asset 2023 £m # **Deferred taxation** | Charge to income statement | 50.0 | 0.2 | – | 50.2 | | --- | --- | --- | --- | --- | | Credit to other comprehensive income/(loss) | (0.9) | (38.0) | – | (38.9) | | Charge to equity | – | – | 2.0 | 2.0 | | At 31 March 2023 | (7.6) | 91.6 | (5.7) | 78.3 | 2023 £m (13.8) Net deferred tax liability 78.3 # **8. Loans and borrowings** 2023 £m | Current | 1,588.5 | | --- | --- | | | 1,588.5 | | Non-current | 4,307.8 | | | 4,307.8 | | Total loans and borrowings | 5,896.3 | | | (788.9) | | Unadjusted Net Debt | 5,107.4 | | | 1,882.4 | | Adjusted net debt and hybrid capital | 6,989.8 | 318 SEE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report 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 2023 there was £919m commercial paper outstanding (2022: £507m). During the year to 31 March 2023 SSE plc issued a 7 year €650m Eurobond at a coupon of 2.875% with an all-in cost of funding rate of just below 3% once fees and cost of pre-hedging have been included. The bond will be left in Euros as part of the Group’s net investment hedge of Euro denominated businesses. In April 2022 SSE plc issued a €1bn NC6 equity accounted Hybrid bond at 4% to re-finance the dual tranche debt accounted Hybrid bonds whose first call date occurred on 16 September 2022, with SSE taking advantage of the 3 month par call option on these Hybrid bonds meaning the bonds were repaid on 16 June 2022. The Company also has £2.5bn of revolving credit facilities (see note 21.3). These facilities continue to provide back-up to the commercial paper programme and, as at 31 March 2023 these facilities were undrawn (2022: undrawn). Analysis of borrowings | | 2023 | | | | | | 2022 | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Weighted | | | | | | Weighted | | 2022 | 2022 | | 2022 | | average | | 2023 | 2023 | | 2023 | average | | Face | Fair | Carrying | | | interest | | Face | Fair | Carrying | | interest | | value | value | amount | | | | rate | value | value | amount | | | rate | £m | £m | | £m | Current (ii) Other short term loans – non-amortising 4.5% 929.4 933.5 919.2 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 US Private Placement 28 April 2023 2.8% 35.0 35.3 35.0 – – – – US Private Placement 6 September 2023 2.9% 120.0 118.8 119.8 – – – – 1.75% €700m Eurobond repayable (iv) 8 September 2023 1.8% 514.6 510.8 514.5 – – – – Total current borrowings 1,599.0 1,598.4 1,588.5 969.8 1,011.4 968.7 Non-current (i) Bank loans – non-amortising 5.3% 100.0 102.4 100.0 – – – – US Private Placement 28 April 2023 – – – – 2.8% 35.0 35.4 34.9 US Private Placement 6 September 2023 – – – – 2.9% 120.0 120.1 119.4 US Private Placement 16 April 2024 4.4% 204.1 259.6 204.1 4.4% 204.1 250.6 204.0 1.75% €700m Eurobond repayable (iv) 8 September 2023 – – – – 1.8% 514.6 524.0 514.3 (v) 1.25% Eurobond Repayable 16 April 2025 1.3% 531.4 508.3 531.4 1.3% 531.4 533.4 531.4 0.875% €600m Eurobond Repayable (ix) 8 September 2025 0.9% 527.5 495.3 526.2 0.9% 510.9 504.3 504.2 US Private Placement 8 June 2026 3.1% 64.0 59.9 63.5 3.1% 64.0 63.8 63.3 US Private Placement 6 September 2026 3.2% 247. 1 257.4 245.0 3.2% 247.1 258.7 244.3 US Private Placement 6 September 2027 3.2% 35.0 31.7 34.7 – – – – 1.375% €650m Eurobond repayable (vii)(ix) 4 September 2027 1.4% 591.4 545.8 590.5 – – – – Between two and five years 2,300.5 2,260.4 2,295.4 2,227.1 2,290.3 2,215.8 (i) Bank loans – non-amortising – – – – 0.8% 100.0 100.4 100.0 US Private Placement 6 September 2027 – – – – 3.2% 35.0 34.8 34.6 1.375% €650m Eurobond repayable (vii) 4 September 2027 – – – – 1.4% 591.4 588.7 590.2 8.375% Eurobond repayable on 20 November 2028 8.4% 500.0 575.0 497.6 8.4% 500.0 659.0 497.2 (ix) 2.875% Eurobond repayable on 1 August 2029 2.9% 571.5 548.3 569.8 – – – – (viii) 1.750% Eurobond Repayable 16 April 2030 1.8% 442.9 388.1 442.9 1.8% 442.9 439.6 442.9 6.25% Eurobond repayable on 27 August 2038 6.3% 350.0 372.0 347.5 6.3% 350.0 473.3 347.4 4.75% $900m NC5.5 Hybrid maturing (vi) 16 September 2077 – – – – 4.8% 725.4 727.6 725.1 3.625% NC5.5 Hybrid maturing 16 September 2077 – – – – 3.6% 300.0 301.6 299.9 Over five years 1,864.4 1,883.4 1,857.8 3,044.7 3,325.0 3,037.3 (iii) Fair value adjustment 154.6 31.6 Total non-current borrowings 4,164.9 4,143.8 4,307.8 5,271.8 5,615.3 5,284.7 Total borrowings 5,763.9 5,742.2 5,896.3 6,241.6 6,626.7 6,253.4 319SSE plc Annual Report 2023 # **Notes to the Company financial statements** **For the year ended 31 March 2023** # **8. Loans and borrowings** **8.1 Borrowing facilities** Analysis of borrowings # **9. Equity** Share capital | Issue of shares | 27.7 | 13.9 | | --- | --- | --- | | Share repurchases | (6.9) | (3.4) | | At 31 March 2023 | 1,093.9 | 547.0 | # **Capital redemption reserve** # **Hedge reserve** # **Hybrid equity** | | 2023 £m | | --- | --- | | | 598.0 | | | 453.0 | | | 831.4 | | | 1,882.4 | 320 55E plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### 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 loss recognised in respect of the pension asset in the | Scheme type | statement of comprehensive income | | | Net pension asset | | | | --- | --- | --- | --- | --- | --- | --- | | | | 2023 | 2022 | | 2023 | 2022 | | | | £m | £m | | £m | £m | Scottish Hydro Electric Defined benefit (152.0) (24.6) 366.6 517.5 Net actuarial loss (152.0) (24.6) 366.6 517.5 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 Pension 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 Pension Scheme at 31 March 2023 was equal to £366.6m (2022: £517.5m). 