National Grid and SSE dividends under threat
UK energy networks have long been a haven for investors looking to make steady returns on their investment, but in the wake of consumer-focused regulatory changes shareholders could see dividends slashed.
Last week the UK energy regulator OFGEM slashed allowed returns for several network companies including National Grid and SSE.
The regulator’s proposal will significantly reduce the amount payable to shareholders, with the current 7%-8% currently permissible reduced to between 4%-5.6% over the next five years starting from 2021.
Energy networks make ‘eye-watering’ profit margins
Two years ago, the consumer group Citizens Advice claimed that energy networks in the UK were benefitting from ‘eye-watering’ profit margins of nearly 20% at the expense of consumers.
‘Energy networks have been able to overcharge customers by £7.5 billion under the current price control,’ Citizens Advice CEO Gillian Guy said.
‘The regulator will face intense industry pressure to water down these measures in the coming months.
‘It must hold its nerve and deliver a price control which is good value for consumers,’ she added.
However, many energy companies like National Grid and SSE contend that costs to consumers have fallen significantly since privatisation with power outages reduced by 60% as the result of major network investment.
Labour renationalisation threat applies pressure on UK energy sector
OFGEM’s crackdown will put significant pressure on companies operating in the sector at a time when calls for renationalising UK energy networks are growing louder.
Energy networks ague that the myriad of headwinds the sector is having to deal with will hurt its chances of meeting decarbonisation targets by 2050 and invest in the country’s energy infrastructure.
Citizens Advice, however, argues that there is ‘no evidence introducing fairer prices for customers will risk lower levels of investment in decarbonisation and electric vehicles’.
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