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 2023 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 | | | | | 2023 | | 2022 | | Rate of increase in pensionable salaries 3.5% 4.2% Rate of increase in pension payments 3.2% 3.7% Discount rate 4.8% 2.7% Inflation rate 3.2% 3.7% 321SSE plc Annual Report 2023 ### Notes to the Company financial statements continued ### For the year ended 31 March 2023 ### 10. Retirement benefit obligations continued 10.1 Pension scheme assumptions continued The assumptions relating to longevity underlying the pension liabilities at 31 March 2023 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 | | | | 2023 | | 2023 | | 2022 | | | 2022 | | | Male | Female | | | Male | | Female | | Currently aged 65 22 24 22 24 Currently aged 45 24 26 24 27 The impact on the scheme’s liabilities of changing certain of the major assumptions is as follows: At 31 March 2023 At 31 March 2022 Increase/ Effect on Increase/ decrease in scheme decrease in Effect on assumption liabilities assumption scheme liabilities Rate of increase in pensionable salaries 0.1% +/-0.1% 0.1% +/-0.1% Rate of increase in pension payments 0.1% +/-0.7% 0.1% +/-0.9% Discount rate 0.1% +/-0.7% 0.1% +/-1.0% Longevity 1 year +/-1.9% 1 year +/-2.0% These assumptions are considered to have the most significant impact on the scheme valuations. 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 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Quoted | | Unquoted | | 31 March 2023 | | | Quoted | | Unquoted | | 31 March 2022 | | | | | £m | | £m | | | £m | | £m | | £m | | | £m | Equities 34.3 – 34.3 39.5 – 39.5 Government bonds 441.8 – 441.8 719.1 – 719.1 Insurance contracts – 532.4 532.4 – 713.5 713.5 Other investments 381.0 – 381.0 448.9 – 448.9 Total fair value of plan assets 1,389.5 1,921.0 Present value of defined benefit obligation (1,022.9) (1,403.5) Surplus in the scheme 366.6 517.5 (i) Deferred tax thereon (91.7) (129.4) Net pension asset 274.9 388.1 (i) Deferred tax is recognised at 25% (2022: 25%) on the surplus. 322 SSE plc Annual Report 2023 # **10.3 Movements in the defined benefit assets and obligations during the year:** | | 2023 | | | | --- | --- | --- | --- | | | Assets £m | Obligations £m | Total £m | | Included in income statement | 1,921.0 | (1,403.5) | 517.5 | | | – | (11.1) | (11.1) | | | – | (2.8) | (2.8) | | | 51.0 | (37.0) | 14.0 | | | 51.0 | (50.9) | 0.1 | | Included in other comprehensive income | – | 23.3 | 23.3 | | | – | 416.9 | 416.9 | | | – | (74.2) | (74.2) | | | (518.0) | – | (518.0) | | | (518.0) | 366.0 | (152.0) | | Other | 1.0 | – | 1.0 | | | (65.5) | 65.5 | – | | | (64.5) | 65.5 | 1.0 | | | 1,389.5 | (1,022.9) | 366.6 | # **10.4 Pension scheme contributions and costs** Charges/(credits) recognised: | | 2023 £m | | --- | --- | | | 11.1 | | | 2.8 | | | 13.9 | | | (51.0) | | | 37.0 | | | (14.0) | | | 2023 £m | | | (467.0) | Employer financed retirement benefit ('EFRB') pension costs 556 plc Annual Report 2023 323 ### Notes to the Company financial statements continued ### For the year ended 31 March 2023 ### 11. Financial instruments For financial reporting purposes, the Company has classified derivative financial instruments as financing derivatives. 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. Non-hedge accounted contracts are treated as held for trading. The derivative financial assets and liabilities are represented as follows: 2023 2022 £m £m Derivative Assets Non-current 48.2 64.6 Current 167.1 112.0 Total derivative assets 215.3 176.6 Derivative Liabilities Non-current (79.2) (301.1) Current (13.5) (70.6) Total derivative liabilities (92.7) (371.7) Net asset/(liability) 122.6 (195.1) Information on the Group’s Financial risk management and the fair value of financial instruments is available at A6 and A7 . ### 12. Commitments and contingencies Guarantees, indemnities and other contingent liabilities SSE plc has provided guarantees on behalf of subsidiary, joint venture and associated undertakings as follows: 2023 2022 SSE on behalf of | SSE on behalf of | | | joint operations | | SSE on behalf of | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | subsidiary | | and ventures | | | 3 rd parties | | Total | Total | | | | £m | | £m | | | £m | £m | £m | Bank borrowing 452.9 – – 452.9 604.6 Performance of contracts 2,451.9 1 ,247.7 139.4 3,839.0 4,640.7 Subsidiaries have provided guarantees on behalf of the Company as follows: 2023 2022 £m £m Bank borrowing 811.6 1,286.5 During the year a £705m guarantee provided in relation to the Seagreen Offshore Wind Farm Projects; £330m of guarantees in relation to the Keadby 2 project; and a guarantee in respect of a £300m loan facility all expired. The Company provided new guarantees in the year of £411m. £250m has been guaranteed on behalf of Saltend Cogeneration Company Limited a joint arrangement acquired as part of Triton Power 50% equity accounted joint venture. The Company provided unlimited guarantees on behalf of subsidiary undertakings in relation to ten contracts in respect of performance of work and any liabilities arising. Two unlimited guarantees are provided on behalf of SSE Renewables Developments (UK) Limited, a wholly owned subsidiary of the Company, both in favour of Total Gas and Power Infrastructure Limited in respect of a Share Purchase Agreement and payment obligations for Seagreen Wind Energy Limited. SSE Services plc, a wholly owned subsidiary of the Company, has provided a guarantee to Group Trustee Independent Trustees in respect of Southern Electric Group of the Electricity Supply Pension Scheme in respect of funding required by the Scheme. On behalf of Scottish Hydro Electric Transmission plc, SSE plc has provided a guarantee to ABB Limited in connection with the use of HVDC Replica Control Panels for Caithness-Moray Project. On behalf of SSE Contracting Limited (which was disposed on 30 June 2021), SSE plc continues to provide a guarantee to Tay Street Lighting (Leeds) Limited, Tay Valley Lighting (Newcastle & North Tayside) Limited and Tay Valley Lighting (Stroke on Trent) Limited in respect of provision and maintenance of public street lighting and illuminated traffic signage. Furthermore, on behalf of SSE E&P (UK) Limited, previously a wholly owned subsidiary of the Company, now owned by a third party, SSE plc has provided the following 3 guarantees: a guarantee to Hess Limited in respect of decommissioning liabilities, a guarantee to Britoil Limited and Arco British Limited in respect of the acquisition of the Sean Field and also a guarantee to Perenco UK Limited in respect of a Sale and Purchase Agreement for the Minerva, Apollo and Mercury Fields. Where the Company enters into financial guarantee contracts to guarantee indebtedness of the other companies within its Group, the Company considers these to be insurance arrangements, and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make payment under the guarantee. The Company is continuing to assess the impact of the adoption of IFRS 17 to this treatment, which will be effective from 1 April 2023. 324 SSE plc Annual Report 2023 ### 13. Provisions | Charged in the year | – | – | – | | --- | --- | --- | --- | | Decrease in decommissioning provision | (50.5) | – | (50.5) | | Unwind of discount | 6.7 | – | 6.7 | | Released during the year | – | (38.3) | (38.3) | | Utilised during the year | (4.2) | (38.8) | (43.0) | | At 31 March 2023 | 201.4 | 0.4 | 201.8 | | At 31 March 2023 | | | | | Non-current | 196.5 | – | 196.5 | | Current | 4.9 | 0.4 | 5.3 | | | 201.4 | 0.4 | 201.8 | #### Decommissioning provision #### Legal and restructuring provisions 558 plc Annual Report 2023 325 # Independent auditor's report to the members of SSE plc Opinion Basis for opinion Independence Conclusions relating to going concern 326 SSE plc Annual Report 2023 Our key observations Going concern conclusion Overview of our audit approach Audit scope Key audit matters Materiality An overview of the scope of the parent company and group audits Tailoring the scope SSE plc Annual Report 2023 327 ### Independent auditor’s report to the members of SSE plc continued ### An overview of the scope of the parent company and group audits continued Tailoring the scope continued The reporting components where audit procedures were performed accounted for 95% (2022: 98%) of the Group’s adjusted profit before tax, 95% (2022: 96%) of the Group’s Revenue and 94% (2022: 93%) of the Group’s Total assets. For the current year, the full scope components contributed 82% (2022: 78%) of the Group’s adjusted profit before tax, 94% (2022: 94%) of the Group’s Revenue and 48% (2022: 77%) of the Group’s Total assets. The specific scope component contributed 13% (2022: 20%) of the Group’s adjusted profit before tax, 1% (2022: 2%) of the Group’s Revenue and 46% (2022: 16%) 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 jointly controlled entities, due to significant balances held within each location. Of the remaining 182 (2022: 114) components that together represent 9% (2022: 2%) of the Group’s adjusted profit before tax, none are individually greater than 1% (2022: 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. ADJUSTED PROFIT BEFORE TAX REVENUE TOTAL ASSETS | 82% Full scope components | 94% Full scope components | 48% Full scope components | | --- | --- | --- | | 13% Specific scope components | 1% Specific scope components | 46% Specific scope components | | 5% Other procedures | 5% Other procedures | 6% Other procedures | Changes from the prior year There have been minimal changes in scoping from the prior year, other than scoping in the acquisition of Triton (allocated as a full scope component). 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, by component auditors from other EY global network firms operating under our instruction, or by third party auditors where we issued instructions. 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 21 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 was the first year where a non-EY auditor was involved in a specific scope component, following the acquisition of Triton. We issued instructions, held regular calls with them and attended an on site file review and closing meeting. Other than the Irish Airtricity and Triton 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. Management meetings were held in person and remotely throughout the year across both the UK and Ireland. Annie also visited the non-EY component auditors of Triton. The division and non-EY component visits involved discussion of audit approach, attending planning and closing meetings (some of which were held virtually), meeting with local management and reviewing relevant audit working papers on risk areas. The primary team interacted regularly with the component teams where appropriate during various stages of the audit, reviewed relevant working papers and were responsible for the scope and direction of the audit process. This, together with the additional procedures performed at Group level, gave us appropriate evidence for our opinion on the Group financial statements. Climate change The financial statement and audit risks related to climate change and the energy transition remain an area of audit focus in FY23. There continues to be increasing interest from stakeholders as to how climate change will impact SSE plc. The energy sector has a critical role to play in decarbonisation, by removing carbon from electricity which in turn will support other sectors. SSE operates principally within the UK and Ireland and both are seeking to achieve net zero across their economies by 2050. 328 SSE plc Annual Report 2023 page 40 page 39 pages 68 to 69 pages 42 to 45 pages 42 to 45 pages 42 to 45 pages 42 to 45 558 plc Annual Report 2023 329 ### Independent auditor’s report to the members of SSE plc continued ### Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters. Key observations communicated | Risk Our response to the risk | | to the Audit Committee | | --- | --- | --- | | Impairment or reversal of | Scoping: | We confirmed that the | | impairment of certain power | Testing was performed over this risk area, covering both | impairment reversal of £17.8m | | stations & gas storage assets | full and specific scope components (covering seven | recognised by management for | | (Impairment reversal 2023: £63.5m, | components), which represented 100% of the risk amount. | Great Island and £45.7m for Gas | | Impairment reversal 2022: £428.9m) | | Storage assets (Aldbrough) was | | | All audit work in relation to this key audit matter was | appropriate and was driven | | Refer to the Audit Committee Report | undertaken by the component audit teams, with oversight | predominately by increased | | (page 155 ); Accounting policies – | from the group audit team. | market driven demand and | | significant judgements (page 212 ); | | price assumptions and was | | and note 15.2 of the Consolidated | We obtained management’s assessment of potential | correctly recorded in the | | Financial Statements (page 253 ) | impairment indicators in accordance with IAS 36 for | current period. | powerplants and for gas storage assets. | Forecast based estimate: | | We communicated that the | | --- | --- | --- | | Certain power stations and gas storage | Audit procedures included: | pricing assumptions applied | | assets are at risk of impairment or | We have understood management’s process and | were appropriate. We concluded | | impairment reversal. This is due to a | methodology for assessing assets for indicators of | that, while the discount rates | | number of global and national factors | impairment, including indicators of reversal and, where | used were above the top end | | reducing or increasing their value in | applicable, we have understood management’s modelling | of EY accepted range, any | | use or fair value less costs of disposal, | of value in use cash flows including the source of the key | adjustment to bring in line with | | triggering an impairment assessment. | input assumptions. | EY independent range would | | Our risk focussed on the following | | only increase the headroom | | assets: Great Island, Peterhead, Keadby, | We checked the historical accuracy of management’s | (previous impairments have | | Keadby 2, Medway, Marchwood and | forecasting and verified that the assumptions are consistent | already fully reversed). The other | | Tarbert power plants and Aldbrough | with those used in other areas such as fixed asset useful life | assumptions were in line with EY | | and Atwick gas storage assets. | and decommissioning provision. | assessment of expected future | price movements. The key assumptions include future We considered prior period impairments for indication of power prices, price volatility, mean reversal. This involved considering indicators of reversal, We also noted that we are reversion rate, forecast power focussed on demand, load factors and prices. satisfied with the adequacy demand, carbon prices, load factors, of disclosure within the group discount rate, useful economic life We involved three EY specialists in our assessment: a financial statements including and operating expenditure. specialist with energy industry experience; a discount rate climate related disclosures. specialist and a specialist with experience of assessing The estimated recoverable amount forward energy prices. Using our sector experience and our is subjective due to the inherent specialists, we assessed any unusual or unexpected trends uncertainty involved in forecasting identified within the cashflows year on year and assessed and discounting future cash flows the impact on the overall forecasted position. as a result of the above factors. We considered incremental repairs and committed In the current year the risk is against capital expenditure on commenced projects and obtained both impairment and impairment management’s assessment of the technical feasibility of reversals. 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 considered load factors relative to the UK Governments as yet unlegislated target of no unabated gas post 2030 and reviewed impact on carrying values included within the disclosures should this legislation arise. 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. 330 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report Key observations communicated Risk Our response to the risk to the Audit Committee Key assumptions: Using our sector experience and our specialists we benchmarked to industry sources, where appropriate, the directors’ judgement on the key assumptions including, future power prices, power volatility, forecast power demand, carbon prices, load factors, discount rate, useful economic life and operating expenditure. 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. | Group and parent pension | Scoping: | We conclude that | | --- | --- | --- | | obligation (2023: £541.1m, | We performed audit procedures over this risk area centrally | management’s actuarial | | 2022: £584.9m) | by the group team, which covered 100% of the risk amount. | assumptions are appropriate | | | Our procedures included: | and sit in the centre of our | | Refer to the Audit Committee Report | | independently determined | | (page 155 ); Accounting policies – | Assessing management process: | range. We are satisfied with the | | significant judgements (page 212 ); | We have understood management’s process and | adequacy of disclosure within | | and note 23 of the group financial | methodology for calculating the pension liability for each | the financial statements. | | statements (page 269 ) | scheme, including discussions with management’s external | | actuaries, walkthrough of the processes, understanding the Subjective valuation: key inputs and the design and implementation of key controls. Small changes in the assumptions and We performed a fully substantive audit approach rather than estimates used to value the group and testing the operating effectiveness of key controls. parent company pension obligations (before deducting scheme assets) For the SEPS scheme we checked the member data used would have a significant effect on in the triennial valuation for consistency with that of the the carrying value of those pension IAS 19 valuation and understood the difference in basis obligations. for key assumptions which we found to be in line with our expectations. The effect of these matters is that, as part of our risk assessment, we Assessing management experts: determined that the group and parent We have assessed the independence, objectivity and company’s pension obligation has a competence of the group’s external actuaries, which high degree of estimation uncertainty, included understanding of the scope of services being with a potential range of reasonable provided and considering the appropriateness of the outcomes greater than our materiality qualifications of the external actuary. for the financial statements as a whole. Assessing source data: Additional focus in FY23 has been We tested a sample of the membership data used by the given to the results of the SEPS pension actuaries to the group’s records. We performed an additional triennial valuation completed in 2023. sample for source data used for the SEPS triennial valuation to ensure consistency of source data used. The principal assumptions considered include rate of increase in pensionable Benchmarking assumptions: salaries and pension payments, With the support of our pension actuarial specialists, we discount rate and mortality rates. assessed the appropriateness of the assumptions adopted by the directors by comparing them to the expectations of There has been no change in this risk our pension actuarial specialists which they derived from from the prior year, however additional broader market data. procedures have been performed to consider the results of the triennial Disclosure: valuation for SEPS. 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. 331SSE plc Annual Report 2023 ### Independent auditor’s report to the members of SSE plc continued ### Key audit matters continued Key observations communicated | Risk Our response to the risk | | to the Audit Committee | | --- | --- | --- | | Accounting for estimated revenue | Scope: | In performing our procedures | | recognition & EBRS other income | This balance relates to one component, Business Energy. | we independently calculated | | | Testing was performed covering 100% of the unbilled and | an estimated range for accrued | | Unbilled energy income (2023: | EBRS balances in GB Business Energy which accounts | income of £130m-£144m | | £666.1m, 2022: £492.7m) and | for 58% of the unbilled balance and 52% of the other | with SSE’s position being | | GB EBRS claims 2023: £326.7m, | prepayments and accrued income balance at 31 March 2023. | within the top end of our | | 2022: £nil) | Unbilled energy income in Airtricity and EBRS in Northern | acceptable range. | Ireland was not included in the scope of this KAM due to | Refer to the Audit Committee Report | reduced estimation complexity and materiality respectively. | We independently assessed | | --- | --- | --- | | (page 155 ); Accounting policies – | | an EBRS reasonable range | | significant judgements (page 212 ); | All audit work in relation to this key audit matter was | of accrued income of | | and note 18 of the group financial | undertaken by the component audit teams with oversight | £123m-£150m, with SSE’s | | statements (page 259 ) | from the group audit team. | estimate being within the top | end of our acceptable range. | Subjective estimate: | Audit methodology: | | | --- | --- | --- | | 58% of the unbilled revenue (excluding | Our response to the assessed risk included understanding | Overall, through procedures | | EBRS) is recognised within the | the process for estimating unbilled revenue, testing selected | performed over accrued | | Business Energy division and is based | IT general and application key controls, substantive audit | revenue within the Business | | on estimates of values and volumes of | procedures and revenue data analytics. | Energy business, we are | | electricity and gas supplied between | | satisfied that the accrued | | last meter date and year end date. | Tests of detail: | revenue recognised by | | | We agreed the opening unbilled accrued income to the | management in relation to | | The method of estimating such | closing 31 March 2022 balance sheet. | unbilled revenue and accrued | | revenues is complex, judgemental and | | government grant EBRS income | | significant for UK business customers. | We agreed the volume data for customer usage of energy | is appropriate. | | Estimation complexity has increased | in the year used in the calculation to external settlement | | | in the year as a result of emerging | systems and agreed the volume data in relation to customer | | | consumption patterns, volumes of | billings for the year to SSE’s internal billing systems to assess | | | tariff changes and interplay with EBRS. | for consistency and to understand remaining estimation risk. | | The key estimates and assumptions are in relation to: We have tested the unbilled unit pricing by agreeing 1. the volumes of electricity and gas historical pricing to sample bills, sensitising the pricing to supplied to the customers between understand the impact of different pricing assumptions, the meter reading and year-end; tested a sample of billing dates from the listing to confirm 2. the value attributed to those billing frequency and agreeing to post year end billing prices. volumes in the range of tariffs; and 3. embedded impairment risk over the We have understood and tested the historical accuracy of unbilled revenue. management’s forecasting of unbilled revenue by comparing estimates to final billed and settlement amounts. As a result of the estimation uncertainty this has been identified as a significant We considered contra indicators to management’s risk. assumptions by assessing the impact of macro-economic conditions on demand and consumption volatility and Change to this risk from the benchmarked assumptions in the underlying unbilled prior year: calculations to external publications from the industry. The administration of the Government backed support scheme, EBRS, within Specifically to EBRS: the GB Business Energy Division, has We validated the eligibility criteria of meters claimed and increased the complexity and level of tested a sample of customers tariffs to source documents. estimation uncertainty of the unbilled | calculation. We have refined the KAM to | We sample tested volume data to supporting evidence and | | --- | --- | | include the unbilled portion of the GB | agreed claim amounts to submissions and subsequent | | EBRS claim which is £326.7m, recorded | settled cash receipts. | as other prepayments and accrued income at 31 March 2023. The income Using a custom-built analytics tool we recalculated the assessment is derived from the same discount applicable under the scheme rules on a meter level underlying source data and models as and applied that to volumes and claims submitted to date. the unbilled judgement. 332 SSE plc Annual Report 2023 Analytical Review: Specifically to the EBRS projected claim: Disclosure: Our application of materiality Materiality ![img-10.jpeg](img-10.jpeg) SSE plc Annual Report 2023 333 ## Independent auditor's report to the members of SSE plc **Materiality** Performance materiality Reporting threshold Other information pages 1 to 109 and 110 to 191 pages 1 to 191 Opinions on other matters prescribed by the Companies Act 2006 Matters on which we are required to report by exception 334 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### 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 91 ; • 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 71 ; • Director’s statement on whether it has a reasonable expectation that the group will be able to continue in operation and meet its liabilities set out on page 191 ; • Directors’ statement on fair, balanced and understandable set out on page 154 ; • Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 68 and 158 ; • The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 158 ; and; • The section describing the work of the audit committee set out on page 150 . ### Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 191 , 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. ### 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 confirmed our understanding with the Internal Head of Regulation. • 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. 335SSE plc Annual Report 2023 ### 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 continued 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 4 years, covering the years ending 31 March 2020 to 31 March 2023. • 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 23 May 2023 336 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### Consolidated segmental statement ### For the year ended 31 March 2023 ### SSE consolidated segmental statement for the year ended 31 March 2023 Electricity | | | Aggregate | | | Aggregate | | | --- | --- | --- | --- | --- | --- | --- | | | Electricity Generation | | supply | Gas supply | | | | | | Generation | | | | Supply | | Year ended 31 March 2023 Unit | | business | | | businessThermal Renewable Non-domestic Non-domestic | | Total revenue £m 5,087.8 1,228.5 6,316.3 3,624.7 469.2 4,093.9 Sales of electricity and gas £m 4,510.9 1,113.6 5,624.5 2,981.8 391.1 3,372.9 Other revenue £m 576.9 114.9 691.8 642.9 78.1 721.0 Total operating costs £m 3,992.5 482.3 4,474.8 3,664.9 406.1 4,071.0 Direct fuel costs £m 2,693.4 – 2,693.4 2,486.9 314.4 2,801.3 Transportation costs £m 150.2 136.9 287.1 520.1 43.2 563.3 Environmental and social obligation costs £m 559.1 – 559.1 441.5 0.7 442.2 Other direct costs £m 438.1 64.7 502.8 10.3 1.9 12.2 Indirect costs £m 151.7 280.7 432.4 206.1 45.9 252.0 EBITDA £m 1,095.3 746.2 1,841.5 (40.2) 63.1 22.9 Depreciation and amortisation £m 125.2 189.7 314.9 4.2 0.8 5.0 EBIT £m 970.1 556.5 1,526.6 (44.4) 62.3 17.9 Volume TWh/ 15.6 9.7 25.3 12.1 200.3 212.4 mTherms WACOF/E/G £/MWh/p/th 208.9 – 205.4 157.0 Customer numbers ‘000s 382.8 68.9 451.7 ### 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. On 25 November 2022 the Group sold a 25.0% non-controlling interest in this business to the Ontario Teachers’ Pension Plan. Distribution SSEN The economically regulated lower voltage distribution of electricity to customer premises in the Distribution North of Scotland and the South of England. 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 (covered by CSS) and run of river and pumped storage hydro assets in the UK and Ireland, the development of similar wind assets in Japan and Southern Europe and the development of wind, solar and battery opportunities. Revenue from physical generation of electricity in Great Britain is sold to SSE EPM and in Ireland is sold to Airtricity and 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 in Great Britain or REFIT in Ireland) 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 (covered by CSS) the UK and Ireland. Revenue from physical generation of electricity in Great Britain and Ireland is sold to SSE EPM and 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 Great Britain, 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. 337SSE plc Annual Report 2023 ### Consolidated segmental statement continued ### For the year ended 31 March 2023 ### Basis of preparation and disclosure notes continued Business area Reported segments Description Energy Business Energy The supply of electricity gas to business customers in Great Britain. Revenue earned from the Customers (covered by CSS) supply of energy is recognised in line with the volume delivered to the customer, based on actual Solutions and 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. EPM & I Energy Portfolio The provision of a route to market for the Group’s Renewable and Thermal generation businesses Management and commodity procurement for the Group’s energy supply businesses in line with the Group’s (EPM) stated hedging policies. Revenue from physical sales of electricity, gas and other commodities produced by SSE is 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. The Group’s reportable operating segments for ‘Renewables’, ‘Thermal’ 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’ 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 Renewables, Thermal 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 2023. The CSS has been prepared on a going concern basis as set out in note A6.3  of SSE plc’s Annual Report. ### 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’ 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 0.2m 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, 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 160  of SSE Annual Report for the year ended 31 March 2023. 338 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### 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 a 1 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, Greater Gabbard Offshore Winds Limited and Seagreen Wind Energy Limited. 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 fueled generation. Thermal as presented in the CSS includes revenue and operating profit for wholly owned thermal generation assets and also a proportion 2 of turnover and operating profit in respect of joint ventures . The principal joint ventures included are Seabank Power Limited, Marchwood Power Limited and Triton Power Holdings Limited (acquired 1 September 2022). A full list can be found in note A3  of SSE’s audited financial statements. The Thermal 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. Other Revenue – includes ancillary services, capacity income, balancing market participation and other miscellaneous income. Direct Fuel Costs – Thermal 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. 2 The tolling arrangements that SSE has with its joint venture Marchwood Power Limited provide SSE with contractual entitlement to 100% of the output of the power station. Accordingly, SSE has reported its rights to those volumes within its Thermal statistics and has also, as mandated by Ofgem, included 50% of the JV revenue in the CSS. 339SSE plc Annual Report 2023 ### Consolidated segmental statement continued ### For the year ended 31 March 2023 ### Thermal Electricity Generation continued 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. ### 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. Also included in ‘Other revenue’ is £0.7bn recognised from the Energy Bill Relief Government Scheme which commenced in October 2022 to support non-domestic customers. 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 2023. 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. ### 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. 340 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### 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 in Business function Note Generation Supply CSS Operates and maintains generation assets 3 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 3 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 3 Holds unhedged positions (either short or long) 3 3 3 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) 3 3 Matches own generation with own supply 6 3 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 3 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 3 Key: 3 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, 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 13.1TWh and the total UK Generation output was 23.0TWh (57%). 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. 341SSE plc Annual Report 2023 # **Consolidated segmental statement** **For the year ended 31 March 2023** # **Reconciliation of CSS to SSE Financial Statements 2022/23** | Business Energy | | | | --- | --- | --- | | Total Business Energy in SSE Financial Statements | 3,372.9 | 17.9 | | Generation Business | | | | Renewables | | | | Total Renewables in SSE Financial Statements | 937.5 | 580.0 | | Thermal | | | | Total Thermal in SSE Financial Statements | 4,604.2 | 1,031.9 | Notes # **Adjustments to reported profit before tax** 342 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### Independent auditor’s report to the Consolidated Segmental Statement ### Opinion We have audited the Consolidated Segmental Statement financial statements of SSE plc (the Company) for the year ended 31 March 2023, 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 Licenses. In our opinion, the accompanying CSS of the Company for the year ended 31 March 2023 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 Licenses and the basis of preparation on pages 337 to 341 . ### 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 CSS 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 CSS 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 2024. 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 337 to 341  of the CSS, which describes 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 14 April 2023, 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 CSS 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 the CSS that is 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. 343SSE plc Annual Report 2023 ### Independent auditor’s report to the Consolidated Segmental Statement continued ### Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the CSS as a whole is 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 the CSS. ### 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 to the CSS is consideration of any 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 CSS 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 prosperity 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: enquiries of legal counsel, Group management, internal audit, and focused testing. In addition, we completed procedures to conclude on the compliance of the disclosures in the CSS with all applicable requirements. A further description of our responsibilities for the audit of the CSS 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 23 May 2023 344 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### 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. | | --- | --- | --- | | Central Square | • Change address details and dividend payment instructions. | | | 29 Wellington Street | • View share price histories and trading graphs of listed | | | Leeds | | companies. | LS1 4DL ### E-communications programme Telephone: 0345 143 4005 You can also choose to go a step further and sign-up to SSE’s Email: SSE@linkgroup.co.uk eCommunication programme which allows you to receive notification of the availability of new shareholder documentation. ### Financial calendar Simply register on our shareholder portal www.sse-shares.com . Publication of Annual Report 16 June 2023 You will require your Investor Code (IVC), which can be found on any recent shareholder communications from SSE. Q1 Trading Statement 20 July 2023 AGM 20 July 2023 Where delivery of an email fails, we will attempt to contact Ex-dividend date for final dividend 27 July 2023 you by post to update your details. Keep us informed of changes to your email address through our shareholder portal Record date for final dividend 28 July 2023 www.sse-shares.com . Final date for Scrip elections 24 August 2023 ### Dividends Payment date 21 September 2023 The Company typically pays dividends twice yearly. Interim Notification of Close Period by 4 October 2023 dividends are paid in March, and final dividends are paid in for six months to 30 September September once approved by shareholders at the AGM. With Results for six months to 30 September 15 November 2023 significant focus on payment methods for dividends in recent years, in terms of efficiency, cost and security, SSE plc made the decision that from September 2019, it would no longer be ### Website paying dividends by cheque. All dividends are now credited to a SSE maintains its website, www.sse.com , to provide ease shareholder’s nominated UK bank/building society account. If you of shareholder access to information about the Company and haven’t already registered your UK bank/building society account its performance. It includes a dedicated Investors section where details with Link Registrar or would like to amend the details on you can find electronic copies of Company reports and further your account, you can do this by: information about shareholder services including: • logging in to the dedicated Shareholder Portal at • share price information; www.sse-shares.com ; or • dividend history and trading graphs; • calling Link on 0345 143 4005* and speaking to one of • the Scrip dividend scheme; the team. • telephone and internet share dealing; and • downloadable shareholder forms. If you do not have a UK bank or building society account, your dividends can be paid directly into a bank account outside of ### Digital news the UK using the International Payment service. Please visit SSE uses a dedicated news and views website (available at https://ww2.linkgroup.eu/ips  for further information. www.sse.com/news-and-views ) and Twitter (www.twitter.com/ sse ) to keep shareholders, investors, journalists, employees and ### Scrip dividend other interested parties up-to-date with news from the Company. Alternatively, shareholders may want to join the Scrip dividend scheme and receive future dividends in the form of additional ### Sustainable communications new shares. Further details of the Scrip dividend scheme can be SSE’s sustainable communications strategy aims to reduce found at https://www.sse.com/investors/shareholder-services/ the volume of paper being used in its communications with dividends-and-scrip-scheme . You should still complete a bank shareholders and other stakeholders. Shareholders are able to mandate to enable future dividend payments should you ever access a wide range of shareholder documentation, including withdraw from the Scrip scheme. Annual Reports, the Notice of Annual General Meeting and useful forms through the Investors section of SSE’s website, ### Share dealing www.sse.com/investors . We encourage shareholders to Share dealing services are available from Link Share Dealing Services. accept electronic formats as the default method for accessing shareholder documentation and dividend information. ### Telephone dealing For information on the telephone dealing service call All new shareholders are automatically registered as opting to 0371 664 0445 access shareholder documentation through the ‘Investors’ area Lines are open Monday-Friday, 8.00am – 4.30pm of our website. These shareholders receive a notification, by Please have your Investor Code (IVC) ready. 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. 345SSE plc Annual Report 2023 ### 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 totaling 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/ 346 SSE plc Annual Report 2023 Financial StatementsStrategic Report Directors’ Report ### Glossary | AIP | Annual Incentive Plan, a short-term salary incentive plan that all personal contract employees are eligible for | | --- | --- | | APM | Alternative Performance Measures used to track financial performance | | ASTI | Ofgem’s Accelerated Strategic Transmission Investment framework | | CAGR | Combined Annual Growth Rate | | CCGT | Combined Cycle Gas Turbine | | CCS | Carbon capture and storage | | CfD | Contract for Difference | | COP27 | The 27th Conference of Parties climate summit held in Egypt in November 2022 | | DNO | Distribution Network Operator | | DSO | Distribution System Operator | | EBITDA | Earnings before interest, taxes, depreciation, and amortisation | | EBRS | The UK Government’s Energy Bill Relief Scheme | | EGL | The UK Government’s Energy Generator Levy | | EPS | Earnings Per Share | | EV | Electric Vehicle | | FID | Final Investment Decision | | FFO | Funds From Operations | | GHG | Greenhouse gas, used in relation to GHG emissions | | GW | Gigawatt | | HVDC | High Voltage Direct Current | | HVO | Hydrotreated Vegetable Oil, a fossil-free alternative to diesel | | IEA | International Energy Agency | | IRA | The US Government’s $250bn Inflation Reduction Act | | kV | Kilovolt | | MW | Megawatt | | Net zero | Cutting greenhouse gas emissions to a level that is equal to or less than the emissions removed from the | environment NZAP SSE’s Net Zero Acceleration Programme, updated in May 2023 to ‘NZAP Plus’ OCGT Open-cycle Gas Turbine ORESS Ireland’s Offshore Renewable Energy Support Scheme PSP Performance Share Plan, the Executive Directors’ long-term incentive plan PSR Priority Services Register RAV Regulated Asset Value as applies to SSE’s networks businesses RCF Retained Cash Flow REFIT Renewable Energy Feed-in Tariffs REMA The UK Government’s Review of Electricity Market Arrangements RIIO The ‘Revenue = Incentives + Innovation + Outputs’ regulatory framework by which SSE’s networks businesses are remunerated Scope 1, 2 and 3 Scope 1 and 2 are those emissions that are owned or controlled by SSE. Scope 3 emissions are from sources not emissions directly owned or controlled by SSE Spark spread The difference between the price received by SSE for electricity produced and the cost of the natural gas needed to produce that electricity TCFD Task Force on Climate-related Financial Disclosures Totex Total expenditure TWh Terawatt-hour VaR Value at Risk WACC Weighted Average Cost of Capital 347SSE plc Annual Report 2023 ### Notes 348 SSE plc Annual Report 2023 ® 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 2023 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